SHADY RICE DEALS FUEL CORRUPTION

The Philippine Star
04/23/10

If in 2008 the extraordinary rise in world prices were largely caused by panic, an imminent shortage in supply this year may be due more to supply factors. And this is something that should be taken seriously as Filipinos are known to be voracious rice consumers.

Experts are already saying that rice stockpiles across the globe will be expected to decline by about 3 percent because of droughts in rice-producing areas like Thailand and wide-spread flooding in others like India. This should raise alarm bells since both are major exporters in the world rice trade.

Aside from the Philippines, other countries that compete for rice imports are Indonesia, Nigeria, and Brazil. Now, India may need to import part of its rice requirement this year after being severely affected by the floods. This will cause for an even more lopsided supply-demand table.

Continuing import dependence

The country’s unrelenting inability to supply its own rice needs continues to exert pressure on the global market, and ultimately on world prices. With Ondoy and other floods in late 2009, and a severe drought this year, the National Food Authority has been issuing notices of tenders to purchase rice from abroad – once again in “anticipation” of any possible rice supply deficiencies later in the year.

This has been once more a major reason why price levels have risen to almost double of $300 per ton in recent months, an amount that is a far cry from the averages experienced  during the two decades before the rice crisis of May 2008.

With a tight supply and a high demand situation, the bottom line is that rice prices will not just be an upward spike on the graph, similar to what happened in 2008, but rather more like a series of sharp ups followed by small downs. In other words, high rice prices should be expected this year.

More importations more subsidies

For the world’s poor who are dependent on rice as a staple food, a prolonged period of high rice prices only mean less food on the table especially since income levels will not be expected to increase in step with rice prices. And many Filipinos will not be exempted from this scenario.

As rice importation continues unabated amidst fluctuating global rice prices, the National Food Authority has become the biggest deficit holder among all government-owned corporations. During the 2008 rice crisis, the NFA spent more than P130 billion in subsidies and administrative expenses to be able to sell “inexpensive” rice.

This year, if global rice prices are maintained at its currently high levels, these subsidies could rise even further, adding more to the growing government deficit position.

Whiffs of corruption

Our over-dependence on rice importations also highlights another arena where opportunities for corruption abound. For instance, speculations are rife about the usual “commissions” changing hands on every awarded tender for imported rice supply. And it’s very difficult really to catch a rice thief in the act given the past wild fluctuations in prices and the many other factors that have to be considered in buying rice.

The system by which tenders are announced way ahead of schedules is suspected to be one way for unscrupulous government officials to make a quick buck.

Particularly suspect is the practice of announcing the maximum amount that the government is willing to buy for the grain, which would turn out usually at prices much higher than prevailing market rates. This is a good way of tempting bidders to collude.

Other dubious practices include raising the bar on bidders’ capabilities. By stipulating conditions that preclude small but credible suppliers, bidding can easily be manipulated because there will be fewer players who can qualify for the tender. And of course, we all know that if the total contract price is higher, the percentage “commissions” correspondingly increase.

Lucrative “stockpiling” schemes

The practice of stockpiling is also suspect. It is so easy to justify building up our rice inventory in anticipation of a tighter supply scenario. While this could be considered an act of brilliant foresight, such could quickly turn into a disastrous situation of wanton waste and hoarding and another lucrative source for corruption.

In past years, the NFA has been accused of buying more rice than is needed. Remember those forcibly opened bodegas containing mountains of rice sacks in various stages of rotting?

When too much rice is also imported, there’s a greater chance that huge chunks will find their way in the commercial market where unscrupulous rice traders make a more handsome profit from buying “subsidized” rice and selling these at significantly higher prices. Of course, this is also one way for unprincipled government officials to earn more “commissions.”

Self-reliance and free market

Once again, a long-term solution to this problem will be in channeling all subsidies in the rice program to boosting agricultural productivity, by improving rice breeds, planting technology, improving farm-to-market roads, and protecting land used for rice farming.

The country’ rice trading platform should be changed to reflect more free market initiatives. Government’s role should be to create the regulatory environment that discourages healthy market price mechanisms, and not to fix prices.

Neither should the NFA be involved in giving rice to the poor. There are more appropriate government agencies who are better qualified to determine what the poor needs, how much should be given, and how this should be distributed.

The NFA has become a mammoth bureaucratic monopoly that not only wastes people’s money, but is also a source of some of the most infamous shady deals and unfazed corrupt practices. The sooner this is stopped, the better.

This is another issue that the incoming administration will have to deal with. But exactly how this will be handled will depend on who eventually will win.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net