By Luisa Maria Jacinta C. Jocson, Reporter
THE recently approved tariff cut on rice imports will reduce government revenue by up to P22 billion, but will pave the way for inflation to fall sufficiently to justify bringing down policy rates, the Department of Finance (DoF) said.
Finance Secretary Ralph G. Recto said: “We are reducing inflation. Once we’re able to reduce inflation, hopefully we can reduce interest rates and that will create more growth so we can recover those what you claim to be losses,” he told reporters on Friday.
The National Economic and Development Authority Board last week approved a reduction in rice import tariffs to 15% from 35% previously. This was part of a medium-term plan to lower tariffs on agricultural and industrial products until 2028.
The Agriculture department earlier said that the tariff cut could bring down the retail price of rice by P6 to P7 per kilogram as early as July.
However, Mr. Recto clarified that easing tariffs is just a short-term measure.
“We are not relying on importing rice. That is (for) the short term. We continue to, as part of our Philippine Development Plan, increase rice productivity,” he said.
“We will continue to make those investments with our farmers, irrigation, mechanization, and so on …so the time will come that we will not have to import our food requirements, particularly rice. We are not abandoning our farmers.”
In its meetings with farmers the DoF discussed ways to increase productivity and spend the budget effectively to achieve this goal.
He also noted that proposed amendments to the Rice Tariffication Law could end up providing further support to farmers.
He said the DoF is studying ways to effectively spend the proposed P15 billion allocation for rice industry modernization, up from the original P10 billion a year.
The House of Representatives last month approved on third and final reading the amendments to the Rice Tariffication Law of 2019, which include extending the validity of the Rice Competitiveness Enhancement Fund (RCEF) and increasing its funding to P15 billion.
The RCEF receives its funding from tariffs generated from imports after the tariffication law liberalized rice imports. After largely taking away the government’s rice importing function, the law also freed up private traders to import rice on their own, in the process having to pay an import tariff on their grain. The tariff was originally set at 35% on Southeast Asian grain, though the geographical restrictions have since been removed and the tariff reduced to 15% as an anti-inflation measure.
Mr. Recto noted that rice prices have an outsized impact on inflation.
“If you are able to reduce the price of rice, then its contribution to inflation would dramatically go down,” he said.
Rice inflation rose to 23% in May, easing from the 23.9% posted a month earlier.
Food typically accounts for a large share of the consumer price index market basket in poor countries, with rice the most important element of the food sub-index in the Philippines.
The Department of Agriculture reported that domestically grown well-milled rice averaged P48-P55 as of June 6, from P38-P46 in the same period a year earlier. Regular-milled rice fetched between P45-P52 from P34-P42 a year earlier.
Falling inflation will strengthen the argument for reducing policy rates, he said.
“Possibly, we can reduce the policy rate…depends on what the inflation data will show later on. But by not doing anything, we won’t be able to reduce the price of rice. We won’t be able to do a policy cut,” he said.
Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said that the central bank can begin its policy easing cycle by August.
Mr. Recto has said that the BSP can reduce rates by 150 basis points (bps) in the next two years.
“(Given) all the data today, I still think that 150 bps in the next two years is feasible. More so that we already did the reduction in rice tariffs. So, let’s take a look at how that will affect rice prices and inflation moving forward.”