Philippines EO 135 and MFN Tariffs affect Rice Imports

In June 2021, the US Department of Agriculture (USDA) Foreign Agricultural Service cited China and the Philippines to be the world’s top rice importers in 2021. In their report, the Philippines is expected to import over 2.1 million metric tons of rice, more than the initial forecast of 2 million^[1].

The expected import requirements for 2021 were initially lower, at 2.9 MT for China and 2 million MT for the Philippines, but the increase was due to the ongoing food shortage due to the coronavirus pandemic.

USDA also attributed the reduced Most Favored Nation tariff rate as a reason behind the increased import requirement in the Philippines. A month before the release of their report, President Rodrigo Duterte issued Executive Order (EO) No. 135, which significantly lowered the MFN tariff on imported rice to just 35%.

According to the USDA, the Philippines is seen to be the second largest rice importer in 2021, and with the recent change in its import tariffs, there is also the great potential to shift its core suppliers, which are Vietnam and Thailand.

Since 2019, Vietnam has been the country’s primary rice supplier because of its low prices. Meanwhile, the reduced tariffs would open doors to other Asian exporters, such as India and Pakistan.

The said EO aims to diversify rice sources while at the same time maintaining stable supply at affordable prices. The Philippines’ Department of Finance said, through a statement, that the EO would not only continue to accommodate imports from Thailand and Vietnam, but also Myanmar, and other countries where the prices of rice are much lower.

It is ironic to know that for a country whose economic foundations rely heavily on agriculture, the Philippines resorts to importing rice from suppliers abroad. It is understandable that the demand for rice, a staple to the Philippines, grows alongside the country’s continuous population boom (currently at 110 million, based on the latest census).

However, there are other factors that have resulted in transforming the Philippines from being a major producer of rice – to a country reliant on its neighbours for food sustenance.

From Rice producer to importer

Rice production in the Philippines has always been a complicated topic. It was not until the International Rice Research Institute (IRRI) and other breeding institutions introduced so-called modern high yield varieties (HYVs)^[2] for irrigated fields that rice became more widespread as an agricultural product. However, this came at great cost to biodiversity loss from traditional varieties being replaced by these new hybrids or even completely wiped out entirely due its ability of producing far superior yields per plant without needing much water.

On the other hand, rainfed fields rely heavily on it whenever there is no rainfall available which ultimately led to farmers either cultivating several types simultaneously depending upon what best suits their needs.

Rice production in the Philippines comes from various regions, with 18% coming from Central Luzon and 11.3% from Western Visayas. Cagayan Valley likewise supplies another 11%, followed by 9% from the Ilocos region. SOCCSKSARGEN, which consists North Cotabato Sarangani South Cotabato & Sultan Kudarat Provinces also contributed 7.5% to the total rice yield in the country^[3].

Rice production prior to World War II

Rice agriculture has changed dramatically since World War II. Before the war, farmers in the Philippines were managing their crop production based on observations from past years and direct measurements of yield levels; however, with changing yields came changes such as location type (irrigated or dry) and seasonal harvesting patterns to more accurately reflect demand for rice during different periods throughout each year—a practice that still continues at present.

For example: In 1909-1913, average Philippine harvests stood at 0.704 tons per hectare while those Japanese yielded 3.08 tons/hectare, and Korea at 1.58 tons/hectare. After the introduction of much superior rice varieties, an increase was observed at a yield of 1.06 tons/hectare to as much as 1.25 tons/hectare in 1929.

The increase in rice production was due, at least in part, to the construction of big dams and concrete canals. Building waterways for irrigation changed how farmers grew their crops- by 1920 they were cultivating more than 330 thousand hectares; by 1940 that number had jumped up close to a million acres.

The increased accessibility provided from these newly available resources helped drive down prices during an intense campaign period from 1951 until 1955 when thousands of varieties were compared nationwide before selecting only one type per village.

The Green Revolution and the 1970s rice shortage

The Green Revolution of the 1960s introduced new agricultural technologies wherein several developing countries, including the Philippines, became involved in adapting methods to increase crop yield. It was also a period where the scarcity of labour among farmers was observed, and this also pushed for an increased R&D in farming.

Before 1967 yield was mostly attributed to production area (53%). After that year it seemed like there were higher-yielding varieties introduced on top of improved seeds/cultural practices which boosted yields up from 1.75 tons per hectare average during 1975 onwards all the way until 2002.

However, the success of the Green Revolution in the Philippines was short-lived.

In the late 1960s, per capita income rose in the Marcos regime. A rice surplus and falling prices made this period an interesting time for economic growth yet it caused massive impoverishment as well; due to immiserating growth-where rich get richer while poor become poorer at an alarming rate of change over just 30 years from 1965 until 1986^[4].

As observed by American economist James K. Boyce, it was during this period where the Philippines experienced a massive economic boom alongside immensely growing poverty, a phenomenon brought by political stability and social justice (which discourages investment), and high-level inflation that eroded the savings/earnings ratio between wages.

Shifting from producer to importer

As a country that used to be self-sufficient in rice, the Philippines is now listed as a top importer of milled rice by the US Department of Agriculture since 2007^[5]. It is now ahead of other countries that are heavily dependent on rice as a food staple, such as Nigeria, Indonesia, and Bangladesh.

There are several factors that have led to this transformation. Apart from an unstable economy and continuous rise in inflation which result in a higher cost of living, rapid urbanisation has likewise contributed to rice shortage.

The Philippines faces major constraints^[6] to rice production due to climate change, population growth and decline in land area. Some these factors are related with each other as conversion of agricultural lands into residential or commercial ones reduces available space for growing more crops which then leads us down the path towards shortage domestically because not enough areas have been devoted solely on producing what can be consumed at home rather than exporting them off shore where they can fetch higher prices per unit weight metric tonnage (i.e., international market).

Effects of climate change

Climate change is likewise an issue that the Philippines must face in order to feed its growing population. Crop production can be greatly impacted by both droughts and typhoons, with rice being a priority target for these types of weather events because it requires so much water on top of having rich soil quality (which many other crops do not).

When rain falls too heavily or soils become saturated due flooding situations from heavy rains during monsoon season, then there will inevitably result in less yield as well as reduced nutritional values. As a result, rice is sold at higher prices in marketplaces across food networks.

Rapid urbanisation

Land development, in particular, plays a major role in the transformation of the Philippines’ rice industry from producer to importer. Over the years, agricultural lands are being repurposed to accommodate urban landscapes, from high-rise buildings intended for commercial use and to residential villages to address migration and population boom.

Diaspora of the Filipino labour sector

At the same time, the scarcity of labour in the agricultural sector put a toll on the rice production industry. At present, the Philippines no longer relies solely on agriculture to sustain its economy, but also on the service sector, with human labour flocking to industrialised districts to earn better income.

The Philippines is likewise a source of migrant workers, more popularly known as Overseas Filipino Workers or OFWs. Pursuing jobs abroad has heavily affected the country’s sector. On one hand, OFW remittances serve as a major contributor to balancing foreign exchange and in a way, help stabilise the economy; on the other, the continuous choice to work outside the country has been depleting the service sector, in particular those intended for agriculture.

Addressing the Philippines’ demand for rice

Rice is the staple food for about 80% of Filipinos, and it’s a major item in their consumption basket^[7]. Rice provides an important source of income to millions who grow rice on small farms across the Philippines as well as government involvement with both supply and distribution so that there are sufficient amounts available at low prices or reasonable returns.

Importation likewise helps in maintaining stability within market prices by providing price incentives such as fertilizer subsidies which helps farmers maximize production while still making profits themselves based on current regulations set out before them from previous years’ experience.

Apart from being a prime commodity, rice in the Philippines is a highly political staple. Indeed, the country’s agricultural policies focus on promoting rice self-sufficiency and making it affordable for consumers while also providing high income to farmers, but this has always been done with some degree of controversy surrounding its depiction as an “unsustainable” food source given current population growth rates.

At the same time, importation is becoming more of a durable solution to address rice shortage. As a basic commodity, rice is intended to help boost the country’s domestic economy by fuelling the consumer market. People buy rice every day to put food on their table, but this daily sustenance becomes more and more difficult to maintain in a country plagued with low yield due to limited domestic supply, a situation further exacerbated by outdated farming technologies and erratic climate conditions.

Opportunities for rice Importers

The recent signing of EO 135 offers brighter opportunities to rice importers, since the Philippine government is looking to diversify its rice suppliers. It can be noted that Vietnam temporarily stopped its rice exports to the Philippines during the start of the coronavirus pandemic in 2020.

EO 135 does not merely open doors to new competitors in rice importation; it also signals a diversity in suppliers. With more suppliers coming into the playing field because of lowered rice tariffs, it is expected that food shortage is not only addressed but prices become affordable to the Filipino consumer.

The Duterte administration has also been committed to addressing the issue of food shortage in the Philippines. Prior to EO 135, President Duterte signed Republic Act 11203 which repealed the regulatory and import functions of the National Food Authority, whose quantitative restrictions (QRs) put harsh limitations on rice supply being brought into the country.

Under RA 11203, these QRs were converted into customs duties known as “tariffication,” which has been instrumental in reducing the price of rice, making it more affordable to Filipino consumers^[8].

It should also be noted that the country’s demand for rice in the market year 2021-2022 is expected to increase to up to 14.6 million metric tons (MMT), mainly because of higher domestic output and higher consumer demand, based on a study conducted by the Global Agricultural Information Network (GAIN)^[9].

RA 11203 is not without backlash. Critics of the said policy claim that it was not able to restore the balance in the rice market. Instead, it is pro importation and in effect, harmful to local producers^[10].

Regardless, the future continues to be bright for rice importers to the Philippines. Through importation, and under the guidance of the aforementioned policies, more and more Filipinos now enjoy affordable rice prices, especially those living below poverty line. At the same time, Philippine agriculture can now focus on becoming globally competitive-not just with rice but with other produce, in terms of farm yields and lowering overall costs^[11].

^[1] “China, Philippines remain top world’s rice importers,” Rappler, 2021 https://www.rappler.com/business/philippines-china-world-top-rice-importer-2021

^[2] “Rice Production Practices,” Philippine Institute for Development Studies, 2004 https://dirp3.pids.gov.ph/ris/rps/pidsrp0802.pdf

^[3] https://ricepedia.org/philippines

^[4] “Marcos’ Green Revolution,” The Manila Times, 2016 https://www.manilatimes.net/2016/02/22/featured-columns/columnists/marcos-green-revolution/246377

^[5] “Why Does the Philippines Import Rice? A Solution to Rice Shortage,” National Chung Hsing University, _____. https://www.nodai.ac.jp/cip/iss/english/9th_iss/fullpaper/1-1-5nchu-tibao.pdf

^[6] “Bridging the Rice Yield Gap in the Philippines,” Food and Agriculture Organization, ____. http://www.fao.org/3/x6905e/x6905e0b.htm

^[7] “Recent Developments in the Rice Sector”, https://ricepedia.org/philippines .

^[8] “Did the Opening Up of Rice Importation in the Philippines Worsen Income Poverty and Inequality?” Philippine Institute for Development Studies, 2020.

^[9] “Report: Population rise, bigger farm yield, May polls to drive rice demand for MY 2021–2022,” Business Mirror, https://businessmirror.com.ph/2021/06/24/report-population-rise-bigger-farm-yield-may-polls-to-drive-rice-demand-for-my-2021-2022/

^[10] “Winners and Losers from the Rice Tariffication Law,” Philippine Daily Inquirer, 2020, https://newsinfo.inquirer.net/1332019/winners-and-losers-from-the-rice-tariffication-law

^[11] “Fighting the Good Fight: The Case of the Philippine Rice Sector,” The Asia Foundation, 2021, https://asiafoundation.org/2021/04/14/fighting-the-good-fight-the-case-of-the-philippine-rice-sector/