Tariff reduction and the RCEF

Earlier this week, the National Economic and Development Authority (NEDA) Board approved the comprehensive tariff program for 2024 to 2028. It includes, among others, a reduction of rice import duty from 35 percent to 15 percent. Obviously, this directive alone, once implemented, not only stabilizes the supply of rice but can significantly lower inflation.

Moreover, this move reinforces Administrative Order 20 (AO 20) which directs the Department of Agriculture (DA) “to remove non-tariff barriers to bring down rising domestic prices of agricultural products.” For clarity, non-tariff barriers include, among others, quotas, embargoes, sanctions and levies. The reason could be political or economic. A sanction or trade embargo is a political strategy. On the other hand, if a country imposes quotas or levies on imports of products or produce to protect their own manufacturers or producers, that is an economic strategy.

The sanctions and trade embargoes imposed on Russia (like the prohibition of importing equipment, parts or supplies for use of its armed forces in connection with its war against Ukraine) is a political strategy. On the other hand, in trying to understand its use as an economic strategy, we need not go that far. Protecting our farmers or fisherfolks from the influx of imported rice, fish and other agriculture products that our country produces is a typical example of its use as an economic strategy. We can’t afford to see them (farmers and fisherfolks) lose their livelihood and render their laborers jobless. Obviously, the entire agriculture sector will suffer. Thus, resulting to economic losses.

So that, when a government removes such protection, there must be some compelling reasons. In us, faulted on the drought, inflation (due to food supply shortage) has been made the underlying reason for it. As usual, importation is the first option, the immediate default.

Thus, Pres. Marcos said, that "It is imperative to further streamline administrative procedures to foster transparency and predictability of policies on the importation of agricultural products in order to help ensure food security, maintain sufficient supply of agricultural goods in the domestic market, and improve local production.”

Specifically, among others, the President “ordered the DA to simplify procedures and requirements in licensing importers, minimize the processing time of application for importation, and exempt licensed trades from submission of registration requirements in coordination with other agencies such as the Department of Trade and Industry and the Department of Finance.”  To also “facilitate the importation of certain agricultural products beyond the authorized Minimum Access Volume and reduce or remove administrative fees” and “ease the process of issuing Sanitary and Phytosanitary Import Clearance and find ways to improve logistics, transport, distribution and storage of imported agricultural products.” Likewise, the Bureau of Customs (BoC) was “directed to prioritize the unloading and releasing of imported agricultural products.”

Again, to reemphasize, this move will make sure that the supply of rice and other agricultural produce will be sufficient for our needs. However, not everything is well with this directive (the tariff reduction). Notably, there are other factors that will also raise prices that are being considered at the moment. First and foremost, congress in now contemplating a P100 legislated minimum wage increase. This move will certainly raise prices as well. Congress is likewise considering a raise in excise taxes of some products. That too will lead to a rise in prices. Therefore, while the tariff reduction may bring down prices, the planned increases in minimum wage and excise taxes will partly offset the benefit.

Also, lest we forget, we established the Rice Competitiveness Enhancement Fund (RCEF) during Pres. Duterte’s term. It is “intended to improve the productivity and competitiveness of local rice farmers and increase their income through the provision of farm machinery and equipment, rice seed development, propagation, and promotion, expanded rice credit assistance, and rice extension services.” Markedly, Republic Act No. 11203 or the Rice Tariffication Law replaced the quantitative restrictions on imported rice with tariff of 35 percent and established the Rice Competitiveness Enhancement Fund (RCEF) funded by the tariff revenues. With RCEF, there is emphasis in providing machineries and farm inputs to farmers.  Supposedly, a long-term solution to our food shortages.

Indeed, given our current situation, the tariff reduction (though contradicting RA no. 11203) is appropriate. However, essentially, this is a short-term solution. For a permanent solution, we need to produce our own. Therefore, the question now is, with the tariff reduction, can we still continue supporting the farmers (majority of whom are into subsistence farming) through the RCEF?