ISSN 2508-0865 (electronic) No.
2021-02 (February 2021)
Does rice tariffication in the Philippines
worsen income poverty and inequality?
Roehlano M. Briones
Rice importation in the Philippines had been limited by
Salient Points:
a regime of quantitative restrictions (QRs) implemented
through a system of direct importation and import • As expected, the Rice Tariffication Law of 2019
licensing by the National Food Authority (NFA). In 2019, (Republic Act [RA] 11203) had resulted in lower prices
a landmark policy reform—Republic Act (RA) 11203 or of palay and retailed rice.
the Rice Tariffication Law—was passed by the Duterte
• Lower palay price, by itself, increases poverty slightly.
administration. The law repealed the regulatory and
import functions of NFA and converted QRs into ordinary
• Using targeted cash transfers, countering this poverty
customs duties, also known as “tariffication”. The law effect is just a fraction of the cost of the safety net
aims to reduce the price of the country’s key staple and, budgeted under RA 11203.
in anticipation of its potential adverse impact on palay
farmers, mandates an annual Rice Fund as production
support and other assistance to rice farmers. The Fund,
which will be given to small farmers for the first six years The rice market and tariffication
of the law’s implementation, equals at least PHP 10 billion
per year (plus any tariff collected from rice imports in Perspective of a farmer federation
excess of PHP 10 billion). The benefits of tariffication were captured mostly by
importers and retailers rather than consumers while
However, the ongoing implementation of rice tariffication inflicting huge losses on farmers, according to a
has recently come under heavy fire. High-profile farmer federation.
objections have been raised by some groups. For one, the
Federation of Free Farmers (FFF), a large alliance of farmer A position paper of the FFF (Montemayor 2020)
organizations in the country, has called for amendments offers a detailed analysis of tariffication from the
to RA 11203, including the reinstatement of QRs. farmers’ perspective:
• In the first year of implementation of RA 11203,
This Policy Note analyzes the poverty and distributional about 2.57 million tons of rice were imported,
effects of rice tariffication. It also reviews trends in the causing a fall in palay prices. Between
rice market since RA 11203 took effect in March 2019. March 2019–February 2020 and
March 2018–February 2019, palay prices dropped by Trends in domestic prices
21.3 percent, equivalent to a loss of PHP 66.5 billion Domestic prices of rice fell at the retail, wholesale, and
to farmers. farmgate levels while gross marketing margins of traders
• On retail prices, the price of well-milled rice (WMR) increased (except for wholesalers of RMR).
dropped by 6.9 percent and regular milled rice (RMR)
by 9.4 percent between 2018–2019 and 2019–2020, Data from the Philippine Statistics Authority cited in the FFF
which is equivalent to PHP 38.6 billion in savings for paper are reproduced in Table 1. Retail prices for WMR and
consumers (based on estimated consumption over RMR fell by 6.9 percent and 9.5 percent, respectively, which
the 2019–2020 interval). seems inconsistent with the characterization of “hardly
• Claims that Filipinos were paying “twice or triple” budged”. The decline in wholesale prices has been even
what consumers in other countries were spending sharper at 15.4 percent and 19.8 percent for WMR and RMR,
on rice were “deceptive and overblown”. respectively. Lastly, the decline in palay prices has been
Moreover, RA 11203 led to the removal of cheap sharpest at 21.8 percent (although, this is higher by only
NFA rice from the retail market, leaving only 2-percentage points than the drop in RMR wholesale prices).
imported rice, which was still selling at PHP 10
more per kilogram than NFA rice. One reason is Table 1 also displays the percentage change in gross
that importers tend to procure the equivalent of marketing margin (i.e. the simple difference between
WMR. In the first year of tariffication, an estimated wholesale and retail price of rice, or in the case of palay,
85 percent of imports were WMR with 5 percent the difference in the price of its milled rice equivalent
broken kernels. and wholesale price) per unit of milled-rice equivalent.
• Traders’ margin increased, soaking up the gains The RMR retailers’ margin shows the largest increase,
from tariffication. In the first year of tariffication, which is more than double at 122.3 percent. Meanwhile,
farmers lost PHP 40 billion while consumers gained WMR retailers’ margin also expands considerably by 59.5
only PHP 232 million as retail prices “hardly budged” percent while that of RMR wholesalers falls by
compared to March 2017–February 2018 period. 13.5 percent for RMR and rises mildly by 4.5 percent for WMR.
Table 1. Changes in prices and margins, March 2018–February 2019 and March 2019–February 2020, by type
of rice
Price (PHP per kg) Margin (PHP per kg) Change in Change in
Milled-rice Equivalent Price Margin (%)
(%)
2018–2019 2019–2020 2018–2019 2019–2020
WMR, retail 45.32 42.21 5.14 8.20 -6.9 59.5
RMR, retail 41.19 37.29 3.00 6.67 -9.5 122.3
WMR, wholesale 40.18 34.01 9.30 9.72 -15.4 4.5
RMR, wholesale 38.19 30.62 7.31 6.33 -19.8 -13.5
Palay 20.07 15.79 -21.3
PHP = Philippine peso; kg = kilogram; WMR = well-milled rice; RMR = regular milled rice
Note: Milled-rice equivalent of palay assumes a recovery rate of 0.65.
Source of basic data: Montemayor (2020)
2 w Does rice tariffication in the Philippines worsen income poverty and inequality?
The increase in retailers’ margins cannot be simply because wholesalers own more stocks (and incur
attributed solely to exercise of market power. higher costs of storage) and are therefore exposed to
The fact that the gross marketing margin moves in greater market risk. A retailer whose normal inventory is
opposite direction to the drop in market price does seem 10 sacks of rice may be able to stock up an additional
to indicate that traders have captured the gains from more 5 sacks in an odd corner of her shop. A wholesaler already
open trade. Montemayor (2020) attributes these changes stocking 100,000 sacks, on the other hand, may have run
in the margin to market power. However, the causal link out of space for an additional 50,000 sacks. Moreover,
is far from convincing. First, wholesalers’ margin for the wholesalers may be more specialized in rice, and therefore
most common type of rice (RMR) has fallen while that of more averse to an expected decline in price; a retailer
retailers has increased. Retailers are mostly small and may be more willing to take risks as rice may be only a
well-dispersed nationwide whereas wholesalers involve small part of his/her overall inventory of goods. These
some very large local players. Thus, the more likely locus considerations add up to the relative inertia to reduce
of real market power is among wholesalers rather than prices among retailers and a greater willingness to cut
retailers (Briones 2019). Second, proponents of the prices among wholesalers.
market power hypothesis fail to hypothesize the converse
that a decline of the marketing margin (as among On average, the wholesale price of RMR in the
wholesalers of RMR) implies a loss of market power. Philippines was nearly double that in Viet Nam
from 2008 to early 2019.
For instance, it is possible that wholesale prices react Figure 1 presents the wholesale prices of rice in Viet
earlier and faster to trade shocks compared to retail prices Nam in USD per kilogram as blue bars; the gap between
Figure 1. Monthly wholesale price gap and wholesale price ratio of rice (25% broken) in An Giang,
Viet Nam, and RMR in Metro Manila, Philippines, 2008–2018 (in USD per kg)
1.00 3.00
0.90
2.50
0.80
Wholesale price ratio
0.70
2.00
Wholesale price
0.60
0.50 1.50
0.40
1.00
0.30
0.20
0.50
0.10
0.00 0.00
11/2008
02/2015
01/2008
06/2008
04/2009
09/2009
02/2010
07/2010
12/2010
05/2011
10/2011
03/2012
08/2012
01/2013
06/2013
11/2013
04/2014
09/2014
07/2015
12/2015
05/2016
10/2016
03/2017
08/2017
01/2018
06/2018
11/2018
Vietnam
Viet Nam Wholesale price gap Wholesale price ratio
RMR = regular milled rice; kg = kilogram; USD = United States dollar
Source of basic data: FAO (2020)
PIDS Policy Notes 2021-02 w 3
wholesale prices in the Philippines and Viet Nam in USD higher-quality rice. NFA rice accounts for just 13.3 percent
per kilogram as orange bars (hence, the height of the of the poor’s rice spending, which means that 87 percent
bars are the wholesale prices of rice in the Philippines). is spent on commercial rice. Whereas RA 11203 has
While wholesale prices in the Philippines over that period stopped the sale of affordable NFA rice, the bulk of the
never quite tripled that in Viet Nam, in many cases, the poor’s spending is anyway for commercial RMR rice, which
prices were more than double. On average, the monthly has become considerably cheaper upon tariffication.
wholesale price of rice in the Philippines was 90 percent
higher than in Viet Nam. Impact of rice tariffication on income poverty
and distribution
The poor devote a large share of their household Based on microsimulation analysis, a PIDS study finds that
spending on rice, which is concentrated on RMR, tariffication causes a slight increase of 0.56-percentage
with cheaper rice from NFA (“NFA rice”) being a points annually in income poverty in 2019–2021 and
minor contributor. 2022–2024, but attenuating in 2025–2030 (Briones 2020)
Rice accounts for a fifth of the household expenses of (Table 2). Likewise, the poverty gap (i.e., the total
the poor (Figure 2). This is very high, considering that shortfall between income of the poor and the poverty
the nonpoor devote only about one-tenth. Of this rice line averaged over the whole population) and the sum of
spending of the poor, 72 percent is allocated to RMR, squared poverty gap both increase, suggesting that the
which is cheaper than WMR. Even the rice spending of the income difference is slightly skewed toward the poorer
nonpoor is likewise skewed toward RMR, although they households. This is consistent with the increase in the
devote a larger share of their rice spending on Gini ratio or income inequality projected over the period.
Figure 2. Shares (%) of rice in expenditure by type of household, 2015
80.0
72.0
70.0 66.0 67.1
60.0
50.0
40.0
27.7
30.0 24.7
20.2
20.0 13.3
11.9 10.9 12.7
10.0 5.1 6.7
0.0
Poor households Nonpoor households All households
Share of rice in total expenditure Share of RMR in rice expenditure
Share of WMR in rice expenditure Share of NFA rice in rice expenditure
WMR = well-milled rice; RMR = regular milled rice; NFA = National Food Authority
Source of basic data: Public-use file of the Family Income and Expenditure Survey, PSA (2018)
4 w Does rice tariffication in the Philippines worsen income poverty and inequality?
Table 2. Annual percentage-point changes (%) in poverty measures and population due to tariffication
2019–2021 2022–2024 2025–2027 2028–2030 2019–2030
Poverty incidence 0.56 0.56 0.23 0.07 0.29
Poverty gap ratio 0.25 0.19 0.04 0.01 0.08
Squared poverty gap ratio 0.13 0.08 0.01 0.00 0.03
Gini ratio 0.07 0.07 0.08 0.08 0.08
Source: Author’s calculation
However, these poverty and inequality measures all show households with and without tariffication. This amount also
only minimal increments. denotes the cash transfers needed to bring poor households
back to their without-tariffication incomes. Figure 3 shows
The weakness of the poverty impact is striking, the difference in incomes of the poor due to tariffication.
considering that the bulk of poor workers are in It shows that in the first three years, poor households are
agriculture and that rice farming likely generates the losing just PHP 2.84 billion annually, on average, and this
most employment, whether for own-account or hired further declines to PHP 2.1 billion in 2022–2024.
workers. This is because the PIDS study accounts for
various intersectoral effects that may mitigate the loss in Subsequently, the annual poverty gap declines to about
palay farmers’ and workers’ income, including income gains PHP 500 million in 2025–2027 and further down to
of the poor elsewhere in the economy (Briones 2020). PHP 134 million in 2028–2030. The total absolute
poverty gap in the six-year period is PHP 14.9 billion,
How large, in monetary terms, are these poverty impacts? which is the minimum amount of cash transfers needed
One way to gauge this is to determine the peso value of to compensate the poor for the increase (if any) in their
the difference between per capita annual income of poor respective absolute poverty gaps due to tariffication.
Figure 3. Difference in annual incomes of the poor (in PHP millions), with tariffication, 2019–2030
3,000 2,842
2,500
2,130
2,000
1,401
1,500
1,000
497
500
134
0
2019–2021 2022–2024 2025–2027 2028–2030 2019–2030
Source: Author’s calculation
PIDS Policy Notes 2021-02 w 5
This amount is far below the PHP 60 billion, which is References
the minimum amount allocated for the Rice Fund under
RA 11203. The Rice Fund even exceeds the total income Briones, R.M. 2019. Competition in the rice industry: An
issues paper. PCC Issues Paper No. 1, Series of 2019.
difference cumulating over the 12-year scenario, which is
Quezon City, Philippines: Philippine Competition
equivalent to only PHP 16.8 billion. Therefore, if properly Commission. https://www.phcc.gov.ph/wp-content/
targeted, the Rice Fund budgeted in the tariffication law is uploads/2019/03/Issues-Paper-Rice-030819-cover-1.
more than enough to offset the impact of tariffication on pdf (accessed on August 30, 2020).
income poverty. ———. 2020. Did opening up of rice importation in the
Philippines worsen income poverty and inequality? A
general equilibrium with microsimulation approach.
Concluding remarks PIDS Discussion Paper No. 2020-43. Quezon City,
Rice tariffication ultimately causes an increase in income Philippines: PIDS. https://pidswebs.pids.gov.ph/CDN/
poverty, across a variety of measures, geographic PUBLICATIONS/pidsdps2043.pdf (accessed on October
categories, and time. However, the increase in income 30, 2020).
Food and Agriculture Organization (FAO) of the United
poverty comes in small increments and diminishes over
Nations. 2020. GIEWS FPMA tool: Monitoring and
time. The value of income loss suffered by the poor is analysis of food prices. Rome, Italy: FAO. https://fpma.
far below the amount provided by the law to address apps.fao.org/giews/food-prices/tool/public/#/home
problems associated with tariffication in the (accessed on October 15, 2020).
rice economy. Montemayor, R. 2020. Rice traders liberated (RTL), at last!
Winners and losers from the rice tariffication law.
https://newsinfo.inquirer.net/1332019/winners-and-
Meanwhile, further research is needed to look into the losers-from-the-rice-tariffication-law (accessed on
Rice Fund programs and their impact on the rice industry August 30, 2020).
at the grassroots (farm operators, farmworkers, and Philippine Statistics Authority (PSA). 2018. Public use file of
other entrepreneurs and workers in the value chain). the Family Income and Expenditure Survey. Quezon City,
Philippines: PSA.
This evaluation necessitates an extensive collection of
Republic Act 11203. An act liberalizing the importation,
primary data, preferably through field surveys. Such data exportation and trading of rice, lifting for the purpose
are essential to assess whether, in fact, RA 11203 has the quantitative import restriction on rice, and for
adequately compensated the losers of the policy reform, other purposes. Manila, Philippines: Congress of the
and whether it has helped accelerate the transformation Philippines. https://www.officialgazette.gov.ph/
downloads/2019/02feb/20190214-RA-11203-RRD.pdf.
of rice and other agricultural value chains.
(accessed on August 30, 2020).
Contact us
Address: Research Information Department PIDS Policy Notes are analyses written by PIDS researchers on certain
Philippine Institute for Development Studies policy issues. The treatise is holistic in approach and aims to provide useful
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EDSA corner Quezon Avenue, Quezon City
Telephone: (+63-2) 8877-4000 Roehlano M. Briones is a senior research fellow at PIDS. The views
Email: [email protected] expressed are those of the author and do not necessarily reflect those of the
Website: www.pids.gov.ph PIDS or any of the study’s sponsors.
6 w Does rice tariffication in the Philippines worsen income poverty and inequality?
