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SRP schemes on farm produce expected to encourage smuggling

SUGGESTED retail price (SRP) schemes for agricultural commodities will cap farmers’ earnings while inviting more smuggling, an analyst said.

“High prices are (the result of) high transaction costs created by large merchants and middlemen,” Economics Professor Leonardo A. Lanzona said in an e-mail. “Hence, apart from preventing farmers from selling their products at high prices, the SRP can lead middlemen to store the produce instead of selling them to consumers, paving the way for more smuggling,” he added.

Republic Act No. 7581, otherwise known as The Price Act, authorizes the Department of Agriculture (DA) to set price ceilings for basic goods, including farm produce, via SRP schemes.

The DA has held off on an SRP for domestically-grown red and white onions, initially proposed at P150 and P140 per kilo, respectively.

The SRP was supposed to take effect on Monday last week after the DA conducted a round of consultations on May 19.

Assistant Agriculture Secretary Rex C. Estoperez has said that Senior Undersecretary Domingo F. Panganiban has not yet signed the draft order implementing the SRP as he wanted to further study the cost structure of onion growers.

Samahang Industriya ng Agrikultura Executive Director Jayson H. Cainglet has questioned the delayed announcement of the SRP as it raises concerns about possible profiteering.

“Food products have generally low price elasticity of demand or low price sensitivity in the short term. In other words, people are going to buy these products even if the prices are high,” Mr. Lanzona said.

He said demand should be “more elastic as more substitutes become available” over the long run. “Unfortunately, we don’t see these alternatives other than imports becoming a reality.”

“Thus, fewer people can afford to buy these necessities given the high prices, resulting in an erosion of consumer welfare and greater poverty. The SRP can make the situation worse,” he added.

He said the government should develop the digital infrastructure for the agriculture industry to ensure secure transactions, pointing to the need to also train farmers on the use of information technology.

“We can promote the use of e-commerce platforms and digital payment systems in agriculture to minimize the involvement of middlemen and enhance transparency,” he said.

Mr. Lanzona also said that improving the licensing and accreditation of middlemen could “reduce the presence of unscrupulous intermediaries.”

He said that the government can also implement regulations that require transparency in pricing along the agricultural supply chain to cut the “information asymmetry” between farmers and middlemen.

“Price reporting mechanisms and real-time market information can help farmers make informed decisions and negotiate fair prices,” he said.

Raul Q. Montemayor, national manager of the Federation of Free Farmers, said that profiteering may be addressed by making all costs more transparent in order to isolate the causes of high prices.

“The DA must first do a comprehensive cost analysis from the farm up to retail to determine the point in the value chain where excessive profiteering is occurring,” he said via chat.

“If the profiteering is being done by retailers, the SRP can help address the situation. But if it is the traders who are jacking up the prices, maybe another solution is needed,” he said.

Mr. Montemayor said that DA may reduce profiteering by increasing domestic production via assistance in inputs and credit, as well as linking them to direct buyers in urban centers by providing logistic support for delivery.

It should also build more cold storage facilities exclusively for use by farmers, supported by financing of produce held in inventory, he added.

“(This is where) farmers could deposit their stocks and borrow money against them, so that they can retain ownership and can sell their products at the price they want,” he said.

Mr. Montemayor has also heard of plans that the National Food Authority may convert some of its facilities into cold storage facilities using solar-powered container vans.

“That might be a better approach than entrusting these facilities to farmer cooperatives who may not be good at running and maintaining them,” he said. — Sheldeen Joy Talavera

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