At RTL, economists had their economic ‘laboratory’

Economists were overjoyed at the passage of the rice boatffActation Act (RTL) in 2019. They had that reform for a long time. Their arguments can be summarized by the following data-backed adverse effects of rice import restrictions through the National Food Authority’s (NFA) rice import monopoly policy.

One, despite the protection given to farmers, the productivity of paddy is low which makes paddy growers among the poorest in our country. Second, the policy raises the price of rice and food to the detriment of consumers, most of whom are poor. Three, there was a huge corporate deficit paid by the taxpayers along with the insecurity of the rice due to the incompetence of the taxpayers due to the activities of the NFA. Fourth, the policy of the past, as amended by RTL, gave rise to corruption in the rice business, in government-to-government rice import transactions, and in the allocation of minimum access volumes where rice cooperatives were identified.StayEditing as a front for wealthy financiers. After all, the whole policy regime is designed to achieve the self-sufficiency of riceStayThe ciency came at the expense of other agro-industries with high comparative advantage.

According to a study by Adriano et al entitled “Philippine Rice Tariffing Act – An Intermediate Review: Challenges and Opportunities”, rice productivity averaged 1.4% from 2009 to 2018, which was “not enough to meet consumption requirements”. Of the population, which has registered an annual growth rate of 1.6%. ” Filipinos pay higher prices than Vietnamese and Myanmar rice consumers. About two-thirds of the budget of the Department of Agriculture (DA) has been spent on other agro-industries like coconut.

If it is not passed in 2019, RTL is still bound to happen from a revenue deficit management perspective. There are other benefits of RTL that economists claim, but the most compelling is to control the financial situation.FThe corporate debt of icit NFA reached a maximum of বিল 170 billion and was likely to surpass the National Power Corporation without RTL which triggered the EPIRA Act. Just like being in power, the bleeding of the country’s financial resources is about buying expenses without the attendant benefit.

Nevertheless, opponents of the RTL refused to accept liberalism in rice imports and move forward. With the change of government on the horizon, the anti-RTL camp hopes to reverse the 2019 reforms. Let me therefore point out their main argument for advocacy.

From key arguments in his article entitled “Rice Traders Liberated (RTL): Winning and Lossing from Rice Customs Act” by Raউলl Montেmeier, rice farmers have suffered the most from about P40 billion RTL in the first year of RTL. For a general reference period from March 2017 to February 2018. Two, the profit margin of rice consumers is only P232 million. Three, importers and traders have benefited a lot from RTL. Importers have made a gross profit of P14.2 billion, apparently from the technical smuggling of rice, while traders have decided not to pass on all the benefits of RTL to the customers, leaving them with about P43.3 billion in their pockets.

Both analyzes agree on an important finding – that farmers have lost out on RTL, and this is to be expected as RTL has reduced trade protection for rice farmers. Economists, including me, have argued that most rice growers are consumers of rice over the course of the year. Liberalization of rice trade reduces the price that consumers pay for rice and thus rice farmers also benefit from it.

However, if we take Raউলl Montেmeier’s calculations as accurate, the loss of rice growers far outweighs the gains of rice consumers. Adriano et al. Echoed that in the first year of RTL implementation, “farm gate prices had an average year-on-year decline of -15.5% whereas the average decline in wholesale and retail prices of regularly matched rice was -8% and -5.2%, respectively.”

Let us hold on to this general information that in the first year of implementation of RTL, in 2019, farmers lost more in RTL than rice consumers. At the moment, public speaking on the subject suggests looking at the data for us and how the perceived loss to farmers changed compared to consumer gains in the second year and third year.

Adriano et al. Find out that the pattern has changed in the second year. Their analyzes indicate that “from 2020 to 2021, the wholesale and retail prices of rice have fallen sharply compared to farm gate prices.” In 2020, the wholesale and retail prices of rice decreased by 3.7% and 4.2% from their 2019 levels, respectively. In contrast, farm gate prices palay (Unhooked rice) has shrunk by only 1.1% for the same period.

The table shows that changes in price movements are likely to persist in 2021 or the third year of RTL implementation.

It’s encouraging. As trade liberalization takes root, there are more benefits for rice consumers and not at the expense of rice farmers this time. After their initial significant fall, which is expected because trade liberalization is expected to lower rice prices, palay Prices are stable. The implication is that consumers are now gaining more than farmers are losing, and if farmers are consumers of rice for most of the year, then the expected benefits of trade liberalization are being seen, as economists claim. Accordingly, the discouragement towards growing paddy has weakened, and rice production has stabilized at its expected level at lower valuations but nevertheless has expanded due to increasing demand.

But trade liberalization seems to be avoided by many of us. When the issue of RTL is raised, I bet that the average Filipino will ask, “Is it necessary if the income of the rice farmers is reduced?”

In the last three years of RTL, economists have had their “economic laboratory” on the liberalization of the rice trade, as natural scientists verify their proposals. The downside of economic analysis is that their “laboratory tests” take much longer to complete than the natural sciences. In the case of RTL, they needed three years before they were able to verify their claims. Within the legalization period, economic proposals are at risk for alternative claims that RTL is bad for our country as those who oppose trade liberalization.

The problem stems from economic science: economic analysis ignores time. I can exaggerate this feature so much that my fellow economists may want to criticize me on this. But listen to me about this observation. When we argue that RTL is beneficial to society, we reject the answer to the question “when” is the beneficial effect of trade liberalization rooted because we do not know when. However, economists are confident that the net profit of the society will be positive once all is well for the next economic balance.

Let me track what happened to the rice supply chain after RTL was implemented. RTL initially failed to promote the expected competition. Wholesale prices have come down compared to the observed decline in rice import duty rates. The retail price, which should be paired with the wholesale price, and the farm-gate price, whose changes are more closely related to the wholesale price, have sunk more than the wholesale price.

Those who already know the business of rice import have imported as much as they can absorb the capacity of their business, but they have faced increasing costs due to more imports. They will have to raise capital to bring in more rice. On the other hand, despite being able to import legally, potential importers still have to learn the trade and have failed to compete with existing rice importers and traders. The resulting price margins cannot be competed away.

It can be said that RTL has overtaken a marketing system influenced by some traders, without effective import competition which has enabled it to be legally enabled due to the potential entry cost of new importers. But instead of a pre-RTL market policy for rice, the government may choose to facilitate import competition. The provision of competitive advantage can be considered as an integral part of opening up the local market for importing competition to promote the public interest.

Dr. Arsenio Balisacan, Chairman of the Philippine Competition Commission, emphasizes that an open trade policy is important for effectively preventing the abuse of market dominance in such a centralized market. In support of this, it is important to make import competition more effective in facilitating the entry of companies into the import business after the lifting of import restrictions.¹

However, promoting more competition will further lower farm-gate prices, and this leaves many of us with a bad taste about trade liberalization. This cannot necessarily happen if trading and milling costs are reduced. Deep fine observation on palay Farmers following RTL – that is, they have lost trade protection compared to the percentage of traders – can be identified for inefficiency in the supply chain. This result is related to a similar study by Jandoc and Roumasset (2018) who documented that about a quarter of the trade protection margin on retail rice prices went to rice farmers.² The remainder was allocated as extra pro by traders and millersStayts or payment for marketing and milling inefficiencies (Dawe et al. 2008).³ A distortion of the NFA’s policy of market intervention in the marketing sector, which displaces private transportation, storage and handling, palay And the rice intermediation sector is less competitive and efficient (Roumasset 1999).

I follow Raul Montmeyer’s advice for a “more strategic and concise approach to liberalization”. I am sure that we are all in favor of increasing rice production, farm income, reducing poverty everywhere. RTL took the first step towards this goal, and instead of going back to the past formed by low rice farm productivity, rural poverty, massive revenue deficit and corruption, we need additional measures to stop the benefits that we all long for. My advice to Montmeyer is to look at the cost of market mediation.

¹ Balisakan, a. 2019. “Towards a just society: the principle of inequality and competition in developing Asia.” Review of the Philippine Economy 56, no. 1 and 2 (June-December): 127-47.

² Jandoc, K., and J. Roummaset. 2018. “Rice tariffs and its role in reducing rice prices.” Unpublished.

³ Dawe, D., P. Moya, C. Casiwan, and J. Cabling. 2008. “Rice Marketing System in the Philippines and Thailand: Does Large Number of Competitive Traders Ensure Good Performance?” Food policy 33, no. 5: 455-63.

Ramon L. Clarete is a professor at the University of the Philippines School of Economics.