Now we have official findings to show what we have suspected all along: the sharp rise in garlic prices was artificial; a cartel of traders is responsible for it and the worse part is that Agriculture Secretary Proceso Alcala effectively created the cartel himself.
Justice Secretary Leila de Lima announced the official report of DOJ’s Office of Competition headed by Justice Asec Geronimo L. Sy. Not too many people know such an office exist but I have been talking to Asec “Indy” Sy about how his office can assure fair competitive behavior in our economy even while the Anti-Trust Law is still being discussed in Congress.
Credit the Justice department for acting quickly on the order of P-Noy to look into the strange behavior of garlic prices. I brought out the issue of garlic prices in this column after I noticed, while doing my weekly grocery chores, how garlic prices have more than doubled to over P300 a kilo over a short period of time.
Briefly, the investigation of the DOJ Office for Competition showed that a group of importers cornered the supply that enabled them to dictate the high prices. Sadly, the consumers were screwed with the help of the Department of Agriculture and the Bureau of Plant Industry. Here is what the DOJ found out:
“As directed by the President and after a comprehensive evaluation, the main findings are: 1) there was no shortage of supply and, in fact, there were more adequate stocks of garlic; 2) majority of the ‘import permits’ issued was granted only to one preferred group; and 3) due to a cornering of supply, this group can dictate the high prices.”
Apparently, Agriculture Secretary Alcala organized a National Garlic Action Team (NGAT) supposedly to protect local garlic farmers and to prevent entry of plant diseases. Even if local farmers only produce less than 20 percent of national garlic demand, importers must work through this Alcala-created cartel to get import permits.
The DOJ report showed that a certain Lilia or Leah Cruz, cornered at least 75 percent of the country’s total garlic importation courtesy of import permits issued by the Bureau of Plant Industry (BPI). Alcala admitted in an interview I monitored in ABS-CBN’s Bandila newscast that he knew Ms. Cruz and presumably, knew of her activities.
By allowing Ms. Cruz to corner most of the import permits, Alcala virtually gave her the right to print money. In economics, the special privilege government, through Alcala, gave Ms. Cruz is called rent-seeking. It is unfair and illegal.
The DOJ report clearly pointed out that the problem in the garlic importation system directly involves the BPI and NGAT of the Department of Agriculture (DA). “Under the current system, clearances from BPI serve as import permits for garlic traders.”
But the DOJ stressed that the BPI has no authority to effectively use plant quarantine clearance requirement as an import permit and allocate the volume of garlic to be imported. The market rather than bureaucrats should determine volumes and when to import.
“The DOJ said BPI ‘should not be concerned with volume of imports or determining the financial capacity of importers,’ recommending that the agency be stripped of its power to issue import permits.” The DOJ also pointed out that NGAT has been “unnecessary, unhelpful and actually contributed to the problem’ and must therefore be abolished.”
The DOJ’s report revealed that the country’s garlic importation system has allowed a single private person to control the bulk of garlic importation in the country and thus gave her the means to manipulate prices. The flawed permit system abetted the establishment of a garlic cartel, the DOJ said, possibly with the collusion of some BPI and DA officials.
The DOJ found out that the absence of clear-cut guidelines in determining the allocation of import permits has made the BPI system prone to partiality, manipulation and collusion.
The investigation revealed that at least four individuals and allied interests through a web of dummy entities duly accredited by the BPI control garlic importation. The price of imported garlic, considering all incidental costs in its shipment, should not reach as high as P350 ($8)/kilo, even factoring in the increase in trucking charges and related costs.
The DOJ Office of Competition recommended the abolition of the NGAT. The NGAT, the DOJ observed, had “failed to serve its primary purpose and to ensure a balanced representation from both government and private sectors…
“The composition of the NGAT suggested blatant conflict of interest. The DA should consider either the abolition of the NGAT, or reconstituting it only as a policy team and not as an allocating entity,” OFC said.
Indeed, the DOJ found out that Ms. Cruz “is behind all eight farmers cooperatives and associations which are members of NGAT.” Furthermore, she has created several dummy entities to maximize the number of import permits that she would get, the DOJ said.
“Cruz engineered the entire scheme and the NGAT is nothing but an elaborate ‘moro-moro,’ a way for Cruz and her dummies to give a semblance of regularity to their scheme,” the OFC said in its report.
I am glad that Asec Sy took pains to explain why the Alcala-sanctioned cartel is detrimental to the consumers and the national interest. The OFC said that because Cruz controlled 75 percent of garlic importation, if she sells expensive garlic to wholesalers, “such cost will be carried through in the supply chain until ultimately, the retailers (and consumers) bear the brunt of the high cost.”
Here is more: “The control is so organized that it favors only few selected importers to the exclusion of other legitimate importers. Officials ensure that trade in importation is limited only to a select group by restricting the allowance of SPSIC (import permit) only to favored dummies of Cruz when this could have been undertaken by giving all legitimate importers the opportunity to take part in the importation,” the office said. It added that based on its findings, “BPI officials have even gone to the extent of revalidating expired permits in two occasions involving hundreds of SPSIC, an act without legal basis.”
I totally agree with the DOJ’s recommendation to remove the need for a DA/BPI import permit. While the BPI can impose plant quarantine standards, “it should not be concerned with volume of imports or determining the financial capacity of importers.”
I would go further and just open up and remove quantitative restrictions in the importation of garlic, onions and other agricultural products subject to compliance with plant quarantine considerations. Why should a Ms. Cruz or anyone for that matter enjoy special rights to import such products for the local market? What makes her so special, Sec. Alcala?
Indeed, it would be fair to assume that public officials who grant such exclusive rights to private individuals are open to suspicions of personal gain. Sec. Alcala said he knows Ms. Cruz and therefore he must know what she had been doing. Why did he, as a responsible public official, allow her to do such things that the DOJ found objectionable and illegal?
Even the supposed motive of helping farmers by restricting imports will soon become academic as we become one big regional market. The Agriculture Secretary must think of new ways of helping our farmers compete other than import restriction.
What is true with garlic and onion is likely to be true as well for rice. I am glad Kiko Pangilinan is open to new ways of assuring rice availability at a fair price other than the current system that enriches favored traders and impoverishes the National Treasury with large subsidies.
Opening up import trade to all rather than a few private traders is more likely to ensure constant supply at real market prices. Government intervention in recent months led to supply and price problems. The rent seekers and their backers in government can’t help being greedy. Bureaucrats cannot make volume and price decisions better than the market itself.
The lesson for P-Noy here is to just let market forces, real not artificial, work. P-Noy must also not hesitate to fire officials who have been shown remiss in their duties, as seems to be the case with Sec. Alcala.
P-Noy’s reluctance to fire Alcala is affecting his own credibility as a leader. The President’s loyalty to his friends must end when loyalty to the Filipino people, his bosses, must begin.
Diplomat
A diplomat is a man who is able to convince his wife that a fur coat would make her look fat.
Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco