Shun the shotgun

A “happy compromise,” the President calls the idea of reimposing, albeit “temporarily,” import controls on rice. But as I explain below, such move promises to be anything but happy, including for rice farmers themselves. To restore a policy aimed at the welfare of a few (rice farmers in this case) but inflicting collateral damage on far greater numbers of poor rice consumers (which include rice farmers, too) is to return to using a shotgun to hit a specific problem that is better shot with a focused rifle.

What prompts the President’s idea and persistent calls for review or even recall of the rice tariffication law is the drop in average farm gate prices of palay to P17.87 per kilo from last year’s P21.61, as reported by the Philippine Statistics Authority (PSA). Prices as low as P12 per kilo have been reported. The price drop is no surprise, both for milled rice at retail and unmilled rice (palay) at the farm gate, as this had always been the intended result of opening up rice trade to greater competition.

What concerns many is how palay farm gate prices have fallen disproportionately more than wholesale and retail prices of milled rice have. PSA data for mid-July report average wholesale and retail prices of well-milled rice of P39.08 and P42.88 per kilo, respectively, from last year’s P42.07 and P44.80. In percentage terms, they fell 7.1 percent (wholesale) and 4.3 percent (retail).

But farm prices had dropped by a much higher rate of 17.3 percent, suggesting that there’s something wrong in the system somewhere. The traditional rule of thumb is that the rice wholesale price is about twice the farm gate palay price. So if palay prices are down P3.74 per kilo since last year, the corresponding drop in the rice wholesale price should be around P7.48, not just P2.99 as observed. What is happening?

I asked Dr. Roehl Briones, expert agricultural economist from government think tank Philippine Institute of Development Studies, who has studied the rice market closely for decades. The P6.5 billion in rice import tariffs reportedly collected by the Bureau of Customs as of mid-July corresponds to about 1.5 million tons of rice imported this year so far. With the price of imported rice being far lower than domestic prices, retail prices should have fallen by much more than the approximate P2 drop seen since last year.

Briones estimates that the 17-percent drop in palay prices should correspond to a 26-percent drop in the rice wholesale price. As this hasn’t happened so far, the only feasible explanation is that substantial rice stocks are being stored somewhere, whereas traders, with those imports in mind, are holding off buying palay from farmers. Call it hoarding or strategic supply management, but this has so far kept consumers from realizing the full benefit of the liberalized rice trade regime. But with a little more patience, it should come, as storing rice is not costless and rice stocks cannot be held indefinitely. Briones expects that once the stored stocks are unleashed into the market, that’s when we would see rice retail prices drop more commensurately with the observed fall in palay prices.

Meanwhile, farmers are bearing the brunt of the situation, and their loss has been far greater than the consumers’ gain so far. This is why analysts who had pushed for rice tariffication had also recommended prompt assistance to affected rice farmers, even in the form of outright cash assistance. This is urgent and necessary, especially because production assistance funded by the Rice Competitiveness Enhancement Fund sourced from the rice import tariff proceeds will be slow in coming, given government’s traditional bureaucratic rigidities.

Under the circumstances, this is the focused “rifle” solution we need now. To go back to the shotgun cure of halting imports is not only illegal under the new law, but will do more harm than good. It will stop consumers, especially the poor ones, from reaping the delayed but forthcoming benefits of the reform; neither will it promptly translate into higher farm gate prices for palay. Worse, it would play into the hands of those hoarders whose very aim is to cash in when prices rise again.

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