Breaking up the rice cartel

Now nearing the halfway mark in the term of President Rodrigo Duterte, this administration should, by this time, already learned its bitter lessons from unnecessary delays in the implementation of key government programs that are part and package of newly signed laws. A particular example was the Tax Reform for Acceleration and Inclusion or the controversial TRAIN Law under Republic Act (RA) 10963 signed in December 2017.

When the TRAIN Law took effect starting on Jan. 1, 2018, the personal income taxes of those receiving fixed salary and wages got hefty cuts. This translated to extra money from the lowering of withholding taxes deducted from the monthly take-home pay. The resulting revenue losses of the government were more than offset by the imposition of new revenue sources such as specific taxes on gasoline and other refined oil products, and tax on sweetened beverage products among them. 

As the TRAIN Law was being implemented by tax collecting agencies, it took a long while for the rest of the government to roll out the social protection programs to cushion the impact of the new and higher taxes. The various programs for the “social safety nets” included the unconditional cash transfers for indigent families under the 4Ps (Pantawid Pamilyang Pilipino Program); the jeepney fuel vouchers or Pantawid Pasada Program; the National Food Authority (NFA) rice subsidies; and free skills training for minimum wage earners and the unemployed.

The TRAIN Law set aside 30 percent of the annual incremental revenue to these programs which are intended to offset the effects of higher taxes on disadvantaged sectors of the population. While these “social safety nets” languished at the bureaucracy, the full impact of the TRAIN law was already pushing up prices of rice, jeepney fares, electricity and other basic commodities sensitive to oil price hikes. 

Inflation rose to 5.2 percent last year from 2.9 percent, overshooting the two to four percent target of the economic managers who blamed it on higher oil and food prices as well as on a weak peso. When inflation broke the 6 percent rate, frantic calls to repeal the TRAIN Law ensued and the bleeding hearts poured out from the halls of Congress.

Lawmakers from both administration allies and opposition leaders lashed at the government’s slow action to carry out these social mitigation measures. Although funded in the 2018 national budget such as the P25-billion allocation for 4Ps and P900 million on fuel vouchers for public jeepney drivers/operators, they were belatedly rolled out to cushion the projected impact of the TRAIN Law on prices. This triggered populist calls for the 17th Congress to amend, if not repeal, the TRAIN Law, especially on gasoline prices.

To prevent a repeat of this, the Department of Budget and Management (DBM) issued joint guidelines for all government agencies as early as Aug. 31 last year for the identification of qualified beneficiaries and implementation arrangements of social welfare and benefits program for 2019 as mandated by the TRAIN Law.

With the social intervention programs finally rolled out, inflation eased for four straight months to an 11-month low of 3.8 percent in February after peaking at 6.7 percent in September and October last year.

The TRAIN Law debacle should remind economic managers of President Duterte to ensure this won’t happen again in yet another landmark legislation by the 17th Congress on rice tariffication law. From reports of the Department of Agriculture (DA) headed by Secretary Emmanuel Piñol, there seem to be foot-dragging attempts in implementing RA 11203 that President Duterte signed on Feb. 15.

RA 11203 replaces the quantitative restrictions imposed by the government on the country’s rice imports with a 35 percent tariff as required by the World Trade Organization. The law also allocated P10 billion annually for the Rice Competitiveness Enhancement Fund (RCEF) for six years to be extended to farmers for various initiatives including mechanization, education, and provision of choice fertilizers and seeds.

Effectively, NFA has been officially stripped of its powers over the import and export of rice and its functions over the domestic rice industry as the rice liberalization law takes effect. This includes the licensing and registration of persons and entities engaged in the grains business, collection of regulatory fees, issuance of negotiable warehouse receipts, warehouse inspection, authority to seize hoarded stocks and enforce rules and regulations in the grains business, among others.

For this year, the local rice industry is set to receive P22 billion. The law is expected to lead to a reduction of rice prices in the market by at least P2 to P7 per kilo.

Despite all of these provisions spelled out clearly in this law, it would not matter if the implementing rules and regulations (IRR)) are not issued. The drafting of the IRR of RA 11203 was placed entirely on the shoulders of an inter-agency body called the NFA Council (NFAC). However, Piñol disclosed the NFAC failed to approve the IRR of RA 11203 during the special meeting he convened last Tuesday.

According to the DA Secretary, the NFAC has finalized and endorsed the IRR for rice tariffication “with amendments.”

Piñol was earlier warned by lawmakers not to delay nor derail the implementation of the landmark rice tariffication law. Sen. Sherwin Gatchalian, chairman of the economic affairs committee and one of the authors of RA 11203, defended the law as a major solution to the problem on price and supply of rice in the country amid the strong opposition of rice traders’ groups and the NFA, the employees’ union of which threatened to question the legality of RA 11203 before the Supreme Court.

Gatchalian also vowed to scrutinize the IRR that the NFAC was mandated to issue within 90 days from effectivity of RA 11203. The legislators, he cited, would ensure the IRR would remain faithful to the intent of the law in ensuring stable rice supply and lower prices while supporting the local farmers as well as enhancing the country’s competitiveness in producing the country’s staple.

Piñol himself has not made secret his stiff objection against the rice tariffication measure when it was being deliberated in Congress. Last minute efforts from purported rice farmers’ groups tried but failed to appeal for vetoing the enrolled bill that was submitted for signing into law by President Duterte.

President Duterte himself kept admonishing Piñol in public to stop fooling the Filipinos in telling us the Philippines will become self-sufficient in producing rice. Despite repeated presidential rebuke, Piñol appears unperturbed. It would take more than the IRR in breaking the back of the rice cartel.