The lifting of the quantitative restrictions (QR) on rice imports in favor of tariffs will deliver a range of benefits to the economy, including a P7 per kilo slash on the retail price of the food staple, the finance department said.
In an economic bulletin on the rice-sector reform, Finance Undersecretary Gil S. Beltran said a 35-percent import tariff on rice in lieu of restricting rice-import volumes would encourage private traders to bring in the staple into the country, which would allow the influx of cheaper rice in the domestic market.
Citing a study from the National Economic and Development Authority, the Department of Finance (DOF) official said the reduction in rice prices would be beneficial to the majority of poor households that spend at least 20 percent of their budget for rice.
According to Beltran, also the DOF’s chief economist, pulling down rice prices is crucial to poverty reduction because it is a major driver of inflation.
The QR allows the country to limit the volume of rice imports entering the Philippines with a tariff of 35 percent. Importing outside the volume restrictions will entail a higher import tariff.
The World Trade Organization (WTO) granted the Philippines an extension of its QR on rice importation until June 30, 2017, to give local farmers more time to prepare for free trade. It first allowed the Philippines to impose a 10-year QR on rice imports in 1995. It was extended in 2004 until 2012, and then was renewed again in 2014.
The economic managers of the Duterte administration earlier decided to allow the expiration of the QR without applying for another extension before the WTO.
Beltran said that the proposed tariffication will generate P27.3 billion at an expected import rate of 35 percent, which the government can use to augment funding for social protection projects like cash transfers for the poorest families as well as for palay productivity programs.
Finance Secretary Carlos G. Dominguez III has bared that among the key objectives of the Duterte administration’s inclusive growth agenda is to transform the Philippines into an upper middle-income economy and cut the poverty rate from the current 21.6 percent to 14 percent by the time President Duterte leaves office in 2022.
“The tariff revenues that will be generated from rice imports can augment the funds used for the government’s social-welfare programs for the poor and rice-productivity programs that will enhance efficiency. Tariff revenue is estimated at P27.3 billion annually from 2017 to 2023,” Beltran said.
Instead of subsidizing imports, the national government could reallocate its funds to invest in public goods and services that directly benefit the farmers, including farm-to-market roads, irrigation and storage, which reduce production and marketing costs, according to Beltran.
The National Food Authority is mandated to import and regulate rice imports, and has so far received a total of P187 billion in tax subsidies for its imports of the grain from 2005 to 2015, or an average of P19 billion a year, according to the DOF.
“The NFA can now reorganize and limit its function on proprietary activities, in particular, buffer stocking for food security and calamities, and local procurement. Note that in its present state, the NFA loses about P11 billion annually, [that], even after operating subsidy of P5 billion average per year from 2005 to 2015…[still] has an accumulated debt of P155.84 billion as of the end of September 2016,” he added.
The Philippines ranks fourth compared to five other Asian countries, including Vietnam, Thailand, India, China and Indonesia, in terms of palay production cost. The country’s average cost in producing this staple is about 10 percent higher than those for these Asian countries and 48 percent higher than the least cost producer, according to Beltran.