The NFA reverts back to the Office of the Secretary of Agriculture. Through the years, administrative control of the NFA has shifted between the Offices of the President and the Secretary of Agriculture. However since 2016, President Duterte unprecedentedly appointed Cabinet Secretary Evasco to chair the NFA Council. Well, he just lost that position.
A mere transfer of the agency back to the Office of the President or to the Office of the Secretary of Agriculture from the Cabinet Secretary’s Office is a palliative cure to rising rice prices and corruption in the NFA.
Let us track the movements of the NFA Ping-Pong ball starting in 2010.
Just barely warmed his Presidential chair, then president Benigno S. C. Aquino III fumed over the waste of rice and money after the Arroyo administration over-imported rice in 2008, which rotted at NFA warehouses.
He figured that private individuals must have profited substantially from the huge importation when rice prices in the world were highest.
President Aquino assigned then Agriculture Secretary Alcala, in whom he had full confidence, to supervise the NFA. That was a move from the Office of the President to the Office of the Secretary of Agriculture.
In 2013, Secretary Alcala caused rice prices to increase. He reduced rice imports in an effort to meet his rice self-sufficiency goal.
Aquino’s confidence in Alcala was apparently shaken, because he took back the NFA from the DA. He could have asked Alcala to step down, but apparently could not and did not. He instead split the management of the DA and its attached agencies between Alcala and then presidential assistant Pangilinan.
In June 2016, NFA supervision transferred again this to time to the Office of Cabinet Secretary Evasco. Evasco had a running spat with NFA Administrator Jason Aquino over the volume, timing, and modality of rice imports.
In early 2017, rice prices went up due to low NFA stocks. The NFA Council, which Evasco chairs, sought President Duterte’s approval for NFA to import rice under a G2P arrangement. Administrator Aquino disagreed. He wanted NFA to import the rice (a G2G) instead of the private sector. Evasco prevailed over Administrator Aquino.
That quarrel had boiled once again, this time rice prices are up in the first quarter of this year due to low NFA stocks.
Low NFA stocks make rice consumers vulnerable to price manipulation by private traders.
Even if we have adequate rice supply in the country due to a good harvest, rice prices may go up, however, if the NFA stocks are down. Why?
By making NFA an import monopoly, we have inadvertently made the local rice market, in the language of economists oligopolistic, a competition between the few large rice traders, and the NFA.
The NFA is designed to check the price manipulation by a few large traders, selling the lowest price rice in the market. If the NFA had the appropriate inventory, private traders cannot bid up rice prices. If it does not, the rice consumers are vulnerable to rice spikes.
rice NFA
The two NFA officials know this, but they disagreed once again on the modality of importation. Secretary Evasco and the NFA Council decided it should be government to private (G2P). Administrator Aquino is for G2G.
The G2P procurement is beneficial to the country. The government does not need to finance the import.
Under a G2G, the NFA has to borrow money commercial to finance its rice imports. The arrangement, which does not require competitive bidding, is vulnerable to corruption.
There is money from importing rice. Local rice prices are higher than world prices. Whoever controls the NFA gets the profit from rice imports.
In 1998, former president Estrada placed the NFA under the Office of the President, away from the Secretary of Agriculture. According to customs officials at that time, individuals close to the then President allegedly showed up at customs, and claimed they brokered for the NFA.
That was a milestone in the rice industry.
Until then, the NFA earned profit from its rice import monopoly, which it used to offset its loss from “buying high and selling low” rice, and its operational inefficiencies.
NFA’s finances took a turn for the worse since that time. With reduced income, NFA started to rely more on corporate borrowing, increasing its commercial debt.
The corruption at that time may not have been as large as in 2008. The larger cost of it was that it emboldened others. Before long, technical rice smuggling started and continues to be a major problem until now.
The Arroyo government was no help. The biggest loss of the NFA occurred in a single year occurred in 2008 under president Arroyo’s watch. The NFA imported a year’s worth of rice imports of over 2 million tons in the first 5 months of that year. Thailand had to even advise the Philippines to stop importing because world rice prices had shot through the roof.
In my view, the NFA management was not that incompetent as to defy the law of demand.
Ironically, former president Arroyo had the opportunity to fix the financial problems of the NFA.
At the start of her administration, the government had an agreement with the Asian Development Bank, which former president Estrada approved, to carry out rice productivity investments and policy reforms.
The reforms were designed to keep rice prices affordable and stable, and saved taxpayer money. Former president Arroyo cancelled the program in 2002.
The changes in NFA leadership through the years are symptomatic of a very old institution. The NFA is not a Hagdang Bato, a triple crown winner in horse racing. The NFA had its peak years and had ably defended our interests. Mr. President it does not need a new hinete; it needs to retire.
I agree with Speaker Alvarez who said we must abolish the NFA and replace it with a modern food security agency: one that is not milked by corrupt officials; one that does not give us another National Power Corporation; one that puts rice smuggling and the rice cartel out of business; one that effectively defends the interests of the poor rice consumers; one that genuinely raises farm incomes; in short, one that is more responsive to the food security needs of the country in the 21st century.
Ramon L. Clarete is a professor at the University of the Philippines School of Economics.