Republic Act. No. 11203, otherwise known as the Rice Liberalization Act or Rice Tariffication Law (RTL), was signed into law on 14 February 2020. Transitional problems marred its implementation. Nonetheless, the reform, complemented by other equally important policy measures, is expected to benefit both Filipino rice farmers and Filipino consumers.

 

This paper follows the sequence below:

It first presents the background of the issues and developments leading to the adoption and implementation of the Rice Tariffication Law (RTL). The next section reviews and summarizes the benefits and costs of the RTL in its early implementation. It argues that the benefits outweigh the costs for society. And even though the costs for rice farmers are greater, the losses, as portrayed by those opposing RTL, are exaggerated. In the longer run, the RTL and its enabling environment are expected to improve the productivity and competitiveness of rice farmers. This leads the paper to a discussion of new challenges and issues, including the implementation of strategies and programs and the use of resources that RTL provides. The paper ends with ways forward.

 

Background

The Philippines has been a member of the World Trade Organization (WTO) since 1995. While WTO membership usually entails the elimination of most, if not all, trade barriers, the Philippines was granted an exemption from the removal of its quotas on rice importation. While this exemption was originally meant to expire in 2004, it was extended until 2014, and then once more until mid-2017. It seemed then that government would not lift a finger to lift the import restriction. The initial policy response, in the name of protecting farmers and having food security, was to limit rice importation.

Because of the failure to modernize agriculture and address climate risks, poor institutions and weak policies, including the prolonged application of quantitative restrictions on rice, the country’s rice productivity stagnated and production efficiency lagged behind other rice-producing counterparts, particularly Vietnam and Thailand. The Philippines suffered from higher costs of production and thus were not in a position to compete with our more efficient rice-producing countries. (See Table 1.)

Table 1.  2013 Comparative Cost of Palay Production

Production Costs (Pesos/kg)PhilippinesChinaIndonesiaIndiaThailandVietnam
Seed0.580.770.150.451.120.44
Fertilizer1.941.901.050.911.561.36
Pesticide0.361.331.034.290.900.87
Hired labor3.760.494.292.520.660.46
Operator. Family and Exchange Labor0.662.521.020.470.650.81
Animal Machine, Fuel & Oil1.733.160.501.781.660.81
Irrigation0.450.000.100.120.140.08
Land Rent2.113.806.611.961.891.49
Interest on Capital0.430.010.320.080.070.08
Others0.400.100.630.350.200.13
Total Production Cost (Pesos/kg)12.4114.0715.718.878.856.53

Source:  IRRI and Philrice Benchmarking Study

Quantitative restrictions or limiting rice imports aggravated the situation. Shielding local rice production from competition did not result in greater efficiency or higher productivity in the local rice industry. Instead, it gave a false sense of security for local rice farmers while various government agencies serving the rural sector continued to spend public funds in an inefficient manner.

Worse even was the fact that such kind of protectionism for the industry essentially became a disincentive to introduce hard reforms for decades. After all, the government felt no pressing need to enhance our farmers’ productivity since it could always rely on the quotas to protect the farmers. (See Table 2.)

Table 2: Yield of paddy rice, selected Asian countries, 1970 and 2013 (tons/ha)

 Yield (t/ha)Yield growth (%)
197020131970s1980s   1990s2000s
Cambodia1.63.0-2.81.24.63.4
eChina3.46.71.93.30.90.4
Indonesia2.45.23.32.70.21.3
Japan5.66.7-0.92.10.6-2.5
Korea, Rep.4.66.8-0.63.70.80.2
Lao PDR1.43.80.64.82.91.6
Malaysia2.43.81.8-0.31.01.7
Philippines1.73.92.43.00.31.7
Thailand2.03.1-0.70.42.91.2
Viet Nam2.25.6-0.34.32.92.3
Bangladesh1.74.41.82.43.12.2
Bhutan2.03.50.00.5-2.16.3
India1.73.71.72.70.91.7
Nepal1.93.2-0.12.21.20.1
Pakistan1.23.53.01.53.20.2
Sri Lanka2.23.91.41.71.21.7

Source: FAOStat

Protecting the industry is not without costs. In this case, those burdened by the quantitative restrictions were not foreign rice producers but were, in fact, domestic rice consumers and local rice farmers who are in fact, rice consumers as well.

An unfortunate consequence of the import quota was that food prices were inflated above what they otherwise would have been without the restriction. Higher rice prices heavily contributed to overall inflation, with rice contributing to about 9.6 percent of the average consumer basket—more than any other individual food item. For the poorest household, this percentage was much higher at 20.7 percent of the basket. And while about two to three million farmers benefited from higher prices, (where the bulk of gains went to the traders), about 99% of the country’s population–over 100 million Filipinos ended up paying higher prices for rice. The entire Philippine population, including the net consuming farmers themselves, shouldered the inflationary burden. This was evident in the inflation spike in 2018, mainly attributable to the surge in rice prices resulting from tight supply conditions.

The import quota was intended to be temporary. Initially, it was supposed to give time for the country to put in place measures to enhance competitiveness. But what was supposed to be temporary extended for 22 years, even as rice farmers remained poor.

The regime of quantitative restrictions also abetted corruption. The National Food Authority (NFA) was granted the sole power to issue import permits–essentially becoming a monopoly that decided who can import and when to import. This created the perfect opportunity for corruption and rent-seeking. Profits were funneled into a few hands but at the great cost of increasing rice prices and choking the supply for consumers whenever domestic shortages occurred. This was magnified in the 2018 rice crisis.

In light of these concerns over inflated rice prices, uncertainty over rice supply, inefficiency and low productivity, and deteriorating incomes of rice farmers–a change in policy regime, from quantitative restrictions to protective tariffs, became compelling. The rice crisis in 2018, which threatened to undermine over-all economic gains, then became the opportunity to change the rules.

Gains from the Reform

The shift to rice tariffs does not remove trade protection. Imported rice is subject to a minimum 35% tariff, thus pricing imports relatively higher. But the salient difference from the old law is that the RTL dismantles the supply bottlenecks and institutional monopolies, resulting in lower consumer prices. Furthermore, the revenues collected from tariffs are directly allocated to the domestic rice producers. The RTL’s fund of P10 billion a year for the next six years will be used to finance seeds (30%), mechanization (50%), technical assistance/capacity building (10%), and credit (10%). Tariff revenues in excess of P10 billion can be allocated for financial assistance to farmers, land titling, and crop insurance, among others.

The success of RTL will nevertheless depend on properly designed well-targeted programs that serve the objectives of raising productivity of farmers, decreasing their cost of production, and ultimately increasing their incomes.

The immediate benefit of the RTL came as retail prices fell far below its late-2018 levels: See Figure1 below.

Figure 1: Regular Price of Regular Milled Rice (Average Price for the Philippines)

Source: Philippine Statistics Authority

The high inflation which happened during the latter half of 2018 was controlled and was brought down to manageable levels by 2019. The fall in prices was a direct result of an increase in supply brought about by importation of rice.

To be sure, consumers, including the farmers who are net rice consumers, have directly benefited from lower rice prices as well as from the over-all lowering of inflation. A year after RTL, the Department of Finance (DOF) estimated that the consumer gain for non-rice farmers arising from lower price of retail rice and from over-all inflation decline adds up to PhP 62.7 billion (consisting of the PhP21.1 billion from lower retail price of rice and PhP41.6 billion from lower overall inflation).

However, the impact of the RTL cannot be fully measured in just one year of implementation. The first year of any reform is a year of transition and adjustment for all sectors.

While initially, the RTL’s impact on consumers is positive, its impact on farmers is negative, even if on balance, the benefits to the whole of society outweigh the costs. Over the long-run, it is expected that the RTL will be able to help farmers recover from short-term losses as reforms and resources generated from the RTL are effectively directed to improve farmers’ productivity and competitiveness.

Meanwhile, the critics of RTL exaggerate the costs incurred by farmers. In the first quarter of 2020, the Federation of Free Farmers (FFF) and IBON Foundation claimed that the income loss of farmers because of RTL amounted to PhP68 billion and PhP 85 billion, respectively. These amounts are exaggerated for two main reasons:

First, they made the computation based on the 2018 price, which was abnormally high. Thus, the difference between the 2018 and 2019 prices was wider, resulting in a wider income loss in 2019 for farmers. But remember that 2018 was the year that the rice shortage occurred because of bungled importation, resulting in a spike in prices. The computation should have been based not on an outlier but on the medium-term average prices before 2018. (This is the same logic that applies when comparing the post-RTL retail price and the pre-2018 price for consumers.)

Second, they multiplied the abnormally high 2018 price by the production data for the whole of 2019. This is incorrect because the RTL implementation started in March 2019.

In short, while the loss of income for farmers is indisputable, it is nowhere near the estimates of FFF and IBON. The Philippine Institute for Development Studies (PIDS) calculates the loss at PhP38.4 billion from March 2019 to February 2020, using fixed base period price. This is 44 percent lower than the FFF estimate.  The DOF estimate of PhP 32.7 billion is even lower but not far off from the PIDS’ estimate.

Further, in doing a cost-benefit analysis for the farmers, one must likewise do the following:

  1. Subtract from the costs the non-marketable surplus which farmers use for personal consumption (estimated by the PhilRice at 17 percent of total production). According to DOF, this is equivalent to about PhP 5.6 billion.)
  2. Calculate not only the production losses of farmers but also the compensation they received. Thus, subtract from the losses the following: a) subsidy that the rice farmer received from the Rice Competitiveness Enhancement Fund (RCEF) amounting to PhP 10 billion; b) the additional revenue beyond PhP10 billion from the rice tariffs (an additional sum of approximately PhP 4.6 billion, till February 2020); the farmers’ cash transfer program (total of PhP 6 billion for 2019 and 2020); the National Rice Program; SURE Aid’s heavily subsidized loans (amounting to PhP 2.07 billion, in which every small farmer is entitled to credit of PhP16,000 payable in eight years at zero interest); and other programs of the Rice Task Force.
  3. Add the benefits to farmers in terms of lower prices of rice and other goods (food inflation and over-all inflation) resulting from RTL, for they are likewise consumers. (The DOFs estimates that the consumer gain of farmers from lower retail price of rice and for lower over-all inflation is PhP 4.1 billion.)

Notionally then, the net loss for farmers, using back-of-the-envelope calculation, will be in the vicinity of less than PhP6 billion based on the PIDS estimate and significantly less, using the DOF estimate. Total net benefit then for the first year for the population is in the order of PhP 55 billion.

One qualification is in order in estimating the costs and benefits at a time that the RTL is just being introduced: As Roehl Briones, senior research fellow at PIDS said, it is difficult to pin down “the impact of a policy in the very short-term (month-to-month, quarter-to-quarter), against the background noise from natural market variation and intermittent shocks (e.g. due to climate). Within this horizon, it is difficult to distinguish transition to equilibrium from change in equilibrium, as both manifest as changes in price. Projections of long-term adjustment in price are better able to capture changes in equilibrium, which tend to be obscured by short-term volatility.”

 

Import Surge and Drop in Palay Prices

This section of the report describes and explains issues and challenges that have arisen in the wake of the implementation of RTL.

The shift from quantitative restrictions (QR) to tariffication not only has led to lower retail prices for consumers (as discussed above) but has also led to better institutions. The removal of the QR has stymied corrupt practices like the manipulation of prices made possible through creation of artificial shortages and the arbitrary favoring of a few importers.

Even cooperatives of farmers were pulled into corrupt or illicit activities, which the rules on QR enabled. The QR ironically allowed import quotas to farmer cooperatives, but because these cooperatives did not have the resources, network and logistics to engage in imports, they became the dummies of the big importers. A series of investigative reports published by the Business Mirror showed that more than half of the registered 218 rice importers in 2019 were farmer-cooperatives and irrigators’ associations, with some being undercapitalized and lacking in warehousing capacities. These cooperatives engaged in practices that in fact undermined local rice production!

Understandably, the advent of the RTL led to a surge in rice imports. In 2019, the Philippines was the world’s biggest rice importer at a volume of nearly three million metric tons. The historical level for import volume has never gone beyond 2.3 million metric tons, which was recorded in 2008 (Figure 2). That year, the Philippine government’s move to import massive amounts of rice resulted in speculative price spikes in the global market.

Note, too, that among the top rice importers at the onset of RTL are farmers’ cooperatives and rice mills. (See Table 3.)  This suggests that entities that are supposed to be producers had likely been importing even during the QR period.

Figure 2: Annual Rice Imports (Quantity in Thousand Metric Tons)

Source: Philippine Statistics Authority

Table 3: Top Ten Rice Importers in 2019 (By Volume, in Metric Tons)

Top 10 Rice Importers

By Volume, in Metric Tons

Applied Import Volume

(March 5 to August 10)

Arrived Import Volume

                                (March 5 to October 4)              

Puregold Price Club, Inc.135,847.00 MTPuregold Price Club, Inc.52,021.85 MT
Arvin Int’l Mktg Inc.82,628.60 MTDavao San Ei Trading Inc.48,360.00 MT
Davao San Ei Trading Inc.73,710.00 MTArvin Int’l Mktg Inc.45,418.00 MT
Jay Sayang Enterprise69,000.00 MTBlue Shark Development
and Trading Corp
42,310.00 MT
Maria Califa Trading68,512.00 MTMaunlad Ricemill Corp,35,599.50 MT
Sitio Caldo Multi-Purpose Cooperative67,400.00 MTSenior Salvador Multi-Purpose Cooperative31,479.00 MT
Assad Mini Mart59,500.00 MTTimmaguab II Primary Multi-Purpose Cooperative27,880.00 MT
San Jacinto Poblacion Farmers Consumers Cooperative50,492.00 MTSan Jacinto Poblacion Farmers Consumers Cooperative26,072.00 MT
Blue Shark Development and Trading Corp.48,645.00 MTRiver Valley Distribution Inc.26,068.00 MT
Jomarro Ricemill Corp.44,880.90 MTMary Nazareth Multi-Purpose Cooperative24,260.00 MT

Source: Bureau of Plant Industry

With the import surge in 2019, pressure mounted for the Department of Agriculture (DA) to muto proprio invoke the Special Safeguards Measure and conduct an investigation on the surge in importation volume. However, on October 10th, the investigation was terminated by the DA.

 

According to a 22 October 2019 Business Mirror report, “(T)he DA maintained that it chose to sideline the trade remedy after the Cabinet decided that imposing safeguard duties on rice imports would be inflationary. Besides, the DA argued that giving cash assistance to Filipino rice farmers, who are now suffering from low palay prices, would be the “best way” to address their present situation.”  Further, one could argue that the transition to the reform would be marked with volatility and turbulence, and the imposition of safeguard duties would have been an inappropriate instrument, that would have aggravated the situation. Safeguard duties could have been used to push back the RTL.

What followed was an implicit tightening of the importation standards via sanitary and phytosanitary measures, which have been implemented by the Bureau of Plant and Industry.

The surge in the quantity of cheaper rice imports to record levels predicted the sharp drop in farmgate prices in 2019. The DA thus focused on providing immediate assistance to rice farmers (Figure 3).

Figure 3: Farmgate Price of Palay (Average Price for the Philippines)

Source: Philippine Statistics Authority

Then newly-appointed Agriculture Secretary William Dar coordinated with the National Food Authority (NFA) and the Department of Social Welfare and Development (DSWD) to augment the funding for the NFA to purchase more locally produced rice, and to shift the rice subsidy of 4Ps beneficiaries to direct rice purchases from local farmers. Towards the end of 2019 into early 2020, the DA packaged the Rice Farmers Financial Assistance (RFFA) funded from tariff collections in excess of P10B programmed for RCEP as quick cash assistance to affected rice farmers.

 

Table 4: Rice Farmers Financial Assistance Accomplishment (RRFA) in 2019

Target No. of FarmersSubmitted by RPOValidatedPayoutsVS Payouts
TOTAL% AccomplishmentLBPDBPTOTAL% Accomplishment
TOTAL597,404753,633368,14061.62%82,814196,852279,66646.81%
CAR29,99219,38011,74339.15%11,66411,66438.89%
I107,122187,92198,29391.76%24,92724,92723.27%
II110,734154,352106,27995.98%105,026105,02694.85%
III102,609101,35566,82065.12%32,99525,10858,10356.63%
IV-A21,4444,3285,43725.35%6946943.24%
IV-B10,61933,49510,21896.22%10,21810,21896.22%
VI46,51699,46723,75451.07%23,75423,75451.07%
VIII4,3948,5822,95567.25%2,9552,95567.25%
IX16,67115,6722,85717.14%2,592,59215.55%
X15,07123,56410,68970.92%10,68810,68870.92%
XI17,67647,9476,36736.02%6,3496,34935.92%
XII76,08420,4497,62810.03%3,5934,0357,62810.03%
XIII38,47237,03115,10039.25%15,06815,06839.17%

Source:  Department of Agriculture, Field Operations Services, March 2020 

Putting together the Rice Competitiveness Enhancement Program

The immediacy of providing assistance to the rice farmers brought to the fore the role of the Rice Competitiveness Enhancement Program (RCEP). At the start, there was confusion as regards how much was already disbursed by the Department of Budget and Management (DBM) to the DA. As the passage of the RTL was nearly certain by end-2018, the DBM included in the DA’s budget some PhP 5 billion, which it claimed was intended to partially cover the PhP 10 billion funding for the program. However, technicalities arose as DBM was not legally allowed to allocate funds for a law that at that time had yet to pass. It took a Senate hearing to iron things out for the DBM to release the RCEP funds.

As of February 2020, most of the RCEP components were in their initial stage of implementation or were on-stream, with the exception of the program on mechanization. Not a single peso was spent for mechanization as of February 2020. At the same time, the rate of disbursement for seeds and extension services was low, 21% and 37. 3%, respectively.

Note:  All unobligated funds of PhP 493 million, plus PhP5 billion for the Mechanization component have lapsed and have been reverted to the Bureau of Treasury.

Source: Rice Competitiveness Enhancement Fund Implementation Updates, Department of Agriculture, 11 March 2020.

 

Mechanization

The Philippine Center for Postharvest Development and Mechanization (PhilMech) is the agency tasked to handle the PhP 5 billion mechanization program of the RCEP.   Matching the actual need of  individual farmer cooperatives with the necessary and appropriate kind of machines can be daunting. (Please see the boxed section on Palimbang and Mallig). Combined with tight procurement rules resulted in the non-utilization of available funds which led to its reversion   to the Treasury. Previously, PhilMech had handled an annual budget of just a little over P300 million. As it stands, this program is the laggard of the four RCEP components. A critical condition for the success of the mechanization program is organizing and consolidating farmers into production units based on the scale economies intrinsic in farm machinery. But organizing farmers into cooperating groups is a task that may take some time. Further, a one-size-fits-all approach for the provision of machinery and equipment does not work. Farming and geographical conditions vary widely. Hence, a recalibration on the type of machinery has to be done, which again entails additional time to do.

Expanded Rice Credit Assistance

The DA has put together several loan programs outside the RCEP to tide over the rice farmers in the transition from the previous regime of QR to tariffication. These include the Production Loan Easy Access, the Expanded Survival and Recovery (SURE) Assistance Program, Working Capital Loan Easy Access, BuyANIhan, and the PALAY ng Lalawigan Program.

By virtue of Republic Act No. 11203, 10% of the “Rice Fund,” or an amount of PhP 1 billion, was earmarked for the Expanded Rice Credit Assistance (ERCA) program.  This loan facility offers “minimal interest rates and minimum collateral requirements” to DA-accredited cooperatives and to small rice farmers enrolled in the Registry System for Basic Sectors in Agriculture (RSBSA). Equally managed by the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP), the fund intends to help farmers from rice-producing provinces tide over from the anticipated drop of farmgate prices of palay due to the influx of imported rice in the local market. Organization borrowers can apply for loans up to PhP 500,000 until 2024 for as low as 0% interest per annum as long as their effective pass-on rates do not exceed 6% annually. Individual borrowers, however, can borrow the same amount at 2% interest per annum. Both state-owned banks assess the eligibility of borrowers and facilitate the release of loans.

LBP reported a total of PhP 481.34 million of ERCA loans released to 2,679 small farmers as of February 28, 2020. In a phone interview on 13 March 2020 with farmer-leader Ernesto Lactao, he shared that many cooperatives, such as the Malaya Development Cooperative and the Payoga Kapatagan Multi-Purpose Cooperative, which mostly cater to Agrarian Reform Beneficiaries and small farmers as members, have not been able to obtain the loans because of two reasons. First, the LBP excluded the cooperatives with bad credit standing. Second, the farmers from the unbanked communities are discouraged by the high transaction costs. He added that rich cooperatives are the main beneficiaries.

To counter the loss of income arising from the decline in palay prices, some farmers have adopted seed production and precision farming. These farmers received assistance in the form of seeds and continue to await the distribution of fertilizers and financial subsidy as part of DA’s new Plant, Plant, Plant Program that seeks to ensure food sufficiency in the midst of the pandemic.

The DBP, on the other hand organized an information drive regarding ERCA on 13 August 2019 in Isabela Province. Two weeks later, a new “super coop” named Nagkaisang Magsasakang Isabela Agriculture Cooperative (NMIAC) was established by former Congresswoman Ana Christina Go with the primary objective of “mitigating the impact of the Rice Tariffication Law” on rice farmers by purchasing their produce at premium rate. On 10 October 2019, the DBP inked a loan agreement with NMIAC for the cooperative’s loan application of PhP 500 million making it the sole and direct benefactor of the bank’s ERCA allocation for 2019. However, when asked for a copy of the Memorandum of Agreement (MOA) between the DBP and NMIAC, the DBP invoked the Data Privacy Act. As the disclosure of public funds is one of the exemptions laid out in the Data Privacy law, it is right and proper for the parties involved to disclose the details of the MOA.

As of March 5, 2020, PhP 286.5 million of the approved loan has been released by the DBP since its launch in Roxas, Isabela on 12 October 2019. Through this working capital, NMIAC was able to procure rice from around 2,500 member-farmers. However, it was reported that the NMIAC experienced difficulties in selling its stocks because of their higher price. At one point, the cooperative had to stop purchasing rice as their warehouses had been operating beyond full capacity. Currently, the Provincial Government of Isabela distributes rice from NMIAC warehouses as part of its COVID-19 response measures.

This year, the DBP aims to focus on extending financing to cooperatives with small farmers as members from ten provinces.

 

Seeds

Below is a summary of the component of seed promotion and distribution under RCEP. It specifies the legal basis, the objective, the strategies, the beneficiaries, and the implementers.

 

Legal Basis Develop, propagate, and promote inbred rice seeds and organization of rice farmers into seed grower associations (RA 11203. 13.b.)
Objective Help improve the productivity and competitiveness of the Filipino rice farmers
Strategies·     Massive distribution of free, certified inbred rice seeds.

·     Promotion of inbred rice seeds and its associate technologies through technology demonstration activities and communication advocacy

·     Formation/strengthening of farmers’ organizations to become seed grower associations

Beneficiaries Rice farmers listed in the Registry System for Basic Sectors in Agriculture (RSBSA), and are members of farmer associations or cooperatives accredited by the DA
Key Implementers ·     DA – Philippine Rice Research Institute (DA – PhilRice)

·     Local government units, specifically City/Municipal agriculture offices, in coordination with the Office of the Provincial Agriculturist

·     DA – Regional Field Offices

·     DA – Field Operations Service

 

The Philippine Rice Research Institute (PhilRice) is the lead agency to implement the seed service component of the Rice Competitiveness Enhancement Program (RCEP).

PhilRice Deputy Executive Director Dr. Flordeliza Bordey said, “We are closely coordinating with our partners from DA-Regional Field Offices and LGUs for the proper and safe conduct of the seed delivery and distribution activities.”

Amid the challenges during the first year of the law’s implementation, PhilRice has  identified 57 high potential provinces for competitiveness, 713 municipalities/cities and 512,249 farmer beneficiaries, distributed 1,302,116 bags of seed, and has established 41 technology demonstration sites.

Furthermore, PhilRice has reported success stories in the implementation of its extension program, specifically a rice specialist training course and training of trainers. Likewise, it has reported that 100% of the farmers who were given seeds attended the technical briefings on RTL, RCEF, and rice production.

The agency however pointed out challenges that confront the seed component of RCEF. These include changes in variety, delayed seed availability, on-site registration and updating of the Registry System of Basic Sectors in Agriculture (RSBSA), and waiving of seed allocation. Furthermore, the program still has a low disbursement rate as payment is made upon delivery.

Among the RCEP components, the Seeds Distribution and Trainings programs have perhaps been the least problematic.

 

RTL: not a silver bullet

The RTL, despite its extreme significance, is not a “be-all, end-all” solution to the age-old problems that beset the rice sector. The removal of the QR hand in hand with the tariffication of rice imports, as enshrined in the RTL, is undeniably both disruptive and transformative. This is but the first necessary step to improve rice production and efficiency.

To put things in perspective, the assistance guaranteed by RTL through RCEP (or RCEF) constitutes a subset of the DA’s intervention in the rice sector. In terms of funding, the rice program including the allocation for irrigation expenditure has always gotten the biggest chunk of the DA’s budget. Nevertheless, the availability of the resources and the efficient use of resources are but part of a bigger equation to make rice competitiveness and farmers’ well-being a success story.

As a political commodity, rice is sensitive to the institutional and organizational arrangements or mechanisms. The politically driven but arbitrary institutional arrangements affect over-all performance. The politics of turfing or managing factions leads to carving out agencies, even if this led to coordination problems.

For instance, the National Food Authority (NFA) is treated like a ping-pong ball, sometimes, it is directly under the DA, at other times it is under the Office of the President (OP), depending on where the political wind blows. This important institution, meant to stabilize rice prices for both the producers and consumers, was treated as a milking cow in the past. It was a vehicle to capture the rent from the import quotas. It was truly a breeding ground not only for untransparent import rents but also for bribery and technical smuggling.

Another important agency for the rice sector, which likewise has been subjected to ping-pong is the National Irrigation Administration (NIA). Similar to NFA, it used to be under the DA but was transferred to the OP during the term of Benigno S. Aquino III. The transfer had no rhyme or reason except to manage competing factions within the administration. Until now, the NIA remains under the jurisdiction of the OP.

As rice production is heavily dependent on water, and productivity benchmarks are set by the DA through its Regional Directors, having the NIA outside the supervision of DA becomes a serious handicap in terms of harmonizing planning.

Further, a recent paper published by the PIDS further pointed out missed irrigation targets due to wasted investments as land conversion was allowed even in irrigated lands. This brings to the fore the pressing need for a national land and water use policy.

Moving Forward

A quick review of the implementing rules and regulations (IRR) yields a number of things that should be addressed:

Rule 8.2.1 of the law’s IRR mandates the NFA council to come up with a study, which among others should determine the optimal level of national buffer stocks that must be held. Up to now, this is not available.

The Rice Industry Roadmap that was supposed to come out September 2019. Up to now, there is no official version released.

A framework for targeting farmer beneficiaries of RCEF and for implementing strategic rice procurement is necessary. On transparency, the setting up of a “Rice Fund Impact Monitoring System” hosted on a website is required, a year after the RTL implementation. This is stated in rule 13.13 of the law’s IRR.

Further, the Program Steering Committee (PSC) is required to submit a proposal to Congress on the utilization of the tariff revenues in excess of PhP 10 billion for inclusion in the 2021 National Expenditure Program. It is recommended that the PSC get the inputs of farmers’ organizations and other non-governmental organizations not just on the fund utilization and involve them in the technical working groups (TWGs).

In the third year of the law, the government is supposed to engage a third party to evaluate the effectiveness and efficiency of the yearly allocation of PhP 10 billion for the RCEF in achieving what is spelled out in the rice roadmap. Given the initial problems observed, particularly the challenge of shifting funds for quick financial assistance, and the new issues that have surfaced amid the COVID-19 emergency, the recommendation is to have the evaluation done sooner rather than later.

Finally, completing the Registry System of Basic Sectors in Agriculture (RSBSA) remains an urgent task. The registry should likewise be disclosed to the public. Using PhilRice’s Rice-Based Farm Household Survey in combination with the Registry System will help match programs with recipients, based on the evidence and not on political favors or political lobbying.

FIELD NOTES ON MALLIG, ISABELA and PALIMBANG, SULTAN KUDARAT

By Jess Sison
(Culled from visits and interviews Feb 24-26, and early January 2020)

The dramatic drop in the price of palay last October-December 2019 alarmed our farmers. How are they to survive if the trend continues? With the Rice Tariffication Law (RTL), tons of cheap imported rice flooded the market.  Many consumers are happy. But palay farmers are very worried that this may kill their trade. The price of domestic palay cannot compete with the low price of rice from other countries.

Amidst these concerns, we visited two localities (Palimbang, Sultan Kudarat and Mallig, Isabela) to acquire a direct appreciation of the prevailing situation in palay farming in the country.

The following are our findings:

1)    Drop in Palay Price. In Mallig, from PhP 22/kilogram, the price of fresh palay dropped to PhP 11.50-12.00/kilogram. The decrease is very significant because practically all palay farmers have no drying facilities.  Fresh wet palay must be sold within three to five days after harvest otherwise it will become rancid and will lose value. If not sold immediately, farmers bring their palay to the drying facility adding to their expense the costs of transport and labor.

 

2)    Palay Drying. Solar drying or using paved roads is the usual practice. Fresh palay is brought to the drying facility of either a private rice mill or the National Food Authority (NFA). The labor cost paid by the farmer is PhP 15/cavan plus provision of meals and snacks. If the dryer worker does a good job, the “reseko” during the dry season is 8-10%, 15% for the wet season.  Fresh palay must be solar-dried within three days during the rainy season.  Palay can be stored up to one week during the dry season.  A “good farming practice” is drying while standing, meaning the crop is harvested when 80% of the palay has turned brown.  (Note: No information gathered on the use of flatbed dryer.)

3)   Harvesting. In Mallig, farmers use reaper/harvester machines, which are rented at between 6% and 9% of gross harvest (inclusive of free sacks) depending on the prevailing price of palay.  In mechanical harvesting, a cavan is packed with 55 kilos of palay.  If the harvest is sold to the NFA, the farmers get back the sack which they can sell for PhP 5-6 a piece. If harvesting is done manually, 15 workers are required to finish a one-hectare field in two days.  Usually, when the crop is good, for every 15 cavans of palay, 14 cavans go to the landowner and the remaining one cavan goes to the farmworkers. The landowner provides meals and snacks. For threshing, the usual rate is 4.5 cavans per 100.  Most small farmers have their own threshers, and labor cost is 2% of gross. The farmer shoulders the cost of fuel, sacks and food.  Payment for “cariada” is PhP 15/cavan. Cariada involves the hauling of palay from the farm to the road. In manual harvesting, a cavan is filled with 53 kilos of palay.

Manual harvesting and threshing is the common practice in Palimbang. Payment scheme is as follows:  for every 14 cavans of output, a cavan of palay is paid for harvesting and another cavan for threshing.

4)   Trading. Palay is sold mainly to the local traders who are also the creditors. At the beginning of each cropping season, almost all farmers go to these traders for production loans and more. Loans range from as low as PHP 25,000 per hectare to as high as PHP 35,000-40,000 per hectare depending on farmers needs and good record. Come harvest time, traders go to the farms to make sure the palay is sold to them, thereby making good business and at the same time ensuring payments of the farmers’ debts. At PHP 14-15/kg of palay, the farmer makes PHP 35-40,000/hectare. The farmer saves on transport costs as he does not need to bring out his harvest. Rich farmers have the option to dry their palay and sell it to NFA. Some have the palay milled and sold as rice.  In Isabela province, big rice mills have authorized agents for palay buying.

5)   Irrigation.  Insufficiency of irrigation is the most common problem that farmers constantly face.  Some invested in booster pumps to increase water pressure. Others dug their own deep wells for augmentation. These add to the increase in cost of production as these require diesel fuel to operate. Farmers who don’t have access to or the means to put up deep wells simply would not get to plant during the current season until the irrigation system damaged in the last typhoon has been repaired (or may rent deep well irrigation at a rate of seven cavans/hectare). A number of farms previously planted to palay have been abandoned for years due to lack of irrigation.

6)   Seeds/Palay Variety.  Hybrid or in-bred palay seeds are used almost evenly. Hybrid seeds cost more and are available in agricultural supply stores.  Because of the ability to absorb heavy fertilization, hybrid seeds produce higher yields compared to in-bred seeds. Usually planted during the dry season, hybrids are prone to tungro and require the application of fungicides. RC222 is proven to have good yield. In-breds are planted during the rainy season as they are stronger. In-bred RC216 has better eating quality compared to hybrid RC222 and is preferred by consumers. Traders peg a higher price to hybrids and RC216 palay. The NFA offers the same price for all varieties. (Note: Many farmers usually prefer to plant hybrid seeds during dry season and inbred seeds during wet season.)

7)   Fertilizer.  Urea, complete fertilizer (14-14-14) and foliar are applied in all farms. Hybrid seeds require more fertilizers than in-bred seeds so that production cost is higher but yield is also better.

8)   Technology. The use of reaper/harvester machines is common in Mallig. Some concerns regarding the displacement of farm labor (who are mostly relatives and friends) due to mechanization are expressed. Another adverse outcome of the practice is the unintended compacting of the soil due to the heavy weight of the reaper/harvester. Because of this, the rotovator is used for land tilling. Transplanter machines are not well accepted because edges of the farms are left unplanted, requiring manual labor to complete planting. Deep well and booster pumps with diesel motors are installed by farmers to augment the lack of water for irrigation. In one area, a solar-powered deep well has been installed with capacity to irrigate eight hectares. The solar-powered deep well is a joint undertaking of the Isabela State University, the DA, and the local government unit, with a total project cost of P600,000.

9)   Organization. There is no existing farmers’ organization that specially caters to the needs of palay farmers.

10) Financing. Majority of palay farmers go to the traders/money lenders for production expenses and for some family needs.  Some were able to receive SureAid of PhP 15,000 from the Land Bank of the Philippines (LBP) which is payable for eight years.  Beneficiaries were selected by the Municipal Agricultural Officer (MAO) from the list provided by the Barangay office. Assistance in the form of seeds was available.  Selection of recipients was also done by the MAO and Barangay.

Some Observations:

1)   The buying price of palay is the greatest concern of farmers. Whether it is the trader or the NFA that is buying is immaterial.

2)   Drying and storage facilities are critical for small farmers. Lack of these limits their options in selling their harvest.

3)   The lack of irrigation is a perennial problem.

Some farmers were not able to plant due to the damaged irrigation systems, which were not repaired in time for the planting season. Others put up their own deep wells which add fuel costs to the production expenses. The lack of irrigation is a significant cause in the reduction of palay hectarage.

It is critical that damaged dams and canals be repaired immediately. Use of solar pumps must be fully adopted. Appropriate technology for constructing small rain catchments must be deployed as widely and as technically feasible.

4)   To increase hectarage, new lands within ancestral domains which are largely underutilized may be explored for palay cultivation.

5)   Mechanization (use of reaper/harvester, rotovator and to some extent the transplanter) is already part of farming practice.  Of the three machines, the reaper/harvester is most commonly used in Mallig. All are privately owned and operated and farmers rent them at 6% of gross harvest when palay was at P22/kg, 9% at P11.50/kg and 7.5% during the last harvest (April-May 2020). Rotovators are also used in farms that used reaper/harvesters which led to the soil becoming more compacted. Transplanters are not so popular because farmers still have to hire labor to plant on the edges of the farm that the machine does not reach. In Mallig, reaper machines are owned by rich farmers owning seven hectares and above. They rent out their machines to other farmers as a business. In Palimbang, PASALI Foundation owns tractors, rotovators, transplanters and harvesters.  Rental income is used to cover expenses for operation, maintenance and repairs.

6)   During the Gloria Arroyo presidency, tractors were loaned to cooperatives payable in ten years with no interest. Under the administration of President Benigno S. Aquino III, tractors were given for free. The government of President Rodrigo Duterte distributed free tractors under Secretary Emmanuel Piñol through DA’s regular appropriation and continues this through RCEP under Secretary William. Dar.  However, concerns have been raised regarding the model of the tractors.  These tractors are too big for use in small parcels of land and ordinary farmers found it difficult to operate.  After some trials, many tractors were left unused and are now deteriorating. Serious considerations must be given to the appropriate design/model of equipment and machines for small farms. Operators must be fully trained, and farmer users must be given enough orientation on the proper care and maintenance requirements of the machines. Cooperatives should come up with their own workable guidelines to foster efficient and effective use and service to their members.

7)   It has been proven in actual experience both in Mallig and Palimbang that higher yield can be achieved with the use of hybrid seeds and substantial fertilization. Hybrid seeds though have palatability problems. Farmers prefer not to eat rice from hybrid seeds. Hybrids are prone to tungro and would need a lot of fungicides. It is also dependent on good and sufficient irrigation system. Production cost is higher due to higher price of hybrid seeds and greater amount of fertilizer required. Additional fuel costs help ensure enough water supply. With good farming practice and use of appropriate machines, increased yield is assured. The average yield in Mallig is 115 cavans per hectare. (In a municipal competition, the record yield was 220 cavans or 1.2 tons per hectare!) Wide adoption of this technology/strategy by farmers should result in higher output. Hesitance may be because of the high cost of production inputs and difficulty in applying new techniques. Big fluctuations in the price of palay is also an obstacle.

8)   Farm yield in Palimbang varies from a low of 60 cavans to a high of 100 cavans per hectare. The norm for good producing areas is 80 cavans. There are several factors for this relatively poor performance. First, poor seeds are used, usually derived from previous harvest. It is only now that hybrid seeds are available from the DA. Second, fertilization is limited due to the lack of funds on the part of the farmers. Third, irrigation is vastly insufficient resulting in poorly maintained paddies. Lastly, farming is not taken seriously especially in some Moro areas.

 

 

 

The PASALI Foundation Proposal

In Palimbang, PASALI Foundation proposes to recover “abandoned” lands towards setting up a larger plantation-type farm. The target is from 50 to 100 hectares of idle farms that have been rendered unproductive due to the absence of reliable water supply and those farms that were used as collateral for loans that have yet to be paid. The idea is to put the 50-100 hectares under a single management team so that a stricter farming schedule can be implemented, from land preparation to planting, harvesting and post-harvest activities. Machines and appropriate planting protocols developed through years of research and experimentation will be applied.

The most critical factor in this endeavor is the availability of water. A new system of irrigation should be put up using a combination of solar pumps, rump pumps and small rain water impounding facilities (SWIP). Repair of the old community irrigation system (CIS) is not advisable because of major defects in design and construction. PASALI is exploring government funding (from DA, Bangsamoro Autonomous Region in Muslim Mindanao and the municipality of Palimbang) for the envisioned new irrigation system.

The second critical factor is buying out the debts of farmers to release their landholdings from the debtors. Investment funding is being explored from the LBP, international NGOs, etc.

The plantation-type farming scheme shall employ farmer-landowners as paid workers. A repayment scheme shall be developed so these farmers can amortize their loans and retain ownership of their landholdings.

For enhanced productivity, supply of good seeds (high-yielding varieties/hybrid/in-bred), fertilizers (both inorganic and organic) and other inputs shall be ensured in coordination with the DA and other government agencies.

Local production of organic fertilizer (fish-based) has already been studied initially.

In summary, rice hectarage shall be increased effectively by making abandoned farms productive again by constructing a new irrigation system and by buying out farm owners’ debts. Improved production shall be achieved by using machines and following a strict schedule of farming activities employing protocols and techniques derived from PASALI’s years of research and experimentation. Labor and manpower requirements shall be filled by the same farmer-owners who will be hired and paid as workers. Funding requirements in the form of grants, loans and investments are being explored with government agencies, NGOs and banks.

The envisioned project shall also serve as a rice demonstration and learning sites farm which will showcase mechanized and modernized rice farming where farmers can learn new technologies and skills in operating machinery. An important counterpart from government is the provision of farm-to-market road to bring farmers closer to the market.

 

List of Farmer-Interviewers: 

  1. Louie Ordonio, small farmer, tilling 3,300 square meters of land, Barangay Sentro, Mallig. Member, Maligaya Development Cooperative.
  2. Dolores Feca, rich farmer, seven hectares in Barangay Sentro and San Pedro, sells meat in the public market, owns a small grocery store. Head of Audit and Inventory Committee, Maligaya Development Cooperative (MDC).
  3. Filipina Bello-Lactao, owners three hectares of palayland and dairy farm owner in Mallig. Board member MDC.
  4. Ernesto Adriosula, engineer and local palay trader and financier, Barangay Sentro, Mallig.
  5. Julie Madrid, General Manager, PAYOGA-KAPATAGAN Multi- Purpose Cooperative, Municipality of Gamu, Isabela. Cooperative is producing and selling organic rice and organic fertilizer.
  6. Isabela U. Hatul, owner of Isabela Grains, a big rice miller in Roxas, Isabela. Supplier to Puregold. Started own black rice production and trade, brand name Henry and Isabel.

 

For copies of the report, visit: tinyurl.com/AERRicePolicyNoteNo1

For inquiries regarding this policy brief, please send us an email at agripolicy@aer.ph