EO 39 Makes No Sense
Refuting the Reasons for a Price Ceiling on Rice
September 4-10, 2023
On Sept. 5, E0 39, which is about the “Imposition of Mandated Price Ceilings on Rice”, takes effect. Reader, that EO is the perfect example of the saying, “the road to hell is paved with good intentions”, if indeed, the President’s intentions are good, and at this point I am not sure that that is the case.
We have only to examine the contents of EO 39 to illustrate what I mean.
The first three Whereases are about the legal basis for the imposition:
Commentary: What calamity or emergency are we in, and where is the proof of widespread illegal price manipulation? What other similar situation have been cited? But aside from all that, a price ceiling, as any elementary economics text will tell you, does not provide effective and sufficient protection to consumers against anything. Ok. Never mind the elementary textbooks. Just remember the last time we had price ceilings – on pork. The ceilings were honored more in the breach, as the DA price data at the time will tell you. Yes, price controls may have been in fashion decades ago, as during the Marcos dictatorship, but they resulted in black markets, reduction in the quality of the price controlled goods, and even more shortages.
Commentary: How will price controls promote the productivity of the agriculture sector? No such claims to that effect have ever been made or defended in the literature. In the same manner, how do price ceilings protect farmers from unscrupulous traders and importers? In fact the opposite is the case, if news reports about the farmgate price of palay has decreased. But more to the point, price ceilings tend to reduce supply, and will do the opposite of what one needs to happen – an increase in supply which will reduce the price, so there will be no more talk of price ceilings. Finally, if there are unscrupulous traders and importers and smugglers, shouldn’t the state use their police power to go after them? Why use price caps?
Commentary: In effect, the President is given carte blanche to impose a price ceiling any time he wants on any basic necessity or prime commodity. All he needs to say is that there is a threat of an emergency, or that price increases are liable to happen – no need of an existing emergency, nor even that prices have actually increased. Sounds like how the dictator Marcos defended his martial law proclamation.
Commentary: Notice, Reader, that all the foregoing Whereases, including this one, actually preclude the use of price ceilings, except for when the President wants to impose them. Moreover, this Whereas is factually based. In a meeting of the Economic Development Cluster/Group that was reported out on August 15 ( three weeks ago) DA Undersecretary for Rice Industry Development Leocadio Sebastian declared that barring the occurrence of destructive typhoons, we can expect the production of palay for 2023 could surpass 20 Million Metric Tons (MMT), or 13MMT of rice. This, plus rice imports up as of end August equalling 2.35 MMT, means that we will have a total rice supply of 15.35 MMT.
That’s the supply side. What is our projected consumption of this rice? The Philippine Rice Research Institute(PhilRice) projects rice consumption in 2023 to be about 14.75 MMT.
With supply (even without additional imports for the rest of the year) at 15.35 MMT and with consumption projected to be 14.75 MMT, the DA’s report is validated. Which is why the PBBM was elated at the “excellent news”, the supply for 2023 being sufficient “even with the impact of super typhoon Egay.”
So why even talk about price ceilings? Read on:
Commentary. Now we’re down to the nitty gritty. This Whereas says that there has been “an alarming increase in the retail prices” of rice, caused by events outside the Philippines’ control (Russia-Ukraine War, India’s rice export ban, unpredictable oil prices), and events obviously within the Philippines’ control (hoarding and collusion among industry cartels). Let’s take them one by one.
First on the causes of the “alarming” increase in prices beyond our control:
(1) The war in Ukraine. Good grief! How could something that started in February of last year affect prices in the past two weeks, or even the past month?
2) India’s ban on rice exports. Why should this be a cause when according to the data, we have already imported enough for the whole year? India imposed the ban at the end of July, by which time we were already in the process of shipping the last 300 thousand MT of rice.
3) Unpredictable oil prices. But since when has anybody been able to predict oil prices? This has been going on for the past 50 years, for heaven’s sake.
Now on the causes of the “alarming” price increases within our control: hoarding and collusion (between cartels, even). These have been mentioned every time there is a rice in prices, and yet, no substantial evidence of either has ever come out. When DA Senior Undersecretary (and undersecretary for rice industry development) was recently (Aug. 22 report) asked during a Congressional hearing if there was a rice cartel he said he didn’t believe there was. I recall current NEDA Arsy Balisacan saying essentially the same thing during a conversation in the UPSE a long time ago. Researchers in the Philippine Commission Competition said they needed more disaggregated data and ground interviews to come to any conclusion. This was four years ago, and as far as I know, nothing has come out from them.
With respect to hoarding, I have no knowledge of any rice hoarder that has been convicted in court, or even being hailed to court. This does not mean that there are none – but given that the Bureau of Customs is involved in their apprehension, and given their reputation as a corrupt agency, I do not have any high hopes. A matter of governance.
Finally, there is the matter of the “alarming”price increases. What constitutes alarming?
The average retail price in August, according to the PSA, for a kilo of regular milled rice, was P43.34. In August last year, it was P39.80. So the inflation rate, year-on-year for rice is 8.9%. But compare that to the July year-on-year inflation rate for vegetables, which was 21.8%, or water supply, which was 12.%.
And do you know, Reader, that in August. 2018, the average retail price of rice was P44.66. Yes. The price of rice 5 years ago was higher than the price of rice now, which has alarmed our government so much that they are calling for a price ceiling. In fact, for the past five years, the price of rice has been lower than the 2018 prices! So much for alarming price increases.
And to top it all, the harvest season has already begun. So prices are bound to fall – the law of demand and supply. So WTF?
