Support for rice tariffication, except for free distribution of inputs

find myself in full support of the rice tariffication bill (Senate Bill 1998) now pending with the President. The lifting of quantitative restrictions in the imports of rice but with a modest tariff protection of 35% will make us compliant with our commitments under World Trade Organization/General Agreement on Tariffs and Trade. But even more importantly, it will help bring down the retail price of rice, making rice more affordable especially for the poor.

On the other hand, liberal imports of cheap rice from Vietnam and Thailand will depress farm gate prices of palay to the detriment of farmers. Hence, the need for a Rice Competitive Enhancement Fund (RCEF) to help farmers raise their productivity and improve their competitiveness with imports. The RCEF will be initially funded with appropriations from Congress and gradually replaced with proceeds collected from rice tariffs.

Moreover, the National Food Authority (NFA) which is tasked with managing our grain supply will be spared from its conflicting, money-losing mandates of 1) supporting palay prices to protect income of farmers, and 2) selling rice to consumers at a loss to make Filipinos more food secure.

Instead, NFA will be asked to focus on maintaining the country’s grain reserves for emergencies and for food distribution during calamities. With its vast network of rice mills, warehouses and distribution centers, NFA will be a formidable logistics service provider to government without the historical humongous losses. However I have two caveats on the proposed RCEF.

Congress should have learned its lessons by now and ought to institute robust controls to prevent a repeat of the disaster that was ACEF.

Senate Bill 1998 provides at least P4 billion a year for free distribution of farm equipment. The draft bill correctly diagnosed that one of the major causes to our high cost of palay production versus that of Vietnam and Thailand is labor particularly during land preparation, harvesting, and threshing. Thus, the imperative to introduce more machines and equipment not only to reduce labor costs but also to minimize losses, improve product quality and optimize timeliness of farm operations. But giving away farm machines whether to individual farmers or cooperatives is not a cost effective way of helping farmers gain access to these inputs. We have been giving away seeds, fertilizers and farm equipment all these years with no visible lasting outcomes. Worse, we have been witness to the depressing spectacles of ghost farmers, ghost deliveries, overpricing, and non-existent after-sales services for equipment. During the previous administration billion were allocated to the Department of Agriculture for farm mechanization. Before we throw in another billion the next five years, we should demand an accounting of where the money went. I recall that the first act of the current Agriculture Secretary was the immediate dispatch of the rusting farm machines in the motorpool in his own region office.

The better way is to facilitate the access to credit of enterprising farmers and/or their cooperatives with which to purchase these machines. This way we avoid the rent–seeking propensity/ opportunities unfortunately inherent in government procurement. Since the farmer and/or the cooperative are paying with their own money, they will insist on the best products with the least price, and with assurance of after-sales service/ guarantees.

The subsidies for equipment will go a longer way and serve more farmers if they were channeled to part or full subsidies for crop insurance to protect farmers from catastrophic natural and biotic losses. The Philippine Crop Insurance Corporation is grossly undercapitalized and can use some of these funds. Or for more generous bank guarantees to encourage banks to lend more to small farmers.

It does not make economic sense for individual farmers to purchase machines which they will use only for a few days each cropping season because of their small landholdings.

However there are already many good examples of enterprising farmers who rent out their machines and provide farm services to their neighbors for a fee. Many of them are good at maintaining their motorcycles and therefore graduating to maintaining/repairing small tractors is no big deal. Land Bank of the Philippines should have a special window for lending to such countryside service providers with chattel mortgages on the machines as collateral.