Rice self-sufficiency: the dangerous dream
MANILA, Philippines - The government's flagship program for agriculture is the Food Staples Sufficiency Program (FSSP), which aims at 100% rice self-sufficiency this year. Is it attainable? The answer, to put it bluntly, is No – unless we want to risk an unreasonably high price of rice.
This is not to say the FSSP is poorly thought through. It is a coherent plan for meeting the country's rice demand using only domestic production. Current and future demand is estimated by assuming fixed per capita consumption of 119 kg per year, multiplied by the projected population. This leads to an annual production target, which is then translated into annual targets for area harvested and yield.
The core strategy to reach the production target is public investment in irrigation. FSSP also emphasizes other interventions such as R&D, extension, and mechanization.
The Department of Agriculture insists that, with enough commitment and funding, the target is attainable. In fact its budget in 2013 is P55.3 billion, up from its 2011 budget of P33 billion.
Based on historical record, however, the self-sufficiency target seems too ambitious.
According to FSSP, from 2011 to 2015, palay yield needs to rise from 3.78 to 4.53 tons per hectare, and production from 17 million tons to 22.7 million tons per year. This implies an annual growth of 3.8% for yield and 6.3% for production. But from 1994 to 2010, average yield and production growth was just at 1.5% and 3.2%, respectively.
Since the start of the plan period in 2010, we can already observe deviations from the target. Palay production in 2011 fell short by 2.8%. Imports were held to just 0.7 million tons in 2011 and 0.5 million tons in 2012, but this does not mean domestic production is becoming sufficient to meet demand.
Consider the country's rice stocks: inventory has fallen from 3.4 million tons at the start of 2011 (1.7 million tons of which were National Food Authority (NFA) stocks) down to 2.6 million tons by the start of 2012 (only 1.0 million tons of which were NFA stocks).
Since then, the NFA has been shedding its inventory further, down to 0.5 million tons by October 2012. Clearly imports have been replaced by drawing down stocks – an unsustainable strategy.
Total stocks by end-2013 may fall further to 1.5 million tons, or only 12% of domestic demand -- below the 17% level recommended by Food and Agriculture Organization.
Moreover, the definition of an "adequate" domestic supply is always relative to price. After all, if domestic price of imported rice is kept artificially high then imports can be reduced, or even eliminated. In fact, from 2011 to 2012, domestic buyers of rice paid an extra 40% on top of the world price of rice.
Historical trends and recent performance do not augur well for the FSSP target. How about the future? The Agricultural Multi-market model for Policy Evaluation (AMPLE), an analytical tool for scenario building, can be used to answer this question.
Assumptions and targets of FSSP are incorporated in the reference or "most likely" scenario. For 2013, the Reference scenario projects a harvest of 18.7 million tons, 6.5% short of the FSSP target of 20 million tons. Imports do not decline to zero in this scenario; even by 2020, the country imports about 2 million tons annually.
Imports remain high because consumption rises by about 3.4% per year -- faster than the rate of population growth.
The reason is precisely because of FSSP interventions: when the supply of rice increases, its price falls and consumers buy more of it.
The FSSP assumption of fixed per capita consumption is untenable. The amount of palay harvest needed to eliminate and (not just displace) imports is therefore underestimated.
What eliminates imports is the direct approach of raising import barriers. The AMPLE scenario finds that imports can fall to zero by 2015 by doubling the trade barrier. However this causes the domestic price of rice to be higher than under the reference scenario (by over 6%).
Protectionism undermines food affordability, which is clearly inimical to food security. In fact, the government has already signaled its intention to keep the rice market closed, by applying for an extension with the World Trade Organization of its rice import restrictions.
Such a closed policy is risky. In case of an unexpected domestic shortfall of rice – a serious possibility in a calamity-prone country – quantitative restrictions invite severe price spikes. This already happened in 1995, when the rice prices rose by nearly 50% in just 6 months. At the start of that year, government had over-estimated the rice harvest and underestimated the import requirement. A repeat of this episode would be disastrous for the poor.
Self-sufficiency is good, but it should not be equated with zero imports. Additional criteria need to be introduced in defining self-sufficiency. One of course is food affordability. Another is to target domestic production towards "necessary" rice intake based on nutritional norms - this is likely to be lower than the 119 kg/year official figure (which in turn is based on actual per capita consumption).
Government should give up its dangerous dream, maintain a practical stance on rice importation, and make sure its agriculture budget is spent on the right programs. As Secretary Proceso Alcala says – and I cannot agree more - Pagkaing sapat, magsasakang angat, tagumpay nating lahat!
Dr. Roehlano Briones and Ms. Ivory Myka Galang are Senior Research Fellow and Research Analyst, respectively, at the Philippine Institute for Development Studies. Their research focuses on agricultural policy. Their article does not represent the official views of PIDS.