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Price controls, food imports, and roadmaps

Several decades ago, when Cory Aquino was our President, the price of galunggong (mackerel scad) was the barometer of how better or worse off the people were. Then-President Cory viewed galunggong as the poor man’s viand. High galunggong prices meant hardship for the low-waged factory worker and his family. If I remember correctly, a spike in its price would trigger calls for price control.

These days, the calls resound to impose a price control or price ceiling not for galunggong but for pork and chicken. A friend rues the situation that while the price of galunggong has been liberated from controls, pork and chicken have become the new targets. Well, his lamentation is understandable, for he comes from a family of poultry producers.

But the prices of galunggong, pork, and chicken are all affected by supply and demand.  From what I have heard, fish catch is affected not just by the season but also by the brightness the moon casts over the fishing grounds.

But there is no denying that the spike in the prices of pork and poultry is a result of a supply shortfall. Everybody is aware of the African Swine Fever (ASF) that has plagued Luzon swine producers, resulting in the culling of thousands and thousands of pigs. It is a no brainer that the ASF is the primary culprit for the price spike.

And while we are somehow spared by the bird flu, thank God, the demand for chicken has increased as people have shifted consumption from the scarce pork to chicken.  The rise in demand for poultry as a result of substitution, without a corresponding increase in supply, has naturally triggered an increase in its price as well.

Price controls to tame the prices of pork and chicken will not work. As a saying goes, one cannot legislate the law of supply and demand. Further, a price control creates a black market. Sellers hide their stocks, further pushing prices upwards.

If there is a price ceiling, producers would rather withdraw from the market altogether.  Why would they sell at a price below their cost of production?

But some believe in conspiracies and blame “colluding traders and cartels” for the higher prices!  The evidence does not exist though.

Attorney Bong Inciong of the United Broiler Raisers Association (UBRA) acknowledges the supply problem. He said: “The present crisis is not about price manipulation and cartels. It is a supply problem caused by the absence of a genuine quarantine system, especially at the customs border, to interdict and contain diseases like ASF.” He also said: “The challenge is how to help consumers without killing your producers. You follow the design of the WTO.” That got me a bit amused as Mr. Inciong staunchly and consistently opposes World Trade Organization (WTO) policies.

Allowing imports to address supply problems will alleviate the “meat crisis” and the inflationary pressure. Industry leaders are in fact open to allowing imports to come in but are opposed to the lowering of tariffs. Taking off from the experience of the Rice Tariffication Law, they want to use the revenues derived from the tariffs earned from imports to provide support to the specifically affected industry.

What now governs the utilization of revenues derived from agriculture imports other than rice is the so-called Agriculture Competitiveness Enhancement Fund (ACEF).  When ACEF was legislated in March 1996 as RA 8178, the tariff revenues earned from agricultural imports became a de facto pork barrel of legislators. Section 8 of said law reads, “The entire proceeds shall be set aside and earmarked by Congress for irrigation, farm-to-market roads, post-harvest equipment and facilities, credit, research and development, other marketing infrastructure, provision of market information, retraining, extension services, and other forms of assistance and support to the agricultural sector.”

A 2014 assessment of the Congressional Policy and Budget Research Department of the House of Representatives pointed out, among others, the disparity in the provision of the amount of ACEF assistance. It ranges from “P150,000 to P3 million” for micro projects; “above P3 million to P15 million” for small projects; “above P15 million to P100 million” for medium-size projects; and, “above P1 million pesos” for large enterprises. This assistance normally requires the endorsement of the Department of Agriculture’s (DA) Regional Directors who in turn receive endorsements from the Congressmen and Senators.   

The ACEF law, twice amended to provide for its extension, is set to again expire in 2022. During the course of its amendment, the utilization of the funds was somehow changed — earmarked for credit, grants and scholarships but it was never directed to specific sectors from where the tariff revenues were derived. But it must be stressed that funding is not the principal problem.

The call of DA Secretary William Dar for a Food Summit should immediately put on the agenda how ACEF can be amended and once more extended to support specific industries. But such support should not be confined to subsidies.

Whereas irrigation and farm to market roads were the immediate needs of the agriculture sector then, new challenges at present have emerged like climate change and the outbreak of so many farm diseases. The name of the game is agility in strategic planning, which of course will still include fund utilization.

But as the government tries to address supply problems in the short term by allowing imports, serious effort must really be done to put in place industry roadmaps, especially for agricultural products that are integrated. Corn, for instance, is strongly linked with the feeds industry which is, in turn, linked to the poultry and swine sector. It thus follows that availability of inputs for the poultry and swine sector must be ensured and prices of such inputs must be lowered. A Broiler Board and a Corn Board may be established to make plans and determine the apt interventions including the utilization of ACEF.

We have to think long term. Oh, this reminds me that even the Rice Industry Roadmap is yet to be released and is long overdue. So there.

 

Jessica Reyes-Cantos is the president of Action for Economic Reform.

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