Analysts say allowing NFA to sell rice at subsidized prices is unsustainable

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By Kenneth Christiane L. Basilio and Kyle Aristophere T. Atienza, Reporter

A PROPOSAL to allow the Philippines’ National Food Authority (NFA) to sell rice at subsidized prices is unsustainable and could worsen the government deficit, economists said at the weekend.

Letting the agency buy rice from producers at high farmgate prices and selling these at lower retail prices is a superficial solution to spiraling rice prices, they added.

“The high price of rice is driven by global shortage, which is a clear case of supply and demand,” Filomeno S. Sta. Ana, III, coordinator of the Action for Economic Reforms, said in a Viber message. “Amending the Rice Tariffication Law will not solve the objective problem of supply.”

The House of Representatives committee last week approved a bill that seeks to amend the 2019 Rice Tariffication Act, which gave rice traders full control over rice imports and relieved the NFA of its power to sell rice at cheap prices.

President Ferdinand R. Marcos, Jr. earlier said he would likely certify the bill as urgent, citing the need for state involvement in the market to check spiraling rice prices.

Regular milled rice is P51.41 a kilo on average, while well-milled rice is about P56.42 a kilo, according to the Philippine Statistics Authority (PSA). Special rice is about P64.68 a kilo.

The NFA got mired in debt after selling rice at subsidized retail prices for years. It cut its net loss by 38% in 2021 from a year earlier to P9.6 billion under the Rice Tariffication Act, according to the Finance department.

The law also limited the NFA’s mandate to providing emergency buffer rice stock to be taken exclusively from local farmers.

“That can reduce artificially and unsustainably the price of rice but at a very heavy price,” Mr. Sta. Ana said, referring to the agency’s subsidized rice prices. “It will worsen our fiscal deficit which could lead to a fiscal crisis.”

Quezon Rep. Wilfrido Mark M. Enverga, who heads the House of Representatives agriculture committee, said the agency should consult the National Price Coordinating Council in setting rice prices.

“We want the NFA also to be prudent in their spending,” he told BusinessWorld on the sidelines of a hearing last week. “It should be calculated properly. The NFA cannot do it haphazardly.”

Nueva Ecija Rep. Mikaela Angela B. Suansing said it would be the responsibility of the council, whose members consist of state economic managers, to ensure that NFA rice is not sold too low.

“The National Price Coordinating Council seems to be just a last stand by economic managers to assert their erroneous free market orientation over the rice industry,” Sonny Jose Enrique A. Africa, executive director of think tank IBON Foundation, said in a Viber message.

“They’ll be motivated… to keep the public subsidy as low and as short as possible, but blind to the necessity of substantial… government intervention to lower the cost of food production as the basis for lower prices for consumers,” he added.

Mr. Africa said only 2-3 million of 27 million Filipino families would benefit from the rice sold by the NFA.

TRANSPARENCY
Policymakers should also look at high fertilizer and fuel prices while lawmakers try to lower rice prices, Geny F. Lapina, who teaches agriculture at the University of the Philippines Los Banos, said in an e-mail.

“At farmgate, the price of rice is elevated because fertilizer prices remain quite high,” he said. “At retail, the prices are also affected by the high fuel costs that affect transportation costs.”

The April inflation rate for diesel quickened to 4.2% from -0.1% a month earlier, while gasoline accelerated to 3.3% from 0.8%. Pump price adjustments stood at a net increase of P2.25 a liter for gasoline and P0.50 a liter for diesel.

Philippine rice yields could decline this year and in 2025 due to rising fertilizer prices mainly driven by the conflict between Ukraine and Russia, the world’s largest exporter of key farm products including nitrogen and fertilizers such as the potash and phosphorus variants, according to an Asian Development Bank report last month.

The House aims to approved changes to the Rice Tariffication Act before their sine die break on May 25. Speaker Ferdinand Martin G. Romualdez has said it’s “possible to offer rice below P30 per kilo as early as July.”

“Whether there is some abuse of market power by traders is more difficult to prove,” Mr. Lapina said. He urged the statistics agency to regularly monitor rice farm, wholesale and retail prices.

The Philippine Competition Commission could also help investigate alleged irregularities in the market, he said, adding that regular monitoring of food prices is needed to deter “any abuse of market power.”

“If this administration claims to have provided a working version of the farm-to-market model that is the Kadiwa, then why can’t they scale it up for the rice industry?” Ayn G. Torres, an agro-economy expert serving as knowledge production manager at the Oscar M. Lopez Center, said in an e-mail.

Under the Kadiwa program, the government sets up farm-to-market outlets to remove middlemen from the chain.

Rice prices range from P49 to P60 a kilo. Due to government subsidies including for transport, Kadiwa outlets sell rice at P39 a kilo, and some as low as P20 a kilo.

Mr. Lapina reminded lawmakers why the NFA was stripped of its buying and selling power: “Buying high from farmers and selling low to consumers is a losing proposition. It had already inflated the debt of NFA in the past.”

Ms. Torres said lawmakers should clarify whether the private sector would still be allowed to import rice, or whether it can co-exist with the NFA.

“Unless the arrangements are clear in terms of the NFA’s function as regulator and import licensor, I don’t think the amendment will make any difference in terms of keeping optimal stock from local rice farmers.”

The 2019 law mandates the NFA to keep an optimal level of rice inventory — 480,000-960,000 metric tons (MT) of rice — enough to accommodate 15 to 30 days of national rice consumption.

The Philippines imported 3.58MT of rice last year, according to the Bureau of Plant Industry. Filipino farmers produced 20 million MT of rice.

Mr. Lapina said enforcing targeted subsidies for the poorest households may be a better route, noting that the government could study and replicate the framework of its flagship conditional cash transfer program.

It should also focus on improving post-farm infrastructure such as storage and logistics, he added.

Ms. Torres said policymakers should push for flexibility and transparency in the management of the Rice Competitiveness Enhancement Fund, which gets P10 billion yearly from rice tariffs.

“Did the collected tariffs already go beyond P10 billion, and thus should have been allocated to other farmer support mechanisms?” she asked. “Has the P10-billion RCEF been enough to support the industry on top of regular Department of Agriculture appropriation? Can the disbursements be made public?”

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