How to Balance Farmer and Consumer Interests

This is from the Inquirer. So one reason that there is not greater Philippine production is because the Agriculture Department received only half their budget at least until the government finally realises it must do something. The Arroyo govt. has also increased it support price by 5 pesos a kilo.
The author seems optimistic about the efficacy of voluntary price controls but I just wonder how well that will work.



How to balance farmer and consumer interests


By Ernesto Ordoñez
Philippine Daily Inquirer
First Posted 01:11:00 04/12/2008


MANILA, Philippines--The fact is that there is no rice supply shortage today. We have a 54-day buffer stock, ongoing harvests, and arriving importations.

However, there is a shortage in our own rice production. That is why the government is planning to import 2.2 million metric tons of rice this year, almost four times the 0.6 million tons we imported in 2000.

If the imports do not come, then we will have a full-blown rice shortage and crisis.

In fairness, the government did not give the Department of Agriculture (DA) an adequate budget during the past decade. Instead of providing the minimum P32.7-billion annual budget required by the Agriculture Fisheries Modernization Act since 1998, the DA received an average budget of only P16.7 billion, half the mandated amount.

It is therefore most welcome that President Gloria Macapagal-Arroyo has announced a P43.7-billion support for food supply.

It is hoped that the rice master plan we started in 2002, but abandoned in 2003 with new management, will be resurrected and completed this year. This way, the budget for rice will be spent effectively, guided by this plan, instead of being subjected to possible political whims and knee-jerk solutions.

Impact on farmers

In their own April 1 food conference, Alyansa Agrikultura leaders representing 42 organizations recommended that the rice farmers should be given an increase in the government's support price for rice. The leaders noted that over the years, this price had barely increased, and was much lower than the inflation rate.

Three days later, these leaders rejoiced when President Arroyo announced that the National Food Authority (NFA) would increase its support price from P12 to P17 a kilo. The impact to farmer profits is shown in this table using data from the Department of Agriculture and other sources.

Price phenomenon

Unfortunately, because of some unscrupulous traders and retailers, this decision to help farmers has harmed many consumers. An example was reported in the Inquirer's April 10 issue: "A kilo of dinorado rice which was being sold two days ago at P35 was retailed at P42 per kilo yesterday." This is a 20-percent price increase in one day. Obviously, the retailer's cost did not go up by that much.

This phenomenon of unjustified price increases is happening not just to fancy dinorado rice, but also to the well-milled rice bought by the less fortunate great majority of our people.

An NFA official was quoted in many newspapers as saying that the justified retail price is double the farmgate price. Partly because of this and the announced new NFA farmgate price of P17, the retail price has been increasing recently from P28 toward P34.

First of all, the well-milled rice in the market today was bought at lower than the very recently announced P17 farmgate price. Therefore, the increased profits are going not to the farmers, but to the traders and retailers, all at the expense of the consumers.

Secondly, the long lines for NFA rice have given the impression that there is a rice shortage, which in turn motivates increasing prices. The shortage is not in rice, but only in NFA rice. This is sold at P18.25 per kilo, way below the alternative well-milled rice at more than P30 per kilo. Of course, there will be long lines, which will never be satisfied because there will simply not be enough cheap NFA rice.

It is true that retail price is normally about double the farmgate price. But this should not necessarily be followed. If the retailers and traders are satisfied with the same level of their profits, they should pass on to the consumers only the actual cost increases.

In the table above, the increase in farmgate price is P6. If the actual average retail price in 2006 was P24 (which is P2 more than double the price of the farmgate price), then the retail price should be P30, not P34.

It's happening again

But what should be the suggested retail rice price today? Given that the farmgate price at which the current rice supply was bought was below P17, and that there are added justifiable distribution costs that should be considered, the answer can best be given in a meeting with the traders and retailers themselves.

No to price controls

In 2006, when there was a similar perceived rice shortage and prices were increasing beyond justifiable levels, I participated in such a meeting. The retailers and traders, together with DTI and DA officials, computed the actual numbers and came out with a suggested retail price. It was below the prevailing market price that was escalating very rapidly then, a deja vu phenomenon that is happening today.

We agree with Trade Secretary Peter Favila that there should be no price controls, as there were no price controls in 2006. But that year, the suggested retail price (only for well-milled rice) previously agreed upon by the traders and retailers, was posted in the newspapers and the wet market price tags. This successfully brought down the price of well-milled rice.

Though there was no price control, retailers who sold at prices much higher than the suggested retail price were systematically asked what their justification was for their high prices. This was sufficient motivation for them to charge a fair price.

We recommend that this mechanism again be used to balance farmer and consumer interests. For consumers facing the almost daily unjustified price increases, we say: "The sooner the better."

(The author is the chair of Agriwatch, former secretary for Presidential Flagship Programs and Projects, and former undersecretary for agriculture, and trade and industry. For inquiries and suggestions, e-mail agriwatchphil@yahoo.com or telefax (02) 8522112).