In a recent research paper, David Dawe of the Social Sciences Division of IRRI confronted the issue of rice trade protection. He argues that the protection to rice in the Philippines, in fact, goes to benefit the rich farmers at the cost of the poor. Although he directs his pen at the Philippines, I presume, the observations made and the conclusions reached could cover, more or less, some other countries in this region that have a firm faith on an inward looking strategy for rice to propagate a pro-poor policy.

Relished rice

Rice is the single most important commodity in the Philippines accounting for 40 percent of calories intake, 30 percent of protein and nerly one-third of total agricultural area harvested. On average, half of the farm household income originates from rice and roughly one-fifth of the expenditure of bottom one-fourth in the income distribution hovers around rice. The ratios are, admittedly, lower compared to Bangladesh where, I guess, roughly more than two-thirds of calories come from rice and it costs more than half of the budget of the lower deciles. However my visits to IRRI cafe

lead me to believe that like Bangladeshis, from the dawn to the dusk, Filipinos also religiously relish eating rice. The per capita consumption of rice is lower here but in terms of frequency, almost at par. And I am not pointing to the poor but to the posh and the prosperous Filipinos working at IRRI.

Pondering over wonders

There is no doubt that the establishment of the IRRI in this country -- the most prestigious organisation dealing with rice research -- is something to be proud of. But the Philippines has another landmark in the realm of rice: rice terraces. I am grateful to AFSTRI (Association of foreign students/scholars, trainees) for providing me with the rare opportunity of visiting the places at Banaue, about 700 km from Los Banos. Stepping into the soil in a fine morning, I found myself in one of the wonders of the world: 2,000- year rice terraces and related rituals and cultures. As UNESCO stated: "for 2000 years, the high rice fields of the Ifugao have followed the contours of the mountain. The fruit of knowledge passed from one generation to another, of sacred traditions and a delicate social balance, they helped form a landscape of great beauty that expressed, conquered and conserved harmony between humankind and environment". Their watershed management for the growth of rice in such high altitude -- roughly about five thousand feet above sea level and in climatic conundrums -- is something to be seen. Unfortunately, as elsewhere, the Ifugao also faces the challenges of modernisation, and is on the verge of extinction. Tourists come here and, sometimes some octogenarians pose for cameras under shivering cold for the sake of only 50 pesos!

Protection and poor

Back to business. For the last two decades or so, domestic rice prices in the Philippines, reportedly, ran much above the prices in other countries or world markets. The domestic retail prices often reach levels higher than 100 percent than would be the case under an unrestricted regime. One can easily comprehend the impinged impacts of the large price differentials due to protection (my undergraduate students at Jahangirnagar University could close their eyes and recollect the partial equilibrium analysis on protection). David Dawe succinctly summarises the considerations.

First and the foremost perhaps, is that the driven edge resulting from the price incentives, drives towards the production of more rice and little of other crops. In economic jargon, it is called "deadweight" loss to the economy since more valuable crops could be grown in the absence of distortions. Second, it transfers income from rice consumers to producers. The triangle in the imaginary diagram, depicting producers' surplus, gets bigger while that of the consumers' surplus suffers a squeeze. Whether the losers in the battle are poor or not is an important empirical question and several authors have addressed this on theoretical as well as empirical plane pertaining to individual countries. The third effect of higher rice prices is reduced employment. Higher rice prices (or any food items) prompt workers to raise hue and cry for higher wages (since unions in the Philippines reportedly have a say in setting wages). And in the face of fiery demands for increased wages, irritant investors invariably respond by laying off the workers. "The higher wages do reduce employment, however, creating a larger pool of unemployment than would exist if food prices were lower". And finally, as rice is the dominant crop, very high price is likely to put a pressure on land values making it more difficult to go for land reforms. "If rice prices were to fall substantially, the government would probably have to pay less to purchase the land and transfer it to someone with less or no land".

Factually speaking, the poorest in Asia are the net purchasers of rice. John Mellor -- an ace agricultural economist -- observed in 1978 that the two poorest deciles of the income distribution in India were net buyers of food while each of the top eight deciles were net sellers. Just a decade later, in 1988 and for Sri Lanka, DE Sahn observed that two-thirds of all farmers with marketable surpluses of rice are in the top half of the expenditure distribution. Almost another decade later, in 1996, CB Barret and PA Dorosh observed almost the same trend for Madagascar: "The roughly one-third of rice farmers who fall below the poverty line have substantial net purchases of rice, suggesting important negative effects of increases in rice prices on household welfare". And if my memory recalls correctly, studies on Bangladesh (especially by Drs Mahabub Hossain and Kazi Shahabuddin) point to the preponderance of large farms in rice marketing although they noticed a negligible rise for smaller groups too. Thus, neither time nor country considerations could contest the core of the argument that largely the large landowners are prized with high prices of rice.

However, all that have been said from India to Bangladesh mostly matter for growers of rice and ignore the landless households who, by definition and without default, are net buyers of food from the market. By and large, " the poorest rice farmers are quite vulnerable to an increase in the price of their principal crops". Conversely, the largest, wealthiest 10 percent or so of farmers stand to benefit significantly from rice price increase". But the contrast comes from Vietnam -- against Bangladesh, Sri Lanka, India, and the Philippines -- with a period of Communist rule providing comprehensive land reforms to live with less of landless people. Minot and F. Goletti argue that an increase in rice prices in Vietnam, albeit marginally, would reduce the incidence and depth of poverty.

Pertinent point

A pertinent question props up: would the poorest of the poor necessarily benefit from lower rice prices even if they were net buyers? David Dawe -- drawing upon another prominent researcher M. Ravallion -- devotes a part of his paper on the evidence from Bangladesh. Ravallion argues that many of the poor consumers eke out a living from wages from other farms. High prices of rice results in increased production and hence demand for labour and that in turn pushes up wages. Thus, the net effect would hinge on their net consumption position in rice on one hand and the effect of rice prices on wages -- the main source of their income -- on the other. Ravallion also finds that "in the short run of one to two years, the induced wage response from higher rice prices in Bangladesh will be inadequate to compensate the poor for the adverse effects of higher rice prices. In the longer run of three to four years, the effect of higher rice prices is more neutral as wages eventually rise with a lag".

Findings for the Philippines

David Dawe's data show that "the poorest of the poor in the Philippines are net consumers of rice, not net producers". There are four categories of them. First, urban poor with one-fourth below the poverty line and accounting for 30 percent of the poor in the country. Second comes rural landless "who are often overlooked in many popular discussions of the rural sector". Various surveys show that the head of an agricultural labour household in the Philippines earns 22 percent lower than that of farm household and two decades back, the difference was devastatingly higher (47 percent). The third group comprises non-rice farmers and the most recent agricultural census shows that almost half of all farmers grow no rice at all. Other than rice, common crops in this country are coconut and maize -- also far behind rice earnings but upfront on pervasive poverty. And the final group comes from small rice producers who do not produce enough rice for family consumption.

How would a regime of more imports and consequent lower rice prices affect these various groups? According to the researcher, lower rice prices (with a surge in imports) would put up upward pressure on the wages of unskilled labour. The effect on wages tends to be the function of land markets, the arbor intensity of alternative crops to rice, and the influence of urban sector wage to rural wage. "With lower prices, rice farming must remain profitable for those farmers who continue to grow rice. For farmers who cannot restore profitability in the face of lower prices, must necessarily give up rice farming and use the land for some other purpose". Profitability can only be restored through adjustment in input prices especially of nontradable land and labour prices. Pesticides and fertilizers -- tradable inputs -- could cast little impact in terms of cost minimisation. Arguably, lower rice prices would lower rental prices for land (and increase land tenancy). Farmers might go for diversification and make up the loss by growing maize for which demand growth surpasses that of rice. Both use similar quantities of labour per hectare to arrest any decline in labor demand as a result of the shift. By and large, lower rice prices are unlikely to cause a fall in wages as espoused by the critics of liberalisation. First, land market will absorb some of the shocks through lower land rents. Second, alternative crops grown e.g. maize and vegetables would take care of a part of the problem and finally, given an integration of rural and urban sector, agricultural wages are unlikely to face adverse effects.

But that will hurt half of the farmers who grow rice. David Dawe delved into the dynamics of the distribution of the Filipino rice farmers. The average income of the top 20 percent of rice farm households (ranked according to percapita income) is 15 times as large as that of bottom 20 percent. The top fifth of rice farm households is located in the top half of the national income distribution. Again, in per capita terms, the top fifth of the rice farm households has non-farm income that is 30 times more than the bottom fifth. The richest rice farmers are more specialised in rice than the poor ones. For example, the top fifth obtains 11 percent of agricultural income from non-rice crops compared to 25 percent by the poor. Thus it appears that the poor affirmers already gained an edge in terms of relocations. Besides, the richest rice farmers-the top quintile- hire 90 percent of labor to grow rice compared to 51 percent by the poor. The top quintile of rice farm households market 44 percent of the surplus followed by 23 percent by the second quintile implying that the current policy of protection and high prices of rice serves the purpose of the wealthier farms who reap home two-thirds of the benefits of the present policy.

Concluding remarks

David Dawe's paper points to interesting insights. Nevertheless, few observations should be on board. First, it lacks quantitative assessment based on general equilibrium framework and, seemingly, assumes that the imported rice does not receive any subsidy from the exporting country. In the latter case, the comparison appears to be with concocted comparative advantage. Second, as Jean Dereze and Amartya Sen observed: "The links between food availability and entitlements are indeed numerous and often important"

. For some people, the output of food grown by themselves is also their basic entitlement to food. For example, for peasants engaged mainly in growing food crops, the output, availability, and entitlement of food for the family can be much the same. This is a matter of what may be called 'direct entitlement'". Therefore, a la Dreze and Sen, one needs to distinguish between direct and trade-based entitlements. Any way, the intuitive impacts so investigated by David Dawe throws an illuminating light into the reality. It only shows that sometimes pro-poor politics tends to contain some elements of enriching the rich. The Filipino phenomenon might provide a wake up call -- at least in terms of research -- to those who live on rice but want to leave the issue of trade liberalisation on political grounds.

Abdul Bayes is a Professor of Economics at Jahangirnagar University