MANILA, Philippines – President Ferdinand Marcos Jr. wants to bring rice prices down to just P20 per kilo.

With immense funding, he can, especially now that he has assumed the position of agriculture chief. But this comes at a cost, which would sideline other agricultural products and have immense implications for public health.

Here’s some of the reasons why his low target price is terrible economics.

The Philippines’ natural disadvantage

Neighboring Southeast Asian countries, like Vietnam and Thailand, have something that the Philippines doesn’t have: land suitable for growing rice.

In a discussion paper published by the Food and Agriculture Organization, economist David Dawe said that countries that are able to export are situated on the Southeast Asian “mainland,” while the Philippines, as well as fellow rice importers Malaysia and Indonesia, are islands or peninsulas. 

“The answer is that the countries on the mainland have dominant river deltas that provide ample water and flat land (important for easier control of that water). Such an environment is particularly suitable for cultivating rice, which, unlike wheat and maize, has a semi-aquatic ancestry and is thus particularly sensitive to water shortages,” Dawe said.

Dawe added that these river systems also allow for lower-cost transportation of rice over medium and long distances and effectively facilitate exports.

“Thus, in terms of achieving rice self-sufficiency, island countries have a natural disadvantage. Less of their land is suited to growing rice and, as a result, they cannot compete at the margin with the mainland rice exporters,” he said.

Land for rice harvest in the Philippines is relatively small at 4.8 million hectares, according to data from the Department of Agriculture.

Thailand and Vietnam have around 10.5 million hectares and 7.5 million hectares for rice production, respectively.

Just how low are prices in Thailand and Vietnam?

Data from the Philippines Rice Research Institute (PhilRice) said that farmers in Nueva Ecija, the Philippines’ rice granary, is able to produce a kilo of rice for P12.41.

Vietnam can produce the same amount of rice for just P6.53, and Thailand at P8.85.

A typical Filipino rice farmer will usually sell rice at a farmgate price of around P17 to P19 per kilo. Transport costs and other expenses to take the rice to the palengkes or supermarkets would double the price of rice to P34 to P38 per kilo.

The chart below by PhilRice shows the breakdown of expenses per kilo of rice produced:

Meanwhile, rice from Vietnam and Thailand can cost around just P23 to P27, prior to slapping of tariffs upon entry to the Philippines. 

Data from the Philippine Statistics Authority (PSA) showed that well-milled rice retails at around P37 to P41 per kilo.

Climate change crisis

Other than competition, the Philippines also faces a climate change crisis.

Based on Fitch’s Climate Change Physical Risk Exposure Heatmap rankings, the Philippines ranked fourth in terms of risks arising from floods and storms. The Philippines trailed Mozambique, Vietnam, and Bangladesh.

Climate change caused P506.1 billion (around $10 billion) in losses and damage to the Philippines over the past decade, according to the Department of Finance.

Meanwhile, rapid urbanization also poses a challenge to the rice sector. PhilRice noted that it led 45.3% of the population to move in urban areas, effectively resulting in changes in the demand pattern for rice.

What can Marcos do?

With geography, climate change, and other global market forces in play, what can Marcos do to bring down prices?

More imports? According to Geny Lapina, a faculty member of the Department of Agricultural and Applied Economics of the University of the Philippines-Los Baños, importing more rice won’t bring rice prices all the way down to P20 per kilo.

Lapina explained that imported rice would arrive in Philippine ports at around P24 per kilo. Add in the tariffs and other costs, and it would reach stores at around P33 per kilo.

Removing the tariffs would also place farmers at a disadvantage, as the Rice Competitiveness Enhancement Fund or RCEF – which supports farmers’ programs – rely on tariffs.

“If you remove the tariff, where will we get the funds for RCEF? So you’re really balancing these things…. Our reality is that [the P20 per kilo] is not going to happen. We can dream it,” Lapina said.

Lapina added that the Philippines faces more headwinds now, as the peso weakens to a 16-year low against the US dollar. This means higher import costs.

Subsidies for farmers? If Marcos decides to lower prices by buying rice from farmers at higher rates and then selling it at a lower price, this would lead to a fiscal problem.

Cenon Elca, faculty of UPLB’s Department of Agricultural and Applied Economics, said that this could cost the government as much as P200 billion.

“If you buy at P20 to support farmers and sell at P10 at the farmgate, the net effect is a capital outlay of around P200 billion just to support that P20 retail price of rice,” Elca said.

Elca added that this amount is over 10 times RCEP’s P18-billion fund.

“If you pour in money, you can make it happen. But hearing from the statement of Finance Secretary Benjamin Diokno, he favors fiscal discipline, as our debt-to-GDP (gross domestic product) is now at 63%,” Lapina said. (READ: A Staple Problem? History of rice crisis in the Philippines)

Policy, public health implications

As Marcos aims to bring rice prices down, this might mean that other crops and agricultural products may be further sidelined.

Currently, rice has the biggest budgetary support at P15.5 billion, followed by fisheries (P3 billion), high value crops (P1.6 billion), corn (P1.5 billion), livestock (P1.1 billion), and organic agriculture (P665 million).

“You are channeling towards rice only. For agricultural development, that’s not the direction we see in our research. The direction is diversification, that’s good for biodiversity,” Lapina said. 

“It’s very difficult to focus on rice alone even from a government investment perspective; you don’t want to put all your eggs in one basket,” Lapina added.

Lapina and Elca also warned that lower rice prices would encourage Filipinos to consume more rice.

“There are Filipinos now who are shifting away from rice and are concentrating more on consuming protein and vegetables. But if they see rice prices go down, they might go back to a cereal-based diet and that’s not good, it could imply higher incidence of diabetes,” Elca said.

The chart below shows that Filipinos may consume as much as 15.88 million tons of rice by 2030.

PSA data showed that deaths due to diabetes mellitus ranked fourth in 2020 at 37,265, after heart diseases (99,680), cancer (62,289), and cerebrovascular diseases (59,736).

In the Philippines, 1 in 14 Filipino adults lives with diabetes, according to the International Diabetes Foundation.

Experts said that the pandemic likely increased the chances of adults developing diabetes due to reduced physical activity and obesity.

Rice road map

While the numbers would show that it would be impossible for Marcos to bring prices down to his desired level, he can at least pick up on the gains of the past administrations and follow the rice industry road map.

The roadmap details the 57 provinces that have the potential to produce rice at the lowest production cost of P8 to P10 per kilo, considering the geographic location and other challenges. (READ: Duterte’s agri chief to Marcos: Use PPP to build irrigation systems, hike DA budget)

It also details which rice-producing areas cannot compete with imports, and farmers would have to transition out of rice farming. – Rappler.com