Philippine price ceiling adds to rice farmers’ insecurity

Fortunato Villanueva Jr is preparing to harvest unhusked rice this month from land he has worked for more than 30 years.

The area where Villanueva works, Lupao, is filled with gleaming rice fields and dotted with palm trees, part of a warm, wet landscape ideal for cultivating the staple of Asian diets. Roughly 200km from the traffic jams, smog and chaotic energy of the Philippine capital, Manila, it accounts for much of the rice produced in this country of more than 109mn people.

But growing rice is a tricky business. Farmers need a balanced mix of dry and damp conditions, fertiliser and, despite some mechanisation, back-breaking labour. “Farming conditions have improved, but our lives are still the same,” Villanueva told Nikkei Asia. Lupao remains under-developed and throughout Villanueva’s time as a farmer, he has seen how fluctuations in weather and market conditions can throw a harvest season into disarray.

At the beginning of September, the administration of President Ferdinand Marcos Jr introduced another complication into the lives of rice farmers — an official price ceiling. The measure permits a maximum price of 41 pesos ($0.72) per kilogramme for regular milled rice and 45 pesos for well-milled rice.

Marcos, who also serves as secretary of agriculture, explained that the ceiling was intended to take pressure off households at a time when the prices of essential food items have risen dramatically, with rice inflation climbing to 8.7 per cent in August. Economists, however, quickly derided the measure as likely to create price distortions and thwart its stated goal of quelling inflation.

Voters may not be too impressed, either. The latest poll by Manila-based Pulse Asia Research, announced Monday, shows that Marcos’s approval rating had plunged 15 percentage points to 65 per cent. The survey was conducted a week after the government imposed the price ceiling on rice and data showed overall inflation accelerating to 5.3 per cent in August.

For farmers, there is little room for error. About a quarter of the Philippine workforce is employed in agriculture, and in 2021 almost a third of farmers earned incomes low enough to fall beneath the official poverty standard set by the government. Some are forced to take out loans to keep their operations afloat.

The Philippine ceiling highlights the challenges many governments face in balancing the supply and demand of a staple that ends up on just about every Asian dinner table — a level of importance that makes it a regulated product in much of Asia.

Across the region, harvests and prices have been volatile, prompting a range of responses. India, the world’s top rice exporter, in August banned exports of non-basmati white rice, sending shockwaves through the market.

Myanmar’s military government recently made a similar move to Manila, capping the prices that farmers can charge rice dealers, according to local media outlet The Irrawady.

The Thai government is calling on its farmers to plant less of the grain to reduce water usage, a move that could push prices even higher. Shortages are causing havoc in Malaysia as well, where local white rice is also subject to a price cap.

Vietnam, where an estimated 90 per cent of the Philippines’ imported rice in 2022 was sourced, is scurrying to bolster domestic supply to meet demand. That said, the two south-east Asian nations are widely expected to sign a five-year rice pact to protect food security in each country.

The pressure could increase in the years to come: the Asian Development Bank projects global rice demand will rise 30 per cent by 2050.

In the Philippines, industry players are looking for equilibrium.

Before rice hits the marketplace, traders buy unhusked grains from farmers. Once Villanueva, 54, starts harvesting, he hopes retailers and millers will purchase his for 16 to 20 pesos per kg.

The Marcos administration implemented price caps for purchases of unhusked rice, ranging from 19 to 23 pesos for the dry variety, and 16 to 19 pesos for the wet kind, weeks after putting a ceiling on rice prices.

“Sometimes the buyer wants the price of rice to go down, but we want the price to go up. It’s as if we’re contradicting each other,” Villanueva said. “They are angry that the price went up but we are angry that the price of rice went down.”

Data provided by the Philippines’ agriculture department shows a kilogramme of rice, whether well-milled or regular-milled, was being sold slightly above the price ceiling across Manila markets. Local news media reported in early September that some rice retailers would defy the cap to recoup possible losses.

Elvie Baladad, a farmer and co-ordinator at civil society group Paragos Pilipinas, said that the “realistic” buying price for a kilogramme of unhusked rice ranged from 20 to 22 pesos. She noted that once the rice was milled, the cost could reach 34 pesos/kg.

Artemio Castillo Sr, 58, a rice farmer in the same area where Villanueva works, believes the price ceiling could even benefit rice growers. “It’s good for us because even if we’re farmers, we buy rice for eating too,” Castillo told Nikkei Asia. “Sometimes the rice we set aside for ourselves doesn’t make it to harvest season.”

But experts remain wary as to whether price caps make economic sense. Leonardo Lanzona, an economist at Ateneo De Manila University in Manila, cautioned against government-mandated price controls and said the market should dictate levels.

“Government has no business intervening in this situation. So when you impose a price cap, you’re only worsening the problem,” he told Nikkei Asia. “The only way to sustain this is for the government to keep on subsidising.”

The Philippine government customarily supports farmers through measures including cash payouts and loans, as well as the provision of equipment.

The Philippine government has announced it will hand out 12.7bn pesos of financial aid to about 2.3mn rice farmers, to help them deal with the effects of the El Niño weather pattern and rising production costs. Each rice farmer who cultivates less than 2 hectares of land will get 5,000 pesos. The handouts will be funded by excess tariff collection from rice imports in 2022, according to the government’s statement.

The government also said that 78,000 farmers covered under its existing cash subsidy programme would receive 700mn pesos, also sourced from rice tariffs.

Lanzona suggested more far-sighted solutions, ranging from helping small retailers to investing public funds in more mechanisation for greater yields.

Baladad proposed alternatives such as partnerships with local government units to alleviate price pressures. “If the government buys it directly from the source, farmers will even offer to load the goods on to trucks themselves,” she said. “You [will have] lessened the intervention from other market actors, which is needed to bring prices down.”

Marcos has suggested that the price ceiling “will be lifted soon,” hinting at the start of the harvest season, which typically runs from September to December. After imposing the price cap in early September, Marcos said he was opposed to cutting tariffs on rice imports as a way of increasing supply to bring down prices. Farmers and industry groups also opposed the reduction of tariffs on the basis that it could lead to a surge of cheap rice into markets.

“We decided with the agriculture and economic managers that . . . it was not the right time to lower the tariff rates because the [current] projection of world rice prices is that it will go down,” Marcos said. “So, this is not the right time to lower tariffs.”

Farmers such as Castillo and Villanueva are looking ahead to the harvest season with a mix of optimism and unease, hoping that their yields will bring in enough revenue to cover their farming and household expenses. The two farmers each took out informal loans of 100,000 pesos at the start of the planting season.

Their wish is for rice prices to settle at a level that satisfies both producers and consumers. But they and other farmers will remain at the mercy of the markets — and Marcos’s policies.

“If we’re going to set prices for our rice, we won’t be selling at a loss,” Castillo said. “I’m not saying we’ll sell it high but the prices will just be right.”

Additional reporting by Ella Hermonio.

A version of this article was first published by Nikkei Asia. ©2023 Nikkei Inc. All rights reserved.

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