LAST week, it was reported in the media that Philippine Chamber of Agriculture and Food Inc. President Danilo Fausto was critical of the Department of Agriculture’s (DA) program of selling rice at P29 per kilo.
He noted that the government would lose around P20 per kilo if it sold rice at P29 at its Kadiwa store outlets. Fausto also calculated that if the government decided to upscale the program to benefit more poor consumers, it should be prepared to lose over P200 million daily.
Fausto stressed that the scheme was not sustainable and was being ramped up — at least in the media — in preparation for the President’s State of Nation Address and was thus politically motivated.
This is obvious. Agriculture Secretary Francisco Tiu Laurel Jr., in the same media report, noted that there were currently 13 Kadiwa stores in operation. Given the low number, the cheaper rice program can hardly reach 1 percent of the poorest of the poor consumers. However, he justified the program by noting that the DA was at least doing something.
This does not make any economic sense. In sound public finance, policymakers should ensure that the people’s money is used for the best purposes. This emphasizes the need for the government to come out with a more sustainable and inclusive solution to our rice problem.
This is the reason why the National Irrigation Administration’s contract farming program, being implemented by Administrator Eduardo Guillen, is appealing to me. Guillen is a multi-awarded local government official of the municipality of Piddig, Ilocos Norte. When he was mayor, Piddig became a model of agricultural transformation. Guillen was able to dramatically raise the productivity of palay (unmilled rice) farmers and their incomes.
This was recognized by the late professor Rolando Dy, the foremost agribusiness guru in the country and former head of the University of Asia and the Pacific’s Center for Food and Agribusiness, who hailed Piddig as a model of genuine agricultural transformation.
The NIA is a government-owned and -controlled corporation, and hence is vested with a degree of private corporation personality. Using the latter as a leverage, Guillen launched the contract farming program with selected organized farmers in various parts of the country.
He knew that palay farmers had long been clustered and organized into irrigators’ associations (IAs) as they needed to collectively act to ensure continuous flow of water to their farms. Farmers at the end of the irrigation canal should receive an adequate supply as those located at the mouth of the source.
IAs have been in existence since the 1980s, and Guillen recognized that they were the veritable model of farm clustering being pushed by the DA in order to enjoy scale economies in production. For him, there was no need to reinvent the wheel.
Using its private sector personality, the NIA entered into contract farming with selected IAs. The agreement stipulated that the NIA would provide P50,000 in working capital per hectare for cooperating IA members.
A first tranche of P30,000 will be used for land preparation, including the purchase of farm inputs (seeds, fertilizer, etc.). The remaining P20,000 will be released near the tail end of the cropping season to cover harvesting, hauling and related logistics expenses.
The target yield is 5 metric tons (MT) per hectare or 5,000 kilos per hectare. This can be easily attained because the pilot areas are well-irrigated and, in fact, are harvesting beyond 5 MT per hectare as we witnessed in Nueva Ecija and neighboring provinces.
Assuming a milling conversion rate of 63 percent, this means a rice yield of around 3,150 kilos. Multiply this at the NIA contract farm stipulated price of P29 per kilo, total revenue will amount to P91,350 per hectare. Revenues will definitely be higher if the harvest is more than 5 MT per hectare.
With at least P91,350 in income per hectare, the contracted farmer can easily pay the P50,000 to the NIA. But what about drying, milling, transport and marketing costs?
The NIA has forged an agreement with the National Food Authority (NFA) and the Philippine Center for Postharvest Development and Mechanization to procure the palay, and dry and mill it at NFA rice processing centers near the farms of the cooperating IAs. Both the NFA and the NIA will take care of the transport and logistics of marketing the rice.
The product will be sold in Kadiwa outlets. This will require significantly raising the current 13 stores to more than 100 for this phase of the NIA contract farming program.
Guillen is also contemplating targeting the Pantawid beneficiaries of the Department of Social Welfare and Development as they are granted a P600 allowance for rice purchases. Other ready markets are the various detention centers of the Bureau of Jail Management and Penology. In the near future, Guillen sees local government employees also benefiting from P29 per kilo rice.
For the coming planting season, around 40,000 hectares are being targeted by the NIA. Guillen plans to move the start of planting to the end of October with the harvest commencing in January and February the following year. This aims to avoid the destructive typhoons that hit the country in October and November, which is the current peak harvest season. Moving the planting calendar means the destructive typhoons will cause little damage.
The next planting cycle is scheduled sometime in April and May, and harvests for the months of July and August, again avoiding the onset of destructive typhoons.
Being an engineer and a multi-awarded official of an agricultural municipality, Guillen knows what he is doing. This is the beauty of having a technically competent person assigned to a sensitive government post as good motivation alone will not help solve the complex and many problems confronting the rice sector.
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