Rice cartel

Earlier this week, at the second hearing of the House Quinta Comm, or the Murang Pagkain Supercommittee, the Philippine Statistics Authority (PSA) presented annual demand-supply ratio for rice from 2018 to 2024. Per report, “the rice supply ratio was 82.5% in 2023.  It simply suggests that last year, demand and availability of rice was almost on par.”  This year, the ratio dropped significantly to 60.8% in the first quarter of 2024.” Then it “increased to 67.6% in the second quarter and 69.4% in the third quarter.”  Though it increased, it still remained below the 2023 annual figure.  It simply means there is excess in supply of rice over demand during the year.  Thus, prices should have eased.

Moreover, in June this year, the National Economic and Development Authority (NEDA) Board approved the comprehensive tariff program for 2024 to 2028.  It includes, among others, the reduction of rice import duty from 35% to 15%.   Obviously, this directive alone, once implemented, not only stabilizes the supply of rice but can significantly lower inflation.  Moreover, this move reinforces Administrative Order 20 (AO 20) which directs the Department of Agriculture (DA) “to remove non-tariff barriers to bring down rising domestic prices of agricultural products.” 

Specifically, among others, the President “ordered the DA to simplify procedures and requirements in licensing importers, minimize the processing time of application for importation, and exempt licensed trades from submission of registration requirements in coordination with other agencies such as the Department of Trade and Industry and the Department of Finance.” 

Consequently, the government (according to the Bureau of Customs) lost ?13 billion in revenue in 2024. Simply put, importation cost must have gone down significantly, well, by the same amount. More importantly, this reduced tariff should have translated into lower selling prices of rice. Yet, it didn’t. Obviously, therefore, said amount went to the importers’ pockets.  Thus, lawmakers and ordinary folks alike believe that a rice cartel exists.

A cartel simply means an agreement among firms or companies, mostly manufacturers (or importation in this case) and distributors. Basically, these are firms that agree to coordinate production or importation for the primary purpose of controlling prices. Cartels normally happen when there are too few players in the market for a particular product. Members in a cartel may agree on concerns like production output, allocations, price fixing, sharing of profits, bid rigging or a combination of these. Obviously, therefore, by mere definition, cartel is simply the glamorized jargon for collusion. The principal motive for such collusion is to increase individual member's profits by reducing or eliminating competition.

Competition laws in highly developed countries forbid cartels. Identifying and breaking up cartels has been an integral part of their competition laws. However, despite their sophistications, they still encountered difficulties in proving the existence of a cartel as firms are usually too careful in not documenting their agreements to collude on paper.

However, if our lawmakers and government executives should care to learn from other countries’ sophistication, they should take a look at the European Union’s competition law which explicitly forbids cartels and related practices in its Article 81 of the Treaty of Rome. Article 81 reads: “1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Just like the EU, we should craft laws that could prevent collusions. Learning from the EU and our sad experiences, we must institute statutes that regulate the amounts of fines for each type of cartel and a leniency policy by which if a firm in a cartel is the first to denounce the collusion agreement, it should be freed of any responsibility.