High price to pay

Developing the grains industry, particularly in the planting of staple rice, will not happen by pouring state subsidies into the National Food Authority (NFA).

The agency will reassume the functions it had lost to the Rice Tariffication Law under the proposed amendments being deliberated in Congress.

Former Socioeconomic Planning Secretary Cielito Habito warned that reviving the encompassing functions of the NFA in the grains industry would reopen a fiscal leak that was plugged with the RTL.

The RTL removed the importation and subsidy functions of the NFA, relegating it to building a buffer stock for emergencies.

The rice cartel was not happy with the radical shift since clipping the powers of the NFA disabled the monopoly it had on the grains trade through its minions in the agency.

Habito related that as an assistant secretary in the National Economic and Development Authority in 1990, his first government assignment, the NFA was the second top contributor to the persistently huge public sector deficit, next to the oil price stabilization fund (OPSF).

The OPSF is a subsidy fund to which oil companies contribute when prices are low and draw from during a surge in global costs. The government ended up footing the bill during the periods when prices were steadily increasing.

The oil industry deregulation later abolished the OPSF. “This left the NFA as the top drain on public coffers, with the agency’s debt running into triple digits of billions of pesos; it was P158 billion by the time the RTL was enacted,” Habito revealed.

He cautioned against the key amendment being pushed in the RTL which is to let the NFA engage again in rice importation, a function that he said “the RTL removed precisely because of the distortions and malpractices that it bred and perpetuated for decades.”

The former NEDA head indicated that the RTL turned the situation around.

Rice trading, which he described as a fiscal sinkhole, became a source of billions of pesos in revenues from import tariff collections on rice imports since it was no longer done using taxpayer money but with the funds of importers.

The revenues from the rice tariff were then allocated to help rice farmers boost their productivity to lower costs.

Before the RTL, the NFA would buy rice at high prices to help rice farmers and sell it at low prices to help poor consumers.

Buying high and selling low makes no business sense and amounts to huge government expenses.

The RTL raised substantial funds to genuinely help farmers under the Rice Competitiveness Enhancement Fund (RCEF) in contrast to the NFA which perennially lost money on rice trading.

Habito said reversing the reforms under the RTL will distort the market since the government through the NFA will compete with private importers on a lopsided playing field where the state imports rice duty-free since the government can’t tax itself, while private traders pay a hefty 35 percent tariff.

“Knowing they can’t afford to match NFA’s duty-free prices and subsidized logistics, sensible importers won’t bother and stay away from directly importing rice, unless they work illicitly with NFA to do so — and this is what historically bred the rice cartels we all love to hate,” Habito said.

Eventually, with private firms losing interest in competing with the government on the importation, NFA would have to take over and reassume its monopoly in grain trading.

“The distortions and malpractices NFA’s monopoly created are what ultimately led Filipinos to pay two to three times what our Southeast Asian neighbors pay for their rice,” according to Habito.

He suggested instead that the amendments be redirected to the implementation of the RCEF to make the funds allocated relevant to increasing the output of Filipino farmers.

Thus, the bottom line is that the government should not force the achievement of a ridiculously low target price for rice since it would cost taxpayers more in terms of subsidy to do it.