PH rice import dependence rising amid weakening global production

Rice import liberalization harms both the consumers and rice farmers, and only the foreign and domestic private traders reap the benefits.

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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)

Notes on the rice crisis

  1. The current rice crisis is a manifestation of the permanent crisis of Philippine agriculture and the economy in general. This permanent crisis is characterized mainly by backward production and intense concentration of the means of agricultural production, most especially land, in the hands of compradors and landlords.

  1. Such backwardness and lack of genuine agrarian reform have been aggravated by the neoliberal restructuring of agriculture, which has been most intense since the 1990s. They include the WTO-AOA (Agreement on Agriculture), rice trade liberalization, privatization of the NFA (National Food Authority), land use and crop conversion that prioritized production of high value crops for export instead of food including rice for domestic consumption, among others.

  1. The direct impact of these neoliberal reforms is the substantial erosion of the country’s self-sufficiency and self-reliance in food production. Farm area for palay contracted by 86,606 hectares between 1991 and 2002 as a result of land use conversion, based on the 2002 Census of Agriculture (CA) of the NSO (National Statistics Office). Corn, which like palay is also a staple crop, saw its farm area contract by 298,064 hectares during the same period.

  1. Overall, the country has become a net food importer after decades of surplus food production. From a yearly surplus of $667.5 million in food trade from 1980 to 1994, the Philippines recorded an annual average of $724.6 million in food trade deficit from 1995 to 2006.

  1. Thus, the current rice crisis can be summed up as the country’s incapacity, because of years of neoliberal agricultural restructuring, to meet domestic requirements through local production amid a situation of tightening global supply of rice. At present, the global supply is pegged at 323.3 million metric tons (MT) while demand is already 323.2 million MT.

  1. In the past years, the share of rice imports to the gross domestic supply of rice has been significantly increasing. BAS (Bureau of Agricultural Statistics) data show that from 1990 to 2000, imports comprised an average of 5.9% of the country’s annual gross supply of rice. The figure has jumped to 9.7% for the period 2001-2006. In 2005 and 2006, the import ratio was 13%.

  1. For 2008, Bayan maintains that imports could account for as much as 20% of the country’s rice consumption. This is much higher than the government claim of an 8%-share of rice imports to national rice requirements. Media reports in March quote the Department of Agriculture (DA) as saying that rice imports this year could reach as high as 2.4 million MT. This volume is equivalent to almost 20% of the country’s average annual rice consumption of around 11.9 million MT.

  1. With such a high level of dependence on rice imports, the country is definitely facing a serious insecurity in rice supply given the tight situation in the global supply-demand balance for rice. Worse, Vietnam, which in 2006 supplied more than 85% of our rice imports, is itself facing grave concerns on its own supply security.

  1. Vietnam needs to secure its own rice supply as it faces rapid contraction in its farmlands due to land use conversion, losing 125,000 hectares of rice fields in 2007 alone. It projects rice exportation to fall by one million MT per year and considers totally stopping exportation to protect its own food security.

  1. The Philippines is already feeling the impact of these developments in Vietnam. Out of the 1.5 million MT in rice imports that the country asked from Vietnam for 2008, Vietnam committed only one million MT. With a volatile situation in the global rice market – and other factors that contribute to this volatility such as extreme weather changes, US recession, energy/oil insecurity, etc – there is no assurance that Vietnam and the country’s other sources like Thailand can deliver. Note also that China, which used to export rice to the Philippines, is now a net rice importer.

  1. Because of tightening global supply, combined with uncertainties in the US economy that encourage massive speculation in commodities including rice, the price of rice has been soaring. Rice from Thailand and Vietnam, for instance, is already at the range of $600-700 per ton from only $320-340 per ton in 2007. As a consequence, local retail prices have been increasing rapidly. As of the second week of March, the retail price of fancy rice is pegged at P33.17 per kilo from an average of P30.76 per kilo in 2007; premium rice, from P26.93 to P28.91; special rice, from P24.72 to 26.91; and ordinary rice, from P22.39 to P24.58. Under the Arroyo government, the price of rice has increased by an average of around P7 a kilo.

  1. The NFA has been ineffective in stabilizing rice prices, which is one of its mandates, as it has been substantially weakened by commercialization and privatization efforts of past and present governments. While the government intends to keep NFA rice at P18.25 per kilo, NFA’s limited participation in the local rice market (only 5% according to IBON), which continues to be dominated by a cartel, do not make a dent on overall increases in rice retail prices.

  1. Tight supply and high prices will hurt the poor most. The rich have extra money to buy a big volume of rice, even at unusually high prices, that could meet their families’ need for a couple of months. For most families, however, they buy rice to meet a day’s need, or in many cases, a meal’s need. (Aside from those who could not afford a meal at all.)

  1. The urgency of drastic reforms, both in the short and long terms, is highlighted by the fact that the various reasons behind the tightening global supply of rice – climate change, energy insecurity, US recession and the crisis of monopoly capitalism in general – are far too complex to be resolved very soon. On the other hand, indicators show that they will continue to worsen in the coming years, and thus put even greater pressure on the country’s food security. Changing weather patterns, for instance, will significantly reduce production and yield in the generally backward agricultural systems of the world’s rice producing countries, including the Philippines. The mad rush to biofuels to meet growing energy needs, in particular in the First World, will continue to undermine food production, especially in the colonial and neocolonial countries.

  1. To ensure food security, the country needs to be self-reliant and self-sufficient in its food production, especially of staples such as rice.

  1. Medium to long-term reforms must include the implementation of genuine agrarian reform (land distribution, substantial and reliable state support/subsidy, etc) to encourage farmers to be more productive; reversal of agriculture liberalization (stop WTO-AOA, rice tariffication, etc); strengthen the mandate of the NFA in ensuring sufficient and accessible supply at affordable prices of food crops including rice and reverse its privatization and commercialization; dismantle the rice cartel; and stop land use and crop conversion and expand domestic food/rice production to levels of self-sufficiency (including a reliable buffer supply), among others. These policy reforms must start now.

  1. Immediate interventions (GMA must stop downplaying the crisis and recognize the urgent need for significant State intervention): Centralized procurement of imported rice of the NFA (cancel import licenses of private traders), increased presence of NFA distribution/retail outlets particularly in areas where poor families are concentrated (urban and rural); emergency fund that will directly go to rice farmers to subsidize production cost; price control (under RA 7581 or the Price Act, government can impose a price ceiling during times of calamity, disaster, or emergency).