Estrada okays privatization of NFA

President Estrada has finally given the go-signal for the privatization of the National Food Authority (NFA), a major condition set by the Asian Development Bank (ADB) for the approval of a $175-million loan for the development of the country's grains sector.

The President has instructed members of the Economic Coordinating Council (ECC) to come up with a privatization mode that will be beneficial not only to the government but also to the employees of the NFA as well as those who are opposing the planned sale.

The ECC includes Agriculture Secretary Edgardo Angara, Trade and Industry Secretary Mar Roxas, Finance Secretary Jose Pardo, NEDA Director-General Felipe Medalla, Executive Secretary Ronaldo Zamora, and Bangko Sentral ng Pilipinas (BSP) Gov. Rafael Buenaventura.

Of the $175-million loan, $100 million will be used for budgetary support while the rest will be used to finance agricultural infrastructure.

The first tranche of the loan, amounting to around $75 million, was supposed to be released last year, but the DOF and the ADB had to postpone further discussions after the President took back his approval of the planned privatization.

Mr. Estrada was earlier quoted as saying that NFA will not be privatized during his term.

And since government has already complied with all the conditionalities for the release of the first tranche, it is expected that the amount will be released within the year. The second and third tranches are scheduled for release in the second and third year.

With the President's approval, the DOF and the ADB are now working closely to finalize the loan details.

The ECC is looking at several privatization options. The original plan was to privatize NFA's proprietary or trading function via the sale of 51 percent of NFA's shares. NFA's grains marketing function will be absorbed by a new private corporation that will be created.

NFA's regulatory function, will be absorbed by another government line agency.

However, oppositors led by NFA employees feared possible displacement, noting that the planned privatization may endanger the country's food security situation.

Under the new proposeds plan, NFA's core assets (warehouses) will be sold and bundled into eight -- Ilocos Region, Cagayan Valley, Central Luzon, Southern Luzon, Bicol/Eastern Visayas, Western Visayas (Iloilo port), Western Visayas (Cebu port), and Mindanao, with either the private sector or local government units targetted as prospective buyers.

Angara, following a meeting with ADB officials who presented the new option, noted that the new privatization plan seems better since it will result in several grains trading companies, increased competition, and therefore, better prices for palay farmers.

Also part of the plan is the creation of a National Rice Board to be chaired by the secretary of agriculture. The board will handle NFA's regulatory functions. Buying and selling of grains will be left to the private sector and only the poorest of the poor will be able to buy NFA rice via a targetted subsidy (coupon system).

For many years now, NFA's operations have caused a severe drain on government's meager resources. From 1995-1998s, total subsidy and equity infusion into NFA averaged P1.3 to P1.5 billion a year.

Net loss from 1995-1998 totalled P20 billion while total liabilities, 80 percent of which are current, reached P17 billion as of Dec. 1998.

The losses stem primarily from NFA's grains marketing activity, which entails buying palay and corn from farmers at a high price and selling rice and corn to users at a low price. The subsidy is meant to cover the loss in operations but there were years when the subsidy approved by goverment was not enough.