Extension of tariff cuts seen to mitigate El Niño impact on food prices

The extension of reduced tariffs on rice and other key agricultural commodities will help cushion the inflationary impact of the El Niño weather phenomenon, analysts said.

“This will ensure stable, if not lower, prices for these products, particularly during the El Niño next year which will hit our agriculture sector. This move is most welcome,” former Agriculture Undersecretary Fermin D. Adriano said in a Viber message.

President Ferdinand R. Marcos, Jr. last week signed Executive Order (EO) No. 50, which extends the reduced Most Favored Nation (MFN) tariff rates on rice, corn, and pork until Dec. 31, 2024.

The rates for rice imports will be kept at 35% for shipments both within or over the minimum access volume (MAV) quota.

Tariff rates for swine, fresh, chilled or frozen meat are retained at 15% for in-quota and 25% for out-quota imports.

Imports for corn maintained the MFN duty at 5% and 15% for in-quota and out-quota shipments, respectively.

“The present economic condition warrants the continued application of the reduced tariff rates on rice, corn, and meat of swine (fresh, chilled or frozen) to maintain affordable prices for the purpose of ensuring food security, managing inflationary pressures, help augment the supply of basic agricultural commodities in the country, and diversify the country’s market sources,” the EO stated.

There will also be a review of the tariff rates on rice, pork, and corn every six months, it added.

Philippine Chamber of Commerce and Industry President George T. Barcelon said that the lower tariff rates will help tame inflation.

“Extending the tariffs on key food commodities (will help) deal with inflation. That would help somewhat, because of the projected El Niño there could be price increases for these food commodities. I think that’s a good move,” he said via phone call.

In the first 11 months of the year, inflation averaged 6.2%. This was still above the central bank’s 6% full-year forecast and 2-4% target range.

“The reduced MFN tariff rates would help cushion agriculture and food production and supply and eventually price and inflation issues that may be brought by El Niño — a positive impact,” retired Pampanga State Agricultural University professor Roy S. Kempis said in a Viber message.

Mr. Kempis said that domestic production will be adversely affected by the dry weather event, particularly palay (unmilled rice) and corn.

“Supply would be compromised for these crops and eventually rice and feeds; following the value chain, feeds will also be a challenge — which uses corn as an ingredient to the extent of 70% per unit volume or weight, and pork may be more expensive,” he added.

The latest bulletin by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) showed that a strong El Niño is seen to persist in the country until January 2024.

The weather event increases the likelihood of below-normal rainfall conditions, which could bring dry spells and droughts in some areas of the country.

The state weather bureau also projected that by the end of May 2024, 65 provinces will experience a drought while six will face a dry spell.

PAGASA also reported in its latest crop condition assessment that most of the provinces in Luzon received “inadequate amounts of water required to support both the rice and corn crops.”

Frontloading imports
National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan earlier recommended frontloading rice imports to mitigate inflationary pressures.

“Frontloading of imports next year is an act to bring in imported goods for the year at the earliest possible time. Since domestic supply grows as a result of the frontloading, prices tend to go down, thus, inflation is tamed,” Mr. Kempis said.

However, he noted that the scheduling of these frontloaded imports must be consistent with the country’s agricultural production patterns.

“Timing is important such that frontloading happens way before and/or months after domestic production is available for harvesting. This is a way of a counterbalance to have decent farmgate prices for palay, swine, and corn such that rice, pork, and feeds are reasonably priced,” he added.

The reduced tariff rates will also boost free trade and improve the country’s trade relations, Mr. Kempis said.

“The countries from where the Philippines gets its imported rice, pork, and corn are able to export more because Philippine importers find it cheaper to import the commodities involved, from these exporting countries,” he said.

On the other hand, Samahang Industriya ng Agrikultura Executive Director Jayson H. Cainglet said that the extension of lower tariffs will only benefit importers and traders.

“Local producers have nothing to do with the spiraling costs of staples, especially rice. Local traders and even those not usually involved in local production have been scrambling to source palay given the rising global prices of rice,” he said in a Viber message.

“It is this mindset of ‘importation as the only solution’ that has put us in this dire situation. The greatest tragedy of our times is this self-inflicted destruction of our capacity to produce our own food. The folly to rely on the global markets is again exposed as expensive, unreliable, and reckless,” he added.

Mr. Cainglet noted the foregone revenues from these tariff cuts, which could have been used to support the agriculture sector.

“There is a downside though in extending the reduced MFN treatment by the Philippines. Revenue collection primarily from import taxes on the above-said products that are covered by the reduced MFN tariff rates, is consequently reduced,” Mr. Kempis said. 

Mr. Kempis also said that there may be a need for more subsidies and overall government spending to manage the impacts of the weather event.

In 2019, the El Niño caused agricultural damage of up to P8 billion in the Philippines. — Luisa Maria Jacinta C. Jocson