Smuggling

Customs personnel the other day intercepted yet another major shipment of rice at the Subic port. This shipment contains about P.5 billion worth of rice from India.

The latest interception comes on the heels of the discovery of two shipments of rice from Vietnam valued at several hundred million pesos. None of the shipments are covered by the proper import permits.

Last year, some 2,000 containers disappeared from the Batangas port. We have not been told what these contained. Some of them, at least, might have contained rice.

Smuggled rice, we are told, flows freely into some small ports in Mindanao. No one seems to know how much rice is actually smuggled into the country.

One clue might be the discrepancy between our official figures for rice importation and the estimates of foreign agencies monitoring the trade in grains. Our official figures put our importation at about 800,000 tons a year. Figures from foreign grains trade monitors put our actual rice importation at about 1.9 million tons annually.

Why is the international market estimate twice our official number? One might imagine there could be discrepancy between foreign numbers and our own — but not a discrepancy this large.

The apparent discrepancy has grave implications. It suggests government is losing billions in potential tariff revenues every year due to rampant smuggling. It suggests that a major syndicate evolved into place, illicitly moving hundreds of thousands of tons of rice from foreign suppliers to domestic trading firms and, eventually to the retail outlets.

A syndicate involved in the smuggling of such a bulky commodity must have some very powerful connections somewhere to complement a rather massive logistical operation. They have also, if we notice, managed to get the rice interceptions downplayed in most of the major pro-administration media outlets.

We can only hope Customs Commissioner Ruffy Biazon has the courage and the tenacity to get to the bottom of this smuggling story. Much depends on that.

The intercepted rice shipment entered the country during the midyear harvest and milling season. The volume of smuggled rice no doubt influences domestic pricing for the commodity to the detriment of our farmers.

Needless to say, those behind the rice smuggling syndicate must be raking in a lot of money. Rice is one of very few commodities still protected by tariff barriers. This is why rice smuggling has become such a lucrative criminal activity.

The full story behind what now appears to be massive rice smuggling will have serious political repercussions.

The Aquino administration elevated rice self-sufficiency as some sort of Holy Grail to be achieved sometime soon — and, some boast, we could become a rice exporter eventually like we were two generations (and less than half our current population) ago.

Many economists question if this should be a policy goal at all.

Striving for rice self-sufficiency will require us to devolve land from higher value uses to cultivate a lower value crop. That will kick up land prices and will likely bring down the value of our agricultural production. The implication will be wider rural poverty. Rice cultivation is a poverty trap.

The program for rice self-sufficiency will require us to erect high tariff walls to protect the rice-producing sector considering that our cost of production is significantly higher than costs of our mainland neighbors. This is due to the abundance of flowing surface water from the great mainland rivers fed from the Himalayas. Our farmers have to pump water from aquifers, incurring great energy costs. They also have to invest much in fertilizers to support the high-yield varieties.

By protecting our rice sector in a globalized environment, we will have to yield concessions to our trading partners that will leave our higher value manufacturing fully exposed to competition. That will eventually impoverish the entire economy.

Pumping water from aquifers to irrigate rice land holds adverse environmental implications. Overexploiting our aquifers will bring us to the more serious crisis of fresh water shortage.

From every macroeconomic angle, therefore, the program for rice self-sufficiency is wrong.

We do, indeed, export some amount of rice — although nothing to boast about. We export high-grade basmati rice for the boutique market.

Premium rice varieties have dramatically lower yields per unit of land. It makes business sense to plant these varieties only because of premium pricing. We obviously cannot meet our staple needs by planting basmati.

For the lower priced “miracle” rice varieties, there is no way we can produce at a lower cost than our river-abundant neighbors. By vainly attempting to achieve rice self-sufficiency, we will inflict a higher price regime on our consumers for a basic commodity. Poverty, if we need to be reminded, happens when food is less affordable. We already have one of the highest food price regimes in the region.

Although politically unpalatable, we will eventually have to liberalize food importation to take advantage of more economical pricing. Our own agriculture will have to be reformed to produce higher value crops from increasingly scarce arable land. The obsession with rice self-sufficiency distracts us from what should be the realistic policy goals.

Meanwhile, we need some explanations for why so much rice is being smuggled into the domestic market to the detriment of our farmers — although not necessarily to the advantage of our consumers since prices remain high. The difference is pocketed as profit by whoever has enough clout to get away with smuggling.

The nominal tariff barrier so easily evaded by the smuggling syndicates is nothing more than a mechanism for enabling criminal profit.