1. Staple Foods Sector Diagnostic Country Report 1

2. 1.Background 2.State of competition and competition reforms 3.Overview of the market structure 4.Competition concerns 5.Overview of Research methodology 6.Impact of competition reforms 7.Computing impact of competition reforms What to expect 2

3. Competition reforms in rice 1.Presidential Decree No. 4 National Food Authority mandate: food security Support farmers, assistance to consumers Monopoly on rice importation 2.Agricultural Tarrification Act Converted all agriculture import quotas to tariffs Exception for rice (time-bound; to 2017) In 2000s: increasing private sector participation in importing rice 3

4. NFA and private sector imports 4

5. Market structure study Domestic marketing of rice: competitive Numerous players, no dominant player or group NFA procurement does not affect domestic paddy prices; However import monopoly with QR allows domestic price to rise above border price; Normally around 40%; jumped to >80% by end-2013: self-sufficiency policy tightened imports insufficient stock release to stabilize consumer prices 5

6. Evaluating Impact of Competition Reform on Trade The model for economic surplus analysis is TWIST (Total Welfare Impact Simulator for Trade) Baseline data: 2013 market Scenarios: 1. Free Trade (increased in 2013) 2. Increase in import quota (2013 quota increased at 404,702 to 1 million ton) 6

7. Results of TWIST Elasticity of demand -0.50-0.25-0.75 Baseline Imports Retail price (P/kg) Welfare measures (P millions) Consumer surplus Producer surplus Importers revenue Economic surplus 404,702 33.70 387,390 49,470 5,627 442,486 404,702 33.70 781,907 49,470 5,627 837,004 404,702 33.70 260,636 49,470 5,627 315,732 Changes from baseline Free trade Imports Retail price (P/kg) Welfare measures (P millions) Consumer surplus Producer surplus Importers revenue Economic surplus 3,796,035 -13.90 178,076 -33,985 -5,627 138,464 2,577,522 -13.90 169,605 -33,985 -5,627 129,994 4,970,516 -13.90 186,240 -33,985 -5,627 146,628 7

8. Results of TWIST Elasticity of demand -0.50-0.25-0.75 Baseline Imports Retail price (P/kg) Welfare measures (P millions) Consumer surplus Producer surplus Importers revenue Economic surplus 404,702 33.70 387,390 49,470 5,627 442,486 404,702 33.70 781,907 49,470 5,627 837,004 404,702 33.70 260,636 49,470 5,627 315,732 Changes from baseline Increased quota Imports Retail price (P/kg) Welfare measures (P millions) Consumer surplus Producer surplus Importers revenue Economic surplus 595,298 -2.18 25,706 -6,599 6,096 25,203 595,298 -3.21 37,694 -9,554 5,065 33,205 595,298 -1.67 19,675 -5,082 6,611 21,204 8

9. Advocacy must account for opposition from the following: Organized farmer groups:strong lobby vs liberalization Tolentino and de la Pena (2012) rather the following lobby groups: - The NFA Employee’s Association; - The various service providers to NFA (trucking, logistics, warehouses, etc.); - Financial institutions which lend to NFA; - Network of corruption within NFA that exploits the difference between NFA retail price and market price, and between domestic price and world market price 9

10. Conclusion Rice importation policies need to be rationalized and effective in protecting not only the interests of producers but also consumers and other market participants. Huge differences in the costs of bringing in imports and moving domestic supplies to consumers makes smuggling lucrative. A properly-set tariff level under a liberalized importation policy -- allowing anyone to bring in rice – reduce consumer prices, offer moderate protection to farmers 2014 – 2017: critical period for the rice sector governance 10