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Misplaced fears on rice QRs

/ 12:28 AM October 21, 2016

Will lifting quantitative restrictions (QRs) on rice imports next year, as required of us by the World Trade Organization (WTO), deal a fatal blow to Filipino rice farmers, as is feared by some? Is seeking yet another extension (the fourth in the course of the last 21 years) in the best interests of the country?

Last August, the economic cluster of the Duterte Cabinet decided not to seek this fourth extension from the WTO, and instead do what many believe we should have done long ago: get government out of the business of rice importation and trading. Dissenters, including the Department of Agriculture (DA), are painting a dire picture of domestic rice prices plummeting to levels that would drive rice farmers out of their livelihoods. But will removing rice QRs necessarily bring about a dramatic drop in the domestic rice price?

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Actually, no. The idea behind the age-old recommendation to remove rice QRs (hence the National Food Authority’s control over rice importation) is not to let imported rice enter the country duty-free. We can convert the existing import quota into an equivalent tariff rate (i.e., “tariffy” the QR) that will ensure that domestic rice prices would not change. (We could even conceivably impose a tariff duty that would make prices go up!) The WTO frowns on QRs because of the discretion it gives governments, which are never a good judge of market supply and demand conditions, and invariably foul things up and create serious distortions ultimately harmful to the people. Import tariffs are preferred because they are transparent on the protection given local producers.

How can we avoid a dramatic drop in domestic rice prices that is feared to threaten rice farmers’ livelihoods? With imported rice now costing about half of what it takes to produce rice domestically, lifting the QR but imposing a 100-percent import tariff will keep domestic prices unchanged. This assumes that we do not tolerate large-scale rice smuggling—i.e., allow rice importers to get away with not paying import duties. But stopping rice smuggling is a given that the government must do whether we maintain QRs via the NFA’s control over imports, or adopt the “tariffied” system where private importers may import the commodity subject to the equivalent tariff. The clear advantage of the latter is that the government earns substantial revenues from the tariff on rice imports, instead of pouring taxpayer money on a losing government institution that the NFA has been through the years (with debt reportedly running up to P167 billion).

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The real question before us is: Do we want domestic rice prices to stay where they are? Do we want rice to be twice more costly than it needs to be, for the benefit of 2.4 million rice farmers, but to the detriment of 102 million rice consumers? Most of our estimated 2.4 million rice farmers are indeed poor, and most certainly deserve help. But there are 10 times as many poor Filipinos who are not rice farmers, and whose numbers could be significantly reduced if only they could buy the food staple at prices closer to what Thai and Vietnamese consumers do. Ironically, our fixation on 100-percent self-sufficiency in rice has led to large numbers of food-insecure Filipinos and alarming rates of malnutrition and stunting (33.5 percent) among young Filipino children, who are condemned to irreparable lifelong damage in brain and physical development.

Our longer-term goal must be to narrow and eventually eliminate this price gap, by achieving higher productivity in Philippine rice farms. In our historical experience, such productivity improvement only finally happened in other industries when trade was opened up, as trade protection invariably bred complacency. I’m confident that “tariffying” our rice QRs, then phasing down the tariff through time would push the government to finally do things right, until our production costs approach those of our neighbors. If we can achieve that, and still be able to produce all the rice we need, it would be ideal.

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TAGS: agriculture, department of agriculture, farmers, QR, quantitative restrictions, rice, Rice imports, rice prices, World Trade Organization
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