How to stop rice smuggling? Price competitiveness is the answer – experts

MANILA, Philippines - How can rice smuggling be stopped?

Experts yesterday said striving to make domestic rice prices competitive with the prices of imported rice and strict implementation of government policies governing rice trade would result in long-term solutions to smuggling woes in the industry.

Dr. Fordeliza Bordey, a socioeconomic researcher at the Philippine Rice Research Institute (PhilRice) said that at the supply and demand aspect, rice smuggling persists in the Philippines because domestic rice prices are uncompetitive to those of neighboring Southeast Asian countries as production cost is higher

“Labor cost in the Philippines is high, comprising about 50 percent of the production cost. This is lower in other countries where farm mechanization rate is high,” she said during a forum on rice smuggling hosted by the Philippine Agricultural Journalists (PAJ) at the Coconut House in Quezon City yesterday.

Bordey said the Philippines needs a strong mechanization program to lower the labor cost. Expenditures on other farm inputs like irrigation and fertilizer among others must also be lowered to reduce the cost of production per unit of Philippine-grown rice.

The per kilogram production cost of palay in the Philippines is placed at P10 to P11 per kilogram while in Vietnam, the unit cost of production is currently placed at P5 to P6 per kilogram. In Thailand, the unit cost of production is placed at P8 per kilogram of unmilled rice.

Lower production cost and more efficient postharvest techniques in Thailand and Vietnam enable these countries to sell rice at lower prices.

The Philippines is also challenged by the larger rice production area Thailand and Vietnam has.

 â€œSmuggling stems from the huge difference in the prices of local and foreign rice. This will be stopped when there is parity between local and foreign prices,” said Bordey.

Rice smugglers naturally exploit this opportunity to profit from cheap foreign rice, especially now when there is confusion on the country’s rice importation policy.

The Philippines is currently petitioning before the World Organization (WTO) to be allowed to impose a high tariff on rice imports until 2017 to enable the government to build the production capability of farmers.

At its present state, the country’s rice industry would lose to competition with neighboring Southeast Asian countries when free trade is enforced in the region by 2015 and tariffs on rice imports are lowered to 35 percent.

The Philippine’s special restriction on rice imports expired in June 2012. Several rice importers are arguing that because of the expiration of the QR, they no longer need to secure import permits from the National Food Authority (NFA) so long as they pay the duties.

Under the Philippines’ commitment to the WTO, 350,000 metric tons (MT) of rice automatically gain access to the Philippine market under the Minimum Access Volume (MAV) scheme either as government-to-government tender or as country-specific quotas (CSQ). 

Imports within the MAV are levied a duty of 40 percent while a tariff of 50 percent is levied for out-quota imports.

 â€œBecause negotiations are still ongoing, this (policy) is not clear and rice smugglers use this as an excuse. The policy should be clarified by the government,” said Bordey.

The WTO Committee on Trade and Goods is expected to meet in April, during which the country’s petition for the extension of its special restriction on rice imports would be taken up.

Agriculture officials engaged in negotiations have expressed confidence that the Philippines would win the consensus of countries seeking market concessions in exchange for the QR extension.

NFA spokesman Rex Estoperez, maintains, however, that while the QR extension is still on appeal, import permits continues to be are still required for rice imports.

 â€œOur requirement is simple. All importations must have a permit, we coordinate with the Bureau of Customs on this,” he said during the forum.

He noted that under Republic Act 8178—also known as An Act Replacing Quantitative Import Restrictions on Agricultural Products, Except Rice, with Tariffs, Creating The Agricultural Competitiveness Enhancement Fund, And For Other Purposes—the agency has the sole mandate to grant import permits upon assessment of the domestic supply situation.

Bordey said unregulated importation harms domestic rice prices both at the producer and consumer level.

The NFA buys clean and dry palay at P17 per kilogram (kg), with additional incentives such as graduated delivery fee up to a maximum P0.50/kg; drying incentive fee of P0.20/kg; and Cooperative Development Incentive Fund assistance of P0.30/kg.