Can pursuit of food security

worsen hunger?
The case of rice-sufficiency in the Philippines

Philippine Institute for Development Studies

Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas
www.pids.gov.ph

Outline
Overview
Background
How the Philippines stopped importing a
lot of rice
Rice self sufficiency policy: hits and
misses
Recommendation
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Overview
In the Philippines, the quest for rice selfsuffiency is a venerable tradition.
President Marcos in his 1968 SONA stated:
We have succeeded in solving our chronic food shortage.
The country has attained self-sufficiency in rice and corn
one year ahead of the deadline set for it by our
administration. This fulfills a historic dream of several
generations of Filipinos who equated the solution of the
rice problem with the nations self-esteem.
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Overview
Five presidencies later, President Aquino

insisted in his 2011 SONA:

Ang gusto nating mangyari: Una, hindi na tayo
aangkat ng hindi kailangan. Ikalawa, ayaw na nating
umasa sa pag-angkat. Ang isasaing ni Juan Dela Cruz
dito ipupunla, dito aanihin, dito bibilhin.

Real irony: the pursuit of food

security had the unintended
consequence of worsening hunger

Background

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Who imports rice?

Exports of the top five exporting countries,
2001 - 2014

Top rice imports, 2001 - 2015

For the period 2011 2014, the Philippines completely drops off the
list; imports fall dramatically to an average of 800,000 tons a year
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How to stop importing (almost)

anything
Strategies in achieving self-sufficiency :
1. Support through domestic production
2. Maintaining barriers to imports, also called protectionism
The above strategies are often implemented together
The second strategy leads to higher domestic prices. Why?
Because Protectionism prevents cheap imports from coming in.
Case of an import ban: initially a ban will lead to shortages
higher price, stimulating domestic supply, and stifling off some of
the demand.
Shortage eliminated: consumers pay high cost for self-sufficiency
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lower than the domestic price in the

Philippines?
Border and domestic prices, 1991 2014,
P/kg

Cost of production of paddy rice, in $US/ton

Cost of production per ton of rice is lower in exporting countries

Due to geography and endowments
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How the Philippines stopped importing

a lot of rice

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How the Philippines imports rice

Right to import rice vested on the National Food Authority,
by virtue of PD. No. 4.
For every other agricultural product, the private sector
has the default right to import, subject to compliance with
SPS permits, licenses and payment of taxes consistent
with WTO requirement: Agricultural Tariffication Act (RA
8178)
But not for rice: The Philippines negotiated and got special
treatment for rice until 2005, extended to 2012; got waiver
up to end-June 2017. Exception incorporated in RA 8178.

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How the Philippines stopped importing a lot of rice

Aquino Administration: rice self sufficiency is to

be achieved under a Food Staples Sufficiency
Program (FSSP).
Direct procurement from farmers (up to 9.5%
of palay output) is a means to achieve support
price
The FSSP is heavy on production support for
rice industry, but silent on trade policy
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Implications of FSSP for trade

policy
1. Farmers will receive a support price at levels that
will guarantee farmers reasonable returns.
2. Government intervention will be limited. As much as
possible, marketing functions will be allocated to the
private sector. Government will intervene only to
mitigate surges in retail prices.

NFA objective: keep farmgate prices high during stable

periods, but prevent spikes in retail prices in unstable
periods.
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Implications
Movements in the world price do not systematically influence
the domestic price. Domestic price is determined by domestic
supply-demand interaction
Ratchet effect: Over time domestic price seldom goes down;
when it goes up, it does so in spurts. If world price is falling:
widening gap between domestic and world price.
To test the first implication: run a Johansen cointegration test
(1984 2014) using annual domestic and world prices
Finding: fail to reject the hypothesis of no cointegrating vector
In contrast: in coconut, we reject hypothesis of no cointegrating
vector, but fail to reject at most one cointegrating vector.
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Ratchet effect:
Growth in annual wholesale and border price, 1992
2014, in %

World price grows very

erratically over time.
Domestic price rarely declines.
Wholesale prices have fallen
only twice, in 1997 and 2001,
only by 3% and 0.1%,
respectively
Average annual growth of 2.5%
from 1997-2008; after price
spike in 2008-2009, domestic
prices average growth was 3%
from 2010-2013, after which
price spiked to 15%
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What was the impact on

hunger?
SWS self-rated hunger incidence, quarterly, 1998 2015 (%)

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What was the impact on

hunger?
Based on impulse response function analysis
(Mapa et al, 2015)
One-time increase in price by 2.8 percentage
points (one standard deviation) raises total
hunger by 6.3 percentage points in the next
quarter
Afterwards the effect decays to zero

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Rice self-sufficiency policy: hits and

misses

www.pids.gov.ph

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What government got right

Pursuing production support programs for rice,
shifting support away from fertilizer and seed
subsidy programs.
Resources shifted to: irrigation, FMRs, farm
machinery, postharvest equipment, support for seed
producers, market infrastructure, extension, R&D
Large proportion to rice efficiency of rice support
programs is open to debate, beyond the scope of
this BB
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What the government got wrong

Adopting protectionism through quantitative

restrictions (QRs) as an instrument for food security and

livelihood promotion, limiting intensity of competition
from foreign suppliers of rice
Negotiating to extend the special treatment for rice to
2017
Neglect of high value added crops where the country
has a competitive advantage
NFA principle of buying high and selling low
contingent liability and is not even that low
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What the government should

have done
Should have lobbied for remedial legislation by 2012
(amending Agricultural Tariffication Act)
Upon expiration of special treatment, convert
quantitative restrictions (QRs) to 35% tariff equivalent,
same as the AFTA rate
Remove NFA import monopoly and allow free private
sector importation; apply SPS permit system
What about farmers? See DP 2015 46: Options for
Supporting Rice Farmers Under a Post-QR Regime:
Review and Assessment
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Philippine Institute for

Development Studies
Surian sa mga Pag-aaral Pangkaunlaran ng
Pilipinas

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