(MEC-J) Management and Economics Journal

E-ISSN: 2598-9537 P-ISSN: 2599-3402

Journal Home Page: http://ejournal.uin-malang.ac.id/index.php/mec

Volume 6 Number 2, August 2022

Food Sufficiency, Tariffication Policy, and Business Strategy: A New

Business Model for the Rice Milling Industry in the Philippines

ABSTRACT
1
Sarah C. Alvarez , Feliciana
Rice is a primary commodity in the Philippines and a staple food for
P. Jacoba1, Olive Chester C.
Antonio1,2, Arneil G.
Filipino families. Climate change, low yield, and decreasing number
Gabriel1,2*, Macky C. Herezo3 of Filipinos engaged in agriculture lead to the instability in the supply
of rice and fluctuation in market price affecting local farmers, rice
1
Nueva Ecija University of millers, and consumers. In an attempt to address rice shortage and
Science and Technology, lower retail prices, Republic Act No. 11203 or Rice Tariffication Law
Cabanatuan City 3100, was promulgated. Given the contribution of Nueva Ecija province in
Philippines
the rice economy of the country, it is vital to analyze the impact of
2
College of Public the policy in the province, specifically, on the operations of 82
Administration and Disaster registered rice millers using descriptive method of research. Results
Management, Philippines indicate that the rice millers observe the traditional practices in
3
trading milled rice. Most of them are not engaged in importation and
Manuel V. Gallego Foundation
are facing challenges related to the sudden policy reform. From the
Colleges, Inc, Philippines
findings of the study, a new business model is recommended to help
*Corresponding author rice millers increase the scope of their operations and acquire
[email protected] necessary funding from banking institutions. The new model is seen
to help the rice millers gain income from different ventures, allowing
them to expand, grow and help the economy in the long run. Thus,
raising sustainable investments in the rice industry in the province
and in the Philippines.

Keywords: Rice Sufficiency, Tariffication, Policy, Reform,

Philippines

| Received July 2022 | Accepted August 2022 | Available online August 2022 |
| DOI: http://dx.doi.org 10.18860/mec-j.v6i2.17020

INTRODUCTION

The Philippines is a highly agricultural country and agriculture plays a significant role in
its economy (Cororaton and Corong, 2009). Rice crop is its primary agricultural product
(Dawe, Moya, and Casiwan, 2005) and rice is considered a staple food for Filipino
families (David and Balisacan, 1995). Rice consumption levels differ according to the age
and occupation of the consumers but on the average, consumption reaches 2.2
kilograms for every person per week or 114.27 kilograms per year (Philippine Statistics
Authority, 2018). Rice production alone contributes 20 percent to the Gross Domestic
Product (GDP).

109
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

However, while the demand for rice increases, the agriculture sector for the last decade
has been faced with significant decrease in productivity, high production costs, and low
government support (Canadian International Development Agency-Philippines-Canada
Local Government Support Program or CIDA-LGSP, 2003; Kikuchi, 2014lambert). The
production of palay is also dwindling due to the conversion of agricultural lands into
residential and commercial spaces, as well as, into roads and highways for public use
(Rondhi, 2018; Bankoff, 1996).

The high demand coupled with unstable supply has been the cause of frequent
fluctuation in the market price of palay and milled rice (Sobrevinas, 2009; Dawe, 2010).
Available statistical data for 2017 to 2018 pointed to the upsurge in the farm gate prices
of rice for about 7% or from 17.79 pesos (0.35 US Dollar) per kilogram in 2017 to 19.01
pesos (0.38 US Dollar) per kilogram in 2018 (Cororaton et al., 2018).

Marginalized Filipinos who rely on government’s financial subsidy are forced to buy
commercial rice with relatively higher price due to the limited supply of low-priced milled
rice in the market and from the National Food Authority (NFA), the government agency
given the function of ensuring the food security, stability of supply, and low price of
staple grain rice in the Philippines (nfa.gov.ph). Two of the immediate solutions
recommended to address the problems arising from insufficient supply of rice are the
importation from other rice-producing countries and enactment of Republic Act No
11203 entitled, “An Act Liberalizing the Importation, Exportation, and Trading of Rice
Lifting for the Purpose and The Quantitative Import Restriction on Rice and for other
Purposes”.

The Quantitative Restrictions on rice and imposition of tariffs have long been
implemented in the Philippines as policy instruments for the regulation of international
trade of goods (PhilRice, 2012) under the ASEAN Free Trade Area Common Effective
Preferential Tariff (AFTA-CEPT) scheme (Batausa, 2003). The restrictions on the one
hand come in the form of quota or licensing requirements to limit the volume of
commodities entering the country (Tolentino and Dela Peña, 2020). Tariff on the other
hand is the tax being paid to the government for the imported or exported goods
(Moutos, 2001). But, recently, trade liberalization has pushed through, easing the flow of
goods and services by loosening the restrictive measures (Batausa, 2003).

The Republic Act No. 11203 or the Rice Tariffication Law approved on February 14, 2019
by President Rodrigo Duterte (Tobias, 2019) liberalized rice imports but imposed a tariff
of 35% on shipments of grains from Southeast Asian regions. The imposition of tariff
intends to generate Rice Competitive Enhancement Fund (RCEF). Through the RCEF, the
government aims to finance the modernization of the farming industry and provide
funds for farmers, farming business, financial institutions and rice cooperatives (National
Economic Development Authority, 2019).

Typically, the price of rice increases when there is inadequate supply to cater to
increasing demand. However, during the first quarter of 2019, the farm gate price of
110 MEC-J (Management and Economics Journal)
Vol 6 (2) August 2022
 Alvarez et al.

palay have declined by 1.12 percent (Bautista, 2019) reflecting how government
interventions seemingly are falling short in addressing the demand and securing the
supply of rice in the market (David & Balisacan, 1995). Contrary to what was expected,
the law’s immediate effect includes less income for local farmers due to inadequate
safety nets. The price of palay has been greatly affected due to importation and the
presence of large volume of imported grain in the market which were sold at much
lower price. In some provinces, the price of palay reached as low as seven pesos (0.14
USD) per kilogram. Far less than the estimated return of investment.

The Central Luzon (Region III) in the Philippines which is an agricultural area also
experienced the negative effect of tariffication and lifting of quantitative import
restriction on rice. The province of Nueva Ecija alone dedicates 249.9 thousand hectares
for its rice crops (Philippine Statistics Authority, 2019) but, the sudden decline in palay
prices has forced the local farmers to sell their agricultural lands so they can finance
other needs. Many rice millers meanwhile experienced financial drought that has led to
the temporary or permanent closure of their milling businesses. Many families in the
province depend on agriculture so are the 82 rice mills in the locality (National Food
Authority, 2019) whose operation lies in the processing of harvested rice and selling of
its by-products.

Rice mills play important role in food sufficiency as they turn palay into rice that can be
sold, cooked, and consumed. However, at least 3,000 rice mills nationwide have stopped
their operations due to the influx of cheaper imports. Available records seem to agree as
it was reported that only 60% to 70% out of 10,000 rice mills nationwide were able to
continue their operations following the implementation of Rice Tariffication Law (Co,
2019).

The untoward situation has prompted the government to intervene through the local
government units by allotting fund for the direct purchase of local farmers’ harvests,
maximizing the use of public funds to establish “fair” palay price. The government also
conceptualized a 1.5-billion-peso (30 Million USD) loan assistance program for farmers in
cooperation with the Department of Agriculture (DA), Agricultural Credit and Policy
Council (ACPC) and Land Bank of the Philippines (LBP) to roll out the Expanded Survival
and Recovery Assistance Program for Rice Farmers. The measure is expected to provide
immediate assistance to continuously finance domestic agricultural activities.

Nevertheless, the rice millers found certainty amidst the uncertain situation since several
of them have taken advantage of the newly-implemented law. Rice mill businesses with
enough capital have shifted to importing rice, particularly higher value rice with
significant local demand. In spite the 35% import tariff, they still manage to earn higher
margins than the taxes they pay to the government. A manifestation that the reform
calls for innovation in existing business models to conform with the mandates of the rice
tariffication law while enhancing the resiliency of the rice industry.

MEC-J (Management and Economics Journal) 111

Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

There are few literatures focused on assessing the impact of the Rice Tarrification Law in
the Philippines. The existing studies found the positive impact of the Law to the families
with low income while a negative impact to the rice growers (Balié et al., 2021; Cororaton
& Yu, 2019; Vertudes et al., 2020). The novelty of this study is its offering of new business
model to the rice millers and growers that could raise sustainable investment and
resiliency to the rice industry. With the current situation of businesses, production
industry, household income, and the rice industry that are negatively affected by the
COVID-19 pandemic (Schmidt et al., 2021), the findings of this study would be a
significant baseline data on the field of food sufficiency, tarrification policy, and business
strategy.

The study seeks to analyze the operations of rice mills in the province of Nueva Ecija and
from the findings devise a new business model out of Drucker’s Business Model (Figure
1) that will raise sustainable investments in the rice industry in the province and in the
Philippines. Also, the study determines the rice mills’ a) profile (number of years in
operations, net worth, warehouse capacity, capital, number of retail outlets); b)
operations (pricing, buying and selling activities); and c) problems encountered.

LITERATURE REVIEW

The business sector according to Drucker (1994) has the ability to change its strategies,
assumptions, and policies to suit the demands of the market, consumers, and
technological advancements. The organization’s behavior is seen as something that
dictates the decisions about what to do and what not to do in order to come up with
meaningful results.

According to the theory, even businesses that have enjoyed long-term success at some
point hits stagnation, finding themselves incapable of coping with the demands
(Drucker, 1994). Therefore, the need to innovate and find new ways of doing business
(Lambert, 2013). The diagram below shows the concept contained in the model.

112 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022
 Alvarez et al.

Figure 1. Framework derived from Peter Drucker ‘s (1994) Theory of Business

In spite having definite objectives, the organization’s original goals can also become
obsolete. The unexpected success and unexpected failures from rapid growth,
incongruence between economic globalization, political splintering, or new standards of
performance signal the need to come up with new models. The business model concept
is useful in analyzing and communicating the essence of business, making predictions,
and providing explanations on the new ways of doing business (Lambert, 2013).

The study aims to develop a new model based on the theoretical framework presented
to define where the rice mill businesses may device strategies depending on what the
customers value or on what the market trend dictates.

METHODOLOGY

The study analyzed relevant published researches and literatures and the results of the
survey and interview conducted with the operators/owners of 82 rice mills from the 20
municipalities in the province of Nueva Ecija in the Philippines. The data collection was
carried out during the first quarter of 2020. The study also employed direct observation
to explore how the subject of the study operates and to triangulate the data collected
out of the responses made by the operators/owners.

MEC-J (Management and Economics Journal) 113

Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

Figure 2. The Map of the Province of Nueva Ecija

RESULTS

The summary of the descriptive statistics of the variables measured are presented in this
section. Frequency, percentage, and weighted mean were used to show the distribution
of the responses.

Profile of the Rice Mill Businesses

One of the determinants of profitability is the number of years a business has been
operating (Burja, 2011) as it signifies good service and good management. The data
reflects that the income of the rice mills is substantial to make them survive in the
industry. It is also evident that majority of the rice mills in the province have been in
existence for more than 20 years having percentage of 40.24%, while 35.37% have been
operating for 16 to 20 years, and 13.41% are under 11 to 15 years. Only 7.32% are operating
for 6 to 10 years and 3.66% are still under 1 to 5 years operation.

Rice mill business requires large start-up capital to establish. Enough fund must be
allotted for the purchase of vehicles, equipment, and machineries to support its
operations. The data reveal that 59.76% of the rice mills are classified as “Large” having
net worth or asset value of the company at 100,000,000.00 Philippine peso (PHP) or 2
million USD and above. While 40.24% of the rice mills are under “Medium” classification
having a net worth of 15 million PHP to 100 million PHP (300,000 to 2 million USD).

114 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022
 Alvarez et al.

Having spacious warehouses is crucial in the operation of rice mills since they serve as
the storage for raw and processed products, and buffer stocks. Based on the data
gathered, the storage capacity of rice mills in Nueva Ecija ranges from 12,000 cavans to
around 100,000 cavans of rice. To finance their operations, rice millers in the Philippines
should have a minimum capital of 10,000,000.00 PHP (200,000 USD) to 25,000,000.00
PHP (500,000 USD). This is because they will invest on machineries, manpower resource,
equipment, and construction of large storage facility to house raw materials and
processed products until they are good for distribution. Based on the results, 52.43% of
the respondents invested a capital ranging from 7,000,000.00 PHP (140,000 USD) to
150,000,000.00 PHP (300,000 USD) while 47.56% mentioned that they invested
160,000,000.00 PHP (3.2 million USD) to 300,000,000.00 PHP (6 million USD) excluding
the amount expended for fixed assets. As the number of retail outlets increases so with
the start-up capital.

In the business sector, consideration is given to the selection of the right location for the
business space. It is therefore not surprising that the respondents own several outlets in
various municipalities. The data reflects that the competition is tight among the rice
millers. Data show that 29.27% have 21-25 retail outlets, 20.73% have 11-15, while 18.29%
have 16-20 retail outlets. Moreover, around 17.07% have 26 and above retail outlets and
14.63% have less than 10 retail outlets.

Operations of the Rice Mills

All the Rice Mills included in the study are engaged in the buying and selling of palay and
rice. In terms of pricing, data show that rice mills in Nueva Ecija buy palay at the
prevailing price directly from the farmers (72 out of 82 respondents). Another option for
the respondents is to buy palay from the palay traders at a higher price (69 respondents)
followed by hiring a classifier to gauge the quality of palay as a basis in determining its
price (60 respondents). Fourth in rank of buying activities is to buy rice from other rice
millers who are engaged in rice importation (48 respondents), and still there are rice
millers that buy rice from other countries at a lower price compared to locally produced
rice (38 respondents).

Meanwhile, in terms of volume, rice mills purchase palay from the palay traders (72
respondents) followed by purchasing the bulk of their palay from the local farmers (68
respondents). The third in rank of the buying activities in terms of volume is that rice
mills purchase palay from the different provinces aside from Nueva Ecija (64
respondents), while 48 respondents acquire hauling services in purchasing significant
volume of palay from different provinces. The last in rank shows that rice mills purchase
significant volume of imported rice from other countries as well as from other rice
millers (28 respondents).

When it comes to the selling activities of the rice millers, items pertaining to the selling
and delivery of rice to other provinces in a higher price ranked 1st with 66 out of 82
respondents. This is followed by selling well-milled rice to leading supermarkets in the
country at a higher price (59 respondents). The third is selling rice to other small retail
MEC-J (Management and Economics Journal) 115
Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

outlets with substantial mark-up on its price (58 respondents), while the fourth is that
rice mills sell imported rice to other rice millers at a higher price (48 respondents). Lastly,
rice mills sell imported and local rice directly to the consumers at a lower price (33
respondents).

The rice millers in the province also supply rice to the retailers from other provinces (66
out of 82 respondents) since most residents in palay-generating areas often leave supply
enough for consumption. Meanwhile 59 respondents mentioned that rice millers sell
bulk of its rice to small rice retailers in the province, while the third selling activities in
rank indicate that rice mills sell significant volume of well-milled rice to leading
supermarkets in the country (58 respondents). Rice mills also acquire hauling services in
selling significant volume of palay from different provinces (53 respondents), and the
least is selling imported rice to other rice millers (34 respondents).

During harvest season, rice millers purchase palay at 16 pesos to 19.50 pesos per
kilogram. Their bulk purchase often is within 2 million to 4 million cavans. It was revealed
during the interview that the rice millers can sell the milled rice for 32 to 37 pesos per
kilogram and 300,000 to 1 million cavans per month.

Challenges Encountered
Rice Tariffication Law
Based on the results, respondents agree that the implementation of the rice tariffication
law has put additional burden on them (Average WM=2.94). The respondents strongly
agree that they do not have enough capital to purchase imported rice from other
countries (WM=3.62). While they slightly agree on purchasing imported rice from other
rice millers making the rice milling facility dormant (WM=1.89). A rice miller from Aliaga,
Nueva Ecija disclosed that rice importation demands large amount of capital for the
payment of the goods, documentation, transportation, additional manpower, and tariff.

Table 1. Challenges encountered related to the implementation of Rice Tariffication

Law
Item Statement
WM VI
Our Firm…
1. Does not have enough capital to purchase
3.62 Strongly Agree
imported rice from other countries.
2. Has lower production of milled rice due to
lower production of local palay from 3.18 Agree
farmers.
3. Incurs significant amount of tariff due to
2.83 Agree
rice importation.
4. Suffers from low prices of local milled rice
3.17 Agree
due to the influx of imported rice.
5. Purchase imported rice from other rice
millers making our rice milling facility 1.89 Slightly Agree
dormant.
Average Weighted Mean 2.94 Agree

116 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022
 Alvarez et al.

Furthermore, rice millers are having problems in acquiring funds from financial
institutions to finance importation even though commercial banks such as Bank of the
Philippine Islands (BPI) and Banco De Oro (BDO) have allotted 15% to 30% of their total
loan portfolio to agriculture-oriented businesses such as rice mills. Other loan
applications however are declined by the bank after assessment indicates non-stability
or insufficient capacity to repay back the loan once granted.

Volume of local palay production

Rice millers in Nueva Ecija strongly agree that they at times they are left with no option
but to buy low quality palay produced by the local farmers especially when stock is
limited. However, even after milling, they are having a hard time selling them because of
consumers do not like the quality. There are other instances when they cannot purchase
significant volume of palay even from other provinces since there are buyers who buy in
bulk at an earlier date.

Table 2. Challenges encountered related to the palay production

Item Statement
WM VI
Our Firm…
1. Purchases small volume of palay due to low production making Slightly
2.3
it insufficient to continue the rice milling operations. Agree
2. Suffers from palay production instability over the past harvest
Slightly
seasons and cannot utilize the maximum capacity of the rice 2.32
Agree
milling facilities.
3. Buys even low quality palay produced by the local farmers but
Strongly
is having difficulty selling the milled rice because consumers do 3.98
Agree
not want the quality
4. Cannot produce significant supply of rice-by products due to
2.65 Agree
low palay production.
5. Cannot purchase significant volume of palay from other
Slightly
provinces since rice millers in the area buy in bulk and come at an 2.01
Agree
earlier date
Average Weighted Mean 2.65 Agree

As stated by the rice miller from Aliaga, Nueva Ecija, farming in the Philippines is labor
intensive. In comparison, the Philippines is in the 8th spot in the world among countries
with high production cost in a survey conducted in 2013. To lessen the cost, some local
farmers tend to use low grade seeds which produce low quality palay.

Experience-wise, rice millers say that the market prefers rice of good quality because it is
what the consumers look for. That consumers tend to judge the quality of rice based on
texture, color and smell. Hence, the inclination of the market towards imported rice
which is whiter, fragrant, looks polished, and retails in much lower price.

MEC-J (Management and Economics Journal) 117

Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

Rice importation
While rice importation has become a trend, not all rice millers are capable of
participating in the trade. The common challenges encountered by the respondents are
shown in Table 3.

Based on the table, the rice millers strongly agree (WM=3.45) that they cannot purchase
imported rice in bulk. Although bulk purchasing may minimize the cost due to lesser
freight charges, lesser budget required for the transportation of goods, and the like; rice
millers in Nueva Ecija are confronted with financial limitations. A rice miller from Sta.
Rosa even believes that it is impractical for small-scale milling business due to large
capital requirement which is from 800, 000,000 to 1,000,000,000 PHP (16 million-20
million USD). Other factors that prevents the rice millers from importing rice are the lack
of necessary requirements or permits (WM=2.77) nor adequate facility, equipment, and
vehicle to cater bulk supply (WM=1.85).

Table 3. Challenges encountered in terms of Rice Importation

Item Statement
WM VI
Our Firm…

1. Cannot purchase imported rice in bulk 3.45 Strongly Agree

2. Suffers from influx of imported rice
and local rice production cannot cope up 2.93 Agree
with the supply of imported rice.
3. Cannot purchase imported rice above
3.29 Strongly Agree
350,000 metric tons.
4. Does not have the necessary
requirements, permits and other
2.77 Agree
documents to import bulk of rice
inventory to be used in our operations.
5. Does not have the necessary facilities,
equipment and vehicles to cater and 1.85 Slightly Agree
handle bulk of imported rice.
Average Weighted Mean 2.86 Agree

Income of the Rice Millers

The Philippines is a country that depends on agricultural products such as rice crops for a
living. Aside from the palay and milled rice, the by-products of rice also provide indirect
income (Bodie, et al, 2011). The rice bran is sold to livestock raisers since it is used as
animal food. The rice hull is also sold for conversion into bio gas for the use of various
industries. Over the years, the by-products of rice serve as the key sources of income as
they can be used in the animal industry and bio gas industry. Unfortunately, rice millers
slightly agree that they experience low income from the sale of rice by-products due to
low palay production with a weighted mean of 2.79.

118 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022
 Alvarez et al.

Other Problems Encountered

Insufficient fund to engage in rice importation, lack of capital, low quality of palay
produced by farmers, high cost of production for local rice, low price of rice due to influx
of imported rice, and low income from by-products of rice due to African Swine Flu are
some of the problems common to the rice millers included in the study.

A rice miller from San Jose City, Nueva Ecija narrated during the interview that the
conversion of agricultural lands into industrial, commercial, or residential lots
contributed to low production of palay not only in the Province but in the entire
Philippines. He believes that the situation may aggravate other societal problems since
the population of the country continue to increase but the number of arable lands is
declining at a faster rate. From his statement and the available literatures, it can be said
that rice self-sufficiency might be harder to achieve in the near future because of the
growing population of the Philippines and conversion of agricultural lands into industrial,
residential, and commercial areas. The rice millers also stated that the Philippines has

now lesser capacity to supply the needed rice for consumption of the public, hence the
need to import rice from other nations. The once rice exporter is now relying on its
neighboring countries not merely because of limited supply but because of the higher
domestic production cost.

Table 4. Challenges encountered in terms of Income

Item Statement
WM VI
Our Firm…
1. Deals with the continuous decline in
terms of our overall income every harvest 2.2 Slightly Agree
season.
2. Incurs more operational expenses
2 Slightly Agree
rather than sales of rice products.
3. Experiences low income from the sale
of rice by-products due to low palay 2.79 Agree
production.
4. Deals with low sales earned from
selling local milled rice due to lower prices 2.43 Slightly Agree
in the market.
5. Experiences overall losses as we
cannot utilize the maximum capacity of 2.2 Slightly Agree
our rice milling facilities.
Average Weighted Mean 2.32 Slightly Agree

MEC-J (Management and Economics Journal) 119

Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

To triangulate the data collected from the rice millers, secondary data were collected
from the National Food Authority (NFA) as shown in Table 5.

Table 5. Comparison of figures Gathered from NFA and Rice Millers. (January to March
of the year 2020)
Based on the NFA (National Based on the respondents
NO. Factors
Food Authority) (rice millers)
1 Milling capacity 60 to 100 cavans per hour 50 to 100 cavans per hour
2 Warehouse capacity 100,000 to 120,000 cavans 70,000 to 100,000 cavans
Capitalization used 10 million to 25 million PHP 7 million to 300 million PHP
3
(200,000 to 500,000 USD) (140,000 to 6 million (USD)

It can be noted from the table that the milling capacity, warehouse capacity, and
capitalization used by the rice millers in Nueva Ecija are almost the same with the data
given by the National Food Authority. The result not only validates the responses of the
rice millers but also reveals the situation in the province and the challenges confronting
the rice millers. It also denotes that the government truly has knowledge about the
situation on the ground and the plight of the Filipino farmers, rice millers, and business
ventures related to the rice industry.

Ranking of the Problems encountered by the Rice Mills

Table 6. Ranking of the Problems of the Rice mill Businesses

Problems AWM VI
Rice Tariffication Law 2.94 Agree
Volume of Rice Importation 2.86 Agree
Volume of Local Palay Production 2.65 Agree
Income of Rice millers 2.32 Slightly Agree
General Weighted Mean 2.69 Agree

Based on the result, the main problem of the millers is indeed the sudden imposition of
the rice tariffication law. Secondary to it are the problems arising from difficult
competition between local and imported rice due to the influx of imported rice, the
decreasing local yield, and lastly, the reduced income of rice millers that threatened their
operations. The rice milling industry is having problems adjusting to the new practices
brought by the new trends in buying and selling rice and its by-products. Importation
further affected the other aspects of their operations including income generation. All of
them agree that there is a need to lower the prices of the locally-produced rice to
compete with the influx of the imported rice. However, it will compromise the labor
force and the local farmers.

Proposed New Business Model for Rice mills

The development of new technology for food production is essential to sustain man’s
needs for survival (Pascual et al., 2018). This includes new models for technology or
business. The following are future plans and changes in the Rice Mills operations input
120 MEC-J (Management and Economics Journal)
Vol 6 (2) August 2022
 Alvarez et al.

to new business model, to wit: 1) Pooling of funds of different rice millers for rice
importation; 2) Contracts between rice millers; 3) Diesel generators instead of using
regular electricity; 4) Own power plant using Rice Husk; 5) Community stores/retail
outlets; 6) Improvement of milling machineries; 7) Focusing on rice processing of
imported rice; 8) Upgrade of drying facilities to cater the demands of palay farmers; 9)
Aggressively opening new branches and bring closer the rice industry to the market, to
lower cost and eliminate middle men, FARM TO TABLE CONCEPT; and 10) Upgrade or
inclusion of rice polishing machineries to increase the quality of rice to be sold to the
market.

Based on the interview, the rice millers have provided several proposals in order to
enhance their existing operations and to cope up with the changes and trend in the rice
industry. The challenges, experiences, suggestions, and recommendations of the rice
millers included in the study are incorporated and carefully considered by the
researchers in formulating a business model patterned after Ducker’s original Model but
modified according to the needs of the time and the prevailing market demands.

The components of the model are illustrated in Figure 3. The modified business model is
aimed at improving or current rice mills’ operations by considering the needed
innovations at different levels of the operations.

Meanwhile, the proposed procedural changes and potential stakeholder collaborations

to achieve the end-goal are illustrated in Figures 4 to 6.

Figure 3. Modified Business Model

MEC-J (Management and Economics Journal) 121
Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

Figure 4. Rice Importation Process

It was suggested that rice millers can maximize resources by combining available funds.
To illustrate, a rice miller who is not capable of importing rice because of limited
resources may outsource from fellow rice miller and propose that they combine
resources by entering into memorandum of agreement. For bank financing, rice millers
may venture into other business still related to the agricultural industry to generate
income that will be suffice to make him/her eligible to be granted loan by financing
institutions such as banks and credit facilities.

Figure 5. Seed Production Process

122 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022
 Alvarez et al.

The rice millers can produce and sell quality seeds as another source of income. Aside
from palay, they can also consider corn seeds. Around 1 million to 5 million pesos (20,000
to 100,000 USD) worth of start-up capitalization is needed depending on the area of land
to be cultivated. Equipment and machineries to be used as well as the establishment of
the physical store is needed for this type of business venture. To lessen the
documentation costs and processes, registration as sole proprietor at the Department
of Trade and Industry is necessary.

Figure 6. Agricultural Products and Farming Equipment Process

The rice millers may also engage in the sale of agricultural products such as fertilizers,
insecticides, and other agri-based products needed by the farmers. Start-up capital is
around 1 million pesos to 5 million pesos (20,000 to 100,000 USD). Agreements from the
suppliers of agricultural products must be acquired in order to gain credit terms. In this
way, it can easily bulk-up supply without paying cash.

Another activity that may be considered as another source of income is the rental of
farming equipment and machineries (e.g., harvesters) and other farming tools and
equipment. This will benefit the local farmers as they do not need to purchase their own
farming equipment. Start-up capital is around 30 million to 50 million pesos (600,000 to 1
Million USD) due to the different costs associated with this business such as
establishment of physical store which requires a wide land area for storage and display
of farming equipment and machineries. Also, products to be sold are ranging from 1
million to 50 million pesos (20,000 to 100,000 USD).

From manufacturers that buy palay and sell rice, they may consider being merchandisers
that import rice, sell seeds, agricultural products, and farming equipment. They can also
engage in Service Industry by offering farming machineries and equipment to local
farmers for rent.
MEC-J (Management and Economics Journal) 123
Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

Additional income generation activities mentioned may increase the income of the rice
millers and allow business expansion. This will also help the labor force since increase in
manpower demand also means increase in the employment rate.

Farmers may avail the rice millers’ products through credit instead of availing loans from
other money lenders with high interest rates. Overall economic impact may be observed
due to the increased employment, increased tax to be collected from new ventures of
the rice millers, and modernization of rice mill industry.

DISCUSSION

In countries like Nigeria and Uganda, analysis of the profitability of rice mills revealed
great potential in the market with net present value of 27,781.52 dollars (Inuwa et al.,
2011). Contributing factors include the quantity of rice mill and milling fee rate (Kikuchi,
2014). The supporting information provided by the respondents during the interview
revealed that there are rice mills that do not perform formal audit but are capable of
allotting budget for the equipment, and other operating costs by segregating income
from circulating capital. That way, they were able to sustain business operation for
couple of years.

Legally, the rice mills are allowed to pile up cavans of rice in their warehouses as long as
they secure the required certification or permit to operate warehouse business. It is
stipulated in Section 3B of Republic Act (RA) No. 3018 entitled, “An act limiting the right
to engage in the rice and corn industry to citizens of the Philippines, and for other
purposes” that, “those engaged in the milling and/or warehousing of rice and/or corn
and the by-products thereof shall be allowed to continue to engage therein for a period
of three years…”. Therefore, as long as a miller bears a certificate and abides to the
policies governing the practice, he/she is allowed to pile up cavans of rice in a
warehouse.

With the guidance of the policies, the experience, and the knowledge of the rice millers,
they are devising ways and strategies to increase their profit and become sustainable. A
rice miller from Sta. Rosa, Nueva Ecija, a municipality in the province stated that they
want to establish many retail outlets to implement the” FARM to TABLE “concept that
eliminates the use of middlemen. Through it, products will be made available to
consumers at their own convenience and at the lower price (Zia & Nuruzzaman, 2013).
Likewise, a rice miller from San Leonardo, Nueva Ecija mentioned that they also cater to
other provinces to gain additional income. Rice millers in Central Luzon usually deliver
tons of rice to Metro Manila. When the market share of rice millers in the province
increases, the price of rice and income increases. This is because of the additional costs
allocated for the transportation and manpower.

124 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022
 Alvarez et al.

Operations of the Rice Mills

The buying activities of the rice millers indicates that more provinces in the northern part
of the country are now engaged in the rice value chain and direct purchase of palay from
farmers. A rice miller from San Jose City, Nueva Ecija said that they purchase palay in
bulk from traders to augment the stock that will be milled and eventually sold at higher
price. Palay traders purchase newly-harvested palay from the farmers and subject them
to drying before selling to the rice millers at higher price than the original. The practice
allows some rice millers to operate even without drying facilities.
Rice millers in the province also supply rice to the retailers from other provinces since
most residents in palay-generating areas often leave supply enough for consumption.

Challenges encountered

To conform to all requirements, one should produce a capital of 800 million pesos to 1
billion pesos each shipment (World Bank, 2014). The price of rice from other ASEAN
countries as mentioned by the rice millers from San Leonardo, Nueva Ecija is around 7 to
14 pesos per kilo with each shipment ranging from 100,000 to 200,000 metric tons.
Seeing that to keep pace with the importers would be impractical and costly, the rice
miller in Nueva Ecija opted to focus instead on selling of local rice rather than imported
one.

In order to improve the volume and thus the profit, it translates to the quality of grains.
Rice millers have to use polishers that inflict mists of water. The process gives the grains
shine and whiter appearance. The additional equipment required for the process
translates to additional cost of production; making the price of local rice higher as
compared to imported rice.

The milling capacity, warehouse capacity, and capitalization used by the rice millers in
Nueva Ecija are comparable with the data given by the National Food Authority. The
result not only validates the responses of the rice millers but also reveals the situation in
the province and the challenges confronting the rice millers. It denotes that the
government has the information and the knowledge about the situation on the ground,
the plight of the Filipino farmers and those related to the rice industry. However, there is
much to be done to improve this condition.

Proposed New Business Model for Rice mills

The development of new technology for food production is essential to sustain man’s
needs for survival (Pascual et al., 2018). With the proposed future plans and changes in
the Rice Mills operations, the policies, mechanisms, technology, system, and mindset are
needed for it to take effect. Rice millers can maximize resources by combining available
funds. They can produce and sell quality seeds and other alternative seeds. They can

MEC-J (Management and Economics Journal) 125

Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

seek trainings and source out various government and non-government programs and
assistance.
Strategies such as registration as sole proprietor at the Department of Trade and
Industry could lessen the documentation costs and processes. Rice millers may also
consider other ways to create income such as rental of farming equipment, tools, and
machineries. It would increase their income as well as help the farmers by engaging in
service industry.

The modified business model would support the rice millers as they increase their scope
of operations and acquire necessary funding from financial institutions. Although it
incurs higher cost, it will increase the income from different ventures. This expansion
would benefit not only the rice millers, but the farmers, and the economy as well.

CONCLUSION

Most of the rice mills in Nueva Ecija have been in the operations for 21 years and above
making them as among the oldest business industry in Nueva Ecija in the Philippines.
Most of them are classified as large enterprise, with warehouse capacity of 12,000 to
100,000 cavans, capitalization of around P7 million to P300 million (140,000 to 6 Million
USD) and with 21 to 25 retail outlets. They still implement traditional operations such as
buying and milling palay and selling milled rice. Most of them are not yet engaged to
importation and do not have other facilities such as generators and polishers. Rice
millers are having problems in the importation of rice due to lack of funding; low quality
of local palay; influx of imported rice that affects their income generation as imported
rice is cheaper than the locally produced rice. Other problem mentioned by the rice
millers was the shrinkage of rice lands due to urbanization. The modified business model
will improve the income generation of rice millers while taking advantage of the newly-
enacted law.

The implementation of the modified business model will help the rice millers increase
their scope of operations and acquire necessary funding from banking institutions as
they can present sources of repayment for the loan applied. Although the modified
business model incurs more cost and capital, it will help the rice millers gain income from
different ventures, allowing them to expand, grow and help the economy in the long
run.

Backward integration strategy can be used in securing their own source of supply to
sustain their operations. The rice millers may finance the operations of the farmers by
directly buying the palay at a pre-determined price immediately after the rice crops are
harvested from the farm. In this way, the farmers may have income while providing
enough supply to the rice millers. Improvement of the rice milling facilities like polishers
will improve the quality of local rice. It can be mixed with the imported rice to
compensate the difference in terms of its cost of production and market price. Rice
millers may also invest in diesel generators or rice husk power plants to supply electrical

126 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022
 Alvarez et al.

power as alternative to crude-based electrical supply needed to run the machineries.

This will cut the cost and allow rice millers to continuously operate their rice milling
facilities 24/7 during harvest season without relying on the unstable electric power. Rice
millers may also add retail outlets to eliminate middle men. They may hire sales officers
to market the by-products of rice. Selling of rice bran to backyard hog raisers and the
other by- products of rice may also help generate additional income.
REFERENCES
Balié, J., Minot, N., & Valera, H. G. A. (2021). Distributional impacts of the rice tariffication
policy in the Philippines. Economic Analysis and Policy, 69, 289-306,
https://doi.org/10.1016/j.eap.2020.12.005
Bankoff, G. (1996) Legacy of the past, promise of the future: Land reform, land grabbing,
and land conversion in the Calabarzon. Bulletin of Concerned Asian Scholars, 28(1),
39-51, https://doi/10.1080/14672715.1996.10416185
Batausa, H. (2003). The Philippine Rice Industry In The Impending Trade Liberalization
Program: A Political Economy Approach. Philippine Quarterly of Culture and Society,
31(3), 255-268.
Bautista (2019). Palay Production of the Philippines. Retrieved
from:http://www.psa.gov.ph/sites/default/files/updates%20on%20palay%203rd%20
week%20april%202019.pdf
Burja, C. (2011). Factors Influencing The Companies ‘Profitability. Annales Universitatis
Apulensis Series Oeconomica. 2. 3-3. 10.29302/oeconomica.2011.13.2.3.
Co (2019). Rice mills Nationwide Stopped Operation. Retrieved from
https://businessmirror.com.ph/2019/07/30/3000-rice-mills-nationwide-stopped-
operation/
Cororaton, CB and Corong, EL. (2009). Philippine Agricultural and Food Policies,
Implications for Poverty and Income Distribution
Cororaton, C. Tiongco A, M., Inocencio, A., Siriban-Manalang, AB. and Lamberte, A.
(2018). DLSU Business & Economics Review 28(2018), 70-83
Cororaton, C. B. & Yu, K. D. S. (2019). Assessing the Poverty and Distributional Impact of
Alternative Rice Policies in the Philippines. DLSU Business & Economics Review 28(2)
2019, 169–182. https://www.dlsu.edu.ph/wp-
content/uploads/2019/03/13_CORORATON-revised-021319.pdf
David, CC. and Balisacan, A. (1995). Philippine Rice Supply Demand: Prospects and Policy
Implications. Makati City: Philippine Institute of Development Studies.
Dawe, E. (2010). The Rice Crisis: Markets, Policies, and Food Security. Earthscan, London,
Washington, DC
Ducker (1994). Every Organization, whether a business or not, has a theory of the business.
Published by Harvard Business Review.
Inuwa, I., Kyiogwom, U.B., Ala, A., Maikasuwa, M., & Ibrahim, N. (2011). Profitability
Analysis of Rice Processing and Marketing in Kano State, Nigeria. Nigerian Journal
of Basic and Applied Sciences, 19.
Kikuchi (2014). Evolution and Prospects of the Rice Mill Industry in Uganda. African
Journal of Agricultural Research, 2014.

MEC-J (Management and Economics Journal) 127

Vol 6 (2) August 2022
 Food Sufficiency, Tariffication Policy, and Business Strategy .....

Lambert, S. C., & Davidson, R. A. 2013. Applications of the business model in studies of
enterprise success, innovation and classification: An analysis of empirical research
from 1996 to 2010. European Management Journal, 31, 668-681.
Moutos, T. (2001) Why Do Poor Democracies Collect a Lot of Tariff Revenue? Economics
and Politics, 13(1), 95-112
National Economic Development Authority (2019). Implementing Rules and Regulations
of Rice Tariffication Law. Retrieved from: http://www.neda.gov.ph/wp-
content/uploads/2019/04/IRR-of-RA-No.-11203-or-the-Rice-Liberalization-Act-
RLA_signed.pdf
National Food Authority (2019). Industry Regulation and Development. Retrieved from
http://nfa.gov.ph/programs-projects/industry-regulation-and-development/rlfees
National Food Authority (2019). Grains Retailers, Farmers, Consumers Express Support to
NFA. Retrieved from http://www.nfa.gov.ph/35-news/1256-grains-retailers-farmers-
consumers-express-support-to-nfa
Pascual, M.P., Lorenzo, G.A. and Gabriel, A.G. (2018) Vertical Farming Using Hydroponic
System: Toward a Sustainable Onion Production in Nueva Ecija, Philippines. Open
Journal of Ecology, 8, 25-41. https://doi.org/10.4236/oje.2018.81003
Philippine Rice Research Institute (PhilRice) (2012). Proceedings of the Policy Seminar on
Philippine Rice Trade Policy and Rice Security: Future Directions. Retrieved from
https://www.philrice.gov.ph/wpcontent/uploads/2014/09/Proceedings_TradeLibSe
minar_2015.pdf
Rondhi, M., Pratiwi, PA., Handini, VT., Sunartomo, AF, and Budiman, SA. (2018).
Agricultural Land Conversion, Land Economic Value, and Sustainable Agriculture: A
Case Study in East Java, Indonesia. MPDI land.
Schmidt, E., Dorosh, P., & Gilbert, R. (2021). Impacts of COVID-19 related income and rice
price shocks on household welfare in Papua New Guinea. Agricultural Economics.
52 (3), 365-374. Wiley Online Library.
https://onlinelibrary.wiley.com/doi/10.1111/agec.12623
Sobrevinas, AB., De Jesus. J., Reyes, CM., Bancolita, JE. (2009). Analysis of the Impact of
Changes in the Prices of Rice and Fuel on Poverty in the Philippines, PIDS Discussion
Paper Series, No. 2009-07, Philippine Institute for Development Studies (PIDS),
Makati City
Tobias, A. (2019). The Philippine rice tariffication law: Implications and issues. Food and
Fertilizer Technology Center for the Asian and Pacific Region (FFTC-AP).
http://ap.fftc.agnet.org/ap_db.php?id=960&print=
Tolentino, VBJ. and dela Pena, BM. (2020). Deregulation and Tariffication at Last: Saga of
Rice Sector Reform in the Philippines. The Asia Foundation
Vertudes, M. F., Musa, C. D., Cosilet, M. A., Salagubang, R., & Balaria, F. (2020). Impact of
Rice Tariffication Law in selected Rice Farmers in Nueva Ecija, Philippines.
International Journal of Advanced Engineering, Management and Science, 6(3).
Retrieved from http://journal-repository.com/index.php/ijaems/article/view/1879
World Bank. (2014). Myanmar: Capitalizing on Rice Export Opportunities. Bangkok.
Retrieved from https://openknowledge.worldbank.org/handle/10986/17278
Zia, A. and Nuruzzaman, A. (2013). Why People Buy In Organized Retail Store? SIT Journal
of Management, 3(11), 1-10.

128 MEC-J (Management and Economics Journal)

Vol 6 (2) August 2022