Agrarian reform, Human rights

Landlessness, poverty and war in Negros

“Kaya dun po sa amin
Di biro ang magtanim
Magpunla ka ng binhi
Punglo ang aanihin.”

(Magtanim ay di biro)

On Mar 30, 2019, the police and military killed 14 farmers in separate operations in the city of Canlaon and in the towns of Manjuyod and Sta. Catalina – all in Negros Oriental province. Twelve more were arrested. Police and military officials justified the killings and insisted that the victims were armed communist rebels. They claimed that state forces were just implementing search warrants for loose firearms when the victims opened fire at them.

But several witnesses, including relatives of the victims who survived the gruesome killings, have come forward to dispute the account of the police and military. The harrowing details of the massacre as told by the survivors and kin are being documented by human rights advocates and peasant groups as calls for justice and to end impunity mount.

War against peasants

The summary execution of 14 farmers in Negros Oriental came five months after unknown assailants massacred nine farmworkers in Sagay City in Negros Occidental on Oct 20, 2018. They were participating in a land occupation and cultivation campaign led by the National Federation of Sugar Workers (NFSW) at the disputed Hacienda Nene when they were killed. Weeks later, on Nov 7, 2018, their lawyer – a long-time peasant rights advocate in Negros – was also assassinated. For the military, the NFSW is a communist front.

It came three months after six people were killed and 15 arrested in similar joint police and military operations in search of supposed loose firearms in hinterland barangays in Negros Oriental on Dec 27, 2018. Again, the authorities insisted that the victims, including village officials, “turned out” to be armed communist rebels and fought back.

All in all under the Duterte administration, at least 55 farmers, farmworkers and land rights advocates have been felled by apparent extrajudicial killings in Negros island so far. These killings appear to be systemically being carried out as part of President Duterte’s anti-insurgency campaign, made even more reprehensible by his virulent rhetoric against assertive peasants (My orders to the police and soldiers, shoot them… If they die, I do not care.” – Duterte on landless farmers involved in land occupation campaigns)

Negros island provinces are among those covered by Memorandum Order (MO) 32. It called for increased deployment of police and military forces purportedly to “suppress lawless violence and acts of terror”. The others are provinces in Samar island and Bicol region.

Implementation of the Malacañang directive in Negros island has taken the form of the Synchronized Enhanced Managing of Police Operations (SEMPO). More notoriously, it is also known as Oplan Sauron in Negros Oriental under whose name the recent mass killings and arrests of mostly Negrense peasants are being carried out.

Twenty of the reported 55 extrajudicial killings in Negros island were on account of Oplan Sauron in Negros Oriental. Oplan Sauron is sinister by design. Disguising as law enforcement, it uses search warrants for loose firearms to legitimize police and military attacks in rural communities and households suspected as bases of support of the New People’s Army (NPA).

But instead of weakening the NPA, such brutal modus operandi could be fueling even deeper collective resentment in the rural areas against the police and military. In the end, Oplan Sauron could only further boost the legitimacy of the people’s war and agrarian revolution that the NPA wages.

This is especially so because of the structural issues underlying the social unrest and conflict in Negros.

Landless, hungry, poor

Negros is an island mired in grinding poverty and hunger, mainly spawned by decades of chronic landlessness among its farmers and farmworkers.

Official poverty and hunger incidence in the island, especially Negros Oriental, is among the worst in the country. Negros Oriental has a poverty incidence of 45% (of population) compared to the national average of 21.6 percent. Its subsistence incidence is 24.2% while the national average is 8.1 percent. Negros Occidental has “better” poverty and hunger figures (29% and 9.4%, respectively) but these are still worse than the national averages. The numbers are as of 2015.

There are about 1.56 million poor people in the two Negros provinces. To give perspective, note that the country’s poorest region, the Autonomous Region in Muslim Mindanao (ARMM), has 1.99 million poor people spread in its five provinces.

To be sure, the actual levels of poverty and hunger in the Negros island are much higher than what official data indicate considering the absurdly low thresholds government uses to measure them. Based on the 2015 official poverty survey, for instance, a Negrense only needs Php39 to Php44 to meet daily food needs; and a total of Php56 to Php63 to meet daily food and non-food needs.

Nonetheless, such low standards still paint a picture of widespread destitution, one that is even worsening. Poverty in both Negros Oriental and Negros Occidental deteriorated from a decade ago (i.e. 2006 data). Hunger also worsened in Negros Oriental during the same period. (See Table 1)

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Many see government’s three-decade Comprehensive Agrarian Reform Program (CARP) as a failure; and it can’t be more conspicuous anywhere else than in Negros island. CARP is supposed to distribute 427,656 hectares (has.) of land in the Negros region. But as of end-2016, the program has distributed just 302,377 has. for a balance of 125,279 has. in land acquisition and distribution (LAD).

Negros island accounts for 21% of the national LAD balance of 602,306 has. – the largest among all regions. It has the second lowest LAD accomplishment rate at 71% , just behind the 67% of another restive and impoverished region, the ARMM. (See Table 2)

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Meanwhile, a sizable portion of CARP lands in the region, particularly in Negros Occidental, is under the notorious stock distribution option (SDO) that allows landlords to retain effective control. SDO schemes cover more than 3,200 hectares of CARP lands in Negros Occidental as of June 2015 and practically all are planted to sugarcane, accounting for almost 90% of all SDO lands nationwide.

Indeed, most of the undistributed lands in Negros are vast sugarcane plantations concentrated in the hands of landlords that include political clans. After rice lands (about 23% of LAD balance), sugarcane lands (around 19%) comprise the largest portion of undistributed lands in the country, with an overwhelming concentration in Negros Occidental.

Thus, many of the landless in Negros end up as sugarcane farmworkers in these massive haciendas, trying to eke out a living under slave-like conditions. It is estimated that Negros island has about 335,000 sugarcane farmworkers, almost 43% of the national total.

Latest farm wages survey of government pegged the average nominal wage of sugarcane farmworkers at Php253.69 per day – the second lowest among major crops, just a bit better than corn farmworkers’ Php246.05.

But the actual take home pay of the sugarcane farmworkers is much lower as they are tied to the vicious cycle of landlessness, starvation wages and debt. Paying off loans used to buy rice and other basic daily necessities in between pay days leaves sugarcane farmworkers and their families with practically nothing. In reality, a sugarcane farmworker typically earns just around Php50 to 67 a day, forcing them to work in several haciendas to augment their income.

Their dire situation is only made worse by the dreaded tiempo muerto or the period between the planting and harvesting seasons of sugarcane where no work is available in the haciendas for three months. With no established mechanism of government support, sugarcane farmworkers are left to fend for themselves, usually by taking on odd jobs in the cities.

But others take organized action such as the bungkalan campaign (land occupation and collective cultivation) on still undistributed CARP lands. However, landlords and even state forces respond to this legitimate form of assertion of people’s rights to land and livelihood with systematic violence like what happened in the “Sagay 9” massacre.

When government’s apparent plan to end landlessness is to eliminate the landless, what are the farmers and farmworkers of Negros island supposed to do? ###

 

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Privatization, Water crisis

Questions on Manila Water’s compensation

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Still reeling from public backlash, Manila Water will now “voluntarily” compensate consumers affected by the water supply interruptions. The estimate is that the initial compensation will cost the Ayala firm Php150 million. That obviously is merely a drop in the ocean of Manila Water profits, so to speak. In 2018, it reported a net income of Php6.5 billion.

Everyone – including the senators, congressmen and even the MWSS chief regulator – is saying that Manila Water’s offer is not enough. There should be a rebate, per the concession agreement. Manila Water claims it will cooperate with regulators.

While efforts to make Manila Water to account are commendable, and recent developments on demands for compensation are welcome as immediate relief especially for poor consumers, important questions remain:

(1) How about Manila Water customers, or even Maynilad’s for that matter, who have been without 24/7 water supply even BEFORE the artificial water shortage happened? They number about 300,000, based on the private concessionaires’ own reports. Aren’t they entitled to compensation and rebate, too?

(2) If the basis of the compensation is the failure of Manila Water to fulfill its contractual obligations, who is accounting for more than 20 years of failure and neglect of BOTH Manila Water and Maynilad under MWSS privatization?

(3) If public pressure succeeds in seeking reasonable and just compensation – if there is ever such a thing for depriving people something as very basic as water in the name of profits – from Manila Water, does it mean water privatization actually works and all it takes is a vigilant public and effective regulator? ###

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Privatization, Water crisis

Privatization is creating an artificial water shortage

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(Photo: Inquirer.net)

First published by Bulatlat

Metro Manila’s supposed water crisis is one that is not caused by lack of supply and new water sources, or as some would argue, by lack of foresight and preparations by regulators and Manila Water. Rather, it is caused by lack of effective state control over water resources after government allowed the privatization of Metro Manila’s water system 22 years ago.

There lies the artificial water shortage.

By official accounts, the available supply for Metro Manila’s water needs is still enough. But instead of taking on the role of ensuring that this water reaches the people for their basic domestic use, government has deferred to two separate private companies (Manila Water and Maynilad), each with their own profit motives and considerations, in determining how water reaches the end-consumers through their separate distribution networks.

Worse, these private concessionaires have not improved the infrastructure enough to maximize existing water supply despite massive increases in their rates (and profits) for the past two decades. Imagine this – every day, about 1,177 million liters of water are lost due mainly to defective infrastructure. That’s equivalent to almost eight times of the supposed deficit in water supply that Manila Water is grappling with.

As it is, according to the concessionaires’ own performance reports, almost 300,000 people in their service areas are already without 24-hour water supply even before the current supply issues began early this month. That is the “normal” situation for these people under the regime of privatized water. The actual figures could be higher, as government regulators do not seem to verify – or do not have the capacity to check – the performance of the concessionaires.

Both Manila Water and Maynilad source the water they distribute from Angat dam that based on official pronouncements still holds enough water to supply the needs of the capital region and nearby areas. Angat dam supplies 4,000 million liters per day (MLD) or 96% of Metro Manila’s water (the rest come from Laguna Lake, 3% and deep wells, 1%).

But while Manila Water has a deficit, Maynilad has surplus supply. How did that happen? When the Ramos government privatized the Metropolitan Waterworks and Sewerage System (MWSS) in 1997, its service area was divided into two and then bid out to private companies. The east zone was won by Manila Water and the west zone, by Maynilad.

As part of the concession agreement, Maynilad will get 60% of Angat’s raw water and Manila Water the remaining 40 percent. That translates to 2,400 MLD for Maynilad and 1,600 MLD for Manila Water. The said sharing arrangement was based on the population size of the concession areas awarded to them by government. At present, Maynilad services around 9.5 million people in the west zone and Manila Water, 6.8 million in the east zone.

The 150-MLD challenge

Manila Water claims that its 1,600 MLD from Angat is no longer enough as its requirements already rose to as high as 1,750 MLD. The 150-MLD deficit is being blamed for the water supply interruptions that have been affecting some half a million people in the east zone.

This reported increased demand from Manila Water’s customers could have been easily met if the government were in charge of water management and distribution. Under the present privatized setup, water that flows to Metro Manila is divided to the concession areas of Manila Water and Maynilad, and this creates unnecessary challenges for an effective and responsive mechanism in water allocation and distribution.

The water flows between the concessionaires are connected through cross-border pipes. As one of the stop gap measures to help address the supposed 150-MLD shortage in the east zone, Maynilad agreed to open some of these cross-border pipes so that 50 MLD of water allocated for the west zone could be directed to Manila Water’s concession areas.

If the MWSS were in charge of water distribution from the start, such option could have been resorted to much earlier and in a manner that is less complicated and bureaucratic (e.g., asking Maynilad’s permission first); more effective (e.g., redirecting more than 50 MLD, if needed); and much faster (e.g., under privatization, most of the cross-border pipes have been already cut and will need time to restore) to avoid the supply woes that tens of thousands of households are being forced to bear today.

Aside from the cross-border pipe arrangement with Maynilad, Manila Water is also expecting to have another 50 MLD from its new treatment plant in Cardona, Rizal (with a maximum capacity of 100 MLD when completed) and a further 100 MLD from existing deep wells.

Missing water

What is not highlighted amid all the frenzy in securing additional supply is the more than a billion liters of water wasted daily, mostly from leakages in the existing distribution infrastructure of Maynilad and Manila Water, or what the water industry calls non-revenue water (NRW).

At present, by MWSS’s own account, the NRW of Manila Water is at 11% while that of Maynilad is at 39 percent. Looking at the volume of water that flows through their respective systems, water losses in Manila Water’s concession area is around 176 MLD and about 1,001 MLD in Maynilad’s for a total of 1,177 MLD.

On its website, Maynilad claims that as of 2018, its NRW is 27.1 percent. On the other hand, Manila Water’s own website claims they deliver 1.3 billion liters out of their 1.6 billion Angat dam allocation, or an NRW of 12 percent. Using these figures, the total volume of water losses from both concessionaires is still huge at 888 MLD.

Based on the original targets when MWSS was privatized, the volume of water losses should have already been reduced to less than a billion liters a day (around 732 to 976 MLD) as early as 2001 or 18 years ago. Instead of the promised reduction, the volume of water losses has increased (per MWSS’s NRW estimates) amid a growing service area that has expanded by about five million people in the past two decades. This even as present all-in rates (i.e., basic charge plus other charges, supposedly to recover investments used to improve water supply) have grown about 3-4 times of their 1997 level in real terms.

Note that Maynilad still has a surplus supply despite wasting more than a billion liters of water per day, while Manila Water, which has a much lower reported NRW than its west zone counterpart suffers a deficit. This further underscores the inefficiency and wastefulness of water resource management and the artificiality of water shortage under MWSS privatization.

The combined water losses of both Manila Water and Maynilad is more than 28% of the estimated current water supply of 4,167 MLD from the Angat dam, Laguna Lake and active deep wells. The MWSS is saying that the international standard is 20% while other studies suggest that the apparent economically reasonable NRW is between 10 and 12 percent.

In any case, halving the current total NRW (as estimated by MWSS) could produce an additional 588 MLD in water supply. It is interesting to note that the controversial Php12.2-billion Chinese-funded Kaliwa dam (which government, using the metro water shortage as pretext, wants rushed amid unmet environmental compliance) has a projected capacity of 600 MLD. In other words, addressing the issue of water losses substantially lessens the pressure of building new dams and avoiding the unnecessary environmental, social and economic costs they entail.

Finding accountability

To be sure, urgent demands to make Manila Water and their operator led by the Ayala group and their foreign partners accountable for the current water woes in Metro Manila are justified and legitimate. But they should be made to account outside the narrow framework of their commitments under the concession agreement (or privatization contract), and instead be held liable in the context of the assertion of people’s rights to water and reversing MWSS privatization.

The privatization contract, by design, heavily favors the private concessionaires. When the World Bank (through the International Finance Corp. or IFC) crafted the concession agreement in 1997, it ensured that the private concessionaires will be able to operate profitably in order to pay back the World Bank and other foreign creditors the hundreds of millions of dollars in debts that MWSS owes them. The IFC itself, as the World Bank’s private investment arm, is an investor in the MWSS privatization through Manila Water. Thus, from the onset, MWSS privatization was never about the provision of water services but the collection of private profits for foreign investors and creditors and their local partners.

The MWSS itself, for instance, is saying that it appears there is nothing in the concession agreement that they can use to penalize Manila Water for causing the current water supply problems in its service area. Regulators claim that they can use the concession agreement’s rate rebasing exercise (when concessionaires ask for higher basic charges) but that will not happen until 2022. There is also no assurance of accountability as Manila Water (as well as Maynilad) could always question and reverse the decision of regulators through an international arbitration mechanism provided under the privatization contract.

Focusing on just Manila Water absolves Maynilad and its operators led by Manny Pangilinan’s group and its Indonesian backers (Salim group) and Japanese investors (Marubeni) of accountability, and reinforces the wrong notion that the issue is simply mismanagement on the part of Manila Water. The prevailing impression today is that Maynilad customers are “fortunate” when in reality, Maynilad’s very high NRW deprives all consumers in Metro Manila and nearby areas of valuable water supply.

Most importantly, it diverts the issue away from privatization as the central issue in, and underlying reason behind, the artificial shortage. As such, it also has the effect of absolving government of responsibility when in fact, the biggest accountability in all this lies with government for abandoning its duty to ensure water for the people.

As long as water remains in the hands of unaccountable, profit-oriented private and foreign interests, the people of Metro Manila and adjacent provinces will continue to face insecurity in supply amid ever skyrocketing rates. This is the real water crisis that we face, and one that is permanent – El Niño or not – as long as there is no policy shift in the way that water resources are managed. ###

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Human rights

Who is afraid of IBON?

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(Photo: Politiko)

The only reason that Malacañang is going after groups like IBON Foundation is that because they have been very effective in exposing the lies of the Duterte government.

IBON has been effective in refuting the false claims of Duterte’s economic managers about the TRAIN Law, inflation, improving employment situation, benefits of Chinese loans, etc.

Instead of squarely and convincingly proving as false the fact-based criticisms of IBON or look at its concrete proposals to address the country’s economic woes, the Duterte administration resorts to malicious accusations.

For the past 40 years, IBON has established itself as a reliable source of progressive research and analysis on national socioeconomic issues. From Marcos to Duterte – IBON has been consistent in its position that economics should be about the people, their rights and interests.

But the Duterte administration obviously has zero tolerance for views and alternatives that contradict its policies and programs, including on the economy. Thus, it uses public resources not only to question the legitimacy of IBON but to apparently try to shut it down.

What Malacañang is doing is blatant repression. And while it targets the sources of funding support of IBON, the irresponsible act of the Duterte government also puts the officials and staff of IBON at risk of physical harm.

That is criminal and reprehensible. ###

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Consumer issues, Oil deregulation

Oil firms overpriced gasoline by Php3.48 per liter in 2018; diesel by Php1.48

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(Photo: Novinite.com)

After a series of oil price cuts that started from mid-October 2018 up to the first week of the new year, domestic pump prices have begun to climb up again. The recent increases are due to the combined impact of rising global oil prices and of the second tranche of additional excise tax on oil products under the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

For consumers, it is bad enough that they are made to shoulder a heavier tax burden from a commodity as vital as oil. It is even greater injustice that they are forced to pay for overpriced oil and for even bigger fuel taxes due to such overpricing.

As oil firms are wont to do in a deregulated regime, they implemented price adjustments in 2018 that were higher than what were justified (at least based on Department of Energy or DOE standards) by the weekly changes in global benchmark prices as well as foreign exchange rates.

For 2018, oil companies overpriced gasoline by an estimated Php3.48 per liter and diesel by about Php1.48 per liter. (See Table 1)

tab 1 summary of overpricing 2018

The figures were based on the estimated impact on local pump prices of the weekly adjustments in the Mean of Platts Singapore (MOPS) prices of gasoline and diesel, as well as of the peso-US dollar exchange rates. The results were then compared to the actual price adjustments implemented by the oil companies. According to the DOE, the Philippines uses the MOPS prices as benchmark for pricing finished petroleum products that are retailed in the country.

Put another way, oil firms were implementing higher price hikes when global prices were rising and lower price rollbacks when global prices were falling. This means that consumers were still being abused by the oil companies even as they were rolling back prices in the last three months of 2018. In fact, looking at Table 1, the oil firms overpriced more during the successive weeks of price rollbacks in October to December.

The Oil Deregulation Law (Republic Act 8479 or the “Downstream Oil Industry Deregulation Act of 1998”) and its regime of price adjustments without public consultations created the environment for such abuse to be committed with impunity.

These allowed the oil firms to rake in around Php33.93 billion in extra profits last year on top of their regular income, and the Duterte administration to collect some Php4.63 billion in additional revenues from the 12% value added tax (VAT). Apparently, it is not in the interest of the government to regulate oil price adjustments because of the tax windfall that high and overpriced oil generates. (See Table 2)

tab 2 summary extra profits & vat 2018

It is important to stress that the “overpricing” based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly “justified” amounts by so-called international benchmarks such as the MOPS.

Oil price unbundling

During the height of unabated oil price hikes at the start of 2018, the DOE initiated its proposal to unbundle the prices of petroleum products. The latest is that the DOE is already finalizing a circular to implement the proposed unbundling meant to put more teeth in monitoring oil prices and protect the consumers. Industry players and energy officials have already agreed on seven out of the eight major components of the unbundled price.

Understandably, the remaining contentious item in the planned unbundling is the “industry take”, which indicates the profit margin and operation cost of the oil companies. Nonetheless, the DOE expects to finally issue the circular by the first quarter.

While unbundling could make the cost breakdown per liter of fuel products seem more transparent, it will still not guarantee fair price setting. Adjustments in prices will remain deregulated and oil firms, especially the largest ones, can continue to abuse the weekly price adjustments and overprice their products. This is similar to the unbundling of electricity rates in the privatized and deregulated power industry, which did not stop the abusive pricing practices of the big power monopolies.

Besides, real transparency in prices requires that all oil companies disclose their term contracts with their suppliers, detailing key information such as the specific source/supplier of imported oil, the actual negotiated import price, volume of oil imports, etc.

Impact of the TRAIN Law on oil prices

Compounding the overpricing by the oil companies is the additional fuel tax imposed by the Duterte administration. The TRAIN Law (or Republic Act 10963) will add another Php2 per liter in excise tax to the pump prices of gasoline and diesel; Php1 per liter for kerosene; and Php1 per kilogram (kg) for liquefied petroleum gas (LPG). Including the 12% value added tax (VAT), the second round of tax hike under the TRAIN Law will increase the price of gasoline and diesel by Php2.24 per liter; kerosene by Php1.12 per liter; and LPG by Php1.12 per kg.

In 2018, the controversial tax scheme of the Duterte administration already added Php2.80 to the price of diesel; Php2.97 for gasoline; Php3.36 for kerosene; and Php1.12 per kg for LPG, representing the additional excise tax and the corresponding VAT. Adding to this year’s adjustments, the TRAIN Law’s total price impact as of 2019 would be an increase in the pump price per liter of diesel by Php4.80; gasoline by Php5.21; and kerosene by Php4.42. For LPG, the total price hike is Php2.24 per kg or a total of Php24.64 for the usual 11-kg cylinder tank that households use.

The bad news is that there remains still another tranche of excise tax increases next year under the TRAIN Law. The scheduled increases for 2020, including the VAT, are: diesel, Php1.68 per liter; gasoline and kerosene, Php1.12 per liter; and LPG, Php1.12 per kg. Table 3 summarizes the impact of the TRAIN Law on oil prices.

tab 3 train impact on oil prices

As of the latest price adjustments (i.e., Jan 15, 2019) and including the second tranche of fuel excise tax under the TRAIN Law, the pump price of diesel is more than Php12 per liter higher than its level before the Duterte administration took over; gasoline is almost Php9 higher. Of the said price increases, the additional tax burden (i.e., excise and VAT) imposed by the TRAIN Law accounted for Php5.04 per liter for diesel (41% of the total price increase in diesel under Duterte) and Php5.21 per liter for gasoline (59% of the total increase in the price of gasoline). (See Table 4)

tab 4 oil price before & under duterte jan 2019

If policy makers were to truly address the problem of high oil prices, they should look at both the TRAIN Law and the Oil Deregulation Law. Removing the unnecessary fuel tax burden and making oil taxation more progressive will immediately bring down the price of oil for sure. But oil prices will remain exorbitant and price adjustments will remain unjustified as long as the oil industry is deregulated. ###

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Consumer issues, Economy, Free trade

PH rice import dependence rising amid weakening global production

Annual growth in rice production global

In the past two decades, imported rice has been accounting for an increasing portion of our domestic consumption. Prior to the 1995 birth of the World Trade Organization (WTO), the country’s rice import dependency ratio (i.e., the extent of dependency on importation in relation to domestic consumption) only averaged 2.45% (1990 to 1994 average). In the latest available 10-year average (2006 to 2016), the ratio has risen by 4.5 times to 11.06 percent. In the immediate 10 years since the WTO (1995 to 2005), the average ratio was 11.24 percent.

Despite increasing dependence on cheaper imported rice, the retail price of rice has continued to rise. The average annual inflation rate for rice accelerated from 4% in 1996-2006 to 5.7% in 2006-2016. Apparently, more rice imports do not necessarily translate to lower retail prices. Yet, to tame rising rice prices and ease faster overall inflation, the Duterte administration’s answer is further liberalization of rice imports through the Rice Tariffication Bill(RTB). Already passed by the Houselast month, a Senate RTB counterpart is expected before the year ends.

The RTB will liberalize rice trade by removing the quantitative restriction (QR) on imported rice. This entails scrapping the current minimum access volume (MAV) which caps rice imports at 805,200 metric tons (MT) with a 35% in-quota (e.g. within MAV) tariff. Rice imports outside the MAV are slapped with a 40% tariff. In lieu of a QR, a general tariff will be imposed.

Rice tariffication and liberalization is a Philippine commitment to the WTO but repeatedly postponed in the past due to the socially sensitive nature of rice as an agricultural commodity. The Duterte administration used the soaring price of riceto justify finally replacing the rice QR with tariff, selling the idea that the entry of more imports will bring down local prices. As of the third week of August, well-milled rice retails at Php46.35 per kilo (10% higher than a year ago) and regular milled rice at Php42.85 (13% higher).

According to government’s economic managers, tariffication could reduce the priceof rice by as much as Php4.31 per kilo and lessen inflation by at least one percentage point. Rice production in Thailand and Vietnam, the country’s main sources of rice imports, is pegged at Php6 per kilo. In the Philippines, production cost is said to be double that amount.

While not a guarantee to lower prices in the long run, opening up the rice sector to unbridled imports leaves the country’s rice security at the mercy of an unpredictable and increasingly unreliable world market. This as 95% of Philippine rice imports come from just two countries whose own domestic production is either slowing down or declining. Globally, rice production has been steadily decelerating in the past four decades.

At the same time, the already precarious livelihoodof up to 20 million Filipinos who rely on the rice sector, including some 2.5 million rice farmers, gets more insecure than ever.

Rice production in Vietnam, which accounts for almost 69% of Philippine rice imports (2010 to 2016 average), and in Thailand, which comprises 26%, has been weakening in the past four decades. In Vietnam, rice (paddy) production decelerated from an annual growth of more than 5% in the 1980s and 1990s to 2.2% in the 2000s, and 1.6% this decade. Thailand’s rice production slowed down from a yearly growth of 3% in the 1980s to 2.1% in the 1990s, before recovering to 3.1% in the 2000s. But this decade, Thai rice production is actually contracting by 3.1% every year.

Other Southeast Asian countries that are also among the world’s major rice exporters (and potential Philippine suppliers) are experiencing production declines as well. Myanmar’s rice (paddy) production went down from an annual growth of 4.9% in the 2000s to a yearly contraction of 3.1% this decade. Cambodia is still posting a 3.8 growth since 2010, but it’s twice slower than its annual expansion of 7.4% last decade.

Our own rice (paddy) production has decelerated to 1.2% this decade from a more than 3%-annual expansion in the 1990s and 2000s and about 4-5% in the 1960s and 1970s. Worldwide, rice production has been continuously slowing since the 1980s when annual growth was pegged at 3.2 percent. This declined to 1.8% in the 1990s; 1.2% in the 2000s; and 1.1% in the 2010s.

It is estimated that lifting the QR on rice will double the volume of the country’s rice imports in five years. For the already impoverished Filipino rice farmers, this means a sharp drop in income (some projections say by around 29%) as rice that are 100% cheaper to produce in Thailand and Vietnam due to heavy subsidies flood the domestic market.

Government allays fears of more bankruptcy among rice farmers through the proposed six-year Rice Competitiveness Enhancement Fund (Rice Fund) where all the duties collected from rice imports would be supposedly used to support small rice farmers. The central bank estimates an additional Php28 billion in annual revenues from rice tariffs that could be used to help prepare rice farmers for competition from imports through the Rice Fund.

But this was the same promise made to vegetable farmers and fisher folk most affected by WTO tariffication in 1995 with the Agricultural Competitiveness Enhance Fund (ACEF). Marred by corruption and mismanagement issues, the fund only ended up favoring agribusiness corporations as small farmers and fisher folk were further impoverished by massive agricultural imports.

In fact, since its introduction more than two decades ago, ACEF’s initial six-year life has been extended and reformed several times – the most recent in 2016, with implementation starting this year– because it has failed to achieve its stated objectives of protecting and preparing the farmers and fisher folk.

As mentioned, the influx of cheaper imported rice has not resulted to cheaper retail prices for consumers. The monopoly control that big private traders have over imported rice and those procured from local farmers allows them to keep retail prices high even as farmgate prices are depressed. Privatization and deregulation of its functions on palay procurement, rice importation, marketing and price control have made the National Food Authority (NFA) inutile in affecting prices. Inefficiency and corruption made the situation even worse.

Even as the price of rice continued to increase, the farmer’s share to retail prices is actually lower today. Prior to the WTO, farmer’s share to consumer peso (i.e. how much of the price paid by the consumers goes back to the rice farmers) decreased from 30.5% (1990 to 1994 average) to 28.3% in 1995 to 2005 and just slightly climbing up to 28.6% in 2006 to 2016. Note that the actual amount that goes to the rice farmers is much lower due to usury and landlessness that eat into their share in prices.

Liberalization harms both the consumers and rice farmers, and only the foreign and domestic private traders reap the benefits. Tariffication and the promotion of more imports give these private traders even greater control over the rice industry. ###

Sources of data: Philippine Statistics Authority (PSA); Food and Agriculture Organization (FAO)

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Economy, Fiscal issues, Oil deregulation

How to bring down oil prices by as much as Php10 per liter and why it is justifiable

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(Photo: ABS-CBN News)

Suspending the imposition and collection of the 12% value-added tax (VAT) and the additional excise taxes under the TRAIN (Tax Reform for Acceleration and Inclusion) Law could immediately bring down the prices of oil products by more than Php8 to as much as Php10 per liter. This is urgent as oil prices continue to soar, and with inflation further accelerating to a fresh nine-year high at 6.7% in September.

While the Bangko Sentral ng Pilipinas (BSP) claims that inflation may have already peaked last month, projections such as that of the US-based Energy Information (EIA) peg even higher global oil prices in the fourth quarter of 2018 due to lingering supply concerns.

Removing oil taxes now is also justifiable and fair, considering that apparently in just nine months (Jan to Sep 2018) the government may have already almost equaled their full year 2017 collections from the VAT on diesel and gasoline, based on estimates. Total revenues from excise taxes on oil products in the first six months of the year, on the other hand, are 181% higher than what was collected during the same period last year according to an official Department of Finance (DOF) preliminary report. All these mean that government can afford to forego additional windfall oil tax revenues, if only to protect the public from further taking a hit from escalating cost of living.

Unabated price hikes

Oil firms advised that starting Oct 9, the price of diesel will again go up by Php1.45 per liter; gasoline, Php1.00; and kerosene, Php1.35. These upward adjustments will bring the total increases for the year at Php14.95 per liter for diesel; Php14.37 for gasoline; and Php14.00 for kerosene. The latest increases are the ninth straight round of oil price hikes (OPH) in as many weeks, and the twenty-ninth for the year.

With the recent OPH, the common price of diesel in Metro Manila is now at almost fifty peso per liter (Php49.75) while gasoline (RON 95) is already the approaching sixty-two-peso mark (Php61.50). At these levels, oil prices are now at their highest in nominal terms in the past decade.

The VAT is equivalent to Php5.97 per liter for diesel and Php7.38 per liter for gasoline (or 12% of their respective common price). The TRAIN Law’s additional excise taxes, meanwhile, is at Php2.50 per liter for diesel and Php2.65 for gasoline for this year. Thus, removing both from the current common price will translate to an immediate reduction of Php8.47 per liter for diesel and Php10.03 for gasoline. (See Table)

Oil prices, TRAIN excise & VAT as of Oct 9

Suspending the oil VAT and excise taxes under the TRAIN Law should be doable for the government since doing so would no longer adversely impact its revenue generation from petroleum products. Economic managers projected international crude oil prices to be at just between US$45 to 60 per barrel and the foreign exchange (forex) rate at just Php48 to 51 per US dollar for 2018. Actual Dubai crude prices for the year, however, have ranged between US$60 to 80 per barrel while the forex rate is averaging Php52.48 per US dollar so far this year.

Windfall revenues

In other words, the Duterte administration has been collecting windfall revenues from the 12% VAT on oil products due to incessantly increasing prices as a result of higher than anticipated Dubai crude prices and a weaker peso. The DOF reported that overall VAT collections in the first semester of 2018 have reached Php179.95 billion, or about Php1.51 billion higher than what was raised during the same period last year.

While the DOF also said that VAT collections in the first half were 19% short of the government target for the period, this was not due to lower revenues raised from the oil VAT, which as mentioned have certainly skyrocketed due to higher pump prices. Apparently, small and medium enterprises (SMEs) and self-employed individuals that used to remit the VAT before the TRAIN Law became effective are now using other tax options under the new law. But that VAT collections in the first semester are still slightly higher than last year’s first half total is indicative of how much windfall the government has raised from rising oil prices.

There is no publicly available data on how much revenues that government has raised so far from the oil VAT. But using the average common price in Metro Manila for 2018 and based on domestic oil consumption data as of 2017 (as monitored and reported by the Department of Energy or DOE), VAT revenues from diesel and gasoline can be estimated. At a Php43-per liter average common price and daily consumption of almost 29.91 million liters, diesel generated about Php42.29 billion in VAT revenues from Jan to Sep 2018. At a Php55-average common price and daily consumption of almost 17.02 million liters, gasoline generated around Php30.78 billion in VAT revenues during the same period.

That’s about Php73.06 billion in VAT revenues from diesel and gasoline. For comparison, at an average common price of Php32 per liter in 2017 for diesel and Php46 for gasoline, total VAT collections from the two oil products for full year 2017 may have reached an estimated Php76.21 billion.

Removing onerous taxes

These are, of course, just estimates and actual collection figures may differ, perhaps even widely. But there should be no significant disparity between the comparison of oil VAT revenues between 2017 and 2018, whether estimates or actual collection data. The point is that government can decide to stop collecting more oil taxes now to immediately ease the burden of the public, even simply based on the fact that they have already collected enough.

Meanwhile, excise taxes collected from all petroleum products reached Php18.03 billion in the first six months of 2018, or almost thrice of the excise taxes collected from oil products in the same period last year, according to initial DOF data. That should be more than enough given how inflation has rapidly accelerated this year with increasing oil prices under the TRAIN Law as one of the primary culprits.

The whole point of raising taxes is to send back the generated resources to the people in the form of key economic and social services as well as programs and projects that benefit them and the country. But if the taxes are so onerous especially for the poor such as the VAT and excise taxes on petroleum products, they become an unnecessary burden and are oppressive. They negate whatever supposed benefits the people expect to get from the government. For the government to insist on collecting such taxes is unacceptable.

Imagine, for instance, a jeepney driver or small fisher whose income has been substantially eroded by increasing diesel and gasoline prices. Public education or health services, even new roads and bridges funded by their taxes are meaningless amid high prices that deprive them of decent living. Then there is the question of whether these tax resources are actually used for public interest and welfare given how corruption remains rampant in the bureaucracy not to mention that many programs and projects funded by these resources are anti-poor by design.

On the contrary, removing the VAT and excise taxes on oil now will have an immediate favorable impact on household budgets. ###

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