INFLATION AND VOODOO POLICY REACTIONS
THE 4.7-percent inflation reported last month, the highest over the past several years, was driven by rising meat prices, pork in particular, with prices staying in the range of P380 to P400 per kilogram at the public markets. (The public markets have no access to the pork from France and the Netherlands, imported in bulk by the retail giants.) Pork supply has been woefully short for several months now, the culprit being the African swine fever, the lethal ASF that has managed to wipe out more than 40 percent of the country’s hog population, the eighth largest in the world. The worst-hit area is Central Luzon and Pampanga, the region’s biggest hog producer, with 85 percent of the hog population wiped out.
From a personal realm, it is painful to write about the ASF. In the so-called “third wave” of the ASF rampage in Pampanga during the third quarter of last year, my backyard hog farm, which I started two decades ago, was gone in a few short weeks. Upon notifying my local government unit that I had closed the farm for good due to the ASF, I was ordered to pay a so-called “decommissioning fee” of P25,000. That is the fate of small farmers and small animal raisers in this sad country. We can never catch a break.
WHAT THE 4.7-PERCENT INflATION eclipsed was the January 2019 inflation of 4.4 percent. That TIME, THE DRIVER OF INflATION WAS primarily the surge in rice prices.
We don’t even have to get the COUNSEL OF HIGH-PROfiLE ECONOmists to get into the bottom of what has been causing these INflATIONARY SURGES. IT HAS BEEN food supply problems. If not rice, meat. If not meat, vegetables and fiSH. WHEN INflATION SURGES TO HIStoric highs, the driver — almost always — is food prices.
Price surges on food spill over into other basic expense items and hit the poorest Filipinos hardest. In the current round, inflation on the poorest 30 percent was reCORDED AT 5.5 PERCENT, SIGNIfiCANTLY higher than the national average OF 4.7 PERCENT. INflATION, AND THIS is the universal reality, bludgeons the poorest sectors the most.
The often overlooked impact OF AN INflATIONARY SURGE IS HOW IT erodes the value of the hard-earned savings of baby boomers and retirees, a very vulnerable demographic sector. Old people and retirees often invest their little-to-decent savings on government retail bonds and corporate issuances. For example, the government RTBs that recently sold like hotcakes and with a tenor of three years will only earn for the investors something like 2.75 percent, well below the 4.7-PERCENT INflATION RATE.
The 2.75 percent per annum is very close to the earnings of corporate bonds with three-year terms. Bonds WITH fiVE OR SEVEN-YEAR TERMS ARE NOW being offered by corporate issuers at less than 4 percent per annum. It is a low-interest environment and bond yields, the lifeline of many retirees and senior citizens, that can’t keep UP WITH THE INflATION RATES.
You might ask this. Why don’t they invest in equities? They are too old. They are too tired to keep track of corporate winners and losers. Online investing is a real challenge. So, it is bonds, or another uninspiring option — time deposits that don’t even yield 2 percent a year.
When the driver is surging food prices, the government FUNCTIONING AS INflATION TAMER, without fail, prescribes knee-jerk solutions, which have the effect of killing the food producers. Let us start with the reaction of Congress and the executive branch to the 4.4-percent inflation in January 2019, which was driven by escalating rice prices.
Congress readily passed the Rice Tariffication Law (RTL), which WAS MAINLY A SCHEME TO flOOD THE country with imported rice, the country’s rice farmers, 99 percent small, be damned. The agenda to guarantee massive rice dumps into the country eminently succeeded. In 2019, more than 3.1 million metric tons of rice was imported, and the country vaulted into the embarrassing role of being the world’s top rice importer. Last year, more than 2.2 million metric tons was imported and again, our country topped the world in rice imports, this time sharing the ranking with China, which has over 1 billion in population.
As a consequence, palay prices precipitously dropped. Vast swaths of rice farms have been abandoned. Gloom and desperation became, and still are, the general sense in the hollowedout rice farming areas. I wrote a piece on that sense of desperation brought about by the RTL, with the head, “Small rice farmers are dead men walking.”
The Federation of Free Farmers wrote a well-researched, databacked study on the impact of the RTL close to two years after its implementation. The RTL was key to massive rice dumps. But Filipino rice consumers hardly benefited. The government funded supposedly enhanced rice production programs whose huge costs did not offset the marginal gains in production. From all benchmarks and points of reckoning, the RTL was a dismal failure, according to the FFF study. It should be either reviewed for the necessary amendments or scrapped altogether. I will write a detailed analysis of the study in a future column.
Having no vaccine to counter the ASF, the Department of Agriculture (DA) under its mendacious secretary, William Dar, tried to paper over the raging epidemic with massive doses of press releases on phantom support for the hog raisers. But as the Bard said, all lies end up badly. And indeed, the ASF, as of the latest count, has wiped out around P140 billion worth of the country’s hog population. And it is still raging.
The DA then made the tragicomic move of imposing price caps on pork, as if you can legislate the law of supply and demand. The wet market reacted as they should — stop selling pork because they will lose heavily if they continue.
Supply remains very tight. Pork prices remain at historic highs. In fact, the high prices have driven INflATION TO A RECORD HIGH.
What remains very low and very underwhelming are the policy chops of our agricultural mandarins and the quality of legislation from the Congress. Policy failures across the board. But then, what did you expect?