Filipino farmers could incur losses of as much as $4 billion under a zero rice-tariff trade regime within the Asean, according to a recent study of the Organisation for Economic Co-operation and Development (OECD).
In the study, titled “Market implications of the integration scenario of Southeast Asian rice markets,” authors Gen Furuhashi and Hubertus Gay projected the outcomes of rice trade within the Asean region under two scenarios by 2025: a zero-tariff regime and a fully integrated market. The authors noted that, under a zero-tariff regime, rice farmers in the Philippines would incur production losses of at least $2.082 billion, while under a fully integrated market they could lose $3.966 billion.
The value of the country’s rice production is estimated at $6 billion annually. The country is still importing rice, with the tariff imposed of on rice coming from other Asean member-countries set at 35 percent.
“As expected, the main changes in the overall welfare for consumers and producers depend on the trade situation of the respective country. Producers in exporting countries and consumers in importing countries gain from tariff reduction and further integration,” the study read. “Conversely, consumers in exporting countries and producers in importing countries lose.”
Under a zero-tariff regime, Asean member-countries would eliminate their tariffs, while a fully integrated market would entail both the removal of tariffs and nontariff measures. Under the second scenario, the differences between domestic prices and border prices of rice would be eliminated within the region.
“The first [scenario] involves the elimination of tariffs within the region, while protection vis-à-vis countries outside the region remains unchanged,” the study read.
“The second scenario involves closer price integration across the region, again with protection versus countries outside the region unchanged. This scenario reflects the elimination of not just tariffs but of all forms of nontariff forms of protection that cause prices to diverge across the region,” it added.
The production losses would be due to the projected influx of cheaper rice imports from fellow Asean countries, according to the study.
The OECD projected that the Philippines’s rice imports, which accounts for 40 percent of the total regional volume, would reach 2.251 million metric tons (MMT) by 2025. Of the volume, 94.62 percent, or about 2.13 MMT, would come from Asean member-countries.
Under a zero-tariff regime, the Philippines’s rice imports would increase by 1.2 MMT, while a fully integrated Asean market would mean additional purchases of 2.6 MMT.
“Any reduction in trade barriers for importing countries will inevitably lead to lower rates of national self-sufficiency. Those ratios are about 10 percent lower with full price integration in Indonesia and the Philippines,” the study read.
“However, despite this, the majority of rice consumed in these countries will still be sourced from domestic production—pointing to a large and competitive domestic rice sector remaining post reforms,” it added.
The OECD study concluded that the hike in rice imports would cut the Philippines’s self-sufficiency ratio to 80 percent under a zero-tariff regime and could fall to as much as 73 percent in a fully integrated market. The study noted that the Philippines has never achieved rice self-sufficiency.
In 2016 the OECD estimated that Philippine rice production by 2025 would reach 13.67 MMT with a total rice consumption of 15.872 MMT. However, under a zero-tariff regime, the Philippines’s rice production would be cut by 441,500 metric tons (MT), or about 3 percent , while consumption would increase by 678,200 MT, or by 4 percent.
Under a closer market integration, local rice production would decline by nearly 1 MMT, while consumption could increase by 1.577 MMT. This translates to an output reduction of about 7 percent and a consumption increment of 10 percent.
The study also noted that, under the two scenarios, the producer price of rice in the Philippines would significantly fall, as a consequence of lower production volume and the influx of cheaper rice imports.
“Under the baseline, domestic prices are 50 percent higher than adjusted border prices in Malaysia, implying a modest degree of protection beyond that provided by tariffs; but much higher in the Philippines [over 100 percent] and Indonesia [nearly 100 percent]. Hence, a much bigger overall stimulus to regional trade would come from deeper price integration than from tariff reform alone,” the study read.
“The dismantling of high rates of price protection across the region would naturally imply substantial national price effects. In the more radical scenario of full internal liberalization, producer prices in importing countries—Indonesia, the Philippines and Malaysia—would fall by 39.3 percent, 45 percent and 26.2 percent, respectively, relative to the baseline,” it added.
However, under the two scenarios, the OECD study concluded that the change in the Philippines’s welfare would be positive, as increased rice consumption would outweigh the losses incurred by Filipino farmers.
The OECD estimated that under a zero-tariff scenario rice consumption by 2025 would result in earnings of $2.51 billion and $5.01 billion under an integrated scenario. The overall change in welfare under a zero-tariff regime is pegged at $80.4 million and $697 million under an integrated market.
“The Philippines accounts for about two-thirds of the overall $125 million in gains most from the tariff reform scenario [due to reducing its own tariffs and the fact that it is the most important trader in the region]. Consumers gain approximately $2.5 billion from lower prices, while producers lose $2.1 billion,” the study read.
“The total welfare gains are over 15 times higher with full price integration, at $2.2 billion, with gains of $700 million to the Philippines and the remaining gains spread more evenly across countries. In importing countries, lower prices would deliver approximately $6.4 billion and $5 billion of gains to consumers in Indonesia and the Philippines, respectively, with a large share of those gains coming at the expense of producers,” it added.
Asean member-countries seek to create a fully integrated regional market by 2025, which includes improving food security, as stipulated under the Asean Economic Community
Blueprint 2025.