Effects of Rice Competitiveness Enhancement Program of Rice Tarrification Law to Farmers

In Partial Fulfillment of Legal Research

of Father Saturnino Urios University College of Law

Submitted by:

Benzelle Joy Cosep

Ailene B. Suson

Christopher Jimriel G. Ronquillo

CHAPTER ONE

THE PROBLEM AND REVIEW OF RELATED LITERATURE

I. Background of the study

A. The Philippine Rice Industry: Overview

Rice is a highly political commodity in the Philippines. It has been the center of the

government’s agricultural policies. The Philippines as the world’s eighth-largest rice producing

country in Asia has an arable land totaling to 5.4 million hectares. Rice area harvested has
expanded from nearly 3.8 million hectares in 1995 to about 4.4 million hectares in 2010. However,

the country’s rice area harvested is still very small compared with that of the other major rice

producing countries in Asia.

The Food and Agriculture Organization reported around 106.5 million Filipinos in 2018

with each person consuming 110kg of rice every year (PSA 2018). The rising standard of living

extends the peoples demand from ensuring food security to also sustaining the environment. In

addition, rapid urbanization has led to 45.3% of the population in 2010 to move urban areas,

resulting in changes in the demand pattern.

Amidst of the increasing population, climate change and water scarcity are evidently

damaging our food production system. The El Niño phenomenon in 2016 resulted in P727 million

in production damages and losses. The southwest monsoon in July 2018 enhanced by three

typhoons cost the agriculture sector roughly P897 million worth of losses in seven regions

(NDRRMC, 2018).

The Philippines resorts to importing rice to address the demand and supply gap brought

about by the increase in population and limited land resources to produce the total rice requirement

. With this the country slowly became a net rice importer. The Philippines is the second

largest rice importer in the world next to China (Simeon, 2019). In 2017, the country imports rice

mainly from Vietnam (52%) and Thailand (29%) (Santiago, 2019).

B. The Philippines on the ASEAN Free Trade Agreement of World Trade Organization

When the Philippines opened up its agricultural market to other WTO member‐countries,

it established a tariffication system in 1996 through Republic Act (RA) 8178, otherwise known as

the Agricultural Tariffication Act. It is the domestic law that implemented WTO provisions on

agriculture for the Philippines. It repealed other laws including those: (1) prohibiting importation
of onions, potatoes, garlic and cabbages (RA 1296); (2) prohibiting importation of coffee (RA

2712); (3) centralizing importation of ruminants for breeding, slaughter and beef (PO 1297); (4)

authorizing the importation of foreign cigar leaf tobacco and blending services (PO 1483); and (5)

that subjected importation to rigid conditions, e.g., sections of the Seed Industry Act, Magna Carta

for Small Farmers, and Virginia Tobacco Industry Act (Aquino et al. 2013, 2)

Rice, however, was exempted from tariffication. The Philippines opened up imports on

rice under a minimum access volume (MAV) which is in operation equivalent to Quantitative

Restrictions (QRs). The QR regime of the Philippines was mandated for conversion into tariff

protection. The country obtained a special treatment for rice up to 2005, which was later on

extended until 2012. The Philippines has been applying for extensions of QR on rice since 1995.

Eventually, the Philippines acquired a waiver to maintain QR up to June 30, 2017.

The Philippines’ membership to WTO for 24 years aimed to counter the impact of the

expected influx of cheap rice imports. The country apparently has been extending protection

primarily to safeguard the local rice farmers from increased competition of imported rice. Another

reason the Philippines had been pushing for a two-year extension of the restriction is to achieve

rice self-sufficiency by 2020. However, given that QR on rice shall be retained, consumers shall

continue to bear the burden of overpriced rice, with the poorest households bearing the burden

C. The Rice Tariffication Law and the Rice Competitiveness Enhancement Program

The R.A. 11203 also known as, “An Act Liberalizing the Importation, Exportation and

Trading of Rice, Lifting for the purpose the Quantitative Import Restriction on Rice and for Other

Purposes” envisions to lift the quantitative import restrictions, particularly on rice, which is used

to limit the amount of commodities, including but not limited to discretionary import licensing and

import quotas, whether qualified or absolute. The law aims to protect local farmers from the entry
of more imported rice into the country through the imposition of 35% tariff on rice coming from

member-countries of the Association of Southeast Asian Nations (ASEAN) like Thailand and

Vietnam. For non-ASEAN countries, 40% tariff is imposed. The collected tariffs will be used to

fund mass irrigation, warehousing, and rice research. The newly-signed law provides for the

establishment of the Rice Competitiveness Enhancement Fund (RCEF), which will pipe in Php10

billion (US$ 190.84) annually to the rice sector for the next six years. It is allocated for the

procurement of farm machinery and equipment, rice development, propagation and promotion, as

well as expanded rice credit and extension services.

II. Review of the Related Literature

With the lifting of the quantitative restrictions on rice imports in the Philippines, the

primary challenge of the government is to provide the farmers the capacity to compete with other

country in terms of production and affordability of rice.

According to R. Briones (December 2016) in his study entitled “Food (In)security and the

Price of Rice Self Sufficiency” The main reason why world price is consistently lower than

domestic price, is that cost of production per ton of rice is lower among the main exporting

countries. This reason is not due to government programs, or recent improvements in technology,

but rather geography and available resources. Vietnam and Thailand are blessed with abundant

water resources and floodplains thanks to the presence of vast river basins, i.e. of the Mekong,

Chao Phraya, Red Delta, etc. Cost of production on a per kg basis must in the long term be lower

in these countries, compared to Indonesia and Philippines, which are populous archipelagic

countries with mostly rolling terrain. Furthermore, the said study elaborates how the government’s

import policy affects the domestic prices. During normal times, when the domestic prices are
stable, government restricts imports to prevent domestic prices from falling to the level of world

prices. However, during abnormal times, when domestic retail prices are increasing (e.g. due to

harvest failure or depletion of rice stocks), government resorts to importation to prevent prices

from blowing up. This policy is not unique to FSSP; in general, it highlights the political economy

of rice policy since the beginning of the import monopoly of NFA. It has two implications. First,

Movements in the world price do not systematically influence the domestic price. Rather domestic

price is determined by domestic supply-demand interaction, and is only intermittently affected by

world price. And second, Over time domestic price seldom goes down; when it goes up, it does so

in spurts. This second implication is called a “ratchet effect”. If world price is falling then the

ratchet effect leads to a widening gap between domestic and world price widens. With the

abovementioned implications, the said study suggests that Executive should file as early as

possible the long overdue amendment of RA 8178, which Congress shall hopefully pass promptly.

Its amendments shall include the: (1) Repeal of the RA 8178 provision that exempts rice from

tariffication. (2) Open importation of rice to the private sector, subject to payment of tariff, and

securing import permit, for the purpose of complying with health and environmental safety

standards. (3) Revisions in the role of the NFA once its import monopoly is removed. One logical

option is to split the regulatory function of the agency (ensuring human and environmental safety)

from the commercial function (managing a food security stock for rice), and (4) Assignment of

authority for defining the WTO-compliant policy to the President. The authority covers the

equivalent tariff to be imposed, as well as the disposition of revenues to be collected from rice

imports.

In the study entitled “Competitiveness of Philippine Rice in Asia”, conducted by Dr. F.

Bordey, et.al. of Philippine Rice Research Institute, it presented that if Quantitative Restrictions
(QR) were eliminated and if prices in 2015 were used, Philippine rice (i.e., regularly milled

ordinary white rice) at the domestic wholesale market would be more expensive than rice with

similar quality (i.e., ordinary white rice with 25% broken grains) coming from major exporters

such as Vietnam, Thailand, and India. Even with 35% tariff rate, imported rice from Vietnam, the

least expensive among the three, is about 21% cheaper than the domestic rice. After accounting

for exchange rate, tariff rate, and costs of freight, insurance, port administrative charges, and local

transport, a kilogram of Vietnam rice can be sold at PhP 27 in the wholesale market while domestic

rice is sold at PhP 34.

However, the study laid down some possible remedy to give the local farmers the capacity

to compete globally. First is to reduce the production cost through mechanization particularly in

harvesting and adoption of laborsaving practices such as direct seeding in crop establishment.

Subsidizing the use of machinery is sensible, although this has the drawback of reducing

employment for landless laborers. Setting aside the potential impact on the incomes of landless

laborers, reducing the use of labor through increased use of machinery will have potentially the

biggest impact on improving competitiveness.

Second, is to increase the yield to reduce production cost per unit. Some yield-enhancing

factors can be explored. Among several inputs, the use of hybrid rice varieties, particularly during

HYS, is one option to increase yield. However, the performance of hybrid rice is location-specific,

so careful consideration should be made in promoting this. The proper use of herbicide is one area

with some potential in minimizing yield loss. The efficiency of fertilizer use particularly in the

HYS is another area for improvement. These should be coupled with enhancement of farmers’

knowledge through education and training.

 Third is to improve the milling efficiency for better marketing system of rice. This can be

done by breeding varieties with similar grain shape and length and with high head rice recovery.

Also, farmers should be encouraged to plant fewer varieties as most millers complain about having

too many varieties, which makes processing more costly. Mechanizing the drying of paddy can

also minimize the high percentage of broken rice and improve the overall quality of milled rice.

Fourth is to improve the transportation infrastructure and facilities, including the handling

systems, can further reduce marketing cost. Cutting on the labor cost through mechanization of

loading and unloading can reduce transport cost. In addition, road widening and creating bypass

roads (e.g., those in the outskirts of key cities) can encourage investments in more efficient modes

of transporting grains. Revitalizing the railway system can be another long-term means of

enhancing transportation efficiency.

And lastly, is to increase the competition among local market players to reduced margins.

This can be done by establishing wholesale paddy markets similar to those existing in Thailand.

The creation of these markets will eliminate assembly traders and agents and their margins as well,

and consequently reduce overall returns to management. The National Food Authority (NFA) is

in the best position to handle this function. The NFA does not necessarily have to procure the

paddy, but they can provide facilities to establish the wholesale paddy market. In addition, they

can provide custom services to both farmers and traders such as weighing, drying, and temporary

storage. They can also make marketing information transparent to all players. Another way to

increase marketing competition is to open up the rice marketing system to foreign investors,

thereby giving farmers more choices in the sale of their produce. Their entry could bring fresh

capital into the market and improve competition with the large domestic marketing players who

have a sizeable market share.

 Furthermore, the study shows that international competition is both a challenge and an

opportunity for the Philippine rice industry. It has both positive and negative effects. If the

Philippines decides to embrace a more liberalized rice trade (e.g., removal of QR while

maintaining tariff), rice imports will increase and domestic rice price will decline to mirror the

cheaper price of rice in the world market. The poor consumers consisting of but not limited to

fishers, landless laborers, corn and coconut farmers, and the urban poor will benefit from the more

affordable rice. The lower price of rice can also contribute to the further development of the

industrial and service sectors. Cheap rice eases the pressure to increase wages, thereby,

encouraging entrepreneurs to expand and hire more workers. On the other hand, cheaper rice

means lower prices for rice farmers and processors. This could adversely affect their income if

they will not adjust.

The analyses provided in the said study tried to show the things that could be done to

improve competitiveness both at the production and marketing levels. Moreover, the change in

price can also encourage producers to venture more into rice-based farming systems and other

agriculture-based enterprises that can give them better household income than when they engage

solely on the rice mono-cropping system.

III. Theoretical Framework

In spite of the accession of the Philippines to the World Trade Organization, rice remains

a highly sensitive commodity. To remain competitive, the government must look upon the global

perspective in making policies and regulations.

According to the theory of Liberalism, globalization is the market-led extension of

modernization. This is evidenced by the following: 1.) Technological advances in the areas of

transportation, mechanization, communication and information processing. 2.) Legal

instrumentalities and suitable institutions that would enable markets to spread on a global scale.

The said theoretical framework suggests that policies initiated by the government are the

result of natural human desires for economic and political welfare. Freedom and democracy in

trade led to global technical standardization, administrative harmonization, and translation

arrangement between languages, laws of contract and guarantees of property rights.

The problem with this theory is that it rejects the structural power emancipated by

globalization. Liberalist does not consider the entrenched hierarchal power between states, classes,

culture, sexes, races and resources.

While Liberalism talked about freedom and democracy of exploitive global capitalism, a

conflicting theory of Marxism suggests that globalization happens because of trans-world

connectivity opportunities of profit-making and surplus accumulation.

Marxism is principally concerned with modes of production, social exploitation through

unjust distribution, and social emancipation through the transcendence of capitalism. Marx himself

anticipated the growth of globality that “capital by its nature drives beyond every spatial barrier to

conquer the whole earth for its market”.

IV. Conceptual Framework

Rice Competitiveness
Enhancement Program
Effects of Rice Competitiveness
Rice Farm Machineries Enhancement Program
and Equipment
Rice secure and
Rice Seed Development, sufficient
Propagation and
Promotion Local Rice Globally-
Farmers competitive
Expanded Rice Credit
Assistance
High
Profititability

Figure 1. Paradigm showing the relationships among the variables in this study

Rice Extension
It is Services
the mandate of the Rice Tarrification Law to establish a Rice Competitiveness

Enhancement Program to support the farmers of the effects of globalization and lifting quantitative

restrictions on rice imports.

In order to establish effective programs, the government’s agricultural policies must

consider legal restrictions of global trade laws while effectively generate acceptable profits.

With the programs initiated by the government such as modernization of farm machineries

and equipment, development of rice seed system, expansion of credit assistance and strengthening

research and extension programs, they are expected to assist the famers in increasing their yields

and production. These will eventually allow our local rice farmers to compete globally while the

government achieves its vision to have a rice secure and sufficient nation.
 Statement of the Problem

The purpose of this study is to provide baseline data on the effects of Rice Competitiveness

Enhancement Program as provided by the Rice Tarrification Law.

Specifically, this study sought to answer to the following questions:

1. How will the Rice Competitiveness Enhancement Program affect the local rice farmers?

2. How will the government agencies mandated by the law implement the Rice Competitiveness

Enhancement Program?

3. Are the current needs of the local rice farmers covered with the programs mandated by the Rice

Tarrification Law?

Hypothesis

With the implementation of the Rice Tarrification Law and the Rice Competitiveness

Enhancement Program the following will be the possible implications and issues:

Positive Effect

The Rice Competitiveness Enhancement Program will enhance the competitiveness and

profitability of the local rice farmers because of the interventions of the government. These

interventions include the modernization of farm machineries and equipment, efficient distribution

of rice seed, availability of effective rice varieties, low interest rate on credit assistance and

comprehensive extension services for farmers’ learning.

Negative Effect

Cheap rice imports will make the local rice farmers poorer. There is no guarantee that the

retail price of rice imports will be lowered in the long run. Failure of the government agencies to
deliver the services to the farmers will affect the productivity and profitability of the local rice

farmers. Furthermore, geographical and environmental factors may also affect the local rice

productions making the imported rice dominant over the local rice.

Significance of the Study

The implementation of Rice Competitiveness Enhancement Program is to provide

assistance to local rice farmers, cooperatives and associations through modernization of farm

machineries and equipment, promotion of inbred rice seeds, expanding rice credit facilities with

minimal interest rates and strengthening the extension programs to educate the local famers of the

available rice technologies.

The following will benefit this study:

1) Rice farmers, cooperatives, and associations – as the primary respondent, they will be informed

on the programs laid down by the government to uplift their competitiveness towards

globalization.

2) The National Government – the information in this study may be used as basis for crafting out

future reviews required by the Rice Tarrification Law, such as the mandatory review required

to determine whether the program shall be continued, amended, or terminated.

3) Future researchers – the information in this study will help the future researchers conduct related

studies. It will provide them baseline data on the effects of Rice Competitiveness Enhancement

Program in Butuan City

Scope and Delimitation

This study is primarily focused on assessing the effects of the Rice Competitiveness

Enhancement Program (RCEP) towards the local rice farmers within Butuan City. It focuses on

the top three rice producing Barangay of Butuan City, namely Barangay Los Angeles, Barangay

Sto.Niño, and Barangay Kinamlutan. This is based on the latest statistical data provided by the

City Agricultural Office of the Local Government Unit of Butuan City.

The study will cover four key areas to wit: First, the Rice Farm Machineries and Equipment

provided by the Philippine Center for Postharvest Development and Mechanization

(PHILMECH); Second, the Rice Seed Development, Propagation and Promotion by the Philippine

Rice Research Institute (PHILRICE); Third, the Expanded Rice Credit Assistance by Land Bank

of the Philippines (LBP) and Development Bank of the Philippines and Fourth, the Rice Extension

Services by Agricultural Training Institute (ATI), and Technical Education and Skills

Development Authority (TESDA).

 Definition of Terms

The following definition applies to the terms used in this research:

1. Rice refers to a cereal grain and that is the staple food for most Filipinos across the country.

2. Rice Competitiveness Enhancement Program (RCEP) refers to the program under the Rice

Tarrification Law which allocates funds, from the tariffs generated by rice imports, to provide

assistance to farmers and to make the domestic rice industry more competitive through

mechanization, access to better seeds and more financing services.

3. Rice Farmers – group of farmers cultivating primarily rice varieties

4. Tariff refers to a tax levied on a commodity imported from another country. It earns revenues for

the government and regarded as instruments to promote local industries by taxing their

competitors. The benefit is accorder to the local producers by the maintenance of a domestic price

at a level equal to the world price plus the tariff.

5. Tarrification refers to the lifting of all existing quantitative restrictions such as import quotas or

prohibitions, imposed on agricultural products and replacing these restrictions with tariff

CHAPTER TWO

METHOD
 This chapter represents the research design, research respondent, research instrument and

research procedure. The researchers conscientiously followed the steps and methods indicated

herein to provide a credible and most accurate data.

I. Research Design

The qualitative research approach will be used in ascertaining the effects of Rice

Competitiveness Enhancement Program to local farmers. It will not answer the statistical data but

will focus on the nature of such effects.

An informal interview using a conversational approach will be administered to the farmers,

cooperatives and associations within the area of study. The interview will focus on determining

the degree of their awareness and how the Rice Tariffication Law and Rice Competitiveness

Enhancement Program affect their farming. It will consist on the following key areas: Rice Farm

Machineries and Equipment, Rice Seed Development, Propagation and Promotion, Expanded Rice

Credit Assistance and Rice Extension Services. The interview will be recorded and field notes will

be secured and used as evidence for data analysis.

The researchers will also obtain information through memorandums, social media and

printed articles, such as magazines and journals on how the government agencies implement the

Rice Competitiveness Enhancement Program. Said agencies include Philippine Center for

Postharvest Development and Mechanization (PHILMECH), Philippine Rice Research Institute

(PHILRICE), Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP),

Agricultural Training Institute (ATI), and Technical Education and Skills Development Authority

(TESDA).

RESEARCH RESPONDENT
 The key informant in this research will be the City Agriculture Office. The research will

focus on the three main rice producing barangays in Butuan City. The City Agriculture Office will

provide the ideal farmer, cooperative or association relevant to the research.

RESEARCH INSTRUMENT

The researchers will use Informal Interview Approach and will ask questions on

respondent’s:

a. Profile and awareness of RA 11203 or Rice Tarriffication Law

b. Rice farm machineries and equipment

c. Rice seed development, propagation and promotion

d. Expanded Rice Credit Assistance

e. Rice Extension Services

Printed articles provided by Philippine Center for Postharvest Development and

Mechanization (PHILMECH), Philippine Rice Research Institute (PHILRICE), Land Bank of the

Philippines (LBP), Development Bank of the Philippines (DBP), Agricultural Training Institute

(ATI), and Technical Education and Skills Development Authority (TESDA) will also be used

because they are the government agencies mandated by R.A. 11203.

RESEARCH PROCEDURE

Submit letter of request to Agriculture Office - LGU

the top 3 rice producing barangay in Butuan City

Proceed to Barangay: Ask barangay officials for eligible

interviewees
 Informal interview with the respondent

The Rice Rice Seed Data for Rice

Machineries Development Expanded Extension
and Propagation Rice Credit Services
Equipment and Promotion Assistance