Naive use of rice to address rural and urban poverty

he most immediate concern of most Filipinos these past weeks is rising inflation and escalating food prices, particularly rice. And as far as rice is concerned the convenient scapegoat is the inutility of the National Food Authority (NFA). Hence the popular call for the head of the agency to roll and the agency’s outright abolition.

The derision is partly deserved (rotting stocks and bukbok infestation; alleged diversion of NFA rice to traders) but the simplistic attribution of our rice conundrum to the inutility of NFA glosses over the real problems and will lead us nowhere.

The real culprit always had been the impossible, conflicting mandates NFA had been tasked to perform. NFA is supposed to help raise income of rice farmers by supporting the farm gate price of palay. In the same breath, NFA is expected to help bring down retail price of rice by selling rice below cost to make the staple affordable to poor urban consumers.

As a consequence of this quixotic business model of BUY-HIGH; SELL-LOW, NFA incurred billion losses between 1981 to 2016. As of 2016, the agency is indebted to banks and other lenders in the amount of billion. Hence our suggestion to limit NFA’s role to maintaining our grain buffer stocks and for emergency food distribution during calamities. With its onerous task simplified, NFA can be re-engineered to become at least a revenue-neutral if not profitable logistics service provider.

The key metric is the domestic cost of producing a kilogram of palay. Our national average cost of producing palay is per kilogram. The average costs for Vietnam and Thailand are per kilogram and per kilogram, respectively. At these relative prices, it is better for us to just import rice to bring down the cost of food for all Filipinos.

But we grow rice under two ecological conditions: 1) lowland rice with irrigation, and 2) rainfed lowland and upland rice. Our rice average yields are brought down by the latter due to lack of water.

Irrigated rice with the high-yielding inbred varieties developed by PhilRice and IRRI, with 10 bags of fertilizers and proper culture, easily yield six tons per hectare. At this level of production, the cost per kilogram of palay is about — which with tariff protection and additional freight and insurance costs is competitive with imported rice from Vietnam and Thailand. With hybrids, yields can go up to 7-8 tons per hectare thus bringing down unit costs further.

At the current NFA palay support price of per kilogram, the irrigated rice farmers will realize a gross margin of per kilogram. With a yield of six tons per hectare, this translates to per hectare, which is already good income for farmers.

On the other hand, at a farm gate price of per kilogram of palay, regular milled rice should retail at per kilogram, i.e. double the palay farm gate price (standard conversion).

The rainfed lowland and upland farms which are not productive for rice culture, should be diverted to other crops like vegetables, legumes, fruits, even ornamentals. These other crops in fact can provide incomes higher than rice provided the markets can be organized for them. However, the rice farmers will need both technical and financial support during the transition from rice to other crops.

Conventional price supports and input subsidies (free seeds, fertilizers, farm equipment) are not sustainable and prone to corruption. Hence, our suggestion of time-bound direct payments to bonafide rice farmers based on hectares declared in land titles and tax declarations. The funds from direct payments to rice farmers during the transition can be sourced from the 35% tariffs on imported rice.

However, the diversion/diversification of rainfed rice fields away from rice will reduce our national production and would therefore require supplemental rice imports. In any case, there are better ways of attaining rice self-sufficiency than by imports i.e. by reducing demand for rice by substitution.

Unmilled rice where only the husk is removed (brown rice) gives a higher grain milling recovery of 10% (63% vs 73%). We regularly produce 90% of our total rice requirement. If all Filipinos can be educated to eat brown rice, we do not need to import rice.

The other alternative is promoting production and consumption of pure white corn grits or white corn grits mixed with milled rice.

The clever, discriminating use of rice as a policy instrument to simultaneously address rural and urban poverty as described in the foregoing depends on the Department of Agriculture (DA).

We are therefore glad to see that the President restored the NFA under the DA. The Philippine Coconut Authority, the National Irrigation Administration and Fertilizer and Pesticide Authority should similarly be returned to DA for better coordination of the totality of our efforts in agriculture. *****