Rice “self-sufficiency” for whom?

THE recent World Bank report, entitled “Philippines: Agriculture Public Expenditure Review,” seems to confirm what has been obvious all along—that our obsession with “rice self-sufficiency” has, in fact, been hurting the rural sector, especially the poorer segments of it, and has prevented the Philippines from diversifying away from the traditional low-earning crops toward the high-value crops.

What the report really brings us is a new urgency to reform agricultural policy since current ways of doing things in the farm sector have also been hampering the country’s overall competitiveness, especially the industry sector.

The idea of “rice self-sufficiency” says that since rice is the country’s staple crop, the government should ensure that the country produces most, if not all, of its rice within the country’s borders. Sounds good enough, except that not all areas in the Philippines are perfect for rice production.

In his time, President Ferdinand Marcos addressed this issue through a battery of policies and rules like quantitative restrictions on imports and price supports, policies that up to this day are practically intact despite our entry into the World Trade Organization (WTO). So two things happened: first, through market intervention by the National Food Authority (NFA), the government was able to maintain relatively high prices for rice and, to some extent, corn; and second, the government has built an elaborate bloated and money-draining bureaucracy to support this market intervention.

The problem is that price supports, by nature, have limited social impact, mostly only on those who have access to the government bureaucracy and who are mostly richer farmers, a fact that is confirmed by the World Bank study. The study said that only 40 percent of rice farmers capture two-thirds of the benefit from price support while small rice farmers, nonrice farmers, upland dwellers, landless workers and the urban poor suffer from high rice prices. What was conceived, therefore, as a poverty-alleviating program has actually contributed to greater inequality and poverty in the farm sector.

And while the government is supporting this narrow rural aristocracy being buttressed by self-sufficiency policies, the government has to increasingly divert the bulk of the country’s limited resources to the rice sector, thus neglecting the growth and development of other crops that have potentially greater potential of raising farmers’ incomes.

The World Bank study computed that 60 centavos for every peso of the Department of Agriculture’s (DA) spending goes to the rice sector, a totally disproportionate share, meaning that most of the people’s money supposedly allocated for the entire farm sector actually accrue to a very limited, but relatively well-off, segment of the rural sector, at the expense of the larger society.

Yes, all these self-sufficiency policies of the government are hurting the larger society as a whole in three ways.

First, when government attention and money are poured into one commodity (rice), when rural infrastructure and government support services are largely concentrated on that crop, the prospect of developing potentially high-earning crops in the countryside dims. Most farmers are probably aware that there’s more money to be made in orchards, vegetables and herbs with great potentials for biopharming; but the absence of support services, technology inputs, reliable market information, credit and infrastructure for these alternative crops creates a lot of uncertainty that deters most farmers from diversifying away from their traditional crops. No wonder only big agribusiness companies are able to quickly respond to market opportunities created by the entry into force of the WTO.

Second, the price and production support (including the quantitative restrictions on imports) that the government provides for rice has made rice expensive. Since more than half of people’s incomes are spent on food, expensive staples, therefore, propel the workers’ demand for relatively higher wages—something that, in turn, accounts partly for why the Philippines has among the highest daily wage rates now in Asia. This situation, in turn, has made doing business in the Philippines more expensive, thus driving away investors toward lower-cost Vietnam and China.

Third, the NFA implementing this price-support system has never been efficient at doing what it’s supposed to do. Consistently, the NFA has been losing money, forcing it to borrow or rely financially on the national government.

The billions of government money and borrowings that the NFA obtains each year partly account for the continuing fiscal problem of the government. Ever wonder why the government can’t raise spending on rural infrastructure? The NFA is one of the major reasons.

What should the government do? The World Bank study is pretty detailed in its recommendations, among them the phaseout of government production and price support, replacement of quantitative restrictions on imports, a review of the NFA role toward separating its regulatory and trading functions, and investments in critical rural infrastructure, including roads and wholesale markets, among many others.

The DA should take a hard look at this study, not necessarily to accept hook, line and sinker all its prescriptions. By considering its policy recommendations, the DA might yet help address not only the problems that plague the farm sector, but also those of the broader Philippine economy. (Originally drafted as editorial for BusinessMirror, August 28 2007)