Former officials of the Department of Agriculture (DA) and some traders are taking the explanation of government on the transparency of the importation of 1.5 million metric tons (MMT) of rice from Vietnam in December 2008. Speaking on condition they not be named, these former DA officials said government-to-government (G2G) transactions are conducted by phone, fax or direct negotiations, with two parties sealing the deal in a fashion similar to executive agreements.

They reacted to the issue after the DA and lawyer Paterno Menzon, a labor lawyer who also sits as co-chairman of the Bids and Awards Project of the Bishops-Businessmen Conference (BBC), claimed reports about the overprice of the rice is largely untrue, explaining that government exercised "extraordinary caution" in concluding the agreement.

Menzon headed the Procurement Transparency Group (PTG) that monitored the negotiations between Vietnam and the Philippines.

The former DA officials said the usual practice in G2G negotiations is to ensure mutual benefit, with both parties insisting on shipping the grain on ships from the two countries, usually on a 50:50 basis.

In the case of the December 2008 rice importations by the National Food Authority (NFA), only Vietnam vessels loaded the cargo, to the detriment of Philippine bottoms.

Thus, Philippine ships did not benefit from the shipment and neither did insurance companies, particularly the Government Service Insurance System (GSIS), which handles all insurance requirements of government corporations.

Insurance coverage of shipments is a ticklish issue in G2G transactions, according to the officials since it pads the cost of the imported goods.

Since Vietnam is also very near the Philippines, freight costs should not be high and traders said the rate must be in the vicinity of $20 per ton.

Traders claimed the country is awash with Vietnam rice and for this year, government is again hinting at equaling the rice importations of 2.4 MMT last year.

“NFA is starting to compete with the private sector and it has yet to unload 900,000 MT of rice in the piers,” one trader stressed.

He noted that the recurrent rice shortage tack of government has become the basis for importing huge of volumes of rice even if the total national inventory does not warrant it.

At any one time, he explained, 40 percent of the inventory is in households, 40 percent in the granaries of farmers and 10 percent in rice outlets.

NFA is mandated by law to keep a 30-day buffer stock of rice to supply the market during critical times.

The NFA charter compels it to buy up to 10 percent of the national palay production but it has failed to achieve this in the past three decades.

NFA has been importing commercial- grade rice and this is hitting private traders and millers hard since they could not possibly compete with the subsidized price of government rice.

They suspect that there was a premium on the imported Vietnam rice and believe that a private trader could have been involved behind the scene in the transaction, one thing that Menzon doubts.

This trader is known to have strong links with the governments of Thailand and Vietnam, the world’s biggest rice importers.

Officials of the Department of Justice (DoJ) issued a legal opinion that the deal was legal and that the DA secretary’s authority to negotiate was covered by the full powers and authorization from the Cabinet as approved and signed by the President.

Menzon noted that new rules were applied to guarantee the transparency of the deal, such as the requirement of an offered or bid bond equivalent to 3 percent of the cost, and a performance bond of another 3 percent.

Moreover, the interested party was also required to make a dropped bid or come up with a formal written offer instead of just verbally transmitting its offer to the government as is the norm in government-to-government transactions.

Eight countries were invited to supply the rice but only Vietnam responded, according to Menzon. The others were the US, Japan, Indonesia, South Korea, Pakistan, Thailand, and China.