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Agri policy needs better execution

 

BEN KRITZ

IN spite of the weather that had most reasonable people scurrying for the comfort of their homes, I had an opportunity to sit down with Finance Secretary Carlos “Sonny” Dominguez 3rd on Friday. It was a conversation about which much more will be written in the next couple of days, and among the topics that were discussed was the state of Philippine agriculture, or rather, agriculture in the context of the somewhat contentious Rice Tariffication Act, and the not-at-all contentious appointment of Dr. William Dar as acting Agriculture secretary.

Outside of the offices of the Department of Finance (DoF), there is a sense that whatever good intentions there were behind the liberalization of rice imports have gone astray, and the scheme should be reexamined. This paper has editorialized to that effect, and so have a couple of others, and depending on what currents of thought one swims in on social media, dissent against it among rice farmers and their advocates is shrill.


The problem, of course, is that liberalization has worked as it logically should: the rice supply has stabilized and retail prices have moderated to a tolerable level, but farmgate prices have tumbled. Farm incomes have dropped to worrisome levels, and it has been reported that about 40 percent of the country’s millers have stopped or suspended their operations, finding it unprofitable at current wholesale prices.

There is no way around this conundrum — short of avoiding it altogether by reimposing a protectionist scheme — so one of two compensating solutions can be applied. The simplest one is to simply subsidize farmgate prices. That is being done to a modest extent in an indirect way through the fixed price at which the National Food Authority (NFA) buys rice for strategic stockpiles. The NFA, however, is of greatly diminished importance in the liberalization environment, so this does not have a significant impact. Subsidizing prices directly on a larger scale is not under consideration, but it is hypothetically possible. As the experience of countries such as Thailand has shown, however, subsidies can be a trap; modifying or removing them is politically risky.

The second way to counteract the ill effects of import liberalization is to provide support to growers in ways that help boost their productivity and improve their product. If domestic farmers can produce more, the increase in more accessible supply obviates the need for imports.

Likewise, if their products are of superior quality than what is available in the import market, they will benefit from higher demand. This solution is a market-driven approach, and is the one written into the Rice Tariffication Act — the P10-billion Rice Competitiveness Enhancement Fund (RCEF) paid for by the tariff receipts from imported rice and earmarked for various types of support to domestic farmers, such as seed, fertilizer, equipment and low-cost financing.

Secretary Dominguez has in the recent past publicly stated that the Rice Tariffication Act does not need to be reviewed in spite of its evident shortcomings, and he is actually correct. That agriculture policy should be market-based is a core perspective, not only his (he was at one time the country’s Agriculture secretary, so has a credible basis for his views), but of the Duterte administration generally. That makes the Rice Tariffication Act, or something very much like it, a necessity, one backed by 100 years or so of economic history that demonstrates performance and market liberalization have a directly proportional relationship.

The problem is not that rice liberalization isn’t working or can’t work; it is that the tool devised to carry it out is not being fully utilized. The P10-billion RCEF for this year was jump-started by a P5-billion deposit to the Department of Agriculture (DA), since the domestic farmers would obviously feel the impact of imports before the revenue was collected and made its way through bureaucratic channels. Unfortunately, only about P1 billion of that initial fund was spent, so most of the farmers it was supposed to help have been left out on a limb. Without fully utilizing the RCEF, no judgment can be made as to its efficacy, so calls to scrap or at least modify the liberalization scheme are premature.

With the change in management at the DA (which the DoF chief was instrumental in bringing about), agricultural policy will likely become a great deal more empirical and will certainly be more efficiently carried out. Straightening out the mess rice import liberalization has become for the domestic rice sector will be a good test of Dr. Dar’s leadership, and will provide some insights into how effective further needed reforms — such as liberalization of the sugar industry — might be.

ben.kritz@www.manilatimes.net
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Today’s Front Page February 22, 2020

Today’s Front Page February 22, 2020