Post RTL: Rice can be profitable
This article is an update of a previous article published under MAP insights in BusinessWorld on Aug. 31, 2017. The objective is to provide new insights after the passage of the Rice Tariffication Law (RTL) in early 2019.
In 2015, the Philippine Rice Research Institute (PhilRice) and the International Rice Research Institute (IRRI), with funding support from the Department of Agriculture (DA), released a landmark six-country study of rice production in Asia.
The study was titled “Benchmarking the Philippine Rice Economy Relative to Major Rice-Producing Countries in Asia.” Comparative studies were done in sites representing irrigated and intensively cultivated areas in six countries: the Philippines, China, India, Indonesia, Thailand, and Vietnam.
The selected sites have similar climatic conditions: all are irrigated with at least two crops a year. Of the six countries, three are global exporters — India, Thailand, and Vietnam. Three are large importers — China, Indonesia, and the Philippines.
To summarize:
YIELD COMPARISON
The Philippines is third to last after Thailand and India in high-yield season (dry season crop in the Philippines). It is 34% lower than highest yielder Vietnam (5.68 tons/hectare (ha) vs. 8.56 tons/ha).
The Philippines is lowest in low-yield season (wet season in the Philippines). It is 39% lower than that of Vietnam (3.84 tons/ha vs. 6.33 tons/ha).
FARM COST COMPARISON
Yield affects unit farm costs. For the high-yield season, the Philippines recorded the third highest farm cost of P11.13 per kilogram (kg) compared to Vietnam’s P5.14/kg, Thailand’s P9.07/kg, and India’s P9.27/kg. In effect, the Philippines is uncompetitive with rice exporters
In the low-yield season, the Philippines’ cost is the second highest after Indonesia. It is, however, two times that of Vietnam, and 1.6 times higher than Thailand’s.
Nueva Ecija in Central Luzon is the “gold standard” when it comes to high-yield rice production. The study reports that the high cost of producing palay (unmilled rice) in Nueva Ecija is due to the high labor requirement in manual transplanting (25 man-days) and harvesting and threshing (21 man-days). Vietnam, by contrast, which has the lowest production cost, uses direct seeding (two man-days) and combine harvesters (two man-days) resulting in increased productivity and higher efficiency.
This labor differential of 42 man-days translates to a cost-disadvantage for the Philippines of about P13,000/ha per season, or P2.30 to P3.40/kg.
The study also noted higher milling efficiency in rice-exporting countries leading to fewer broken grains and higher milling recovery. This is due to rice varieties that have similar grain size.
Are there solutions in the horizon for irrigated rice in the Philippines? SL Agritech, a leading hybrid seeds provider, claims this is possible.
In Nueva Ecija, hybrid users average 8.5 tons/ha in the dry season and seven tons/ha in the wet season. Exception farmers make over 10 tons/ha. The farm cost with mechanization can be reduced to P50,000/ha. This means an average farm cost of P6/kg and P7/kg, respectively, making it cost-competitive with Vietnam and Thailand in the dry season and with Thailand in the wet season.
By 2022, the Philippines will have a small surplus of 200,000 tons. However, using a buffer stock of, say, 60 days, the total requirement would be around 2.1 million tons. Sufficiency will not be reached at those yield assumptions and per capita demand.
Since rice demand declines with higher incomes and hoping that government achieves its poverty target of 14% in 2022 from 21.6% in 2015, it is possible to achieve sufficiency at high yields and lower per capita demand of below 100 kg. The high yield assumes adequate supply of water and good irrigation efficiency. Strategically, there is a need to consider benefit-cost trade-offs of public investments in other crops for poverty reduction.
POST RICE TARIFFICATION LAW
The Rice Tariffication Law (RTL), with a budget of P10 billion per year, including P5 billion for farm mechanization, opens windows of opportunity.
But “new” paradigms must proliferate.
1. High impact farm mechanization is possible with farm consolidation, or better.
2. Value chain upgrading across the chain.
Competitive rice farming can learn from existing models.
Malaysia has the largest rice estate with 4,000 ha in Perak state. It is fully integrated, from land preparation to harvesting to milling. It is being operated for small farmers by FELCRA.
In the Philippines, there are three operating models:
1. Piddig, Ilocos Norte. A coop-based LGU-supported model with full range of interventions from soil analysis and irrigation schedule to optimize water use, full fertilization and mechanization, rice milling and marketing of 1,000 consolidated one-hectare farms
2. Alang Alang, Leyte. The Chenyi group of Rachel and Patrick Renucci, private investors. Through the Partnership program, Chen Yi organizes the farmers by providing low-interest loans in kind: fertilizers, pesticides, and one kind of high-yielding seed. Chen Yi also extends high-tech planting and harvesting equipment to all farmer members of the Partnership program, thereby increasing the quantity and the quality of their palay and better farm prices.
3. Nation-wide rice farms clustering by SL Agritech. It is promoting agri entrepreneurs who have track records of achieving high yields up to 10 to 15 tons per hectare.
Thus far, the average income for the models has surpassed poverty threshold of P120,000 per family of one hectare farms. And competitive at that.
Under RTL, can the Philippines expand the operating models and succeed?
What is the missing link? Integrated value chain-based management system. To do this one must engage:
1. LGUs in rice producing provinces. The LGUs should build a team of expert consultants. The LGUs lead in farm consolidation.
2. Investors to bring technical expertise and value chain familiarity. But to enter the area, the LGU must be in full support of farm consolidation.
Meanwhile, the Department of Agriculture’s Hybrid Rice Program will establish three pilot hybrid rice farm clusters in Regions 3, 6, and 11 where the government will extend subsidies amounting to P30 million. Each cluster will consist of 100 hectares, to be managed by farmers’ cooperatives to realize the agriculture department’s vision of turning planters into “agripreneurs.”
Farm consolidation is voluntary for small farmers. But the message is this: rice can be profitable and competitive when farms have economies of scale.
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines.
Rolando T. Dy is the Co-Vice-Chair of the MAP AgriBusiness Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.
