[In This Economy] Why amending the Rice Tariffication Law will reopen Pandora’s box

When the Rice Tariffication Law (RTL) was passed on Valentine’s Day 2019, it was heralded by economists as a much-needed reform.

To recap, RTL abolished the rice importation monopoly of the National Food Authority (NFA), and allowed private traders to import rice – so long as they paid the necessary tariffs.

This law effectively liberalized rice importation in the country. As the supply of rice increased, the effect on prices was significant and immediately felt: the graph below shows the big drop in rice’s contribution to food inflation in 2019 until 2020.

Fast forward to 2024, the same graph shows that rice’s contribution to inflation has spiked once more. In fact, rice is the main reason why inflation is creeping up again lately: partly because of a spike of global rice prices, and the especially dry El Niño season.

This brings us farther and farther away from President Ferdinand Marcos Jr.’s ambitious (if not unrealistic) campaign promise of bringing down rice prices to P20 per kilo. Unsurprisingly, his administration is now exploring all manner of policies so they can save face.

First came the rice price ceilings in September 2023, which backfired by creating long queues, resulting in huge losses for rice retailers, incentivizing those retailers to sell bad-quality rice to the detriment of consumers.

Now, Congress seems to be railroading a new law that will undo some aspects of RTL and allow the government to intervene heavily in rice markets once more.

House Bill 10381

On May 14, the House of Representatives approved on second reading a new bill (House Bill 10381) that will, among others, again allow the NFA to sell cheap, subsidized rice during emergencies.

According to House Speaker Martin Romualdez, the President’s cousin, undoing the RTL this way will “bring about tangible reductions in rice prices” to about P30 per kilo (still, not quite P20). He says this will be “a crucial step towards ensuring food security and economic stability.”

This also got the backing of Agriculture Secretary Francisco Tiu Laurel Jr., as well as Finance Secretary Ralph Recto. President Marcos himself mentioned in an interview that he might certify the bill as urgent.

You can read the draft House bill here. What does it contain? Here are some of the major points.

First, it will give more powers to the NFA to maintain a buffer stock of rice. NFA will require the registration of all grains warehouses and inspect them to ensure standards.

Second, the agriculture secretary, upon the recommendation of the national or local price coordinating council, may declare a “food security emergency” in the event of a rice supply shortage, sustained increase of rice prices, or an extraordinary increase in rice prices.

When such an emergency is declared, the NFA will be authorized to use its existing inventory for buffer stocks to “supply areas where the extraordinary increase in prices or acute shortages in supply occur.” The bill provides as well that the NFA’s rice distribution shall be done only at government agencies; registered retail outlets, organized women’s groups, and cooperatives; outlets run by registered and accredited consumer groups and associations; and Kadiwa stores.

Importantly, the NFA can also replenish their rice inventory, and will only import “should there be no available local stocks.”

If rice supplies are short, the NFA will be authorized to buy not just from local farmers (as stipulated by RTL), but also farmers’ organizations, associations, or cooperatives. If these “alternative supply arrangements” won’t solve the shortage, the NFA will also be able to buy local milled rice as necessary, or up to 30% of rice brought in by an importer.

In the worst scenario, the NFA “shall be granted the authority to directly import rice, subject to the explicit authorization from the Secretary of Agriculture” – but only when shortages are dire.

This, I think, is the biggest move undoing the RTL, which removed any power from NFA to import rice.

To a previous RTL provision lifting barriers to imports, this provision was added: “except in cases of food security emergencies as determined by the Secretary of Agriculture.”

In addition, NFA will regulate foreign investments in rice in corn. The regulatory functions of the Department of Agriculture will also be strengthened significantly, specifically in doing regular or unscheduled inspections of warehouses, to check on sanitary, phytosanitary, and food safety standards.

Lastly, the bill also extends “for another 6 years” the Rice Competitiveness Enhancement Fund (RCEF) and expands its budget to P15 billion yearly rather than just P10 billion. To recall, the RCEF was a new budget item introduced by RTL for the purpose of improving the plight of rice farmers whose business may be challenged by greater rice importation. Help would come in the form of mechanization, rice seed development and promotion, rice credit facilities, and extension and training services.

Under the new bill, the President, based on recommendations by the agriculture secretary, can also reallocate the uses of the RCEF and excess tariff revenues as they see fit, and “should the need arise.”

Undoing reforms

All in all, House Bill 10381 undoes many of the reforms introduced by RTL, by allowing the NFA to import rice once more (in the event of “emergencies”). It also created more avenues for the NFA (and DA) to intervene more in the rice market, by allowing rice shortages and price spikes as excuses to declare emergencies.

However, there is a real risk of us going back to the old ways of the NFA, whose massive subsidies on rice resulted in a huge drain of public funds and contributed to mounting deficits and debt.

Also, allowing the government to have a heavy hand in the issuance and monitoring of sanitary and phytosanitary permits reminds me of the time this system was abused, and in fact, became a source of corruption. (See my 2018 article on this.)

Lastly, the RCEF is being expanded and extended even without a sober assessment of its effectiveness in helping rice farmers since 2019.

In the end, Congress must sit down and ask itself if the proposed amendments to RTL will be the best way to address the spike of rice prices recently. Note that rice prices increased globally, not just here. And in fact, recent data show that world rice prices are already on the decline.

Amending RTL this way is not the solution lawmakers think it is. Not only will this bill fail to bring down rice prices by itself, it will also reopen a Pandora’s box in the rice sector and unleash evils they’ve already successfully banished before. – Rappler.com

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he was given The Outstanding Young Men (TOYM) Award for economics. JC’s views are independent of his affiliations. Follow him on Twitter/X (@jcpunongbayan) and Usapang Econ Podcast.