Excerpts from DOF Budget Hearing – Questions on Rice Tariffication, Undervaluation of Rice Imports, Sagip Saka Law

September 25, 2019

ON RICE TARIFFICATION

SFNP: …on the rice tariffication measure. Currently, there have been concerns about the impact on our rice farmers and the drop of palay prices. I’m raising this not only because this is Secretary of Finance but also because he was former Secretary of Agriculture so we’re actually hitting several birds with one stone here.

The concern is that the impact on our rice farmers in terms of incomes has been or the drop in incomes, at least year on year, has been very big. The law provides that if there is an excess collection above 10 billion, then cash assistance can be made available. Some of us are of the opinion, and this is actually the recommendation of the Philippine Institute of Development Studies (PIDS), which was not adopted by the law, that apart from mechanization, wherein 50 percent of your 10 billion goes to mechanization, 30 percent of your 10 billion goes to inbred seeds development, and another 30 percent for credit assistance, extension service, etc. But the PIDS study said that cash assistance outright should be made available. But this was not adopted.

Of course the amounts are huge. But we’re inclined to look at perhaps in the interim, maybe 2-3 years, a portion of the mechanization allocation or a portion of the inbred seed allocation should be made direct cash assistance. In other words, we’re not looking at increasing appropriations, we’re just looking at realigning current appropriations.

So having said that, how much has been collected since the tariffication law was imposed and there was a conflicting interpretation of two laws. My understanding is the amounts appropriated came from the tariffs but the understanding was that the lawmaker said or at least the understanding for the RCEF was that this is not, there was a 10 billion amount apart from the tariffs in anticipation of the implementation of the law. So, where are we now? How much has been collected?

I ask this because we have filed a proposed joint resolution that would, at least initially the figure was around 13 or 14 billion. 9 billion collected by the tariff, and another 4 billion–yes, so around 13 billion. And the joint resolution is saying that this 13 billion should be cash assistance, not going into mechanization in the interim or not going into inbred seed development in the interim.

Well the computation is it was P21 a kilo of palay last year, year on year, it’s now P17. Some are saying it’s lower but that’s the PIDS average. Even the P4 drop per kilo is already at 20 billion kilos per year of palay, that’s already 80 billion that would have otherwise gone to the pockets of your farmers and would have gone back to the rural economy but has been taken away and of course your rice prices are lower, but we’d like to see it even much lower. But definitely your palay prices have dropped.

SEC. SONNY DOMINGUEZ (DEPT. OF FINANCE): Thank you. To answer your question, Mr. Senator. The amount collected as of September 20 is P10.7 billion already. That’s our first answer to your question. So, yes, we think that a cash transfer program should be developed for the affected rice farmers, so we’re working on that using the excess–

SFNP: Perhaps your Office, Sir, we’ll sit down with your Office because we would like you to look at our joint resolution. The challenge also is the need is now. As the good Secretary is aware, the biggest bulk of our rice harvest, our palay purchases are done September to December so 60 percent of our harvests come in and therefore with the inflow of larger supply of locally produced palay, the tendency would be that the prices would drop further and that’s why the assistance should come immediately. Please proceed. Go ahead.

SEC. DOMINGUEZ: I just wanted to make a point that the palay prices last year were the result of a shortage. There was a severe drop in the harvests that’s why prices spiked and that’s what contributed to the inflation. So to really compare, you know, what the palay prices are now, we should do an analysis on the trimmed average, let’s say for the last five years. Trimmed means you take out the highest price and you take out the lowest price and get what the average year was. And I suspect that the drop in the–I do not know the numbers–but I suspect that the drop will be quite a bit less than the figure you’ve mentioned because, again as I said, last year the prices were unusually high which drove up inflation quite severely. As you know, in the first part of 2018, rice prices contributed only one-tenth of one percent to inflation. By the middle of the year, it was already one percent, so the prices spiked really high and that’s why the administration took very quick action to bring down the inflation rate.

SFNP: So, we’d like to get that data also. 80 billion is a bit high. In fact, the estimate would be maybe 40-50 billion. The computation of 17 and 21 is on the high side. On the matter of imposing additional import duties and the safeguard measures for imported rice, there is this recommendation that we should raise the tariff rates. As I understand it, I think the NEDA has already submitted this and the DA has forwarded this to the WTO, is that correct?

SEC. DOMINGUEZ: I am not certain. Actually, during the deliberations, I made a suggestion that the tariff be two-tiered: one tariff during the harvest season and lower tariff rate during the lean season. And I said, you know, you could do let’s say 35 (percent) and 55 percent tariff during the harvest season ad 35 in the low season. But you know, actually, Undersecretary Gil here just made a computation, up to this date, the protection rate of rice is 44 percent. Can you describe it?

FINANCE USEC. GIL BELTRAN: The overall tariff protection for rice remains high at 44 percent even without the QRs, which means that the reason why this is higher than the 35 percent tariff rate is that the inputs to the production of rice have mostly zero rates, which means that their protection goes higher because they’re protected by even the inputs that have lower tariff rates.

SFNP: Yes, except considering the current situation because of the influx of imported rice happened in the last several months, the impact on our local producers has been inconsiderate and therefore we need to do some stop-gap immediate interventions, if we can, to alleviate that impact as we transition. Precisely, this is a transition period. We’re not looking at a permanent assistance or a permanent support. It is an interim support precisely because we are transitioning into having lifted our restrictions and now liberalizing the industry.

SEC. DOMINGUEZ: Just to elaborate on my point earlier, the current price of rice as of week 5 of August was P16.68 per kilo dry palay, compared with September of 2018 it is P6.46 per kilo lower. But if you take the average, of the price from 2015 – 2017, it’s only P2 lower. So the unusual prices in 2018 were due to the shortage of palay produced.

SFNP: And therefore we’d like to see the average maybe the last five years so we can have a better sense. It will definitely…Prices of palay goes up and down depending on El Nino, depending on other factors. So we’d like to see that so we compute the assistance, the losses, that would be very instructive and we need the information.

But clearly, at least we agree that in the interim, at least the Department of Finance is open to realigning, not necessarily appropriating more funds but just realigning the support from mechanization, plus were some concerns that the absorption capacity of PhilMech and the absorption capacity of the agencies as to the 50 percent and the 30 percent. Can they absorb 5 billion in one year? Maybe they can absorb half of that, and the other half then should be rather than it ‘nakatengga lang’ ika nga, ‘yun ‘yung cash assistance.

The information that was relayed to us by the Department of Agriculture is that they’ll be providing a P15,000 interest-free loan, 8 years to pay, except that the amounts available will only benefit a hundred thousand farmers. So we have around 2 million plus rice farmers. We need to find other interventions to address in the interim the dislocation, for the lack of a better term, and the removal of income, at least in the interim.

And so, currently we filed the joint resolution, there are also other interventions. The other one would be that the cash assistance, the CCT, conditional cash transfer, instead of cash, a portion of it, at least a proposal, is to be used to purchase rice and to give rice assistance rather than cash assistance. It might be complicated in terms of implementation because you will then be distributing rice rather than cash. My understanding is that this is a good idea but perhaps in the implementation, we will have to figure that out.

SEC. DOMINGUEZ: It’s a little more logistics costs but I think it’s quite a good idea and I think we will discuss it with the DSWD.

 

ON UNDERVALUATION OF RICE IMPORTS

SFNP: …On the undervaluation of rice imports whether volume or price thereby cheating the government from the needed tariffs to be imposed. What are we going to do to monitor this, Mr. Secretary?

SEC. DOMINGUEZ: We are keenly aware, Mr. Senator, of the opportunities of technical smuggling. Our customs commissioner, we have begun to look not only at the volume but also the quality but also there’s a big price difference on the quality of different qualities of rice being brought in so maybe I can ask Commissioner Guerrero to enlighten us further.

COMM. REY GUERRERO (BUREAU OF CUSTOMS): Sir, regarding the issue of misdeclaration / misclassification for the misdeclaration of values, we are implementing a national value verification system. It is a computerized system that allows our examiners and appraisers to have access to information about the prevailing values of different commodities. Global values, Sir, using systems available to most customs administrations. This is in a database that can be readily accessed.

SEN. ANGARA: How many different types of valuation or classes of valuation for rice would there be under that system?

COMM. GUERRERO: I do not have the exact figure but it is based on the quality and type of rice. Well-milled, broken rice–

SFNP: [INAUDIBLE, MIC OFF]

COMM. GUERRERO: Yes, Sir, including the source. This is published weekly.

SFNP: And the prevailing price. And there are several price monitoring international entities. So it’s very easy to say, “oh this is the price of rice in the world market, why are you undervaluing your price,” ‘di ba? It’s just really a matter of making that information readily available so that hindi pupuwedeng mag-undervalue in terms of price. But that’s precisely what we did when I was chairman of NFA, we had a benchmark based on international rice prices so that when Thailand, or Cambodia, or Vietnam offered us a price, we would base our benchmark on the rice prices announced. And therefore it is something precisely should be made available.

COMM. GUERRERO: But aside from the values of the price of rice, the prices of commodities, we also resort to the determination of volume in terms of type of units or even of weight.

SFNP: And you’re able to do this because you have pre-inspection on bulk–

COMM. GUERRERO: Yes, Sir. And we are also requiring the advance submission of other documents that validate the type of shipment including quantity and the volume.

SFNP: And that’s why pre-inspection is critical.

COMM. GUERRERO: Yes, Sir.

SFNP: Because you know, ang dating gawi diyan, sasabihin, 10,000 MT ang pumasok pero actually 15,000 MT ‘yon. ‘Yung 10,000 ang idedeklara, ‘yung 5,000 kung saan-saan dadalhin. That’s why pre-inspection is critical.

COMM. GUERRERO: As for the volumes, Sir, we will soon be implementing a new system of determining volume because currently, Sir, commodity shipments when it comes to volume are measured in kilograms across the different types of commodities, even cellphones are measured in kilograms. We have already started to make the necessary adjustments in our computer system and we have also started to train and educate our personnel on how to implement this new system of implementing the measurements.

SFNP: We’d just like to get…you’re looking into this matter of undervaluation and misdeclaration and technical smuggling.

 

ON SAGIP SAKA

SFNP: Just one last concern, Mr. Secretary. We passed the Sagip Saka Law. Part of the law precisely is to give our farmers access to markets and a key provision in there would be that the national agencies and local governments, when purchasing to accredited farmers and fisherfolk organizations can do so through negotiations and no longer go into the regular procurement process which take up to five months. By the time that the product is ready to be delivered, five months later, bulok na. It’s critical because this will add income to our rice farmers, our vegetable farmers.

The DOF is part of that council, the Farmers and Fisherfolk Enterprise Development Council. Although the implementing rules are still being crafted, we urge the Secretary of Finance, to make sure the DOF is properly represented, number one.

And second, I think it would require the GPPB to come up with additional guidelines because this is a new law, it exempts national and local government agencies from the procurement law when it purchases agricultural products from farmers and fisherfolk. In other words, big brother na ang national and local governments to remove that stranglehold of middlemen and get government to purchase directly.

Sec. Dar has said that he wants to double the incomes in the next five years and access to the markets, I think is critical. So I hope that the Secretary of Finance will urge the DOF bureaucracy to support the implementation of the law, the approval of the guidelines, and all the other nitty gritties that can cause delay in the implementation of the law.

SEC. DOMINGUEZ: I think Treasurer Lia is sitting on the committee that is finishing the IRR.

ROSALIA DE LEON (NATIONAL TREASURER, BUREAU OF TREASURY): Sir, we have done the regional consultations and we have been coordinating with the Department of Agriculture urging a quick passage of the IRR for the early implementation of the law.

SFNP: Thank you very much. So we hope to be able to get the inputs of the DOF on the proposed joint resolutions to provide cash assistance to our rice farmers in the interim, which is actually based on the Philippine Institute of Development studies recommendation.