• The great rice folly

    Ben D. Kritz

    Ben D. Kritz

    RICE is life in the Philippines. According to various studies, it constitutes up to 40 percent of the average Filipino’s dietary intake; its production occupies a third of the country’s agricultural lands, and it is the main source of livelihood for roughly 12 million people. If there is one thing any government of the Philippines absolutely must administer correctly, it is the country’s rice industry.

    When President B.S. Aquino 3rd steps down from office, he will leave the country with a number of dubious economic, social, and political legacies, but the one that will have caused the most lasting damage and be the most difficult to overcome is his administration’s hubris-driven, destructive mismanagement of Philippine rice production and supply.

    Last Friday, the president “ordered” the National Bureau of Investigation and Philippine National Police to “go after” those who may be manipulating the price and supply of rice, garlic, and other commodities, after being informed that there was no actual shortage of those things and that recent steep price increases must obviously be the result of actions by “cartels.”

    This is the pathetic nadir Aquino’s agricultural policy in general and oversight of the rice trade in particular has reached: Laying the blame for high prices and spotty supply on a favorite phantom, because “cartel” is a creepy-sounding word that evokes fear and loathing among an unsophisticated public. The president could have demanded the arrest of the Tooth Fairy, for all the relevance his “order” actually has.

    Aquino and his Agriculture Secretary Proceso Alcala have spent most of the last three-and-a-half years assuring the Filipino people and anyone else who was obliged to listen to them that the Philippines would achieve rice self-sufficiency and become an exporter of the staple grain by this year, claims that were given a fig leaf of validity by some well-publicized policy decisions. From 2.4 million MT in 2010 (an amount indicated by credible studies using actual math as being close to the country’s normal annual import need), the import requirement was lowered to 860,000 MT in 2011, 500,000 MT in 2012, and to just 350,000 MT last year. The government was even able to make a token claim to having achieved exporter status with the dispatch last May of about 35 tons of fancy rice to Dubai, the first time the Philippines had exported any rice since 1987.

    There were signs, however, that any perceived progress was mere window-dressing. Even as official import requirements were being lowered and increases in both yield and cultivated land area were being reported, the amount of smuggled goods entering the country skyrocketed from an average of about $3.8 billion annually during the nine years of the Arroyo administration, to more than $19 billion annually under Aquino. Not all of that was rice, but it is certain some of it was; despite big losses from the normal run of typhoons and flooding, both rice supply and prices remained relatively stable. On the policy side of things, the government was on the one hand lowering import requirements, and on the other lobbying aggressively for yet another extension of the Philippines’ quantitative restriction (QR) privileges under World Trade Organization (WTO) protocols, an effort that was eventually successful.

    Under QR, the Philippines’ minimum access volume (MAV) was 350,000 MT annually; in exchange for getting the QR privilege extended through 2017, the government agreed to raise the MAV to 805,200 MT and reduce the preferential tariff rate applied to that amount to 35 percent (it had been 40 percent). Amounts imported in excess of the MAV can be charged the Philippines’ higher tariff rate of 50 percent. Without QR, the tariff on any amount of imported rice would be capped at 35 percent. Under the Asean Free Trade Agreement (AFTA) scheduled to take full effect next year, the tariff will be capped at 35 percent anyway; the QR is still important, however, because it will apply to any rice imported from outside the Asean nations.

    The implication of the Philippine government’s working so diligently to obtain an extension of QR even with the imminent implementation of AFTA—which would render QR largely irrelevant—is that the government knows, even if they refuse to admit it, that the country will definitely need to import more than 805,200 MT annually. Which in fact has turned out to be the case, as just prior to the issuance of President Aquino’s feeble threat to the non-existent “cartels,” the government announced it would import an additional 200,000 MT from Vietnam next month, bringing the half-year total of rice imports up to an even one million MT. The decision was presented as a maintenance move to keep up the country’s “buffer stock”, but that appears to be a typical overstatement, because in connection with the announcement of the additional import quantity, Economic Planning Secretary Arsenio Balisacan also revealed the administration is considering a plan to allow unlimited importation, thus rendering the recent QR extension completely moot.

    So much for rice self-sufficiency, and it has become clear that the vain policy of putting up the front that the Philippines could and was actually approaching that physically-impossible goal has actually put food security at greater risk than it was when Aquino took office. This year alone, the Philippines will pay Vietnam close to half a billion dollars for a staple commodity. The size of the Philippine population, the peculiarities of the Filipino diet, and the geography of the country make it inevitable that some part of that cost would have been unavoidable, but a considerable amount of it could have nevertheless been saved. How much could have been achieved with the savings if the Aquino Administration had pursued a policy of boosting agricultural efficiency rather than a futile effort to prop up its self-image will be something that will only be known—if we’re lucky—once the next administration takes office.



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