Market liberalization not enough to lower food prices

LIBERALIZING the entry of agriculture products into the country is not enough to lower food prices, an economist said, adding that the government needs to support small and medium importers to promote competition.

Chief of Part of B-SAFE Project Winrock International and University of the Philippines Economist Ramon Clarete said during a virtual forum organized by the Philippine Competition Commission (PCC) and the Economic Journalists Association of the Philippines (EJAP) said that while rice retail prices significantly dropped due to the Rice Tariffication Law (RTL), the decline was lower than expected.

“In 2019, we have the RTL and we expect retail rice prices to go down cheaper than 4.4 percent. It did not. Wholesale prices did go down 14.5 percent and farmgate prices also went down by 17.43 percent. But these are even above what was expected by the NEDA (National Economic and Development Authority) about the impact of the RTL,” he said.

Clarete said that RTL would have cut the rice wholesale price in the National Capital Region (NCR) from P39.08 per kilogram in 2018 to P26.82 a kilogram in 2019. The wholesale rice price in NCR in 2019, however, settled at P33.79 per kilogram.

“It’s still a significant reduction but not likely as much. And then retail prices and wholesale prices should be moving closely. Retail prices just fell by 4.4 percent,” he said.

“It’s probably that the market is made up of

heterogeneous importers. Those that can import are the large and the few and those small to medium ones face high import costs and decide not to import,” added Clarete.

Clarete said that there are likely two groups, of which the first one is made up of existing big traders that have a higher share in the domestic market for rice because they have invested in storage and other market facilities.

“But there are only a few of them. The other group is any of us who want to start a business, start importing, those small and medium enterprises. But we face an entry cost because we are not really familiar with the business so it takes some time for us. So, if in 2019 we are allowed by law to actually import that doesn’t necessarily mean that we are starting our business,” he said.

“So it’s possible therefore that only group one remains and when they remain they tend to have the market dominant position and they control the price, they control the volume of imports and the price remains high,” Clarete added.

Clarete further said that in the Philippines, food prices tend to be higher compared to those in mainland Southeast Asian countries.

“That is the problem because as SWS [Social Weather Stations] had documented, the perception of self-rated poverty is still very high in our country and food is a very important expenditure for many poor families. I look at this from the perspective of lack of competition or existence of market entry barriers,” he added.