Some politicians — pro-administration and anti-administration — and organized farmers have recently stepped up the call for amending the Rice Tariffication Law (RTL). This comes in the face of what they claim as a drop in fresh palay (unmilled rice) prices to as low as P12 in some areas, an existential threat to farmers.
The opposition is understandable. The RTL is a transformative but disruptive reform. The disruptiveness of the reform means an unavoidable transition. The road to the final destination has a lot of zig zags. The pandemic has compounded the transition problems. But once we hurdle the transition, we should be on a better footing to improve farmers’ productivity and wellbeing and at the same time secure consumer welfare.
The gains from RTL, although already immediately tangible mainly in terms of lower rice prices, will be significantly felt in the longer run. The unavoidable costs to farmers in the short run give ammunition to those opposing RTL. The costs should nevertheless be mitigated through government subsidies.
Thus, even doing cost-benefit analysis at this time will not be able to capture the substantial gains from RTL in the medium term and the long term. That the transition takes time means that we have yet to reach a stable equilibrium.
Unfortunately, the debate regarding RTL is not complete if studies do not present counterfactual options. The criticisms unfortunately suffer from not presenting these. As a colleague from Action for Economic Reforms remarked, “people who usually target the RTL normally say it’s a ‘bad’ reform in that farmers are worse off. But relative to what? Compared to what scenario?”
For balance, government agencies likewise have to give more attention to adopting the counterfactual approach. A case in point is the debate on the rationalization of fiscal incentives, as expressed in the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill. Senator Ralph Recto used a National Economic and Development Authority (NEDA) paper to criticize CREATE. Recto’s argument was that incentives were necessary to have new investments and new employment. But the NEDA paper merely described the situation wherein the companies enjoying incentives generated X amount of investments and Y number of workers. But if the study presented the counterfactual argument, it would have established that the outcome on new investments and new employment would be the same, even if companies did not enjoy the incentives.
In the short term then, the government has to pour resources like the cash transfers, price support, and production subsidies to provide amelioration and compensation to farmers. We have to stay the course, even as we recognize that the transition can take longer in light of the pandemic.
The RTL provides the platform and infrastructure to increase the productivity and incomes of farmers even as the competition arising from freer importation will benefit consumers.
Competition can be further enhanced, resulting in more affordable prices for consumers. As Prof. Ramon Clarete has said the government can undertake measures to facilitate competition. These are actions that encourage more players in the rice trade.
To help the farmers, the challenge is to lower production costs at the same time increase productivity. This will necessarily involve the reform and modernization of the whole supply chain. Given the relatively broader fiscal space, thanks to the tax reforms, the government has the resources to finance the modernization of the whole supply chain in the rice industry.
We hope that the farmers, who understandably are affected by the RTL, will realize that it is more practical and beneficial for them to avail themselves of the benefits or opportunities from RTL, instead of pursuing a futile campaign to have it reversed.
In the transition, it is necessary to demonstrate the effects of the RTL. The Department of Agriculture (DA) can adopt pilot areas or advanced implementation sites in Luzon, Visayas, and Mindanao. This means that the DA and its regional offices and other executive agencies have to be proactive in identifying and helping farmers’ organizations overcome the multifarious problems and make them success stories. Civil society organizations can partner with DA and the farmers’ groups in establishing these advanced implementation sites.
To be sure, both private and public investments are necessary to modernize the rice sector. In this regard, the binding constraints that prevent private investments from flowing to rice and agriculture have to be removed. The reforms will cover banking, credit, crop insurance, property rights, land use, and training of a new generation of farmers. A most critical challenge is how to achieve more productivity through economies of scale. In this regard, the DA’s clustering and consolidation program deserves full support.
It also goes without saying that the reforms cannot be limited to the rice sector alone but should extend to the whole of agriculture. For instance, rice farmers should be encouraged to do multi-cropping. In some areas, where initial endowments and other geographical as well as institutional factors inhibit rice production, the government must help farmers shift to other commercially viable crops.
Organizationally, it is critical for the DA to march in step to implement the RTL and to pursue the reform agenda to consolidate and sustain the gains. Part of marching in step is to return the National Irrigation Authority to the DA fold. After all, irrigation is a most critical input to improve efficiency in rice production.
Further, DA must learn a new culture and new methods of work especially in the wake of the positively disruptive effect of RTL. A culture of transparency and inclusivity is the way to go. Open up a dialogue even with those organizations or forces critical of RTL. After all, we are secure in the superiority of our position. Being inclusive and being transparent can influence critical organizations into becoming constructive. This, in turn, will reduce conflict, and the costs arising from hostile partisanship.
At the same time, adopt a data-driven and evidence-based policy-making approach. Let data, evidence and science triumph over political and ideological biases.
Transparency, too, leads to better policy-making as it enables policy-makers to get more information for policy formulation and implementation. It likewise reduces systemic corruption.
Last but not least, ensure policy and reform continuity for the next administration. Lock-in the reforms, and this can be done by securing concrete gains in the next two years in terms of having stable affordable prices for consumers and having initial productivity gains for farmers.
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.