In February 2019 President Rodrigo Duterte ratified the Rice Tariffication Law, which was passed by the legislature in November 2018. The new law, which went into effect on March 5, lifts quantitative restrictions on rice imports and eliminates the role of the National Food Authority (NFA) regarding imports, thus allowing licensed private operators to ship in rice directly from abroad. In place of the former restrictions, rice imports from ASEAN member states are subject to a 35% tariff, and those from non-ASEAN states to a 50% tariff or equivalent in accordance with the World Trade Organisation agreement on agriculture with the Philippines.
Domestic inflation and pressure from foreign partners motivated lawmakers to reform the two-decadeslong policy of capping rice imports aimed at protecting rice farmers. According to preliminary estimates from the Department of Finance, the state stands to gain P27bn ($502.2m) per year in revenue from the tariffs, as imports are projected to double to 3m tonnes.
Inflation Relief
In 2018 inflation peaked at 6.7% in September and October – due to rising oil and rice prices, the latter of which increased more than 18% year-on-year in late September – before easing to 5.1% by the end of the year, and dropping further to 4.4% in January 2019. The rice shortage the country suffered in 2018 was one of the main causes of the rise in inflation. In April of that year the NFA’s rice reserve was entirely depleted, causing prices to escalate considerably. Rice price increases were also attributable to higher operating costs for farmers as a result of new taxes on products, including gasoline, that were imposed in the Tax Reform for Acceleration and Inclusion, known locally as TRAIN, which became effective on January 1, 2018.
However, in February 2019 the ASEAN+3 Macroeconomic Research Office forecast that the Rice Tariffication Law will mitigate supply-side pressures contributing to inflation. According to the regional organisation, the new legislation could reduce inflation by 0.7% in 2019, lowering headline inflation to 3.2%.
Winners & Losers
While the liberalisation of the Philippines’ rice market is expected to positively impact prices and check inflation, it has been met with trepidation by domestic producers of the staple. “While the Rice Tariffication Law is intended to help the economy, rice farmers must compete against cheaper imports,” Nicholas Gan, general manager of agricultural products supplier Yara Fertilizers, told OBG. “The focus now is to increase productivity, so that farmers can maintain their incomes while anticipating a drop in rice prices.” Among other organisations, the Peasant Movement of the Philippines has criticised the new law, saying that it has threatened the livelihoods of 500,000 of the country’s 2.4m rice farmers. Moreover, in February 2019 the research foundation Ibon warned that the law could adversely affect farmers and may not reduce the price of the grain, given international rice market volatility and the fact that rice production in neighbouring states is heavily subsidised.
Local Productivity
While local rice growers will find themselves under pressure following the implementation of the new law, there is potential for the segment to expand if producers move to higher-value farming by boosting quality and productivity. Nevertheless, achieving this goal will require greater action and funding to support the growth of the local rice industry.
In order to buffer the impact of these changes on farmers and support a domestic productivity drive, a P10bn ($186m) annual public fund has been voted through in conjunction with the new law to help farmers increase their competitiveness. The new fund is set to be capitalised through revenue gained from rice tariffs and will remain in place until 2025. Half of this fund will be used to provide aid to farmers’ associations, cooperatives and local government units: the P5bn ($93m) will be paid in kind as rice farm equipment to improve mechanisation. The remaining balance will be used to provide low-cost loans to producers, support agricultural education programmes and provide seeds.
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