[ANALYSIS] Duterte’s ban on rice imports: Enough of these capricious policies

 

You might call it policy-making by trial-and-error.

In a recent late night press conference, following days of speculation, President Rodrigo Duterte ordered Agriculture Secretary William Dar to stop all importation of rice and buy more rice from our local farmers.

Said Duterte, “Kung gusto talaga nating walang problema, bilhin lahat ng produce ng farmers….Para ‘yung farmers, may resulta sa pawis nila.” (To avoid problems let’s buy all the produce of farmers. So their efforts will pay off.) 

Some sectors are hailing these pronouncements, which they expect will aid rice farmers whose incomes have been wiped out by the recent Rice Tariffication Act.

But let’s not forget that Duterte himself signed the Rice Tariffication Act on Valentine’s Day this year, resulting in the massive wave of rice imports. Now, capriciously, Duterte wants to reverse his very own policy.

There are ways to help out our embattled rice farmers without banning rice imports altogether. In fact, such a ban might only backfire.

Not bad per se

Rice tariffication per se was not bad.

It ended the decades-long monopoly of the National Food Authority (NFA) in the importation of rice, which not only caused perennial shortages and surpluses but also strained our government’s coffers no end. (READ: Will rice tariffication live up to its promise?)

Before, the NFA used to set a quota on the total amount of rice our country can import. Now, just about anyone can import rice as long as they pay the necessary import taxes (also called tariffs).

Indeed, rice tariffication flooded the domestic market with foreign rice and depressed rice prices everywhere. The US Department of Agriculture estimates, in fact, that by end of 2019 the Philippines will likely become the world’s largest rice importer, beating China.

Wipeout

Government policymakers expected – indeed intended – for rice prices to go down with rice tariffication. What surprised them, though, was the extent that this happened.

Figure 1 below shows that by end of October farmgate prices of palay (unhusked rice) dropped by about 24% relative to last year. Meanwhile, retail prices of well-milled and regular-milled rice dropped by 13% and 17%, respectively.

Figure 1.

 

Although falling rice prices are a boon to rice consumers, they spell lower incomes for millions of rice farmers nationwide – although rice prices did fall at different rates across the regions, as shown in the graphs made by my friend AJ Montesa (Figure 2).

Figure 2.

 

Proponents of rice tariffication anticipated such hardships on our farmers. That is why they earmarked P10-billion worth of tariff revenues – also called the Rice Competitiveness Enhancement Fund (RCEF) – to help tide over our farmers.

But this may not be enough.

The Philippine Rice Research Institute (PhilRice) recently came up with a study showing that rice farmers across the country have suffered about P61.8 billion in lost incomes.

That’s more than 6 times the size of RCEF, and the Rice Tariffication Act is barely a year old. Such income losses might even balloon to P130 billion come peak harvest season.

Absent “immediate measures to cushion the adverse effects” of rice tariffication, PhilRice suggests lots of rice farmers will be dissuaded from planting rice in the future.

Import ban

Besides RCEF, politicians are mulling a number of other palliative measures, some more helpful than others. Others still might, in fact, do more harm than good.

Duterte’s recent rice import ban is arguably the most knee-jerk proposal of all – one that he seemingly came up with on his own sans the advice of his economic team.

The economic managers are flatly against it. Socioeconomic Planning Secretary Ernesto Pernia said it might bring us “back to where we were last year and the poor will suffer.” 

Their objection is rooted in the fact that limited imports will likely tighten domestic supply, push up rice prices, and stoke inflation just like last year.

But there’s a bigger concern: rice traders.

In the wake of rice tariffication, rice traders are reportedly over-importing and hoarding rice in big warehouses. At the same time, they’re deliberately not buying from our local farmers, thus pressuring farmgate prices downward.

As a result of traders’ anticompetitive behaviors, consumers pay more than they need to while farmers receive less. This artificial scarcity drives the wedge you see in Figure 1 between farmgate palay prices (orange) and commercial rice prices (blue and green).

Duterte’s rice import ban paves the way for higher prices, thus providing an opportunity for rice traders to profit immensely once they release their stocks of hoarded rice into the market.

Unless government significantly erodes the market power of these rice traders – behaving as a cartel – it will be hard to contain the ill effects of rice tariffication.

In place of a rice import ban, a number of people have alternatively suggested rice tariff hikes – also called special safeguard duties – to stem the inflow of rice from abroad.

But such tariff hikes, depending on their size, might only have a similar effect as Duterte’s import ban.

Local purchases

Government is also planning to aggressively purchase more rice from our local farmers.

For their part, the House of Representatives already realigned P3.5 billion in the proposed 2020 budget so the agriculture department could purchase more palay directly from farmers.

On top of this, both houses of Congress also passed a measure that would authorize the Department of Social Welfare and Development (DSWD) to buy rice from our farmers worth nearly P7 billion.

Basically this means that in some provinces beneficiaries of the government’s flagship antipoverty program – called Pantawid Pamilyang Pilipino Program or 4Ps – will begin to receive actual sacks of rice in place of P600 worth of monthly rice subsidies.

Although seemingly well-meaning, some economists are frowning upon this move.

Aside from the fact that handing out rice to more than 4 million poor families will surely prove to be a logistical nightmare, the poor are likely better off with cash which gives them more flexibility in buying the goods and services they truly need day-to-day.

Government cannot second-guess the poor and simply assume they just need more rice.   

Capricious policy-making

Right now the economic team must be scratching their heads. Despite their misgivings, Duterte went ahead to unilaterally stop rice importation altogether.

Was rice tariffication a miscalculation by Duterte? Did he not anticipate that rice prices would plummet? Was he ill-advised by the economic team?

At any rate, Duterte’s glaring policy reversal on rice imports only adds to the growing sense of policy uncertainty that has come to be associated with his administration. (READ: How Duterte’s whims and caprices hurt the economy)

Far from being “decisive” – as the economic managers put it – Duterte’s rice policy comes off as exceedingly capricious.

Till when do we put up with this? – Rappler.com

The author is a PhD candidate at the UP School of Economics. His views are independent of the views of his affiliations. Thanks to AJ Montesa for sharing his graphs on provincial rice price movements. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (usapangecon.com).

JC Punongbayan

JC Punongbayan is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations.

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