Effectiveness of Public Spending: The Case of Rice Subsidies in the Philippines

Abstract

In response to the spike in rice prices in 2008, the rice subsidy program budget for the Philippines’s National Food Authority (NFA) was expanded five-fold to 2.5% of gross domestic product. The NFA is the largest recipient of government subsidy, but also the largest loss-making government corporation. The latest household expenditure data show that the program fares well on some design elements. However, despite all citizens being eligible, only 16% of them avail of the program. Significant exclusion of the poor and leakage to the nonpoor reduce its targeting effectiveness. The gap between the estimated national consumption of NFA rice and the amount of rice officially supplied by the NFA is large. Transferring $1 of subsidy costs the NFA $2.2. The program attracts lower participation from farmers than those with higher incomes or fewer rice-eating members. For those who do not use the program, nonparticipation appears to be involuntary, arising from physical limitations. Households in better-governed regions have a higher propensity to use the program. Those buying NFA rice in cities buy more than their rural counterparts. The program does not act as a safety net against unemployment, as much as for consumption support. It can better reach the poor if its inclusion and exclusion errors are reduced; its access and availability to the poor improved; and the quality of governance bolstered.