Showing posts with label rice protectionism. Show all posts
Showing posts with label rice protectionism. Show all posts

Friday, April 15, 2016

BWorld 54, Rice farming, trading, smuggling and electioneering

* This is my article in BusinessWorld last April 14, 2016.


Several issues related to rice farming and trading in the Philippines hogged the news recently. The first of course is the big El Niño and crop failure in many provinces in the country and many other tropical countries. Second, the farmers’ rally in Kidapawan, Cotabato that turned bloody early this April. And third, on large-scale agricultural smuggling including rice.

The 2015-2016 El Niño indeed was huge, reaching up to 2.5 Celsius deviation from the average temperatures, but it is comparable to the 1997-1998 El Nino (see graph).


The Kidapawan rally that claimed two dead rallyists and two policemen in coma was unique because while this El Niño also adversely affected many provinces in the country, there was no highway occupation for days and bloody demonstration that occurred.

On the third item, Dr. Ben Diokno in his column here in BusinessWorld last April 6, 2016, quoted Bobi Tiglao’s numbers saying that “smuggled value averaging $19.6 billion annually, an explosion from the comparable figures of $3.1 billion and $3.8 billion yearly during the terms of Presidents Joseph Estrada and Gloria Macapagal-Arroyo, respectively.”

These three and related events in rice farming have become part of the issues raised by Presidential, Vice-Presidential and Senatorial candidates running for the May 2016 elections. We discuss these issues by asking these questions:

1. Is this El Niño so bad and “unprecedented” that prompted many people to demand doubling, even quadrupling of government spending in agriculture to help “fight man-made climate change”?

2. Is rice “self-sufficiency” a valid must-goal for the Philippines and hence, demand massive reallocation of resources from other sectors to agriculture in general and rice farming in particular?

3. Is continued rice protectionism valid, and agricultural smuggling really that bad against the Philippine economy and the consumers in particular?

From Graph 1, the answer to #1 is No. This big El Niño has a precedent, the most recent was the 1997-1998 El Niño and consistent with natural weather and climate cycles, we should expect another big La Niña to follow later this year like what happened in 1999-2001. That means another round of heavy rains and flooding that can cause another round of huge crop damages.

To answer question #2, the numbers here will help (see table). 



From the above numbers, the answer to #2 is another No. Our neighbors Thailand and Vietnam simply have plenty of rice land, around two times that of the Philippines, in contiguous and single land mass, with access to huge irrigation from Mekong River, Ton Le Sap River, other huge rivers that provide huge irrigation.

The Philippines has a comparatively small rice land area, slowly being converted to residential, commercial and industrial uses. Being an archipelago, there are very few large rivers that can provide continuing irrigation to wide rice lands.

Besides, Thailand and Vietnam get perhaps only about 1/5 of the number of typhoons that enter the Philippines, average of 20 typhoons a year, about half of which make actual landfalls and cause more damages and crop losses. These two countries are also done with their agrarian reform and forced land redistribution; the Philippines is not done yet, after 43 years of implementation, starting only in 1972 Marcos’ land reform, not counting earlier land reform programs.

So forcing rice “self-sufficiency” cannot be a valid goal. Instead, pursuing rice “food security” is more appropriate. We continue producing more rice with the help of more modern technology, and any deficit can be filled by rice importation at free trade, lower prices from our ASEAN neighbors.

And the answer to question #3 is another No. This is not to justify rice smuggling but bringing in cheap rice from Thailand and Vietnam and other ASEAN countries is pro-poor and pro-consumers, like the carinderia owners and customers (especially jeepney and taxi drivers, students, job seekers).

The government rice protectionism policy -- via rice quantitative restrictions (QR), imposition of 35% tariff for imported rice, the National Food Authority (NFA) rice importation monopoly -- is both anti-poor, anti-consumers. For many Filipinos, they want cheap rice, and such is readily available from our neighbors Vietnam and Thailand, and soon, Cambodia, Laos, possibly Myanmar.

The following are reform measures that the next administration may consider.

One, if the government should insist on rice “self-sufficiency,” then it should allow corporate, large scale rice farming. Economies of scale, tapping the knowledge and services of plant scientists and geneticists, use of more farm mechanization, will greatly improve the country’s rice output. Double or triple the current four tons per hectare average output, coupled with reduce post-harvest losses.

Two, decouple NFA’s marketing/proprietary and regulatory functions. Privatize the former and retain the latter, sell many NFA assets like warehouses, use the fund to help reduce huge NFA debt, about P155 billion as of mid-2014. Assuming a 3%-4% interest rate, we are paying around P5 billion each year on interest payment alone for the NFA debt.

And three, liberalize rice importation by removing NFA importation monopoly delegated to licensed importers and traders, removing the QR for rice, and significantly cutting the import tariff of 35% down to 5% or even zero.

Postscript on the Kidapawan demonstration: (1) The majority’s freedom of mobility is superior to rallyists’ freedom of assembly. Highway occupation and closure is wrong. To remove the conflict between these two freedoms, mass actions and demonstrations should be held in public plaza, or idle farms near big roads and highways. And (2) use of live bullets by the police to disperse the crowd is wrong. The state should be above the fray and avoid killing its people as much as possible, regardless of the provocation by rallyists. Exceptions would be when firearms are explicitly displayed and fired by the demonstrators against the police, the public, shops and other civilian structures.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers, a SEANET Fellow and member of the Economic Freedom Network (EFN) Asia. minimalgovernment@gmail.com
------------------

Friday, September 25, 2015

Agri Econ 21, Rice protectionism as poverty-maximizing policy

The other day, September 23, I attended a forum on "Zero Poverty" organized by the AIM R.Navarro Policy Center, NEDA and UNDP, at Edsa Shangrila Hotel. I don't believe in "zero poverty" of course, but I went there to hear what the speakers have to say and see their numbers/data.

In the morning session, the focus was on food poverty and speakers were former NEDA chief Cielito Habito, UP School of Statistics (UPSS) Dean and Prof. Dennis Mapa (speaking in this photo), IRRI Dep. Administrator Bruce Tolentino, and  DTI Assistant Secretary Fita Aldaba.



Jess Lorenzo posted that photo in fb with a note, "Dr. Dennis Mapa explains how rice price shocks have a direct correlation in hunger incidence.... IN JUST ONE QUARTER! He also notes that the effect is becoming more dynamic."

Below, Bruce Tolentino of IRRI, also posted by Jess.


Dennis and Bruce showed one chart, global and  PH rice prices over the past 15 years or so. Notable in that chart was that around 2008 or 2009 until today, world rice prices were declining and remained low but PH rice prices were high. 

During the open forum, I stood and commented the following:

1. "Zero poverty" is not possible under a rice protectionism policy (via quantitative restrictions or QR in rice imports, NFA importation monopoly, taxation of imported rice) which significantly contribute to higher local rice prices. 

2. Huge National Food Authority (NFA) debt, about P160 B as of end-2013 and could be around P170 or P180 B now. At just 3% interest rate, we are paying P5B or more each year on interest payment for the NFA debt. 

3. Need to allow large scale corporate rice farming. This will contradict the endless, no time-table, agri investment-busting agrarian reform (AR) program. Rice farms then will use science-based, biotech and mechanized farming and allow 5-10 MTs/hectare vs. current productivity of around 3.8 tons/hectare. Plus lower post-harvest losses.
  

For nature-created poverty, say a huge flood wiped out people's houses, crops and tractors, vehicles and other properties, government assistance will be useful and justified. For self-inflicted poverty like laziness and irresponsibility, no amount of government assistance and intervention will solve it.

That is why there should be more personal, parental, civil society responsibility in society, less government responsibility. The latter should focus on enforcing the rule of law and protecting the people's three basic freedom: freedom of private property ownership, freedom from aggression, and freedom of self expression and liberty.
-------------


Tuesday, May 19, 2015

Agri Econ 20, On NFA-BOC Campaign for Expensive Rice

For consumers, cheap is preferred to expensive, more is preferred to less, it's a no brainer. For many Filipinos, they want cheap rice. And cheap rice is readily available from our neighbors Vietnam and Thailand, and soon, Cambodia, Laos, possibly Myanmar.

Nature, not politics and governments, determines who has better resources for growing rice. (1) Rice land area, Thailand for instance has almost 3x that of PH's. (2) Exposure to strong typhoons, TH and VN get perhaps only 5 storms a year vs. PH's 20, of which half make actual landfalls and cause direct damages; (3) Irrigation, they have the huge Mekong River, Ton le sap river, others as they are in one big landmass, vs PH's archipelago.

If politics and populism is set aside, we should be better off, a lot better off, if we have free trade in rice. The National Food Authority (NFA)  should get out of its marketing function. Doing regulatory function should already keep their hands full of work.

A friend from UP and now NFA Administrator, Renan Dalisay, posted this photo yesterday in his fb wall with this note,

Hit the ground running with the new BOC Commisioner Bert Lina discussing how to tighten coordination with NFA to curb rice smuggling. #‎nfatungosapagbabago #‎bantaybigas #‎sulongbigas


From right: Renan, Sec. Kiko Pangilinan, new BOC Commissioner Bert Lina, don't know the 4th guy. Posting this photo without Renan's permission but I think he won't mind, he believes in transparency and freedom of information by the public.

I commented at Renan's wall that the NFA and Sec, Kiko's offices should focus their energy to liberalize rice trading as rice prices in Thailand and Vietnam can be up to 1/2 of PH prices. They should institutionalize free trade of rice and not glorify expensive rice.

Am sure the BOC and NFA will protest the title of this paper, which is understandable. But I think they should also recognize that rice smuggling happens because there is huge demand for cheap rice. The current implicit policy of the PH government is to make cheap rice from  our neighbors become expensive via rice protectionism: rice import quota, rice tariff of up  to 50 percent I think, bureaucracies to get import license, etc. Then government turns around and subsidize expensive rice to make it "cheaper" and announce it to the public.

I am not defending smuggling of rice or other imported commodities. But I am not defending or supporting the government too in its rice protectionism policy. 

IRRI's Dr. Bruce Tolentino, other Filipino economists from PIDS, UPSE, etc. have shown the numbers that protected, expensive rice is wrong and anti-poor. Rice protectionism is a 1960s or earlier medieval policy that is continued and defended by the government and some NGOs until today. Why persist on that wrong policy? Why are rice consumers disempowered to choose and buy cheap rice?

Another thing, that huge NFA debt, about P155 billion as of March 2014 I think. The DOF, DBM and NEDA have already shown that such NFA debt is unsustainable, walang pera ang NFA to pay those debts, all it does is ask money from Congress every year while further building up the debt. Soon, that huge NFA debt will be passed on to the DOF, and DOF will ask for more taxes as the debt stock has increased by a huge amount, need more taxes to pay for principal + interest, annually.

NFA should get out of endless loss-making and passing that debt to all taxpayers someday. It is a lousy arrangement. NFA should stop subsidizing rice to make it "cheap" because cheap rice from our neighbors are readily available.

Administrator Renan, Sec. Kiko, other government agri officials, ibaba nyo na ang presyo ng bigas. Remove politics from rice trade. People will remember you. thank you.
------------

Tuesday, January 27, 2015

Agri Econ 15: Why do Thailand and Vietnam Produce More Rice than the PH?

The new Administrator of the National Food Authority (NFA) and a friend, fellow UP  alumni, Renan Dalisay, shared in his fb wall photos of his recent visit to IRRI including meeting IRRI Dep. Dir. General Bruce Tolentino. Then he added,
Like many of you, i could not resist asking why other countries like Vietnam and Thailand, who learned the technology of rice planting in IRRI, are now way, way ahead of the Philippines in the area of rice production. The reply was simple and forthright, they walk their talk.

Dr. Bruce Tolentino's presentations earlier should have answered such question -- why Vietnam and Thailand have high rice output than PH. Here are two charts from some of his recent presentations.

1. Thailand has about 11 million hectares of rice land, Vietnam nearly 8 million hectares, vs. only less than 5 M hectares for the PH.

2. The term Thailand and Vietnam are "way ahead of the PH in rice production" is true on absolute rice output, but not for Thailand in average productivity per hectare.

Another chart from Bruce T.

3. TH and VN are on mainland SE Asia. PH is far out and detached from the mainland. Them in the mainland have Mekong River, Ton Le Sap River, other huge rivers that provide huge irrigation. They also have wide flat lands suitable for rice farming.

And I will  add these additional factors:

4. VN and TH perhaps have only about 1/5 of the number of typhoons per year as those entering PH. On average, about 20 typhoons enter the PH, about half just pass nearby while another half make actual landfalls and cause more damages and crop losses.

5. VN and TH are done with their agrarian reform (AR) and forced land redistribution; the PH is not done yet, after 43 years of implementation, starting only in 1972 Marcos' land reform, not counting earlier land reform programs. No timetable, seemingly forever AR means endless uncertainty in agribusiness. Large scale rice farming is not possible because of potential political backlash.

6. Thailand has only about 65 M population, the PH has 100 M people (as of last year).

7. Subsidies to rice farmers, it is also being done in the PH. Tractors and water pumps, farm roads and irrigation, seeds and credit support, etc., these subsidies are given by the PH national government to small rice farmers. LGUs have their own subsidies too. 

The answer to Renan's question is often outside of politics and governments. Geography and nature provide the clue who should specialize on rice production, who should specialize in tourism, etc.

The cost  of production can always be lowered through technology and biotech. But  crop losses due to frequent typhoons, especially in the current  period of global cooling -- more rains, more flood -- losses cannot be easily controlled or minimized.

If the PH government should insist on rice "self-sufficiency", then it should allow corporate, large scale rice farming. Economies of scale, tapping lots of plant scientists and geneticists, will greatly improve PH rice output.

What is wrong with selling cheap rice from Thailand, Vietnam and Cambodia? Do people glorify expensive rice via rice protectionism, rice QR and rice tariff? Then turn around and lambast the government, lambast anyone else, why PH rice prices are high?


The quick solution to  more rice supply in the  PH is through free trade, Abolish  rice protectionism, even  NFA monopoly in rice importation and  licensing of  importers. Allow those cheap rice from Th and Vietnam, and Cambodia, to be sold here cheaply too.
-----------

See also:
Agri Econ 11: Protecting Land Properties by the Poor in India, April 22, 2014

Agri Econ 12: Presentation at WASWAC-BSWM Seminar, May 13, 2014

Agri Econ 13: What and Where to Plant, Nature vs. Government Planning, June 24, 2014 

Agri Econ 14: NO to Further Extension of Agrarian Reform, July 03, 2014

Sunday, September 28, 2014

Free Trade 38: Liberalize Rice Imports and Demonopolize NFA

This is the 2nd part of my paper published by the Stratbase Research Institute (SRI) last April 18, 2014. The first part is about energy deficit in the Philippines. The full paper is posted in slideshare.
-----------

(2) Rice prices. PNoy said (SONA 2014),

“…some greedy rice hoarders are stockpiling their supplies in order to sell them when prices eventually rise…. Our immediate solution: import more rice, supply it to the markets, reduce the prices and keep them at a reasonable level, and ultimately drive those who took advantage of the Filipino people into financial ruin.”

Last November, we imported 500,000 metric tons… all of this had arrived by March of this year. This February…  additional 800,000 metric tons,... This July we approved the immediate importation of 500,000 metric tons of rice through open bidding….  Standby authority to import an additional 500,000 metric tons…”

The anomaly actually here is the Philippine government's continuing rice protectionism policy and monopolization or heavy regulation of rice imports, that largely explains for high rice prices.

Rice protectionism via (1) National Food Authority (NFA) rice importation monopoly and (2) maintaining quantitative restrictions (QRs) of our rice imports, and (3) forcing rice "self-sufficiency" policy, are  wrong policies that contribute to expensive rice. They are anti-liberal policies that the Liberal Party should in fact discard while PNoy Aquino is still in power.

Below is a picture of how big our neighbors Vietnam and Thailand are as rice exporters. They simply have huge production relative to their  consumption.

Table 2. Rice Production, Trade and Consumption in East Asia, in ‘000 Metric Tons


Myanmar and Cambodia are fast catching up as major rice producers and consumers, which is a good thing. 

These four countries – Vietnam, Thailand, Myanmar and Cambodia – plus Laos, are all in Southeast Asia mainland.  The rice import-dependent countries – Indonesia, Malaysia and Philippines – are all archipelagic and are outside the Southeast Asia mainland. Is this coincidence or not, that there is an explanation for this?

A paper from Dr. David Dawe of the Food and Agriculture Organization (UN FAO) and reposted in IRRI magazine, “Rice self-sufficiency: A question of geography?” says the answer is No. It is not coincidence.  

Chart 5. Rice Production per Capita vs. Share of Crop Area Devoted to Rice, ASEAN



Countries on SE Asia mainland have dominant river deltas that provide huge water and flat lands, they get big irrigation from Mekong River (water flowing from China down to Laos, Cambodia, Thailand, Vietnam), also from Ton le Sap river (mainly in Cambodia). This flat lands plus huge irrigation are highly  suitable for rice cultivaton.

Rice land in particular,  Vietnam has almost 2x while Thailand has almost 3x that of Philippine rice land area.

Productivity wise, Filipino farmers’ is actually larger than that of their counterparts in Thailand, although lower than those in Vietnam. If Vietnam has the same number of typhoons per year as the Philippines, its productivity would possibly be similar to the Philippines. Vietnam has only about 5 typhoons a year or less, vs. the PH's 19 typhoons a year on average, about half of which make actual landfall and knock down thousands of hectares of often harvestable rice, resulting  in high crop losses.

Table 3. Rice Land and Output, Comparison among the Philippines, Thailand and Vietnam


If we combine those natural factors – being in SE Asia mainland, have huge and wide flat lands, have huge irrigation  water – those in the mainland have high rice output relative to their consumption and hence, rice prices are lower than  those in the Philippines. Why should the Philippine government insist on expensive rice via trade protectionism?

Chart 6. Comparative Wholesale Rice Prices, Philippines, Thailand and Vietnam, 2000-2014


A report from PhilRice also noted this,

"According to the two PhilRice economists, domestic price of rice was up to 75% higher than average global rice prices in 2000. The gap reduced in 2008, but price differential widened again to around 30% in 2012 mainly due to higher import tariffs (of about 50% beyond quantitative restrictions quota) and higher production costs.' (source: http://oryza.com/.../philrice-calls-rice-competitiveness...)

To bring down rice prices and stabilize rice supply, the following modest proposals are advanced.

1. Government should liberalize rice trade and importation, abandon rice protectionism. Remove National Food Authority (NFA) monopoly in rice imports.

2. End the quantitative restrictions (QRs) and convert it to low tariff, ultimately leading to zero tariff, especially for rice imports from our neighbors in the ASEAN.

3. In exchange for rice trade liberalization and removing NFA import monopoly, its accumulated debt, around P155 billion,  may have to be assumed by the national  government. This means taxpayers including those who do not buy NFA rice, will pay for its debt.

4. Certain NFA assets like some warehouses should be privatized. Proceeds from such privatization should be used entirely to retire some of its debt and not be used for any old or new food subsidy programs. This way, NFA debt that  will  be passed on to  the national government and  will  be paid by taxpayers will be smaller.
----------

See also:
Free Trade 34: ASEAN's Bilateral and Regional FTAs, February 27, 2014
Free Trade 35: EU-FNF Forum on 'FDI Engine for Job Growth', May 15, 2014

Free Trade 36: Taxation, Regulations, Trade and Rule of Law in ASEAN, August 05, 2014

Free Trade 37: Multiple Concerns and Regulations in the ASEAN, September 11, 2014

Saturday, September 06, 2014

Citizen Watch 3: Political and Economic Reforms After SONA 2014

Yesterday, I participated in Round 3 of Citizen Watch's Roundtable Discussion, on political and economic reforms after the 5th State of the Nation Address (SONA) of President Aquino last August. The forum was held at UP NCPAG, Diliman campus. Jointly organized by Stratbase Research Institute (SRI), and the Office of the VP for Public Affairs, UP Diliman.

The Participants were:

1. Prospero "Popoy" De Vera, the UP Vice-President for Public Affairs.
2. Ramon Casiple, Executive Director of the Institute For Political And Electoral Reform (IPER)
3. Atty. Randy Bello, Vice President For Internals of Tax Management Assn. of the Philippines (TMAP)
4. Vincent Lazatin, Executive Director of Transparency And Accountability Network (TAN)
5. Atty. Tim Abejo, Convenor of Democracy Watch
6. Atty. Ysan Castillo, Secretary General of Philippine Business for Environmental Stewardship (PBEST),
7, Francis Isaac, representative of DLSU - DLSU-Jesse M. Robredo Institute of Governance
8. Dindo Manhit, President of Stratbase Research Institute (SRI)
9. Nonoy Oplas, President of the Minimal Government Thinkers, Inc.

Wilford Wong, Secretary General of Citizen Watch, was the moderator.

In this photo, from left: Ysan, Tim, Randy, me, Francis.

On my part, I focused my discussion on the last three subjects of PNoy's SONA -- impending power shortage next year, high rice prices, and govermment budget.

On power shortage, I said that the threat of brown outs in the Luzon grid in the hot months next year is real. But there are short- and medium-term solutions. S-T solutions include (a) more peak-load plants, diesel barges, but there will be electricity rate hike as diesel is expensive compared to coal, natural gas, geothermal, hydro;
(b) reduce power demand by asking some big consumers like industrial zones, big mining firms, to have their own gen sets on peak hours of hot months.

M-T solutions include (a) reduce bureaucracies and permits required in building and commissioning new power plants, and
(b) reduce taxes and royalties on power; Malampaya royalty is an energy tax that contributes to our expensive electricity; up to P1.45/kWh.

In this photo, from left: Mon, Vince, Popoy, Dindo.

On high rise prices, I argued that the PH should embrace free trade and junk protectionism in rice trading. Vietnam and Thailand simply have huge, contiguous, well-irrigated rice land, up to 9 and 10 M hectares vs PH's only 4.7 M hectares of rice land. Rice in our two neighbors are simply cheap because of their huge production. Why should government insist on expensive rice via trade protectionism and NFA monopoly on rice trading?

Besides, NFA is a huge debt generator; currently around P155 B debt; it cannot and will not pay this debt, so very soon, we taxpayers will pay more to pay back this huge NFA debt, on top of already huge public debt of the national govt.

On fiscal irresponsibility, I argued that government should aim for budget balance, or even budget surplus, on years that there are no major crisis like severe damage by strong typhoons. When in crisis, borrow; when things are normal, pay old or new debt. Persistent borrowings means the government, its officials and bureaucracies, are simply living beyond their means. Lots of wastes and inefficiencies in government.

The Executive branch is generally wasteful; their wastes are tolerated by the Legislative branch, in exchange for their own wastes plus pork barrel. The public and media only lambast pork barrel.

From left to right: Ysan, Tim, me, Randy, Mon, Wilford, SRI staff, Francis.


The exchanges among participants were lively. There was a longer discussion on the budget and on power/energy problems. I briefly debated Mon Casiple and Tim on WESM, ERC's price cap, power situation last December, etc. Civil debate of course, focus on the issue. If there was a projector, I could have shown some charts and tables about WESM and various power plants.

The two sponsors of the discussion, right. Popoy/UP also gave each participant a bag of recent community papers and publications produced by UP. Modest but nice snacks and lunch were also served, yummy.

All photos from Citizen Watch Philippines' facebook page, except the 3rd photo, from my camera phone.

I made a paper for this forum with 10 tables and 3 charts on those 3 subjects that I mentioned above. SRI will publish it soon.
--------

See also:
Stratbase Forum on ASEAN Competitiveness, July 25, 2014
Free Trade 36: Taxation, Regulations, Trade and Rule of Law in ASEAN, August 05, 2014

Citizen Watch 2: On Power and Jobs, August 30, 2014