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No Free Lunch

NFA need not be abolished

Time and again, and for various reasons, calls have been made for the abolition of the National Food Authority (NFA). Recently, Secretary to the Cabinet Leoncio Evasco Jr. was reported to have indicated that he would propose the NFA’s abolition to President Duterte. Citing the NFA’s P167-billion debt, Evasco said he would advise Mr. Duterte to either abolish the agency or convert it to a regulatory body that would not be involved in the rice industry or interfere in the market. Finance Secretary Carlos Dominguez III subsequently spoke of splitting the NFA to separate its conflicting regulatory and commercial functions. “We believe that the government should only perform regulatory and not commercial functions, and therefore dispose of by sale or close down commercial operations” of the NFA, Dominguez said. Such conflicting mandates are all too common in our government, of which I have already written about (see “Conflicted,” 2/26/13).

President Ferdinand Marcos created the NFA, then under the name National Grains Authority, via one of his first martial law decrees in September 1972. Its avowed mission was to promote the integrated growth and development of the grains industry, especially but not limited to rice and corn. It merged the Rice and Corn Board and the Rice and Corn Administration (RCA), which had regulated rice and corn retail trade and distributed government low-priced rice especially during shortages that were not uncommon back then. I still remember having had to stand in a long line to buy a kilo of cheap RCA rice for my family during one such shortage, back in my grade school days in the 1960s.

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Marcos further widened the agency’s mandate to cover other food items like fresh fruits and vegetables and other food products in 1981, and gave it its present name. The NFA’s nongrains marketing activities were subsequently removed in 1985, with its most prominent (and most troublesome) role being its exclusive authority to import rice. The agency is now tasked with ensuring food security and stabilizing the supply and price of rice. Apart from importation, it engages in commercial functions that include procurement of palay (paddy) from farmers, buffer stocking, processing and marketing.

For decades, the NFA has consistently been among the largest drains on government finances, perennially incurring billions of pesos in debt that is ultimately shouldered by all of us taxpayers. When I first joined the government as assistant director-general of the National Economic and Development Authority in 1990, I found the NFA to be the subject of many meetings I had to attend. Back then, it was the second top contributor to the persistently large public sector deficit, next to the Oil Price Stabilization Fund that was subsequently abolished under oil deregulation. This left the NFA as the top drain on public coffers.

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In their own defense, its leaders argue that the NFA is an agency designed to lose money, by its very mandate of acquiring rice at high prices for the sake of rice farmers, and selling it at low prices for the sake of poor rice consumers. Business common sense holds that such a “buy high, sell low” operation amounts to commercial suicide. But for a government entity like the NFA, such a “suicidal” operation could be warranted if it achieves worthy social goals for the many billions of pesos borne by taxpayers to sustain it. Is the P167 billion that taxpayers must now pay for the NFA’s accumulated debt indeed justified by achievement of its social mission?

This avowed mission has been to protect the welfare of some 2.4 million rice farmers along with 102 million rice consumers in the country, through ample incomes for the former and low and stable prices for the latter. But, quite the contrary, after hundreds of billions of pesos spent over the years, 42 percent of rice farmers remained poor as of 2012, comprising nearly a third, and the largest group, of the country’s poor population—and the percentages had gone up in the past decade! At the same time, Filipino consumers now pay twice as much for rice as the Thai or Vietnamese peoples do. The gap between domestic rice price and the import price, seen in what economists call the nominal protection rate (NPR), has actually widened over time, implying a growing penalty on domestic rice consumers through the years. From negative NPR (meaning domestic prices were lower) in the 1970s, the penalty on Filipino rice consumers had progressively risen to 11 percent in the late 1980s, 25 percent in the 1990s, 87 percent in 2000, to about 100 percent now. (Note: References are available on request.)

To be fair, it’s not about the NFA alone, but about the government’s rice policy in general, aimed at self-sufficiency in the staple. This policy, in which NFA control over imports is the crucial linchpin, has led us to the present conundrum. Past studies have estimated that it has cost taxpayers P8 to deliver P1 of aid to our rice farmers and consumers. One may then well ask: Couldn’t we have just given those billions of pesos directly to needy rice farmers, while allowing rice consumers to pay much lower prices under more open trade in the commodity? Wouldn’t we all be much better off?

As for the NFA, it need not be abolished. It has been able to contribute toward more stable prices. But it has never been in any position to raise farmers’ incomes, much less keep prices low for consumers. Its most appropriate function, then, would be as a mechanism for ensuring ample buffer stocks for emergencies, in pursuit of its goal of stabilizing prices for consumers. But its commercial functions must go, which had only led to wider and wider distortions over time.

Others can do that much better.

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TAGS: Carlos Dominguez III, Leoncio Evasco Jr., National Food Authority, Rodrigo Duterte
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