ANALYSIS: Who really benefits from the NFA?

Jose M. Galang

Posted at Apr 18 2017 02:04 PM

Is the National Food Authority (NFA) still effective in maintaining stability in the Philippine rice market when local prices are going up amid increased supplies while lower-priced imported stocks are barred from entering the country?

Oppositors to recent proposals for the abolition of the NFA, the state agency tasked with ensuring a stable supply of the nation’s prime food staples rice and corn at affordable prices, should take a closer look at realities in the rice market these days.

Last week the NFA revealed it was encountering difficulty in getting rice growers to sell their palay (unmilled rice) to the state agency. Already struggling with a top-level conflict on policy matters, the NFA came out short of its first-quarter rice procurement target even with agriculture officials proclaiming a bumper harvest during the period.

While the NFA under its mandate could only offer P17 per kilogram for palay, producers were attracted more by the higher buying prices offered by private commercial traders. This has pushed up farm-gate prices of palay to a nationwide average of P18.60 a kilo in the last week of March—with prices reportedly going as high as P22.60 in some Mindanao provinces.

Buffer stocks 

This has crippled NFA’s ability to meet its palay procurement target for the first quarter. A food agency report last week said palay purchases as of March 31 reached only 134,355 bags, or a mere 21 percent of the target for the period.

The first-quarter 2017 procurement record was also way below the purchases of 603,915 bags and 550,846 bags in the comparable 2016 and 2015 first quarters, respectively. The average farm-gate price of palay in the first quarter this year was P19.50 per kilo, a significant jump from P17.82 in 2016 and P17.44 in 2015, according to the NFA data.

This performance has affected the food agency’s mandate to maintain at any given time of the year a national rice buffer stock, called the Strategic Rice Reserve (SRR), that will last for 15 days, and a higher buffer stock of 30 days during the lean months July to September. The SRR is designed to be used in times of fast depletion of supplies in the market, including in times of natural calamities or poor production.

On Monday last week, the NFA administration announced that it needed around 9.8 million bags more of rice to be able to meet the mandated stocks to ensure food security. Because it could not buy enough stocks from local growers, the “only way the NFA can fill the deficit in its rice buffer stock requirement is through importation,” NFA administrator Jason Laureano Aquino said in an April 10 statement on the agency’s website.

But the NFA’s managing council has also pointed out that the agency was low on funds and remained heavily indebted—totaling some P160 billion as of August last year, according to some report.

World market prices

Amid all this, rice export prices on the world market have remained significantly lower in March compared to year-before levels, according to market surveys by the UN Food and Agriculture Organization (FAO). For instance, Thailand’s 5 percent broken variety was selling at $370 per metric ton, FOB, in March, down from $433 per ton in the same period last year. Vietnam’s 5 percent broken was selling for $351, down from the year-ago $365.

India’s 25 percent broken was selling for $344, slightly down from $346 in March last year. India seems to be now the preferred source for NFA imports. Its $344 per ton export price comes out to about P17.05 per kilo at current exchange rates—lower than prevailing farm-gate prices in the Philippines.

The FAO continues to see a rebound in world rice production, led by increased plantings in Asian countries. This is seen to result in a “still abundant” rice stocks situation despite small declines in India and Thailand but accumulations in China and Vietnam.

In its latest Food Price Monitoring and Analysis (FPMA) Bulletin released last week, the FAO projects world rice consumption to increase this year by 1 percent, with international trade seen growing by 4 percent. 

The FAO said India and Vietnam are predicted to lead the world rice export trade upturn, although “in both cases growth could be capped by intense competition for markets and lingering subdued demand in key markets.” That could benefit rice importers in terms of bargaining lower prices.

The FPMA also said that in Thailand, the release of government stocks and the slow pace of exports pressured prices downward and kept them lower than a year earlier. In Vietnam, rice prices rose slightly in March as the bulk of the main winter/spring harvest has not yet entered the market following some delays due to heavy rains last December. In China, Indonesia and the Philippines rice prices “eased somewhat” as a result of adequate supplies from recent harvests.

What now, NFA?

What do these production and price trends make of the NFA’s role in the domestic rice market? Without intervention, the rise in farm-gate prices could only translate to higher retail prices over the coming months. NFA’s efforts to snare a share of the farm output pie is apparently being ignored by farmers and are turning more to commercial merchants who offer higher bids for their produce. However, lower-priced imported stocks could help depress that upward pressure on locally sourced rice.

The NFA’s mandate allows it to exclusively import rice to such extent as to moderate any price spikes in the commodity. However, if it unloads imported stocks at very low prices, the farming sector will obviously get hurt and perhaps be discouraged from further plantings of the crop.

Recent increases in the price of rice give the farmers an opportunity to earn possibly handsome profits from their labor. But consumers will definitely complain about any price increase, especially if the increase will hurt the household finances—rice and other food items comprise a biggest share of most household spending across the archipelago.

Further, with a budget of P5.1 billion this year—with a large part of this amount intended for expenses for employee salaries and for constructing and maintaining warehouses—the NFA can only pay for rice imports by borrowing more money. Together with the current debt burden of some P160 billion, any additional borrowing will be shouldered by the Filipino taxpayers over the coming years.

While NFA-influenced rice prices obviously benefit the consumers as a whole, only a small segment of the intended beneficiaries from the subsidized prices actually get a chance to share in this program. A study by economists at the Asian Development Bank in 2008 discovered that only 16 percent of the population actually benefit from the subsidy.

Perhaps it is time for policymakers to take a hard look at the NFA’s role in a changed rice market. There are other government agencies that are better equipped to handle what the NFA is trying to do.