Maria Angeline Y.

Pili

BSA-1B Fri-Sat 7:00-8:30am

Managerial Economics

Major and Final output

Case Study: Rice Tariffication Law

The Rice Tariffication Law, officially known as Republic Act 11203, was
enacted in the Philippines in February 2019 to liberalize the country’s rice
industry. Before the law, the government maintained a system of quantitative
restrictions on rice imports, protecting domestic rice producers but often leading
to higher consumer prices. RA 11203 abolished these quantitative restrictions
and replaced them with tariffs. The law aims to promote a more open and
competitive rice market by allowing the entry of cheaper imported rice. It is
expected to address rice supply shortages and stabilize prices, offering Filipino
consumers access to more affordable rice. Additionally, the law intends to
modernize the agriculture sector by encouraging local farmers to enhance their
productivity and competitiveness. However, implementing the law has raised
concerns, particularly regarding the potential impact on the income of local rice
farmers, who may face increased competition from lower-priced imports. The
government has recognized the need for support mechanisms to help farmers
adjust to the changing dynamics of the rice market.

[1]
The dynamics of rice supply and demand In the Philippines have been
significantly impacted by the adoption of the Rice Tariffication Law. The rice
supply curve has increased since quantitative import limits were lifted and a tariff
regime was implemented. The market’s overall supply of rice has increased as a
result of the importation of rice. In contrast, because customer habits and
preferences have not changed significantly, the demand curve has mostly stayed
the same. The eventual situation is one in which the new regulatory framework-
driven rise in the supply of rice has the potential to promote market
competitiveness and drive down consumer prices. As shown in figure 1.

The demand for palay, or unhusked rice, has significantly decreased in the
Philippines as a result of the law. The main cause of this reduction is the entry of
less expensive imported rice, which leads to customers selecting these
substitutes over palay made locally. The supply of palay doesn't change as
demand declines. There are ramifications to this mismatch between stable
supply and decreased demand. Filipino farmers are facing financial difficulties as
a result of a glut of palay on the market and falling prices, which has reduced
their earnings and profitability. The increased competition makes things difficult
for farmers economically, especially when combined with falling pricing for palay
produced domestically. It's become harder for many small-scale farmers, who
might already be working with slim profit margins, to support their families and
keep up a decent standard of living. As shown in figure 2.

S1
Price
S2

Figure 1

Q
 As shown in the figure 1, the increase in supply due to the law leads to a
lower equilibrium price of rice, which benefits consumers but may negatively
impact local rice farmers.

Figure 2

As shown in the figure 2, the decrease in demand due to the

implementation of the law leads to a lower price equilibrium of palay. As prices
decline, farmers experience a direct impact on their income, witnessing a
decrease in the revenue generated from their rice harvests.

[2]
The law has the potential to result in a more elastic supply in the long
run. This is because the law introduces significant changes in how the rice
market operates. In the short run, adjustments by rice producers may be limited
due to factors like existing planting patterns, technological constraints, and the
time it takes to implement changes. However, over the long term, the law allows
for more flexibility. Farmers can gradually adapt by altering the crops they plant,
adopting new and improved technologies, and expanding their cultivation areas.
This longer time frame enables a more substantial response to changes in
market conditions. Additionally, the law shifts the industry towards a more open
and competitive market by allowing unrestricted rice imports. Over time, this
increased competition and market openness can lead to adjustments in
production strategies and increased efficiency among domestic producers.
Therefore, the potential for a more elastic supply in the long run stems from the
structural changes and the gradual adaptation of the rice industry to the new
market dynamics introduced by RA 11203.

[3]
For rice farmers in the Philippines, the Rice Tariffication Law (RA 11203)
has brought opportunities as well as challenges. Suppostedly in 2033, the Rice
Tariffication Law has been in effect for a decade, leading to increased
competition in the market, improved production and distribution, and better-
quality rice at competitive prices. Farmers have adopted modern agricultural
practices and technologies, such as improved seeds and mechanized farming
equipment, to boost productivity and adopt sustainable farming methods. The
government has implemented programs to support farmers affected by the law,
such as training, subsidies, and incentives. Significant investments in rural
infrastructure have increased agricultural productivity and minimized post-harvest
losses. Philippines has successfully managed global rice market dynamics,
ensuring a stable supply, navigating challenges like climate change, fluctuating
market prices, and geopolitical events. Sustainable agricultural practices are
increasingly recognized, and the government has regularly reviewed and
adjusted its policies to meet the changing needs of the rice industry and the
broader agricultural sector.

If the implementation of Republic Act (RA) 11203, is halted or

discontinued by the year 2033, it would likely have significant implications for the
country’s rice industry. The law was designed to liberalize the rice market by
allowing the unrestricted importation of rice and replacing quantitative restrictions
with tariffs. If the implementation is stopped, it might lead to a reversion to
previous regulatory frameworks or policies that were in place before the law was
enacted. This could impact the dynamics of the rice market, potentially affecting
both producers and consumers. Producers might face changes in competition
dynamics, as the market could shift away from a more open and competitive
structure. Consumer prices and choices might also be influenced, as the supply
chain could be impacted by a return to previous import and distribution systems.
The decision to halt the Law could have implications for international trade
relations, necessitating negotiations with trade partners. In response, the
government may introduce alternative policies, such as subsidies, technology
adoption, and infrastructure development, to support the agricultural sector. This
will also envisions potential technological advancements, with increased
investments in agricultural technology and innovation.

The diagram Illustrates a circular flow that depicts the interrelationships

among various elements within the economy. It is segmented into distinct
sections, each emblematic of different facets of economic activity. The household
sector symbolizes the consumption of goods and services by individuals and
families. Individuals and families procure items essential for their daily lives, such
as food and clothing. The product market, within the diagram, is tasked with
producing goods, including both locally produced and imported rice, to meet the
demands of households. This market invests in resources, labor, and capital to
generate products that fulfill the requirements of the consumer. The government
sector assumes responsibility for furnishing public goods and
services, encompassing areas like education, healthcare, and
infrastructure. In addition, the government collects taxes and
manages the public finances to sustain these services. Furthermore, the
government levies tariffs on consumers, and the funds generated are directed
toward assisting local farmers. Lastly, the international import/export sector
denotes the interchange of goods and services between domestic and foreign
markets.

[5]
The Law led to a decrease in rice prices due to increased imports,
providing consumers with more affordable choices. However, this has also posed
challenges for local farmers, resulting in lower income and profitability. On the
economic front, the law aimed to liberalize the rice market by replacing
quantitative restrictions with tariffs, promoting competition, and potentially
reducing rice prices for consumers. However, the economic soundness may be
contingent on how well the industry adapts to these changes. Producers,
particularly small-scale farmers, may face challenges in adjusting to increased
competition from imported rice. On the social aspect, the law’s impact depends
on its implications for the livelihoods of those involved in the rice sector. Tariffs
were imposed with the intention of funding projects and programs that will
support rice farmers and increase the country’s competitiveness overall. This
fund is called the Rice Competitiveness Enhancement Fund (RCEF). The law’s
effectiveness in achieving food security goals and its overall impact on the
welfare of consumers and producers are key considerations. Social and
economic soundness also hinges on how well the government addresses
potential challenges and implements complementary policies to support affected
stakeholders.

[6]
The management of a major rice trading and processing company in the
community should create a thorough operational plan in order to manage the
effects of the rice tariffication law on the rice industry and guarantee long-term
business sustainability. Investing in cutting-edge technologies and processes
may streamline manufacturing and distribution chains, improving
competitiveness, and lowering costs. Prioritizing quality and branding will help
the business stand out from rivals by guaranteeing precise quality standards and
effective packaging. The business and the farmers can gain by actively engaging
with local rice growers and encouraging cooperation via programs like fair trade
agreements. Creating variety tactics can change according to shifting customer
demands. Examples of such tactics include launching new rice varieties and
growing product lines with value added. Making educated selections requires
keeping up with developments in the market, regulations and rice prices
throughout the world. The firm will be able to overcome the obstacles presented
by the rice tariffication laws and go on working in the expanding rice sector
thanks to this comprehensive approach that incorporates technological
integration, quality control, farmer collaboration, growth, and market analysis.

In conclusion, the Rice Tariffication Law (Republic Act 11203)

implemented in the Philippines has significantly transformed the dynamics of the
rice market, introducing both opportunities and challenges. The law, enacted in
2019, aimed to liberalize the rice industry by replacing quantitative restrictions
with tariffs, fostering competition, and potentially lowering consumer prices. The
short-term impacts include an increase in the supply of rice, leading to a lower
equilibrium price and benefiting consumers. However, the law has negatively
affected local rice farmers, with decreased demand for domestically produced
palay due to the entry of cheaper imported rice. This has resulted in financial
difficulties for farmers and a decline in their income. Over the long run, the law
has the potential to create a more elastic supply as the industry adapts to the
new market dynamics. The government has implemented support programs,
such as the Rice Competitiveness Enhancement Fund, to aid affected farmers.
Looking ahead to 2033, discontinuing the law could have significant implications
for the rice industry, necessitating a reevaluation of regulatory frameworks and
potential adjustments to trade relations. A comprehensive approach for
businesses, including technological integration, quality control, farmer
collaboration, and market analysis, is essential for navigating the evolving
landscape of the rice sector and ensuring long-term sustainability.