We reach a critical point in rice tariffication

We are ending the last quarter of the year, which is our main harvest season and when palay prices are seasonally at their lowest. Farm prices had fallen at an unprecedented rate since the 1970s during this quarter. Surely, the combined effects of the harvest season and rice import liberalization have caused the decline of palay prices and farm incomes. Have they bottomed out, or are they still falling even now in the major rice producing areas?

If I follow their movement within a given year, rice and palay prices should start climbing up again until they reach their seasonal high in the third quarter of the following year. But I realize the rice import liberalization would leave an important impact on this pattern. Their levels are lower compared to previous years for both rice and palay prices, reflecting the import liberalization and the clipping of the regulatory powers of the NFA.

But it is also possible that the traditional seasonal pattern of rice and palay prices may change for good. The seasonality of palay prices may no longer be as pronounced as when we have the rice QR in the form of the NFA’s monopoly in rice imports. The rises of prices within the year are smoothened by the rice imports that come in. The plunges during the harvest season like what we just had may no longer be as deep because perhaps domestic rice production had been substantially replaced with rice imports.

In the past, we stabilized the penetration of rice imports at about 10 % of local consumption. Secretaries of Agriculture of the past had tried to even suppress the figure with their respective versions of rice self-sufficiency programs. But in the end since doing so would just raise rice prices, hurting our rice consumers, we ended up living with this extent of import penetration.

With the RTL, any of us are free to go into the rice import business. And when rice prices start to go up because of the seasons, some of us may decide to import and derive some income, tapering off the seasonal climb of prices. And if they do so, then increasingly our local rice prices would be tied more closely with the world’s, except for the 35% tariff rate or occasional special safeguard duty that the Secretary of Agriculture may impose following our Safeguards law.

The import penetration of rice in our domestic market would start to rise to levels that remain to be seen. My own reading is that it could go up to 20%, and stabilize there. Or it may stay at 10% depending on how successful we are in our programs designed to increase the productivity of our rice farmers, the increase in rice consumption induced by cheaper rice, or both.

These developments would impact stakeholders differently. Because rice prices would be more stable and lower, rice consumers where ever they are would benefit. And yes, many of our rice farmers, perhaps the bottom 60% of them, who hardly have marketable rice surpluses, and would purchase rice most time in a given year, would benefit too from this regime.

Lower and stable rice prices are among the major benefits of the rice tariffication law. With this reform, the government had weakened the cord between rice prices and inflation. Food costs would tend to be low, which in turn would boost government’s effort to fight poverty in our country.

The rice farmers, whose businesses are primarily tied to the level of palay prices, would be worse off. Those of them who are more productive may survive the ensuing stronger competition with imports. But the rest, or those who had survived in the past because farm prices were raised by the rice import QR precisely to make them stay in rice farming, would tend to be displaced. It should be pointed out that they benefit from lower rice prices as consumers, but they have to find other sources of incomes to replace the income from rice farming, which in the first place was something they could not depend strongly on because their farms are small and their yields low.

The rice millers and rice traders/creditors are similarly situated as the rice farmers. In the past under the rice QR, all these stakeholders are assured of a decent return to their business because of higher rice prices. As a matter of fact, most of the price premium that rice consumers pay because of the import QR, are captured by them. One study by Jandoc and Roumasset in 2017 estimated that only about a fourth of that premium goes to rice farmers. The rest are allocated to millers, traders/creditors, and simply logistics waste.

Like rice farmers, there are millers and traders who may just have survived in the past because of the price premium due to import controls. But with that reduced by import liberalization, and seasonal rise of rice prices that they stock up rice for, dampened, some of them may have to leave the rice milling and trading businesses.

This appears to be the cruel part of the reform: some of us would have to reinvent their businesses, or if they can’t for a long period of time, the poor farmers plunge deeper into poverty. The richer traders and millers may be more likely to succeed and start a new business, or be content with lower earnings from their respective trading and milling businesses.

But this is one lesson we need to hang on: Going back to the past is not the solution. The past is a slow plunge into poverty for our rice farmers, and for most of our poor particularly in urban areas, who are spending at least a fifth of their family spending on rice. The past has larger cost for most of us to pay.

We are this crossroad! We could sustain the benefit of RTL in the form of stable and lower food cost, and get all rice-related businesses more productive, and higher incomes for producers. Or we could have the first benefit, and see more poverty in the countryside.

Is there something we can do to make this reform inclusive?

We are off to a good start with the RTL. Our lawmakers set aside the revenues from rice tariffication for programs to make this reform inclusive. That’s by the way is the easier part of the work.

But this is the challenge. Another lesson we may learn from the past is that increased budget is important but by themselves do not deliver the higher productivity in rice farming, milling and trading. Increasing them even more would still fail to do so.

We had ACEF before and AFMA, which are funds designed to make our farmers in general, and rice farmers in particular more productive. But since we started giving out these higher budgets to the DA, since we became a member of the WTO in 1995, we still are hearing the same concern that farmers are not ready for more import competition. So monies are not the critical inputs to making our agriculture more productive.

The RTL has its own version of a funding program to make our rice farmers more productive and competitive, and earning higher incomes. This is RCEP, which is at least ten billion pesos a year, sourced from the tariff revenues on imported rice. Consumers pay for that, but are still better off because of the lower rice prices that RTL entails.

Our lawmakers allocated the fund to farm mechanization, better technology in the form of seeds, improved extension services, and credit access. If the fund exceeds 10 billion, the additional money, the government can use that for farm diversification and conditional cash transfers.

Is there something that we need to do now, so we do not replicate the failed programs in the past? I don’t know, and I want to learn as we move forward.

Yesterday, I was with a small group of friends and two farmers from BARM and Isabela to discuss about the options of our country to make a good difference this time for the sake of our farmers, particularly those who are likely to be displaced because of the reform.

We all agreed that the RTL is wanting of good ideas how to translate RCEP into higher productivity and higher incomes of our farmers and those in the rice-related businesses. The onus is on DA Secretary Dar. He came to the DA at this precise moment that he could potentially make the difference that was not there in the past.

Our discussion among friends and two farmers pointed out the need of a good summing up of the strategies we had pursued in past designed in the name of farmers. We need to validate what went wrong and how we can move on.

The two farmers who were with us yesterday belonged to groups of farmers whose members are ready to collectively take up the challenge of stiffer competition. They appear optimistic, but knowledgeable that there are a lot of challenges that we have to hurdle. There may be more pockets in the farming community, like the groups that our two farmers represent. We need to identify more of them, so we can support them. I should say they may be the future of our rice farming in our country; organized, more productive, with access to markets and inputs, etc. and more importantly applying the technology including mechanization correctly to a wider area of rice farms.

Our group also recognized that Secretary Dar is going into an organization at both the national and local levels where governance and integrity maybe weak. The strong pressure to spend the money is tempting enough to take the road more travelled in the past by other Secretaries: just spend the money for what the law has directed them to do, and worry about results later.

There are many things we need to know about this process. But one thing is clear. The benefits of this reform can be much, much higher if we can make a good difference in translating RCEP into real gains of those this reform appears to have excluded.

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