PIDS: Adopt flexibility in setting palay floor price

In setting a floor or ceiling price for palay and rice, government must adopt flexibility just like its price setting exercises in tobacco and minimum wages. 

Rigid floor price and ceilings would only distort the market and result in the disappearance of commodities, worse bring them to black market operations.

This was the advice of Roehlano Briones, senior research fellow of state think tank, Philippine Institute for Development Studies, emphasizing that the palay floor price should be patterned after the mandated price settings of both tobacco and minimum wages.

Last October 12, Senator Francisco Pangilinan expressed support for a floor price for palay (unmilled rice) because of the prevailing low prices which are not enough for farmers to pay their debts and expenses during the planting season. Farmers continue to suffer even after the temporary ban on rice imports (which was recently extended for up to end of December 2025).

Pangilinan stressed even after one of the rice import ban, farmers still complain of low procurement prices at the farmgate, which is not enough for their loan payments and daily subsistence.

He said the solution is to set a floor price for palay and mandating the government to buy directly from farmers. 

Similarly, some farmers groups emphasized that the floor price of P17 to P19 per kilo of wet palay is not enough, even as Agriculture Secretary Francisco Tiu Laurel Jr. is studying setting the floor price at a minimum of P17 per kilo.

Crisostomo Marzan of the Nagkakaisang Magsasakang Novo Ecijano (NAMANE) tagged government’s basis for estimating palay production cost as outdated – based on 2023 and 2024 production costs of P14 per kilo. 

Marzan said that in 2025 production costs have tripled – the P800 fertilizer cost then is now P2,000, such that the cost per hectare is P70,000.

Groups like NAMANE, Amihan, and Kilusang Magbubukid ng Pilipinas (KMP) have been calling for a P20 per kilo floor price. Farmers under NAMANE gathered almost 15,000 signatures asking President Marcos Jr. to set a new floor price in the face of “deepening crisis for rice farmers caused by the government’s failure to act decisively and traders’ continued exploitation.”

“Most small farmers lack access to drying facilities or trucks needed to bring their products to the National Food Authority (NFA), which has led them to sell to private traders at lower prices, NAMANE said.

Agriculture Secretary Tiu Laurel earlier said they were waiting for an executive order to implement a floor price for palay, which is seen to be at a minimum of P17 but the President wants it at P18 or P19.

2-floor price setups

“These two floor-price setups have common elements if you look at the statutes that established each of these schemes. It has flexibility and tripartite price-setting,” Briones told a Senate hearing.

For tobacco, it’s the government represented by the National Tobacco Administration (NTA), farmers, and buyers represented by cigarette manufacturers, dealers, and exporters, that is authorized to set or fix tobacco floor prices after a tripartite consultative conference every two years.

Outside the agriculture sector, Briones cited determining minimum wage by the Regional Tripartite Wages and Productivity Boards (RTWPBs), worker representatives, and employers’ representatives in respective regions.

Tripartite consultations can certainly bring a happy compromise (that is realistic and consistent with market clearing price) in price setting.

Market clearing price is when supply and demand match, so no shortages or surplus, resulting in a balanced market. But if we put price controls this would surely fail.

Briones explained that price controls fail when it involves a prolonged and significant divergence between the mandated price and the market-clearing price thus resulting in chronic shortages of goods, the formation of parallel markets with higher prices, and substitution towards lower-quality alternatives.

As such, producers of price-controlled goods might turn to black markets, which lack basic regulation, and likely encourage production to shift to firms in the informal sector.

In September 2023, the government set a price cap for regular milled and well milled rice at P41 and P45 per kilo, respectively. That same month retail prices exceeded the ceilings because retailers claimed to have bought the rates at higher wholesale prices. Thus, prompting the government to dole out P15,000 financial aid to small retailers affected by the price ceilings. 

After a month, government lifted the price cap on rice due to increased supply from the harvest season.

“This is a lesson that we should take to heart that floor prices or price controls in general can work if flexible and based on negotiation of the stakeholders involved, so that you can have a more realistic price setting responding to changing market conditions,” Briones said.

“But in practice, as we saw in the price ceiling example for retail, it is difficult to enforce. It creates winners and losers […] and depending on how prolonged and how far from realistic price it is, it introduces unsustainable distortion in the market.”