Self-sufficiency in rice policy leads to economic slowdown and poverty

28.04.2017

The rice-importation controversy highlights the huge, normally unforeseen, constraint affecting the country’s economic growth and poverty. The Department of Agriculture (DA) has recently deferred the importation of the product despite the continued insistence of the National Food Authority (NFA), the only agency mandated to import rice in the country, to push through with purchase in the global market. According to the DA, the importation will decrease rice prices and will be a disincentive to rice farmers who are expected to produce a bumper crop this year.

This suspension of the rice importation gives the government good publicity, since historically, rice production has been a source of national pride, and rice self-sufficiency is a measure of government success.  In fact, a specific goal of the Duterte administration is rice self-sufficiency in two years. Agriculture Secretary Emmanuel F. Piñol on one occasion said DA regional directors should see to it the two-year objective was achieved in their respective areas, or else, they would lose their jobs. He indicated he would give them all the support they would need, including irrigation, seeds, fertilizer and farm inputs. “But I will give them the sack if they fail. This government is results-oriented.”

This policy is part of a series of government policies aimed directly at providing help to the poor.  In this case, the targets are the rice farmers who are believed to be disadvantaged by the rice importation. It needs to be cited though that this policy is not original to the current administration. The goal of rice self-sufficiency has been the hallmark of all presidents since the creation of the NFA, from Ferdinand E. Marcos to Benigno S. Aquino III. Oddly, while growth in the agricultural sector declined, a 97-percent self-sufficiency in rice was achieved.

In effect, this attention-getting but short-sighted policy only permanently jacked up domestic prices above the world levels. The production cost per kilogram of palay (rough rice) is only P6.53 in Vietnam, versus P12.41 in the Philippines.  The gradually increasing food prices, especially rice, can explain the higher inflation rate this year. This price increase affects the poor household consumers particularly, since a substantial proportion of their incomes is spent on food, especially rice.  Because of the high cost of production, most of the rice farmers purchase some of their daily rice needs in the markets, and so, they too are adversely affected by this policy.  Ironically, the import restrictions only benefit the rich, large rice retailers, and endanger the poor’s food security.

Moreover, the impact of this policy is to make the current industrialization more difficult. Given its labor abundance, the country’s only recourse in improving the lives of the people in the countryside is to push them toward industry where wages are higher.  Once the land-labor ratio in agriculture increases, the demand for labor in the rural sector will also increase, thereby raising rural wages as well.  True enough, the current surge in industry, which explains for much of the recent growth, has resulted in higher real wages both in urban and rural areas.

The problem is the devotion to self-sufficiency in rice will make it very expensive to maintain this trend.  We need to develop a feasible industrialization program that is complementary to agriculture development.

All industrialized countries have an agricultural history.  Because of the importance of food for nutrition, development in a land-scarce, labor-abundant, country starts with agriculture. However, as the economy grows and as more trade opportunities become available, industries are created to absorb the labor surplus.  In order to industrialize, resources are needed in order to take advantage of the technological progress that has taken place in the developed world.  In the process, the country exported agricultural products or minerals that they have an advantage in producing.   For example, Japan’s initial exports were silk and bamboo products; Taiwan’s were rice and sugar and Malaysia’s was rubber and timber.

In the case of the Philippines, the difference between the domestic and international rice prices clearly show we do not have comparative advantage in rice. The role of the DA is, therefore, to determine the products that are highly demanded in other countries that we can produce here at a lower cost. We may have the advantage in producing certain tropical fruits and vegetables and fish, which are in high demand in other countries. Like all industrialized countries, export earnings from agriculture and fishery, as well as earnings from industry and services, can provide us the means to import food for our daily needs.

In the end, agricultural development remains as the only avenue both for economic growth and poverty reduction. Unfortunately, we are wasting our resources with all of these results-oriented, but sadly, myopic policies.


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