Clampdown on smuggling destabilized rice prices, supply

AGRICULTURE Secretary Emmanuel Piñol recently claimed that the rice shortage in the Zamboanga, Basilan, Sulu and Tawi-tawi area was due to the clampdown on the smuggling of the grain from Vietnam and Thailand through two Sabah ports.

This had been going on for years, he said, apparently tolerated by authorities because the area is one of the least self-sufficient in rice, and it required the help of Malaysia to interdict it.

Malaysian authorities, however, recently cooperated with our government to stop the practice as both governments lose revenues from the scheme, at least P1 billion in our case. It also had been depressing farmers’ incomes from the cheaper smuggled rice.

The impact of the clampdown of smuggled rice may in fact be nationwide, contributing to the disruption of the rice market in recent weeks. This is based on data I extracted from the International Monetary Fund’s Direction of Trade statistics.

Economists approximate the extent of smuggling in a particular country — either through under-invoicing of goods or outright covert entry — by comparing a country’s reported exports to the receiving country’s reported imports.

About 90 percent of our imports from Vietnam is comprised of rice. The IMF statistics provide us the data on imports from Vietnam as reported by Philippine authorities, and exports to our country as reported by Vietnamese authorities.

Reduce the total shipments by 10 percent so it would approximate how much of these are rice. Reduce the Vietnam export figure by 10 percent to take account of freight, insurance and other shipping costs. The difference between the amount our country reported as its imports from Vietnam and the amount Vietnam reported (less 10 percent freight, insurance and other shipping costs) estimates the value of rice smuggled for one period.

The results of my computations from the IMF data can be summarized as follows: 

During President Arroyo’s term, there had been practically no rice smuggling, with the figure I computed from 2001 to the first semester of 2011 a negative $339 million. This means that our reported rice imports were even bigger than those reported by Vietnam, and that most likely there was hardly any smuggling of rice.

There was a virtual explosion of rice smuggling during President Aquino 3rd’s watch, with unreported — smuggled — rice during his six-year term totaling a humongous $2.6 billion. This was the time when even container ships that would dock in the Manila port for customs inspection would suddenly “disappear” without a trace. The massive smuggling during the Aquino regime of rice and other products, mainly from China, actually has been one of the biggest, yet little known massive failures of that administration, on which I have written several articles.*

The flood of smuggled rice into the country explains much of that regime’s popularity, at least in its first two years in power. The bigger supply of rice — smuggled, that is — pushed down the price of the staple, one of the most important determinants for a regime’s mass support. Indeed farmgate prices dropped from P15 per kilogram in 2010 to P13.5, while retail prices have remained steady at P31 per kg. This is despite the fact that the global price of rice had steadily risen from $518 million per metric ton in 2010 to $620 million by December 2011, to $598 million in November 2012. Since rice is a major component of the consumer price index, inflation was kept low and averaged just 3 percent during that administration. I was told money from smuggling lords funded a major chunk of the Yellows’ campaign kitty in the 2016 elections.

For President Duterte’s term up to the first quarter of 2018, the figure calculated is negative $386 million, which indicates the cessation of smuggling, with the Philippines’ reported imports even more than those reported by Vietnam.

I suspect the National Food Authority had not incorporated into its computation of when and how much rice to import the fact that rice prices in the previous regime were stable because of the huge supply due to massive smuggling, which were of course unrecorded. They seem to have not consulted with the Coast Guard and the Bureau of Customs on how much smuggled rice imports were interdicted, and if these were introduced to the market.

This is illustrated in the episode in the area of Zamboanga and adjacent islands where prices for years appeared to be stable, despite minimal injection of rice into the region by the NFA. When rice smuggling was curbed though, prices not only rose but rice shortages broke out.

* “Smuggling at its worst under Aquino,” Philippine Daily Inquirer, November 14, 2012; “Rice smuggling explodes under Aquino.” Philippine Daily Inquirer, December 19, 2012; and “Smuggling utterly out of control under Aquino regime: P4 trillion in last five years,” The Manila Times, August 25, 2015; and “Bulk of smuggled goods come from China: P2 trillion from 2010-2014,” The Manila Times, August 27, 2015.

 

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