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Project Number: TA 7495-REG January 2012
Support for the Association of Southeast Asian Nations Plus Three Integrated Food Security Framework
(Financed by the Japan Fund for Poverty Reduction)
The Philippine Rice Situation
Prepared by Beulah de la Peña for the Asian Development Bank The author is a freelance agriculture policy professional.
This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, or the institutions at which the consultant works, and ADB and the Government and these institutions cannot be held liable for its contents. ADB does not guarantee the accuracy of data and presentations included in this report and accepts no responsibility for any consequences of their use. By making any designation of or reference to a particular territory or geographic area, or by using the term country in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.
"$" refers to US dollars.ABBREVIATIONS CCT CSQ DA DOF DSWD ha GRECON KMP LGU MAV MMT mt NFA NRFC PAKISAMA Philcongrains PhilMech PhilRice PITC QR R1 Seednet WB WTO Conditional Cash Transfer country-specific quotas Department of Agriculture Department of Finance Department of Social Welfare and Development hectares Confederation of Grains Retailers Association of the Philippines Kilusang Magbubukid ng Pilipinas local government unit Minimum Access Volume million metric tons metric tons National Food Authority National Rice Farmers Council Pambansang Kilusan ng mga Samahang Magsasaka Philippine Confederation of Grains Associations Philippine Center for Post Harvest Development and Mechanization Philippine Rice Research Institute Philippine International Trading Corporation quantitative restrictions Rice Watch and Action Center National Rice Seed Production Network World Bank World Trade Organization Note: In this report. .
Rice imports. on the other hand. The Aquino administration has moved to reform rice policy but its mix of strategies is limited. and Viet Nam —with a special focus on rice. under TA 7495-REG: Support for the Association of Southeast Asian Nations Plus Three Integrated Food Security Framework. Indonesia. Thailand. The emphasis is on getting findings out quickly even if the presentation of the work is less than fully polished.ABSTRACT Rice production in the Philippines has been growing faster than in previous decades. However. Due to the perceived importance of rice for political and economic stability. despite years of preoccupation with rice selfsufficiency. This draft report was prepared for the Asian Development Bank by Beulah de la Peña. the Philippines. The draft report is being published to disseminate the findings of work in progress to encourage the exchange of ideas. . the Philippines continues to grapple with significant food insecurity. which is available upon request. The draft report is part of the TA’s diagnostic study on the food security of five ASEAN member countries—Cambodia. Programs for rice supply and price stabilization have proved costly. have been growing at an average of 14% annually from its level in 2000 and are seen to increase continuously. The draft report is an abridged version of a full country research paper on the Philippines. the rice sector has been receiving a substantial and increasing share of the government’s agriculture budget. This paper is written to support the analytical requirements for developing an integrated food security framework in the region. bloating the losses and borrowings of the state-run National Food Authority. Hunger incidence persists for a sizable part of the population. National Rice Economist for the Philippines.
.......................................................................... 6 B.................................................................................... 1 Rice Situation ................................................................................................................................................... 2 Food Security Situation .......................................................................... II............................ 6 A............................. Public Policies on Rice .................................................................................................12 REFERENCES ............................. 6 III..................................... E..................................... Institutional and Private Sector Players ................ C. Public Policies and Key Institutional Players ..................................................................................14 .... 1 Value Chain ................ 1 A.................... 4 Prospects.............. Problem Analysis ........................................................................................................................10 IV... D.............................................................................................................................. INTRODUCTION ................. Supply and Utilization ............................................... B.............................................................................CONTENTS I.................... 5 Data Availability ...............................................
. showed lower hectarage.28% annually also contributed. with much higher 2000 levels. The stability of rice supply at the aggregate level remains vulnerable. growth in the 1990s came largely from area expansions while that in the 1980s relied solely on yield increases.THE PHILIPPINE RICE SITUATION I. Efforts toward selfsufficiency and stability in rice supplies pursued over the years have proved costly and unrewarding.6 MMT in rice terms. Hunger incidence also persists as an issue for a sizable part of the population.5 million hectares of rainfed farms with a much lower average yield of 2. INTRODUCTION The Philippines continues to grapple with significant food insecurity. RICE SITUATION A. also showed significant gains. Growth came from irrigated and rainfed farms. which contributed about a quarter of production in the decade.4% annually account for most of the production growth but area expansions of 1. Supply and Utilization Philippine paddy production in 2009 was about 16. But rainfed farms.2 million metric tons (MMT) or 10. and yield in 2010 declined due to the effects of El Niño that hit the country during the year.7% for an average production increase of 3.95 MT per hectare and close to 1. This covered about 3 million hectares of irrigated farms with an average yield of 3. Production increases in the decade were attained with yield and hectarage growths. Hectarage expanded by 1% annually and average yield increased by 2. This growth rate is higher than the average annual increases of 2. Production in 2009 was about 3 MMT higher than production in 2000. Production. II. In contrast. The new Aquino administration has moved to reform rice policy but its mix of strategies is limited.8% and 2. and production increases in percentage terms.83 MT per hectare.0% attained in the previous two decades. posting an average 3% annual increase.9% per year for rainfed farms. Irrigated farms provided much of the production and production increases. hectarage. among domestic political and resource considerations. Production has been growing faster than in previous decades. yield. Yield increases of 2. Irrigated farms. This paper is written to support the analytical requirements for developing an integrated food security framework in the region. by the observation that the international rice market can not be trusted to provide the supply when needed. The country’s susceptibility to natural calamities is an added complication.
1 1. which converts the paddy to the rice form that is eaten. Milling.6 MMT or some 3 thousand MT more than the average year-end stocks in 2000–2010. B. During 2000–2009.8 MMT.8 3. packaging.8 4.1 2. and multi-purpose drying pavements. a 4% decline from the previous year. Value Chain Paddy rice undergoes several processes to get to the consumer after it is harvested— threshing/shelling. Average stock levels have been increasing through the decades. roads. also still widely used are conventional multi-pass cono mills that use an under-runner disk huller. separator. which . some 600 thousand mt (metric tons) more than imports in 2009. Total rice use in 2010 is estimated at about 11. transportation. However. and storage.4 11.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 2 Table 1: Paddy Production.9 2. Storage is done mostly in 50-kilo bags.7 3. Rice stocks as of beginning 2010 is estimated at about 2.0 3.4 1.9 10. Rice imports in 2010 amounted to about 2. However. and kiskisan mills that hull and polish in one pass.4 2.type whitener. Food use growth in the period accelerated from the previous decade while those for other uses slowed down.9 2.4 1. drying. with the highest export volume observed in 1980 when exports reached 5% of production.37 MMT.6 89. Rice Imports. Intermittent exports were recorded in previous years. which averages 21% in the 2000-2010.4 3.4 11.3%. Food use accounted for close to 89% of total use from 2000 to 2010. is done mostly in improved conventional mills that use rubber balls to hull the paddy and have a separator and a friction. Annual imports from 2000 to 2010 averaged at about 15% of domestic production.2 2. milling. notably in the 1970s and early 1980s.8 12. Threshing is generally done at the farm right after harvest. it can pass through several players in the market. has been declining due to the faster growth of rice use.8 Source of data: Bureau of Agricultural Statistics 2010a.3 1. and abrasive cone-type polishers. and Utilization 2010 Production (MMT paddy terms) Irrigated Rainfed Yield (mt/ha) Irrigated Rainfed Hectarage (million has) Irrigated Rainfed Utilization (MMT rice terms) Food Food (% to total) Imports (MMT) 15. The bulk of the threshing is done by mechanical thresher but manual threshing by farmers remains popular.3 3. Imports grew at an average of 14% annually from its level in 2000. As paddy rice goes to the mill. compared to 9% in the previous decade.0 1. the stock to use ratio.8 3. Drying is done mostly by sun-drying on highways. There is no record of exports in the period.6 3. rice use increased at about 3.4 Growth Rate 2000–2009 3.
As to variety. Most of the postharvest losses are attributed to the lack or maldistribution of postharvest facilities. followed by premium varieties and well milled rice. do not get the biggest profits in the rice flow. Profits are shown to be bigger for farmers and retailers and smallest for assemblers and . and are lowest for regular milled rice. Margins from farmer to wholesaler generally follow the hierarchy of classification. traders. which includes those of the assemblers. Prices move together but are generally higher for fancy varieties. price is defined by variety and grain characteristics. i. Premium rice is any variety other than fancy that meets the highest grade in rice standards. Traders and viajeros are paddy assemblers. and pass on the paddy directly to mills or through mill agents. Millers buy paddy from farmers. they are generally highest for fancy varieties. and commission agents. piling. Regular-milled rice has 10%–40% remaining bran layers and 15%–45% broken kernels. traders. which all happen while paddy is still with the farmers. Traders and viajeros generally bear the hauling and transport costs of palay (unhusked rice) from farm to mill. The Philippine Center for Post Harvest Development and Mechanization estimates postharvest losses in rice at about 15%–20% of production. Paddy with moisture content not exceeding 14% get the highest prices. and viajeros and sell the milled rice to wholesalers. An assessment of the adequacy of postharvest facilities by region indicates that there is a surplus capacity of 54 MMT of threshers in surplus regions while there is a deficit capacity of 784 thousand mt in deficit regions. The retailer’s margins for premium rice. and Milagrosa. A study that documented the marketing flow of paddy from Isabela in 2004 indicates that marketing costs are highest for trader–millers who. including having 5% or less broken kernels. fancy varieties are priced higher. But in drying and storage. Sampaguita. Traders are more established in their areas of operation. approximate that of regular milled rice. contrary to popular belief. They are mostly located in the market centers or towns. and threshing. With respect to rice. followed by premium varieties and then well milled rice. Well-milled rice has remaining bran layers less than 20% of the kernels and not more than 10% broken kernels. Commission agents are generally attached to traders or millers and get a fee for matching them with supplies. which means a net surplus nationwide. Most millers just do milling but some big millers also have drying and storage facilities and transport the rice to markets. The price of paddy is defined by variety and moisture content. buy from farmers and small traders.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 3 include the traders. viajeros. the deficits are greater than the surpluses so that there are net deficits nationwide. The same can be said of milling where the surplus in surplus regions is greater than the deficit in deficit regions. aromatic rice and those with excellent eating and nutritive qualities such as Dinorado. premium. well-milled. From wholesaler to retailer. is not big when it is further broken down by intermediaries and costs. the biggest margins are maintained for fancy rice followed by well-milled rice. Sinandomeng. The viajeros are itinerant traders who bring their trucks. This could be driven by policy issues as there are investment incentives and viable options for acquiring threshing and milling equipment. The wholesalers’ margin. or regular milled in price monitoring. make up about 60% of the estimated losses. which include glutinous. harvesting. and sell to mills.e. however. Rice is differentiated as fancy. they buy from producers directly or through agents. while regular milled rice gets the lowest price. Drying. and millers.
Data indicate that farmers’ margins have been increasing over time. on average. The highest estimates. 118 and 120 kilogram per capita. and roots and tubers when measured in terms of the share of total food expenditures. for children 5 years old and younger.9% were within the estimated 2009 food or subsistence threshold.44 in 2009. As such. The Family Income and Expenditure Survey further shows that. are those in the Supply and Utilization Accounts of the Bureau of Agricultural Statistics. The study theorizes that the other threefourths of the difference may be explained by too many marketing agents. the incidence increased from 2005. indicators of nutrition show high levels of the incidence of underweight and under height. . creates significant market uncertainty for the private sector and discourages bigger investments.7% of total expenditures and 18% of food expenditures. Moreover. respectively. The survey of the Bureau of Agricultural Statistics has the advantage of being focused on food demand. A study comparing margins in the Philippines and Thailand concludes that margins are higher in the Philippines and marketing costs explain one-fourth of the difference (Dawe et al. The Family Income and Expenditure Survey indicates that 20% of households were within the estimated 2009 poverty threshold while some 7.26 in 2002 to 0. respectively. The other estimates of 105 kilogram per capita in 2006 and 119 per capita in 2008–2009 rely on surveys. it may be more reliable than the National Statistics Office survey which looks at the pattern of expenditures of households. If the trader–miller is also the wholesaler. for children 6 to 10 years old in 2008. Underweight and chronic energy deficiency among teenagers and adults are also quite prevalent. Being computed in such way. Food Security Situation The consumption of rice from 2006 to 2009 is estimated between 105 and 120 kilos per capita per year. 26. The poorest household spent 34% of food expenditures or 22% of total expenditures on rice as against 8% and 2%. and (3) inefficient financial services. as part of the Family Income and Expenditure Survey for the National Statistics Office and of food demand for the Bureau of Agricultural Statistics. 2006). and change in stock. The poorer households also spent more on corn. Marketing cost is higher because of (1) road quality which increases transport costs. the figure is really an estimate of rice available for consumption instead of rice consumed. respectively. respectively. for the richest households. (2) seasonality and lack of openness to trade.2% and 27. The same study looked for evidence of collusion in the market and concludes that none can be found from farm to wholesale and at the retail level. This conclusion of too many agents is consistent with the large numbers of business entities licensed by the National Food Authority (NFA) to do business in rice. which estimates food use by disappearance method using domestic production. respectively. from 0. Consistent with high poverty incidence. noodles. C.6% and 33%. households spent about 7. then their profit is bigger. Postharvest losses are biggest for famers. in 2006 and 2009. imports. The net profit–cost ratio for rice farming is estimated to rise steadily. and 25. which includes estimates of consumption outside the house.7%. Collusion at the wholesale level could not be proved or ruled out due to inadequate data. which increase the cost of money.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 4 wholesalers. specifically the NFA’s participation in the market. Indeed policy. as will be discussed later. possibly excluding the value of rice consumed while eating out. making storage time longer.
6 MMT in 2019.44 MMT production in 2016. Expenditures on rice decline thereafter as household income increases. to hit about 15. Some 23.9 4. D.2 5.3 MMT in that year. to attain a much higher 25.8% reason that their residence is far from the source of rice.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 5 In value terms.7 20. The DA believes that there is much potential for increasing yield and hectarage by addressing the causes of postharvest losses and by increasing irrigation service areas. Food demand is forecast to increase.4 5. However.6 5.3%.3 MMT in 2016. and ending stock will reach 20. The subsistence households (in the 1st decile) spent less on rice compared to households in the 2nd to 6th deciles.0 14.0 mt/hectare and to expand the planted area to 5. Only 19% substitute due to preference. . the DA has set targets to increase yield to 5.09 mt/hectare by 2019 while paddy output will reach 20.9 MMT for the same year. projections indicate that the area harvested to rice will grow at about 1% a year until 2013 and will decline thereafter.7 0. This means that a little more than 50% substitute because of price while only around 15% substitute for reasons of availability or accessibility.9 3.4% of households say they cannot afford rice and another 28% indicate that the substitute is affordable. Table 2: Rice Supply and Use Targets and Projections Production (MMT paddy) Department of Agriculture Targets 2016 Projections 2016 2019 20. Feed and waste and processing use are estimated as a percentage of production while seed use is a percentage of area.3 2. The projected production trend is a little slower compared to the own estimates of the Department of Agriculture (DA) on rice production without its food self-sufficiency program.2 million hectares.1 25. sustained increases will see yield reaching to about 5. while another 8. The Survey of Food Demand undertaken by the Bureau of Agricultural Statistics in 2008– 2009 show the reasons for substitution of rice by other commodities for all households. the highest expenditures for rice was made by households in the 2nd decile or those beyond subsistence but still below the poverty line.0 14.5 4.0 MMT in 2011. initially at rates of around 3% and slowing down to 1. Some 4% say that rice is not available.5% say that the substitute is available. Total demand inclusive of food.0 Hectarage (million has) Yield (mt/ha) Food Use (MMT rice) Imports (MMT rice) Source: Department of Agriculture for its own targets. other uses. Prospects With no changes in basic rice policy. author’s computations for projections.1 4. Under its rice self-sufficiency program. rising steadily to 21.5 15. 2. without interventions. The projections. place production at 17.
Monthly rice stock data are also released by the Bureau of Agricultural Statistics 10 days after the reference month. The estimates are generated from submissions of the NFA regional offices. Data on government participation in rice trade are available with the NFA while data on poverty are provided by the National Statistical Coordination Board. Data Availability Time series and updated rice data are generally available from the Bureau of Agricultural Statistics. and thus carries whatever errors are made on estimates on stocks and other rice uses. reaching only 14. This seems to be because (1) the DA projects smaller stock levels. and the perceived importance of rice for political and economic stability. planting (standing crop) and area harvested. However. stocks will remain at 13% to 19% of total supply. However. though at a much slower clip compared to the previous 2 decades. which are consistent with the record in previous decades when stocks were at 16% to 20% of supply. A situation and outlook report in January will show estimates of production and area harvested for September to December of the previous year as well as forecasts for the quarterly periods of January–March and April–June. III. Public Policies on Rice The Agriculture and Fisheries Modernization Act of 1997 defines food security as meeting the food requirements of present and future generations and ensuring the availability and affordability of food to all. Data are collected through quarterly nationwide surveys of farmers’ intention to plant. Quarterly rice production and area harvested estimates for the past quarter and forecasts for the next two quarters are released 10 days after each end of the quarter. The projected rice derived from the paddy production will be augmented by imports that are seen to increase continuously. With this mandate. the figures from the NFA are perceived as a major weakness in Philippine rice statistics. The bureau generates the estimate for household stocks using surveys but gets the estimates for commercial and NFA stocks from the NFA. The use of paddy/rice for seeds is estimated using a parameter applied on planting estimates while those for feed and waste and processing use parameters are estimated from surveys and applied for paddy production.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 6 The DA projects total rice requirements to rise slower.6 MMT in 2016. which are sourced from field offices where any unchecked irregularities in operations will come with data fudging. It also mandates that the production of rice and white corn should be optimized and given adequate support. E. and (2) the self-sufficiency program includes demand management strategies that will shift rice consumption to other cereals. PUBLIC POLICIES AND KEY INSTITUTIONAL PLAYERS A. and twice a week monitoring of prices in markets nationwide. the rice sector has been receiving a substantial and increasing share of the government’s . Stock levels will also rise and are seen to be higher than imports in all years. Price data for the previous week are made available every Monday and the average monthly prices can be accessed one week after the reference month. Rice available for consumption is computed as a residual. Imports are estimated to hit 3 MMT in 2011.
25% of average farm gate prices. at least prior to 2010. The appropriations and budgets do not quite show the picture with respect to the resources devoted to market interventions in rice marketing. For . the later program includes demand management strategies.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 7 agriculture budget. dispersing these in strategic locations nationwide. In particular. maintaining buffer stocks. These interventions—procuring paddy from farmers and their organizations. Of these. which is set to allow farmers adequate returns and enough incentive to continue farming rice. The NFA maintains buffer stocks dispersed in strategic locations across the country. and the subsidy for the NFA. the latest in a succession of programs with such objective. Also. irrigation gets the lion’s share. The NFA has been operating with increasing losses. This is to be accomplished through irrigation development and rehabilitation.98% to 1. government appropriations for the rice program reached more than half of the total allocation to the Department of Agriculture although the rice sector is estimated to account for less than 20% of agricultural production. Government subsidies to the NFA may be insignificant relative to the rice program budget. a government corporation with the mandate to ensure food security through the stability of the supply and price of the rice staple. The programs differ only in priorities. The government appropriations for the rice program have three distinct components— irrigation. support for seeds. especially during the ricelean months and in abnormal situations such as natural calamities and other emergencies. postharvest facilities and mechanization assistance. fertilizer and other inputs. The NFA procurement aims to give the farmers an option of last resort and to influence private traders’ buying prices. was cut short by the change in administration. The substantial appropriations reflect the long-standing aim to pursue self-sufficiency in rice. which are covered by subsidy allocations from the national government and commercial borrowings guaranteed by the state. A previous plan. and releasing rice to various marketing outlets—are done by the NFA. productivity enhancement. In 2010. The Food Security Roadmap. but the NFA’s outstanding loans have ballooned from some ₧47 billion ($868 million) in 2005 to ₧176 billion ($3. technologies promoted. and service delivery models. programmed for 2009 to 2013 at about P15 billion a year. The stocks are meant to stabilize supplies in the market. and research and extension. if not stop. The drive for rice self -sufficiency has eclipsed all other objectives in the rice sector with big negative impacts on agricultural and rural incomes. The NFA buys paddy from farmers and farmer organizations at a support price. The record indicates that the NFA has been able to buy only up to 5% of paddy production on an annual basis in the last 10 years while its support price has been within 0.98 billion) in 2010 ($1=₧44 exchange rate). The buffer stock levels the NFA needs to maintain are the equivalents of the 30-day requirement at the start of the 3-month rice lean season of July–September and the 15-day requirement at any other time. Both programs aim for rice self-sufficiency and to reduce. the agriculture sectors associated with higher poverty incidence like coconut have likewise not received the support necessary to improve productivity and increase producers’ incomes. Sectors that are considered starved for support but where the country has comparative advantage have not expanded enough to provide significant income opportunities in the rural areas. will be implemented from 2011 to 2016 at a cost close to P20 billion a year. imports. An issue with this budget configuration is that the programs for agriculture diversification and competitiveness have been compromised.
Among these are the tindahan natin (our stores). It also held less than its required 15-day stock at the beginning of January in 4 years (2005–2008) within the reference period. In terms of share of total stock. At the height of the 2008 rice crisis. Under its mandate. the NFA held much higher shares of total stock. The NFA’s release price is set lower than prevailing levels in the wholesale rice market. The NFA’s rice distribution has been criticized for being costly and ineffective in protecting the poor as well as being prone to diversion and corruption. But the bulk of the NFA rice sales remain in regular retail outlets where anyone. The deficiency in stock relative to mandated holdings may be explained by the fact that with improvements in transport systems. the rest of the rice stocks were in commercial and household holdings. The NFA was asked to focus rice releases to outlets that cater to the poor and to areas where the poor reside. Starting July 2008. Studies show that NFA outlets appear limited in the poorer regions. the NFA had to increase its consumer price to ₧25. where children of poor households are provided 1 kilogram of iron-fortified or regular milled rice per week. including religious and social organizations. rich or poor. From 2004 to 2007. Outlets sell NFA rice to consumers at a price set by the NFA. the NFA’s rice distribution came to be viewed not only as an intervention to stabilize the market which is its mandate but as a social program to provide the poor access to lower cost rice. It also accredited nontraditional outlets.000 per mt. the NFA has been counting stocks already contracted for import in compliance with the required holdings. deployed mobile stores (in vans and small boats) to sell NFA rice and other essential goods in poor communities. The NFA held an average 36% and at least 19% of total stocks at the start of the lean season in the same period. records indicate that the NFA generally held an average 25% at the beginning of the year in 2000–2010. when international rice prices rose as high as $1. Records show that the NFA distributed some 10% to 17% of rice food requirements from 2000 to 2009. With its implied subsidies. restricting access of the poor. reaching as much as 60% in July 2010. as its paddy buying price made this uncompetitive. Rice prices in poorer provinces have risen faster. The NFA. the NFA targets to respond within 48 hours with the rice requirements and to restore within 2 weeks the supply and price of the staple to levels immediately prior to the calamity or emergency. which is about 15% to 20% lower than average prices for well-milled rice in the retail market. the NFA releases rice to various market outlets to maintain consumer prices at reasonable levels. indicating the NFA’s inability to temper the market in these areas. the old price of ₧18. which are stores located in depressed communities that sell NFA rice only to poor households. could buy. for some time. to participate in NFA rice distribution.00 to delay the drawdown of its stocks and to temper its losses. the NFA was essentially relying on imports for stocks as it had not been buying from the domestic market. family access cards are issued specifically for the purpose. .ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 8 the latter cases. The NFA also delivers rice directly to schools for distribution to pupils in exchange for school attendance under the Food for School Program of the Department of Education. Data from 2000 to 2009 show that the NFA held less than its required 30-day stock at the beginning of July in all but 2 years. However.25 was later restored and maintained for holders of family access cards until the change in administration in mid-2010.
The entire MAVs and more are recorded as imported.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 9 Proportionately. the dutyfree privilege was reinstated amid concerns about the NFA’s mounting losses and borrowings. except in 2003 and 2004 when the NFA was made to pay tariff to level the playing field with the private sector.00 per peso of rice subsidy delivered by the NFA to the poor. purportedly so as not to depress farm gate prices at harvest. This allocation implements the Agriculture Tariffication Act of 1995. The NFA generally starts the bidding process for imports in November and December of the previous year. reaching only 2% in 2008 when international prices peaked and 18% in 2009. as indicated in Philippine commitments to the World Trade Organization (WTO) under the Agreement on Agriculture. Private sector imports have remained minimal. . Farmers’ groups are allocated a total of 100. which starts in October. Minimum Access Volumes (MAVs) were also committed to the WTO. The NFA’s import authority is consistent with Presidential Decree 1773. which gave the NFA the power to import the MAVs itself or to allocate import volumes to certified and licensed importers. and Thailand. The import bidding process generally follows the requirements of the Government Procurement Reform Act that was passed in 2003. This special treatment of rice was negotiated in 1995 to last for 10 years. Rice imports remain under quantitative restrictions. Out-quota tariffs are set at 50% although the computed implicit tariff was higher until 2003 when it began to decline.000 mt for the duration of the extension period with in-quota tariffs set at 40%. it allocated some volumes for famers to import. Additional imports are bid out from January to July after consideration of the results of the Bureau of Agricultural Statistics Survey on Standing Rice Crops and the recommendation of the Inter-Agency Committee on Rice and Corn. This process is eliminated in the presence of government-to-government memoranda of agreement on the supply of rice import requirements. The volume of imports in any given year is determined using projections of production and the supply–demand gap. making the in-quota and out-quota rates immaterial.2 thousand mt in 1995 to increase to 238 thousand mt in 2005 with in-quota tariff at 50%.000 mt per importer. country-specific quotas (CSQ) or minimum market access amounting to a total 163.000 mt while other groups get 63.1 which maintained the NFA’s monopoly power on rice imports. While the NFA is identified as the sole importer of MAV commitments made in 1995. from July 2005 until 30 June 2012. more poor households consume NFA rice but non-poor households buy more NFA rice. The NFA generally imports rice tarifffree. With the extension of the special treatment of rice after 2005. It was extended for 7 years. The MAVs are maintained at 350. with the NFA as sole importer or having the first right to import. After 2004. This process takes about 30–60 days from the required publication of the invitation to bid for the awarding of the contract to the winning bidder.000 mt were committed to Australia. Imports have to arrive before mid-August. starting at 29. Some 48% of rice that the NFA distributed is unaccounted for in household consumption estimates (Jha and Mehta 2008).00 to ₧6. sharing a mere 4% of total imports over 1 Presidential Decree 1771 created the NFA from the National Grains Authority in 1981. The government spends ₧4. Imports are targeted to arrive for use mostly during the rice-lean months. People’s Republic of China. India. The NFA allocates the CSQs to the private sector on a first come-first served basis. with a maximum of 5.000 mt.
and ₧116 billion a year from 2006 to 2009 (Habito et al. transport. including those in retail establishments. B. This reduction of consumer welfare is estimated at about ₧72 billion a year from 2000 to 2005. The sanitary measures apply to imported rice. maintaining. a government corporation engaged in countertrade. Not a few studies have argued otherwise. The NFA regulations on rice also include the registration and licensing of all rice business entities. As discussed previously. a government corporation attached to the DA. the Philippine Center for Post Harvest Development and Mechanization (PhilMech) for postharvest concerns. and rehabilitating water resources projects for irrigation. Institutional and Private Sector Players The DA oversees development in the agriculture sector and. notably importing. and the Philippine Rice Research Institute (PhilRice) for technology concerns and to buffer stock foundation and registered seeds used by seed producers. but this amounted to only 23% and 47% of consumer losses in 2000–2005 and in 2006–2009. buffer stocking. The import restrictions that maintain high levels of protection for rice is politically popular as many believe that such import restrictions support the effort for rice self-sufficiency. also imports but shared less than 1% of total imports in the reference period. The National Irrigation Administration. the components of which have been discussed earlier. a primary lever for rice productivity. It is chaired by the DA Secretary and has 11 members—all but one are ex-officio representatives of national government agencies and banking institutions. Private sector imports in 2008 and 2009 were extended the duty-free privilege of the NFA. and a farm sector representative. including buying paddy. formulates the government program on rice. the NFA implements the market intervention programs on rice. 2011). threshing. with the highest share recorded in 2003 at about 25%. The Department of Finance (DOF) through its Corporate Affairs Group monitors the financial performance of government corporations. The higher domestic rice prices that result from protection means welfare losses because of higher prices and lower consumption of rice. It also registers and licenses the various rice business entities in the country. It considers and approves the NFA’s operational policies. constructing. which is inspected by the Bureau of Plant Industry for compliance at the port of entry. Other DA units that have significant roles in the rice program are the Bureau of Plant Industry for seed development and regulation. respectively. in such role. through commercial borrowings. wholesale. which include those engaged in rice retail. The NFA also sets standards and sanitary measures for packaging and storing rice. The NFA Council is the governing body of the NFA. notably the Department of Finance. takes charge of planning. The ceiling is important because the NFA finances most of its market participation. warehousing. The Philippine International Trading Corporation. The latest program is the Food Security Roadmap for 2011–2016. . the Fertilizer and Pesticide Authority for fertilizer industry regulation. Bangko Sentral ng Pilipinas (Central Bank of the Philippines). Office of the President. and selling rice. The DOF recommends the ceilings for the NFA’s commercial borrowings to be covered by government guarantee. and fortification. including the NFA. There were gains to producers. milling. shelling. in particular its sustained losses and increasing commercial borrowings. It holds monopoly authority on rice imports and it allocates to importers the private sector share of imports. The DA implements the production support components of the program in partnership with local government units (LGUs).ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 10 2000–2009. A priority concern of this group is the fiscal condition of the NFA. Department of Trade and Industry. government financial institutions.
using inputs from the NFA Council and his economic ministers. and the Director General of the National Economic and Development Authority. for ensuring availability of chemical and organic fertilizer inputs. the Philippine Farmers Advisory Board (PFAB). Bantay Bigas (rice watch). The R1 advocates ―sustainable agriculture aimed at fostering an economically and environmentally viable rice industry. farm productivity. When the NFA adopted two tiers of prices in its rice distribution program. retaining the QR on rice. especially those able to distribute for the NFA. paddy buying price. 2 Comprised of the Secretaries of the DA. and fiscal and political issues. and various farmer associations. The various private sector partners in implementing the rice self-sufficiency programs are the National Rice Seed Production Network (Seednet). and the various irrigators’ associations.‖ It lists its agenda as promoting sustainable rice farming.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 11 The Department of Social Welfare (DSWD) and LGUs are the institutions charged with providing social protection to the poor and vulnerable in general and in times of crisis. Key policy controls guiding NFA market operations such as level of imports. strengthening community and farmers’ rights over seeds. These groups generally favor a strong production support program in rice policy as do the farmers’ groups. are generally supportive of the NFA’s continued participation in trade and the retention of quantitative restrictions (QR) on rice import. and rice release and consumer prices are generally approved by the President. among them. Department of Trade and Industry. The DSWD and LGUs undertake the distribution of rice.2 The private sector stakeholders in rice policy include the traders and millers. for safeguarding water supply. Department of Finance. Department of Budget and Management. the consumers. for providing farmers access to quality seeds. the association of NFA-accredited rice retailers known as the Confederation of Grains Retailers Association of the Philippines (GRECON). and others. At the civil society front. the producers and producer organizations. The farmers’ groups and retailers. the National Rice Farmers Council (NRFC). the LGUs identified and the DSWD verified the families that would be entitled to the lower priced rice. generally sourced from the NFA. the Fertilizer Industry Association of the Philippines. The President generally exercises his executive authority over rice policy because of its apparent substantial implications on food security. tariff privileges. and increasing domestic support for the rice industry. . the seed producers. The regular private sector dialogue partners of the government include the association of rice trader–millers known as the Philippine Confederation of Grains Associations (Philcongrains). The wholesalers would want to reduce the uncertainties created by the NFA’s participation so they prefer that the NFA adopt a more predictable QR regime and more market-oriented pricing policies. the Rice Watch and Action Center (R1) is the most active in monitoring and advocating reforms in rice farming systems and trade policies. along with other goods during times of emergency. the Pambansang Kilusan ng mga Samahang Magsasaka (PAKISAMA) (National Confederation of Farmers’ Groups). and input providers. the Kilusang Magbubukid ng Pilipinas (KMP) (Peasant Movement of the Philippines).
In 1995. Thereafter. the NFA’s ability to smooth out supply disruptions is vulnerable. The big part of food insecurity comes from unchecked poverty. the NFA’s buffer stocking and dispersal strategies have been effective in restoring normalcy in rice supply. hinder the NFA’s facility to immediately bring in imports. This is. Some of the food insecurity stem from aggregate rice supply issues and high domestic prices. as a rule. as they do when there are successive destructive typhoons during La Niña and widespread drought during El Niño. The incidence of families living within subsistence incomes has hardly changed from 2003 to 2009. the government imported too late. The DA. Years of preoccupation with rice self-sufficiency and rice supply and price stabilization have not made a dent on the problem. in place until 2012. volcanic eruptions—that disrupt domestic rice production and distribution complicates the supply stability equation. which are 40% or its equivalent. These may not be apparent in recent years but current trade policies do not augur well for long-term supply and price stability. Recall that the NFA imports duty free and it shared this privilege with the private sector in the past. an underestimate because it cannot be assumed that those who live above the food threshold income are not food-poor. Regular surveys undertaken by the Social Weather Station to measure self-declared hunger incidence indicate little progress in stemming such hunger incidence. the government has imported aggressively and domestic prices have moved considerably closer to international prices in the last 3 years. It can also happen that the quota. the government was importing too little and consumers generally paid high prices for rice. become more restricted—how much will depend on how the new policy is operationalized. The country’s susceptibility to natural calamities—typhoons. bloating the NFA’s losses and borrowings and drawing attention to the fact that the strategy is unsustainable. initially restricting imports but only to see domestic prices spike up. PROBLEM ANALYSIS The Philippines continues to grapple with significant food insecurity. specifically the required procurement processes for government agencies. Imports will. However. Administrative constraints. The problem requires a multidimensional approach with focused and coordinated action from the entirety of government. in the short run. been able to address the immediate food needs of affected communities. It also appears inclined to give up the quantitative restrictions on rice in 2012 when the special treatment negotiated under the WTO will expire. By the end of the period. earthquakes. In the early 1990s. in fact.4 million individuals were food-poor. Because data indicate that the poor are mainly in the rural areas and work in agriculture. For small area supply disruptions. when calamities affect large areas and populations. the government estimates that some 9. But the supply stability achieved had cost too much. making the tariff immaterial. the DA should aim to prosper . with about 8% of families living on food threshold incomes. It is expected that the private sector will now be asked to pay full tariffs. consumers getting alarmed.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 12 IV. will move back to being limiting. and the government eventually scrambling to restore stability in the market. The Aquino administration has said that it will limit NFA imports and let the private sector bring in a bigger share of the rice QR. may be compelled to be conservative in recommending import levels and the NFA will have no reason to recommend higher rates. The reforms will bring longer term supply and price stability but it will have short-term costs. Government acknowledges that addressing widespread and chronic poverty is its immediate and most important concern. Likewise. under its program to attain rice self-sufficiency in three years. the emergency response strategies of the DSWD and LGUs with civil society have.
making them less difficult to manage. available and accessible. income-enhancing. including enhancing market information sharing for an efficient management of and access to regional rice emergency reserves. Not only does the public believe that growing the country’s food requirements is cost-effective because it provides incomes to farmers and saves foreign exchange. transformed into the Conditional Cash Transfer (CCT) program. They will be vocal in their opposition as they have been in the past The Philippine government will need to muster the political will. That way. The privatization of imports and the removal of QRs will be met by strong opposition among sectors who continue to believe that rice-self sufficiency is a precondition for food security as well as those who are beneficiaries of the current system—the rice producers and the businesses supporting rice production as well as the many traders doing business with the NFA. This was the thinking behind the successive huge-volume tenders in 2008.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 13 agriculture. . have had good outcomes elsewhere in the world. Such programs. International prices would need to remain stable and supply. The government has said it will support regional strategies to promote market stability. to push reforms. The government wants to protect the vulnerable through targeted subsidies. The Aquino administration has said it will transfer the NFA’s food subsidy functions to the DSWD. and ensure the stability of the rice market in the poorest localities. that the international rice market can not be trusted to supply the rice when it is needed. and sustainable agricultural growth. not only to assure food supplies but also to create rural employment and incomes. Will reforms happen? The DA will not back down on its rice self-sufficiency program and it has wide support for the same. domestic shocks from calamities and policy changes will not be compounded. Favorable conditions in the regional rice market will help. where the poor are essentially paid to avail of important social services in education and health. the government also believes. with little support against strong public sentiment. The NFA model of distributing low-priced rice as a food security measure has been shown to be ineffective and unsustainable. with basis.3 3 Views expressed by Philippine representatives in the 2nd meeting of the Technical Working Group on Rice Trade Enhancement of the ASEAN Food Security Board. Rice self-sufficiency strategies should support a bigger program for broad. Some of the food insecurity can be eased if the government can deliver an efficient administration of the program. including good targeting of the poor. which is the target of the CCT.
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