Rice Tariffication Law: Good or bad?
“It is the height of foolishness to do things over and over again and expect a different result.” – Albert Einstein
AFTER the country’s membership to the World Trade Organization (WTO) in 1994, the most significant change in our agricultural policy landscape is the passage of Republic Act 11203, or the “Rice Tariffication Law” (RTL), in February 2019. The RTL removed the quantitative restriction (QR) or import ban on rice, and in the process, lifted the sole authority of the National Food Authority (NFA) to import rice. It allowed private traders to import rice provided that they pay the corresponding tariffs (taxes) for the imported stocks.
The passage of RTL took more than 25 years. Upon our accession to the World Trade Organization (WTO), the Philippines applied for the exemption of rice from trade liberalization (as provided for by the WTO Agreement on Agriculture) for ten years, arguing that our rice farmers could not compete with cheap imported rice. We claimed then that the 10-year grace period was needed to allow the government to provide the necessary assistance to our rice farmers to raise their productivity and make them competitive vis-à-vis their foreign counterparts. After the expiration of the 10- year grace period, the Philippines requested for a 10-year extension, this time noting that it was in a better position to help rice farmers realize the goal of raising their productivity. By then, the “Agriculture and Fisheries Modernization Act” (AFMA) of 1997, creating the Agricultural Competitiveness Enhancement Fund (ACEF), was in place to provide both the structure and funds to attain its productivityenhancing goal for the rice sector.
The second extension expired in 2014. Sadly, successive political administrations in the past failed to do their homework properly of increasing the productivity of our rice farmers. As a result, we just maintained the QR policy for another five years, arguing that it was necessary for our food security.
‘Lazy man’s’ policy
However, when we experienced a rice shortage in 2018 because of a miscalculation by NFA on the entry of our rice imports, resulting in a significant rise in our inflation (rice price is a key factor in computing inflation rate) to more than 6 percent in the third quarter of 2018, our economic managers were alarmed. They resurrected the arguments long made by reputable economists and agricultural economists from the University of the Philippines Los Baños, UP School of Economics, and Ateneo’s Department of Economics that rice tariffication was needed to replace the policy of maintaining QRs. Economists viewed QR as a “lazy man’s” policy because there was no urgency in implementing productivity-enhancing measures for as long as the import ban was maintained.
Studies after studies conducted by the UP and Ateneo scholars have identified a number of benefits a shift to rice tariffication will bring. One, it will save the government an enormous amount of money because NFA operated at a loss, “buying high” (i.e., palay or unmilled rice from farmers) and “selling low” (i.e., rice to consumers), which was a sure formula for financial bankruptcy. At that time, it was calculated NFA had already incurred an accumulated debt of around P170 billion. Second, it will prevent many rent-seeking activities emanating from G2G (government-to-government) transactions. It is an open secret among those who know the rice trading business that a commission for every kilo of rice imported is given by the wholesaler to the seller, and that there are contracts that could be cornered along the logistics of rice imports (e.g., shipping, cargo handling, trucking, barging, bagging, among others). Also, it is well-known that some farmers’ groups actually front for private traders to gain access to the minimum access volume (MAV) of rice, which comes at a lower tariff.
Third, it will force the government to finally do its job of improving rice farmers’ productivity. This is the reason behind the creation of the Rice Competitive Enhancement Fund (RCEF), a yearly P10-billion fund, that will come from the proceeds of tariffs imposed on rice imports by private traders. Fourth, the more than 100 million rice consuming Filipinos will undeniably benefit from lower priced and quality rice. Lastly,, it will lower the inflation rate because seasonal rice shortages will be prevented and will tame rice price increases during the lean palay harvest season. After the passage of the RTL, inflation dropped from its peak of 6 percent in the third quarter of 2018 to its lowest of less than 2 percent in the same quarter of 2019.
On the negative side, RTL resulted in the expected drop in palay prices, which went down to lower than P13 per kilo for wet palay during the latter part of 2019. It was during this period when detractors of the law launched a cacophony of organized and calibrated vicious attacks on our economic managers and implementors of RTL. They wanted to reverse RTL, return to the QR regime, hence continue with the old order that existed for more than three decades despite its massive failure in uplifting the plight of our rice farmers and the burden of high rice prices it imposed on our rice consumers.
Less than a year and a half after RTL’s passage, rice prices have remained stable despite the lean palay harvest season. More importantly, local supply has remained steady amid the coronavirus pandemic. In fact, the ending rice stock of 2.675 million MT in 2019, due to the liberalization of rice trading, is the main reason rice prices and supply are stable. As for palay prices, the Phiippine Statistics Authority reported that dry palay was selling above P19 per kilo during the last week of May. In other words, the drop in the palay prices experienced during the second half of 2019 was a temporary phenomenon.
If the entry of rice imports can be scheduled better during the coming peak harvest season (late September to early December), a significant drop in palay prices can be prevented. And with multiple assistance extended by the Department of Agriculture (DA) to rice farmers through RCEF programs and the Rice Resiliency Program, expect a surge in rice supply due to increased farm productivity. These are positive indications that RTL is working.
Proving detractors wrong
No wonder then that RTL detractors are now shifting the focus of their criticisms on: alleged noncollection of ACEF funds, or their release by Department of Budget and Management (proven wrong); lower RCEF tariff proceeds because of misdeclaration of imported rice (animal feed vs regular milled vs well milled), which is the main function of Bureau of Customs and not DA; and the slow and improper delivery of assistance to the palay farmers under RCEF. Expectedly, these detractors end up resorting to their usual pamphleteering technique of attributing all these problems to the RTL when the connection is ostensibly tenuous.
In the academic world wherein I grew my roots, we believe that “one’s criticism is only as good as one’s alternative.” Playing the nihilist role in the struggle for supremacy is the easiest job to perform as all one needs to do is give in to one’s anarchic tendency of destroying what others have painstakingly built. But for one to build a new and better order is the most challenging aspect of governance. As former Cuban revolutionary leader Fidel Castro once remarked: “It is much easier to topple a government than to build one.”
The alternative is to persist in doing things over and over and wait for a different result. This seems to be what the RTL detractors want as they offer no better alternative than to revert back to the old ways. Albert Einstein, the genius of our times, already adjudged them foolish. I think that is the kindest description that one can give them.