Philippine agriculture

[ANALYSIS] A post mortem on the rice price ceiling

Winnie Monsod

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[ANALYSIS] A post mortem on the rice price ceiling

Guia Abogado/Rappler

Inevitable conclusion: price controls were ineffective. EO 39 was a failure. As expected.

Did Executive Order 39 (EO 39), signed by President Ferdinand Marcos Jr. (PBBM) on September 5, 2023, succeed in keeping the prices of rice within the caps – P41/kg for regular milled, and P45/kg for well-milled – it had set? Draw your own conclusions, Reader. Here are the hard data, as provided by the Philippine Statistics Authority (PSA): 

Instead of prices going down and staying at the levels of the price ceilings, they did the opposite: they increased substantially over the period during which the caps were in place.

TABLE 1: Average Prices of Rice Varieties in August (before the price ceiling) and September 2023, and price increases (in percent)

Look at column 5: September prices of rice were 15.9% higher than the price ceiling for regular-milled rice, and 17.15% higher for well-milled. When compared with the August prices (before the price controls), which actually gives us their inflation rates, column 6 of the table shows us that the increase was 9.7% for regular and 10.6% for well-milled.  

Special rice varieties (row 4) were not included among those under price controls. It is interesting to note that their prices did not increase as much as the controlled varieties (column 6), suggesting that the price controls may just have made matters worse.

The PSA also reported the compliance of rice retailers with the price ceilings set by PBBM.

TABLE 2: Compliance:  Rice Varieties Sold At Price Caps

The Table 2 data show that only 21.8% of the rice varieties were sold at the government-mandated prices. This was the basis of the statement of PSA head Dennis Claire Mapa that there was “prevalent non-compliance of (by) rice retailers.” 

Undersecretary Mapa was stating the obvious. For the entire month of September, the national average price of 1 kg. of regular-milled rice as monitored by the PSA, was P47.50 (see Table 1 above). But the National Capital Region (NCR) had a lower average price of P43, while Areas Outside NCR (AONCR) averaged  P47.6. The same pattern could be discerned for well-milled rice – prices in the NCR were lower than in AONCR. The relevance of this information will be made clear later.

The data also show that NCR has, for the most part, lower inflation rates than the nation as a whole and the other regions of the country (AONCR). 

Long story short: EO 39 did not keep prices down to P41 (regular) and P45 (well) per kilo for its duration. Average prices nationwide actually increased in September to P47.50 and P52.70. Inevitable conclusion: price controls were ineffective. EO 39 was a failure. As expected (see my blog EO 39 makes no sense: Refuting the reasons for a price ceiling on rice)

The cost of the rice price increase failure?

This failed attempt at price fixing has cost the Filipino people a pretty penny. For example, PBBM ordered the Department of Social Welfare and Development (DSWD) to help the small retailers who might be impacted negatively by EO 39. So, P15,000 was given to each of 24,400 sari-sari store owners and micro-retailers (pre-validated by the Department of Trade and Industry) under DSWD’s Sustainable Livelihood Program. That’s about P366 million right there.

Then, around the middle of September, the National Food Authority (NFA) Council (chaired by PBBM) approved an increase in NFA’s farmgate buying price of palay of up to three to four pesos. This was supposedly to increase the production of rice by increasing the farmer’s income. But the decision came right after farmers groups complained about the drop in farmgate prices following EO 39. In effect, the NFA’s increased buying price was to compensate the farmers for the drop in farmgate prices they experienced as a result of the price ceilings. From news reports, the NFA (I tried looking at their website, but couldn’t get any information) had about P7 billion which they could use. 

So, how much did they use? How much rice they actually bought, is again not available at their website.

So, a very rough estimate of what the government had to spend (not including monitoring and implementation costs) in the course of the month of September to try to compensate people for the  damage wrought on them by EO 39 is: P3.9 billion, at the very least (assuming NFA spent only half its budget). We can only hope that the money actually went to the people who were hurt, rather than to people who were well-connected. – Rappler.com

[ANALYSIS] Price of rice in the world market? No such thing

[ANALYSIS] Price of rice in the world market? No such thing

Solita “Winnie” Monsod was the first National Economic and Development Authority secretary appointed after the fall of the Marcos dictatorship in 1986. She is a professor emerita at the UP School of Economics where she taught starting 1983. She finished her degree in economics in UP and obtained her masters in economics at the University of Pennsylvania. She is a board director of Rappler Inc.

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