Philippines. The price of rice, domestic production and imports

19.04.2017

Rice policy has once again come to the public consciousness. The President has unfortunately spoken against the importation of rice as an element of economic policy.

Need for a liberal rice import policy. It would be a mistake to close the door against imports and to focus only on self-sufficiency in production.

Self-sufficiency is not a feasible economic objective anymore given our land resources (limited for rice agriculture, but not for other high-valued commercial crops) and our very large population (100 million plus Filipinos which is still growing).

In the face of these realities, we need a rational policy toward rice imports. Even then, the domestic production of rice remains as an important national objective.

The importation of rice needs to be integrated as an element of a sound policy of promoting food security. We are in a propitious position to rely on ASEAN neighbors that are better endowed in rice production even as we focus our agricultural potentials on other export crops.

As a strategy, this will further help in our economic integration within the ASEAN. In this sense, the rice-exporting ASEAN countries of Thailand, Vietnam, Myanmar and Cambodia become part of our extended hinterland.

Even as this would happen, the main supply of rice would still come from our traditional rice producing regions. The government could and should continue to encourage domestic rice production.

Local farmers still have some edge in competition: though higher in farm cost, their output is nearer to our ultimate consumer market.

The government must recognize there is an upper limit to our efforts for domestic production of the crop. National policy requires that the supply of rice for domestic consumption is sustained by domestic production and a realistic assessment of import needs.

Food security compels a proper balancing of domestic production and import needs. Import needs must be planned for every crop year as an assessment exercise for fulfilling the country’s food security requirements.

Even as such recognition of imports is part of the planning, the support of policies to rice agriculture cannot be taken for granted. Infrastructure and institutions related to rice agriculture need to be strengthened.

Government support of infrastructure development for agriculture is critical for rice production, as well as for other crops. The expansion and maintenance of irrigation networks and of flood control projects are part of this support.

The strengthening of economic institutions includes improvements in rural credit, in support of farm cooperatives, the continuation of farm technical assistance and support of research and development.

On the matter of rice importation, a desirable development would be the removal of the import monopoly of NFA (National Food Authority). In its place should be a vigorous participation of the private sector. Broad-based participation of private importers would guarantee against monopoly power being exerted by dominant importers.

An old controversy.  I have written on rice policy issues in my Philippine Star column on several occasions. For example, on Aug. 6, 2014, I addressed the relationship between domestic price of rice, food security policy, and world rice prices.

Studies of many economists suggest that the countries that have made a successful balancing of the interests of farmers and urban populations have also done well in enhancing their food security.

A piece on Aug. 13, 2014 argued that the price of rice could be reduced substantially, if the government were to clip NFA’s vast powers and make its role focus more on introducing competitive regulation in the trading of rice.

Rice policy has always been very political. Its success requires a proper balancing of the interests of both producers and consumers.

When the interests of both rice farmers and consumers are taken into account reasonably well and market forces are allowed to function, we arrive at the golden solution. Stable price for the staple is achieved, making most farmers happy and the general population of consumers (most of us) satisfied.

A brief review of rice policies. A brief review of how rice policy has messed us up sometimes is worth looking into, if only to understand how we have fared in this context. In general, we have learned from bad mistakes.

During the 1950s-1960s, public policy on rice favored consumers more than producers. Prices were controlled to protect the consumer from high prices. To implement the policy, a government marketing agency often imported the rice supplies and sold this at low prices.

Such solutions, however, were not sustainable financially, for they depended on spending large and costly subsidies to support retail prices. In the end, consumers suffered when the policy failed.

In the late 1960s, this policy was revised which led to a new rice marketing agency – a National Grains Authority (now the NFA). It intervened in the market by buying high at wholesale from farmers and selling low at retail. This helped to improve rice prices for farmers while maintaining still a reasonably low price for consumers.

During the 1970s, rice policy moved more toward helping the producer. The marketing agency was sensitized toward both producers while trying to stabilize the price of grain for consumers.

Farmers received better incomes during harvest when the marketing agency bought part of their output for storage and milling. The same agency contributed to price stability when it sold at retail at reasonable prices.

Nevertheless, huge losses for the grain agency eventually resulted from such operations over time, leading to the impairment of its capital and the loss of its effectiveness. Corruption and bad management also weakened the agency. Moreover, the operational losses worsened the government’s fiscal capacity.

The country reached production self-sufficiency during a short period. But this was not due to those policies directly related to the marketing operations.

What contributed heavily to success when the nation achieved self-sufficiency in rice production momentarily in the early 1980s was government support of agricultural development.

The government of the time invested heavily in the building of agricultural infrastructure (irrigation investments coupled with improvement of farm to market roads) and in supporting economic institutions favorable to farmer productivity (rural credit, farmer’s cooperatives, farm extension work of government, and rice research on varieties).


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