MANILA, Philippines—The administration of President Gloria Macapagal-Arroyo is “asking for trouble” if it will go along with the proposal of the National Food Authority (NFA) to increase the price of the rice it sells to the public, Sen. Aquilino Pimentel Jr. warned Thursday. “Raising prices now would have a double effect: raise the profits of rice traders and make it difficult for the people to afford it,” Pimentel said. “Hunger knows no law.”

That warning may not be necessary. With the prices of commercial rice varieties soaring to unprecedented highs and with the queues at NFA outlets getting longer, there is nothing the administration would like better than to maintain present prices and expand the NFA’s reach in selling the staple. The last thing an administration beleaguered by political scandals and suffering from very low approval ratings would want to do is to multiply the number of hungry people, who could turn into angry mobs rioting in the streets as has been happening in some countries where food supplies have run low and prices have risen sky-high. At this time that panic seems to be starting to set in, it would be foolish to even suggest raising prices as NFA officials have done. Speaker Prospero Nograles, a close ally of President Arroyo, said in reaction to the NFA proposal, “I don’t think this is a wise idea, when the people are sweating under the scorching heat of the sun, lining just for two kilos of rice.”

But for how long can the government keep the price of rice at its present level? The NFA now buys “palay” [rice before milling] at P17 a kilogram. That should translate to a selling price of P34 a kilo for milled rice, NFA officials say, meaning that the government agency loses P15.75 for every kilo it sells at P18.25. In the case of imported rice, the subsidy is about P10 per kilo based on a purchase price of $700 per ton. Under these terms and at its current level of buying and selling, it has been estimated that the NFA would lose close to P50 billion a year. Where will the government get that kind of money? How will it reallocate such a huge sum from the budget without sacrificing its infrastructure construction program and its goal of cutting the deficit and balancing the budget in 2010?

In theory, the NFA exists to help moderate prices while also providing support to farmers by guaranteeing a good price for their produce. It has not had much success in doing either of these things. More so now when world food prices, including that of rice, have been shooting up and reaching record highs. While the NFA has maintained its selling price at P18.25 a kilo, this has not held back traders from pricing commercial rice at more than P30 a kilo, with some fancy varieties going for as much as P60. Neither is it going to be of much help in encouraging farmers to plant more by making them earn more since traders are the ones who are making a killing in the tight supply situation that we have now. For instance, in some parts of Leyte province where the harvest is in full swing, rice buyers peg the price at P520 per sack of 43 kilos. That is about P5 less than the NFA support price of P17 per kilo, but the NFA can buy only so much of the harvest, if any.

The reason is simple: The NFA is a small player in the business. It will remain so unless the government infuses it with really huge sums of money that will allow it to control, say, 10 percent of the market. And those are amounts the government obviously cannot afford.

Besides, there is a growing consensus that price subsidies don’t work. A price subsidy, like what the NFA is giving now, benefits both the poor and the non-poor. The more effective way to alleviate poverty and hunger is to help the poor and hungry by directly giving them food or money. If the government must absolutely subsidize anything, it should not be consumption but production.

Somewhere down the road, the NFA will have to go. But not yet and not now. And even as the government moves to avert a rice shortage and keep it affordable, it should now commit itself to achieving rice self-sufficiency at the earliest possible.