Price control

DON’T be fooled by the word “sug gested” in the suggested retail price (SRP) scheme pushed by the Department of Agriculture (DA) to stabilize the price of rice in the market. Agriculture

Secretary Emmanuel

Piñol already talked about imposing sanctions on traders that won’t follow the SRP, meaning that the announced price is not merely put there for consideration, which is what “suggest” means, but should be followed. The SRP is thus essentially, price control.

Price control is direct intervention by the government to ensure the affordability of goods. One type of price control is to impose a price ceiling, or a maximum price that can be charged for certain goods and the other is to impose a price floor, or the minimum price that can be charged.

Based on experience, however, price controls can only be effective short term because these will eventually create problems like shortage of supply, the surfacing of black markets and even deterioration of product quality. Economists have long pointed out that price controls cannot overcome the law of supply and demand for a certain period of time.

While the DA is consulting rice traders and retailers on the pricing scheme, this will eventually end up to be ineffective because government and the rice traders are working at cross-purposes. Government wants to depress prices while the rice traders aim to maintain profitability—and profitability is tied to the law of supply and demand.

This early, for example, the Cebu chapter of the Confederation of Grains Retailers Association of the Philippines Inc. (Grecon) is talking about the losses the traders would incur if the SRP of from P39 to P47 per kilo of rice would be imposed. No trader will sell at a loss, which means that if an unacceptable SRP is imposed rice traders may be forced to let go, meaning momentarily stop selling the product.

It looks like government needs to further refine the strategy of imposing an SRP to ensure that it would not create more problems than it can solve.