OPINION: Beyond Rice Tariffication

Omi Royandoyan

Posted at Oct 10 2018 09:07 PM | Updated as of Oct 16 2018 09:26 PM

The Philippine government is now entering into a tariff-based regime with the expected lifting of the quantitative restriction (QR) on rice after three extensions granted by the World Trade Organization (WTO). The first QR extension was 1995 to 2005 followed by the second extension from 2005-2012 (17 years of special treatment). The last extension was supposed to end in 2017 but delayed due to unresolved issues on the role of the state trading enterprise, among others. 

Quantitative restriction is a WTO trade rule instrument that restricts the entry of imported (cheap) goods, or rice in the case of the Philippines. On the one hand, a tariff-based regime is a WTO trade rule that allows open and free entry of good as long as taxes and custom duties are paid in accordance with tariff rates.

Rice farmers, civil society organizations, non-government organizations and food security advocates, including the Department of Agriculture (DA), have been saying over and over that rice tarrification without the necessary support to make rice farmers competitive is detrimental to our domestic rice industry, the country’s food security. Since the recent rice crisis, economic managers focused or aimed their responses on rice importation as if rice tarrification is the primary solution, the panacea to food security of the country. On why there was a rice crisis was never explained to us, to the public, by economic managers except to say that the National Food Authority (NFA) was at fault for delaying importation of rice in anticipation of the lean months. 

The rationale behind rice tarrification is not so much about making the rice industry, particularly small rice farm holders, competitive, but simply to allow the importation of cheap rice with the view that this will help to reduce price of locally-produced rice. Vietnam and Thailand are our major sources of cheap, imported rice. 

The 2017 rice supply utilization illustrates (see below) that the country’s level of rice production is sufficient. Meaning that the total rice/food requirement is 12,659, 235.6 while rice production on milled rice equivalent is 12,529,625.31, short only of 129,610.29 metric tons to fill in the rice production gap. If we include the NFA’s imported 243,992 metric tons of rice and government’s obligation with the minimum access volume that allowed the private sector imports of 600,000 metric tons, the total rice supply of 2017 is at 14,011,257.61—comfortable enough to supply the country’s rice s
supply requirement. 

Data prepared by Ms. Hazel A. Tanchuling of R1

However, it appears that the purpose of rice tariffication is not simply to address the production gap but to influence the domestic rice price to make it affordable to ordinary Filipino consumers. The solution, therefore, according to our economic managers, is to flood the local market with cheap imported rice. Using cheap imported rice as an instrument to reduce commercially (locally) produced rice is quite problematic. 

First, cheap imported rice is subsidized with corresponding infrastructure support. Second, because of subsidies, the production cost per kilo in Vietnam, for example, is Php6.53 as against Philippine paddy rice of Php12.41 kg. That is half of Vietnam’s production cost. Lastly, at 35% ASEAN rice tariff, it will be difficult for Filipino rice farmers to compete. These are the policy issues that the government should take stock to make our rice industry competitive. 

On the one hand, whatever rice production gains achieved in 2017 and in previous production years will be put to waste with tarrification sans state support. Rice tarrification is the opposite of what the rice farmers and other food security advocates campaigned for to level the playing field against rice importation. Consistent support and protection to Filipino rice farmers by the government is paramount in ensuring rice competitiveness. There is no substitute but to strengthen the rice industry. Rice importation is not the solution.

The non-state actors were quite active in advocating and pursuing sustainable rice production as the key solution to a liberalized food trade regime. In conjunction with the Philippine Council for Agriculture and Fisheries (PCAF), rice farmers, including rice millers and civil society organizations, held a series of consultations on how to address the post-QR scenario even before both houses of Congress started to deliberate the lifting of the quantitative restriction on rice. 

Unfortunately, the Senate and the economic managers were lukewarm, if not dismissive, to the suggestions of the stakeholders that any plan or plans prior to the full implementation of the on rice tarrification a transition phase be put in place to address the weaknesses in the rice industry, particularly on issues pertaining to the cost of rice paddy production and the marketing chain (rice trading cartel). Competing under a tariff-based regime is difficult for rice farmers without first addressing the competitive measures. Farmers need at least six or eight cropping seasons to be competitive.

The Senate bill on rice tarrification is not much of help to farmers. There is a proviso in the Senate bill that aims to regulate rice importation through the Special Safeguard (SSG) instrument. But this SSG provision is meaningless if the domestic price of rice is greater than the imported rice and local production remains lower than the national rice/food requirement especially under a food crisis situation as the current experience would show where SSG was suspended including the non-tariff barriers to address uncontrolled inflation. 

Further, the Senate bill is contemplating the abolition of NFA by simply reducing its functions to direct rice importation “only when local production is not sufficient for the purpose of maintaining the required buffer stock to ensure food security.” In short, rice importation will be primarily in the hands of traders and rice importers. 

The DA made it clear that by “abolishing the NFA would mean unilaterally giving up the flexibility accorded to state trading enterprises that the Philippines can invoke under the WTO agreement.” Being the only “state trading enterprise notified by the Philippines in the WTO, the NFA has ‘exclusive or special rights or privileges, including statutory or constitutional powers, in the exercise of which they influence through their purchases or sales the level or direction of imports and exports.’” Instead, the DA further recommended that, “a strong NFA would provide better policy space for the government and enough cushion for the rice farmers, who will be affected by trade liberalization, as we strive to achieve our targets on competitiveness.

Finally, the Department of Agriculture emphasized the importance of “pursuing a comfortable level of self-sufficiency since it is risky to rely exclusively on imports, as the global market on rice is volatile and the impact of climate change also threatens the production of traditional sources of imported rice, e.g. Thailand and Vietnam. Thus, support for our local farmers must be strategically delivered and strengthened to ensure that domestic supply is sufficient.”

However, if a liberalized rice trade regime will serve as main policy track sans state support, this will result in a substantial reduction in rice production where a sizable number of rice lands will be freed up, ready or prime for land conversion. This scenario is most favorable to the real property developers especially since these rice lands are in lowlands and strategically located near the town centers. The further we liberalize our rice industry, the bigger the risk to food insecurity.

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Editor's note: The author is executive director of Centro Saka Inc., formerly Philippine Peasant Institute, and founding chair of Alyansa Agrikultura, 

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.