Logistics

The prestigious Foundation for Economic Freedom (FEF) called for the abolition of the National Food Authority (NFA). The bankrupt agency is not a part of the rice problem we are experiencing. It is the problem.

Glaring incompetence is merely an aggravating factor. The basic design of this agency – to monopolize rice importation and tamper with domestic commodity pricing by using massive subsidies – is anomalous from the start. In the age of free trade, it is an anachronism.

Given its basic design, the NFA can only accomplish two things: multiply opportunities for corruption and create market uncertainties through politicized purchasing and pricing.

When the NFA makes a decision to import large quantities of rice, it is like a large army announcing its advance with trumpets and drums. Aggregators in the rice exporting countries scramble to put together the volume the NFA requires, distorting rice prices in those countries. We end up paying higher prices for the volume of rice we import than when small merchants make purchases in the daily course of their businesses.

Instead of using bulk carriers to transport the imported rice, the NFA buys them in sacks. Instead of building rice silos, the NFA stored the rice in warehouses – where they are easily pilfered or remixed with rotten stocks by criminal syndicates. Unable to control humidity and pests, much of the rice is lost to spoilage.  

Years ago, I came across a report that said a militant farmers’ group is able to support its activities simply by cornering the discarded sacks used to transport and store NFA rice. I find that report entirely believable. It explains why the militant group wants the NFA retained as it is.

The antiquated logistical system used by the NFA is so bad that SMC boss Ramon Ang declared this week that if his conglomerate gets into the rice business, it could immediately bring down rice prices by 30% even as it raises palay prices to benefit our farmers. That, too, I find believable.

San Miguel has in place a modern system of silos and bulk carriers that protects agricultural commodities from spoilage due to poor humidity controls and infestation from such pests as the weevils that invaded a shipload of imported rice stocks recently. By simply supplementing those modern silos and using the economic advantages of backloading, the conglomerate can do wonders for bringing down food costs in the country.

Think about this: how can food chains like McDonald’s or Jollibee offer ready food at prices that compete with carinderias? The secret is lies in building an efficient logistics system that minimizes costs. 

Many years ago, when I was involved in designing the “nautical highways” program, I was shocked to find out that an inadequate logistics system caused the loss of 30 percent of our agricultural produce to spoilage and spillage. The losses incurred are passed on to the prices of the goods that actually survive an inefficient logistics system. Those prices, passed on to consumers, explain the high food price regime that magnifies the incidence of poverty across our archipelago.

The “nautical highways” involve private investments in logistics chains that will enable us to build silos, cold storage facilities and efficient shipping links to minimize spillage and spoilage in supplying agricultural commodities across the archipelago. They will lower food costs. They will liberate the economic potentials of island economies currently stranded from the economic mainstream because of backward transport links.

The “nautical highways” would have had a great impact on lowering our food price regime and bringing down poverty incidence. They would create millions of jobs and dramatically improve our agricultural productivity.

Then president Gloria Macapagal Arroyo was so impressed by the design she had a copy of the proposed “nautical highways” installed in her office. Trained as an economist, she appreciated the fact that microeconomic solutions hold the key to solving our macroeconomic problems.

Unfortunately, the “nautical highways” program was junked during the six years of Noynoy Aquino – mainly because it was associated with Arroyo.

The high food price regime makes food inaccessible for many Filipinos. This is a problem that can only be tackled comprehensively. Logistics solutions will have to create the efficiencies that will enable us to simultaneously raise farm incomes while bringing down food prices.

Logistics becomes even more important in an archipelagic economy like ours. The stranded island economies will have to be linked to the mainstream through creative logistics solutions. That is indispensable to building inclusive growth and reducing poverty incidence.

The answer to severe economic disparities across the regions is a better logistics backbone, not federalism.  Federalism will fracture our policy responses rather than enable integration. It is always wrong to apply political solutions when the problems are economic.

Only market-oriented agricultural policies will open the door to increased private sector involvement in providing efficiency solutions to our disjointed economy. On the matter of rice, the first steps include breaking the monopoly exercised by the NFA over rice trade and using tariffs instead of quantitative restriction to calibrate prices and supply.

If the political leadership is far-sighted, these two steps will have to be taken before the year ends. Otherwise, we will face a crisis in rice supply that can only articulate in otherworldly rice prices. Our agriculture will remain stagnant, pulling down overall economic expansion.

The NFA is as deep in debt as the Napocor was before we liberalized the power sector. It is time to scuttle it and sell off its assets to pay debt.