Senate's Economic Planning Office seeks review of NFA functions

By Christina Mendez (The Philippine Star) Updated December 29, 2010 

MANILA, Philippines - While all eyes are focused on how government-owned and controlled corporations (GOCCs) are performing, the Senate’s Economic Planning Office (SEPO) has recommended a government review of the functions of the National Food Authority (NFA).

In calling for the review of NFA’s performance, SEPO noted that it is one of the agencies with dismal financial performance, and has contributed greatly to the huge fiscal deficit of the public sector despite past reforms.

SEPO noted that the NFA has consistently been one of the top fund-drainers among GOCCs, costing the government billions of pesos in losses.

According to 2009 statistics, NFA accounted for P27.03 billion or about 10.8 percent of the P251.5-billion consolidated public sector deficit for that year.

In SEPO’s policy brief report published this month, it reiterated the importance of re-examining the NFA to determine whether the benefits gained from its continued operations justify the considerable funding it receives from the national government.

The NFA’s two mandates are to stabilize the price of rice and to ensure food security – goals that any good government must strive to accomplish.

Prudence, however, dictates that one point must be considered: At what cost should the government maintain what experts consider as a generally ineffective policy measure?

Government burden

According to the document, a growing number of critics have been pointing out for years that “any gain derived by continuing the operations of the NFA does not justify the costs that it entails.”

In seeking for review of their performance, the SEPO noted that the NFA has been eating up an increasing amount of public resources.

In the period between 2003 and 2008, government spending on NFA programs, on the average, surpassed spending on agrarian reform, research and development (i.e. Department of Science and Technology and state universities and collegess) and extension services (local government units).

Since its revenues – including subsidies from the national government – are not sufficient to cover its operating costs, the deficit is funded by borrowings.

In 2008 for instance, the SEPO said NFA had to borrow more and rely more on subsidy support to be able to expand its procurement program when the world price of rice was at its peak.

While the cap on foreign loans was set at $500 million, there is no ceiling on domestic borrowings.

Increased cost of borrowing and rolling over the debt resulted in the escalation of NFA’s debt stock over the years, the report read.

In 2009, the NFA’s debt was recorded at P171.6 billion, a far cry from the 2000 debt level of P20.9 billion.

Any debt incurred by the NFA is automatically and unconditionally guaranteed by the national government as primary obligator, the report added.

The report said the national government does not only subsidize the operations of the NFA but it also pays for the agency’s debt. The agency’s financial losses have particularly been a cause for concern for the Department of Finance because it contributes to the budget deficit overrun, the report added.

‘Financial hemorrhage’

NFA’s twin mandates of price stabilization and food security are replete with issues.

Evidently, the NFA’s rice operation is proving to be too costly for the national government. Large leakage errors and poor availability of subsidized rice to its intended targets both contribute to the ineffectiveness of this policy measure, and seemingly does not justify the considerable subsidies it receives from the national government.

This brings to the fore the need to review NFA’s mandate, according to the report.

One of the proposals is to design and implement a national targeting system to identify the deserving beneficiaries of NFA rice.

The SEPO also recommended a rational and more “poverty-sensitive” approach to restructure the NFA in order to address the issue of conflicting functions that result in “financial hemorrhage.”

There have been pending bills in the past Congresses, including Senate bills 741 and 876, which seek to establish a strategic food security and rice reserve equivalent to 15-day national rice consumption to be managed by the NFA. There is also a proposal to provide P4-billion seed money as a revolving fund held in trust by the NFA.