The Rice Tariffication Law Revisited: Hasty Deregulation and Ways Forward

How does a state achieve economic prosperity? What role does the government have in the
state’s pursuit of this wealth? How have these ideas been implemented in the Philippines,
particularly in its rice industry? And has it worked thus far in making the industry more productive
and prosperous? These four questions are what shall drive and guide the discussions in this paper.
In answering these questions, we shall primarily draw from the competing theories and body of
work of Adam Smith and Friedrich List.

Prosperity comes from productivity. Adam Smith argues that it does not matter if a state is
flushed with money, gold, or even raw resources; without the capacity to efficiently produce and
generate consumable goods, economies of states will flounder, and prices of goods will inflate
(Schneider, 2019). Since it is assumed that wealth and prosperity is a function of productivity, then
this leads to the conclusion that greater productivity equals greater wealth. Similarly, Friedrich
List considers productivity as the state’s source of wealth, even going far as to describe it as a
state’s ‘power’ to create it (Seiter, 2018). The generation of wealth, then, for both Smith and List
lie in the generative capabilities of the state.

While it is true that Smith and List both advocate for a capitalist economy, they ultimately
differ in their view of the extent of the government’s role in it. Smith’s laissez faire capitalism, in
particular, prefers a limited government that is restricted from regulating the activities of the
market. Instead, it favors further deregulation since to Smith a deregulated market heightens
competition, which ultimately compels firms to enhance their productivity (Schneider, 2019). On
the other hand, List’s social capitalism errs more on government regulation through educational
tariffs to protect infant industries from whims of the global free market (Clift, 2014). Implementing
protectionist policies is essential to List because excessive competition sans appropriate productive
capacities is detrimental to economic growth in the long run. Therefore, the need to improve the
productive forces of a state becomes necessary. Among the key productive forces referred to by
List are the intellectual capital and the institutions which enable the former’s enrichment. It is then
apparent that educational institutions, backed by the government, are vital to increasing a state’s
productivity. Essentially, the point of contention between Smith and List lies in their view of
whether governments are allowed to intervene through selectively regulating competition in the
market.

To evaluate these ideas further, we then observe the case of the Philippines. In particular,
we shall look at a recent issue that perfectly encapsulates the debate between regulation and
deregulation: the Rice Tariffication Law.

The liberalization of the rice industry of the Philippines is an economic policy that has
long been pursued by economists and various stakeholders (Tolentino & de la Pena, 2020). It was
a reaction to the NFA’s enduring control over the importation of rice, which was deemed to be
monopolistic and prone to corruption. The persistence of the quantitative restrictions, or simply
quotas, imposed by the NFA on rice imports also eventually contributed to higher domestic rice
prices and even lower domestic palay prices (Ocampo & Pobre, 2021). In short, it has done nothing
to improve the rice industry despite its strict protectionist policies. As a result, the prohibitive price
of rice exacerbated hunger and poverty—especially among farmers (Tolentino & de la Pena,
2020). The tipping point eventually came, early 2018, during the rice crisis that saw a shortage in
the supply of rice, causing an inflation (Caro, 2018). It is at this point that the Rice Tariffication
Law was eventually legislated and implemented with the promise of lowering consumer prices.
Abolishing quotas in favor of tariffs—35% duty specifically—enabled rice to be imported easily
in the country, momentarily stabilizing the economy. However, all of this came at the expense of
rice farmers.

To begin with, the RTL is a policy that expressly adheres to free market principles
championed by Smith. It favors government deregulation as it essentially strips the NFA of its
authority over import regulation. The move to shift from quotas to affordable tariffs, in essence,
opens up the Philippine rice market to the global rice market. And to Smith, that is ideal since it
gives impetus to domestic industries to step up and innovate to match their foreign competition.
Thus, it was expected that rice farmers will be given further incentive to boost productivity.
However, that really is not the outcome that actually resulted after the implementation of the law.
Rice farmers did not see any rise in productivity in the years that followed. Despite the
government’s claims of increased palay output in the past year (2020), it was misleading since it
was taken out of context—palay outputs were merely recovering from the El Nino back in 2019
(Montemayor, 2021). Moreover, palay prices continue to decline below production cost as well
(Ochave, 2021). Needless to say, general expectations were not met. Smith’s assumptions were
proven to be insufficient, even detrimental, how about List’s?

List emphasized that opening economies to the free market is not always beneficial
especially if existing industries are not competitive enough (Seiter, 2018). And the rice farming
industry in the Philippines is not competitive enough: it has one of the highest production costs
among rice exporting countries in Asia (Dy, 2020). Not to mention, the agricultural industry in
general is gradually losing manpower (Ocampo, 2019). It is much desirable, then, to follow List’s
wisdom, and instead bolster the productive forces of the rice industry. This does not suggest that
the government should revert to a protectionist stance again. Instead, it should further institutions
that would enrich the skills and capacities of those in the industry. Increased funding for research
and development should be pursued as well. The government should also strengthen present
institutions so that it will prevent possible monopolization and cartelization in the industry. In
general, the Philippine government should exercise its authority to pursue an economic policy in
the direction of agricultural enrichment.
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