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Technical Assistance Consultant’s Report

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.

the rice sector has been receiving a substantial and increasing share of the government’s agriculture budget. The draft report is being published to disseminate the findings of work in progress to encourage the exchange of ideas. Due to the perceived importance of rice for political and economic stability. The emphasis is on getting findings out quickly even if the presentation of the work is less than fully polished. Programs for rice supply and price stabilization have proved costly. However. despite years of preoccupation with rice selfsufficiency. This draft report was prepared for the Asian Development Bank by Beulah de la Peña. under TA 7495-REG: Support for the Association of Southeast Asian Nations Plus Three Integrated Food Security Framework. Thailand. the Philippines. The Aquino administration has moved to reform rice policy but its mix of strategies is limited. have been growing at an average of 14% annually from its level in 2000 and are seen to increase continuously. The draft report is part of the TA’s diagnostic study on the food security of five ASEAN member countries—Cambodia. the Philippines continues to grapple with significant food insecurity.ABSTRACT Rice production in the Philippines has been growing faster than in previous decades. bloating the losses and borrowings of the state-run National Food Authority. Rice imports. on the other hand. Hunger incidence persists for a sizable part of the population. This paper is written to support the analytical requirements for developing an integrated food security framework in the region. The draft report is an abridged version of a full country research paper on the Philippines. Indonesia. and Viet Nam —with a special focus on rice. which is available upon request. . National Rice Economist for the Philippines.

............. II................................................................................................................................................................................. Institutional and Private Sector Players ......................................................................... Public Policies and Key Institutional Players ................................ Problem Analysis .............................. 4 Prospects............................................................................................................................................. 6 B......................... D..... 1 Value Chain ... 6 A..................................................................... 1 Rice Situation ................. B.................CONTENTS I............................................................................................................... E........ C.......12 REFERENCES ........................................................................................................... 6 III................................................... 1 A....................... 5 Data Availability ............................................14 ................10 IV............................................................. INTRODUCTION ... Public Policies on Rice ...................................................................................... 2 Food Security Situation .............................................................................. Supply and Utilization .................................................

also showed significant gains. The country’s susceptibility to natural calamities is an added complication. hectarage.95 MT per hectare and close to 1. growth in the 1990s came largely from area expansions while that in the 1980s relied solely on yield increases. Irrigated farms provided much of the production and production increases. But rainfed farms. Efforts toward selfsufficiency and stability in rice supplies pursued over the years have proved costly and unrewarding. Supply and Utilization Philippine paddy production in 2009 was about 16.THE PHILIPPINE RICE SITUATION I. Production has been growing faster than in previous decades.5 million hectares of rainfed farms with a much lower average yield of 2. Production.83 MT per hectare. The stability of rice supply at the aggregate level remains vulnerable. Irrigated farms. Hunger incidence also persists as an issue for a sizable part of the population. Hectarage expanded by 1% annually and average yield increased by 2. and yield in 2010 declined due to the effects of El Niño that hit the country during the year. Growth came from irrigated and rainfed farms.4% annually account for most of the production growth but area expansions of 1. The new Aquino administration has moved to reform rice policy but its mix of strategies is limited.8% and 2.28% annually also contributed.2 million metric tons (MMT) or 10. In contrast. which contributed about a quarter of production in the decade. . yield. by the observation that the international rice market can not be trusted to provide the supply when needed. Production in 2009 was about 3 MMT higher than production in 2000. Yield increases of 2. II. 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. posting an average 3% annual increase. and production increases in percentage terms. among domestic political and resource considerations. INTRODUCTION The Philippines continues to grapple with significant food insecurity. with much higher 2000 levels.9% per year for rainfed farms.7% for an average production increase of 3. This growth rate is higher than the average annual increases of 2. This paper is written to support the analytical requirements for developing an integrated food security framework in the region. showed lower hectarage.6 MMT in rice terms.0% attained in the previous two decades. RICE SITUATION A.

2 2. Imports grew at an average of 14% annually from its level in 2000. roads.4 Growth Rate 2000–2009 3. However.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 2 Table 1: Paddy Production.1 2. separator.6 3.9 2. The bulk of the threshing is done by mechanical thresher but manual threshing by farmers remains popular. packaging.6 MMT or some 3 thousand MT more than the average year-end stocks in 2000–2010. 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. During 2000–2009. Total rice use in 2010 is estimated at about 11. milling. As paddy rice goes to the mill.3 3.type whitener. Food use accounted for close to 89% of total use from 2000 to 2010. transportation.37 MMT.7 3. which averages 21% in the 2000-2010. has been declining due to the faster growth of rice use. Rice Imports. and kiskisan mills that hull and polish in one pass. the stock to use ratio. and abrasive cone-type polishers.8 4.4 11.9 10.1 1.6 89.9 2. some 600 thousand mt (metric tons) more than imports in 2009. Milling.8 MMT. However. B.4 11. Drying is done mostly by sun-drying on highways.4 3.8 3.8 12. rice use increased at about 3. which converts the paddy to the rice form that is eaten.4 1. Storage is done mostly in 50-kilo bags. and storage. 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. Intermittent exports were recorded in previous years. drying.4 1. also still widely used are conventional multi-pass cono mills that use an under-runner disk huller.0 3. There is no record of exports in the period. Value Chain Paddy rice undergoes several processes to get to the consumer after it is harvested— threshing/shelling. which .0 1.4 2.3 1. Food use growth in the period accelerated from the previous decade while those for other uses slowed down. compared to 9% in the previous decade. it can pass through several players in the market. with the highest export volume observed in 1980 when exports reached 5% of production. notably in the 1970s and early 1980s.8 Source of data: Bureau of Agricultural Statistics 2010a.3%. and multi-purpose drying pavements. Threshing is generally done at the farm right after harvest. Rice imports in 2010 amounted to about 2.8 3. Average stock levels have been increasing through the decades. a 4% decline from the previous year. Rice stocks as of beginning 2010 is estimated at about 2.

Sampaguita. viajeros. while regular milled rice gets the lowest price. The Philippine Center for Post Harvest Development and Mechanization estimates postharvest losses in rice at about 15%–20% of production. 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 biggest margins are maintained for fancy rice followed by well-milled rice. and pass on the paddy directly to mills or through mill agents. Margins from farmer to wholesaler generally follow the hierarchy of classification. Regular-milled rice has 10%–40% remaining bran layers and 15%–45% broken kernels. followed by premium varieties and well milled rice. which include glutinous. Most millers just do milling but some big millers also have drying and storage facilities and transport the rice to markets. traders. Drying. price is defined by variety and grain characteristics. Most of the postharvest losses are attributed to the lack or maldistribution of postharvest facilities. From wholesaler to retailer. buy from farmers and small traders. With respect to rice. This could be driven by policy issues as there are investment incentives and viable options for acquiring threshing and milling equipment. and viajeros and sell the milled rice to wholesalers. and commission agents. Paddy with moisture content not exceeding 14% get the highest prices. Commission agents are generally attached to traders or millers and get a fee for matching them with supplies.e. approximate that of regular milled rice. and millers. and sell to mills. They are mostly located in the market centers or towns. the deficits are greater than the surpluses so that there are net deficits nationwide. Traders and viajeros are paddy assemblers. followed by premium varieties and then well milled rice. aromatic rice and those with excellent eating and nutritive qualities such as Dinorado. Sinandomeng. Premium rice is any variety other than fancy that meets the highest grade in rice standards. Prices move together but are generally higher for fancy varieties. The same can be said of milling where the surplus in surplus regions is greater than the deficit in deficit regions. Traders and viajeros generally bear the hauling and transport costs of palay (unhusked rice) from farm to mill. Millers buy paddy from farmers. they buy from producers directly or through agents. Rice is differentiated as fancy. and Milagrosa. fancy varieties are priced higher. piling. i. including having 5% or less broken kernels. which all happen while paddy is still with the farmers. well-milled. or regular milled in price monitoring. The wholesalers’ margin. however. The viajeros are itinerant traders who bring their trucks. which includes those of the assemblers. harvesting. and threshing. Well-milled rice has remaining bran layers less than 20% of the kernels and not more than 10% broken kernels. Traders are more established in their areas of operation. premium. traders. The price of paddy is defined by variety and moisture content. As to variety. A study that documented the marketing flow of paddy from Isabela in 2004 indicates that marketing costs are highest for trader–millers who. is not big when it is further broken down by intermediaries and costs. Profits are shown to be bigger for farmers and retailers and smallest for assemblers and . But in drying and storage. do not get the biggest profits in the rice flow. contrary to popular belief. make up about 60% of the estimated losses. and are lowest for regular milled rice. which means a net surplus nationwide. The retailer’s margins for premium rice. they are generally highest for fancy varieties.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 3 include the traders.

from 0. The Family Income and Expenditure Survey further shows that. as will be discussed later. respectively. C. respectively. The survey of the Bureau of Agricultural Statistics has the advantage of being focused on food demand. which estimates food use by disappearance method using domestic production. noodles. The net profit–cost ratio for rice farming is estimated to rise steadily. for children 6 to 10 years old in 2008.7%. respectively. Postharvest losses are biggest for famers. .9% were within the estimated 2009 food or subsistence threshold. and (3) inefficient financial services. it may be more reliable than the National Statistics Office survey which looks at the pattern of expenditures of households. the incidence increased from 2005. The study theorizes that the other threefourths of the difference may be explained by too many marketing agents. Food Security Situation The consumption of rice from 2006 to 2009 is estimated between 105 and 120 kilos per capita per year. The other estimates of 105 kilogram per capita in 2006 and 119 per capita in 2008–2009 rely on surveys. respectively. in 2006 and 2009. and roots and tubers when measured in terms of the share of total food expenditures. which increase the cost of money. 118 and 120 kilogram per capita.2% and 27. for children 5 years old and younger. Indeed policy. Consistent with high poverty incidence. The Family Income and Expenditure Survey indicates that 20% of households were within the estimated 2009 poverty threshold while some 7. Collusion at the wholesale level could not be proved or ruled out due to inadequate data. for the richest households. and 25. The poorest household spent 34% of food expenditures or 22% of total expenditures on rice as against 8% and 2%. imports. as part of the Family Income and Expenditure Survey for the National Statistics Office and of food demand for the Bureau of Agricultural Statistics. 26. specifically the NFA’s participation in the market. 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. Being computed in such way. The highest estimates. 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. Data indicate that farmers’ margins have been increasing over time. As such. making storage time longer. The poorer households also spent more on corn.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 4 wholesalers. 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.44 in 2009. and change in stock. If the trader–miller is also the wholesaler. are those in the Supply and Utilization Accounts of the Bureau of Agricultural Statistics. the figure is really an estimate of rice available for consumption instead of rice consumed. creates significant market uncertainty for the private sector and discourages bigger investments. Underweight and chronic energy deficiency among teenagers and adults are also quite prevalent. then their profit is bigger. households spent about 7.6% and 33%. 2006). possibly excluding the value of rice consumed while eating out. (2) seasonality and lack of openness to trade.7% of total expenditures and 18% of food expenditures. on average. indicators of nutrition show high levels of the incidence of underweight and under height. Moreover. which includes estimates of consumption outside the house.26 in 2002 to 0. respectively. Marketing cost is higher because of (1) road quality which increases transport costs.

5 15. The projections. and ending stock will reach 20. place production at 17.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 5 In value terms.3 MMT in that year.5 4.0 14. the highest expenditures for rice was made by households in the 2nd decile or those beyond subsistence but still below the poverty line. The subsistence households (in the 1st decile) spent less on rice compared to households in the 2nd to 6th deciles.2 million hectares. Food demand is forecast to increase. projections indicate that the area harvested to rice will grow at about 1% a year until 2013 and will decline thereafter. Table 2: Rice Supply and Use Targets and Projections Production (MMT paddy) Department of Agriculture Targets 2016 Projections 2016 2019 20.0 MMT in 2011. .6 5. Only 19% substitute due to preference. This means that a little more than 50% substitute because of price while only around 15% substitute for reasons of availability or accessibility.7 20.0 14. 2.9 MMT for the same year. to attain a much higher 25.7 0. Total demand inclusive of food.3%.8% reason that their residence is far from the source of rice. while another 8. Expenditures on rice decline thereafter as household income increases.44 MMT production in 2016.9 3. initially at rates of around 3% and slowing down to 1.2 5.4% of households say they cannot afford rice and another 28% indicate that the substitute is affordable.3 MMT in 2016. without interventions.0 mt/hectare and to expand the planted area to 5.3 2. the DA has set targets to increase yield to 5. sustained increases will see yield reaching to about 5.5% say that the substitute is available. Feed and waste and processing use are estimated as a percentage of production while seed use is a percentage of area. 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. 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. 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.09 mt/hectare by 2019 while paddy output will reach 20. However.1 25. Some 4% say that rice is not available.9 4. Prospects With no changes in basic rice policy. Under its rice self-sufficiency program. other uses. rising steadily to 21. D. Some 23.6 MMT in 2019. author’s computations for projections. to hit about 15.0 Hectarage (million has) Yield (mt/ha) Food Use (MMT rice) Imports (MMT rice) Source: Department of Agriculture for its own targets.4 5.1 4.

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. However. Data are collected through quarterly nationwide surveys of farmers’ intention to plant. reaching only 14. and (2) the self-sufficiency program includes demand management strategies that will shift rice consumption to other cereals. 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. The estimates are generated from submissions of the NFA regional offices. 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. which are sourced from field offices where any unchecked irregularities in operations will come with data fudging. PUBLIC POLICIES AND KEY INSTITUTIONAL PLAYERS A. and the perceived importance of rice for political and economic stability. 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. planting (standing crop) and area harvested. III. 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.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. E. Rice available for consumption is computed as a residual. 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. This seems to be because (1) the DA projects smaller stock levels. the figures from the NFA are perceived as a major weakness in Philippine rice statistics. The projected rice derived from the paddy production will be augmented by imports that are seen to increase continuously. and thus carries whatever errors are made on estimates on stocks and other rice uses. Monthly rice stock data are also released by the Bureau of Agricultural Statistics 10 days after the reference month. though at a much slower clip compared to the previous 2 decades. stocks will remain at 13% to 19% of total supply. With this mandate. which are consistent with the record in previous decades when stocks were at 16% to 20% of supply. Data Availability Time series and updated rice data are generally available from the Bureau of Agricultural Statistics. However. and twice a week monitoring of prices in markets nationwide. The bureau generates the estimate for household stocks using surveys but gets the estimates for commercial and NFA stocks from the NFA. It also mandates that the production of rice and white corn should be optimized and given adequate support. Data on government participation in rice trade are available with the NFA while data on poverty are provided by the National Statistical Coordination Board. Imports are estimated to hit 3 MMT in 2011.

These interventions—procuring paddy from farmers and their organizations.98 billion) in 2010 ($1=₧44 exchange rate). In 2010. The stocks are meant to stabilize supplies in the market. productivity enhancement. support for seeds. The programs differ only in priorities. imports. For . The NFA has been operating with increasing losses. especially during the ricelean months and in abnormal situations such as natural calamities and other emergencies. if not stop. Government subsidies to the NFA may be insignificant relative to the rice program budget. dispersing these in strategic locations nationwide. The government appropriations for the rice program have three distinct components— irrigation. but the NFA’s outstanding loans have ballooned from some ₧47 billion ($868 million) in 2005 to ₧176 billion ($3. The NFA procurement aims to give the farmers an option of last resort and to influence private traders’ buying prices. 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. 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. An issue with this budget configuration is that the programs for agriculture diversification and competitiveness have been compromised. The NFA maintains buffer stocks dispersed in strategic locations across the country. fertilizer and other inputs. the latest in a succession of programs with such objective. 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. This is to be accomplished through irrigation development and rehabilitation. The substantial appropriations reflect the long-standing aim to pursue self-sufficiency in rice. In particular. which are covered by subsidy allocations from the national government and commercial borrowings guaranteed by the state. the agriculture sectors associated with higher poverty incidence like coconut have likewise not received the support necessary to improve productivity and increase producers’ incomes. irrigation gets the lion’s share. and service delivery models. 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. a government corporation with the mandate to ensure food security through the stability of the supply and price of the rice staple. postharvest facilities and mechanization assistance. The Food Security Roadmap. Also. programmed for 2009 to 2013 at about P15 billion a year.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 7 agriculture budget. was cut short by the change in administration. the later program includes demand management strategies. which is set to allow farmers adequate returns and enough incentive to continue farming rice. Both programs aim for rice self-sufficiency and to reduce. at least prior to 2010. maintaining buffer stocks. The NFA buys paddy from farmers and farmer organizations at a support price. Of these. and releasing rice to various marketing outlets—are done by the NFA. The appropriations and budgets do not quite show the picture with respect to the resources devoted to market interventions in rice marketing. and the subsidy for the NFA. A previous plan.98% to 1. The drive for rice self -sufficiency has eclipsed all other objectives in the rice sector with big negative impacts on agricultural and rural incomes. technologies promoted.25% of average farm gate prices. and research and extension.

With its implied subsidies. However. indicating the NFA’s inability to temper the market in these areas. could buy. deployed mobile stores (in vans and small boats) to sell NFA rice and other essential goods in poor communities. It also accredited nontraditional outlets. which is about 15% to 20% lower than average prices for well-milled rice in the retail market. the NFA had to increase its consumer price to ₧25. . the old price of ₧18. 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. when international rice prices rose as high as $1. 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. reaching as much as 60% in July 2010.25 was later restored and maintained for holders of family access cards until the change in administration in mid-2010. 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. 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. Rice prices in poorer provinces have risen faster. The NFA held an average 36% and at least 19% of total stocks at the start of the lean season in the same period. The NFA. the NFA releases rice to various market outlets to maintain consumer prices at reasonable levels. including religious and social organizations. for some time. the NFA held much higher shares of total stock. restricting access of the poor. The NFA was asked to focus rice releases to outlets that cater to the poor and to areas where the poor reside. as its paddy buying price made this uncompetitive. Records show that the NFA distributed some 10% to 17% of rice food requirements from 2000 to 2009. In terms of share of total stock. It also held less than its required 15-day stock at the beginning of January in 4 years (2005–2008) within the reference period. where children of poor households are provided 1 kilogram of iron-fortified or regular milled rice per week. 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. From 2004 to 2007.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 8 the latter cases. Under its mandate. Starting July 2008. the NFA has been counting stocks already contracted for import in compliance with the required holdings. records indicate that the NFA generally held an average 25% at the beginning of the year in 2000–2010.00 to delay the drawdown of its stocks and to temper its losses. Outlets sell NFA rice to consumers at a price set by the NFA. which are stores located in depressed communities that sell NFA rice only to poor households. Among these are the tindahan natin (our stores). family access cards are issued specifically for the purpose.000 per mt. the rest of the rice stocks were in commercial and household holdings. rich or poor. 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. the NFA was essentially relying on imports for stocks as it had not been buying from the domestic market. Studies show that NFA outlets appear limited in the poorer regions. to participate in NFA rice distribution. At the height of the 2008 rice crisis. The NFA’s release price is set lower than prevailing levels in the wholesale rice market.

2 thousand mt in 1995 to increase to 238 thousand mt in 2005 with in-quota tariff at 50%. This special treatment of rice was negotiated in 1995 to last for 10 years. which gave the NFA the power to import the MAVs itself or to allocate import volumes to certified and licensed importers. which starts in October. The NFA generally starts the bidding process for imports in November and December of the previous year. except in 2003 and 2004 when the NFA was made to pay tariff to level the playing field with the private sector. Minimum Access Volumes (MAVs) were also committed to the WTO. Rice imports remain under quantitative restrictions. The volume of imports in any given year is determined using projections of production and the supply–demand gap.000 mt while other groups get 63. It was extended for 7 years. The NFA’s import authority is consistent with Presidential Decree 1773. Farmers’ groups are allocated a total of 100. country-specific quotas (CSQ) or minimum market access amounting to a total 163. India. With the extension of the special treatment of rice after 2005.000 mt per importer. 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. as indicated in Philippine commitments to the World Trade Organization (WTO) under the Agreement on Agriculture. Some 48% of rice that the NFA distributed is unaccounted for in household consumption estimates (Jha and Mehta 2008).1 which maintained the NFA’s monopoly power on rice imports. Private sector imports have remained minimal. This allocation implements the Agriculture Tariffication Act of 1995. The entire MAVs and more are recorded as imported.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 9 Proportionately.000 mt for the duration of the extension period with in-quota tariffs set at 40%. After 2004. sharing a mere 4% of total imports over 1 Presidential Decree 1771 created the NFA from the National Grains Authority in 1981. Imports have to arrive before mid-August. While the NFA is identified as the sole importer of MAV commitments made in 1995. with a maximum of 5. . it allocated some volumes for famers to import. People’s Republic of China.00 to ₧6. This process is eliminated in the presence of government-to-government memoranda of agreement on the supply of rice import requirements. 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. making the in-quota and out-quota rates immaterial. reaching only 2% in 2008 when international prices peaked and 18% in 2009. starting at 29.000 mt were committed to Australia. The government spends ₧4. purportedly so as not to depress farm gate prices at harvest. The NFA allocates the CSQs to the private sector on a first come-first served basis. with the NFA as sole importer or having the first right to import. The MAVs are maintained at 350. The import bidding process generally follows the requirements of the Government Procurement Reform Act that was passed in 2003.00 per peso of rice subsidy delivered by the NFA to the poor. and Thailand. from July 2005 until 30 June 2012. more poor households consume NFA rice but non-poor households buy more NFA rice. Imports are targeted to arrive for use mostly during the rice-lean months. The NFA generally imports rice tarifffree. Out-quota tariffs are set at 50% although the computed implicit tariff was higher until 2003 when it began to decline.000 mt. the dutyfree privilege was reinstated amid concerns about the NFA’s mounting losses and borrowings.

The National Irrigation Administration. through commercial borrowings.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 10 2000–2009. formulates the government program on rice. including the NFA. government financial institutions. It considers and approves the NFA’s operational policies. which include those engaged in rice retail. the NFA implements the market intervention programs on rice. The NFA also sets standards and sanitary measures for packaging and storing rice. including buying paddy. The Philippine International Trading Corporation. As discussed previously. The DA implements the production support components of the program in partnership with local government units (LGUs). The sanitary measures apply to imported rice. the Philippine Center for Post Harvest Development and Mechanization (PhilMech) for postharvest concerns. 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. There were gains to producers. a government corporation attached to the DA. and ₧116 billion a year from 2006 to 2009 (Habito et al. in particular its sustained losses and increasing commercial borrowings. It also registers and licenses the various rice business entities in the country. the Fertilizer and Pesticide Authority for fertilizer industry regulation. warehousing. A priority concern of this group is the fiscal condition of the NFA. Private sector imports in 2008 and 2009 were extended the duty-free privilege of the NFA. 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. respectively. and selling rice. and a farm sector representative. including those in retail establishments. It holds monopoly authority on rice imports and it allocates to importers the private sector share of imports. notably the Department of Finance. 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. This reduction of consumer welfare is estimated at about ₧72 billion a year from 2000 to 2005. The NFA Council is the governing body of the NFA. The latest program is the Food Security Roadmap for 2011–2016. and fortification. which is inspected by the Bureau of Plant Industry for compliance at the port of entry. Not a few studies have argued otherwise. 2011). constructing. maintaining. B. Other DA units that have significant roles in the rice program are the Bureau of Plant Industry for seed development and regulation. Bangko Sentral ng Pilipinas (Central Bank of the Philippines). and the Philippine Rice Research Institute (PhilRice) for technology concerns and to buffer stock foundation and registered seeds used by seed producers. Office of the President. buffer stocking. The ceiling is important because the NFA finances most of its market participation. shelling. takes charge of planning. . in such role. threshing. also imports but shared less than 1% of total imports in the reference period. notably importing. Institutional and Private Sector Players The DA oversees development in the agriculture sector and. The DOF recommends the ceilings for the NFA’s commercial borrowings to be covered by government guarantee. The NFA regulations on rice also include the registration and licensing of all rice business entities. the components of which have been discussed earlier. a government corporation engaged in countertrade. The higher domestic rice prices that result from protection means welfare losses because of higher prices and lower consumption of rice. milling. Department of Trade and Industry. wholesale. but this amounted to only 23% and 47% of consumer losses in 2000–2005 and in 2006–2009. transport. and rehabilitating water resources projects for irrigation.

and increasing domestic support for the rice industry. strengthening community and farmers’ rights over seeds. the seed producers. and the Director General of the National Economic and Development Authority. The various private sector partners in implementing the rice self-sufficiency programs are the National Rice Seed Production Network (Seednet). Department of Trade and Industry. 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. paddy buying price. farm productivity. At the civil society front. along with other goods during times of emergency. the Rice Watch and Action Center (R1) is the most active in monitoring and advocating reforms in rice farming systems and trade policies. the LGUs identified and the DSWD verified the families that would be entitled to the lower priced rice. the Kilusang Magbubukid ng Pilipinas (KMP) (Peasant Movement of the Philippines). the National Rice Farmers Council (NRFC). Key policy controls guiding NFA market operations such as level of imports. and others. Bantay Bigas (rice watch). for safeguarding water supply. and fiscal and political issues. are generally supportive of the NFA’s continued participation in trade and the retention of quantitative restrictions (QR) on rice import. the Fertilizer Industry Association of the Philippines. The R1 advocates ―sustainable agriculture aimed at fostering an economically and environmentally viable rice industry. the consumers. When the NFA adopted two tiers of prices in its rice distribution program. among them. The President generally exercises his executive authority over rice policy because of its apparent substantial implications on food security. the producers and producer organizations.2 The private sector stakeholders in rice policy include the traders and millers. . the Pambansang Kilusan ng mga Samahang Magsasaka (PAKISAMA) (National Confederation of Farmers’ Groups). These groups generally favor a strong production support program in rice policy as do the farmers’ groups. and various farmer associations. Department of Finance. for ensuring availability of chemical and organic fertilizer inputs. and rice release and consumer prices are generally approved by the President. the Philippine Farmers Advisory Board (PFAB). especially those able to distribute for the NFA. the association of NFA-accredited rice retailers known as the Confederation of Grains Retailers Association of the Philippines (GRECON). 2 Comprised of the Secretaries of the DA. generally sourced from the NFA. and input providers.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. and the various irrigators’ associations. The farmers’ groups and retailers. The DSWD and LGUs undertake the distribution of rice.‖ It lists its agenda as promoting sustainable rice farming. using inputs from the NFA Council and his economic ministers. tariff privileges. retaining the QR on rice. for providing farmers access to quality seeds. Department of Budget and Management.

the government imported too late. earthquakes. It can also happen that the quota. The DA. in the short run. will move back to being limiting. may be compelled to be conservative in recommending import levels and the NFA will have no reason to recommend higher rates. under its program to attain rice self-sufficiency in three years. Years of preoccupation with rice self-sufficiency and rice supply and price stabilization have not made a dent on the problem. in fact.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 12 IV. Government acknowledges that addressing widespread and chronic poverty is its immediate and most important concern. Regular surveys undertaken by the Social Weather Station to measure self-declared hunger incidence indicate little progress in stemming such hunger incidence. initially restricting imports but only to see domestic prices spike up. and the government eventually scrambling to restore stability in the market. Because data indicate that the poor are mainly in the rural areas and work in agriculture. an underestimate because it cannot be assumed that those who live above the food threshold income are not food-poor. Thereafter. The reforms will bring longer term supply and price stability but it will have short-term costs. It also appears inclined to give up the quantitative restrictions on rice in 2012 when the special treatment negotiated under the WTO will expire. This is. The big part of food insecurity comes from unchecked poverty. the government has imported aggressively and domestic prices have moved considerably closer to international prices in the last 3 years. as they do when there are successive destructive typhoons during La Niña and widespread drought during El Niño. Recall that the NFA imports duty free and it shared this privilege with the private sector in the past. However. The country’s susceptibility to natural calamities—typhoons. the DA should aim to prosper . become more restricted—how much will depend on how the new policy is operationalized. Imports will. 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. the NFA’s buffer stocking and dispersal strategies have been effective in restoring normalcy in rice supply. consumers getting alarmed. Likewise. These may not be apparent in recent years but current trade policies do not augur well for long-term supply and price stability. But the supply stability achieved had cost too much. PROBLEM ANALYSIS The Philippines continues to grapple with significant food insecurity. Administrative constraints. The incidence of families living within subsistence incomes has hardly changed from 2003 to 2009. Some of the food insecurity stem from aggregate rice supply issues and high domestic prices. For small area supply disruptions. making the tariff immaterial. By the end of the period. bloating the NFA’s losses and borrowings and drawing attention to the fact that the strategy is unsustainable. volcanic eruptions—that disrupt domestic rice production and distribution complicates the supply stability equation. the emergency response strategies of the DSWD and LGUs with civil society have. with about 8% of families living on food threshold incomes. as a rule. the government was importing too little and consumers generally paid high prices for rice. specifically the required procurement processes for government agencies. been able to address the immediate food needs of affected communities. in place until 2012. the NFA’s ability to smooth out supply disruptions is vulnerable. which are 40% or its equivalent. when calamities affect large areas and populations. hinder the NFA’s facility to immediately bring in imports. In the early 1990s. It is expected that the private sector will now be asked to pay full tariffs.4 million individuals were food-poor. In 1995. the government estimates that some 9. The problem requires a multidimensional approach with focused and coordinated action from the entirety of government.

domestic shocks from calamities and policy changes will not be compounded. the government also believes. 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. 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. Some of the food insecurity can be eased if the government can deliver an efficient administration of the 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 the international rice market can not be trusted to supply the rice when it is needed. The Aquino administration has said it will transfer the NFA’s food subsidy functions to the DSWD. not only to assure food supplies but also to create rural employment and incomes. making them less difficult to manage. The NFA model of distributing low-priced rice as a food security measure has been shown to be ineffective and unsustainable. International prices would need to remain stable and supply. This was the thinking behind the successive huge-volume tenders in 2008. Rice self-sufficiency strategies should support a bigger program for broad. available and accessible. income-enhancing.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. and sustainable agricultural growth.ADB Technical Assistance Consultant’s Report (Draft) The Philippine Rice Situation | 13 agriculture. to push reforms. The government has said it will support regional strategies to promote market stability. Favorable conditions in the regional rice market will help. including enhancing market information sharing for an efficient management of and access to regional rice emergency reserves. The government wants to protect the vulnerable through targeted subsidies. Will reforms happen? The DA will not back down on its rice self-sufficiency program and it has wide support for the same. That way. have had good outcomes elsewhere in the world. with little support against strong public sentiment. Such programs. which is the target of the CCT. and ensure the stability of the rice market in the poorest localities. with basis. where the poor are essentially paid to avail of important social services in education and health. . including good targeting of the poor.

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