End the NFA monopoly!

The recent controversy about rice importation is not about how much should be imported — in fact, there is no impending rice shortage—but about who should have control over whatever may be imported.

No impending crisis. In “The global market post – 2008 rice crisis era,” Rice Today, April-June 2017, Samarendu Mohanty writes: “The 2007-08 rice price spike seems like a distant dream now considering the calmness in the rice market in the past few years despite El Niño and other weather-related scares. Rice prices in the international market have been very stable after a steep decline in 2013.  The record production in 2016-17 … has kept the prices stable.” The world rice inventory is 20 percent of total demand, which is a healthy 5 percent above what it was in the rice price crisis in 2007.

Dr. Mohanty heads the Social Science Division of the International Rice Research Institute (Irri).  He recently reported that Philippine rice stocks are sufficient for 46 days and, moreover, that annual rice consumption per Filipino has fallen by about 20 kilos in the past 10 years. Per capita consumption was below 100 kilograms in the 1960s-1990s, and then rose to over 140 kg by 2007, but is close to 120 kg now.

The government’s Rice and Corn Situation and Outlook expects production in the second quarter of 2017 to be 7.7 percent above that of the first quarter, which in turn was 15.2 percent above that of the first quarter in 2016.  Meanwhile, the average Philippine retail price of regular milled rice was 37.08 per kilo in the second week of April 2017, or only 1.0 percent over that at the same time last year.

“Rice from abroad is cheaper than domestically produced rice.”  This is bluntly stated by economists Roehlano M. Briones, Ivory Myka Galang, and Lovely Ann Tolin, of the Philippine Institute of Development Studies, in “Quantitative restrictions on rice imports: issues and alternatives,” PIDS Policy Notes, March 2017.

The production cost per kg of palay (rough rice) is only P6.53 in Vietnam, versus P12.41 in the Philippines.  The root cause is inadequate geography—the lack of wide, flat irrigated plains—coupled with a fast-growing population. In short, it does not make economic sense for the Philippines to aim for food security based on domestic production.

However, since time immemorial, the National Food Authority has had the sole legal authority to import rice. Unfortunately, you or I or any ordinary person may not simply place an order for rice from abroad. Its legal monopoly gives the NFA the leverage to exact huge favors/rents/bribes from those to whom it gives—more accurately, sells—licenses to import. This leverage is what the quarreling is actually about.

The simplest, and best, solution is to allow anyone to freely import (as well as export, when called for) rice of any amount, at his own expense and risk.  This is the stance of the community of professional Filipino economists, including the Foundation for Economic Freedom.

This column is somewhat ex cathedra since I’ve been a rice economist. I apprenticed at Irri, did my master’s on the response of rice farmers to price, and my doctorate on the diffusion of new rice varieties in Central Luzon.  I handled agricultural economics at the UP School of Economics, until Arsenio Balisacan took over. I worked with Rafael Salas, when he was Ferdinand Marcos’ “rice czar,” and also with the Rice and Corn Administration.

I once estimated that the annual retail price of a ganta of rice in Manila in 1956-67 fell by only 1.54 centavos for every extra 100,000 tons of imports, compared to 9.73 centavos for the same amount of production. The reason the price-impact of imports was so small? The market knew that rice was imported only during election years.  See “The effect of importation on the price of rice,” Philippine Review of Business and Economics, December 1968.

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