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Shortage

FIRST PERSON - Alex Magno (The Philippine Star) - January 28, 2021 - 12:00am

We all noticed this: food prices spiked the past few days. The spike is most evident in pork prices.

Rising food prices will eventually feed into the inflation rate. It is expected the inflation rate in the coming months will inch up closer to the upper limit of the BSP’s projection of 2 percent to 4 percent.

Almost certainly, the increase in the prices of key food items will eradicate the price gains consumers won with the liberalization of rice trading. After the shift to tariffs from quantitative restrictions, the price of rice declined significantly. This mitigated inflationary pressures during the tough days of lockdown.

Domestic rice production actually improved after the shift to a tariff regime. This ran against popular expectation. In addition, the revenue from the tariffs imposed on imported rice funds further modernized our rice production.

Decades of protectionism in rice provided no incentive to modernize. This is the reason why our costs remained high and our ability to compete nil. The liberalization in rice trade will produce the revolution in rice production we so direly need.

With the current spike in food prices, the usual Leftist mouthpieces dished out their expected populist bait. They demanded that government subsidize food prices. This is the worst we could possibly do in this situation.

How exactly subsidies for food will work, the Leftists fail to explain.

Will money be thrown at the farmers? This is no guarantee they will rein in prices. The fact is, the farmers are paid nearly the same prices as before for the food they produce. They are not the reason for the spike.

Will money be thrown at the consumers? That will be difficult to operationalize. It will likely open a wide door to corruption.

Will money be thrown at the middlemen? From all indications, the middlemen are making the most money from the present spike in food prices. They are exploiting the weakness of our logistics system that cuts off the farmer from market information and the consumer from direct access to the producer.

A more efficient logistics system and increased application of modern communications technologies will cut off the middlemen. More investments in the cold chain and in grain silos will cut waste and lower pries. But all these will take time to realize.

The prices of pork products exhibit the highest increases the past few days. Wet market prices for pork is a lagging indicator. When there is a drop in production, there will be tightness in supply. When there is tightness in supply, the middlemen celebrate. They are rewarded with better margins for speculative pricing.

We have seen this phenomenon before when rice importation was reserved exclusively for government buyers. Whenever there is tightness in rice supply, the cartel of wholesalers and traders swing into action, taking advantage of demand pressures to boost their profits. Many times, the shortages were artificial. The profits were real.

Often, when speculators were cornering rice stocks, government burned them by releasing ample quantities of the staple from the buffer stock. That was an exasperating game now rendered moot by rice trade liberalization.

The Leftists, by the way, fought rice trade liberalization tooth and nail. This ideological community is responsible for keeping our entire agriculture sector backward.

We know why there is currently a spike in food prices, especially pork. While growing marginally in the first three quarters of 2020, our agriculture contracted in the fourth quarter. The Philippine Statistics Authority (PSA) confirms that our agricultural production declined -3.8 percent in Q4 2020.

If our population continues to grow, any contraction in our food production is immediately magnified. The unbendable laws of supply and demand kick in.

After three quarters of improvement, last year, palay production declined -1.4 percent in Q4. Corn production declined -0.3 percent in the same period. The declines here are probably explained by the storms and the flooding that happened during this period.

More dramatically, livestock production declined by -12.9 percent. Leading the retreat, hog production fell -13.8 percent. This very likely happened because of all the culling of hogs done to combat swine flu infestation late last year.

Poultry production fell -5.5 percent for this period. This likely reflects the breakdown in the supply chain experienced because of health mitigation measures. Our poultry production is reliant on imported grains.

The large reduction in hog production explains the current shortage that is fueling speculation and high pricing of this commodity. UP economists are suggesting a surge in pork importation to “burn” the speculators by pumping up prices. That looks like a workable short-term response – although a surge in pork importation seems like a natural free market response to the present price situation.

Riding on the “crisis,” the local pork industry is asking for import duties to be at least temporarily removed to encourage importation. That might not be necessary. Once the supply situation is addressed, the price situation is soon resolved.

We should not, of course, assume that imported pork would be cheap. Over the last year, China (the largest pork consumer) has been culling millions of pigs to battle the swine flu. That produced shortages of the commodity and price spikes.

From every angle, however, it seems the present situation relating to pork prices simply requires time to rebalance and work itself out. The swine flu infestation has been stamped out here and probably also in China.

There is really no need to penalize public revenues with unwise subsidies and suspension of duties to restore price sanity. Consumers, as they do every time, will simply hold back consumption of an overpriced commodity.

PORK
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