Fertilizer crisis on rice

More than three years after the Rice Tariffication Law (RTL) was enacted, expected benefits remain contested, mainly on the promise that farmers’ incomes would improve with increased productivity. The last three years, however, have been abnormal, to say the least.

Almost a year after the law took effect, just as the Department of Agriculture (DA) was able to fine-tune its bureaucratic machinery to disbursing the year’s P10 billion allotment for the improvement of rice farming, the country went into a nationwide lockdown due to the pandemic.

It would take another year for the DA to adjust to the new normal — distributing rice farm machineries and equipment, bringing new improved seeds to farmer groups, and mobilizing field personnel to organize and train farmers and farmer groups in modern farm techniques.

This year, the Russian-Ukrainian war erupted, causing widespread dislocation in the distribution and pricing of imported fertilizers. At the same time, crude oil prices spiked to over $120 per barrel, aggravating the global economy’s attempts to pick up steam after the lockdowns.

Add to the last three years is the devastation wrought by typhoons, which have increased in number while becoming more severe. Many have hit rice-producing regions, causing widespread damage and a subsequent reduction in local rice harvests.

Now well into the law’s fourth year, the high price of fertilizers is the biggest problem, not just of rice farmers, but the whole of agriculture. More small farmers are scrimping on fertilizer use while the DA seems unable to find an immediate solution to this crisis.

Withdrawal effect

The effect of withdrawing fertilizer use on rice will be felt in the next harvest, and well into 2023 if farmers are not given the support they need. A host of options are available, e.g., price subsidies, bilateral agreements, etc., but they must be pursued with urgency.

This year, rice production is already seen to be lower by one million metric tons from 2021, mainly based on numerous reports of rice farmers already reducing their fertilizer use because of lack of capital and the need to cut costs. Lending windows for fertilizer have no longer become an option.

Thus, higher import volumes for rice are seen, although there are concerns that these may not be enough to ensure that the buffer stock remains healthy. More than ever, the government needs to avoid supply shocks that could lead to abnormally high prices for consumers, just like what happened to sugar.

The export market for rice has become tight, with droughts in China and Pakistan, two of the world’s largest producers, as well as a withdrawal or reduction of export allocations by Thailand, Vietnam, and India in favor of their own needs.

The issue of rice security is gaining traction with other major rice consuming nations, all of which were likewise affected by rising fertilizer prices exacerbated by the high cost of fuel.

While short-term solutions to the fertilizer crisis are badly needed, so too must the country lay out a longer term policy to significantly boost local capacity to produce our own fertilizers. This roadmap must also contend with the need to wean fertilizer production from imported inputs, that are vulnerable to oil prices.

RCEF extension

The RTL is not a bad piece of legislation, but given the bummer of the last three years, will likely need to be amended towards an extension of Rice Competitiveness Enhancement Fund (RCEF), that is, if its desired effects are to be fully felt.

The RCEF is expected to end in 2025, which means that the tariff collections from rice imports not exceeding P10 billion a year geared for various programs to improve rice production may be discontinued. Under the RTL, half of the RCEF goes to farm mechanization, and 30 percent for inbred seed development, propagation, and promotion.

Studies by the National Economic Development Authority, and weighed in by the International Rice Research Institute and the International Food Policy Research Institute, expected significant RTL gains to kick in by 2025, on its sixth year, resulting in accelerated agricultural growth and a higher contribution to domestic productivity.

I guess that with the many unforeseen events foisted on the country and the world starting in 2020, a reasonably extension of the RCEF can be expected. We just have to be more proactive in dealing with any more exacerbations.

RTL gains

Rice farmers still have to see the benefit of over P30 billion that has been funneled to them through the RCEF, especially in light of the pandemic, the Russian invasion of Ukraine, and associated disruptions in global supply chains.

Studies are ongoing that should give a mid-term review of the RTL, particularly on the dispersion of farm machineries and equipment, as well as the adoption of better seeds. This should provide a glimpse of how well the DA has performed in overseeing the RCEF allocations.

The Department of Finance, in its first three years’ assessment on the RTL, reports a collection of P46.6 billion from rice import tariffs, which it notes not only provided enough funds for the RCEF, but also saved the country P11 billion a year in subsidies from 2005 to 2018 that were given to the National Food Authority.

On a macro view, though, the RTL’s biggest gain to date would be the reduction in rice prices, from an average of P42 per kilo to P37 today. If the government is able to effectively tackle the fertilizer problem, rice will longer be a negative contributor to the country’s inflation levels.

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