The Rice Tariff Conundrum

Recently there have been calls to raise the floor price of rice as farmers are now only earning Php7.00 per kilo of rice instead of the normal Php12.00 per kilo. I understand and sympathize with the rice farmers. But to raise the floor price would bring us back to the time when everyone was complaining about the price of rice. Do you guys remember that? Or are our memories that short?

Remember that when prices rise, the heaviest hit by such an increase are the poor. The rich can afford more expensive rice so no one worry about them. The rice tariff law signed earlier this year basically reduced the tariffs to be paid by foreign suppliers of rice. This allowed for more competition in the market and with more competition, prices tend to go down. That's simply how the market operates. Now, demand for rice in our country it seems will not change. Whether rice is expensive or cheap, people will buy rice so for this analysis I'm assuming the demand curve to be a straight horizontal line.

Now, we're at this awkward position where imposing a higher floor price would see to benefit the rice farmers by allowing them to earn more. It also benefits the foreign suppliers of rice by allowing them to earn even more than they are already. This measure will hit the poor the hardest though as to eat rice, they will have to shell out more just to get by. If we don't raise the floor price, the hardest hit are the local farmers.

Now, I'm tempted to side with the farmers and just raise the floor price. It does indeed seem like the fastest solution. But is that wise? A raise in the floor price would be harmful to the poor after all. It seems like a stalemate. What we fail to realize in this situation is that competition is good and lower prices for commodities is a good thing for our countrymen. Why ruin competition to cater to the weakest player?

Yes, our palay farmers are the weakest players. While other countries' farmers have made use of technology to make their rice cheaper, we're stuck with old outdated ways of farming which produce more expensive rice. Business is tough and it might be best for our palay farmers to either accept the low price of Php7.00 per kilo or look for another line of work which pays more. Such is the nature of capitalism. If a player is unable to compete, its best move might just be to provide another goods or service.

The farmers right now are suffering and I feel for them. But when the Philippine government allowed foreign players to participate in our economy more, I feel that was the right decision. The solution to our problem is more competition - not less. The palay farmers should be able to move on to something different and it might even end up being better than what they have now.