Insane rice policy

Insanity, someone once said, is doing the same thing over and over again, and expecting a different result.

By that definition, our rice policy through the years is unadulterated insanity. Every administration sacrifices the urban rice consumer who must pay high prices for the staple supposedly to help the poor farmer.

But the poor farmers have remained poor after so many decades of this policy, so the policy isn’t working for them, too. Indeed, they also pay a high price for rice they buy during the off season.

There is more. Our rice policy is also justified as a means to make us self sufficient in rice. Of course that hasn’t happened.

In spite of all the money government has thrown into rice farming from fertilizers, better seeds, farm to market roads, and free irrigation, we are as far from the self sufficiency goal as we have ever been. Our rice production costs are the highest in the region.

That’s also partly because of our flawed land reform program. Farmers are left with but a few hectares to plant on. Our neighbors have the advantage of large scale farming and great river systems.

Then there is the import monopoly of the corrupt NFA. It has resulted in massive losses for the taxpayers and shortages that lead to even higher rice prices for the consumers. It seems the rice cartels are in cahoots with the NFA.

It has become such that the rice smugglers are looking like heroes. Sure, they are breaking the law, but they are also breaking the hold of the rice cartels. By introducing more rice supply in the market, they are probably pushing prices down.

The fact that smugglers can bring rice in, pay some corrupt officials and still make a profit shows there is something so wrong in our rice supply and demand situation. This indicates a failure in policy which no administration seems brave enough to fix, not even this one.

Economists and other experts in agri-business think allowing open importation and just charge a tariff is the way to go. Private importers will not import more than they can sell and risk losses. The tariff earned can be used to subsidize local farmers.

For a while it seemed like the Duterte administration would be brave enough to change policy that would end NFA’s import monopoly. But it’s still a status quo.

Secretary Leoncio Evasco, who spearheaded the change in policy, was removed as head of the NFA Council. The NFA administration announced they are importing 250,000 metric tons of rice on a government-to-government basis.

The proposal to allow the private sector to import rice and just charge a tariff is still pending in congressional committees. In the meantime, control over the NFA and the right to import or authorize importation of rice is now with the agriculture department.

President Duterte was reported to have designated Agriculture Usec Berna Romulo-Puyat to be in charge of issuing import permits. In a conversation I had with her, she said her top concern is to remove discretion on her part and make the process of getting an import permit totally transparent.

In this regard, she is looking at using an auction process which reduces her role to a minimum. The mechanics of the auction process is still being formulated, but the usec said she would make sure it is corruption free.

She wants to make it useless for interested parties to approach government officials to bag contracts. Whoever offers the highest service fee wins the import permit.

I look at this as a stop gap measure until Congress passes the rice tariff bill. Until that happens, the needs of urban consumers who are paying more than twice the cost of rice compared to workers in the region will still be ignored.

Unless we are able to bring down the cost of food for everyone, the labor situation will be restless and severely reduce our manufacturing competitiveness.

TRAIN 2

A reader reacted to my column last Monday to point out that contrary to what I wrote based on the DOF powerpoint presentation, “those paying five percent of GIE (Gross Income Earned) will have to pay 25 percent CIT (Corporate Income Tax) and not 15 percent… The 15 percent is applicable only to new projects approved by the Fiscal Incentives Board. This is why BPOs will get a financial shock, from five percent GIE to 25 percent CIT. These footloose BPOs will leave the country.”

The reader further explained that we have incentives to compensate investors because government cannot provide the basics such as infrastructure, the ease of doing business resulting in higher business costs.

“I will give you my own example. The tax savings from my five percent GIE together with my profits have been funding my internet startup. If I give that to government, will I see a return on that capital?

“Incidentally, I haven’t declared dividends for the past 17 years, preferring to fund new ventures that give employment, and possibly give a good return in the future. That will be endangered with TRAIN 2.

“PEZA was a success because it didn’t choose winners and losers. It just had a simple rule: 70 percent must be for exports. In turn, it insulated PEZA companies from the corruption and inefficiency in the rest of society.

“DOF wants to change the simplicity of PEZA rules in favor of getting the blessings of bureaucrats.”

The reader thinks incentives should “only apply to investors who are ‘footloose’ meaning those able to easily relocate elsewhere. Obviously, this doesn’t apply to mining companies as the minerals they want to mine are here. Also, not to social housing developers as they can’t relocate to other countries.

“This applies generally to BPO companies and also export-manufacturing that can easily be shut down and relocated, e.g. garments.”