Rice at bargain price

LAST week, I was interviewed by several media outlets regarding President Ferdinand “Bongbong” Marcos Jr.’s statement that his administration is close to achieving its campaign promise of selling a kilo of rice at P20. The President proudly announced this during the reinvigoration of the Kadiwa stores by the Department of Agriculture (DA). The Kadiwa stores offer food commodities at cheaper prices on the claim that Kadiwa directly buys from farmers, removing the profit layers of traders before the product reaches consumers.

The Kadiwa project was originally launched during the term of the President’s father, Ferdinand E. Marcos Sr. It was resurrected at the height of the Covid-19 pandemic when William Dar was Agriculture secretary. It is being touted to be upscaled under the current President as the administration’s response to soaring food prices. It was in the launching of the 14 Kadiwa stores when the President confidently declared that his campaign promise of P20 per kilogram of rice would soon be realized as the Kadiwa’s selling price is between P23 and P25.

Sustainable?

Expectedly, the question raised to me by media friends is, “Is it sustainable?” My polite response is a big, “No”! I proceeded to give the following explanation that I already wrote in my previous column on the matter, titled “Please do the math.”

The rule of thumb is that to obtain a kilo of rice, we need 2 kilos of palay (unmilled rice). The simple reason is that harvested palay needs to be dried (palay will lose weight once dried and there losses in handling it), milled (the most efficient mills have a conversion rate of around 65 percent from palay to rice), transported (losses are incurred when rice is transported), and sold by wholesalers and retailers at a certain profit margin. Adding all these costs means that the retail price of rice ends up double the price of harvested palayfrom the farm.

The palay support price of the National Food Authority, with moisture content of at least 14 percent, is P19 per kilo. As such, regular milled rice (RMR) is priced at around P38 per kilo in the market.

But if we sell rice at P20 per kilo, that means that somebody, which is the government, will have to pay for the price difference of P18 per kilo of rice given the existing retail price of P38. The annual per capita rice consumption of Filipinos is around 118 kilograms, per Philippine Statistics Authority’s data. We have a population of around 110 million Filipinos. If we multiply P18 with 118 kilograms and 110 million Filipinos, we will need at least around P246-billion subsidy (for the RMR alone and higher if it is well-milled rice or WMR) to maintain P20 per kilo of rice. The Department of Agriculture’s (DA) budget for next year is just over P100 billion!

Note that we are only talking of rice here. What about poultry, pork, fish and vegetables — which are important sources of protein to check the rising incidences of hunger and malnutrition among our people? We also need to do our math here to calculate on how much the government will spend to make them affordable to ordinary Filipino consumers.

As for Kadiwa, I am afraid that it will remain as a “boutique” project that cannot be upscaled to make a real dent on soaring food prices and give a reprieve to poor Filipinos because it is simply not economically and financially viable. Going against market forces will surely financially bankrupt any entity that does so, even if it’s as powerful as the US economy.

‘Massive importation’

A former senior DA official declared in his social media account that the prescription of “neoliberal economists” to “flood the market” with imported products failed “to tame food prices.” In fact, he titled his blog “Massive imports fail to tame food prices.” He then blamed the previous economic managers under the Duterte administration for this debacle.

The accusation did not merit a response from those who were accused for this so-called failure. And rightly so because the argument verges on pamphleteering rather than proceeding from the logic of economic science. But we should not let shenanigans like this go unchallenged because they create false impression among the public on our current food situation, particularly as it emanates from a former DA senior official.

The main problem with the assertion is that there is no definition of what “massive” means. In relation to what? In economics, one can say that there is “massive” supply (local production plus imports) if supply outstrips demand. Has there been an estimate of the amount needed by the 110 million Filipino consumers to claim that there was “massive” importation? NONE.

And given the demand of the 110 million Filipino consumers for a certain food product, has there been a calculation made on how much local production can meet the local demand? And if there is a shortage because local production cannot meet local demand, how much of the shortage should be met by imports in order to ease the pain of Filipino consumers? Again, NONE.

Sugar case

To clearly drive home the point I am making, let us take the case of sugar that in the past months saw its prices skyrocketing. Despite assurances from sugar barons and their allies that we have ample sugar supply, prices of refined sugar have risen from P52 per kilo to around P100 per kilo. This has resulted in temporary closure or downgrading of operations of a number of soda bottling companies. It also led to hefty price increases of our favorite native delicacies such as turon, banana and kamote cues, kalamay, kutsinta, sapin-sapin, biko, among others, which heavily use sugar as an ingredient.

In response to these price increases, our pro-sugar bloc administration grudgingly had to allow 150,000 metric tons (MT) of sugar import to ease soaring sugar prices. Is this massive importation? Will the entry of this “massive” sugar import tame high food prices and inflation?

Note that the 150,000 MT of sugar import can in no way be considered “massive” if demand is factored in. Prices remain at the P100 per kilo level, whereas it was P52 before. The sugar bloc and its allies assure us that when imported sugar arrives this month, prices will settle down to P70 to P80 per kilo. Hello, it was P52 per kilo before when prices started to skyrocket. With their assurance, does it mean that “utang na loob pa ba ng sambayang Pilipino na napababa nila ang presyo sa P70-P80(the Filipinos owe a debt of gratitude on the lowering of sugar prices to P70-P80 per kilo?).”

Given this reality, can we now conclude that this “massive” sugar importation failed to tame high sugar prices? In the first place, it can never be considered “massive” because the shortage is so severe. Our calculation showed that the deficit is around 500,000 MT for raw sugar, refined sugar and industrial sugar combined.

I could go on with other commodities such as fish, onion, yellow corn, pork, chicken, among others, using official government statistics, that we are facing serious supply shortages of these commodities. But a key takeaway from this incident is that the government should make it a point to compel senior government officials to be appointed to take a course on “Economics for non-economists” prior to their assumption in office.

This will result in more intelligent discussions as deliberations are guided by the logic of economic science rather than allowing appointees shoot from their hips due to ignorance. Such knowledge of economics is imperative because critical government decisions should be based on a cost-benefit analysis, whether from the prism of economics or politics, or both.