Cost of eating
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - August 10, 2018 - 12:00am

So the inflation rate has risen to levels we have not known in recent years. What does that really mean to the ordinary Filipino? To many of our people, it means the cost of basic eating has gone up, often beyond their means.

The Second Quarter 2018 Social Weather Survey, conducted from June 27 to 30 found that 9.4 percent or an estimated 2.2 million families experienced involuntary hunger at least once in the past three months. At five persons per family, that’s some 10 million people going hungry.

Up until last week, government’s response was to tell the public that TRAIN 1 isn’t the culprit. It is only responsible for 0.4 of one percent of the rising inflation rate. One Cabinet secretary even chastised us for being crybabies.

Last Tuesday, we were told that July’s 5.7 percent inflation is the highest in many years, the 7th consecutive month of accelerating prices. And it is well beyond the four percent upper target set by the government. This means, government failed to anticipate inflation big time, and so failed to mitigate its impact. 

Worse, the impact of inflation felt by the poor was also higher at 6.5 percent last June on account of food costs. UP economist JC Punongbayan explains: 

“Easily half of recent inflation can be explained by food prices alone. Vegetables, for example, registered an inflation rate of 16 percent in July, followed by corn (13 percent), fish (11.4 percent), meat (six percent), and rice (five percent). 

“This is crucial since the poor spend a larger share of their income on food, so that even slight upticks of such items could prove disastrous for them. Rice prices are particularly important because the poor spend about a third of their food budget solely on rice.” 

Of course, there are other factors like rising oil prices. We import almost all of our oil needs. And the price of coal is up too. Then there is the depreciating peso. But above all else is food. 

For a long while the economists at the BSP didn’t think they had to do anything about rising inflation. I recall a senior official saying it is cost push caused by TRAIN 1 and oil prices and will soon go back to normal. To raise interest rates is not the cure, they said.  

It took Rep. Joey Salceda to dig in and point out what really matters: price of rice, fish and meat. Joey’s approach is very basic: if demand is greater than supply, prices go up… inflation.

Now we know it isn’t just a temporary cost push inflation. We are seeing real supply demand imbalance affecting food.  

Talking to him at the EDSA Shangrila Tuesday Club, Joey said: “Next month, without measures, we see inflation peak at six percent in August and this will hover around 5.6 percent till end of year.” 

Why are our food costs so high? Simple. We have a fast growing population but we have failed to increase our production of the food we need. Our agriculture sector had been protected for decades giving producers little incentive to produce more and be competitive.  

Agricultural production expanded by a measly 0.07 percent in the second quarter of this year compared to the 6.22 percent growth rate in the same period last year. This is the smallest gain in the six consecutive quarters of positive growth. 

But Agriculture Secretary Emmanuel Piñol told The STAR that his agency is “still happy” with the performance of the country’s farm sector.  He is obviously a failure by being happy with mediocrity. 

Things are as bad as they are because our agriculture officials do not have a strategic plan. It takes more than a weekend farmer to run the agriculture department. Business as usual is what got us in trouble. 

Then too, protecting our agriculture sector for decades merely fattened influential rent seekers who operated trading cartels. Rice, garlic, onions, etc are protected supposedly to protect farmers. But investigations by the DOJ and the Senate revealed only favored cartels benefitted. 

Now, Secretary Piñol said he is looking to importing galunggong. When I was growing up, this was the poor man’s fish… not anymore. Our decades of abusing our marine resources have brought us to this situation now. 

There are plans to import at zero tariff animal feed to bring down cost of meat and vegetables in addition to more rice.  

The plan is to let NFA import 500,000 to 800,000 MT of well-milled rice, with staggered deliveries to minimize impact on farm gate prices during the harvest season.  

In the medium term, rice tariffication is the structural solution. But it won’t work. The bill as presently written still gives NFA the power to license importers. That means, NFA can choose to license only the same corrupt traders. The power to license is a source of corruption. 

But inflation isn’t just about food, but electricity and oil prices as well. The economic managers and the economic task force of Speaker Arroyo agreed on some stop gap measures to bring down the inflation rate.  

DOE will suspend the requirement for oil companies to add ethanol to oil products. It adds P2.35 per liter to the cost of gasoline and is mostly imported.

 Then there is the new feed-in-tariff allowance for renewables. According to Salceda, this alone contributed to a P3.16/kwh increase in Meralco rates. In Sept 2017 the CPI increased by 0.7 month-on-month mainly because Meralco electricity rates were pushed by higher feed-in-tariffs from P0.18 to P0.26/kwh. 

Salceda believes that with the stop gap measures, inflation can fall below five percent in September and end the year at 4.4 percent. But it could be at six percent if government hesitates. 

For the long term… we need to give food production the attention and support it badly needs. And we need a new Rafael Salas to lead our effort.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

AGRICULTURE INFLATION SOCIAL WEATHER SURVEY
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