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EXPLAINER: Why food costs are rising and price ceilings may not work

In what may be called a perfect storm, Metro Manila residents are not only facing a pandemic, they're also struggling to buy food and find jobs.

Farmers in rural areas also had to deal with African swine fever and tropical cyclones that wiped out their crops in the last quarter of 2020.

"Stagflation," or what economists refer to as a period of sluggish economic growth and rising cost of living, has shown its horns early on in 2021, and may likely stay for awhile if the government does not act fast.

Here's a rundown of why prices went up, what the government has done to tame inflation, and what farmers have experienced during the coronavirus pandemic.

What caused prices to go up?

Pork. A kilo of pork surged to as high as P400, around the same price of beef. 

Hog raisers said this was due to African swine fever (ASF), which hit the country back in September 2019.

According to Rosendo So, chairman of the Samahang Industriya ng Agrikultura (SINAG), the industry lost some 5.8 million heads, equivalent to around P135 billion in losses, due to ASF.

Nicanor Briones of the Pork Producers Federation of the Philippines (ProPork) said hog raisers had to drastically cut supply as they dealt with the massive losses.

They had to reduce supply further when restaurants closed mid-March 2020 due to the coronavirus pandemic.

Briones said it takes around 5 to 6 months to raise a pig, which means raisers who lost hogs in the ASF outbreak could not immediately bounce back.

Chicken. The price of whole chicken reached P190 to P200 per kilo.

This is partly due to consumers eating more chicken now as a source of protein, with pork prices surging.

Before pork prices spiked, the chicken industry faced problems with oversupply, as demand went down due to restaurant closures.

After the oversupply in 2020, the industry is now holding back supply amid increased demand, causing the rise in prices.

Vegetables. Prices of vegetables surged by 21.2% last January, according to the Philippine Statistics Authority.

This is still due to the effects of the tropical cyclones during the last quarter of 2020, spilling over to 2021.

The overall inflation for January reached 4.2%, breaching the government target of 2% to 4%.

What has the government done?

Price ceiling. President Rodrigo Duterte issued Executive Order No. 124 on February 1, imposing a 60-day price ceiling on pork at P270 per kilo for kasim or pigue (ham), P300 per kilo for liempo (pork belly), and P160 per kilo for dressed chicken.

Prior to this, the Department of Agriculture (DA) released suggested retail prices of similar range.

So far, these efforts have not been helpful, since the current supply in wet markets had been produced at significantly higher rates. The price ceiling, vendors said, is simply too low and they would be forced to sell at a great loss.

SINAG's So said the acceptable retail price of pork is from P330 to P380 per kilo.

With a price ceiling set too low for vendors and producers, triggering a so-called "pork holiday," the situation could lead to a supply shortage. Some vendors stopped selling pork on Monday, February 8.

Probing middlemen. The Department of Justice ordered the National Bureau of Investigation to probe the spike in pork prices amid allegations of market manipulation.

Agriculture Secretary William Dar said traders are the ones manipulating prices, since the break-even point for selling pork is only around P105 per kilo, which is far from the retail price of P400.

However, ProPork's Briones countered Dar's claims, arguing that it was the DA's lack of action during the ASF outbreak that caused the price surge.

"Naghahanap lang ng masisisi si Secretary Dar. Hindi nila kami natulungan sa ASF, ito ang epekto," Briones said.

(Secretary Dar is just looking for someone to blame. This is the result of them not helping us combat ASF.)

So also questioned where Dar got his figure, as farmgate prices now, he said, are at around P170 in Mindanao.

Farmgate prices in Luzon are at around P200 to P220 per kilo, according to So.

Rewarding imports. The DA is proposing to triple the minimum access volume (MAV) or the number of allowable pork imports with lower tariffs from 54,000 metric tons to 162,000 metric tons.

Should this push through, more pork imports would be imposed tax of 5% instead of 30%.

While Briones agrees that there is a need for more imports this time, he strongly opposes lowering tariffs.

"Tanggap namin na kailangan ng imports para bumaba ang presyo. Pero kailangan pa rin ang taripa kasi dapat ang makokolekta, 'yun ang gagamiting suporta para sa lokal na industriya," he said.

(We accept that we need imports now to lower prices. But we still need the tariffs because those revenues to be collected should be used to help the local industry.)

Addressing ASF. The DA said it is doubling down pig repopulation efforts through the development of an ASF vaccine, as well as stricter lockdown measures.

The DA is also offering zero-interest loans to meat vendors who are struggling to comply with the price ceiling.

"This will enable them to buy pork carcasses directly from hog raisers and major agricultural commodities from farmers' cooperatives and associations, and sell these at reasonable prices to consumers in Metro Manila," said Dar.

SINAG's Jayson Cainglet, however, doubts that the DA can swiftly implement these measures.

"'Yung na-ASF nga na raisers since 2019, hindi pa bayad. Hindi naman kailangang mangutang, may hanapbuhay 'yung mga vendors na ginulo niya," he said.

(The raisers affected by ASF have yet to receive the aid promised in 2019. Vendors don't need to get loans, they have their livelihood which the DA ruined.) – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.

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