For decades a Philippine price-support regime caused mounting public debt and the highest rice prices in Southeast Asia, but replacing a system with so many vested interests was too high a hurdle—until now.
For decades a Philippine price-support regime caused mounting public debt and the highest rice prices in Southeast Asia, but replacing a system with so many vested interests was too high a hurdle—until now.
Bruce Tolentino (00:02):
This was an example of how to bring coalitions together, how to organize policymakers as well as interest groups so that they can act on their self-interest but the net result is a benefit for everybody.
John Rieger (00:18):
Rice reform in the Philippines, a saga on InAsia from The Asia Foundation. I'm John John Rieger.
Tracie Yang (00:24):
I'm Tracie Yang. For years, Filipinos have paid far more for rice than their Southeast Asian neighbors due to a stubbornly entrenched regime of import and price controls. But that all changed in March, 2019 with the adoption of the Rice Tariffication Law, which dismantled the monopoly National Food Agency and replaced import controls with tariffs.
John Rieger (00:47):
Here to tell us how this revolution came to pass is Bruce Tolentino. He's a member of the Monetary Board of the Central Bank on the Philippines with a long career in food security and development economics. He's also an old friend of The Asia Foundation. He was our chief economist from 2007 to 2011 and our Afghanistan country representative from 2011 to 2012. He joins us today via the intertubes from Manila where it's 9 in the morning. Bruce Tolentino, good morning. Thank you for joining us.
Bruce Tolentino (01:15):
Hello, John. Hello, Tracie. Good to meet you and I'm happy to join you for this podcast.
Tracie Yang (01:19):
Excellent. So here at, in Asia, we're always interested in hearing how the development sausage is made. This week's top blog post is a ripping yarn about the 40 plus year effort to reform the Philippine rice sector. Bruce, you worked on these reform efforts for years, so help us get started on the saga of Philippine rice reform. How did rice policy become such a Gordian knot?
Bruce Tolentino (01:46):
Rice in Asia in particular can make or unmake governments. The administration has always thought rice as an important part of its efforts to apiece the citizenry as well as particular groups, especially farmers groups. The National Food Authority was an agency with a mandate to buy high from farmers and sell low to consumers. Of course, buying high from farmers required subsidies and selling low to consumers also required subsidies. So once a subsidy is provided, it's very difficult to take it away.
John Rieger (02:28):
Rice is an important staple in the Philippines and spending money on public goods is not in itself a bad thing. What were the effects of these subsidies on the rice market?
Bruce Tolentino (02:38):
When the government says, "Well, we're buying high from farmers, who can object to that? We're selling low to consumers, who can object to that?" When you do the analysis, however, you find out that only very few farmers benefit from the system and only very few consumers benefit from the system. This system actually costs a lot more than it actually delivers.
John Rieger (03:06):
I gather that this analysis added to the existing dissatisfaction with the system, which apparently it goes back as far as the Marcos regime. People have been trying to change the system of rice subsidies since the late '70s. That's a long time.
Bruce Tolentino (03:22):
That is a long time. And I was a participant in many of the attempts and we learned as we went along.
John Rieger (03:29):
Do you have any anecdotes from your years of failure?
Bruce Tolentino (03:33):
In the early days we dealt with this purely as a technical issue. Let's fix the NFA. Let's make it more efficient. Little did we realize that its motivations are political and the levers that actually matter are those that are held by politicians who respond to their constituencies. As we learned how to deal with it politically, we got closer and closer to the goal, except that there was always one element missing. By happenstance and by sheer luck, I would say, all of those elements came together in the last few years and the reform was achieved. But at the same time, I should say that it's not over yet because there are groups who are resisting the reform that has just taken place.
John Rieger (04:25):
So it's still in play.
Bruce Tolentino (04:27):
Oh, yes. Just like healthcare reform in the US.
Tracie Yang (04:31):
So what's the political thinking behind this resistance?
Bruce Tolentino (04:34):
If you look at the various groups who benefited from the policy, there would be first and foremost the farmers groups. Whenever the National Food Authority would go out to buy rice, they would buy from particular groups. Of course, these particular farmers groups resisted the reform. Second, the employees of the National Food Authority themselves of course saw that their jobs were in danger because of the reform. So they resisted that reform. Third, the bureaucrats who found it important to be able to secure rice for distribution to voters groups did not want that kind of subsidy to be taken away from their arsenal of goodies to distribute particularly during the election period.
John Rieger (05:30):
So this was clearly not just a technical analytical challenge. This was really a matter of thinking and working politically.
Bruce Tolentino (05:39):
Yes, this was an example of how to bring coalitions together, how to organize policymakers as well as interest groups so that they can act on their self-interest but the net result is a benefit for everybody.
John Rieger (05:55):
That sounds like a state of harmony only possible in the next life.
Bruce Tolentino (06:00):
Well, we are in this business because we are dreamers.
Tracie Yang (06:09):
So the Rice Tariffication Law was passed in 2019. Can you kind of walk us through the watershed moments that allowed that to happen?
Bruce Tolentino (06:20):
When the new administration came in under President Duterte, there arose conflict between his office and the NFA administrator as to how to procure rice supplies. Part of the rice supplies normally come from imports. Imports are cheap. When the National Food Authority imports rice, they make money. They lose money, in fact, when they buy from local farmers. The conflict had to do with, shall we use government imports or shall we allow the private sector to import? As they tried to work out their disagreement, local stocks fell. Prices started the climb. As prices started to climb, inflation also shot up. Everybody got interested in this issue.
John Rieger (07:18):
As these events were unfolding, did you begin to feel a certain sense of excitement? Like, "Oh my gosh, it's finally going to happen."
Bruce Tolentino (07:24):
Oh, oh yes. We were never quite sure whether or not it was happening because the bill was ready for signature by the president. But he waited till the last minute to actually sign the bill and he signed the bill on Valentine's day. So we think of it as this Valentine's date, those have been waiting for it for such a long time.
Tracie Yang (07:51):
A nice Valentine's day gift.
Bruce Tolentino (07:53):
Yes. Of course, some people got their hearts broken, but-
Tracie Yang (07:57):
Yeah, let's talk about who's ox was gored. Have there been any losers here, either short-term or long-term?
Bruce Tolentino (08:05):
Well, there are a short term losers. The employees of the National Food Authority were easily dealt with because many of them got nice retirement packages, but it will take a while for the farmers to adjust because imports are now unlimited. We are able to approximate the price of rice in Vietnam or Thailand, which are two to three times lower than that of the Philippines. Consumers can now access those lower prices, but farmers have to compete. Part of the law creates what's called the Rice Competitiveness Enhancement Fund which is generated from the tariffs earned via imports. So those tariffs now go into a fund which support the improved seeds, the technology, the farm machinery, and the training that farmers are now getting so that they can become as competitive and as productive as farmers say in Thailand or Vietnam.
John Rieger (09:11):
It says here that since the law was passed in February of 2019, the Philippines has become the world's largest rice importer. Rice prices are going down and yet farm output is setting records. Now, how often does a policy work that well?
Bruce Tolentino (09:31):
Very, very rarely I must say. I've been working on this for the last 35 years. So it gets emotional.
John Rieger (09:40):
Bruce Tolentino. Thank you so much for joining us today.
Bruce Tolentino (09:43):
Thank you, John and thank you, Tracie. Your questions were very much to the point.
Tracie Yang (09:49):
That's our show for this week. You can read more about rice reform in the Philippines and meet some of the other players in this week's InAsia blog.
John Rieger (09:58):
While you're there, don't forget to subscribe to our very interesting podcast or just type InAsia, one word, into the Google machine. We'll be back in two weeks. Until then I'm John Rieger.
Tracie Yang (10:08):
I'm Tracie Yang.
John Rieger (10:09):
Thanks for listening.