Rice Tariffication in the Philippines

Being a member of the World Trade Organization since 1 January 1995, the Philippines must comply with its rules which entails to elimination of trade barriers and limitations. Wherein the Philippines was granted an exemption from the removal of its quotas on rice importation. The exemption was meant to expire in 2014, and further lengthen until the passage of the Rice Tariffication Bill enacted into law by the Pres. Rodrigo Duterte himself on 14 February 2019, amending the Agricultural Tariffication Act of 1996.

The Rice Tariffication Law, which imposes for the restrictions of importing rice begone resulted in greater supply of rice from imports that pushed rice prices down of the local ones. This law became the primary focus of the Duterte administration to be passed during the rice crisis that the Philippines experienced in 2018. According to the Philippine Statistics Authority, the price of regular milled rice varies from P38 to P43 per kilogram. This is still far from the law’s target of P27 per kilogram. Meanwhile on average, the market value of grain falls to P17 per kilogram, which is lower than the P22 price last year. It is even more worrying in some areas. In Nueva Ecija, the price of unhusked rice grain falls to only P7 per kilogram. Farmers are at a complete loss since the cost of producing a kilo of the unhusked rice grains is placed at P12. Our farmers are in danger because of the competition in the market brought about by cheap imported rice. On the other hand, the extensive regime of quantitative restrictions, ostensibly to protect farmers, had resulted at severe costs. For one thing, the protection meant that the Philippines had to settle down other sensitive economic sectors by opening them up at stake in competition. For another thing, quantitative restrictions resulted to extensive corruption, created an incompetent and ineffective importation monopolies, and imposed a hindrance on farmers, beset with inefficiencies, to make headway. The administration became uncompetitive and felt no pressing need to develop our farmers’ yield since it relied on the import quota to shield farmers from embarking competition.

It may be upsetting for the most of us, especially for who do not understand the struggle that our farmers are facing. The government promised to pass the Rice Tariffication Act with proper funding in order to help farmers produce better and protect them against unfair systems that traders and other importers follow. But, do these happened and followed?

For the failure of agricultural modernization due to poor performing officials and its weak implementation of policies, including the short-sighted quantitative restrictions on rice and corrupted budget resulted to the country’s agricultural production stagnated. In terms of efficiency and productivity, the Philippines has made way behind its ASEAN counterparts such as Vietnam and Thailand. Our farmers incur higher costs of production and hence could not compete with the more efficient rice-producing farmers from Vietnam or Thailand. The aftermath has been the deterioration of the welfare and livelihood of our farmers.

A consequence of the import quota was higher food prices. Higher rice prices heavily contributed to nationwide inflation. This was the most noticeable in the inflation spike in 2018 for the main reason was the surge in rice prices, resulting from the maladministration of imports that which resulted to rice shortage. Worse comes to worst, those who suffered the economic burden of the quantitative restrictions were the whole Filipino population, for we are all consumers including the farmers themselves who in the main, are net consumers.

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But the uncommon rise of inflation in 2018, which many critics mistakenly blamed on the effects of the comprehensive tax reform package, became an opportunity to introduce a tough reform. The higher-than expected inflation was prompted principally by the unwarranted spike in rice prices, resulting from the mismanagement of imports to meet supply. This forced the hand of government to remove the quantitative restrictions and shift to the tariffication of rice imports.

The tariff of 35% as the declared value in the law drives up the price of imports and the revenue derived from the tariff is earmarked to benefit farmers. The Rice Tariffication Law’s also provides funding of P10 billion to provide seeds, mechanization, technical assistance, and credit. Any amount above P10 billion that can be generated from the tariff can be used for cash transfers and other forms of financial assistance to the farmers.

What was supposed to be a limited period of quantitative restrictions had a short-term objective of giving time for local rice producers to become more efficient and productive. But after a generation of an import-quota management, the intended goal of making our rice industry competitive and improving rice farmers’ income has not been realized.

Rice tariffication is a significant reform. However, because the country’s reliance on the quantitative restrictions that lasted so long, the farmers face hard changes in the early implementation of the reform. Imports have significantly increased, wherein the Philippines is projected to import about 2.4 million metric tons of rice in 2019 to compensate the demand of the Filipinos in rice. Months prior to the passing of the controversial Rice Tariffication Law, the retail prices of rice have fallen greatly, relative to 2018 prices, and prices are anticipated to go down further. This is good for the consumers, but rice farmers face an enormous challenge. According to Philippine Statistics Authority, retail rice prices went down by P1.83, lower than the expected price cut of P7 to P10. In the enacted law, two problems have arisen. First, retail prices have not fallen as much as farm-gate prices have. This suggests a role for the Department of Trade and Industry and Philippine Competition Commission to investigate whether there is market power at the wholesale/trader sector. Consumers have not yet realized the full aftermath of the reform. Second, the price drop in farm-gate prices has now reached at- or below-cost levels for many rice farmers, and this certainly threatens their livelihood. The Rice Competitiveness Enhancement Program provisions for seeds and mechanization, among others, will benefit farmers by reducing their production costs, increasing their farm yields, and ultimately raising incomes. However, these gains are expected to be realized in the medium term. But the short term is very critical. For retailers, traders and importers have abused the enacted law which now affects the livelihood of our rice farmers.

Wherein a proposal of an immediate response to the arisen complications caused by the enacted law in response to the complaints and needs of Filipino farmers are first, by the use of the agriculture special safeguards under Republic Act No. 8800 or the Safeguard Measures Act, when triggered by a volume or price threshold of imports. Second, a recourse to the general safeguards and anti-dumping duties. Third, the Department of Agriculture (DA) must put in place monitoring and possible imposition of a suggested retail price for rice. Fourth, the Philippine Competition Commission must investigate existing rice importers for exploitative acts. Fifth, hastening the Survival and Recovery Loan assistance of P25,000 loan with zero interest for farmers. And lastly, the Department of Social Welfare and Development's cash-for-work program which provides emergency employment for distressed farmers.

In conclusion, the Rice Tariffication Law is ultimately to the benefit of the whole people, but we must act quickly to safeguard the welfare of Filipino rice farmers. The law enacted helped the Filipino people when it comes to the lowered hulled rice grain prices caused by coping up with the demand with a greater supply. But the long-term effect of it to our farmers which are at- or below-cost selling price of the unhusked rice is a threat to their own welfare and livelihood. The maladministration and incompetent implementation of the said law must be addressed immediately to compensate with the great loss our farmers that were experienced prior to the enacted law even just with the 6 months that passed by.