Owing to the National Food Authority’s (NFA) inherent inefficiencies causing huge losses and debts, abolishing it may be logical, but leaving everything to Adam Smith’s free market may not be good as Smith’s symbolic “invisible hand” may end up picking people’s pockets.
Problems are on the rice? As buyer and seller of last resort, NFA hemorrhages every time it buys high when farm-gate prices are down, stores long till stocks deteriorate, then sells lower than retail prices. The NFA’s problems, therefore, rise.
Thus, the NFA incurred debts hitting P178 billion a decade back, trimmed it down to P143 billion, but soared again to P170 billion in 2016 under President Duterte.
Worst, it defied its mandate by procuring merely 0.8 percent of total production from 2013-2017, which is a waste of resources and useless in boosting prices. Traders even buy already at P19-P25/kilo, higher than NFA’s P17/kilo support price.
Unable to buy palay, the NFA’s buffer stock dropped to two to five days, lower than the ideal 30-day buffer stock, triggering price spikes and pockets of shortages, particularly in the Zamboanga-Basilan-Sulu areas, where backdoor smuggling has been tightened.
Its inventory worsened when the NFA diverted P6 billion of its P7-billion budget to pay debts, instead of procuring stocks, claiming it was necessary or will lose its credit line.
Freer trade alone marginalizes farmers? Tariffs on freer rice imports will wipe out corruption tendencies, making the NFA irrelevant, unlike when volume imports were restricted, and done directly by the NFA or by traders with NFA approval.
Freer imports cheapen prices benefitting consumers, but, may affect farmers. This is because traders, having no loyalty to production, prefer imports over buying from farmers. And if they buy locally, given a choice between buying 10 tons/day and 100 tons/day, but earning the same, traders will choose 10 tons. Conversely, farmers prefer to sell 100 tons.
Farmer-consumer symbiotic interests. If farmers produce more, the resulting bigger supplies mean lower prices for consumers.
Unfortunately, in freer trade, middlemen freely meddle with the trade-nexus by preferring margins over the interests of consumers for cheaper prices and producers for bigger volumes.
Obsessed with freer markets, we forget the flipside coin of economics—production. It means physical wealth creation resulting in productive jobs that wipe out rural poverty, which breeds rural-to-urban migration and attendant problems like urban poor squatting, housing backlog, juvenile delinquency, drugs, crime, prostitution,etc.
Overhaul NFA’s role. Instead of wasting billions yearly on price and market intervention, and still ineffective, overhaul NFA with new blood and programs and spend on empowering farmers geared at production-enhancing activities.
Farmers cannot fend for themselves. They need to be empowered into cooperatives, and equipped with postharvest facilities, trucking, logistics, agro-processing, etc., all on credit, but achieving volume and quality production and deal directly with markets and eliminate loan-sharks and layers of middlemen.
After scrapping and devolving extension workers to local governments, we sadly cut-off links between farmers and technological advances. Farmer organizations also vanished, disempowering them further from access to credit and other services.
‘Options’ better as buffer? Abolishing the NFA is a knee-jerk stupid reaction. The government still needs to manage buffer stocks for emergencies and price stability.
Instead of procuring palay at a loss, the NFA can enter into locked-in optional future purchase contracts, which we can call “rice options.”
These are financial instruments or term insurances, paid to farmer organizations and trader-miller-wholesalers, committed to deliver stocks when the NFA exercises its option to demand future delivery. The NFA spends little, but is assured of stocks, while still managing buffer stocks without physically holding them.
This becomes more viable with “just-in-time” management, requiring less inventory, and access to big data systems and analytics, Internet of Things, and faster decision-making with smart phones.
Adding fuel to fire. Lately, we see chaos as everyone is pointing fingers at each other—including the NFA administrator, NFA Council, the trader-millers, the Department of Agriculture, etc.
Worst are tactless calls for clamp-downs on alleged “rice hoarders,” without understanding distinctions between normal inventory and speculative hoarding. What if nobody stocks for fear of being penalized? This will trigger shortages, price spirals and food riots. By not getting its act together, the government may trigger widespread false perceptions of shortages with consumers starting to hoard sacks of rice, instead of fewer kilos a week, wiping out stocks on sale. When we allow panic by either consumers, traders, or the government, we will be pouring gasoline onto fire.
No need to compete, produce nonetheless. Some diehard free-market apologists even want to abandon rice farming and self-sufficiency, claiming our production costs of P11-P12/kilo cannot compete against the P7-P9/kilo costs of Vietnam, Thailand or Kampuchea, which get sufficient Mekong River irrigation. We don’t have to compete, but we need to produce anyway for food security and to generate jobs. With the International Rice Research Institute and the Philippine Rice Research Institute, we actually have the best rice technologies and a Filipino even produced 17.5 tons/hectare, above the national average of 4.1 tons/hectare. Instead of wasting money on market support, invest where they will count most in physical investments like irrigation, better seedlings and postharvest facilities
As the last in Asia in agri-mechanization against traditional spoilage of 11 percent to 37 percent, reducing spoilage by 11 percent alone through mechanization will generate over 2 million tons of rice, enough for food security and attaining self-sufficiency. The NFA can reengineer its role in this direction.
E-mail: mikealunan@yahoo.com