The Commission on Audit (COA) has questioned the decision of the National Food Authority (NFA) to use its P5.1-billion subsidy funding for food security program (FPS) to pay its maturing loans, a move, which, the COA said, may have endangered the country’s food security.
In its annual audit report, the COA said the fund diversion might have “adversely” affected the realization of the food agency’s mandate to ensure stable prices of staple in the country.
The COA report disclosed that, in 2017, the NFA was only able to procure 28,514 metric tons (MT) of palay (unmilled rice) in 2017, or just 18.58 percent of its annual procurement target of 153,483 MT.
The palay procurement shortfall of the NFA affected its other programs, such as rice distribution and buffer stocking, “resulting in higher price of rice, unavailability of NFA rice in the market and lower inventory of rice in various NFA warehouses,” according to the report.
“Based on records, NFA posted a procurement shortfall in the total of 124,969 metric tons of palay in CY (calendar year) 2017, which might be partly attributed to unavailability of funds in the ROs/FOUs (regional offices/field operating units) during harvest season,” the state auditors said.
“NFA could have used the subsidy for additional incentives to farmers to level up and/or compete with local traders in order to attain its objective of providing market for farmers’ produce with fair return on their investment in production cost so as to encourage farmers to sell their produce to the agency,” the state auditors added.
The state audit agency noted that if the NFA attained its procurement target then it “would not have only added to the mandated buffer stock,” but could also have “encouraged farmers to produce more and minimize the need to import rice.”
Under the General Appropriations Act for 2017, the P5.1 billion allocated funding for NFA should be used “specifically to stabilize the price and supply of rice and corn.”
“We recommended that the management ensure that the government subsidy is used solely for its intended purpose, particularly on NFA’s Food Security Program through procurement of palay and rice importation,” the state audit agency said.
“And regularly monitor extent of utilization of available funds based on the palay production during the period to meet or even exceed the targeted palay procurement,” it added.
The NFA’s low palay procurement lead to a rice distribution shortfall of 429,256 MT as the agency was only able to achieve 62.02 percent of its 1.130 million metric tons (MMT) target last year. It was only able to distribute about 700,864 MT of rice.
The NFA was not also able to meet its Legislative-Executive Development Advisory Council (LEDAC) mandated buffer stocking level of 15 days at any given time and 30 days during the lean season.
The COA report indicated that the food agency was only able to maintain an average of 7-days worth of stockpile on normal days and 5-days worth during the lean months.
In its response incorporated in the report, the NFA said they used the P2.090 billion of the P5.1 billion subsidy to pay for its maturing obligations “to save on financial expenses such as interest and documentary stamp tax.”
“Maintaining the idle/unutilized procurement fund of P2.090 billion as of March 2017 in the bank will only earn minimal interest income of 0.10 percent to 0.25 per annum, compared to the savings in paying itnerest expense for loans at the rate of 2.5 per cent per annum aside from savings on documentary stamp tax,” it said.
Furthermore, the NFA justified that they used the subsidy to “replenish partially” the 2016 payment of 250,000 MT via government-to-government scheme which was not covered by the allocation that year. The NFA also used the subsidy “to ease the agency’s depleting credit lines in February 2017 which was deficit by P1.595 billion.”
As for its low local palay procurement, the NFA attributed it to its difficulty to purchase the produce to its uncompetitive support price of P17 per kilogram.
“As audit rejoinder, we recognize management’s prudent decision in paying maturing loans to save on interest expenses and documentary stamp tax,” the COA said.
“However, the utilization of the subsidy other than the intended purpose could compromise the implementation of NFA”s programs for food security through procurement of palay and rice importation,” it added.
Furthermore, the state auditors said the NFA was only able to maintain a buffer stock requirement of as low as 0.12 day to as high as 29.99 days “due to low importation and non-competitive buying price of palay” in 2017.
The NFA’s low stockpile level caused “rice supply shortages and higher prices of commercial rice in the market,” according to COA.
“Thus, [it] might had adversely affected the agency’s ability to achieve its mandate of providing stable supply and prices at all times and had compromised its capability to effectively and immediately respond in times of disaster and emergency situations,” the report read.
The COA recommended that the NFA “devise a more realistic and relevant plan of rice procurement and allocation” that its aligned with its mandate. “Specifically, on buffer stocks and at the same time responsive to the needs/preferences and buying capacity of majority of the rice consumers to avoid the occurrence of excess or shortage of stocks over buffer requirement,” it said.
The state audit agency also recommended that the NFA must “strengthen” its rice stocks level monitoring “to ensure that all times the availability of required buffer stocks levels to attain [its] mandate to respond to the rice requirements during calamities and achieve national food security through stabilized supply and price of rice.”