Escudero says rice import bill to hit P58.7 billion; P21.7 B will be in foregone subsidy

Press Release
By Office of Senator Chiz Escudero
March 26, 2008

PASAY CITY, Philippines  –  The cost of subsidizing cheap rice sold by the National Food Authority could reach P21.7 billion this year, according to Senator Francis Escudero.

That is if rice which costs around P29.40 a kilo to import will continue to be sold by NFA retailers at P18.50 per kilo, Escudero explained.

The P10.90 per kilo difference will be the "political premium" the Arroyo administration will have to pay to prevent the perceived lack of the main food of 90 million Filipinos from exploding into a crisis fatal to an already faltering government, Escudero said.

If imported rice will cost $707 per metric ton, which was what the government paid for the 335,000 metric tons it bought this month, then the two million metric tons government plans to bring in this year will cost P58.7 billion, based on a P41.50 to $1 exchange, which is still higher than the official forex forecast.

Of this amount only P37 billion can be recouped, "assuming completely zero trading, storage and transport losses," Escudero said.

The estimated import price tag, Escudero said, assumes no tax or duty paid, which is 40 percent of imported value under the country's WTO commitments, a rate which, however, can be waived if food shortage is invoked.

He doubts if duties will be fully waived as tax payments on rice imports, called in official parlance as Tax Expenditure Fund, bloat the tax effort and make for a beautiful revenue report card.

Escudero further estimates that the P58.7 billion required to import rice is equivalent to what we can collect from VAT on fuel this year. "To give you an idea how big it is, it's bigger than the budget of the AFP or the PNP, and five times the allocation for DOH."

"Taxes collected on the gas pump will just be swapped for rice.  The rise in the world prices of rice, which translates into bigger corporate subsidy for NFA,   was never factored in this year's expenditures," he said.

As a result, the plan to have a balance budget this year "is in peril," Escudero warned. "It's either a balance budget or a balance diet. In this clash of policies, I predict the 'politics of the stomach' to win hands down."

Faced by a growing population, global tight supply, and low productivity, the Philippines, the world's biggest rice importer, is scrounging for crumbs left in the world rice market to avert a shortage.

But when it placed a tender for 550,000 metric tons this month, it was only able to buy 335,500 tons, valued at $237.5 million, or an average price of $707.8 per metric ton, or P29.40 per kilo based on current peso-dollar exchange.