﻿ Computing the correct tariff | Inquirer Business
Close
Commentary

# Computing the correct tariff

/ 05:30 AM October 25, 2019

If we do not compute the correct tariff, 2.5 million households dependent on rice will continue to suffer with the current rate of 35 percent.

At 4.4 persons per household, this means 11 million people will fall deeper into poverty.

Department of Agriculture (DA) statistics for Oct. 10 showed that the national average farm gate price for wet palay was P13.35 a kilo. The wet, not dry, price is used because 80 percent of rice farmers get this due to no access to drying facilities. At  a production cost of P12 a kilo, the net income is P1.35. Assuming a 4-ton yield, this results in only P5,400 profit per hectare.

In the highest palay-producing regions, these farm gate prices are even lower: P11.31 for Region 2, P12.08 for Region 3, and P12.33 for Region 6.

FEATURED STORIES

A government official had earlier asked why more than  100 million Filipinos should be sacrificed just to save three million rice farmers. In addition, the 35-percent rice tariff will significantly decrease inflation.

At an Oct. 19 business conference, Danilo Fausto, president of the Philippine Chamber of Agriculture and Food Inc. (PCAFI), said:  “Let us not be a Hitler! You don’t kill 3.5 million farmers to save 100 million consumers. Don’t slaughter the farmers to save the consumers.”

Are the farmers being slaughtered?  In a recent meeting with top Philippine Statistics Authority officials, it was revealed that the dry palay farm gate price dropped by 29 percent as of September this year from year-ago level. Rice farmers are definitely suffering.

Are the consumers being saved? Not really. The rice retail price for well-milled rice decreased by only 8 percent.  It is the traders who are getting most of the benefit.

Did rice tariffication significantly curb inflation? On Feb. 7, the central bank predicted that this would decrease inflation by only 0.7 percent. Good estimate. PSA reported that rice contributed only a 0.9-percent decrease as of September. Therefore, was the 35-percent  tariff benefit worth the farmers’ enormous  suffering?

You decide. Of course, tariffication is superior to the previous rice import monopoly, which resulted in arbitrary  decisions, abuse and corruption. But the tariff level must be the correct one. This is computed by using the procedure advocated by international trade experts, our own laws, and the World Trade Organizatiom (WTO).

The correct tariff is one that equates the landed price of the imports with the wholesale price of the domestic product.  Two farmer organizations submitted information 30 days  before the DA’s mandated Oct. 10 deadline for submitting its findings on this critical issue. When asked for these findings (even partial ones) on Oct. 11, none were given. We were informed that the study was prematurely terminated, possibly because of a new tariff’s inflation impact.

Having no other recourse, we did our own computation using official government data. Employing the accepted procedure identified earlier, the tariff that equates imported with domestic price is 86 percent. But if one wishes to motivate rice farmers to do better by favoring   imported rice, a challenging 70 percent can be implemented.

If we assume that traders will pass on to the consumer 27 percent of the increased costs (similar to the 27 percent passed on from the  decreased costs from the 35 percent tariff), the impact   on inflation of the 70 percent tariff  will only be 0.6 percent. This is because rice constitutes only 10 percent of the Consumer Price Index.

DA must now consider these estimates and correct them, as appropriate. Whatever the estimate will be, the resulting inflation will be well within the government’s target 2-4-percent.

Until we correct the tariff rate, cheap imports will continue to displace our farmers’ livelihood. As of September, imports have reached 2.8 million tons, more than double our annual 1.3-million  ton import requirement, and ending with 3.5 million tons by December.

Agriculture Secretary Dar William has repeatedly said he supported agriculture safeguard measures, and added he was willing to look at this tariff level at the appropriate time. That time is now.

Every day counts. The aborted study  should be allowed to continue until the correct tariff level is computed. Given their undeserved suffering, our rice farmers deserve no less.

LATEST STORIES
Don't miss out on the latest news and information.

Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.