Rice traders liberated, at last!

In March 2019, the rice tariffication law (RTL) removed quantitative restrictions (QRs) on rice imports and allowed traders to import unlimited volumes at any time. The RTL exceeded Philippine commitments to the World Trade Organization (WTO) by removing almost all regulatory and trading functions of the National Food Authority (NFA) and limiting it to buffer stocking.

Following WTO rules, rice QRs were replaced by tariffs. The RTL also created the Rice Competitiveness Enhancement Fund (RCEF) amounting to P10 billion annually for six years, to improve the competitiveness of rice farmers.

Proponents predicted that the RTL would significantly lower rice prices, tame inflation, and moderate malnutrition and poverty. While acknowledging that farmers would initially get hurt, they promised substantial benefits to consumers.

However, in-depth analysis reveals the RTL’s serious shortcomings in its first implementation year. Farmers suffered drastic losses that far surpassed gains for consumers. A few traders cornered huge profits at the expense of millions of farmers, millers, and other market players who were swamped by cheap, undervalued imports. The country became the world’s top rice importer.

Comparing palay prices in the RTL’s first year to prices in the preceding 12-month-period, farmers’ losses totaled P80 billion due to depressed farmgate prices. Average annual incomes declined by 21 percent or by P17,355 per hectare per cropping season.

Prices having been abnormal in 2018, which was hit by a rice crisis, another calculation was done using March 2017-February 2018 as reference period. Only farmers’ marketable surplus, equivalent to 83 percent of output, was considered. And still, palay farmers suffered sizable losses of P40 billion.

The arrival of 2 million tons during the first seven months of the RTL raised national stocks to 42 percent over historical levels by September 2019. The supply glut coincided with the main harvest in October and November, forcing traders to either suspend operations or buy palay from farmers at deeply discounted prices. Palay prices dropped precipitously from P22.04 per kilo in September 2018 to P14.40 by October 2019.

For consumers, during the RTL’s first year, retail prices fell by a weighted average of P3.90 per kilo. Consumers saved some P38.6 billion. However, this gain paled in comparison with the P80 billion that farmers lost.

A separate analysis was done by comparing prices during the RTL’s initial year to prices in March 2017-February 2018, a noncrisis period with normal prices. The rice equivalent of palay output that farmers did not sell commercially was excluded. Results indicate that some 108 million consumers were better off by only P232 million. In effect, each rice-consuming Filipino saved a measly P2 after one year of the RTL.

Retail prices hardly moved from their levels in 2017-18. Average well-milled rice (WMR) prices were higher by only P0.03 per kilo; regular-milled rice (RMR) prices were lower by P0.05 — a far cry from past assurances that prices would drop by P7-10 and that some imported rice would even sell below the NFA-subsidized price of P27. Interestingly, most of the drop in retail prices from the September 2018 peak actually occurred before the RTL took effect in March 2019.

Why did rice prices not drop as predicted? Firstly, the RTL proponents based their forecasts on export prices of surplus rice which did not reflect real conditions in retail markets. Second, the NFA’s P27 rice disappeared from retail markets after the RTL curbed the agency’s functions.

Thirdly, 85 percent of imports were of the 5-percent brokens type — a superior grade that was sold at a higher price and gave a better profit margin as against the cheaper RMR with 25-percent brokens that the NFA used to import for poor consumers. Fourthly, although wholesale prices did go down due to imports, traders shared only half of the decrease with consumers and saved the other half for themselves, resulting in a windfall profit of P42.6 billion. They were the real winners.

The RTL is not working well, plus new problems have emerged that necessitate changes. Reforms should include: more proactive use of trade remedies under WTO and local laws, stricter oversight on rice industry players, preventing undervaluation of imports, making the RCEF more responsive to farmers’ needs, strengthening farmers’ participation in rice programs, and restoring some of the NFA’s functions. A more nuanced and strategic approach to rice trade liberalization also needs to be put in place.

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Raul Montemayor is the national manager of the Federation of Free Farmers. This commentary incorporates comments and contributions from Dr. Rene Ofreneo, Dr. Ted Mendoza, and Hazel Tanchuling, and is endorsed by the Nagkakaisang Grupo Laban sa RTL.