THE sagging popularity of President Ferdinand Marcos Jr. is no doubt caused by the untamed prices of basic commodities, particularly food. Food prices contribute around 57 percent to our total inflation. Various reputable survey firms have noted that two-thirds of their respondents have expressed dissatisfaction in the manner by which the administration is managing inflation.
Inflation inched up to almost 4 percent in March and there are prospects that the upswing continued in April and will again in the coming months because of increases in the prices of fuel and food commodities. The bottom 30 suffer more because over 60 percent of their expenditures goes to procuring food, leaving little to spend on other goods (e.g., health, education, clothing and shelter).
In the short and even medium term, it is virtually impossible to tame soaring food prices by increasing domestic production. It will take considerable time and proper government prioritization and intervention before significant local productivity gains can be achieved.
As a stop-gap measure, all the government can do to ease food inflation pressure is to allow entry of more agricultural and food product imports. Liberalizing agricultural trading becomes an indispensable tool for immediately responding to supply shortages brought about by low local productivity and instability caused by global geopolitical events.
This was the rationale behind the Office of the President's issuance of Administrative Order (AO) 20 last April 18. It instructed the Department of Agriculture (DA), in coordination with the Department of Trade and Industry, and the Department of Finance to "streamline the procedures and requirements in the licensing of importers, minimize processing time of application for importation and exempt licensed traders from submission of registration requirements."
In addition, it also ordered the same agencies to remove non-tariff barriers (NTBs) to facilitate entry of agriculture and food imports. NTBs are policy measures, other than tariff duties, "that restrict trade, including but not limited to quotas, import licensing systems, regulations and red tape."
Expectedly, protectionist leaders of civil society, politicians and media personalities immediately assailed AO 20, noting its bias toward promoting imported products rather than increasing local production. They alarmingly declared that we would be flooded by imported agricultural products with this directive.
When asked for my reaction by a number of media outlets, I stressed that while AO 20 was a step in the right direction and potentially could tame food inflation, it is not sufficient. AO 20 will not necessarily result in the smoother entry of imported agricultural and food products because there are implementation details that need to be urgently addressed before the spirit of the directive can be attained.
I noted four of these.
First, there will be a need to conduct a reliable supply and demand (S&D) analysis to determine the sufficient volumes to be imported. Sans a rigorous S&D analysis, agricultural policymakers will inevitably guesstimate, or depend on their political gut feel in deciding the quantity of imports needed instead of basing it on solid empirical evidence.
For instance, the corn supply gap is between 3 and 4 million metric tons (MT) a year. Allowing the entry of imported corn at lower tariff under the minimum access volume (MAV) pegged at 253,000 MT will hardly make a dent, resulting in continued high corn prices.
Second, even if one allows entry of imported agricultural products yet the government limits allocation to a few traders, it will not dampen escalating prices. We saw that in the case of imported sugar where import allocations were distributed to only three traders who were selected based on the government justification that they were "the best and most capable."
The government decision practically resulted in a "state-sponsored cartel" as prices never went down to the previous P44 to P46 per kilo for raw sugar and P52 to P54 for refined sugar. Sugar prices were pegged by the cartel at over P80 to P90 per kilo for raw sugar and P90 to P100 for refined sugar.
Three, if the tariff remains high at 35 percent or higher for agricultural products, importers will be discouraged to import as the cost of imports plus the tariffs might be equal or a bit higher than locally produced products. It will be more profitable to smuggle such products with high tariffs than to go through the legal process of importation.
Four, it will depend on whether there will be a willingness on the part of the DA to comply with the President's directive of liberalizing agricultural trade by streamlining administrative procedures and NTBs on imported agricultural and food products.
To cite a couple of cases, the DA recently announced the approval of the importation of around 25,000 MT of fish to address an expected shortage during the closed fishing season. The basis was the issuance of a certificate of necessity to import (CNI). A CNI falls under the category of an NTB and hence should have been lifted following the AO 20 instruction.
The same DA order also provided that 80 percent of the fish to be imported be allocated to commercial fishers. Again, this is another NTB because it limits market access of other market players to these imports to a few privileged individuals.
The same is happening whenever we import sugar, which is ironic because the country also exports the commodity. A Sugar Regulatory Order is needed before sugar can be imported. Sugar is one of the commodities liberalized when we became a member of the World Trade Organization in 1995.
In line with this, tariffs on sugar were pegged at 50 percent for the MAV in quota and 65 percent out quota. Sugar from Asean is imposed a 5-percent tariff as part of our membership in the Asean Trade in Goods Agreement. Why then is the Sugar Regulatory Administration still empowered to issue an order to determine the volume of allowed sugar imports? This is clearly an NTB.
The simple explanation is the existence of vested interest groups in the agricultural sector powerful enough to prevent the workings of a competitive market that will adversely affect their profit. The results are continuing food price escalation, widespread malnutrition and hunger among the poor who are unable to afford high food prices and mounting dissatisfaction with the government as manifested in the declining popularity of the President.
fdadriano88@gmail.com
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