Should we have meat import quotas after we tariffied the QR on rice?

Last week, BusinessWorld carried a report about a plan by Agriculture Secretary Piñol to limit meat imports due to high inventory of meats and meat products in cold-chain facilities in the country. In his words, he wants to broker a deal among meat importers and meat processors, on the one hand, and meat producers, on the other, for the amount of meat imports to be allowed into the country.

I did text a member of a family in the hog-raising business in General Santos City about this. She confirmed this concern, texting me that her family is worried about meat imports, and “the farmers there are suffering.”

I haven’t asked the opinion of owners of downstream businesses to the country’s piggeries or the chicken industry about the glut of meats in our country.

If his plan pushes through, Secretary Piñol has to lower the quantity of imported meat that he would permit into the country. He has three options he may consider taking in doing that. One, he imposes a quantitative restriction on meat imports to protect livestock raisers. Two, he may just reduce the minimum access volumes (MAV) of imported meats and meat products. Or three, he may use sanitary and phytosanitary permits, reminiscent of the abuse of SPS rules in the case of garlic imports a few years back.

There may be other measures, but in my opinion, those would likely be derivatives of any of the above three.

The agriculture tariffication act of 1996 poses a legal hurdle to either of the first two options. Section 6 of that law provided that “in lieu of quantitative restrictions, the maximum bound rates committed under the Uruguay Round Final Act shall be imposed on the agricultural products whose quantitative restrictions (QR) are repealed by this Act.” Meats and meat products are among the products covered by the 1996 tariffication law.

It is the policy of the state to use tariff and not quantity measures to protect local producers. In fact this year, we finished making good our treaty obligation in the WTO, when Congress passed the law to tariffy the QR on rice imports.

The tariffication act may offer him the legal rule he needs to reduce the meats’ MAV, but on closer scrutiny not. “In case of shortages or abnormal price increases in agricultural products, whose quantitative restrictions are lifted under this Act, the President may propose to Congress, revisions, modifications, or adjustments of the Minimum Access Volume (MAV)…”

The words are “revisions, modifications, or adjustments,” which changes could include reduction of the MAVs. However, the law requires that such changes are done in the context of a shortage or abnormal price increases of meats. These market situations require expanding rather than reducing the MAV.

However, an unvalidated information reached me about former agriculture secretary Alcala having offered higher meat MAV to get a principal supplier in meats in the world not to block the legal waiver which we applied for and obtained in 2014 from the WTO to extend our QR on rice imports for another 3 years.

If true, here’s a case of a distortion causing another! In the desire of the Aquino government to extend the rice QR, a distortion, it distorted the market of meats in the country. And that may have caused by now this glut that Secretary Piñol is talking about. Again, the information I received could be fake.

On the third option, Secretary Piñol cannot use sanitary and phytosanitary (SPS) measures to restrict meat imports. A few Bureau of Plant Industry (BPI) officials during the administration of former President Aquino reportedly slowed down the issuance of SPS permits allegedly to raise prices of garlic in the country. Isn’t there a case on this already in the Sandiganbayan?

SPS permits are issued when the conditions for them are met by the applicant. If the applicant meets the country’s health and sanitary standards of meats and meat products, the BPI has no choice but to approve the application. But reportedly the issuance of SPS permits for imported garlic slowed down at a time when local garlic harvest was bad, causing prices to go up by more than 300%. Senate Agriculture Committee Chairperson, Senator Villar conducted several hearings on the problem, and because of what she did, eyes are focused now on SPS regulators to prevent a similar abuse in other industries.

The WTO rules may be the least of Secretary Piñol’s concern. He announced his plan to issue quantity restrictions for imported meats, if in his judgment doing so serves the best interest of our agriculture sector.

WTO rules aside, let us talk about the cons and pros of restricting meat imports. I am for staying the course on liberalizing meat imports. The meat processing industry grew because of imported meats. They import meats because there is not just enough locally of the kinds of meats they need and at prices competitive with imported ones.

Livestock raisers may have another opinion, and they may be correct. But the rebuttal mirrors what they have been receiving from corn farmers. Corn is a key input to raising pigs and chicken. The raisers and feed millers have wanted to import corn, because in their words there is not enough corn in the country, or the corn price is higher than what they could get for in the world market.

Corn farmers shoot back saying there is enough corn in the country, but the transportation logistics is not good enough to make it available to the livestock raisers in the provinces surrounding Metro Manila.

Reduced meat imports hamper the growth of the meat processing industry. Besides meat processors, the hotels and restaurants depend on imported meats, and their businesses expansion thwarted.

Big hotels and restaurants can take care of their needs under a regime of reduced meat imports. But there are SMEs, who are likely to go under with reduced quotas of imported meats. I remember a friend of mine, Raymund Fabre, who was running a small restaurant as his other skill to his competence working in the development industry. It was ten years ago, when he invited me to his mobile diner in what used to be open spaces in the now uptown side of Bonifacio Global City. I am saying this not to remind Raymund to invite me again.

He told me his business started because of the WTO Agreement on Agriculture, which led the way to tariffying the meat import quotas. He can survive paying the tariff on his imported meat, but he cannot with a quota because of the uncertainty it brings to his business.

Introducing meat quotas comes from the same insular and discarded thinking that has pervaded our agriculture sector for decades. True, imported meat quota helps existing livestock growers by raising prices of livestock.

However, it takes the sector in the opposite direction of faster growth. Faster growing agriculture sectors in the rest of ASEAN 5 have significantly stronger farm trade capacity. Both their exports and imports of farm products are significantly higher.

Meat prices in the country should be in the neighborhood of landed cost of imported meats plus the tariff. If policy makers calibrate trade policy to make inefficient livestock raisers survive, i.e. those whose costs are unnecessarily high, whose technologies are out of date, or simply who can’t offer their products at internationally competitive prices, they raise prices of meats and make investments in downstream industries less viable. They end up quashing the job and business opportunities in meat-using industries.

Efficient members of the industry support trade protection, because not only does trade protection particularly by meat quotas give them extra profits, but also they shield them as well from intense competition from meat importers.

The growth of our agriculture sector has lagged behind the rest of the economy. Many have blamed extreme weather for that. Climate change cannot be discounted as one of the important factors, but trade protection can be another.

The farm industry’s lackluster growth may be traced to these: its inefficient members survive; the efficient ones are not compelled to be as competitive as their international competitors; and their market is thin, with prices that make the country’s downstream industries less viable.

Reduced imported meat quota can do that to the livestock, meats, and downstream meat industries. However, if the Secretary decides not to push with his plan, that would be a move forward.

Some in the development industry, and this includes me, need to reflect and act on the need to complete the reform process: help displaced farmers transition to other sources of incomes in the least time possible.

Without the real assistance, the trade policy reform leaves a scar in society’s fabric. After decades, the grievance fuels future leader to swing the policy reform cycle back to trade protection and slower growth.

Financial resources are needed to assist backyard livestock raisers who can’t survive the competition with imported meats find other sources of income. In theory this should not be as difficult, since there is positive net benefit of the reform effort.

Taxing the winners to compensate the losers from a policy reform is a centuries-old idea attributed to an economist by the name of Kaldor. We need to operationalize Kaldor’s idea, and refrain from paying lip service to inclusive trade liberalization.

But there is reason to be hopeful. In the recent rice tariffication law, consumers of rice are taxed at the rate of 35%, the revenues of which are to be used to make rice farmers competitive, including assisting farmers diversify into other industries. Consumers still get their rice price lower than in the previous regime of a QR in rice.

The law calls the fund, RCEF or rice competitiveness enhancement fund, which rings a sourly familiar tune, like the Agriculture Competitiveness Enhancement Fund or ACEF. This was the fund created by the 1996 agriculture tariffication act from the revenues of the tariffs on MAVs Policy makers have regarded ACEF as a complete failure. The farmers have not become competitive after several years of ACEF.

To prevent RCEF from becoming another ACEF, the rice industry needs a very good strategy of making efficient rice farmers become more competitive internationally through use of better technology, innovative organization of farm production to avail of scale economies, and displaced rice farmers helped to move to other industries in the farming sector or even in non-agricultural industries at the least time possible.

In the meantime, the Secretary may consider using agriculture safeguards for the problems in the meat industry. The safeguards law allows his office to raise the tariff on meat imports, if the volume of meat imports exceed the threshold quantity defined in our law by as much as a third of the current import tariff. This is consistent with our treaty obligations under the WTO. Each end of the year, the duty will have to be lifted, but can be imposed again in the following year or in any time of a year, whenever the condition for breaching the safeguards volume is met.

Ramon L. Clarete is a professor at the University of the Philippines School of Economics.