Stop smuggling through improved competitiveness

Police powers and legal remedies are not the only ways to stop rice smuggling as Philippine Rice Research Institute (PhilRice), the country’s lead in rice science and development, proposes a long-term solution.

PhilRice economists, Dr. Flordeliza Bordey and Aileen Litonjua, said that eliminating the opportunity to smuggle can reduce, if not stop rice smuggling.

They said that the prospect of raking-in high profits owing to large difference between the world and domestic price of rice drives the rampant smuggling in the country. Domestic price of rice had been higher as much as 75 percent than the world price since 2000.  Although the gap closed in 2008, price differential widened again to 30 percent in 2012.

 “The huge price difference can be attributed mainly to rice trade policies of the government and higher cost of producing rice in the Philippines relative to exporting countries. Rice smuggling is only a symptom of a worse disease—the inability to compete,” they pointed out.

The country had applied quantitative restriction (QR) on rice as its international trade policy since 1995. QR involves a Minimum Access Volume, which is the amount of rice that may be imported at 40 percent in-quota tariff or the tariff applied on imports within a quota. A higher tariff of 50 percent is imposed to imported rice beyond this quota. This policy was crafted to limit the inflow of cheap imported rice, thereby, protecting farmers and market players.

However, studies show that “smuggling tends to be more rampant in markets with high import duties and quantitative trade restrictions.”

The country`s commitment to integrate with the ASEAN Economic Community by 2015 will eventually force the government to reduce these trade barriers. And with this, the price of domestic rice will be seen to adjust and follow the world market, and consequently minimize the incentive to smuggle.

“But doing so without enhancing the ability of farmers and other domestic market players to produce and market rice efficiently could only mean harm to the local rice industry,” the economists said.

To be competitive, farmers must implement strategies to reduce the cost of producing rice such as mechanizing farm activities particularly harvesting and threshing. Adoption of high quality inbred and hybrid seeds, and PalayCheck-integrated crop management system, can also further increase the rice output per unit of input and reduce production cost per unit.

Meanwhile, Dr. Eufemio T. Rasco, Jr., PhilRice executive director, encouraged farmers to diversify their crops and try alternative ways to cut production cost.

“To improve productivity, farmers need to diversify farming activities like engaging in non-rice income-generating activities that use resources from the rice environment. This includes production of mungbean, corn, mushroom, vermicast, ducks, and fish. In addition, farmers can use non-fossil fuel based inputs like vermicast, Azolla, mungbean, crop rotation and bioethanol to further reduce farm production cost. If rice income of farmers will decline as a result of free trade, they should be helped to find alternative income sources,” he stressed.