Lower tariffs don’t reduce prices of goods

By Rose de la Cruz

It doesn’t take an economist to explain that lower import duties don’t necessarily translate to lower local retail prices, particularly of rice, which the Marcos administration is desperate to control to manage inflation and spur GDP (gross domestic product) growth.

Reducing the tariff on agricultural commodities from 35 percent to 15 until December 2028 would simply lead to abundant supply– depending on how vigorously the government monitors actual arrival of the items so as not to dump cheap imports and flood the local market to the detriment of local production– but not lower retail prices. Adjusting the tariff upwards midway when local production is high and global prices are low would also be irrelevant to price movement.

In the first place, if our currency is weak like it is now and the currency of the country where the item was bought is strong then this already makes the reduced tariffs ineffective.

If the items were bought at high global prices and their currency is stronger than ours, then the lowered tariff will have little, if any, bearing on reducing domestic prices of these imported goods. Add to that the appetite for profits of local traders and the high logistics cost, which would escalate further the local end prices.

So, it is not surprising that the reduced tariffs of agricultural imports, like rice, have not led to declines in rice prices, which still hover at past P49 to P70 a kilo.

Agriculture Secretary Francisco Tiu Laurel Jr. explained rice imports from January to June which were still levied at 35-percent would run out by mid-October.

“There’s really an excess of rice bought at a higher tariff,” Laurel explained to media during a poultry and livestock event in Pasay City last Wednesday.

“It will take until mid- or end of October before the old stocks [bought] at high price will run out,” Business Mirror reported.

Laurel also said that international market changes make prices stay high. For example, “India is still not allowing exports of their rice…Indonesia and Malaysia are again buying rice for their buffer stocks that’s why prices are not going down in the international market,” he explained.

Laurel also said there was no reason to raise tariffs since stocks bought at lower rate were still below the usual volume. “The rice that came in is still at a low level, 15 percent […] so, we don’t have enough stocks to raise that as of the moment,” he said.

Rice imports as of August 22 reached 2.72 million metric tons (MMT), data from the Bureau of Plant Industry (BPI) showed and that shipments that came in after July 6 were already levied with the 15-percent tariff rate.

Rice imports from July 1 to August 22 stood at 376,353.70 metric tons (MT), based on BPI data. This was lower than the average shipments made from the first semester at 390,065.93 MT.

The National Economic and Development Authority (NEDA) recently admitted the slow pace of declining rice prices despite the reduced tariffs under Executive Order (EO) 62.

“But hopefully as the world rice market situation improves, and also stakeholders are able to adjust…we will see improvements [in the price of rice],” said NEDA Secretary Arsenio Balisacan last Wednesday.
Based on the DA’s latest price monitoring, the prevailing price of local well-milled and regular milled rice in Metro Manila markets was P52 per kilo and P48 per kilo, respectively.

Sugar, another item covered by EO 62 or the reduced import tariffs saw prevailing prices of imported well-milled and regular milled rice of P52 per kilo and P47 per kilo, respectively.

Meanwhile local production is not expected to be as high as last year. “It is possible…that [rice] production will not register an increase compared with last year’s output,” said Deputy Executive Director Flordeliza Bordey of the Philippine Rice Research Institute in charge of the RCEF (Rice Competitiveness Enhancement Fund program for seeds).

Data from the Philippine Statistics Authority (PSA) showed that palay or unmilled rice production in 2023 reached a record 20.06 million metric tons (MMT). The figure is 1.56 percent higher than the 19.76 MMT recorded in 2022.

“It’s also possible that output may not reach the level recorded in 2023 if the Philippines will be hit by more natural calamities.”

Bordey said the government continues to provide support to farmers to increase the productivity of their farms, such as the provision of inputs like fertilizer and hybrid and inbred seeds.

“We are trying to improve the [seed] varieties that have a better probability of surviving if the crop gets flooded.”