Slash rice tariffs to cut poverty in Asean–OECD

By Jasper Y. Arcalas11 July 2017 Southeast Asia

The Philippines and other Asean countries would be able to cut poverty faster if they would cut tariffs on rice and eliminate trade barriers, according to the latest  study released by the Organisation for Economic Co-operation and  Development (OECD).

In its recent study, titled “OECD-FAO Agricultural Outlook 2017-2026”, the OECD said an Asean integrated rice market, where tariffs are scrapped and nontariff barriers are reduced, would ensure food security among developing countries in Southeast Asia.

“The development of the Asean Economic Community [AEC] extends well beyond agriculture and aims to allow for the free flow of goods, services, investment and skilled labor across the region, along with the free flow of capital,” the study read.

“As such, it has the potential to significantly impact growth opportunities in the region, agricultural competiveness [within countries and for the region globally], along with important policy focuses, such as food security,” it added.

In this kind of trade environment—where free flow of commodities are assured within the regional bloc—the 10 member-countries will ensure that they will be food secure in the
mid- to long-term run, according to the OECD.

“Free trade in rice and maize, enhanced by improved trade-facilitation measures and the harmonization of food regulations, could improve food security for each of the 10 Asean members,” the study read.

However, the OECD noted that the benefits of such free trade will vary depending on the development of the Asean member-nation. Countries like the Philippines and Indonesia, which depend on imports to plug the shortfall in domestic production, would benefit the most.

The OECD said its recent analysis supports findings on the potential positive links between regional rice market integration and food security. This analysis, however, took note of tariff reduction and trade reforms across the Asean member-nations.

“The analysis shows that there is much to be gained—in terms of managing risk and improving food security—from moving toward regionally integrated rice markets,” the study read.

One of the findings of the analysis showed that once the integrated regional rice market is achieved in 2025, it would increase the “total welfare” of Indonesia, Malaysia, the Philippines, Thailand and Vietnam by around $2.8 billion, according to the OECD.

“Of this, $1 billion accrues to the Philippines, with the remaining gains spread more evenly across countries,” the OECD added. The OECD analysis also showed that an integrated regional rice market would bring down the domestic price of rice in Indonesia, Malaysia and the Philippines by 25 percent to 45 percent.

For the Philippines alone, the OECD projected that the domestic price of rice would go down by 45 percent due to the influx of the staple from the region.

The OECD added the reduction in the local price would make the staple affordable to the poor Filipinos, and result in a 5-percent reduction in the number of undernourished people.

“The 5-percent fall in undernourishment accounts for both the benefits from price falls in some countries and costs from price rises in others. Of these five countries, undernourishment in two rice-importing countries—Indonesia and the Philippines—would fall the most due to the resulting decreases in domestic prices,” the study read.

Cutting tariffs and knocking down trade barriers would cause rice prices in Indonesia, Malaysia and the Philippines to decline by 39 percent, 26 percent and 45 percent, respectively. The OECD added that, due to the increased consumer access to cheaper rice, countries like Indonesia and the Philippines could “offset” the impact of climate change, particularly El Niño, on crop production.

“While the regional El Niño scenario increases the undernourished population in five Asean member-states by 49 percent under the current rice-trade regime, integrating the regional rice market could mitigate the impact to an 11-percent increase,” the study read.

However, the OECD warned that rice-importing countries in Asean should put in place safety nets to help rice farmers cope with the influx of cheaper rice.

The OECD projected that the total volume of rice traded in Asean would increase to 10 million metric tons once the integrated rice market is realized by 2025. Of this volume, about half would come from a diversion of rice exports that would have gone to the rest of the world. The expected increase in the volume of rice traded in Asean would result in higher prices in the world market.

“Reduced supply to the world market would cause international prices to rise by approximately 8 percent, thus ,impacting on food security in countries outside the region,” the study read.

However, the OECD noted that an integrated regional rice market would only materalize if the 10 member-nations would move toward reducing tariff and removing trade-disrupting measures.

“It is noted, however, moves to integration are best realized through shared actions over time. In this way, the disruptions to world markets are minimized and time is allowed for adjustments in both exporting and importing countries, avoiding pressures on world markets,” the OECD said. In order to facilitate freer trade of rice, the OECD recommended that both exporting and importing Asean member-countries should reduce government intervention and increase private-sector involvement in the regional market.

“In addition, greater involvement of the private sector in regional rice trade could help to facilitate the necessary market integration, as well as providing benefits in terms of greater efficiency, reduced distortions and greater potential for growth,” the study read.

“Vietnam could, for example, allow its private exporters to play a greater role in the export market, while in the Philippines, Malaysia and Indonesia, the role of state agencies in imports could be restricted to the neutral management of emergency stocks to enable the greater involvement of private traders,” it added.

Earlier, economists and analysts told the BusinessMirror that Asean should leverage its well-deserved reputation of being the “food bowl of the world” to cut poverty incidence in the region and wipe out hunger.

In the Philippines alone, inflation in the past five years has been benign. The highest average inflation experienced by the country was in 2014, at 4.1 percent, while the lowest was in 2015, at 1.4 percent.

In the region, based on the 2016 Asean Community in Figures, inflation was
highest in Indonesia, at 3.4 percent in 2015; and lowest in Thailand, where deflation reached 0.9 percent.

Despite this, data from the International Food Policy Research Institute (Ifpri) showed that some 84.1 million people are considered hungry in Southeast Asia and the Pacific in 2010.

In 2010 Ifpri said there were 32.4 million people who were considered hungry in Indonesia; some 12.9 million in Vietnam; 12.1 million in the Philippines; 10.5 million in Myanmar; 6.2 million in Thailand; and 900,000 in Malaysia.

Data from the Asian Development Bank also showed that, apart from Brunei
Darussalam, Singapore and Timor-Leste, which had no available poverty data, the highest poverty incidence was in Myanmar at 25.6 percent, and the Philippines at 25.2 percent.   This was followed by the poverty incidence in Lao PDR at 23.2 percent; 13.5 percent in Cambodia; 11.2 percent in Indonesia; 10.9 percent in Thailand; 8.4 percent in Vietnam; and 0.6 percent in Malaysia.