Description:
The Rice Liberalization Act (RA 11203), signed last February 2019, reverses decades-long placing quantitative restrictions on rice importation administered by the National Food Authority. The Act goes further by dismantling interventionist policy in the rice industry by divesting the Authority of its regulatory powers. The policy has been controversial, with some farmers and even lawmakers calling for a review and reversal of the law. This study takes a long term perspective by conducting ex ante impact assessment based on a computable general equilibrium model with welfare effects disaggregated by income decile. Under liberalization, rice imports are far larger than under the interventionist policy. Farmgate and retail prices are significantly lower under liberalization. Hence, farmers are worse off under liberalization, while consumers are better off. On the side of farmers, the policy causes a fall in palay output as well as area harvested, relative to that under an interventionist policy. Aggregating the peso value of benefits and costs, the study also finds that society as a whole is better off under liberalization. Benefits from liberalization are spread widely across the population, while the costs are concentrated among net rice producers. Disaggregating the welfare change across the income deciles (combining consumers and producers), we find that liberalization confers positive benefit for all the income deciles. In absolute terms the increase is larger for the higher income deciles. However, in proportion to the welfare level without liberalization, the relative gain of lower income deciles is larger than that of higher income deciles. Note that poverty incidence coincides closely with the bottom two deciles, hence liberalization is a pro-poor policy. Policy implications include: i) to continue enforcement of RA 11203; ii) to focus efforts on providing offsetting compensation for losers from the reform; and iii) investigate the state of competition in rice marketing and diligently enforce competition policy in the rice industry.