THE full liberalization of the rice industry may hurt banks more than the default of South Korean shipbuilder Hanjin Heavy Industries and Construction Co.-Philippines (HHIC-Phil), as thousands of millers could go bankrupt.
In an open letter to President Duterte, a coalition of rice farmers, millers, retailers and irrigators outlined the economic consequences of the enactment of the rice tariffication bill into law.
The Coalition of Farmers’ Organizations, Unions, Retailers, and Rice Millers to Protect the Philippine Rice Industry (C-FOURR PROTECT) said the unimpeded entry of cheap rice following the conversion of import caps into tariffs could significantly cut palay production.
This, C-FOURR PROTECT pointed out, would create a detrimental domino effect on the rice industry value chain with the local millers suffering the brunt of an open rice market, as lower palay output could cause their facilities to go unused.
The underutilization of rice mill facilities, the group
said, could lead to eventual closures and worse, the default of about P300
billion worth of loans obtained by millers from local banks. HHIC-Phil borrowed
a total of $412 million, or about a P21.6-billion loan from five local banks.
Based on C-FOURR PROTECT’s estimate, a complete rice mill facility costs about
P30 million to P50 million to put up, which would mean that the whole
Philippine rice milling industry is
valued at about P200 billion to P300 billion.
“Imagine a scenario where these rice milling facilities could not be operated at full capacity because of lack of enough local palay produce to mill and the owners default on their bank loans citing unfavorable business climate similar to the recent bankruptcy case of the Subic-based Hanjin Heavy Industries Inc.,” the open letter read, a copy of which was provided to reporters on Monday.
“The big loan exposure of the owners of these rice mills will definitely shake the very foundation of the banking industry and cause shock waves to the whole Philippine financial system,” it added.
C-FOURR PROTECT also estimates that around 55,000 workers of 6,600 registered rice millers nationwide could be displaced by a more open rice market.
Millers’ dilemma
Rowena del Rosario-Sadicon of the Nueva Ecija Rice Millers Association said around 10 percent, or about P30 billion of the P300-billion investment made by local millers nationwide, were poured into Nueva Ecija. Sadicon said these loans are still being amortized by rice millers.
“Our partnership with the banks is important. It is important that they have confidence in us that we are capable of repaying the money we borrowed from them,” she told the BusinessMirror.
“If the farmers will not plant anymore, then we won’t have anything to mill. We will depend on rice importation, which we are already doing now, but it would not be enough as we have institutional clients needing locally produced rice,” she added.
Sadicon, who is also vice president for Marketing and Manager for International Trade of Victor Del Rosario Rice Mill, also pointed out that their supply of rice hull, which they use as biomass fuel to run their mills, would also be reduced due to lower palay output.
“Shortage in local palay production will mean shortage in the supply of ipa or rice hull used as biomass fuel, binder in cement manufacturing as well as earth/land fillers,” C-FOURR PROTECT said in its letter.
The rice tariffication bill approved by the bicameral conference committee will lapse into law on February 15 if President Duterte does not act on it. Rice industry stakeholders have been calling on Duterte to veto specific provisions of the bill, such as removing the powers of the national ood to intervene in the domestic market.
Image credits: Jasper Emmanuel Y. Arcalas