Rice: Lessons not learned

Moves to amend Republic Act No. 11203 or the rice tariffication law (RTL) of 2019 illustrate the “no free lunch” principle quite aptly. Politicians promise us that the amendments will bring down domestic rice prices by up to P30 per kilo. Is that possible? Well, yes. But it would mean putting money in our right pocket by taking it out of our left pocket. It’s we taxpayers who will end up paying more so that we rice eaters will pay less. And this subsidy would be done in a roundabout way with high administrative costs, and quite likely, leakages into wrong pockets—so in the end, we will take out from our left pocket more than what we get in our right pocket. In short, though not obvious to most, we ultimately pay even more for the “cheaper” rice!

Note, too, that studies have always shown our overall tax system to be regressive. Translation: it puts a heavier burden on the poor, who pay a higher percentage of their incomes in taxes than the rich (because most of the taxes we all pay are indirect taxes on goods and services we buy). That means it’s also the poor who the rice subsidy will hurt more. In the end, no one gets better off (and many get worse off)—except proponents who may win more votes by making people believe they did them a favor. Sadly, in the reality of Philippine politics and governance, that’s enough motivation for policymakers to support patently bad policies—and this has been the story of our laggard nation over decades.

The key amendment being pushed is to let the National Food Authority (NFA) trade in rice again, a function the RTL removed precisely because of the distortions and malpractices that it bred and perpetuated for decades. When I first joined government as an assistant secretary at the National Economic and Development Authority in 1990, NFA figured prominently in many meetings I attended. It was the second top contributor to the persistently huge public sector deficit at the time, next to the oil price stabilization fund that oil industry deregulation later abolished. This left NFA as the top drain on public coffers, with the agency’s debt running into triple digits of billion pesos; it was P158 billion by the time the RTL was enacted.

RTL turned the situation around. From one where rice, through NFA, was a sinkhole for taxpayer money, it raised tens of billions of pesos in revenues from import tariff collections on rice imports no longer done using taxpayer money, but rightly with the money of importers. These revenues are allocated to help rice farmers boost their productivity to lower costs, and in due time, prices. Before RTL, NFA would buy rice at high prices to help rice farmers and sell at low prices to help poor rice consumers. But buying high and selling low makes no business sense and amounts to commercial suicide, so we taxpayers were always the default recourse to pay for its persistent losses. And that means all of us, including those who may not even eat rice at all! Under RTL, instead of perennially losing money on NFA’s rice trading, the new policy regime even raised substantial funds we could genuinely help farmers with.

Proponents of the amendment want us to reverse all that. They want NFA to engage in rice trading again and compete with private importers in a lopsided playing field where NFA imports rice duty-free (government can’t tax itself) while the rest pay a hefty 35-percent tariff. Knowing they can’t afford to match NFA’s duty-free prices and subsidized logistics, sensible importers won’t bother and stay away from directly importing rice (unless they work illicitly with NFA to do so—and this is what historically bred the rice cartels we all love to hate). That would force a situation where all rice imports would have to be done all over again by NFA, whose historically faulty judgment on when and how much to import led us to where we were before RTL. The distortions and malpractices NFA’s monopoly created are what ultimately led Filipinos to pay two to three times what our Southeast Asian neighbors pay for their rice.

What needs fixing is not the RTL, but the implementation of the rice competitiveness enhancement fund (RCEF) that its import tariff collections made possible. The Asian Development Bank funded a midterm evaluation of the RCEF last year, which found that use of the fund for the four major purposes provided in the law—seeds, mechanization, credit, and training/extension—has been problematic. Farm machines couldn’t be procured due to bureaucratic bottlenecks, and some of those procured “aren’t suitable to local conditions”; credit’s overall reach to rice farmers was “low and skewed to specific regions” and “small-holder farmers are being ruled out”; farmers were being trained repeatedly instead of more farmers being trained; and many more. Let’s not bark at the wrong tree.

The fix needed is not in Congress.

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cielito.habito@gmail.com