The Statistics Authority of the Philippines (PSA) recently released the results of its survey of production costs and yields of Palay farms (unmilled rice) in 2020. The report is of the utmost importance as it reveals the situation of our Palay farms after the implementation of rice pricing. Law (RTL) in March 2019.
All the benefits of this rice liberalization law have yet to be realized because the aid under its Rice Competitiveness Improvement Fund (RCEF) was only deployed in 2020. The current secretary of Agriculture, William Dar, only took office in August 2019 and there has been virtually no movement in preparing the agricultural bureaucracy to implement the RCEF under his predecessor, who strongly opposed the adoption of the law.
At the outset, I will have to apologize to the readers if the discussion that follows will bother them. Technical reports are meant to be that way because they are meant to be scientific and unbiased. Thus, superfluous adjectives and devious exposure are conscientiously avoided.
The PSA report noted that for irrigated and non-irrigated farms, the average production cost in 2020 was P 47,089 per hectare. He further revealed that Palay farmers recorded an average gross income of 68,519 pesos per hectare, giving them a net income of around 21,430 pesos per hectare. The net benefit-cost ratio in Palay’s production averaged P0.46 per peso of expenditure. It should be noted that production costs and yields differ during wet and dry seasons, with farmers earning more in the last season due to the lower moisture content of their palay.
On a per kilogram basis, the PSA reported that the average cost of production for a Palay farmer is 11.52 pesos (lower during the dry season and higher during the wet season). Thus, the oft-cited figure of P13 per kilogram, based on a 2013 Philippine Rice Research Institute (PhilRice) report, is no longer applicable today. Note that the average cost of production fell despite inflation (increase in the prices of agricultural inputs) within seven years. Based on this downward trend, it can be predicted that the average cost of production per hectare will fall again as the full deployment of RCEF support is felt by farmers. Half of RCEF’s annual 10 billion peso fund goes to agricultural machinery, as the main cost element of agricultural production is labor, which accounts for up to 30 percent of the total cost of production.
Due to the archipelagic nature of the country which pushes up the cost of transport (logistics), there are marked disparities in the production costs and yields of regional palaces. The lowest production cost was recorded in the Bicol region (region 5) at 11.17 pesos per kilo while the highest in the central Visayas (region 12) at 17.78 pesos per kilo. The net benefit-cost ratio is set at 0.53 in northern Mindanao (highest) and 0.09 and 0.04 in Calabarzon (region 4A) and Central Visayas (lowest), respectively. Unfortunately, the PSA report does not take into account the disparities but it can be assumed that these are mainly caused by the presence or absence of irrigation and the high logistical cost for the former (which increased the costs of inputs) , and the high cost of labor in Calabarzon and Central Visayas.
By region, the average cost of palay production was highest in the Ilocos region (region 1) at P 66,766 per hectare. The lowest average cost is in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), which came in at 37,271 pesos per hectare. Central Luzon (region 3) recorded the highest average gross yields at P 84,506 per hectare while BARMM recorded the lowest average gross yields at P 49,164 per hectare.
In terms of average farm gate prices, the Central Visayas recorded the highest price at 18.52 pesos per kilogram. Since the region had the lowest net profit ratio, the high producer price should ensure that at least the farmers recoup their production costs. On the other hand, Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon) listed the lowest average farm gate price at 15.52 pesos per kilogram, implying that Palaye agriculture may not be more economically viable in the region.
The PSA report is nearly 80 pages long, including appendices. I can wear readers down with more numbers or data, but I think what’s most important right now is to draw some lessons and conclusions from this report. I can think of four of them.
Firstly, there is a marked decrease in the average production cost of the palay compared to the previous one recorded in 2013 at 13 P per kilogram of palay to the current level of 11.52 P per kilogram. This is a reduction of almost 1.50 pesos per kilogram under the RTL trade regime. Note that this did not take into account the rate of inflation for the seven-year interval period, and therefore, the actual cost of production would be even less.
With the full deployment of RCEF aid programs, we can expect a further reduction in the average cost of production per kilogram of bread. This means that we will move closer to the production costs of our neighbors in Southeast Asia. This process will be accelerated if assistance focuses on the land most suitable for rice production while encouraging marginal farms in Palay to turn to the cultivation of high value-added crops.
Second, regional disparities in production costs, incomes, producer prices, among others, unequivocally demonstrate the imperfect nature of having a guaranteed national price for payment that applies to all producers in various regions. . While the guaranteed price of 19 pesos per kilogram for dry palay to growers in Central Visayas or Calabarzon is reasonable, giving that same amount to farmers in northern Mindanao will provide them with a bargain.
Third, reports that game prices have fallen to P10 per kilo are an exception to the rule. Such an incidence is confined to a very small area of all farms. The Palay sold at this price has been soaked in rainwater, which will require additional drying costs to achieve the taste quality of the rice. However, this is what the media and politicians have focused on because they gain more public attention and increase media ratings.
And what about our malaria farms. This is mainly the reason why even at the slightest drop in palay prices, farmers complain that they do not earn much or are virtually unable to support their families. It also explains why off-farm income (employment other than agriculture) constitutes almost 50 percent of the total income of farming families. In addition, the low value of the palay makes it difficult for a farmer to earn a decent income when he only cultivates one hectare of land (which is now the average size of a farm in the country) .
This reality on the ground shows why neighboring countries in Asia, such as China, Thailand and Vietnam, have encouraged farm consolidation to reap the benefits of economies of scale. The problem in this country is that certain sectors will strongly resist any movement of agricultural consolidation. Opponents subscribe to the ideology that “real land reform” is the panacea to all of our agricultural development challenges.
Explaining why this idea is wrong in the 21st century will require another chronicle.