Two weeks have passed since President Ferdinand Marcos Jr. implemented ceilings on rice prices. According to him, “So far, the implementation and enforcement is going as well as we can expect.”

This is misleading. We’ve seen nothing but the bad effects so far – validating predictions from Econ 101.

Retailers are selling old rice stocks at a loss, and the government is now forced to distribute cash assistance. Meanwhile, some wily retailers are mixing their old rice stocks with high-quality rice, just so they can minimize their losses. This is otherwise known as rice adulteration. Others are only selling the poorest quality rice at the mandated price caps.

Meanwhile, consumers are forced to buy cheap but bad-quality rice (in some places, literally for the dogs). This forces them to buy expensive rice if they want to eat decently.

Farmers are also feeling the brunt. They’re being forced by millers and traders to sell their palay cheaply. Naturally, many are choosing not to plant rice anymore – a further threat to rice stocks in coming months.

All in all, the rice price ceilings have proven harmful to the people they’re supposed to help the most: the poor.

That said, there have been lots of confused statements about the rationale for the price caps, as well as ways of moving forward. Current discussions have created bogeymen out of thin air. Let’s discuss them here.

First: Rice cartels

A lot of people seem to agree that the rice price ceilings are justified by cartels, hoarders, and smugglers of rice.

The President himself cited in his executive order the “widespread practice of alleged illegal price manipulation, such as hoarding by opportunistic traders and collusion among industry cartels in light of the lean season…” His economic managers also supported the price caps on this premise.

But the question is, where are these alleged rice cartels? Till now, there’s no sufficient proof that they exist. They’re collectively a bogeyman created to justify the rice price ceilings.

Sure, at least one study shows that some regions exert significant market power in rice. But that’s not the same as saying cartels exist.

Meanwhile, hoarders and smugglers do exist. But Marcos’ price caps will spur more, rather than less, hoarding and smuggling.

Marcos announced that the price cap may go away in a few weeks. So if you’re a trader, you’d rather stock up and just sell in a few weeks once the price caps are gone. (Millers, by the way, are also choosing not to mill rice in stock, since doing so will result in massive losses.)

The Bureau of Customs recently confiscated 42,000 bags of smuggled rice in Zamboanga City, and such bags have been delivered to the Department of Social Welfare and Development, presumably for distribution to the poor. Continued smuggling is evidence of short supply of rice locally. Insofar as the price caps tend to create shortages, expect smuggling to continue.

For his part, my friend Sonny Africa of IBON Foundation, a progressive think-tank, wrote recently: “Price controls are a vital tool for managing the price of rice and other basic commodities especially when, as often happens in an overly market-oriented economy, there are unjustifiable increases by major market players.”

However, we must be careful when issuing such statements. There’s nothing in basic economics to say that price controls improve people’s welfare in the presence of imperfect competition. I’m afraid this sort of statement only plays to the official narrative of government.

Second: Zero tariffs

Rather than impose price ceilings, many economists in and out of government suggest the temporary reduction of rice import tariffs from the present 35% to 0% (or at least, as low as possible).

By doing so, we can nudge the private sector to import rice from abroad and therefore boost supply here at home.

In early August, the Department of Agriculture said that the government foresees imports later this year to the tune of 1.3 million metric tons. But there’s still room to increase this. Said one agriculture undersecretary, “I think we need the help of the private sector in situations like these.”

More supply means the government can abate the rice shortage caused by Marcos’ price ceilings. But even if the price ceilings are lifted already, basic economics tells us the rice influx will result in more and cheaper rice.

Why can’t we rely on the National Food Authority (NFA) to boost supplies? Based on the 2019 Rice Tariffication Law, the NFA can only boost its buffer stock using local supplies. Hence, if we want more rice besides local production, we must import.

Sound as it is, the proposal has been met by a lot of opposition. The zero-tariff proposal is our second bogeyman.

Former agriculture secretary Leonardo Montemayor and his group, the Federation of Free Farmers, even called for the resignation of Finance Secretary Benjamin Diokno and NEDA Secretary Arsenio Balisacan over the proposal.

Senator Risa Hontiveros, meanwhile, said that this will be a disaster that will kill off the local rice industry and harm our farmers, especially if imports are done during the harvest season.

Representative Ria Vergara of the 3^rd district of Nueva Ecija, meanwhile, said that “it will be a burden to our farmers, who will be forced to sell their palay at a loss as they enter the second harvest season, the wet season, reduce our government’s revenue from the tariffs, and, worst of all, make our country more dependent on imports.”

The concerns are totally valid. But note that even with the current tariff rate, Marcos’ price ceilings are already causing losses among farmers, who are forced to sell their palay cheaply to traders; some are even choosing to exit altogether.

Moreover, even with the upcoming harvest – and even if the rice ceilings are lifted – we will still suffer rising rice prices because of short global supply and the looming El Niño season. Hence, at any rate, we still need to promote imports to the extent possible, to keep local rice prices low and stable in the coming months, and therefore help local consumers.

This is not to say that farmers are to be neglected. Rather than provide ayuda to rice retailers (something that’s done now in the wake of the price ceilings), government can lift its price ceilings and divert its scarce funds to help local farmers instead.

By the way, whatever happened to the Rice Competitiveness Enhancement Fund (RCEF), a P10 billion fund in the Rice Tariffication Law that was supposed to help farmers? Maybe that can be tapped as well.

Third: Rice Tariffication

Perhaps most dangerously, some groups are now calling for a review of the 2019 Rice Tariffication Law.  

President Marcos himself wants the law reviewed in a bid to strengthen once more the National Food Authority (NFA), which for decades had the monopoly on rice importation.

The last thing we want is to walk back reforms and go back to the old system, where the NFA’s monopoly and its import quotas proved disastrous in the rice sector. (READ: [ANALYSIS] Will rice tariffication live up to its promise?)

Data bear out that in 2019 and 2020, in the wake of the Rice Tariffication Law, rice actually had deflation rather than inflation: rice’s contribution to food inflation was negative for 19 straight months, from May 2019 to November 2020 (see graph below). Unambiguously, the Rice Tariffication Law helped lower rice prices, benefitting consumers all over the Philippines.

Sure, rice’s contribution to inflation has been positive again and inching up since January 2022. But this has to do with the global supply constraints of late, not the Rice Tariffication Law.

Manny Piñol, who was agriculture secretary during Rodrigo Duterte’s term, recently blamed the Rice Tariffication Law for the rise of alleged rice cartels. He said, “The government gave [the cartels] passes when it implemented the Rice Tariffication Law, which actually handed the rice industry on a silver platter to the rice cartel because the government doesn’t bother [intervening] anymore.”

But apart from the fact that there are no proven rice cartels, Piñol neglects to say that the monopoly of the NFA (which he wants to strengthen again) was the epitome of imperfect competition, and the very cause of problems in the rice sector in the first place.

Don’t make a bogeyman out of the Rice Tariffication Law. The last thing we want at this point is to undo real reforms in pursuit of imaginary ones.

In general, beware policy bogeymen used to drive a political agenda. – Rappler.com

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. JC’s views are independent of his affiliations. Follow him on Twitter (@jcpunongbayan) and Usapang Econ Podcast.