POSTSCRIPT / January 16, 2011 / Sunday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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Analysis shows why local rice is cheaper

MUÑOZ, Nueva Ecija — Dr. Flordeliza H. Bordey, senior science research specialist at the Philippine Rice Research Institute in this science city, analyzed for us data to answer the question: Which is cheaper between importing rice and raising it?  She says:

“We need to compare the domestic price of rice to its world counterpart. Let us use the wholesale price of a regular milled rice to represent the domestic price and the price of Thailand 25-percent broken rice as landed in Manila to represent the world price. More or less, these types of rice have comparable quality.

“Except in 2008 during the world food crisis, imported rice (CIF Manila) is historically cheaper than the domestic one if rice trade in the country is fully liberalized. This only happens if the country opens itself to imported rice without trade restrictions.

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“HOWEVER our current rice trade policies impose both quantitative restriction (quota) and ad valorem tariff.

“First, the government decides on the total volume of rice to be imported based on the recommendation of an interagency committee. The government through the National Food Authority has the priority to import the volume needed to allow NFA to have stocks good for 30 days by June 30, or before the lean months.

“Then, if the set volume of imports for the year is greater than those needed for 30-day buffer stock, NFA will issue import quotas to private entrepreneurs. If there are no interested private importers, NFA will import the remaining volume.

“The rice, whether publicly or privately imported, is then taxed with 50 percent of its value.  After the tax, the imported rice is now more expensive than the domestic rice. With the existing trade policies of the country, it is cheaper to raise rice than to import it.

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“IN 2009, for example, the wholesale price averaged at P28/kilogram (kg) while imported rice with tariff should costP34/kg. In the same year, NFA sold rice at around P23.5/kg at the wholesale. While this benefits consumers especially in urban areas that do not produce rice, this also means that NFA incurred trading losses.

“Worse, NFA has borrowed from the banks to cover its deficit and incurred interest costs. This could be happening since 2003 when the price of imported rice with tariff had overtaken that of domestic price, which could explain why NFA is in a bad financial position.

“Why do we impose trade restrictions in the form of import quotas and tariff when it will only lead to ‘unnecessary’ higher price of imported rice?

“The first and foremost reason is to support local farmers. If we do not impose trade restriction, the domestic price will approximate those of imported rice (without tariff). The cheaper price of imported rice will force rice processors (millers) to compete and supply domestic rice at lower cost. This means that the capacity of processors to pay for palay, the raw material for rice, will be significantly diminished.

“As entrepreneurs, rice processors need to recover their costs. As a result of full trade liberalization, the farmgate price of palay will significantly decrease. Under this scenario, palay production, which is the major source of income of two million households or roughly 10 million Filipinos, will not be profitable for many farmers. In turn, this will discourage local farmers from producing palay, which will increase the demand for imported rice.

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“THE FACT that NFA is selling imported rice below its real cost (import price plus tariff) is defeating the purpose of imposing tariff. In the end, this depresses the domestic price of rice, and eventually the price of palay at the farm level.

“If many farmers do not produce palay, can we turn to imported rice to supply the rice requirement of the country? The country’s rice requirement in 2010 was 12.70 to 13.16 million metric tons, of which about two million metric tons was imported. If domestic production is significantly reduced due to low price, can we obtain a major part of our requirement from the world market?

“From 2000 to 2008, the world excess stock or the difference between the world rice export and imports ranged from 1.33 to 2.90 million metric tons. This shows that the world trade of rice is very thin, and that we cannot totally depend on importation to supply the majority of our rice requirement.

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“WE HAVE to improve the domestic rice industry to meet future increases in demand. We need to import a part of our total requirement because our domestic production is not enough. But if NFA is efficiently run and with farmers given a more competitive edge, we may be able to produce all the rice we need.

“Other experts might argue otherwise based on a more complicated economic analysis considering the repercussions to the general economy and welfare implications of maintaining high domestic rice prices.

“However, we also need to consider the endowments of consumers and producers. The poorest 30 percent of the population spend 16 percent of their total expenses on rice. On the other hand, an average rice-farming household obtains more than 50 percent of its income from palay production.

“Besides, the ultimate goal of the government is to increase effective area harvested and develop technologies that will increase productivity to reduce per-unit production costs in the long run.”

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(First published in the Philippine STAR of January 16, 2011)

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