To lower rice prices and inflation
It has been more than three months since the rice prices and inflation have been hitting the highs and the prices of both NFA and commercial rice are still beyond the low-income groups and the middle class. There are still long lines in the selected outlets for NFA rice, and it is not a pleasant sight, not just for the politicians but for everyone who cares about their fellow human beings. Rice prices are up by 11 percent since then and inflation in August had hit 6.8 percent. Fuel oil prices have gone up four times in the last three months and fish, vegetables and meat have risen by also 11 percent.
The government has ordered massive rice importation by the National Food Authority, imported “galunggong,” opened a limited number of bargain outlets for vegetables, and threatened hoarders of basic commodities. The NFA general manager resigned and will be replaced, and the agency transferred to the jurisdiction of the Department of Agriculture. Subsidy to the poor, in the form of conditional and unconditional fund transfers were broadened and accelerated, and the US-China trade war and the natural disasters were blamed for rising prices.
The current Philippine inflation is predominantly a cost-push inflation due to the higher cost of inputs which includes higher labor costs, higher taxes, higher power, and higher transfer costs. The other component of this inflation is the strong demand for goods and services brought about by the high GDP growth of the past eight years that translated into purchasing power for the consumers. And added to this is the inflation expectation psychology of merchants and business in general to increase prices knowing the strong consumer demand. Knowing the causes and given the present circumstances, the needed actions to address the supply side by increasing availability of rice and fish from foreign and local sources was correct, but this was poorly executed and was much delayed. Rice importation was too late and at higher prices. Then there was the problem of delivery when NFA could not unload the rice from the ships when it rained. Had private traders been allowed to import the rice, they would have done it earlier, cost less, and would have unloaded the rice 24/7 on covered conveyors and/or shipside them to smaller vessels for delivery.
Meat, fish, and vegetable demand is quite elastic in that people resist to buy or substitute when their prices are high. Chicken suppliers and meat processors import a certain volume to keep prices at levels that will keep demand stable. So, prices of these basic commodities have short self-correcting cycles. It is only the power and fuel cost factors pushing inflation that remains to be addressed, and there is the fuel oil excise tax reduction option that the government can implement if it wants to reduce fuel prices. Power and fuel for transport cost would likely not exceed 10 percent of the costs of basic commodities, but the psychological impact on the consumers will greatly counter the inflation expectations of producers and sellers.
The overarching and socio-political dimension and solution to rice prices and inflation has to do with defining or redefining the role of governments in the economy and in the country. It has been proven through the years and in many countries that the free enterprise system is always better in the allocation of resources and goods than the most intricate and well-planned government mandated distribution system. The private sector will always be more efficient and more effective in the economy as they have the profit incentive which the government lacks. Positive examples of these are China and Vietnam which are communist/authoritarian regimes that are also enterprising capitalists. On the other hand, take a look at Venezuela now.
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