Philippine agriculture

[ANALYSIS] EO 39 makes no sense: Refuting the reasons for a price ceiling on rice

Winnie Monsod

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[ANALYSIS] EO 39 makes no sense: Refuting the reasons for a price ceiling on rice

Winnie Monsod's take on EO 39, President Marcos Jr.'s order imposing price ceilings on rice

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

We are republishing this from with permission from the author

On September 5, Tuesday, Executive Order (EO) 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, President Ferdinand Marcos Jr.’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: 

WHEREAS, Section 2 of Republic Act (RA) No. 7581 or the “Price Act,” as amended by RA No. 10623, declares it a policy of the State to provide effective and sufficient protection to consumers against hoarding, profiteering and cartels with respect to the supply, distribution, marketing and pricing of goods during periods of calamity, emergency and widespread illegal price manipulation, and other similar situations: 

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.

WHEREAS, Section 2 of RA No. 10845 or the “Anti-Agricultural Smuggling Act of 2016,” mandates the State to promote the productivity of the agriculture sector and to protect farmers from unscrupulous traders and importers, who by their illegal importation of agricultural products, especially rice, significantly affect the production, availability of supply and stability of prices, and the food security of the State; 

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?

WHEREAS, Section 7 of RA No. 7581 provides that the President, upon the recommendation of the implementing agency or the Price Coordinating Council, may impose a price ceiling on any basic necessity or prime commodity in any of the following conditions: (i) threat, existence or effect of any emergency; (ii) prevalence or widespread acts of illegal price manipulation; (iii) impendency, existence, or effect of any event that causes artificial and unreasonable increase in the price of the basic necessity or prime commodity; and (iv) whenever the prevailing price of any basic necessity or prime commodity has risen to unreasonable levels; 

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.

WHEREAS, the Department of Agriculture (DA) and the Department of Trade and Industry (DTI) have reported that the country’s rice supplies have reached a stable level and are sufficient owing to the arrival of rice imports and expected surplus on local rice production; 

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), Department of Agriculture (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 13 MMT 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 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:

WHEREAS, despite the steady supply of rice, the DA and DTI have also reported that the widespread practice of allegel illegal price manipulation, such as hoarding by opportunistic traders and collusion among industry cartels in light of the lean season, as well as global events taking place beyond the Philippines’ control, such as the Russia-Ukraine conflict, India’s ban on rice exportation, and the unpredictability of oil prices in the world market, among other factors, have caused an alarming increase in the retail prices of this basic necessity; 

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 300,000 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 the undersecretary for rice industry development) was recently (August 22 report) asked during a Congressional hearing if there was a rice cartel, he said he didn’t believe there was. I recall current National Economic and Development Authority (NEDA) Arsy Balisacan saying essentially the same thing during a conversation in the UP School of Economics 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 haled 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 Philippine Statistics Authority (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?   

My three-point summary

1 – Price ceilings will not address the problems mentioned in EO 39. 

2 – Price ceilings have fearsome unintended consequences that put both consumer and producer at risk, as we learned from long experience and from textbooks. 

3 – September is the beginning of rice harvest season, so imposing the price ceiling is ill-timed. Prices will decrease, everything else remaining the same. –

[ANALYSIS] Brace yourselves for higher rice prices under Marcos

[ANALYSIS] Brace yourselves for higher rice prices under Marcos

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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