REACTING to my column last week regarding the presence of agricultural cartels whose operations have the effect of jacking up food prices, a former finance secretary gently advised that I should be more constructive in my analysis and offer recommendations on how to address the issue.
He asked: “Would you consider suggesting both market and nonmarket forces, with practical plan, rigorous supervision, monitoring, among others, that would help reduce the influence of cartels in determining the prices of rice, and other food and agricultural products in the public markets, groceries and other outlets?”
I have full respect for the guy and hold him in high esteem, so I am taking his suggestion as a challenge for this essay. It is a tall order to satisfactorily respond to his request given space limitations and the nature of the political economy of Philippine agriculture. However, I will try to outline the critical steps needed to lessen the influence of the cartels in determining agriculture and food prices.
As I noted last week, the success of the cartels is derived from the Department of Agriculture’s (DA) trade policy that has the effect of limiting the number of traders that can import agricultural and food products, using the pretext that it is meant to protect our small farmers. Thus, my suggested reform measures revolve around this flawed policy.
The determination of the required import volume is based on the issuance of the DA’s certificate of necessity to import (CNI). The CNI is supposed to be a supply and demand analysis of a particular commodity, pointing out its supply gap for the year, that is undertaken by the concerned DA unit. For example, corn by the National Corn Program, sugar by the Sugar Regulatory Authority, fish by the Bureau of Fisheries and Aquatic Resources (BFAR), or vegetables by the Bureau of Plant Industry.
The problem is that these units do not have top-notch economists or data analysts capable of doing the job properly. When I was still a senior DA official, for instance, the corn group informed us that we had a huge corn surplus. After examining their data and analysis, we discovered that the reason why we were more than self-sufficient was that other animal feeds had been included as part of total corn supply given that corn is a key ingredient of animal feed.
However, animal feed such as wheat, soybean and barley are all imported. Upon recalculation, we found out that local production could only meet 57 to 60 percent of total demand depending on how the weather cooperates in the corn-growing areas of the country.
Another good example is when the BFAR told us that local fish supply was only short of a few hundred tons. When we reexamined their data, we discovered that they removed the so-called non-fish eating population, defined as Filipinos ages 9 years and below, from their division. Expectedly, a lower population divisor (which represents more than 10 percent of our population) meant a higher local fish self-sufficiency ratio.
This was also true for sugar where the calculation of the National Economic and Development Authority (NEDA), which we asked to review the sugar supply and demand data, was far higher than the sugar supply shortage estimated by the Sugar Regulatory Administration.
In short, my first recommendation is that the calculation of supply and demand, which will trigger the issuance of a CNI, should be done by the NEDA and the Department of Finance, which have the technical capability to conduct a proper economic analysis. Moreover, they are impartial bodies whose decisions cannot be easily swayed by influential lobby groups.
The second recommendation is to auction any imports in order to plug supply gaps for agricultural commodities. The DA should not be allowed to allocate import quotas to favorite traders as this leads to rent-seeking. Auctioning the import volume will also enable the government to generate greater revenues on top of narrowing the difference between landed costs of the commodity and retail prices.
A third reform measure is the abolition of the minimum access volume (MAV) scheme and pegging import tariffs at lower levels. The MAV is the country’s commitment to the World Trade Organization (WTO) to allow a limited volume of agricultural products at lower tariffs to ensure greater trade among WTO member countries.
The problem is that access to MAV has become a “suki” type of operation where big commercial establishments and favored farmers organizations are given priority in allocations for them to enjoy lower tariffs. In exchange, the favored parties are expected to support the current DA leadership and vilify those trying to reform the system to make it more cost-efficient.
A major factor why our food processing and agribusiness industries are not competitive is because the raw materials needed are expensive. Sugar, which is vital for beverage and food manufacturing, is considerably priced higher in the Philippines than in Vietnam and Thailand. The same is true for corn and wheat, which are key feed ingredients.
As a result, a number of our local food processing industries have migrated to neighboring Southeast Asian countries because of the availability of cheap raw materials there due to the lower tariffs.
Note that these recommended reform measures will expectedly encounter stiff resistance from current officials, firms and farmers organizations benefiting from the status quo. The art of “scratching your back as you scratch mine” has been elevated to an art form in this system. To undo it will be akin to disturbing an active beehive.
It also has to be stressed that reforms in our agricultural trade policy will not suffice to lower overall food prices in the country. Ultimately, lowering prices entails a greater supply of much-needed agricultural and food commodities. This means improving the overall productivity of our agricultural sector. As such, it is indispensable that much-needed reforms are undertaken in the DA’s effort to improve farm productivity.
The next column will discuss what these imperatives are in attaining higher and sustainable productivity in our agricultural sector.
Be the first to comment