FEF pushes for lower tariffs on major commodities

MANILA, Philippines — The Foundation for Economic Freedom (FEF) is pushing for lower tariff rates on major commodities such as pork, corn, rice and coal to be extended next year to stabilize prices and tame inflation.

In a statement, the FEF called for the extension of Executive Order 171, which slashed the most favored nation (MFN) tariff rates on pork, corn, rice and coal until the end of the year.

EO 171 also extended until the end of the year the reduced tariff of 35 percent on imported rice, but will return to 40 percent in-quota and 50 percent out-quota tariff rates by January.

The EO also lowered the in-quota tariffs on corn imports to five percent from 35 percent until the end of the year.

Finally, it imposed zero tariffs on coal until Dec. 31.

The EO was signed by then president Rodrigo Duterte in May to soften the blow on inflation due to higher oil prices and a tight global grain supply situation because of the Russia-Ukraine conflict.

The FEF said the original bases for EO 171 – which include the pandemic-induced supply chain disruptions, the Ukraine-Russia conflict, and the African Swine Fever (ASF) affecting the local hog industry – remain relevant.

“It is arguable that conditions have aggravated since the passage of EO 171, with inflation now hovering just short of seven percent versus the four percent level back in May 2022. In the backdrop of all of these is a weakening economy and higher interest rate environment, which will cause sluggish economic recovery into at least 2023,” the public advocacy organization said.

Inflation accelerated to 6.9 percent year-on-year in September – a four-year high – mainly due to faster increases in food prices.

To help temper inflation pressures, the FEF said the entry of cheaper imports would help stabilize the prices of these commodities.

“We all recognize that higher inflation, particularly food, hurts the poor the most. Their limited income source cannot keep up with the pace of price increases. With higher inflation, borrowers also have to pay higher interest costs for their mortgages, while entrepreneurs shoulder greater production and marketing costs,” it said.

The group noted that while the agriculture sector contributes only 10 percent to the gross domestic product (GDP), the food manufacturing industry depends highly on agriculture for its raw materials.

Agricultural and food manufacturing industries combined contribute around a third of total GDP. Around 50 percent of the manufacturing sector is agriculture and food-based.

“It is, therefore, imperative to tame the prices of agricultural and food products. This will not only ensure access of consumers to nutritious and affordable food, but also enable our food industry to be efficient and competitive in producing food products.  A vibrant food processing industry will generate more jobs for our workers and will be of tremendous boost to our economic recovery effort,” FEF said.

For pork, the group said the ASF continues to affect the local hog industry.

“As a result, local supplies have yet to recover to pre-ASF levels. Meanwhile, the optimism of developing a vaccine in the near term has been scuttled by recent developments in Vietnam. On top of this, the slow progress of the government’s hog repopulation program is marred by insufficient resources,” it said.

Meanwhile, FEF said the local rice industry is under threat from lower production due to a mix of high fertilizer costs and recent typhoons, while local demand remains strong and is expected to reach more than 14 million metric tons as the economy recovers from the pandemic.

In the latest grain and feed update by its Foreign Agricultural Service (FAS), the United States Department of Agriculture (USDA) revised downward its projection on the country’s milled rice production from 12.411 million metric tons (MT) to 11.975 million MT in the July 2022 to June 2023 period.

It also projects the country’s rice consumption to reach 15.6 million MT next year.

To cover the supply shortfall, the USDA said it expects the country to import 3.4 million MT of rice, higher than its previous forecast of 3.3 million MT.

Meanwhile, FEF said energy security is a growing concern.

“Ensuring a reliable flow of feedstock to avert electricity shortages is vital for the economy’s continued post-pandemic recovery,” it said.

At present, the country sources most of its electricity supply from coal at approximately 44 percent.

In the case of corn, the FEF is urging the equalization of the minimum access volume (MAV), with in-MAV and out-MAV rates at a fixed five percent.

“The current corn MAV quota of merely 216,940 metric tons is not sufficient to tame domestic corn prices when the deficit is in the vicinity of three to four million metric tons,” it said.

Corn is a major input to local animal protein production and the group noted that the country still remains in a net deficit position in terms of corn supplies for the local feed sector.

“The corn industry is further pressured by high input costs and weather disturbances, leading to its growing replacement with less-than-ideal imported wheat, a significant portion coming from the Black Sea. Local corn production can only meet 57 percent to 60 percent of local animal feed demand,” the FEF said.

The USDA revised its forecast downward from 8.3 million MT to 7.9 million MT in the July 2022 to June 2023 period due to the significantly reduced fertilizer application of farmers which is seen to result in lower yields, and a decline in area harvested.