February 7, 2017
The Philippines acceded to the World Trading Organization (WTO) in 1995. In 1995, WTO first allowed the Philippines to impose a 10-year QR on rice importation. It was extended in 2004 until 2012, and then , it was renewed again in 2014. To give local farmers more time to prepare for free trade, the WTO granted the Philippines an extension of its QR on rice importation until June 30, 2017.
Four countries (Japan, South Korea, Israel, Philippines) invoked a special treatment clause for their main staple but they lifted it already.
The Philippines is the only country which subjects special treatment for rice but it will end this June 30, 2017 (Briones, 2015). It will already be definite since the Philippine government did not file any request for extension 6.0 months before it should end (requests must have been filed last December 2016). This is de facto lifting of quantitative restrictions or QR.
Rice farming finds expression in Asian traditions, language, art. Toyota – abundant field of rice. Honda – original main rice paddy. Japan, Korea, China, India – are more protective of rice than us.(EQ Javier)
What ARE the main arguments for a non – QR rice?
It’s cheaper to import rice than to produce it ourselves. Income per hectare from rice production is small. Our farmers will be better off if they switch to higher value-added products like oil palm and rubber. Let QR Go!
Because of the QR “there is not much pressure to put the land for strategic use,…What we are saying is agriculture is more than rice…we really have to diversify outside of rice .With the QR on rice importation lifted, tariffs will be imposed. “The revenue from the tariff can be used to increase support to the agriculture sector,” Rosemarie Edillon, acting Deputy Director General of NEDA http://www.gmanetwork.com/news/story/580359/money/economy/removing-rice-importation-quota-good-for-economy-neda-official#sthash.
The reality……Allowing non-QR rice decrease further the Low price of rice. Low price of rice….
à will benefit the urban, rural, upland poor including the farmers. About 10 million Filipinos will benefit.
Conversely, a High price of rice will hurt them. This was the experience in the past when many poor people claimed that they suffer hunger despite the claim of high GDP growth rate.
A high price of rice hurts the poor needs clarification. High price rice is relative. The price of rice now is 50% cheaper than in the 70’s (Mendoza,2008 updated to 2017). As a whole, cereals are now 40% cheaper globally. ( Komuno, 2016)
High price hurts the poor! Yes, because they have no money to buy, they are unemployed or they work today, tomorrow no, and they have low wage.
Included are the poor farmers who shall benefit with the low price as they buy rice! This is shooting their own foot. They are poor because after deducting the high cost of production from the low gross revenue due to low priced palay, nothing is left. About 90-95% of 2.5 million rice farmers are rice buyers too. They them do not have enough rice for their family till next harvest. Their Solution! Borrow money at usurious interest to buy alleged low priced rice which is adding salt to injury. As this will go-on-and-on, the more they will sink into indebtedness. Their Recourse: mortgage it to the bank? The bank personnel cannot do farming.
That consumers will benefit from non-QR regime should be re-assessed due to the following:
à 5 tons imported rice will affect 1 rice farm household and 1 rural worker. A cheaper rice shall not be beneficial because they have no money to buy.
à A non-QR rice is like “super tsunami” or a Yolanda super mega storm surge where the rice farmers and ultimately, the consumers and the Philippine economy in general, will all be the victims.
A non-QR rice regime shall decrease further the Low price of rice The main points are listed below :
- There shall be rice influx which are heavily subsidized.
- The Philippines has long coast lines to guard, Rice coming elsewhere could just be smuggled”. No tax (35%) could be levied. This is happening even in QR years. But it will worsen post-QR so importers could earn more profit.
- Cheaply imported rice shall be re-milled and mixed with our rice and be sold in the market as “regular rice”. This is being done now and it will be lightened as more imports arrived so the importers could maximize their profit.
Farm households, and rice dominated economies of towns and provinces – the so called granaries will be suffering most!
- 30% Farm housed/lost income (@ P 18,000/ha) @ (P3.00/kg decreased price x 6,000 kg/ha)
- A decrease of P 10 million revenue for municipalities having 1,000 ha rice.
A decrease in town income shall have a domino effects in the town economy affecting rural households (farmer + family members), rural workers, tricycle drivers, store owners and many others.
A province having 5,000 ha rice fields will lose P 9 billion rice based income.
What is the possible scenario? The scenario is described in Fig. 1. A decrease in the price of rice shall have 4 major interrelated effects as follows:
- Farmers shall lose interest in farming. In turn, they will decrease the area to be planted to rice and planted to other higher value crops.
- Farmers will sell their lands as they find rice farming too laborious, yet income is low.
- Increase land use conversion (rice to non-rice or to other uses)
As a whole, the combined effects shall be a decrease in the supply of rice. This will trigger greater influx of cheaply imported rice to be done by the government or the private sector.
Will the influx of rice continuously benefit the consumers?
When rice influx reach a critical threshold (3-5 million tons of rice), the Philippines shall alter the balance of rice trading. Only 6% of rice is tradeable rice. The 2008 rice crisis was triggered by Philippines when it placed large import. Rice price jumped to as much as $1,100 dollar per ton or about P 55/kg using the current exchange rate. At this price, rice will retailed at P 65/kg.
What are the other possibilities? The price cartel will be taking advantage of burying cheap rice. But will they sell it cheap?
- They have a practice of re-milling cheap rice and then mixing it will regular rice and sell it as regular price retailed at P 40-42/kg.
- Or, if they find a good rice they will sell it directly as regular rice by simply rebagging
To protect our rice farmers, a 35% tariff shall be imposed on imported rice! Will it be effective ?
The Philippines has long coastlines and guarding the coastline present enormous challenge to our marine soldiers with their antiquated equipment and slow moving ships.
The government will not gain high tax revenue as it will trigger smuggling by whoever who can do in anticipation of huge margin.
Rice farmers cooperative will be allowed to import rice (tax free), then they will be the one to retail. Will they have money to use? Only those rich rice cooperative (possibly financed also by price cartel) will be able to import. The profit margin will be theirs too.
Why our rice farmers not ready for NON-QR regime?
Obviously, they are not ready to compete to those heavily subsidized rice. The reality… there was Inadequate budget to improve the production à to à post production infrastructure. Our location make the Philippines so vulnerable to strong typhoons (The Philippines ranked 3rd to the most vulnerable countries due to climate change!
Lets’ examine our situations.
- Many of our existing irrigation infrastructure are repeatedly destroyed due to floods, their repair and reconstruction consumed much of the funds ear marked for building new ones to expand the irrigated areas.
- Irrigation efficiencies decreased as lateral canals are frequently destroyed that reduced further the expansion areas.
- Many irrigation infrastructures have obsolete to in- appropriate designs and they need to be rebuilt compliant to climate changed -induced heavy rains. Obviously, they are expensive to re-build and they require longer period of time.
- The damages after extreme calamity (i.e. Yolanda, et. al) are too heavy to bear and reconstruct –-rehabilitation of damages entails huge expenditures, and allocated money for agriculture is not sufficient.
- Grain dryer which are so necessary are not modernized and designed to be farmer user-friendly .Farmers find these dryers taking huge expenses. Again, budget constraints hinder the availability of efficient dryers because they are expensive. Drying should be shouldered by the government as it too expensive to be shouldered by the farmers themselves.
- The logistic part of transport (Philippines being an archipelagic country) translate to huge expenses (no bulk handling), water/sea transport is also expensive, transport through rail system, energy wise is the least expensive (80% cheaper) but up to now they are not yet built for many interrelated reasons i.e. rail tracks are already out of place or destroyed due to floods strong water current; modernizing railways is very expensive.
- Rice mills are yet to be modernized as they have low efficiency / rice recovery. The average national rice recovery is only 58%. In turn, this is due to interrelated reasons: poor/untimely harvest due to typhoon/ flood, heavy rains resulting to poor grain quality. Grain quality decreased further due to frequent rains/submerged field while harvesting, poor drying (solar drying while less expensive but lead to grain quality deterioration when drying coincides with rainy weeks). Summing together; all these situation lead to the low recovery (58% MR) while 65-68% mill recovery is attainable, or up to 72% milling recovery.
Finally, the Philippines, being the 3rd most vulnerable climate change-wise , and most heavily damaged country in recent years (up to now the damages due to Yolanda are not yet fully repaired, many homeless are yet to be given houses).
The case in rice where our farmers are not prepared to a non – QR regime is also a consequences of the Philippines being located in typhoon path – latitudinally and longitudinally.
The Philippines is yet to implement Weather – based Crop insurance.
In a way, the Philippines shields Vietnam of strong typhoon getting its strength in the wide Pacific Ocean and whose speed simply breaks as soon as it passes the Philippine islands. This is just to illustrate how vulnerable the Philippines
Come the non-QR rice, it will spell greater ruin than all the super typhoons combined as it will “choke” the farmers, impoverished them further as the rice price will be below costs of production. The costs to produce a kilo of unmilled rice is already P17/kg and it will soon increase due to increase in the price of oil, fertilizer and rural wage. The 35% tariff as the only safeguard will not be sufficient as rice price will only be about P24/kg. Our regular price is about P40/kg. At P24/kg, the buying price at farms gate will only be P12/kg
Without any price support to the farmers where 95% of them also buy rice, it will impoverish them further and their interests in rice farming will erode further.
What needs to be done?
As the Philippine rice sector continued to remain uncompetitive, the Department of Agriculture tried to extend the special treatment for at least 2 years. The reason given . . . . . . . to allow the Duterte administration’s support to firmly take root and set the sector on the proper path of sustained self-sufficiency at competitive levels. Obviously, DA voice was not heard since the government de facto lifted the QR by not sending a request to the WTO last December, 2016.
As early as 2015, assessment of various options had been shown by Briones and Tolin (PIDS, DPS No. 2015-46). Their assessment revealed that a decoupled payment scheme under 35% tariff as the most viable option for the Philippines. But up to now, the government is yet to present the guidelines on how it should be implemented.
The basic features of decoupled payment are as follows:
- Coverage – the suggestion is to cover only 2.0 ha and below. What is the basis? Are there no flexibilities? How about those who till above 2.0 ha?
- Compensatory payment scheme. A unique opportunity to direct financial support to rice farmers. Under this scheme the following should be clarified to the covered farmers.
How much per ha is the direct compensation? South Korea was paying $732/year in 2006 (Briones and Tolin, 2015). This translate to P36, 600 of current 1:50 exchange rate. But note, the compensation for South Korean farmers was in 2006 or 10 years ago.
Will that be enough compensation? How will the farmers collect that amount? Who will distribute that amount?
Implementing decoupled payment scheme presents many detailed plans. It will pass through the so called “the devil is in the details”.
Bottom line, will there be enough money that could be collected at 35% tariff of imported rice? This is based on the assumption that all imported rice will pass through the Bureau of Customs or there will be no rice smuggling. Meaning, the volume of tariffied imported rice is huge enough to be used in compensating the farmers. (Coastlines must be fully guarded to prevent rice smuggling).
With this new regime, what will happen to NFA?
NFA only purchases up to 5% of rice harvested under “buy high, sell low policy”. This is outdated! This led to its 172 billion pesos indebtedness.
NFA charter should be amended and it should concentrate now its functions to regulatory function and be renamed Rice regulatory Administration (similar to SRA). It is tantamount to abolishing NFA.
In the medium to long term, a “National Food Security and Food Self-Sufficiency Act” should be enacted.
Similarly, the National Land Use Act which was passed the third reading in Congress but only reached 2nd reading in the Senate should now be enacted into Law to STOP rice lands being converted to other uses.