THE country’s economic managers renewed their call to Congress this week to pass House Bill 4904, or the rice tariffication bill, to amend the Agricultural Tariffication Act of 1996 by removing the quantitative restrictions (QR) on rice imports that law imposed. The proposed bill represents a long overdue move to a sound policy on rice supply, and its passage should be prioritized by the legislature.
Under the QR policy, the government through the National Food Authority (NFA), which has a statutory monopoly on rice importation, restricts the volume of rice that can be imported to the Philippines under a 35-percent tariff. Shipments in excess of the restricted quantity can then be charged a much higher tariff rate. It is a protectionist measure aimed at shielding local rice producers from having to compete with cheaper imports, and when originally implemented, was simply intended to give the rice sector time to improve its productivity. QR was originally set to expire in 2005, or after 10 years, but was extended in 2004 up to 2012, and then extended again in 2014 until June 30 of last year. The government originally considered seeking another extension of QR up to 2019, but has rejected that idea in favor of pushing for the tariffication bill.
QR has not actually helped the Philippine rice sector; despite nearly half of all agricultural development spending by the government being devoted to rice production, yields have only marginally improved, and production costs and therefore rice prices have remained uncompetitive. Out of six major Asian rice growers (China, India, Thailand, Vietnam, and Indonesia are the others), the Philippines ranks fourth in terms of production costs. This has led to chronically high retail prices for rice, which affects the lower economic tiers the most: According to a policy note published by the Philippine Institute for Development Studies (PIDS) last year, people in the highest 20 percent income bracket only spend about 3 percent of their household budget on rice, while families in the poorest 20 percent spend about 21 percent of their income on the staple.
As the PIDS analysis also pointed out, repeated extensions of QR have come with other costs in the form of concessions, and these have contributed to unnecessary competitive pressure on domestic agriculture in other areas, and in some instances, higher food prices that could have been avoided. For example, the 2012 extension was only granted by the World Trade Organization (WTO) after the Philippines agreed to concessions demanded by Australia, Canada, and the US on the importation of meat, poultry, vegetables, and fruits.
Liberalizing rice importation under a uniform 35 percent tariff scheme will accomplish several things. First, the price of rice will decrease—the government estimates a reduction of between P4 and P7 per kilo—due to improved supply and the necessity that suppliers, domestic or foreign, will be obliged to compete in an open market. This is not necessarily good news for Philippine rice farmers’ incomes, it is true, but in this case the lesser of two evils is a wiser choice. QR imposes a sacrifice on the entire country in the form of higher food prices without doing much to improve the lot of Filipino rice growers; dropping QR in favor of tariffs favors consumers at the expense of farmers, but provides a safety net for the latter in the form of the tax revenue that will be generated.
The tariffication program will also help to clean up the financial mess the NFA has become by removing that agency from the rice-buying business. Under the current scheme, the NFA is losing an average of P11 billion per year – even with government subsidies of up to P5 billion a year – and has accumulated debts of more than P160 billion.
Although a rice tariffication bill is not without potential drawbacks, these can be easily managed, and the measure otherwise presents too many potential benefits to ignore. Congress should act quickly to approve it.
