PART 1

The rice sector in the Philippines has grown malnourished. Sadly, after the technological advances in the green revolution of the 1970s, the Philippines went from being almost self-sufficient in rice production to a net importer of rice from countries like Viet Nam and the United States (Sevilla, 2004). Production and productivity have steadily declined. The price of rice in the country now ranks among the highest in the region. Rice production growth rate is now lower than that of the population. And yet, the government is pursuing short-term measures of price interventions through the NFA (buy high from farmers-sell low to consumers-store long to stabilize prices). According to those who oppose the policy of price interventions, the government should concentrate on longer-term solutions of increasing yield sizes and improving productivity. But who knows what strategy would work? Nothing is constant but the misery of our poor Filipino farmers who remained “IKIT” - isang kahig, isang tuka.  Let us balance the equation by taking a neutral view on the situation of the rice sector: 

1. Our Commitment. Our government is committed to the attainment of sustainable food security to be a primal objective of a national development policy. One of the components of the government’s food security policy is the production of rice at a level considered as “self-sufficient”.

2. Rice self-sufficiency. Self-sufficiency in the production of rice is an explicit national policy of our government as codified in RA 8435 or the Agriculture and Fisheries Modernization Act of 1997.

3. Food security. “Food security refers to the policy objective, plan and strategy of meeting the food requirements of the present and future generations of Filipinos in substantial quantity, ensuring the availability and affordability of food to all, either through local production or importation, or both, based on the country’s existing and potential resource endowment and related production advantages, and consistent with the over-all national development objectives and policies. However, sufficiency in rice and white corn should be pursued” (Sec. 4, “Definition of Terms” RA 8435).

4. We had never been self-sufficient. The country has never been self-sufficient for any sustained period. Since 1980’s growth in rice production has been slow. We lagged behind much of Asia in terms of growth in rice productivity. The country has turned to be a regular importer of rice because the rate of growth in rice production has lagged behind the rate of growth of the population.

1970s - the country imported less than 2% of its requirements2001    - the country imported a high of 8% of its requirements 

5. Our Overall performance in Rice Production. Over the 1990s the average annual growth in the production of rice in the Philippines has averaged only 1.9% while the population of the Philippines was growing relatively rapidly at an average of over 2.3%. “Rice production lost the race with population.”

6. We are a rice importer country. The Philippines has become the largest customer for the rice exports of Viet Nam and a regular recipient of the rice produced by the United States, particularly provided under soft loan terms of US foreign policy programs such as US Public Law 480. The Philippines shortfall for import in 2002 is 1 million MT.

7. Our growing rice imports. For the last three decades, 1970-1980-1990, the country’s imports of rice (as a proportion of total requirements) was only about 1% in 1970s, it became close to 2% in 1980s, and reached over 7% in 1990s (Bas & NFA).

8. Stagnation in Rice Productivity. The country has lost its rice self-sufficiency because of stagnant growth in rice production combined with the rapid growth of population. Compared to Viet Nam and Thailand whose productivity growth spurted upwards, the Philippines rice productivity remained basically stagnant.

9. There is a growing gap in rice costs and Prices. Over the 1990s the world prices of rice have remained relatively low and stable while the domestic consumer prices have been two or three times those of Viet Nam and Thailand.

10. The effects of expensive rice in the Philippines. Eighty percent (80%) of Filipino households devote 50%-60% of their expenditures on food. The poorest fifth of the population directs 2/3 of its purchases on food. Rice constitutes a significant proportion of food costs and thus expensive rice means high cost of living.

11. Rice sector policy in the Philippines. Current rice sector policy in the Philippines is dominated by rice price interventions implemented through the monopoly on the international trade of rice held by the NFA since 1960s. As of today, along with South Korea, the country remains one of only two countries in the WTO  that maintains quantitative restrictions (QRs) on rice.

12. NFA monopoly plus QRs. The long-extended monopoly of the NFA and its tight implementation of QRs have maintained high farmgate as well as high consumer prices in the country. This has contributed to an over-reliance of policymakers on price intervention instruments rather than productivity increases to support farmers’ incomes and ensure domestic food security.

13. More on rice policy. With the NFA’s monopoly, it is obvious that the government is heavily involved both in the supply and distribution aspects of rice to assure consumers of a sufficient and stable supply of rice at low prices and to maintain a reasonable return to rice farmers through adequate price incentives. The present pricing policy of the government involves:

a. setting and defense of a price floor and ceiling

b. minimizing seasonal price variations in the various regions in the country

c. monopoly of the importation and exportation of rice through its various procurement and disbursement operations in order to influence domestic price levels.

PART II

The Philippines was granted exemption from the removal of the quantitative restrictions (QRs) on rice under paragraph 7 Annex 5 of the WTO agreement. This exemption was granted in 1995 along with South Korea and Japan (Japan was pulled out from the exemption). This exemption will end in July next year, as the ten-year period lapses. The Philippine Institute for development Studies asks: If the removal of the exemption is lifted by mid- 2005 and unrestricted rice imports will be allowed to enter the country, what will be the effects on local rice industry? How about on the poverty situation in the Philippines? On income distribution? And on prices? 

1. What is a quantitative restriction on rice? The QR puts a limit to the volume of rice imports that may enter the country and is meant to protect the local rice sector from the inflow of various imported rice varieties. 

2. Retail and world price of rice. The gap in the prices of rice in the country (retail) and the world price has widened from 20% in 1989 to 130% in 2001. Hence, for that year, the price of rice per kilo in the world market is only about 8 pesos while in the Philippines, it reaches about 18 pesos. A major factor for this growing gap is the import control on rice through the QR. With QR, tariff for rice is high. 

3. Significance of rice in the Philippines. Rice production utilizes most of the agricultural resources. About 5 million hectares of arable land are devoted to rice and corn production, two-thirds of which are under palay. About 1.8 million people depend on grains sector. 

4. What would happen if QR on rice will terminate? Dr. Cororaton of the Philippine Institute for Development Studies (PIDS) did a simulation involving total elimination of QR. The results indicate that the import price of rice and corn milling in local currency drops significantly by -54.4%. This translates to a surge in rice imports by 1,567% (although the increase is large, the share of rice imports remains relatively small compared to the share of domestic price). Dr. Cororaton also noted that:

a. The general equilibrium impact of the total elimination of QR is negative on agriculture, particularly on irrigated and nonirrigated palay in terms of price and volume effects.

b. There will be an overall decline in consumer prices which is favorable to consumers.

c. There will be a negative effect on the factors of production because of the drop in output and price of palay and rice. The demand for labor also drops in these sectors.

d. Largely because of the drop in factor prices, overall household income declines as QR is removed specially in the rural areas since these households are highly dependent on factor incomes derived from agriculture. 

5. QR elimination is not pro-poor. In Dr. Cororaton’s study, the removal of QR can be described as generally not pro-poor. It worsens the income inequality problem. The drop in consumer prices is not significant enough to mitigate the negative effect on income, especially on household groups where the problem of poverty is severe. Generally, the poor will not benefit from the removal of QR. 

6. Policy lessons from PIDS study. While market reform is necessary, it has to be carefully carried out especially if implemented in a critical commodity like rice. PIDS is also telling us that while market reforms in rice can potentially have favorable effects on consumer prices, some household groups may be adversely affected by the expected surge in rice imports.   

PART III

Generally, the status of the current review negotiations of the WTO Agreement on Agriculture is also being discussed by some concerned civil society groups. However, one of the particular issues under said agreement (Annex 5 provision) is the Philippine government’s notification to the WTO to extend the QR on rice imports. During the PIDS-CPBD economic forum, Mr. Gregorio Tan of the NFA declared that the Philippine government is negotiating for a seven-year extension of QR in the WTO.  The extension of QR is also the position of the Task Force Food Sovereignty (TFFS). Why should QR be extended? What is the government’s definite policy on rice QR? Is there a full public disclosure of the government’s negotiating position for the extension of QR and even in the on-going review of the agriculture agreement in the WTO? 

1. Quantitative restrictions or import controls is important. QR or import controls remain as the possible option that the government can take to protect sectors of the economy from unfair competition. QR can be used effectively to strengthen the protection to domestic agriculture production, particularly, rice in order to raise rural incomes, improve welfare of small farmers

2. Definite policy on rice QR. The government should state a definite policy on rice QR and a full public disclosure of its negotiating position for the extension of rice QR, in particular, and its position in the on-going review of agriculture agreement in the WTO.

RECOMMENDATION:

The only related bill filed in the 13^th Congress regarding rice tarrification was that of Speaker de Venecia - Rice Safety Nets act of 2004 (An act to place safety nets for Filipino rice producers by imposing tariff in lieu of quantitative restrictions on rice imports, directing for tariff collection for rice importation to projects and programs to enhance rice productivity, and increase farmers’ income”). Regarding the government’s position on QR on rice, the answer was already laid on the table – renegotiation to extend QR on rice for seven years more. The legislative actions that can be recommended are: 

1. Inquiry into the negotiating position of the Philippine Government in agriculture.
2. Resolution requiring the Philippine trade negotiators to adopt a full public disclosure on the negotiations on the extension of quantitative restrictions on rice and submit position for review and final approval of congress.
3. Maintenance of QR on rice until such time that the rice sector has achieved competitiveness.
4. Review and adjustment of current tariff regime of agriculture products, with priority on those crops tariffied under RA 8178 (An Act Replacing Quantitative Import Restrictions on Agricultural Products, Except Rice with Tariffs)

Reference

Sevilla, Luningning, ed. The Ties That Bind: Population and Development in the Philippines (Second Edition). Makati City: Aim Policy Center, 2004. 

Cororaton, Caesar B. “Can the Poor Benefit From the Removal of QR on Rice?” in Policy Notes, No. 2004-04, May 2004. Philippine Institute for Development Studies. 

Task Force Food Sovereignty, Position paper on the Philippine government’s notification to extend QR on rice and the current WTO negotiations, June 3, 2004. 

Task Force Food Sovereignty, “Reject the July Framework Agreement! Uphold Food Sovereignty! Protect Small Farmers’ Rights and Livelihoods!”, August 4, 2004 

Glipo, Arze. “The WTO Agriculture Negotiations and the July Framework Agreement: Issues and Concerns”, August 24, 2004. 

http://www.nfa.gov.ph  

Researcher: Albert A. Basa, CIBAC Legislative Staff