RICE: Corruption and other schemes

Before anything else, let me first disabuse the readers' mind of a possible mis-reading of this blog that may be caused by it's title. This is NOT AN EXPOSÉ of shenanigans in the rice industry, nor is this designed to blow the whistle on any corrupt person or persons. This is just a simple re-telling some of the stories told among those who are or had been in the industry for sometime, in their capacity as either part of the government, or the private trade sector, as farmers or consumers, or as plain observers of the industry.

Ever since I was employed in the government, specifically the National Food Authority (and that is some 30 + years ago), allegations of corruption have always been made against the NFA, its employees, officials, and even against some private sector partners, e.g. rice millers, wholesalers and retailers. The sources of these allegations vary; from the farmers, the consumers, the grains retailers, and even NFA's own personnel. Many times, too, allegations come from local government officials and the media. Rice is indeed so pervasive in the Filipino life that practically everyone (even foreigners), are somehow affected by or concerned about it. Well, if there's smoke, there must be fire somewhere.

So let's take a look at some of these allegations and see how plausible or improbable they are.

- The matter of "ghost grains businesses": It's been alleged that there are a lot of grains business entities in the list of NFA registered/licensed which are actually non-existent and yet are able to transact with the NFA. This is very probable. In fact in a recent check done by its enforcement officers, there were a number of retail outlets which appear in the NFA list of legitimate business entities and which have been found to be either already closed, have transferred location, or have changed its business line, and yet are still able to transact with the NFA. It is very possible that the NFA personnel in-charge of inspecting the business-applicant did not physically inspect the location of, or the store itself, relying only on the written declaration of the applicant, or has deliberately skipped the ocular inspection altogether, in consideration of a sum of money (or favor). This is bribery, plain and simple. But one has to catch the actual perpetrators in action to be able to have  the appropriate charges stick.

-  The matter of "diversion of stocks", i.e. NFA rice which is supposed to be sold at subsidized price (currently at P18.25/kg), is sold instead at around P28.00/kg or higher or a hefty P10.00/kg profit for the seller. Under this scenario, a private rice seller buys rice from NFA and pays the NFA price (P18.25). After the seller has withdrawn the rice from the NFA warehouse, the seller removes the rice from the bag marked NFA and re-bags them to another plain or unmarked bag and sells the rice at P28.25. Since most of NFA's rice now are of very good quality (mostly imported from other countries), it is so difficult to distinguish it from the high grade commercial rice. In addition, the ordinary consumer is really unable to distinguish or recognize the difference between the NFA and the commercial rice. Even NFA employees themselves, who are not really trained on such matters have the same difficulty. In this particular case, the private rice sellers effectively "diverts" the rice intended for the low-income consumers, to the high-income consumers, and making a hefty profit out of the transaction. So where does corruption enter the picture?  As it would appear, it is solely the private trading sector that is responsible for this stock "diversion." But it has often been alleged hat somehow, all these are done with full knowledge of and in most cases with the connivance of NFA officials or employees themselves. Well, the on-the-ground reality of this kind of transaction certainly gives credence to the allegations. At the warehouse where the stock are withdrawn, the warehouseman is the one who determines which pile of stocks can be withdrawn (in spite of a first-in, first-out policy), and is therefore in a position to give (or not give) the good quality stocks to whoever is withdrawing the stocks. Some allegations even point to the complicity of not just the warehouseman, but a host of other employees such as the security guards, the quality control officer, the inspection officer and even to the provincial head itself. Given the extent and magnitude of, and the amount of money involved in, the "conspiracy," it is difficult to get anyone to actually testify. Besides, when it comes to the accounting side of this case, it would appear that no harm has been done to the government, i.e. the gov't has been paid in the correct amount and no money was lost from the government coffers.

- The matter of "hoarding" or withholding stocks from the market to create artificial shortage for the purpose of jacking up prices. To be able to do this, one necessarily has to have the resources (place to keep/hide the stocks, enough funds/capital to ride out the temporary slowdown of sales, and sometimes, right connection with government enforcement agencies).  So it is obvious that this scheme can only be perpetrated by large business entities and by definition, by a small but well entrenched group called a "cartel." There are a few tricks which members of these cartel employ to avoid detection by enforcement agencies. Already mentioned is by bribing enforcement personnel. But if the enforcement personnel can't be bribed, these traders, remove their stocks from their warehouses (making it appear that their warehouse is indeed empty) and loading them on trucks where the stocks are covered by tarpaulin sheets and the truck is parked in some isolated street of area (probably not very far from the warehouse itself). Looking for these trucks is not easy specially if they move around from location to location. One needs to have a close and continuous surveillance for this type of operation to be detected and exposed. And even then, these unscrupulous businesses may have a way of "persuading" officers of the court to throw-out or dismiss the case due to some obscure technicality.

These are just a few (but some of the biggest) way by which corruption is perpetrated in the rice industry. There are more, even ingenuous ones, such as the mis-classification of palay procurement, i.e. a farmer is paid more than what his palay stocks is really worth by simply upgrading the classification of his stocks. This is usually done in a partnership between the farmer and the NFA classifier (the classifier gets a portion of the "over-payment"). Again, this is very difficult to detect because of the hundreds of transactions done in a days' time in a single warehouse. There's also a scheme where big private traders are able to actually import rice (though by law, they are not allowed). They do it with the cooperation of the farmers themselves through their cooperatives. Under the current policies, and as a help by government to the producers who may be adversely affected by importation, farmers cooperatives can, on their own, import rice and sell them domestically. What happens is that these cooperatives, allow themselves or their business to be used as fronts by big traders. The attraction is really simple. All that the cooperatives need to do is to have their name used and the big trader does all of the nitty-gritty in the import documentation including bank transactions such as opening of letter of credit, etc. In addition, the trader pays the cooperative the entire amount equivalent to the imported volume (based on a pre-agreed price). The farmer therefore no longer has to think about how to go to the bank, withdraw the goods from the pier, store them in a warehouse, much less worry about how to distribute/sell the stock in the retail market. Again, as in most conspiracies, the lack or absence of anyone willing to expose or testify on this, allows this corrupt practice to go on.

QUESTION: DOES NFA OFFICIALS/EMPLOYEES PERSONALLY GAIN OR GET PERSONAL FINANCIAL BENEFITS OUT OF RICE IMPORTATION?

ANSWER: No, they don't. The importation of rice is done through an open bidding system. All it's stages are a matter of public knowledge and record. The intention to import, the volume to be imported and the budget for the import, is published in at least two newspapers of nationwide circulation for two consecutive weeks. In addition, it is also published in the NFA website. Bidders are called to a pre-bidding conference where their questions or need for clarification is answered. These pre-bidding conferences are also attended by the media (who are, as a matter of practice and policy, invited to these events), and the public-at-large. An official of the Commission on Audit or COA also sits as a member of the the Bids and Awards Committee (BAC) as an observer. The actual bidding itself, like the pre-bidding conference, is open to everyone. This is where all the bids are opened and announced (shown on a large screen projector) for everyone to see and if need be, copy ot take a photo of. Participants to the bidding are representatives of various rice suppliers from countries such as Vietnam, India, Pakistan, Thailand and other foreign supplier country. The award is also announced in the media and published in the NFA website about a week after the bid-opening day.

The only "reward" that the officials and employees involved in the bidding is a token honorarium (the amounts and limits of which are also clearly defined by Commission on Audit Rules and The Government Procurement Act) which comes from the payment of bidders when they buy the Bid Forms, and a merienda or lunch during the meetings or conferences conducted before, during or after the bidding.

NEXT: Why import rice, what's the long-term solution?