Why the rice tariff cut is dangerous

In-depth study, consultation, and hearings are urgently needed to discuss the new agriculture tariffs announced on June 3.

The National Economic and Development Authority (Neda) Board had just approved the Comprehensive Tariff Program, which, among others, maintained the reduced tariff rates for corn, pork, and mechanically deboned meat.

For rice, however, the duty was reduced to 15 percent from 35 percent.

Their main rationale for this was stated in the headline of the Philippine Information Agency: “Neda Board approves Comprehensive Tariff Program calibrating current tariff rates until 2028 to lower prices of goods.”

These tariff announcements have a profound effect on agriculture and its future. The problem deserves immediate attention.

READ: Gov’t slashes tariff on rice imports to help cut local prices

On June 4, in a special meeting of the committee on international trade of the public-private Philippine Council of Agriculture and Food (PCAF), chief tariff specialist Linly de la Cuesta of the Tariff Commission explained the five-step process of modifying tariffs. They are: a notice of initiation, a notice of the conduct of the investigation, the conduct of ocular inspection and data verification, conduct of public hearings and consultations, and the submission of the final report of findings and recommendations.

Since the new tariffs will be implemented for quite so long until 2028, farmer leaders of several organizations now want this process, especially the hearings, done with thoroughness. This thoroughness, however, was not done.

Negligence

Here is an example of how negligence happened in the past. For pork, the Neda Board had recommended that tariff for the minimum access volume (MAV) be reduced from 35 percent to 5 percent.

Leaders of the Alyansa Agrikultura (AA) showed actual import and profit numbers before Senate Agriculture Committee chair Cynthia Villar to appeal this decision. Supposedly, the rationale behind the 5-percent level was: that the lower the tariff, the lesser the cost; in effect, more supplies would automatically mean lower retail prices, thus leading to slower inflation.

This logic is advocated by economists pursuing the neoclassical approach of an economic theory of the firm. However, the book “A Behavioral Theory of the Firm” by R.M. Cyert and J.G. March, showed that behavior and intentions determine reality.

With numbers from experience, AA showed how reducing the tariff to 15 percent, instead of 5 percent, would result in the same purchasing behavior by importers. The profit made by these importers at 15 percent would be enough to motivate them to purchase the additional pork supply desired.

Consider this, too: If an additional incentive of 30 percent is enough to make a salesman work as hard as he can, why give 100 percent? In the same way, if reducing the tariff to 15 percent is already enough, why give 5 percent?

An unnecessary 10-percent tariff decrease would mean P3 billion going to traders at the expense of producers. The actual result of this 15-percent decision was an oversupply and decreased farm gate prices. Retail prices hardly decreased.

Damaging impact

There are other ways to curb inflation aside from reducing tariffs.

In an article by Robert Scott and Adam Hesch published by the Economic Policy Institute, they state: “Claims that tariff rollbacks are an answer to inflation are dangerous. Until a coherent overall strategy is in place, tariffs can give key industries breathing room.”

They go on to argue that unwise tariff decisions would result in “job losses, plant closures, cancellation of planned investments, and further destabilization of the domestic manufacturing base, which would increase domestic dependence on unstable import supply claims.” Sound familiar?

We must now act with urgency, perhaps with Senate support as in the past, on the damaging impact of the new tariffs. If we are serious about food security and the welfare of our farmers and fisherfolk, extensive research and more consultations are needed. INQ

The author is Agriwatch chair, former secretary of presidential flagship programs and projects, and former undersecretary of the Department of Agriculture and the Department of Trade and Industry. Contact is [email protected]