Monopoly

On June 30, the quantitative restrictions on our rice imports will have to be lifted in accordance with our international commitments. Rice is the last commodity we have protected – even if nothing has been done to revise existing laws to prepare for this eventuality.

Marcos-era Presidential Decree 04 gives sole authority to the National Grains Authority (now the National Food Authority) sole mandate to import rice. This is the legal basis for the NFA’s monopoly over rice importation.

Since that law was passed over four decades ago, the Philippines has become the largest rice importer in the world. It skewed rice prices and forced consumers to pay dearly for the inefficiencies of the rice monopoly. It also produced immense wealth from those who knew how to play the system.

R. A. 10848 (amending R. A. 8178), known as “An Act replacing quantitative restrictions on agricultural products, except rice, with tariffs creating the agricultural competitiveness enhancement fund,” is in dire need of further amendment. Before June 30, a transparent mechanism using tariffs to govern the importation of rice must be put in place. This is urgent.

I am not sure the Congress could quickly focus on this urgent need. It has been busy with useless things like restoring the death penalty. Unless a new tariff-based regulation of rice imports is installed, trade in this commodity will be thrown into chaos. We could end up with serious supply problems of this staple commodity.

The impeding deadline for us to shift from minimum access volume (MAV) to a tariff-based trading regime is very likely the reason for the political maneuvering over control of rice importation policy. That political maneuvering resulted in President Duterte’s firing of an undersecretary serving the NFA Council on allegations of corruption and the affirmation of the NFA Administrator’s position that all rice importation be based on government-to-government transaction (thereby upholding the NFA’s monopoly over the trade).

If chaos descends on our rice supply by the third quarter, we will look back to President Duterte’s decision as the most ill-advised so far.

Inefficient

It is the worst-kept secret in this country. NFA’s monopoly over rice trade produces a lot of induced inefficiencies because of corruption.

The figures bear this out.

NFA importation allows for 25 percent broken grains. Private sector importers have a ceiling of five percent broken grains, resulting in better quality rice for our consumers.

NFA importation has freight costs of $29.79 per metric ton while private sector importation has freight costs of only $10. It is common knowledge that kickbacks are often tucked into the freight costs, the headline price per metric ton of the commodity being a transparent number.

NFA importation tucks in $0.76 per ton for “surveyor’s fees.” Private sector importers do not have that cost item.

NFA importation includes “integrated cargo handling” costs of $32.08 per ton while the cost of private sector importers is only $20. The NFA charges interest expense while private importers do not.

NFA reference price for the winning bid is $425 per ton for 25 percent broken grains. Private importers purchase at only $392 with only five percent broken grains.

For NFA imports, government incurs loans amounting to billions. Private importers acquire the rice without cost to government.

NFA importation does not produce revenues for government. Private sector importers prepay 35 percent of the value of their imports to the LandBank to cover tariff charges.

With all the hidden costs taken into account, NFA importation costs substantially more. That margin of inefficiency is passed on to consumers. Believe it or not, private sector importation delivers better rice at lower cost to our consumers.

Under the NFA monopoly, bureaucrats decide when and how much to import. Any error (or political consideration) on their part will produce shortages and price speculation in the domestic market. That happened so many times before.

On the other hand, by allowing private sector importation, government is able to pass on the business risks to the market players rather than assuming these entirely. Among these business risks, apart from oversupply is spillage and spoilage. Private companies are more conscious of minimizing both. NFA stocks are legendary for spoilage.

Market forces

The Agriculture Secretary has fallen in the delusion that condemned many of his predecessors. He says we now have a bumper crop of rice and should refrain from importing. He even thinks we could be rice self-sufficient. That will never happen.

The NFA is equipped with a P5 billion kitty for palay procurement. It should concentrate on buying palay from our farmers rather than dipping its hand in the importation business. Its mandate is to ensure sufficient stocks to meet domestic needs – not to impose higher rice costs on our consumers.

By July, of course, this will all be moot and academic. Ready or not, we should move to a tariff-based regulation of rice trading. That is our commitment.

Insulating rice production from market forces has not done this sector well in the decades we labored with the NFA monopoly. Our production costs remain the highest anywhere. Hidden subsidies in the form of government storage, milling and transport facilities resulted in keeping our rice production an “infant” industry at immense cost to the taxpayers.

We need to move out of this corruption-prone regime and force our rice industry to be competitive. We have yielded everything and exposed all our other sectors to competition just so we can keep our rice protected. It has only kept our rice expensive.

That no longer makes sense.