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Insights and Analysis

Fighting the Good Fight: The Case of the Philippine Rice Sector

April 14, 2021

By King Francis Ocampo and Kimberly Karen Pobre

 

Since the 1980s a consensus has grown that rent-seeking and restrictive trade and regulatory policies have hindered the Philippine rice sector. Filipino consumers were paying more for a kilogram of rice than any of their ASEAN neighbors, yet farmers in the Philippines remained the poorest sector in the country. There were various efforts by international donors, multilateral agencies, and local leaders to reform the sector, but none had stellar results.

That is, until 2019, when the unexpected happened. The Duterte administration successfully passed the Rice Tariffication Law (RTL), which removed the quantitative restrictions on rice imports and replaced them with a tariff. But the story didn’t end with the passage of the law. Immediately after the RTL was enacted, there was a sustained, concerted effort to reverse it. The resistance to the RTL, and the lobbying to revert to the old status quo, were so intense that at certain points it appeared that the law would be suspended.

 

 


 

But now, two years later, the Philippines has record-high domestic rice production and lower and more stable prices for unmilled rice (palay) and retail rice. This is despite successive typhoons and the ongoing Covid-19 pandemic.

This note documents how the seemingly impossible came to be, and the creativity and determination of one civil society partner of The Asia Foundation that found a way to support the RTL and address the associated implementation challenges.

 

Highlights of the law

For decades, the rice market was dominated by the National Food Authority (NFA), whose monopoly power over imports and prices led to Filipino consumers paying high rice prices, government subsidizing NFA losses, and rice farmers remaining poor. Although meant to stabilize rice prices, the system reached a crisis point in 2018 when a severe rice shortage became a major driver of inflation, which rose by a factor of 10. The effects were felt disproportionately by the poor, who spend most of their household budget on basic food items.

This provided the impetus to pass Republic Act No. 11203, otherwise known as the Rice Tariffication Law, in February 2019. After more than four decades of battles to reform the rice sector, the RTL ended NFA’s monopoly, removed quantitative restrictions on rice imports, and replaced them with a 35 percent import tariff. This allowed an influx of cheap rice from abroad, which reduced and stabilized rice prices for consumers.

One major concern about the new law was its potential impact on domestic rice farmers. Even with the 35 percent tariff, imported rice would lower domestic prices and hurt farm income. Anticipating this, the RTL included a safety net for rice farmers, the Rice Competitiveness Enhancement Fund (RCEF), which would use money from the import tariffs to help domestic rice farmers compete with the imported rice. A total of PHP 10 billion per year is earmarked for RCEF. It will aid farmers with mechanization, seed distribution, credit assistance, and technical education and skills development to improve productivity in the rice industry.

 

The gains, the attacks, and the counterattack

After the RTL’s passage, rice imports grew so significantly that the Philippines became the world’s largest rice importer in 2019. This rice surplus reduced and stabilized rice prices.

The immediate effect has been that since the second quarter of 2019, rice inflation has been consistently below zero (figure 1). This means that rice prices have been decreasing and have not been contributing to overall inflation. Filipino consumers—including rice farmers themselves—benefitted from lower and more stable rice prices, as shown in figure 2.

 

Figure 1: Rice inflation compared to headline inflation. The graph shows that rice’s contribution to inflation fell below zero after RTL implementation. Though rice inflation has increased during the Covid-19 pandemic, it remains less than zero. (Source: AER analysis of PSA data)

 

Figure 2: Average prices of palay and rice. The graph shows the downward trend of rice and palay prices since the RTL. The price rose with global rice prices at the start of the Covid-19 pandemic, but later stabilized. (Source: AER analysis of PSA data.)

 

At the same time, this surge in imports hit farmers with a significant drop in farmgate prices. Coupled with slow implementation of the RCEF program, this provoked various interest groups to coalesce once again to voice opposition to the law.

This is where Action for Economic Reform (AER), an established public-interest organization with a long track record of pushing progressive reforms in the Philippines, entered the fray.

 

Broadening stakeholder support for the RTL

Just months after its passage, the call to reverse the law was echoing through various groups. This lobby got so strong that the president made conflicting public pronouncements about the government’s commitment to the RTL. During this period, AER was the lone civil-society voice engaged in constructive public discourse with both supporters and adversaries of the RTL.

AER actively pushed for full implementation of the law, both to benefit Filipino consumers and to provide a safety net for farmers. As a respected civil society organization, it was able to provide a platform to engage government and nongovernment groups in fully understanding the RTL, its unavoidable birth pains, and its RCEF commitments.

AER helped clarify the discourse surrounding the RTL among the government’s economic team and in the media. When the RTL was being deliberated in Congress, AER had explained that a drop in farmgate prices was to be expected, but that it would be transitory. Most importantly, AER repeatedly emphasized the importance of prompt and full implementation of the RCEF to bring down farmers’ cost of production, and the swift delivery of assistance to those hurt by depressed farmgate prices.

 

A rice field with a small farm house.

(Photo: Karl Grobl / The Asia Foundation)

 

Ensuring RCEF implementation

As AER worked to focus the public discourse on RCEF implementation, it was critical to engage stakeholders to gather insights, understand implementation bottlenecks, and formulate policy recommendations. With support from The Asia Foundation, AER brought together government officials, farmers’ groups, and policy experts to identify challenges and find solutions.

This process led to a variety of important initiatives, such as a plan for cash transfers of surplus tariff revenues, to defray farm losses, and recommendations for carefully matching farm mechanization initiatives with the characteristics of specific farms. More broadly, these consultations opened an ongoing dialogue on key issues affecting the rice sector.

 

Gains of the RTL

AER’s efforts were largely successful in addressing resistance to the RTL. The law still has its critics (whose skepticism helps keep RTL implementation accountable), but two years in, positive results have begun to materialize. Despite the pandemic, the agriculture sector grew in 2020, and palay production reached 19.44 million metric tons, breaking the country’s previous record. Projections put this year’s yield even higher, at 20.4 million metric tons.

The most tangible benefit is that Filipino consumers are now enjoying lower rice prices. The average price of regular-milled rice is now PHP 34.00–36.00 per kilogram (70–74¢), compared to PHP 40 per kilogram (82¢) before the RTL. The poor benefit disproportionately from the lower and more stable prices.

 

Woman in a red shirt sits in a rice field with a basket on her head

(Photo: Henry Burgos / The Asia Foundation)

 

Completing the reform

The structural changes of the RTL have been both groundbreaking and disruptive. It has liberalized the decades-old system of rice price control, introducing competition and lowering prices. The story of the RTL also showcases how civil society plays a crucial role, beyond the formal mechanisms of democratic governance, as an advocate and supporter of progressive reforms.

Millions of Filipinos now enjoy lower rice prices—a boon, most particularly, to the poor. Philippine agriculture can now shift its attention to the challenge of becoming globally competitive. Having emerged from decades of protectionist policy, the rice industry can now focus on raising productivity, improving farm yields, and lowering costs.

There is still a long road ahead, but with the Rice Tariffication Law now in place, the rice sector is moving in the right direction.

 

King Francis Ocampo is a program officer and Kimberly Karen Pobre is a senior program officer for The Asia Foundation in the Philippines. They can be reached at [email protected] and [email protected], respectively. The views and opinions expressed here are those of the authors, not those of The Asia Foundation.

 

Related locations: Philippines
Related programs: Economic Opportunity

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