Threat of tariffication to farmers is real

The commentary “Rice tariffication law still protects farmers” (Opinion, 4/6/19) by Chester Yacub contains a number of misconceptions and misleading statements that require clarification.

Yacub claims that Republic Act No. 11203 or the Rice Tariffication Act will still impede the inflow of rice imports because of the schedule of tariff rates that will be imposed on imported rice.

First of all, we must understand that tariffication was not intended to remove protection for local producers. The purpose of tariffication is simply to replace the protection provided through quantitative restrictions (QRs) on imports with protection through tariffs. Precisely, the World Trade Organization (WTO) rules provide that the tariffs should be set to a level that would provide protection equivalent to what was provided by QRs in the past.

Under the law, imports from the Association of Southeast Asian Nations (Asean) will be assessed a tariff of 35 percent based on the Asean Trade in Goods Agreement. For imports from outside the Asean, the tariffs will be 40 percent if they fall within the minimum access volume (MAV) of 350,000 metric tons, or at least 180 percent if they fall outside the MAV.

Yacub’s statement that the law sets the maximum volume of rice imports to the MAV is inaccurate. Tariffication, in fact, removes all restrictions on the volume of rice imports, so importers will be free to bring in as much rice from abroad as they like for as long as they pay the corresponding tariffs.

The 40-percent and 180-percent tariffs for imports from outside the Asean are virtually meaningless, because it would be more practical for traders to import from Asean countries and pay only 35-percent tariff. The only exception is if the particular type of rice they want to import is not available from Asean countries, although the volume involved here would probably be very small.

Also, imports from the Asean could easily eat up the MAV, such that any import from outside the Asean will then be subject to the prohibitively high 180-percent tariff.

Is the 35-percent tariff enough to protect farmers? A Philrice study in 2013 estimated that palay prices will have to settle at P17 per kilo in order to match the equivalent price of imported rice with a tariff of 35 percent. This is lower than the P20-23 per kilo that farmers enjoyed in the past two years for their palay harvests. Palay prices could go down further if the peso appreciates or international rice prices go down.

The Philrice study estimated that about 55 percent of rice farmers would be able to produce palay at P12 per kilo or lower, and therefore be able to retain a net income of at least P5 per kilo or more. The other 45 percent of rice farmers would have a net income of less than P5 per kilo; some of them, in fact, could end up with a loss.

What does a net income of P5 per kilo mean? Using the national average of 4,000 kilos output per hectare per season for irrigated farms in the country, a farmer with one hectare would end up with a daily income of only P111 per day. Even with a 2-hectare farm, a farmer’s income of P222 per day would still be way below the minimum wage for agricultural workers.

These estimates were made in 2013. Production costs have most probably increased since then, so it is very possible that more farmers are now more vulnerable to imports. So, we are not only talking about protecting farmers here from imports, but also ensuring that they survive and are able to properly feed and support their families.

It is true that the Philippines has the highest tariff rate for rice among Asean countries today. However, Yacub’s allusion to Singapore, Brunei, Cambodia and Thailand as having zero tariffs is misleading, because these countries either do not produce rice or are rice exporters, and therefore do not need to set their tariffs high to protect their farmers. Other countries in the Asean such as Indonesia and Malaysia may have very low tariffs on paper, but they have many disguised barriers to trade that effectively act as QRs. The counterpart of the National Food Authority (NFA) in Indonesia, the Bureau of Logistics for Food Distribution, for example, has a virtual monopoly over rice imports.

While the President is allowed under the tariffication law to adjust tariffs as Yacub points out, it must be clarified that the tariffs cannot exceed the so-called bound rates specified in the law. For example, he can only set tariffs lower than 35 percent for Asean imports, but cannot increase the tariffs beyond the 35-percent level. So, in fact, the law could be seen as a threat to farmers, because it will allow the President to set the tariff lower, but not higher, than 35 percent.

WTO rules do allow for a special safeguard measure that could be imposed on top of the 35-percent bound rate, but only up to the end of each year, and only if the volume of imports exceeds historical levels or import prices fall below a defined level. The experience of most countries in the WTO shows that special safeguard measures have very limited use and effectiveness, which is why they have been clamoring for a more effective measure in the ongoing Doha round of negotiations.

Yacub claims that the requirement for sanitary and phytosanitary (SPS) clearances for imports could be used to restrict imports. It should be stated that SPS clearances for rice imports were already required even when the QRs were still in place. What the law simply did was to transfer the responsibility for issuing the SPS clearances from the NFA to the Bureau of Plant Industries (BPI). The law, in fact, made it easier for importers to secure these clearances; the BPI is given only seven days upon submission of complete documents to act on an SPS application, otherwise the application will be deemed approved. The law also removed the need for importers to register with the NFA and to secure import licenses, as was the practice in the past. So it has become much easier under the new law to import than before.

In summary, Yacub is wrong when he says that farmers should not be worried about tariffication. Even before the tariffication law was signed and the implementing rules and regulations (IRRs) finalized, palay prices had already dropped to between P12 and P17 per kilo in many parts of the country. Imports are expected to increase, and palay prices may drop even further now that the IRRs have been signed and importers will soon be able to bring in rice in unlimited volumes, without need of licenses and permits, and even when farmers are harvesting.

The threats of tariffication and liberalization are real, and the government must not waste time in helping farmers cope and adjust before things get out of hand.

Raul Montemayor is president of the Federation of Free Farmers Cooperatives; vice president of the International Federation of Agricultural Producers; and chair of the International Trade Committee of the Philippine Council of Agriculture and Fisheries.