Wednesday, November 02, 2011

Pilipinas Forum 16: On Rice Trade Liberalization

Here's another long discussion (16 pages long!) from different people, on liberalizing rice trading in the Philippines, made in pilipinasforum yahoogroups. As usual, get your popcorn or other favorite snacks while reading the exchanges 10 years ago.

On Rice Trade Liberalization

August 2001

Theory: there is gain from trade. Trade allows people of countries who do not produce certain commodities cheaply, access to these products through imports; at the same time, trade allows people who efficiently & cheaply produce certain commodities to export these goods, giving them the foreign exchange revenue to finance their imports. Thus, countries' welfare increases.
NEDA favors early liberalization (convert present import quotas into tariffs, and later on, lower tariff rates) of rice trade since trade protection to the sector is time-bound. But DA wants to keep the quantitative restrictions (QRs) on rice.

Before, only the state-owned NFA imports rice from abroad. Starting this year, private traders will be allowed to import rice up to 20,000 MT. But they must pay a minimum "equalization fee" of P3,240/MT or P3.24/kilo for the March 2 auction, on top of the 50 percent tariff.

Current World Rice Prices. Prices as of end-February range at $190/ton for white Thai rice (5% broken, "class A") down to $150/ton (35% broken). At P48/$, this is equivalent to only P9,120/ton or P9.12/kilo for class A rice, and P7,200/ton or P7.20/kilo for lower class rice (vs. P14-P22/kilo local prices).

There is net gain from trade. The clear winners are the rice consumers, fisher folks and non-rice farmers, users of important agricultural inputs like machinery and fertilizers (the farmers themselves), among others. The losers are some Filipino rice farmers who cannot compete price-wise despite 
lower imported cost of agricultural inputs.
We need to hasten agricultural trade liberalization. Though the country still has 4 years to further prepare (aside from the last 6 years of preparation) for such liberalization, the perennial production deficit, and consistently high prices, of local grain and sugar, mandate that we should hasten the liberalization. The benefits generally outweigh the costs.

Rice "self-sufficiency" does not mean that we should grow all the rice that we need. Rather, we only need to ensure that rice will be made available at sufficient supply and cheap, stable prices for our consumers. This would imply a good combination of domestic production and importation. If we do our assignment well, meaning the efficient laying of important safety nets, particularly infrastructure and technology support system to our farmers, coupled with trade liberalization plan, we shall help improve our farmers' productivity and output.

-- Nonoy Oplas

Nonoy , et al,

I also strongly go for the liberalization of rice trade for the following reasons: (a) import quotas or quantitative restrictions (QR) only breed corruption, and politicking; and (b) shortages and steep local price (retail) of the stuff is imminent because its trading becomes speculative; this has happened time and time again. The unscrupulous traders and corrupt gov't officials benefit, while both the farmers and consumers suffer.

Instead of "self sufficiency," the policy and strategy should be "self-reliance" i.e. having the purchasing power. Thus the farmer may be assisted with alternative sources of income, and better infrastructure and management services. (Thanks for the facts and figures).

-- Roy P.

Pareng Nonoy and All,

I agree with the merits of rice trade liberalization, and I have to say as well that I am impressed by the neatness of the methodology used in quantifying the demand-supply gap.
Just some thoughts/views alongside the last paras of Pareng Nonoy's paper:

* Trade liberalization in general, as experienced in Latin countries (Chile, Argentina & Mexico?, 1994-1995) created some shocks esp. on the balance of payments. Often, econ analysts would suggest that long term policies like trade liberalization should be coupled with short term reforms to avoid the shocks. I hope that the government is doing some short term fine tuning as we edge towards the 10th year for rice trade lib.

* The rice trade lib should not be an excuse for government not to pursue efforts that would maximize yield of cultivated/irrigated rice lands. Land parcels are /should be classified according to best use. Those which are declared best suited for rice should be protected from conversion, and supported with infrastructure and support services to ensure productive efficiency. The demand-supply gap may be bridged by importation of cheaper rice, and the competitive price of imported rice should force local farms to be more efficient. But a widening gap through the years must not be relied more on bridging it with imports but more on achieving greater farm efficiencies. A slow adjustment to rice trade lib may kill "best-use" rice farms and force conversions. I'll make mention here the ill effects of the "impermanence syndrome". This is one of the primary killers of cultivated lands in Australia, and this syndrome has been the reaso behind major conversions in Laguna and Batangas.

* From the above, S&T research on rice (e.g. typhoon resistant varieties) should therefore continue, together with infra support development and access to credit.

The above are mentioned because the implication of rice trade liberalization is not just about bringing in cheaper rice from outside to bridge gaps. In the long term, it is also about exporting surplus rice of cheaper prices.

A final statement: a protectionist policy in general is often a recipe for smuggling. A QR policy as DA wants and/or a high tariff will be a nice come on for smugglers as "returns to smuggling" are driven due north by such policies. An archipelago known for its inability to police its shore lines is better off liberalizing.

Sound policy analysis dictates that public (trade lib/GATT included) policies should not be hinged on assertions and analysis based on long term scenarios alone. I think the claim that it will redound to the benefit of the farmers in the long term is based on an assumption that will not be acceptable to farmers if they do not see short term reforms in place. Future risks are best minimized by managing them in the short run. The benefits of trade lib will be lost if the pill it creates is too bitter to swallow.

-- Ozone Azanza

I just read Nonoy's full paper. I agree with your logic, however, I believe the bigger problem is the institution of safety nets to help small rice/corn/sugarcane farmers who by practice, lack of support and incentives, ignorance for alternatives, etc. are inefficient producers. Before liberalization, government should first be serious about helping farmers improve their efficiency by providing them the appropriate technology, skills and opportunities to shift to more profitable farming whether it be rice, corn, sugarcane or higher value crops. In line with trade liberalization, Secretary Montemayor should draft a program to uplift the farmer from poverty first. If trade liberalization comes first, poverty in the countryside will further be exacerbated and note, 75% of the poor are in the rural areas. You know, we need a sociological viewpoint especially from the farmers side to develop a coherent and rational program for agricultural trade liberalization. If our farmers are on the same level of support, skills and knowledge with a wealth of workable technologies to choose from as farmers in the industrialized countries are, outright trade liberalization might work. But as it is, our farmers are not and that is a reality that we must work with.

Coupled with this is the sad state of agricultural science, e.g. our lack of knowledge of farming environments, what grow best in what particular sites without too much input i.e. lack of appropriate technologies for these varied sites, so that even if you are going to classify lands, you can not offer appropriate alternatives more lucrative than conversion to other land uses.

-- Nina Halos

I agree with you on the need for domestic self-sufficiency in rice through agri research, improving production efficiency, and I agree 100 % on moratorium on land conversion.

Twenty years a go you will see very large areas of riceland from Bacoor to Dasmarinas Cavite, from Pasig to Antipolo, from Caloocan to Bulacan. Now less than 50 % of these areas are available for rice production.

I agree that we have rice sufficiency in the 70s and the 80s and I think the government subsidy to farmers, played an important role in that success. Until sometime in the 80s, the government control the price of fertilizer in order to help the farmers. The government subsidized the cost of manufacturing fertilizer so that companies like Atlas Fertilizer, Planters Products Inc, continue to supply fertilizer to farmers at government set price. (The government did not continue paying its share of the cost of producing fertilizer in Planters Products Inc, and its manufacturing plant closed down due to heavy losses.) The government can not and should not lower the wages of the laborers in the agricultural sector, (labor cost is 60 % of about P19,000/hectare expenses in one cropping) but it can lower the cost of other farm inputs like fertilizer, pesticide, and farm machinery fuel by subsidy. Today, I guess, the only subsidy enjoyed by farmers is that they do not need to pay registration fees for their hand tractors or threshers in the LTO.

Lastly, I can only partly agree on the fact presented by Lardy that "the loss of agricultural land to urbanization/industrialization is offset by expanding cropland in less populated areas". If we are talking specifically about rice, (which is this topic is all about) we can not convert a hilly farm into a rice field. We need a flat terrain and a reliable source of water to make a good rice field.

My final point here is: The urgent need for government sincere involvement to rescue the declining rice productivity.

-- Lorenzo Gallego

Thanks to Dr. Halos for pointing out the Tolentino and Noveno article which was, to me, a strikingly informative article. I'm new to this Forum and I'm also a day behind in my reading of the postings, so I apologize if anything I say here happens to be redundant or dated.

I’m not an agronomist or an agri. economist or a farmer or a even a rice consumer in the Philippines for that matter. But it is plain to me that because of its direct human welfare benefits, the high cost of rice to Filipinos should be a huge priority (perhaps of even greater significance than the issue of power supply back in the early days of the Ramos administration). Just to get my facts straight, I made a quick check of the FAO website and this is what I found there:

Area harvested Production Yield
(in hectares) (in metric tons) (hg/ha)

Area harvested (hectares)
Production (Metric tons)
Yield (hg/hectare)

The above are annual averages for the period 1996-2000.

What do the numbers say? Well, for one thing, remarkably enough the Philippines isn’t the most inefficient producer of rice from a purely technological definition of efficiency: Thailand has a noticeably lower yield per hectare than us.

But we do, as pointed out by Mr. Caparas and the Tolentino-Noveno article, plant substantially less rice and as a consequence produce substantially less rice for consumption than either Thailand or Viet Nam, both of which have population sizes close to us. So despite the observation that Filipinos eat less rice (a behavioral outcome governed by preferences, income, and the cost of rice versus its alternatives), it shouldn’t be at all surprising that the Philippines is a net rice importer, and will probably continue to be one for the foreseeable future.

I don’t claim to have the all the answers. However it seems to me that in the face of these facts, it might be good to start by setting aside for now the notion (however romantic) that the Philippines should strive to become self-sufficient in rice production. Why not take a page here from the US: relying on its own domestic production, the US would be technically self-sufficient in oil. But it continues to import and rely on imports from the Gulf, the North Sea and Siberian fields for its annual consumption, despite its own production and its massive strategic oil reserves. The reason is simple: it's cheaper that way.

To my thinking, a more sensible objective at this juncture should therefore be the overall lowering of rice prices to consumers. Whether the rice is produced at home or in the paddies of Vietnam or India should be of secondary interest at this point in time.

Here, I imagine (but do not know for sure) that a lot can be done just by fixing local market structure problems. By this I mean the problems relating to the existence of institutions, cartels, or producer organizations that add to the delivered cost of rice without adding justifiable value. Hence, my initially
positive reaction to Nonoy Oplas’ report of initiatives to overhaul/dismantle the NFA. This is an institution with a checkered history that has, at best, served a dubious bureaucratic purpose and at worse has been a hive of corruption (ever wonder why imported canned corned beef back in the 60’s and 70’s was so expensive?) and a channel for the dispensation of patronage. If there remain corrupt elements in the NFA, let them try to make money on other things, not rice.

Of course, more should be done. If, as Mr. Velasco suggests, there are cartels/syndicates intermediating between the farmers and the consumers, these organizations should be prosecuted to the extent they engage in any unlawful activity, or maybe driven out of business by creating competing public entities or NGOs. At the very least they should be made the subject of regulation and possibly redistributive taxation. (What’s their sin that they should merit more public scrutiny than the next guy? They happen to be in the rice business—that’s it!) But last thing that a government (and legislature) should do is ignore them.

But it's not just the NFA. Every part of the economic chain that goes from the suppliers of farm inputs to the farmers to the sellers of rice to the consumer should be considered fair game (including the farmers!). As the numbers above show, we are not the most inefficient producers of rice from an inputs-to-output standpoint. But per Tolentino and Noveno, we may be the most inefficient in cost terms, the costs of producing a kilo of Philippine rice being P5.71 versus P4.30 in Thailand and P2.33 in Vietnam. Sure, one could try to bring down costs of production by subsidizing even more farm credit despite the high cost of credit everywhere else and low repayment rates of farmers in general. Or by absorbing more of the rural unemployed despite their lack of interest in farming or knowledge of high-yield farming methods/ techniques. Or by the creation of new infrastructure to support rice production despite the uncertain return on some of these investments, and additional debt burden created by such large capital-intensive projects.

Or (for the moment) we could liberalize the importation of more rice, and encourage the exports of other products.

Just my two cents,

-- Butch Arroyo
Washington, D.C.

P.S. For those who would argue for more protection for Filipino farmers against imported rice, I also stumbled across some interesting numbers to think about. In Japan, where rice farmers are heavily protected, the cost of Thai A1 super milled rice is Y166 per kilo when the government sells to wholesalers, and Y175 per kilo when wholesalers sell to each other (or to retailers, I suppose). In peso terms, this translates to about P74.50 (!) and P70 (!) per kilo wholesale, respectively. But it’s still Thai rice!


I agree with most of your comments, especially those concerning the NFA and rice imports. I am also in complete agreement that we need to look at ways of bringing down the price of rice to the average consumer. I do not think that we should give up on our rice industry, however, and we should look at how to make it more competitive. Perhaps there are things we can do to solve the problems that make our rice production per HA so much lower than Vietnam and also to reduce the costs involved in the milling through distribution portion of the cycle. Your comments on the USA and its oil situation is an important example of how to better utilize trade to resolve this kind of issue. I will note, however that the USA did take government action to assist other sectors to restructure and improve themselves and have now saved their domestic production and improved export potential (semi-conductors, automobiles, etc).

I would like clarification on one comment:
<Sure, one could try to bring down costs of production by subsidizing even more farm credit despite the high cost of credit everywhere else and low repayment rates of farmers in general.>

Was the portion on "low repayment rate of farmers in general" supportable or was it just an assumption on your part?

-- Cynthia Diaz

Dear Cynthia, and all forum members,

I agree with your stand that we should not give up on our rice industry. While petroleum is the lifeblood of almost all other industries, rice is the commodity we Pilipinos can not do without it as a people.

However when it comes to cash incentives extended to our farmers, the "low repayment rate of farmers in general" is historically a supported assumption. During the time of President Marcos there was a "Masagana 99" a government program to help farmers technically and financially. There was also the "Samahang Nayon" a sort of farmers cooperative organized by the government to extend low interest loan to its members. Both of this programs failed because of low repayment rates of farmers. I think even the culture of gambling in our society can be blame for that mess. During that time I saw many farmers spending the money loaned from Samahang Nayon into cockfight gambling or even in majong table. The government extension workers have tried their best to educate and enlightened the farmers to be a responsible borrower but the farmers failed miserably.

-- Lorenzo Gallego

A new PF member, Joei, sent a copy of some exchanges in PF on this subject to her father, Cong. Willy Villarama, 2nd District of Bulacan. Below are some questions and reactions of the good Cong. Anyone may answer these questions.

1. On agri. tariffication: Can you explain the difference bet. tariffs & taxes/duties?
2. On "losers (of liberalization) are some Filipino rice farmers...": Marami itong "some".
3. On "rice self sufficiency does not mean that we should grow all the rice that we need": what will other rice farmers grow?
4. On "land parcels are/should be classified according to best use": How to convince farmers to shift from rice to what is the issue here.
5. On "widening supply-demand gap must not be relied more on bridging it with imports but more on achieving greater farm efficiencies": Easy to say, difficult to do.
6. On "a protectionist policy in general is often a recipe for smuggling": True!

Dear Joei,

Some attempted reply to your dad's questions above.

1. With the help of some PF kids i asked (just to be sure, he he), tariffs refer to duties on trade while taxes are direct tributes by the people based on their wealth. Tariffs are one form of taxation, a tax on imported goods, while tax is generic (excise tax, ad valorem tax, tariffs, etc.).

2. As of last year, employment in the agriculture, fishery and forestry sector (note the 3 sub-sectors) was about 24% of total employment. I can't find my data (anyone pls. supply?) but I think only about 8% (+ or -) of total employed are engaged in rice farming. Even then, at certain period of the year, even rice farmers themselves buy rice from the outside as they cannot stock all their produce in their homes whole-year round.

3 & 4. Some farmers, especially those who sold their lands, simply stopped planting rice and went to become rural entrepreneurs (sari-sari store, medium-size traders, etc.) or moved to the industrial and services sector (some work abroad). Those who stayed in the farms, a number of them shifted from rice to cash crops like mangoes, vegetables, bananas, cut-flower, tree farming, etc. If markets are deregulated and trade is freer, the price mechanism will tell producers where they should put their resources - land, capital, labor, technology, etc. - where income and profits will be higher.

6. Just today, it was reported that a cargo ship carrying more than 20,000 sacks of rice from Thailand went "missing". Sa tagalog, nai-smuggle at ayaw magbayad ng nag-import ng thai rice ng tariffs (about 50% of the value, mataas).

-- Nonoy Oplas

Dear Lorenzo, Cynthia, Butch, others,

The Philippines is a country of depletable resources, and one of these is land. Population growth (above 2% per annum, faster than in nearly all neighboring countries) cannot wash its hands why we are struggling in the use of our scarce lands. Consider the competition a rampaging population creates: each major city or town must have a mall as if this is a badge of civilized economy, hills are scraped or scaled for human settlement, 60-hectare golf courses must be built as if these are the centerpieces of housing developments. Furthermore, to satisfy the lust of real-estate developers, they can always find some agricultural lands (and an accommodating bureaucrat) and turn these into subdivisions.

In my first post on the subject of rice, I mentioned the interplay of land and labor and how we could better understand our rice production compared to those of our neighbors. I meant cropland as agricultural lands devoted not for rice only. Cropland in the Philippines is more diversified than Thailand and Vietnam. Only 30% is devoted to rice compared to 60% for Thailand and Vietnam. The Filipino farmer is able to make full use of his land by planting other crops. Precisely, you need flatter terrains and plentiful water for rice production. The offset is more on expanding opportunities in other farming, and not to compensate for lost rice lands. This is exactly the reason why the country needs to preserve its already dwindling arable lands that are suited for rice production.

Re "low repayment rate of farmers in general", I tend to agree with this. But this is not only a Philippine phenomenon. Subsidized credit programs throughout the world failed because oftentimes farmers spend the money on nonfarm activities. On the other hand, it seems we all agree that promoting and providing technologies and offer these as solutions will not give or earn for the farmers if they have no subsidies. Catch 22?

Self-sufficiency. Net rice exporter. How did
Thailand do it? I have provided one answer: it has more lands planted to rice.

I'll be glad to be educated further. Thank you all.

-- Lardy Caparas


Thank you for taking your time to educate us on this, but perhaps your discussion is beyond my diminished mental capacity due to the cold I have come down with. First, you said that you tend to agree about the lower repayment of agricultural loans... but again do you have supportable figures or is this just an opinion? Secondly, you stated "On the other hand, it seems we all agree that promoting and providing technologies and offer these as solutions will not give or earn for the farmers if they have no subsidies." I do not remember agreeing to this... Yes subsidies will help to improve productivity, as does increased investment in most other areas. The problem with agriculture is that the marginal level of return is very small as compared to other industries so loans ar 18%+ do not work and outside investment will probably not happen since investors can earn much higher returns in other sectors.

As for prohibiting farmers from converting rice lands to other purposes, that is an interesting issue. It seems that most people do not approve of subsidies of any form, most agree that rice production is hard work with marginal financial return, most hate to see farmlands taken over by urban sprawl and golf courses, but what of the small rice farmers? Why should they be penalized by sich a prohibition? If it is my land I should be allowed to use it or sell it for whatever will generate the higher return. This is the logic that is being used for elimination of high import duties on rice (to which I personally agree), this is the logic behind the argument against subsidized credit, so why isn't the farmer allowed to use the same logic as to how he utilizes his land? Believe me, I also hate to see the loss of agricultural land, but if we carry the global argument to its fullest then we should fill in all of the rice lands and build golf courses for Japanese tourists and just buy our rice from Vietnam and Thailand (until they also build their own golf courses).

-- Cynthia Diaz


Thanks for your considered response. It seems we agree on the main point, which is to bring the price of rice down to average Filipinos. I think we differ on the degree to which we think we can count on the local rice industry, supported by policymakers, to achieve this. Your thinking is that making the rice industry in the Philippines "more competitive" can attain the objective of cheaper rice for the Filipino consumer. This may be true, but I still wonder what we can realistically expect. My earlier numbers were intended to show that we are, in an inputs-to-outputs sense, already "more competitive" than at least one of our import sources (Thailand). So I am somewhat skeptical that increasing yields alone will do the trick.

Suppose for argument that somehow, we were able to achieve the same level of output per hectare that the more efficient Vietnamese get. With only 3.8 million hectares under rice cultivation, we would be able to increase annual rice production in the Philippines from about 11 M metric tons a year to 15 M metric tons. This is still only 65% of Thailand's annual production and only half of what Vietnam produces. Will this be enough for "self-sufficiency"? I don't know, but I'm doubtful if it does.

So even if we were to somehow miraculously attain Vietnamese yields per hectare, any realistic five- or even ten-year "self-sufficiency" plan will probably have to consider substantial increases in land cultivated to rice. Are large increases in existing ricelands feasible at all? And then after that, should this be done given the alternative uses of such land in other agriculture or in commerce?

And then after that there is still the problem of increasing "economic" efficiency by eliminating all the structures that add unnecessary costs to delivered rice.

Let me be clear: I don't mean to suggest we should stop supporting efforts for our own local rice producers to become more efficient and remain players in our own local market. (Some of them are probably already efficient enough to survive even against stiffer foreign competition. Good for them. Let's see what they're doing right and replicate it elsewhere.) Neither should we ignore inefficient market structures or delivery systems that merely add cost but not value. Both initiatives strike me as integral to any good long-term solution to this problem. But intuitively, it also strikes me that rice costs a lot in the Philippines because: (1) it's expensive to produce (and distribute) locally, (2) there's not a lot of it, and (3) cheaper foreign rice isn't arriving on our shores in large enough quantities, for one reason or another. Addressing all three seems to be required of any realistic policy to lower the cost of rice at the table. If policy remains focused, we may live to see the day when (1) and (2) no longer apply. But until that day arrives addressing (3) seems to offer real results for the here and now.

On the claim that farmers' repayment rates are low in general--that is my impression of farmers' behavior in the Philippines. You may call it an "assumption" if you like. I formed this impression based on several sources:

(a) Anecdotal evidence from a friend who owned a rural bank in Calamba in the 80s who constantly complained about the difficulties they would have on their farm loan portfolio (they eventually closed down the bank voluntarily),

(b) Some article or study I read back in the 80s while a student at the UPSE. I can't remember who the author(s) was (Quisumbing? Oshima? Monsod?) but the main point was that farm credit is "fungible", and in cases ends up being used not for the farm-related purposes for which it was intended but for other household needs, thereby compromising repayment.

 (c) Less particular to the Philippines but still true is Bryan Bruns' observation that "Organizations such as Grameen Bank, Accion International and Bank Rakyat Indonesia have succeeded in profitably making small l loans, with high levels of repayment. However many rural credit projects have failed, with loans inefficiently and inequitably distributed, and not repaid."

Dr. Bruns is a consulting sociologist specializing in water resources and has worked for the Ford Foundation, World Bank, USAID, UN, and ADB. He in turn cites the book by Dale W. Adams, Douglas H. Graham, and J. D. Von Pischke. Undermining Rural Development with Cheap Credit. Boulder, CO: Westview Press. 1984 as providing the evidentiary support for his above statement. This book seems to be a frequently-cited critique of agricultural credit programs.

I should note, however, that the repayment rates of COLLATERALIZED agricultural loans (usually secured against the farm itself, or against stocks stored in mills in the case of "Quedan loans") are, in fact, quite high (for obvious reasons). Collateralized loans are therefore clearly counterexamples to my general "impression".

Again, I’m not an ag. economist, so I’m happy to be disabused of my "impressions" with evidence to the contrary. Is there such?

-- Butch Arroyo

Dear Pfers,

This has been a wonderful series of very enlightening posts. I would have posted sooner but work intrudes. I wish to make the following points to ponder.

On the issue of total or partial self sufficiency. The idea of total self sufficiency may be an unrealistic goal considering the typhoon problem. Malaysia is using a 70% sufficiency figure in determining their rice needs. I do not know what mechanism they use for their importation program. In our plan updating, Mindanao was identified as a potential food basket. However, neither Secretary Montemayor nor Secretary Datumanong could identify the programs in place to meet this objective. hence this objective was dropped from the latest draft. Methinks it would involve the development of an integrated infrastructure program for Mindanao from irrigation, harvest and post harvest facilities as well as intra/inter regional and national transport links.

The problem in developing trade links between regions has been the lack of infrastructure and transport facilities. This should not be done by government but government should find ways and means of encouraging development of transport links. Whether or not we should import most of our rice needs. - China is currently suffering from a similar problem. As they liberalize their economy, agricultural production is going down as people move to the cities and agri lands are converted into real estate, memorial parks etc. China's rice demands may dwarf the production capacities of the ASEAN countries and may eventually drive up prices if production cannot pick up the slack. We may have to review the demand for rice from a global and not just a local perspective. we could imported American rice but our fiscal position did not allow it.

On the issue of
Agrarian Land as Farm Collateral. PGMA announced in her SONA that a bill allowing the use of Agrarian Land for Collateral for Agri Credit will be pushed. I have yet to see the Admin version of the bill but there are several bills filed in both Houses to this effect.

On Rice Importation, PGMA announced that rice farmers would have the right to import rice. Huh? I don't think this will work. The experience with sugar imports has shown the letting the producers import the sugar just leads to smuggling or ghost storage (the sugar has been released to the market although it is supposed to be stored in quedans. I suggest that the importation be open. Let retailers do it. Do not allow certain sectors control the importation hence the price. Proceeds from the sale in terms of tariffs collected or licenses be used for agri programs.

Finally the issue of NFA. NFA was to regulate the supply of rice in this country. The NFA's operations have always suffered from a lsck of funding. You need to control 10% off rice supply to affect the price. The cartel still rules. We may have to break the cartel by liberalizing the rice sector. It is the rice farmers that we need to support one way or the other. BTW, plans are to privatize NFA operations or convert the NFA into a public corporation. I am not sure of where we will go with this.

-- Ricky Sunico

Dear Everyone:

How do rice cartels actually work in this country? Specifically: What "incentives" or carrots do they dangle to the farmers? What coercive measures do they employ, (assuming they do)? I wish to find out where cartels intervene in the production, processing, distribution, and marketing chain in order to corner the output or its release to the general market.

Sorry, but I don't know the specifics. Of course, OPEC as a cartel controls production. But I don't think this is the way the rice cartels work here (well, they don't control it directly, maybe indirectly). If anyone has any knowledge, it would be a lot of help.

My opinion is that cartels distort the information contained in a market system, although they may be taking advantage of market failures. The solution may therefore take the form of rules or interventions to correct the market failure.

Thanks to anyone who can elucidate.

-- Bob Lim

Dear Bob,

Just a short note. I recall that now-VP [and then-Ramos official], Tito Guingona, conducted investigations on this so-called rice cartel. These rice-traders employed very good communications equipment [in pre-cellular craze period]. Whenever a farmer quoted a price for his produce, the "buyer", called whoever (another trader or buyer), presumably to obtain price data in other places.

The farmer was forced to sell at buyer-dictated price because (1) he could not sell it at a higher price anywhere anyway, (2) he did not have drying facilities so the moisture content weighed down on the price of his produce, (3) he wanted to cash out hastily. Rice traders would say that they would still dry the produce in their drying facilities - not along some Friendship highways up north. The buyers' hauling the raw produce from the farm was too tempting for the farmers to pass up because the farmer could avoid further cost.

Selling milled rice to the markets is different. But I do not have to be an economist not to understand the set-up. Rice traders were assigned rice quotas to sell. No rice trader would break from the group and sell ALL his sacks at his price. The idea is to create an artificial shortage, thus an opportunity to raise prices is created.

Hope this helps,

-- Lardy C.

This post has four sections, so slow on that delete button. There's a genie at the end of the page. Ikaw rin . . .

Lardy -- Thank you for translating for us thru your Aug 27 posting the AWSJ article of David Dawe & Gelia Castillo, "The Phils Iron Rice Bowl" [June 19 issue]. They actually said, "The real answers to why the Phil imports rice lie primarily in understanding land and labor, the two most important factors of rice production". They closed that article by saying, "In trying to achieve self-sufficiency, the Phils is fighting a battle against nature that its exporting neighbors are spared. Why should one be ashamed to live in a land suited to growing a wide variety of crops?"
Dawe is an IRRI agri-economist and Gelia is professor emeritus at the Phil Nat'l Acad of Science and Tech.

From another Bruce Tolentino presentation [2 July 2001], he noted that the traditional Govt response and farmer demand: Price Support and QuantitativeRestrictions. He also pointed out the problems with government's response are as follows:


1. NFA net losses total Php21B from 1986-98 or Php1.6B annually
2. Govt budget releases to NFA total Php16.7B or Php1.3B annually
3. NFA total liabilities Php17B in 1998 or 77% of all its assets
4. in 1998, the NFA incurred a debt of 8.70 for every 1.00 it generated from operations
5. foregone revenues from NFA operations from 1995-2000 Php23.5B or nearly Php4B annually


1. supply is deficient, we import anyway
2. NFA brought only 2.8% of total prod'n and 5.3% of marketable surplus over past 10 yrs
3. NFA procurement has had minimal impact on farmgate prices
4. NFA imports often ill-times


1. govt resources are finite, dwindling


1. globalization of grains trade is inevitable
2. govt is given excuse not to implement productivity-enhancement measures
3. farmers have remained poor
Here's the proposed solution from some bright technocrats that they presented to DA and NFA sometime last week:
1. increase share of int'l rice trade handled by farmers and private sector thru provision of more licenses and permits by NFA (immediately)
2. enable unrestricted participation of farmers and private sector in int'l rice trade thru legislation (within 3 yrs)
3. set a target reduced consumer price lower than current which is 2-3 times Thai or Viet
4. revise upward estimate of per capita consumption
5. NFA imports should be tariff-free but limited to the requirements for emergency stocks and subsidized rice targeted under TRDP for poorest of the poor
6. farmers' groups to be asisted by DA, NFA, CDA, etc.
7. all imports beyond those by the NFA shall be subject to tariffs

Once rice is tariffied, either thru immediate measures or long-term ones:

1. careful design of accounting system to monitor imports and tariff revenues
2. consultative allocation and budgeting of tariff revenues to achieve improved rice production
So in my own words, what these guys are proposing is to capture the tariffs and use them as show-money for productivity enhancement programs while we are fighting the deficit problem such that when the money flows come, initiatives can be expanded. They indicated that the headstart we need is about 5-7 years.

I remember in one anthro class i attended, the professor said that language reveals culture. then he talked about how we have so many words related to rice culture: binhi, palay, bigas, basag, pinlid, kanin, ampaw, lugaw, tutong, bahaw, etc.

sa Negros nuong araw dahil tag-gutom dalawa lang ang klase ng bigas, "naay bugas kag wala bugas".

-- Citizen Kori

Lorenzo, Lardy, Butch, others,

My question concerning the repayment rate of subsidized agricultural loans was not as a challenge to your comments, but an honest question about an assumption that I have also shared for quite some time. I do wonder just how valid that assumption is, and from some of the responses I see parts of the answer. The question should be really several parts, 1) how do repayment rates for subsidized agricultural loans compare to repayment rates for other loans in general, 2) how do they compare to OTHER SUBSIDIZED loans, 3) how do collateralized subsidized loans compare, and 4) is a part of the problem related to mechanism under which the loans are made?

As for credit in general, I suspect that most subsidized loans have a lower repayment rate because of the mechanisms involved and because of the perception of the recipients. This may be partly due to some of the loans being made through non-financial types of institutions (government or NGO's) who really do not know how to properly investigate before the loans are made, do not know how to attach proper check mechanisms on how the loans are made or utilized, and do not know how to follow up on repayment. Those made through real financial institutions may also suffer because the money in question is provided from an outside source and the risk is not really theirs so they are more lax on their procedures. Also there is the human nature issue in that some recipients seem to believe they are "entitled" to the money rather than are really borrowing the money.

Is there also a mismatch in their comparison to other types of subsidized loans such as student loans, medical loans, industrial development loans, etc. Such comparisons would probably be more valid.

Butch mentioned that collateralized agri loans have a higher repayment rate which I am sure is correct for obvious reasons. Perhaps that is the key to the issue and collateralization mechanisms needs to be examined more carefully when developing such loan mechanisms rather than simply saying that we should not make such loans because of the repayment rate.
As for misuse of the loaned funds, this again appears to be a problem of the loan mechanisms as well as the human nature issue. Sure, I can see my own cousins (and perhaps even my own brothers, hahaha) taking some of the money received as a loan down to bet on cock fighting or drinking (at least when I am not around). But this should be corrected by proper loan mechanisms such as is done with house mortgages. While some here have loudly bewailed the "strings" attached to foreign loans, I believe it is the RIGHT and in many cases the DUTY of the lender (whether foreign or domestic) to attach such strings to the funds to ensure the recipient uses the funds as they claimed they would. This is even more true about subsidized types of loans since it is taxpayers in one place or another who are providing these funds. If a farmer is taking out a loan for fertilizer, he should be extended a line of credit, the lending agency should examine the contract or purchase order for the fertilizer to ensure that the price being paid is fair market value, and then the lender should check to make sure the fertilizer is delivered prior to releasing the funds. If the recipient does not like "strings" being attached then DON'T TAKE THE LOAN!

I do not blame Rene Riel at all when he told his father to leave the rice fields in grass rather than losing money with each rice crop. I applaud Lorenzo for "sticking it out" and continuing to grow rice, but many farmers just cannot afford to do so. I agree that we have a much smaller amount on land under rice cultivation than Thailand and Vietnam, but is this also partly due to the low return received by rice farmers? How much more land is there out there where farmers years ago deciced to let it grow grass (or other crops) rather than take the loss (I know of quite a few HA in my own province where this is the case)? How much more land is out there that could be developed as productive rice land if the yield or return is higher? Perhaps we are looking at the "effect" and are thinking it is part of the "cause".

-- Cynthia

Dear Cynthia, 

I am sorry I have no answer to your 4 queries. (Others can come in please to provide hard answers.) It was never suggested that extending credit should be stopped on account of slow repayment rate. Lending is a function and mandate of government development banks, or so I thought; that they can continue doing so even if these are at subsidized rates. (The romantic in me said that government must not profit from its services. But it shouldn't lose money also because such folly becomes an additional burden to other taxpayer-sectors.)

Have we mentioned also about rejection rate which to me is an integral part of lender-borrower dynamics? Why is it that many farmers are still forced to go to individual lenders, who are more strict and creative in demanding collaterals - property and would you believe humans (i.e, daughters as maids)? - and in levying outrageous interest rates? They were also instances where a large part of the produce not yet planted were already na-sangla na sa nagpapautang.
(Allow me to digress a bit. I mentioned this in contrast to how we were treated and cajoled by a rural bank into obtaining a loan from them. We could secure a loan daw na 2x the amount we want and "pre-approved" na. Later, I scuttled the idea because I was not fully convinced of the feasibility of an agri project that time, so no need for a loan.)

There are no stats about this true setting. Maybe or maybe there are. But focusing on subsidies might not address the basic dilemmas – subsidies cause the dilemmas. The poor farmer will still be in a loop of hard work, very little or no profits, then backbreaking work again.
What is our true aim: food security or rice self-sufficiency? Scientists and experts say there are more options available to a farmer when he is player in the food security scenario rather than expect him to deliver the rice to our dining table. I agree: to focus on rice is so romantic. Others become one shedding calories.

Regards to all,

-- Lardy C.

Hi Lardy,

My comment about the low repayment rate was partly because it seemed to be used in several of the recent posts as a side argument against subsidized credit (along with the misuse of the loaned funds). While these issues may be true (which was what I was asking) they have nothing to do with the question at hand of whether subsidized credit should be provided. We do not discuss the option of stopping having elections because there are many cases of fraud. I did want to make the point that perhaps some of these problems could be overcome with proper administration of the loans.

Your comments were valid about the way credit is provided and it appears to me that they supported some of my asertations. When farmers are forced to go to other types of lenders, the rates and terms are often ruinous and in the end make the plight of the farmer worse. In other cases some rural lending institutions are happy to lend exagerated amounts of outside guaranteed funds for unworthy projects since they will receive their fees regardless of whether the funds are ever repaid or not - in fact the more that is lent the more they receive in fees and administrative charges. In the end, from the total amount that was made available in a particular program, a smaller amount actually reaches the farmer.

Your comment "The poor farmer will still be in a loop of hard work, very little or no profits, then backbreaking work again" is partly true in that farming will never be an easy job. Proper investment, however, and access to credit at lower interest rates can help. With access to better equipment the workload on the farmer can be reduced. With the ability to buy unused land or convert underutilized land into rice fields perhaps he could achieve economies of scale not available when he is only farming 3-5 HA. With ability to buy better seed stock, more fertilizer, pesticide, etc. then perhaps he can increase the yield. With the ability to buy a truck to transport the harvested rice or perhaps lay a concrete drying stand perhaps he can stop being hostage to the "rice cartels". All of this costs money which most farmers do not have and may not have access to at any reasonable interest rate.

I do not support pouring money into a lost cause, but I do not consider rice farming to be such. I also do not support simply spending on rice farming just for emotional reasons (hey, I grow mangos, eggplant and squash on my own land). The types of subsidized or guaranteed credit that I support would not only be for rice farming, but agriculture in general. It would help our total agricultural production whether it is rice, mangos or sugar. There is no reason to make this an argument for or against globalization or free trade, the issue is maximization of our own potential. Unfortunately this costs money. In the end though, rice is our staple foodstuff and we need to make sure we have a steady supply of it at reasonable cost to the consumer.

-- Cynthia


Another digression again. I floated the "corporate farming" in one of my rice emails. In essence, I was trying to lead it to how farmers can truly achieve economies of scale because the other relevant activities the farmer does after harvesting will be very costly with such little production. Cooperatives could be set-up to assist farmers in a more meaningful way in terms of shared cost in farm implements, wholesale purchase of fertilizers, source of additional credits, and periodic information drives on newer technologies. They already exist and are quite successful. (Taruc's, Buscayno's, and those in Bulacan came to mind. The idea of state farms also popped up, but I immediately abandoned this when I read that Russian farmers would rather die than be "controlled" anew.)

Subsidized credit for agriculture in general - I agree. Low interest rates, too. Proper investments in technologies, agri research, and irrigation should not let up. Plus so many other measures that our scientists and experts have devised and started advocating. Their recent posts and articles are very enlightening. Let's begin to disabuse ourselves the notion that rice is a political tool -- it will be very difficult indeed -- because it will finally free us into acknowledging that there are more to food security than this golden grain.

For the time being, since this discussion started with how to bring down the retail price of rice, I am in full agreement with importation and free-market competition. The other real factors that influenced prices (i.e., NFA, rice-cartels, lack of lands, land conversion policy) are hopefully being actively and assiduously studied and workable solutions be immediately found.
I am still curious how Thailand and Vietnam found some measure of success aside from what Mr. Dawe and Ms. Castillo reported recently: more lands planted to rice. Also, is there an analysis made whether more children born to farmers is truly beneficial/advantageous, or not, to the farmers themselves?

Again, thanks. I can still absorb some more good education.

-- Lardy

Dear Marlowe,

You have your data and statements all wrong.

From: Marlowe Camello <marlowe@...>
Sent: Thursday, August 30, 2001 11:45 PM

> 1. Lack of government subsidy or support to palay farmers. The tobacco
> industry, whose product kills people, I think, is receiving more assistance
> from the government and politicians than the rice farming industry..

If you read citizen kori's posting before you posted this, you would realize that national food authority (NFA) annual subsidy (direct and indirect) on average amount to:
a. budget releases = P1.3 billion/year
b. foregone customs revenues = P4 billion/year
c. debt service payment = around P3.5 billion/year
Total subsidy = P8 billion/year (specifically for the years 1997-99)

Contrast this with government budget release to the national tobacco administration (NTA):
year 2000 = P238 million;
2001 = P208 million;
2002 proposed = P100 million.
Additional subsidy to tobacco-producing provinces as their share fromtobacco tax is what, around P300 million/year?

Is P400-500 million/year given to tobacco industry equivalent to P8 billion/year given to NFA alone? And this does not even include budget releases to:

a. Phil. rice research institute (Philrice), P129-M in 2000, P127-M in 2001, and P100-M next year, 2002.
b. Irrigation alone under AFMA, DA: P6.56 billion in 2000, P4.81 billion in 2001, and P6.8 billion in 2002;
c. farm to market roads, post-harvest facilities, blah-blah-blah, several billions of pesos/year more.

> 2. Rural farming has become very dangerous for farmers due to lack of
> special protection to farmers against armed robbers and extortionist rebels
> and corrupt followers of politicians who ask for "protection money". There
> is more protection for armchair farmers, called political hacienderos, than
> the field farmers.

Even if you can claim that "all 24 Senators, all 220+ Congressmen are political hacienceros", (the entire legislative branch, with no distinction between a Sen. Joker Arroyo and Sen. Ping Lacson), the budget of Congress (both Senate and House of Representatives): P4.73 billion in 2000, P3.89 billion in 2001, and P4.17 billion in 2002.

The budget of the entire congress is only half the subsidy given to NFA alone.

> 3. Farmers generally are ordinary people, or common people, and they are
> treated like second class citizens. They have no voice in the Philippine
> justice. They cannot directly indict extortionists in court because common
> people have no personality to directly appear in court...

You know, the Phils. joined the WTO in 1994; upon membership in the organization (together with about 130 other countries), you have to harmonize your local laws with the international laws (like WTO). But due to strong farmers' lobby against agriculture liberalization, the earliest law enacted to help harmonize these laws was 5 years after signing the treaty, in August 1999 (anti-dumping law), then counter-vailing measures law also in the same year. Lucky that "safety net" law like the agriculture and fisheries modernization act (AFMA) was enacted in 1997, but then that law still has to be fully implemented.

Rice trade liberalization cannot be implemented for many years now because of farmers' strong lobby against it. And you say that farmers are "treated like second class citizens, have no voice in Phil. justice"? Dyos ko po (ulit).

-- Nonoy

Lardy, I browsed through the UNDP Human Development Report, 2000 and I noticed the following in agricultural technology adoption in 1998:

Fertilizer consumption
Philippines - 62.8 kg./ha
Thailand - 81.5 kg/ha
Vietnam - 268.6/ha

Tractors in use
Philippines -1.2/ha
Thailand - 10.8/ha
Vietnam - 17/ha

The rate of adoption of high yielding varieties might also be different. But according to Dr. Obien, former Director of PhilRice, also the attitude of our farmers. Our farmers do not seem to have the drive to achieve more compared with the Thai or Vietnamese or Chinese, who spend more time in their farms even if they are more mechanized as you can see. The Dole Philippines experience of organizing farmers to produce rice seeds with an assured market apparently works to improve productivity. Also, apparently, there is a need for some kind of supervision, where farmers are reminded about weeding or spraying their crops, etc. These farmers are getting 6 tons per ha and Dole buys their seeds at P10/kg. Perhaps, what we need is to assure our farmers a good market, perhaps we should provide incentives so even if they have bountiful harvests, despite the lowering of prices which is their constant fear if they produce more, their income would still rise. And also, a more active extension agent who really goes around reminding farmers about their duties in the farm. How can this be done? Maybe by rotation cropping with a more lucrative crop? And a technically, strong extension force, you see, the agricultural extension system was abused  by devolution, in many municipalities, agricultural extension agents are nurses, midwives, who are friends and relatives of the mayor and many are not supported to visit farms, they do not have travel allowances.

Guys, I am very happy that you are seeing the human side of our agricultural problems. Pure economic theory won't work. That is why there is always a strong farmer's lobby against liberalization because market forces will not take care of their technology, credit and emotional needs. Unlike the Western farmer who is more market oriented, our farmers are still feudal in attitude, they need supervision, someone to take care of the marketing for them, someone who gives easy never mind usurious credit, someone who sympathizes when they have problems. This also why farmers in Mindanao like the NFA who markets their produce because the cartel will not allow them to market their produce on their own. The cartel controls the transportation system. And even if government says, let us have safety nets, the funds for those are slow in coming and our government is very fast in opening up our market.

-- Nina Halos

from INQ7
a comment:

From: Rene Riel <
Subject: The survival of rice farmers
Date: Thu, 30 Aug 2001

In reaction to this topic, I cannot help but to comment on our lack of focus to solve this problem. We tend to analyze more of our country's weaknesses than to focus on our strength to deal with this issue. With our failure to industrialize, local factories cannot absorb excess labor and agricultural workers attracted by the beauty of our cities. The key to our development now is agriculture and nothing else. Food production should be our main focus rather than continue to dwell on the agony of our failure to industrialize. I believe everyone should look back again to our agricultural lands and build a strong base to uplift our ailing economy.

Rice being the staple food is obviously a political commodity. Any administration will always try to control the price of rice similar to oil to avoid social chaos. With the liberalization of oil industry, consumers probably think it is logical if we freely import rice. This is a right solution for consumers because we are penalizing our farmers and helping other countries as well. As a result of this no one can dissuade people to flock to all corners of our major urban centers.

Planting rice is really never fun. I came from the province, where rice production is one of the main sources of livelihood. My exposure and experience in the rice farmlands revealed that most children of the rice farmers will try their luck somewhere else and leave their home place not because of value system but the low turnover rate per hectares of one's investment in rice land.

The question is how many hectares a rice farmer really should have in order to break even. The cost of production per hectare is so high..considering the cost of fertilizers, imported pesticides and becoming scarce farm laborer due to migration. But the biggest headache of rice farmers is the cost of capital. I remember my father used to borrow money to finance rice production and end up giving up everything during harvest season. To my frustration, I told him better stay put and stay home to avoid debt problems.

Everybody knows that the our land reform program is one our country's weakness because it prevents anyone to own more land than necessary so the concrete solution is for the farmers to bond together to share the labor cost and irrigation facilities. The problem is the most farmers don’t understand the concept of economies of scale.

Our farmers used to have major help from the government to be competitive but after the Marcos regime everything went away from the vertical integration programs initiated by the government.

Where are these government agencies now:

National Irrigation Administration- to provide good irrigation system especially during drought.

National Food Authority- to provide the farmers ready market for their farm products at a reasonble price to avoid price cutting of rice traders

Phil. Crop Insurance - to provide insurance coveraage therby minimizing the risk of farm loss brought about bu typhoon.

Philphos- to produce local fertilizers.

Masagana 99, I believe became successful not simply because it provided farmers cheap financing to produce rice but also the dedication of agricultural technicians who introduced better yielding rice variety and constant visit of agricultural technicians to the farmlands. How many agriculture department workers now really devote their time to consult farmers of their problems and spend time transferring new ideas and technology to the rural areas. Most of them now are contented to stay at their offices and avoid the dirt of fieldwork. Suddenly our farmers become independent and left on their own because the government look up to the prospect of our industries giving them jobs later. With the failure of industrialization comes the failure of our farmers.

If consumers want to kill the rice farmers, go ahead and import freely. Eventually everyone will be rice consumers anyway and nobody would be willing to produce rice anymore. I told my father better spend Php20,000 to buy rice rather investing them in farmlands where the payback period is 120 days and the risk of losing is big time and end up with a debt. Maybe in the future when the price of rice in Vietnam and Thailand will be high enough to encourage our local farmers to go back to the growing board and think about planting again. Of course product pricing is not only an issue here. Another key is on how to improve the existing setup to be more efficient. Competition is good to allow us to look for ways to be more productive. We were not really able to maximize the advantage of having IRRI in our backyard. We should not be mixed up with the premise that a lot of multinational companies are packing up and transferring to other ASEAN countries because its cheaper to import rather than produce locally. Filipino farmers are our own and we should not be buying imported rice just even to let them survive.

Our militant farmer groups dont really understand the problem of rice farmers because they are not really farmers but consumers. Everybody knows that western countries dont allow free import of our agricultural products, like mangoes, sugar, bananas to protect their local producers while our country is blinded with the marketing phrase "trade liberalization"

They key to promote the honor of farmers in our country is agribusiness. I dont believe we cannot be self suffecient in rice production. What we need is better integration of our programs of our governent agencies who knows the key to eradicate sqaatters in the cities is to provide good opportunities back to rural areas.

Without this platform, I will continue to convince my tatay to let the grass grow in our farmlands.

Best regards,

-- Rene N. Riel

Thanks you for posting the comments of Mr. Rene Riel. He narrated so well all the real situation and the difficulties of our farmers in keeping his farming profitable. However he seems to give up at the end when he advise his father to let grass grow on their farmland instead of repeating year after year a cycle of money losing farming business. I sympathize with Rene and his family but I am not ready to give up on farming yet. Yes, until now I am operating my farm with losses every year but I just consider it as my share of giving jobs to the rural folks and keeping on my contribution to the rice supply.

How I wish those government farm technicians are active today, and government subsidy on fertilizer/pesticide are back so that farmers can go on producing rice with least debt.

-- Lorenzo Gallego


See also: 
Politicizing Global RIce Price, May 13, 2008
State intervention in agriculture, July 7, 2008

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