Planters could lose almost ₱8 per kilogram due to the decline in farmgate prices if the proposed reduction in tariff was approved, according to the Department of Agriculture (DA).
In its position paper submitted to the Tariff Commission, the DA expressed “reservation” in supporting the proposal by the private sector to reduce the tariff on rice imports due to various factors.
For one, the agency said lower tariffs would pull down the domestic farmgate prices of paddy rice or palay.
Citing its analysis, the DA said reducing rice tariffs to as low as 10 percent would slash farmgate prices by about P6 per kg.
The drop in farmgate prices is the result of the projected reduction in wholesale rice prices, which was estimated at an average of P9 per kg at a tariff rate of 10 percent, according to the DA.
“By rule of thumb where wholesale price is twice their farmgate price, the proposed tariff reduction may pull down farmgate prices of palay by about P6 per kg,” read the DA’s position paper dated September 25, a copy of which was obtained by the BusinessMirror.
The DA said the lower farmgate prices of dry palay would translate into lower profit margin for Filipino rice farmers.
Rice farmers stand to lose P7.82 for every kilogram of palay they produced, considering that the production cost is now at P13.55 per kg.
At an average yield of 4.06 metric tons (MT) per hectare, rice farmers’ income per hectare would fall to P31,700 from P55,400 or a difference of P23,700, according to the DA’s paper.
Worse, the DA’s paper indicated that the projected profit losses of rice farmers would even be bigger if world rice prices fall below current market levels and are only levied with a 10 percent tariff.
“The analysis also implies that farmers will have narrower profit margin at 10 percent tariff rate should world prices fall below $614 per MT for 5 percent broken rice and P584 per MT for 25 percent broken rice given their current production cost of P13.55 per kg,” the position paper read.
Furthermore, the DA sounded the alarm about the tariff revenue losses that the national government would incur if the rice tariff would be lowered. This, the agency said, will translate into a smaller fund that will be alloted for cash assisdtance for rice farmers.
The DA estimated that the state would only be able to collect P6 billion in rice tariffs if the tariff rate is reduced to 10 percent, based on the assumption that the import volume would be the same as last year when it reached 3.8 million metric tons (MMT).
“This will be about P15 billion less than the tariff revenue gained in 2022. This means fewer funds, possibly none in excess of P10 billion, will be made available for the Rice Farmer Financial Assistance [RFFA] or other programs/activities as provided for in the [rice trade liberalization law] in 2024 and beyond,” the agency said.
The RTL law created the rice competitiveness enhancement fund (RCEF) that would earmark P10 billion for the development of the rice industry even if rice tariff collections fall below P10 billion. However, if the national government will not collect any excess rice tariff collections beyond P10 billion, then the cash assistance program for rice farmers will not be funded.
Under existing laws and regulations, the RFFA gets its fund from the rice tariffs collected in excess of P10 billion.
The DA also warned that the “intent” of the proposed rice tariff reduction to make “available more affordable rice” may not take effect “immediately.”
It said traders, who imported rice at higher price levels, will just continue to sell their old stocks and “possibly classify them as premium rice that command higher prices.”
The DA also cautioned that the “announcement” of lower rice tariffs “could drive” global rice prices to further rise, which would “negate” the “supposed gains from the tariff reduction.”
The agency maintained that the Philippines and other countries have sufficient rice stocks.
The DA said its “expected” milled rice output this year of 13.1 MMT together with imported rice would bring the total grain supply to 17.4 MMT.
Rice stock by the end of the year is expected to reach 2.58 MMT which would be enough to cover 69 days of the country’s consumption requirement.
The Department of Agriculture added that based on outstanding sanitary and phytosanitary import clearance (SPSICs) issued for rice imports as of mid-September, at least 1.83 MMT of rice “remains valid to arrive in the last quarter.”
“Even if only 50 percent of this volume gets into the country by November, the ending stocks will increase to 3.5 [MMT], adding 25 days more to the 69 days of buffer stocks,” it said.
The DA also said the proposed tariff reduction is “ill-timed” since the country’s main harvest season has already started and lower tariff rates would “jeopardize” the farmer’s income.
“Considering our analyses based on available data and other information, the Department of Agriculture cannot support the proposed reduction of the [most favored nation] tariff on rice at this time,” the DA said.
The DA submitted its position paper a day before President Marcos Jr., who is the concurrent agriculture secretary, announced that he rejected the proposal of his economic managers to temporarily reduce rice tariffs due to the projected downward trend in the international prices of the staple.
(Related story: businessmirror.com.ph/2023/09/27/marcos-rejects-rice-tariff-cut-proposal/).
Image credits: Bernard Testa