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Business

An omelet of a crisis

DEMAND AND SUPPLY - Boo Chanco - The Philippine Star

After a serious upsurge in onion prices, now the price of eggs has gone up by 45 percent. This has triggered what Rappler calls an omelet inflation crisis.

Data cited by Rappler from the Department of Agriculture (DA) showed that the price of an egg is now higher than the P6 per egg price a year ago.

Poultry raisers say part of the reason for higher prices is the increase in the prices of chicken feed. They used to spend P5 per chicken for feed, but now prices are as high as P19. In the US, egg prices also soared as an after effect of the avian flu.

Sugar, onion, eggs… any working-class housewife will tell you those are not the only food items whose prices have considerably increased. Without the Rice Tariffication Law, the price of rice would have gone up beyond what’s politically tolerable.

All these show the government’s failure to make decisions based on accurate supply and demand data. Import decisions for sugar and onions were made too little and too late to give consumers a break.

Government’s usual response is to blame hoarders and impose “suggested” retail prices. In truth, the government is helpless. Their responses are for press releases only.

Worse, they are making the public think regulation is the only way to cure high prices. The public should instead be trained to accept market forces and clamor for more competition.

Perhaps, it’s time to appoint an Agriculture Secretary who is comfortable with numbers so that decisions are not made late and blindly. The name that comes to mind is Economic Planning Secretary Arsi Balisacan, a respected agricultural economist who tells the truth.

It will be easier to get another economic planning secretary than an agriculture secretary who can be trusted, someone not connected with the various food trading cartels. Junior needs good advice after a series of fumbles that led to record high food inflation that drove overall inflation as well.

A reader, who used to be with the DA, explained to me why that bureaucracy is clueless.

“In the late ‘80s, the DA implemented a ‘performance based budgeting’ policy for the regional offices (RO), where the operating budget of a region is directly tied to the region’s commodity production performance. Simply put – increased productivity = higher budget allocation.

“At that time, the ROs were facing catastrophic deterrents to productivity – the drastic decrease in field (extension) personnel brought about by devolution to LGUs, and the increasingly destructive typhoons brought about by climate change.

“So, the ROs were faced with a serious dilemma –whether to report the truth, face an equivalent reduction in budget, or submit a table survey reflecting a respectable increase. The ROs opted for the latter, claiming a yearly five to 10 percent productivity increment.

And thus, began the cluelessness.

“The DA production data incorporated the yearly productivity increases report of the ROs. The Philippine Statistics Authority (PSA) assumed the data of the DA as factual. The policy makers based their policies on the flawed data of PSA.

“Countries/businesses import (legal or smuggled) because local supply is well below demand or local prices are attractively higher than international prices, or a combination of both. Importations are supposed to ease the gap.

“Severe price increases/gauging are simply the result of GREED, as reflected in the price of P500 to P700/kg of onion, when it costs only P50 in neighboring countries.

“The painful reality is, the actual supply is well below the PSA declared level, as reflected by the continuing supply deficiency and high prices in spite of massive, continuous imports.

“The cycle of cluelessness will continue, together with the suffering of consumers, until the government recognizes and corrects the big lie.”

Someone in our Viber group wondered if the DA has a formal warehouse inventory tracking system for onions, sugar, rice etc…? These are the kind of data DA needs to help Junior make informed decisions. Nope.

Then, DA must also make sure the country has an inventory reserve to address risks relating to supply chain variability, as well as an ability to track where supply is stored. Nope, the DA is a zombie agency trying to look useful, but working blind.

A former trade and industry secretary commented in our Viber group that “government must look at real data.  The Philippines has never been self-sufficient in local production of most commodities. So, why prevent and politicize importation? It is needed.

“Government should continue to support local production/productivity and competitiveness (seeds, fertilizers, equipment, financing, technical assistance), support and buy local, that’s fine. But allow importation for competition and food security and lower prices. Tariff protection. Not import licensing.

“Government should signal and ensure that they are willing to flood the market with supply (both local and imported). That will ensure there will always be stock in the market and that’s food security.

“With this, suppliers and traders will always bring out their stocks for fear of much lower prices if they hoard. And, of course, the reverse will happen if there’s a signal that the government will allow stock to dwindle, the more stocks will be hoarded leading to an earlier shortage and higher prices.”

Another colleague asked: “If tariffs are the major tool to manage food economics and security, then why do we have these episodic shortages?  Are these regulatory agencies overmanaging volumes without letting price be the major market-clearing mechanism?”

Mention was made about the need for cold storage facilities to help farmers. But it was pointed out that there are lots of cold storage in Nueva Ecija purpose-built for onions – good for up to six months.

However, the cold storage facilities are in the hands of the cartel, the guys who buy cheap from farmers and sell high to consumers. These are the same traders who also import.

The DA spokesman already said there would be no relief soon from high prices. Do not expect a miracle.

More smuggling is our only hope for sugar and onion prices to be tamed. It is a supply problem, stupid!

As for eggs, high chicken feed prices must be addressed. In the meantime, slow down on omelets and on tapsilog too.

 

 

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco

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