WHY do rice prices remain sticky high?
The Department of Agriculture (DA) reported last week that well-milled rice (5-percent broken) in Metro Manila markets was being sold at P42 to P53 per kilo. On the other hand, regular-milled rice (25-percent broken) was priced at P40-50.
It was expected that with the lifting of India’s ban on non-basmati (white) rice exports and the resulting decline in the world rice price, from a high of $650 per metric ton (MT) to below $500, there would be downward pressure on local rice prices.
Moreover, the reduction of the tariff on imported rice from 35 percent to 15 percent as provided for by Executive Order 62 issued last July and the anticipated flood of rice imports was expected to further bring down rice prices. The DA has reported that around 3.9 million MT of imported rice has entered the country as of the first week of November.
This is not to mention the fact that the country just had its peak harvest month in October, spilling over to November, during which we historically witnessed a significant decline in palay (unhusked rice) and rice prices.
Surprisingly, domestic rice prices have remained high.
A rice trader cum importer claimed, in a meeting I attended last week, that rice prices in Vietnam remained high. Of course, this is not correct as a mere Google search will reveal that Vietnam’s 5-percent rice price — around $650 per MT in January — is now down to around $530 as of October. India and Pakistan’s 5-percent broken rice is priced much lower at less than $450 and continues to go down.
Some quarters are speculating that high rice prices persist because retailers refuse to lower retail prices as a way of gaining windfall profits given an unstable rice supply situation. Again, this is not a credible explanation for the very simple reason that it is economically illogical. There around 50,000 rice retailers nationwide and hence, it would simply be difficult for them to collude in maintaining high rice prices.
A more plausible explanation is the collusion among traders and importers, particularly the big ones, who can easily engage in such an activity given their limited numbers. A clear indication of this is that nationwide, especially in metropolitan areas, retail prices remain high because the traders and importers (who act as wholesalers) are successful in keeping prices high.
If this is not controlled at the wholesaler’s point, we would have seen by now significant variations in local retail prices, which we are not experiencing because wholesalers are successful in keeping rice prices artificially high.
How did they manage this? Simple. They refuse to release stocks either in their warehouses or at the piers, which a few weeks ago made headlines. The story suddenly vanished in the media, indicative of how powerful the rice cartel is.
Second, if one examines the rice import data, there is one trader who bought a million MT out of the current import total of 3.9 million MT as of the first week of November. This means that this particular trader has not been releasing his stocks or is gradually doing so in order to maintain high prices. There are also cases wherein a big trader will import under different company names to avoid being tagged as hoarder.
How then can we address this problem of hoarding and collusion by a few big traders in the rice market? In the past, rice wholesalers and retailers were required to register with the National Food Authority (NFA) for them to engage in the rice business. This authority was rescinded with the passage of the Rice Tariffication Law or RTL (RA 11203).
A bill pending in Congress seeks to amend the RTL by restoring the NFA’s power to register and monitor the warehouses of wholesalers and retailers. This will enable the agency to determine whether they are hoarding stocks or not and to measure whether we have adequate rice supply.
However, I believe that a better arrangement is for the Department of Trade and Industry (DTI) to handle the licensing of traders and the monitoring of rice stocks and prices. The DA had performed these tasks poorly and since these are downstream activities (i.e., trade), the DTI is the mandated agency for these functions.
Again, as the NFA previously had the sole authority to import rice and build rice inventories, the government could use NFA stocks to flood the market to burn greedy traders engaged in market speculation. This instrument is no longer available as the NFA’s role has been confined to maintaining a buffer stock for emergency purposes under the RTL.
Ostensibly, rice importation is a key instrument in beefing up the country’s rice supply. As I mentioned before, the country’s average yearly consumption of rice is around 16 million MT. Local production can only supply 13 million MT of that. Importation will have to plug the remaining 3 million MT unless we dramatically raise palay productivity. Which seems to be improbable given the agroclimatic make-up of the country and institutional bottlenecks in the agricultural sector.
The solution is two-fold: One, efforts to raise productivity (i.e., land consolidation and use of modern farm technologies) should be complemented with strategic trade policy. Can this be done?
Agricultural science has already informed us of the requirements of raising palay farm productivity (i.e., land consolidation, use of modern farm equipment, better knowledge of soil nutrients and quality seeds, etc.). What we need is an instrument that will tell us the most strategic time to import, the volume and timing of entry. In other words, we need a forecasting model that will guide decision-making that is not based on gut feel or the business interest of politicians or traders.
We can also focus on producing more rice during favorable times, e.g., maximize production during the dry season (November to July), increase yield and increase cropping intensity. Production will be more predictable and imports can be better planned.
Alternatively, we can follow the new business model of Vietnam and Thailand where they are now both exporting and importing. Export high-quality, high-priced rice and import low-priced rice for food and other uses — for animal feed, beer and noodles making, etc. This will reduce the pressure to keep producing more rice for all our needs. We can focus on improving productivity and quality that will yield higher incomes for our farmers.
With advances in digital technology capable of storing tons of data from the past to the present and the advent of artificial intelligence, the required forecasting model can be easily formulated. The best minds in the country can be gathered for this purpose.
I am certain, however, that this proposal will be objected to by vested interest groups who benefit from the current chaotic trade policy on rice.
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