National Food Authority (NFA)

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The NFA operations and particularly its rice subsidy have been the subject

of a number of studies. Subbarao et al. (1996) reported that in 1991 and

1992, it cost NFA 2 to 3 pesos to transfer a peso of benefi t to the consumer.

The net cost of the NFA rice subsidy is the gross cost, consisting of its

palay procurement price, milling cost, debt service, and other costs, less

its sales receipts. In 1991 and 1992, this cost amounted to Pesos 6097 and

Pesos 5691 per metric ton, respectively, or two to three times the income

transfer to consumers (defi ned as the annual average retail price minus the

weighted average NFA sales price of rice to consumers). More recent data

show that this ineffi ciency persists. Roumasset (1999) found that in 1997

and 1998, NFA’s subsidy to consumers amounted to Pesos 1.87 billion

and Pesos 4.89 billion, respectively. Thus, it cost the agency an average

of Pesos 1.68 to deliver one peso of benefi t to the consumer. Manasan

(2001) noted that economic costs from NFA importations (losses in tariff

revenue, and consumer and producer surplus) were not accounted for in

these estimates.

As the program is of the general food subsidy type, non-poor families

also benefi t from it. Citing similar schemes in other countries where leakage

ranged from 50–70 per cent, Subbarao et al. (1996) and Manasan (2001)

assumed a 50 per cent leakage for the Philippines. With this assumption in

1991 and 1992, the cost of the income equivalent transfer of one peso to

the poor was Pesos 4.30 and Pesos 5.98, respectively. In 1997 it was Pesos

4.19, declining to Pesos 2.54 in 1998.

Subbarao et al. (1996) noted that the 50 per cent leakage assumption

is reasonable given the ‘large regional mistargeting’ of the program. Of

the total NFA subsidized rice in 1991–1993, the National Capital Region

and Cagayan Valley received 35 per cent even though they accounted for

only 3 per cent of total food poverty in the Philippines; the poorer regions

of Southern Tagalog, Bicol, Central Visayas, Northern Mindanao, and

Southern Mindanao obtained 29 per cent even though they accounted for

about 62 per cent of total food poverty. Similarly in 1998, the share of

NFA rice in total rice consumption in the Autonomous Region of Muslim

Mindanao, Cordillera Administrative Region, and Western Visayas was well

below the 22 per cent national average, although poverty incidence in these

regions was relatively higher than average (Manasan, 2001).

Several other studies also show that the NFA has not been effective in

achieving one of its other objectives as NFA’s operations tend to destabilize,

rather than stabilize, domestic prices. Untimely importation (if a decision

to import is made) and grain procurement and releases have aggravated

palay and rice price fl uctuations (David, 1999; Roumasset, 1999). It has

been estimated that consumers pay 35 per cent to 100 per cent higher rice

prices than would be possible under unrestricted trade. Also it is argued

that NFA policy offers potentially very lucrative profi ts for well-connected

rice traders and political insiders (Roumasset, 1999).