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Philippine Institute
for Development Studies
Surian sa mga Pag-aaral
Pangkaunlaran ng Pilipinas
Policy Notes
ISSN 1656-5266
No. 2011-11 (May 2011)
Putting rice on the table: rice policy,
the WTO, and food security
Roehlano M. Briones
and Danileen Kristel C. Parel
R
ice is the country’s major staple,
accounting for nearly half of the calorie intake
of the population.1 It is an important source of
livelihood for millions of small farmers. Food
security is conventionally equated with selfsufficiency in rice; currently, the Department of
Agriculture (DA) is targeting self-sufficiency by
2013. This Policy Notes argues that the country’s
policies for rice self-sufficiency are obsolete and
increasingly untenable. These policies have been
entrenched for decades despite numerous calls
for reform.
In 2012, however, the negotiated exemption of
rice from the Philippines’ World Trade
Organization (WTO) commitments will expire.
This therefore provides a rare opportunity for
reform to take place, awaiting only political will
from the government to seize it.
The Philippines has been
and shall continue to be a major rice
importer
Rice production in the Philippines has been
increasing consistently, due to both area
expansion and yield growth (Figure 1). From 5.5
million tons in 1970, output rose to over 16
million tons in 2008. However, consumption has
also been increasing: from 84 kilograms (kg) in
1990, annual per capita consumption has risen
to 120 kg by 2009 (Figure 2). The country’s
population continues to grow at a rapid clip (2%
annually), further accelerating the growth of
demand.
Growth of domestic supply has not kept pace
with growth of demand; the country has
______________
1
Data from the International Rice Research Institute
(www.irri.org).
PIDS Policy Notes are observations/analyses written by PIDS researchers on certain policy issues. The treatise is holistic in approach and aims to provide useful
inputs for decisionmaking.
The authors are Senior Research Fellow and Research Analyst II, respectively, at
the Institute. The views expressed are those of the authors and do not necessarily
reflect those of PIDS or any of the study’s sponsors.
2
Figure 1. Area and yield growth, 1910–2009
therefore relied on imports to bridge the
demand-supply gap. Since the mid-1990s, the
country has experienced diminishing selfsufficiency in rice (Figure 3).
From an average of 104 thousand tons in the
1980s, rice imports rose to half a million tons in
the 1990s and ballooned to 1.3 million tons in
the 2000s. In fact, the Philippines has become
the world’s biggest rice importer since 2004,
outranking Iran, Iraq, Saudi Arabia, and Nigeria
(Figure 4).
Source: Castillo (1975); Food and Agriculture Organization (FAO)
Figure 2. Rice consumption (kg/capita/year), 1961–2009
Source: FAOSTAT and CountryStat
Figure 3. Rice self-sufficiency ratio (%), 1990–2009
Source: FAOSTAT & CountryStat
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Policy Notes
One may argue that these trends would soon be
reversed if rising world prices continue their
upward trend. It is true that world rice prices
have risen sharply in the past decade,
particularly with the 2008 episode. World Bank
projects prices to linger at current high levels.
However, these would eventually drop as
supplies rise in response to higher prices (Figure
5). Hence, foreign rice would, in the long term,
continue to be cheaper than domestic rice –
precisely the rationale to import.
Since the country has been historically a net rice
importer, the divergence in domestic and foreign
costs requires an explanation deeper than simply
government neglect or poor aptitude of the
Filipino farmer. According to Dawe (2006), the
fundamental explanation is geography.
Consistent rice exporters, namely, Thailand, Viet
Nam, Cambodia, and Myanmar, are all endowed
with large river deltas, abundant land suitable
for rice, and water. In Asia, consistent rice
importers are typically island countries with
lower arable land per person and landscapes
favoring alternatives such as corn, oil palm, or
coconut. These include Indonesia, Malaysia,
Japan, Sri Lanka, and the Philippines.
3
In pursuit of self-sufficiency,
government policies have singled out
rice for special treatment
The Philippines has made international
commitments under the WTO toward liberalized
trade. According to the agriculture market access
provision of the WTO, all quantitative
restrictions (QRs) should be converted to tariffs.
Countries are committed to maintain a tariff
binding that is initially set at high rates but
scheduled to decline over time. Foreign products
up to a minimum access volume shall be
imported at rates lower than the bound rates.
However, a country can exempt its staple food
from tariffication. RA 8178 or the Agriculture
Tariffication Act of 1996 implements the
tariffication commitment for all crops except
rice, for which the QR is retained. This was done
to protect the local rice sector (Tolentino 2002).
For the Philippines, special treatment for rice
was negotiated from 1994 to 2005. After 2005,
the country negotiated another extension to
2012, in exchange for lower tariff rates on some
agricultural products as well as increased
minimum access for rice.
QRs are enforced through the import monopoly
provided by law to the National Food Authority
(NFA), a state-owned agency. The volume to be
imported by the NFA is set annually by the NFA
Council, upon recommendation of an interagency
committee. The NFA is mandated to stabilize rice
prices and supply both at the producer and
consumer level, and ensure food security
throughout the country. To do this, the NFA tries
to ensure that farmgate prices are high enough
for farmers to gain reasonable returns, retail
prices remain affordable to consumers, and rice
distribution is restored quickly in calamitystricken areas.
Following its mandate, the NFA engages in
procurement and distribution, setting a
procurement price for palay while subsidizing
retail price of milled rice. It also maintains a
food security reserve, with rice stocks kept at
levels equivalent to 15 days of consumption
Figure 4. Rice imports (‘000 t), 2000–2008
Source: FAO
Figure 5. World rice prices (USD/ton), 2001–2020
Source: World Bank
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4
Figure 6. Revenues and expenses of the NFA (million pesos),
1986–2009
Source: Budget and Expenditures Sources of Financing (BESF)
Figure 7. Sources of funds of the NFA (million pesos),
1994–2009
Source: BESF
year-round, rising to not less than 30 days
equivalent consumption every first of July.
The country’s rice policies have been
detrimental to public finances and
the welfare of the consumer
While rice policy has been intended to benefit
the citizenry, it has in fact penalized taxpayers
by wreaking havoc on the treasury. The NFA has
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been operating at a loss since it was established,
and in the late 2000s, its net losses exploded,
hitting PHP 30 billion in 2009 (Figure 6).
To continue operating, the NFA has relied
heavily on corporate borrowing, on top of
subsidies from the national government (Figure
7). NFA’s liabilities to domestic creditors
escalated from only about PHP 5 billion in
1994 to almost PHP 156 billion in 2009 (Figure
8). Since 2000, the NFA’s net worth has been
negative, deteriorating sharply thereafter. Save
for sovereign guarantee, the NFA would likely go
bankrupt.
High costs incurred by NFA are attributable in
part to operational inefficiencies, such as low
stock turnover, poor financial management
information system, overstaffing and
administrative costs, policy constraints and
bureaucratic processes, and weak equity base,
among others (Coffrey International
Development Report, as cited in Intal et al.
2010). However, a more important reason for the
financial hemorrhage is policy: the ‘buy high,
sell low’ mandate to achieve price stability is a
certain formula for draining public coffers.
Had the “buy high” mandate been focused on
domestic procurement, NFA would have at least
benefited the poor Filipino farmer. However,
domestic procurement of NFA has averaged just
around 2.5 percent of total rice production in
the country over the last two decades (Figure
9), implying weak support to domestic
producers.
On the consumer side, Figure 9 also shows that
domestic sales account for a significant share of
5
Figure 8. Net worth and debt of the NFA (million
pesos), 1994–2009
Figure 9. NFA distribution and procurement (%),
1990–2009
Source: BESF
Source: National Food Authority (NFA), Countrystat
Figure 10. Domestic and world prices of rice (peso/kg), 1990–2010
consumption, from one-tenth to over
one-fifth since the late 1990s. Figure
10 compares the domestic and world
price of rice. Domestic prices appear to
move along a smoother time path
compared to the world price (in pesos),
at least until 2007. This is consistent
with the finding of Intal et al. (2010)
that NFA distribution activities have
contributed to stabilizing the domestic
consumer price.
45
40
35
30
25
20
15
10
5
0
World Price of Thai White Rice 5% broken (peso/kg)
Wholesale Price of Well Milled Rice (peso/kg)
On the other hand, the figure also
Sources: International Rice Research Institute (IRRI), CountryStat
Notes: (1) World price applies CIF adjustment factor to the original FOB quotas and is converted to peso
shows that domestic prices have
using market exchange rate.
remained significantly higher than
(2) Wholesale price refers to the Metro Manila wholesale price.
world prices, except for 2008–2009.
Despite greater price stability, this persistent
nominal protection rate (NPR) on rice.2 During
gap represents high opportunity costs to the
periods when the NPR is high, the NFA is able to
Filipino rice consumer.
source cheaper rice from abroad for local
distribution, hence requiring lower subsidies. It
Clearly, given low domestic procurement, the
______________
ability of the NFA to stabilize domestic
2
The nominal protection rate is the ratio of domestic to
consumer prices is due to its import monopoly.
world price (less one). It is the margin, in percent, imposed
on foreign goods to maintain domestic prices.
Figure 11 juxtaposes NFA subsidies and the
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6
Figure 11. Nominal protection rate and government subsidy,
1994–2009
Source: FAO, IRRI, BESF
Note: Nominal protection rate (NPR) is calculated as the ratio of the prices in Figure 10,
less unity.
was when the NPR fell due to sharp increases in
world prices that the subsidy became
unmanageable (Intal et al. 2010).
While the restrictive import policy keeps
domestic price high, part of this cost is
attenuated by distribution of relatively cheaper
NFA rice. However, even this is fraught with
problems. The NFA program, which is intended
to alleviate hunger and poverty, benefits mostly
those who are not poor. In 2006, the leakage to
the nonpoor was estimated to be around 71
percent (Manasan 2009). According to Reyes et
al. (2010), 32 percent of the lowest income
quintile are not able to access the NFA program
while 15 percent of the highest income quintile
are able to do so. Jah and Mehta (2008) likewise
showed that only 25 percent of the poor benefit
from the program while 48 percent of
beneficiaries are nonpoor. One explanation for
the faulty targeting is that the geographic
distribution of NFA rice is not sensitive to
poverty incidence (Manasan 2009); it may in
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fact be biased toward more affluent regions
(Figure 12). This is supported by Reyes et al.
(2010) which finds the National Capital Region
(NCR) to have the highest leakage rate.
Sporadic attempts at reform have
been thwarted by strong political
opposition
The observations made in the foregoing are not
new; numerous calls for reforms have been
sounded since the 1970s. The latest major
initiative was under the Grains Sector
Development Program. However, opposition of
interest groups, namely, farmer organizations,
NFA employee associations, favored grains
businessmen, and the DA itself, led to the
defeat of House bills on import liberalization,
and ultimately, to the early termination of the
program in 2003 (Tolentino 2002).
The current push for self-sufficiency by the DA is
politically expedient. Its supporters also
advocate “reform” of the NFA, but by this, they
mean strengthening its role in domestic
procurement and improving the management of
the import monopoly (Tanchuling 2010). There
are positive steps under the new administration
toward such improved management. The current
thrust to allocate a sizable share (about 60%) of
the import quota to the private sector is
laudable. In the presence, however, of sizable
quota rents—the inevitable outcome of a
binding quota—it is difficult to sustain a
credible system of quota allocation that is
efficient and fair to all participants.
By implication, in 2013, the import quota would
be set at zero. To achieve this and prevent
skyrocketing prices, the Roadmap is explicit
7
Figure 12. NFA rice geographic distribution, 1974–2006
about its supply and demand
side strategies. On the supply
side, it proposes to expand the
irrigation service area, extend
seed subsidy and credit
guarantees, and promote
balanced fertilization,
postharvest facilities, and
modernization of rice mills. On
the demand side, it proposes
to partner with other agencies
and nongovernment
organizations (NGOs) to
diversify staple sources (white
corn, sweet potato, cassava,
and plantain), reduce table
waste, and promote brown rice. Source: NFA
It can be inferred that the DA
would prefer to negotiate another extension of
facilities may be transferred to a different,
the special treatment of rice, again forestalling
perhaps new government corporation with no
urgently needed reforms.
regulatory powers. These reforms should be
enabled by appropriate legislation. The current
The time has come to incorporate
rice distribution system should be supplanted by
rice into the WTO and reform
more targeted schemes such as conditional cash
domestic rice policy
transfers.
This study recommends against negotiating a
further extension of the special treatment for
Opponents of reform shall of course raise the
rice under the WTO. After 2012, the rice QR
specter of food and poverty crises when the
should be tariffied; that is, importation is
quota is removed. Import competition would
liberalized subject to payment of custom duties.
depress farmgate prices, reduce domestic rice
This eliminates the problem of setting up a fair,
production, and diminish the nation’s capacity
efficient, and credible allocation of the import
to feed its own people. However, rice selfquota. Moreover, the momentum for reforming
sufficiency is neither necessary nor sufficient for
the NFA becomes unstoppable owing to the
food security. A nation can be self-sufficient and
double whammy from its massive debt and
face food insecurity; on the other hand, it can
repeal of its import monopoly. The NFA shall
be a rice importer and maintain a high level of
continue to operate but its function would be
food security. Food self-sufficiency at best
limited to regulation and managing the food
protects a country from external policy shocks
security reserve. NFA storage and marketing
emanating from export restrictions. However,
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8
If the Philippines does opt to negotiate an extension, it
would face opposition from WTO rice exporters. Ironically,
the Philippines must confront other countries to defend a
domestically indefensible policy. Such a pathetic exercise
is completely avoidable.
this is best addressed through regional and
multilateral cooperation and negotiation, rather
than through costly domestic policies.
The high cost of self-sufficiency is essentially
due to the country’s lack of comparative
advantage in rice production. Under import
liberalization, farmers would shift to other crops
where the country does have comparative
advantage. To ease the adjustment and defuse
political opposition, the country can negotiate a
Member’s Commitment with the WTO to maintain
high bound tariffs (at levels comparable to
historical NPRs), in exchange for the removal of
the special treatment. The ceiling, however,
should be scheduled to decline within a
reasonable time frame, say 7–10 years, toward
levels closer to average tariff rates.
For further information, please contact
The Research Information Staff
Philippine Institute for Development Studies
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Telephone Nos: (63-2) 894-2584 and 893-5705
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PN 2011-11
Policy Notes
If the Philippines does opt to negotiate an
extension, it would face opposition from WTO
rice exporters. Ironically, the Philippines must
confront other countries to defend a
domestically indefensible policy. Such a pathetic
exercise is completely avoidable. Policymakers
should thus take advantage instead of this
historic opportunity for reform toward improved
food security, fiscal soundness, and good
governance. References
Dawe, D.C. 2006. The Philippines import rice because
it is an island nation. In D.C. Dawe, P.F. Moya,
C.B. Casiwan (eds.), Why does the Philippines
import rice? Meeting the challenge of trade
liberalization. Los Baños, Laguna: International
Rice Research Institute; Science City of Muñoz,
Nueva Ecija: Philippine Rice Research Institute.
Intal, P. Jr., L. Cu, and J. Illescas. 2010. MEAP: rice
prices and the National Food Authority.
Jha, S. and A. Mehta. 2008. Effectiveness of public
spending: the case of rice subsidies in the
Philippines. Working Paper No. 138.
Mandaluyong: Asian Development Bank.
Manasan, R.G. 2009. Reforming social protection
policy: responding to the global financial crisis
and beyond. PIDS Discussion Paper Series No.
2008-22. Makati: Philippine Institute for
Development Studies.
Reyes, C., A. Sobrevinas, and J. de Jesus. 2010. The
impact of the global financial crisis on poverty
in the Philippines. PIDS Discussion Paper Series
No. 2010-04. Makati: Philippine Institute for
Development Studies.
Tanchuling, H. 2010. Will PNoy seriously pursue rice
self-sufficiency roadmap? Rice Self-Sufficiency
Bulletin. Quezon City: Rice Watch and Action
Network (R1).
Tolentino, V.B.J. 2002. The globalization of food
security: rice policy reforms in the Philippines.
Philippine Journal of Development 54, XXIX (No. 2).