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Spike

FIRST PERSON - Alex Magno (The Philippine Star) - February 9, 2021 - 12:00am

The Monetary Board meets this week. The market is betting that policy rates will be held steady.

It will be too much of a risk to continue with the aggressive rate cutting of the past year. The Philippine Statistics Authority reports that January inflation spiked to 4.2 percent. That is a shade above the upper limit of the inflation range the BSP is targeting.

Any further loosening of monetary policy could transform this spike into a trend. It could bring us to the elevated inflation levels experienced two years ago.

Reforms in economic policies addressed the previous elevated inflation rate. The most important policy change was the shift of rice trading to a tariff regime instead of the old government monopoly on rice importation. This shift to a tariff regime for rice trading brought down rice prices. On top of that, the tariff earnings constituted a fund to support modernization of our agriculture.

By holding down the price of rice, we were able to hold down inflation. The previous spike in rice prices was driven by supply uncertainties that in turn fueled price speculation. The solution to that was market liberalization.

Trust market forces to straighten out abnormalities brought about by unwarranted rigidities resulting from protectionist proclivities. Tens of thousands of traders and retailers responding to market signals tend to be wiser than a bunch of bureaucrat imposing quotas or price ceilings.

Today’s inflationary spike is driven mainly by food prices. Rising food prices are due to a combination of short-term supply issues and underlying inefficiencies. The shortage of pork, for instance, is the outcrop of months of culling hogs to fight the spread of ASF. The spike in the price of vegetables, in turn, is mainly the result of the destruction caused by a string of severe weather and flooding we suffered late last year.

Shortages produce spikes in pricing. Those spikes make food inaccessible to the poor because of affordability. Food security is ultimately a matter of ensuring food is accessible.

Learn from Hong Kong or Singapore. Both do not have any agriculture. But food prices are stable and supply is reliable.

Most economists, including NEDA’s Karl Chua and the irrepressible thinkers of the Foundation for Economic Freedom, recommend a surge in importation as a response to January’s food price spikes. That will solve the problem of supply that in turn will solve the price issue.

There is nothing insidious about importing supply when direly needed. It is simply a mechanism that allows us to bring the efficiencies of other producers to benefit our consumers. We have the foreign exchange muscle to do this, thanks to the heroism of our migrant workers who religiously remit their earnings.

If some of our domestic producers are hurt because of importation, they have the option to match the efficiencies we import. If they cannot do that, they have no right to survive at the expense of our consumers.

There is no justice in putting the survival of inefficient producers over that of poor consumers. Our consumers have been screwed for too long by fake economics of protectionism.

Yesterday there were reports that in some wet markets pork could not be had. That is the result of the unwise policy of putting a price ceiling on pork products rather than addressing the issue of supply.

If the price ceiling will cause wholesalers and retailers to lose money, they would rather not sell pork. Over time, a pork black market is bound to develop. Any one who tries hard enough to find pork, albeit at higher prices, will find the commodity. I did exactly that yesterday.

This tells us only one thing: the unwise price ceilings only resulted in pushing the real market underground. That should only happen in centrally planned economies – of which there are only a few left to torment their people.

Instead of abetting supply, the price ceiling kills it. When pork becomes too expensive for the poor to afford, only the rich will enjoy it. There is no justice in that.

There is no other short-term solution to the food supply crunch we are experiencing at the moment except to surge importation. When our local production recovers from the weather-induced destruction and the culling of hogs, then prices will probably relax.

In the meantime, as a consumer, I will refuse to pay P10 for a pale tomato the size of a golf ball. I would rather purchase tinned bright red tomatoes containing about a dozen and selling for P46. The tinned tomatoes are produced by Spanish farmers and shipped across the globe to retail at a lower price.

I never cease to be amazed at the inefficiency of our agriculture. We truck our green leafy vegetables over 400 kilometers from upland farms without refrigeration. We do not have the ability to can produce such as tomatoes to conserve them. We keep our grains in sacks rather than silos to minimize deterioration.

All these result from an underdeveloped agro-industry and the lack of capitalization for our farms. In turn, this is the outcome of policies where we imagined that social justice is served by preserving farm inefficiency. What about justice for our consumers?

Surely we need more time to set our agriculture aright. But we should have a clear perspective towards building a robust, market-driven food production system based on integrated farms with the highest output per unit of land. That will be a departure from the folly of fragmenting land and production that has been the orthodoxy for decades.

BSP MONETARY BOARD
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