Tariffication to worsen dependence on imported rice

Photo by M. Salamat/Bulatlat

While not a guarantee to lower prices in the long run, opening up the rice sector to unbridled imports leaves the country’s rice security at the mercy of an unpredictable and increasingly unreliable world market. This happens as 95 percent of Philippine rice imports come from just two countries whose own domestic production is either slowing down or declining. Globally, rice production has been steadily decelerating in the past four decades.

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Part 1: Rice price hikes seen with tariffication bill

Part 3: Rice tariffication detrimental to NFA, consumers’

Part 4: Genuine agrarian reform, rice industry development as alternatives to tariffication

By ARNOLD PADILLA
Bulatlat.com

In the past two decades, imported rice accounted for an increasing portion of the Philippines’ domestic consumption. Prior to the 1995 birth of the World Trade Organization (WTO), our rice import dependency ratio (i.e., the extent of dependency on importation in relation to domestic consumption) only averaged 2.45 percent from 1990 to 1994. In the latest available 10-year average (i.e., 2006 to 2016), the ratio has risen to 11 percent.

Despite increasing dependence on cheaper imported rice, the retail price of rice has continued to increase. The average annual inflation rate for rice accelerated from 4.0 percent in 1996-2006 to 5.7 percent in 2006-2016. Apparently, more rice imports do not necessarily translate to lower retail prices. Yet, to tame rising rice prices and ease faster overall inflation, the Duterte administration’s answer is further liberalization of rice imports through the Rice Tariffication Bill (RTB). As of this writing, it is awaiting President’s Duterte’s signature.

The RTB will liberalize rice trade by removing the quantitative restriction (QR) on imported rice. This entails scrapping the current minimum access volume (MAV) which caps rice imports at 805,200 metric tons (MT) with a 35-percent in-quota (e.g. within MAV) tariff or tax on imported goods. Rice imports outside the MAV are slapped with a 40-percent tariff. Instead of a QR, a general tariff will be imposed.

Rice tariffication and liberalization is a Philippine commitment to the WTO but repeatedly postponed in the past due to the socially sensitive nature of rice as an agricultural commodity. The Duterte administration used the soaring price of rice to justify finally replacing the rice QR with tariff, selling the idea that the entry of more imports will bring down local prices. As of December 2018, the average retail price of regular well-milled rice was P45.40.

Economic managers claimed that tariffication could reduce the price of rice by as much as P4.31 per kilo and lessen inflation by at least one percentage point. Rice production in Thailand and Vietnam, the country’s main sources of rice imports, is pegged at P6.00 per kilo. In the Philippines, production cost is said to be double that amount.

While not a guarantee to lower prices in the long run, opening up the rice sector to unbridled imports leaves the country’s rice security at the mercy of an unpredictable and increasingly unreliable world market. This happens as 95 percent of Philippine rice imports come from just two countries whose own domestic production is either slowing down or declining. Globally, rice production has been steadily decelerating in the past four decades.

At the same time, the already precarious livelihood of up to 20 million Filipinos who rely on the rice sector, including some 2.5 million rice farmers, gets more insecure than ever.

Rice production in Vietnam (which accounts for almost 69 percent of Philippine rice imports on the average from 2010 to 2016) and Thailand (which comprises 26 percent) has been weakening in the past four decades. In Vietnam, rice (paddy) production decelerated from an annual growth of more than 5.0 percent in the 1980s and 1990s to 2.2 percent in the 2000s, and 1.6 percent this decade. Thailand’s rice production slowed down from a yearly growth of 3.0 percent in the 1980s to 2.1 percent in the 1990s, before recovering to 3.1 percent in the 2000s. But this decade, Thai rice production is actually contracting by 3.1 percent every year.

Other Southeast Asian countries that are also among the world’s major rice exporters (and potential Philippine suppliers) are experiencing production declines as well. Myanmar’s rice (paddy) production went down from an annual growth of 4.9 percent in the 2000s to a yearly contraction of 3.1 percent this decade. Cambodia is still posting a 3.8-percent growth since 2010, but it is twice slower than its annual expansion of 7.4 percent last decade.

Our own rice (paddy) production has decelerated to 1.2 percent this decade from a more than 3.0-percent annual expansion in the 1990s and 2000s and about 4.0 to 5.0 percent in the 1960s and 1970s. Worldwide, rice production has been continuously slowing since the 1980s when annual growth was pegged at 3.2 percent.

It is estimated that lifting the QR on rice will double the volume of the country’s rice imports in five years. For the already impoverished Filipino rice farmers, this means a sharp drop in income (some projections peg it at around 29 percent) as rice that are 100-percent cheaper to produce in Thailand and Vietnam due to heavy subsidies flood the domestic market.

Government allays fears of more bankruptcy among rice farmers through the proposed six-year Rice Competitiveness Enhancement Fund (Rice Fund) where all the duties collected from rice imports would be supposedly used to support small rice farmers. The Bangko Sentral ng Pilipinas estimates an additional P28 billion in annual revenues from rice tariffs that could be used to help prepare rice farmers for competition from imports through the Rice Fund.

But this was the same promise made to vegetable farmers and fisherfolk most affected by WTO tariffication in 1995 with the Agricultural Competitiveness Enhance Fund (Acef). Marred by corruption and mismanagement issues, the fund only ended up favoring agribusiness corporations as small farmers and fisherfolk were further impoverished by massive agricultural imports.

In fact, since its introduction more than two decades ago, Acef’s initial six-year life has been extended and reformed several times – the most recent in 2016, with implementation starting last year – because it has failed to achieve its stated objectives of protecting and preparing the farmers and fisherfolk.

As mentioned, the influx of cheaper imported rice has not resulted in cheaper retail prices for consumers. The monopoly control that big private traders have over imported rice and those procured from local farmers allows them to keep retail prices high even as farmgate prices are depressed. Privatization and deregulation of its functions on palay procurement, rice importation, marketing and price control have made the National Food Authority (NFA) ineffective in affecting prices. Inefficiency and corruption made the situation even worse.

Even as the price of rice continued to increase, the farmer’s share to retail prices is actually lower today. Prior to the WTO, farmer’s share to consumer peso (i.e., how much of the price paid by the consumers goes back to the rice farmers) decreased from 30.5 percent on the average (1990 to 1994) to 28.3 percent (1995 to 2005) and just slightly climbing up to 28.6 percent (2006 to 2016). Note that the actual amount that goes to the rice farmers is much lower due to usury and landlessness that eat into their share in prices.

Liberalization harms both the consumers and rice farmers, and only the foreign and domestic private traders reap the benefits. Tariffication and the promotion of more imports give these private traders even greater control over the rice industry. ()

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