Should we reject the RTL?
The Manila Times
THIS time of the year, there is usually a vilification campaign launched by detractors of the “Rice Tariffication Law (RTL),” or Republic Act 11203 of 2019, ending with the demand for the repeal or the radical amendment of the law. The reason is this is the peak of the palay (unmilled rice) wet harvest season (starting in the second half of September till first half of December) when prices start to decline. The RTL lifted the quantitative restrictions on rice import and in its stead, a uniform tariff rate of 35 percent was imposed. It also removed the monopoly power of the National Food Authority (NFA) to import and confined the agency’s role in establishing a rice buffer stock for emergency purposes. This means private traders can now import rice if they are able to pay the import duty of 35 percent and secure the necessary sanitary and phytosanitary import clearance from the Department of Agriculture. The anti-RTL personalities and groups during the Duterte administration were unsuccessful in their campaign to junk the law. Duterte’s economic managers defended the law by presenting empirical evidence that RTL stabilized rice prices, tamed our overall inflation rate, reduced NFA’s debt and generated almost P16 billion per year that was plowed back to assist rice farmers. Also, no rice shortage (as manifested by “pilas”) was experienced by the country even during the height of the Covid-19 pandemic. The RTL detractors were unconvinced because their ideology dictates that the liberalization of the market is a far inferior policy instrument than programs with heavy state interventions. Consequently, they continued their vilification drive against the RTL. Surprisingly, they are relatively quiet this year despite the new administration showing sympathy to their cause. During the campaign period, messages from the incumbent President and his camp reverberated with the desire to restore NFA’s critical role in stabilizing palay prices for the farmers and ensuring lower rice prices for the consumers. It conjured the image of the old NFA under the Marcos Sr. administration. The President himself and her sister, Sen. Maria Imelda Josefa “Imee” Marcos, were quoted in news reports that NFA must be allowed to engage in rice importation again so it can buy cheap imported rice and sell them at lower cost to consumers. I think RTL detractors must take advantage of this pronouncement to finally achieve their goal of repealing or radically altering the RTL. But before doing so, let me remind them of some hard facts about the country’s rice situation, particularly for this year. Rice supply and demand My son, Karlo Adriano (PhD), recently did a quick estimate of the country’s rice supply and demand situation. The highlights of his findings are as follows: Supply — From 2017 to 2021, the country’s rice production was, on average, 12.5 million metric tons (MMT). In contrast, the average annual demand for rice was 13.4 MMT during the same period. This translates to an annual average supply deficit of approximately 1 MMT or a self-sufficiency level of around 92.5 percent from 2017 to 2021. Out of the estimated 1 MMT local supply shortage of rice annually, the country was importing, on average, 1.8 MMT given the same reference period. Demand — However, for 2022, the Philippine Rice Research Institute projected palay production will decrease by around 1.1 to 1.3 MMT (equivalent to around 600,000650,000 MT of rice) because of the inadequate application of fertilizer by rice farmers due to its soaring prices. Consequently, local production of rice is estimated to decrease to 12 MMT in 2022 from around 13 MMT in 2021. This translates to a 9-percent decline in local rice production. In contrast, given the continued easing of health protocols and the projected recovery of the Philippine economy from the negative impacts of the pandemic, the demand for rice is estimated to increase by 3 percent, or from 13.7 MMT in 2021 to 14.1 MMT in 2022. Deficit — For 2022, there will be a rice supply deficit from local production of about 2.1 MMT. Furthermore, based on the Bureau of Plant Industry’s data that the country had already imported 2.5 million as of the third quarter of 2022, the supply surplus of rice is estimated to be at 401,000 MT by end of 2022. This only translates to a 10-day rice buffer stock. Assuming the government wants to maintain a minimum of 60-day rice buffer stock (2.3 MMT — i.e., figure based on the following: 125.61-kilogram demand per capita of rice; population of 112 million Filipinos; 365 days per year, and x 30 days in a month) for 2022, the country has to import an additional 1.9 MMT of rice in the fourth quarter (Q4) of 2022, or a total importation of 4.4 MMT of rice in 2022. Global shortage — It is projected that there will be a global supply shortage of rice in 2022. Global demand for rice is estimated to increase from 521.8 MMT in 2021 to 522.2 MMT in 2022. In contrast, the global supply of rice is projected to decline from 525.5 MMT in 2021 to 514.5 MMT in 2022. This is due to the extreme drought and rainfall in China and Pakistan (two of the largest producers of rice), respectively, unfavorable weather conditions in India, Thailand and Vietnam (three of the largest exporters of rice), and the soaring fertilizer prices resulting in the inadequate application of fertilizers by rice farmers. Consequently, there will be a global rice supply deficit of about 7.7 MMT in 2022 (FAO as of Sept. 9, 2022). Just recently, there is also the threat of the southern rice black-streaked dwarf virus, first detected in China two decades ago, which has now reached India. Estimates of production losses in India’s rice granaries could reach between 5 percent and 7 percent. Inflation — Note that for the very first time after the passage of the RTL, the contribution of rice to inflation is positive in 2022. From 2019 to 2021, or after the implementation of RTL and even during the Covid-19 pandemic, rice’s share to food inflation was negative. More specifically, it accounted for, on average, -23.4 percent of inflation during the same period. However, from January to August 2022, rice’s contribution to food inflation is already 12.5 percent. This is projected to rise given the global uncertainty in rice supply and trade, the estimated thin supply of rice reserves of the country at 10 days, and assuming zero importation of rice in Q4 of 2022. Export bans — Given the projected shortage in the global supply of rice and the rising international prices of rice, several major riceexporting countries impose trade barriers and market manipulation strategies. For instance, India, the largest exporter of rice, has implemented a rice export tax to control downward pressure on local rice prices and increase its revenues. Moreover, Vietnam and Thailand, the second- and third-largest exporters of rice, respectively, are planning to form a “rice cartel” to raise international rice prices. This is to ensure or maintain the profit margins of their rice farmers in the face of the surging cost of rice production due to soaring logistics and fertilizer expenses. After the rain, the deluge! RTL detractors can further argue that given the unfavorable global rice situation, the country must focus on rice self-sufficiency starting with the repeal of RTL. There are only two problems with the proposal. First is finding the money to fund such an ambitious program. It will definitely run to billions of pesos just for rice alone when the country is facing a serious fiscal constraint. And second is that it will take time to increase rice productivity which for the past 20 years was only rising at just above the 1-percent level. In the meantime, our people will suffer from high rice prices and long queues just to obtain a few kilos of rice. Reject RTL! Fine for as long as we know who should be made accountable for such a monumental snafu!