Rice Politics - I

RICE is a political commodity as it is the staple of Filipinos. So, how the government manages its supply and price (hence, its affordability) usually invites decision-making based largely on political considerations rather than sound economics.

There are two recent events that prove this point.

One, is the planned launching of the program selling rice at P20 per kilo (kg) in selected provinces in the Visayas. This program is touted by the government as the fulfillment of the President Ferdinand Marcos Jr.'s promise of bringing rice prices at the very affordable level of P20/kg, which he made during the campaign for the May 2002 polls.

And two, is the claim of the Palace Press Office and Press Undersecretary Claire Castro that the government is contemplating to restore the power of the National Food Authority to import rice to better manage its supply, with the aim of bringing prices down. She even blamed Sen. Cynthia Villar, the main author of the Rice Tariffication Law (RTL), as the villain in frustrating the attainment of this goal.

To recall, the RTL removed the power of NFA to import rice and assigned that role primarily to the private sector. RTL's amended version, Republic Act 2078, passed last year, also did not restore NFA's import authority despite strong lobbying by stakeholders close to the administration.

Ostensibly, the decision to implement the P20/kg rice smacks of politics.

Take note that selling P20/kg rice is taking place close to the May election with recent surveys showing a surge in the popularity of senatorial candidates belonging to the Duterte camp.

The program to sell P20/kg rice will be implemented in the Visayas that are regionally identified with the former president. Davao is a Visayan-speaking region like most of the Mindanao provinces. They have closer affinity to the former president considering that he proudly proclaims himself as a Visayan.

And third, the dramatic decline in the president's approval rating that is down to 25 percent in March, according to a survey by Pulse Asia. Among the C, D and E classes, a major factor that is undermining the president's credibility is his unfulfilled campaign promise of bringing rice price down to P20/kg. When the issue is raised among people in these classes, the instinctive response is "nabudol kami" (we were duped).

Let us turn to the economics of the policy to see whether it makes economic sense and use simple arithmetic to prove our point that the soon-to-be launched program is not sustainable.

Our total national rice consumption is around 16 million metric tons (MTs), with a daily average national consumption of around 35,000 MT. Local production can only meet around 13 million MT of the demand. This explains why we need to import more than 3 million MT of rice.

Rice imports will continue to increase if our population growth rate remains at around 1.3-1.5 percent annually while our palay production growth rate stays at just 1 percent or even lower when natural calamities hit the country's rice-growing areas.

Subsidies needed

The NFA palay procurement price is P20/kg, though the prevailing market price is now around P14 to P15/kg because of ample palay supply. Two kilos of palay are needed to produce a kilo of rice at the retail level (price includes cost of palay, drying, milling, transport, and margins of wholesalers and retailers).

Thus, the actual price at the retail level, if NFA bought palay at P20/kg, should be P40/kg. Thus, every rice sold at P20/kg means that the government will lose or shoulder the cost of P20/kg.

The Department of Agriculture (DA) claimed that NFA has stocks of around 350,000 MT. Converted into kilos, this translates into 350 million kilos. If NFA disposes of all these stocks, it loses P7 billion based on a deficit of P20/kg.

Will this intervention impact the rice market by bringing prices down?

The rule of thumb in economics is for a player to impact the market, it has to control at least 10 percent of total supply. Based on an annual consumption of 16 million MT, the government should have at least stocks of 1.6 MT to dispose of. The current stocks in the hands of NFA, which is 350,000 MTs, is way off the mark. One needs to multiply the stocks five times for the government to be able to control at least 10 percent of total demand.

For that to happen, NFA will need a budget of around P45 billion, given that its previous budget of P9 billion is only good for the procurement of 300,000 MT of rice. This budget is bigger than the budget of a number of our government agencies. Sadly, half of this budget, assuming rice is sold at the P20/kg, will automatically be treated as a loss.

But it seems, based on media releases, that local government units (LGUs) in the Visayas will equally shoulder the loss. Provinces in the Visayas seem to have a lot of extra cash to spare for this program.

However, a news story released last April 16 in one of the morning dailies reported that the NFA was complaining that only a few local governments are buying rice for distribution to their poor constituents despite significantly lower prices offered by the agency. If this indeed true, isn't this an indication that LGUs do not have surplus funds at their disposal?

Cebu might have because of the higher internal revenue allotments (IRAs) it receives but the province is an exception to the rule, particularly if we compare it to the poverty-stricken provinces in Eastern Visayas (Samar and Leyte).

But the more important concern is who are going to be the recipients of the highly subsidized price? Will the distribution be the same as the one for AKAP (Ayuda para sa Kapos ang Kita Program) wherein politicians determine the beneficiaries?

Why not just utilize the validated beneficiaries of the 4Ps (Pantawid Pamilya Pilipino Program) to ensure that the benefits of the subsidized rice really reaches the poorest of the poor? Or will the P20/kg rice program be used again by politicians to reward their supporters?

Next column will delve into the political economy of restoring NFA's authority to import rice.