Amidst a situation where rice prices are skyrocketing, the Philippines depends largely on the National Food Authority (NFA) to do some firefighting. After all, hammering NFA's role in distributing cheap rice to the poor and a strong stance against alleged rice hoarders bring home the point that the government is in control.

But is the financially hemorrhaging NFA in a good position to do all that? In the first place, is the NFA formula of ensuring food security the right one?

Abs-cbnNews.com/Newsbreak's Lala Rimando asked these in an exclusive interview with former NFA Administrator Anthony Abad. Currently, Abad chairs the technical advisory group that provides input to the secretary of agriculture on how to address fundamental and long-term concerns of the sector.

NFA is a big expenditure black hole, which drains the government coffers with P5 to P10 billion losses every year.

Abad, an international trade lawyer, said the NFA needs to go through a "phased transformation" to make way for a system, which is more transparent and agile enough to stand external shocks. "We need to be more transparent and accountable in how the government's help is being spent," he said.

The rest of the interview follows:

The problem with our rice situation is that we are using a circa 1972 regime or system to solve a 2008 problem. It's like we are trying to participate in a Formula One race with all the technologies and realities that go with it, using a car that was pieced together in the 1970's.

In the 1970's the thinking was that the state should be the one to allocate markets. So we're sinking tens of billions of pesos [in NFA] on that whole idea of buying rice, while at the same time doing social welfare activity, ensuring food security and price stability. We just have to step back outside the Philippines and see that this is no longer rational in the light of policy realities. It's been proven long time ago in many countries that these mandates of NFA are better off being given to the private sector.

The more open societies, the ones that are plugged in to the global market, will survive this price hike or supply shortness. But our policy regarding food is not flexible so we could not harness the advantages that the global market could give to cushion us from shocks like these. The regulatory regime of the 1970's does not allow for quick adjustments. The best defense against these external shocks is to have the resiliency to make adjustments.

NFA is into trading, marketing, distributing, and regulating. These functions have conflicts. We expect them to function efficiently and to be managed well. Yet by its political mandate to buy high and sell low, it stands to incur losses. Then it also has regulatory functions, so it's a gatekeeper, an enforcer, and all that. It's pulling the agency in different directions and putting different expectations in just one agency.

Self-sufficiency is largely a product of a certain mindset. Hong Kong and Singapore don't produce rice at all, but there's no talk about food crisis or famine. Somehow, they are able to rely on world markets to supply their needs. We turn it into a problem.

We should have a more enlightened view of self-sufficiency, such as how Malaysians have. They cannot produce 100 percent of the rice 100 percent of the time. For them, if 60 percent of consumption is met by local production, then they have met that self-sufficiency target. In other words, there is no need to obsess about targeting 100 percent. The reality is that, 99 percent of the time, the markets will find the supply somehow. With that mindset, it changes how we would source your food.

Rice is an important commodity. It accounts for the largest part of our consumer basket for food. But as rational human beings, we can make decisions as to what we eat. Today we can choose bread or pizza or instant noodles. The next day we may want rice again. But it is us who make all of these decisions. If the private entities are involved, they are the ones who will adjust to these consumer tastes and preferences and requirements. Let the market work and make the adjustments.

Now, because of these billions of pesos in subsidies and obsession about rice being a staple, I think we have created this massive inefficient framework for the whole sector. It has led to a large dysfunction in the whole agricultural sector.

Put that together with buying and selling rice at a low, and we have this big expenditure blackhole. At the end of the day, we bear the brunt. The NFA is costing us more than it should.

We should let the private sector avail of market mechanisms to provide for price stability and food security. The government should just be there to make sure that there is general stability in the system.

That's why there is a need to review how to have a system that is efficient, meaning to shift to more market-determined mechanisms decisions about pricing. If the government really wants to spend on food subsidization, to make it cheaper for the less privileged, then instead of asking NFA to do the subsidization, it should make direct intervention and provide direct subsidies to the DSWD, which will help the poor through discounted rice or provide some other form of assistance to help alleviate difficulties. Or give the money to the military so they will distribute the cheap rice. If it is through NFA, it's an indirect subsidization and we are not even able to monitor how it is spent and why we have those losses.

No argument about the majority having the right to cheap quality food, and that the government should assist in some way especially the disadvantaged. It's how we do it. And how we were doing it for more than 30 years has been the wrong way. It's inefficient. Maybe during the Marcos time, we could absorb all of that inefficiency. But now, we cannot afford to waste a single centavo of government money.

We need a "phased transformation" for NFA. This was what a study for the finance department recommended when they realized that if we kept the current practice at NFA of borrowing more than what the financial system could afford, it contributes to another crisis—a fiscal crisis.

When I was administrator, we called it "corporatization" of the NFA. We were going to turn NFA into a National Food Corporation (NFC), following the logic that corporations should only follow one objective, rather than multiple objectives that conflict with each other.

All the core governmental functions, such as are social welfare, regulations, and policymaking would be transferred to the Department of Agriculture. The corporatized NFC would have to function as an efficient entity, which can still do the trading, distribution and sales, but it would not have a monopoly anymore, and pricing would no longer be subsidized. It has no choice but to be efficient because it will be just one of the players in the market.

If government wants to put in food subsidy through NFC, it would be reflected in NFC's balance sheet so we could account what that subsidy is for. Then we cannot say that at end of the day, we have a loss, period. We can specify that the subsidy was used to assist or distribute at subsidized rate or something else. Right now, all we can say is that it buys high and sells low. But we don't know how exactly or why that loss is incurred.

Perhaps we got a bit distracted. But not too long ago, we were all talking about transparency and accountability in the government spending and procurement. If we injected those into the agriculture system, we could have made it more efficient even way back then. And we could have raised questions like, "Do we really have to do this?" "Is this the right way to do it?", and "Is it the most efficient way?"

Indonesia, the other large scale procurer of rice by a government, has already made some reforms in its Bulog system. It even covers a bigger population and area than NFA. But it has been restructured and went through some corporatization. It's opening up importing activities to the private sector already.

There are no promises. We don't know what will happen. But look at telecoms. It is also important and strategic, and people depend on telecoms now more than ever. So if you follow that line of thinking, then the government should also take over telecom and run it. In a situation that the government or a single family controls an industry, it's very inefficient. If we did not open up telecoms, we probably won’t have the kind of outsourcing renaissance that we have now.

We have to forego certain temptations and aim for the long term. It's the same principles that go into maturity. We have to start giving up on short-term desires so we can achieve longer-term goals and have impact on other people.

Yes, there are always many little crises. But we need enlightened leaders who can deal with everyday situations, but at the same time are doing steps to address the long-term concerns.