Inflation

We will not be spared from the coming food inflation crisis  even if our politicians seem more obsessed with their inconsequential circuses.

Since the start of this year, world food prices rose over 30 percent. From all indications, food prices will continue rising sharply into the foreseeable future.

There are many factors underpinning the food inflation we are experiencing.

The most important factor is, of course, supply. Over the past few years, as a consequence of global warming, we have seen severe floods and then severe droughts adversely affecting the food producing regions.

The buffer stocks of staple grains thinned dramatically. We realized that over two years ago when we tried to import a large quantity of rice and sparked a price spiral for the grain.

Rapid urbanization and rising incomes in China and India, the two most populous countries, increased demand for food while decreasing supply. The megatrend will continue as other large countries like Brazil, Indonesia and Nigeria enter into the same pattern of rapid urbanization and depopulation of farms.

The spike in oil prices adds to the large trends that thin the buffer stock of food. Expensive fuel adds to transport and processing costs. Since a lot of the fresh foods we consume require refrigeration, higher power costs will push up food prices.

The rising food price regime worldwide obviously harms the poor immediately. The poor concentrate more and more of their meager disposal income on food, sacrificing other needs. That magnifies misery and explains the political turbulence we now see all over.

Tomorrow, Mayday, we are likely to see furious demonstrations protesting rising prices across the board. The labor aristocrats responsible for this demonstrations will try and score popularity points, demanding that government mandate wage increases even if this will affect only a small percentage of workers and probably aggravate the condition of non-unionized workers.

An across-the-board wage hike is the surest way to stoke inflation. It raises the cost of labor without inducing productivity. It raises purchasing power without a corresponding increase in the supply of commodities.

Wages everywhere are politicized. We are no exception. Unions demand instant gratification, which only seems to solve the problem. Political leaders, anxious to win popular approval, will play around with wage demands. It is the easiest thing to do  along with subsidies of every sort and vain attempts to politically peg prices (that invariably produce supply problems down the road).

It is, however, the more difficult things to do that truly address the problem. Among the more difficult strategies is to raise food productivity  without, as in our case, increasing the already limited supply of land devoted to agriculture.

In the face of a food price crisis, government must prioritize food productivity. But we see very little effort at this.

Gimmick

Every discriminating smoker knows when a product is a rip-off. He likewise knows what comes into the market: smuggled products, price-value equations, tobacco varieties and new brands.

Most smokers in this country know these things: demand for imported cigarettes declined because of price differentials and, as a consequence, there is really very little illicit trading of tobacco products going on.

Notwithstanding, a Swiss company has been trying to bamboozle us into buying its fancy technology for labeling tobacco products. A House inquiry on the unsolicited proposal thought the offer ought to be rejected. The National Tax Research Center (NTRC) insists there is not enough illicit trading in tobacco to warrant and expensive investment in the electronic stamp the Swiss company wants legislated into industry practice here.

It turns out, the Swiss company Sicpa Products Security S.A. had been trying to peddle its packaging gimmick elsewhere  with no takers.

Recently, the government of Albania rejected the same unsolicited proposal from this Swiss company.

Albanian President Bamir Topi vetoed a bill that would require tobacco products to adopt the Sicpa stamp on its packaging. Topi declared that the said bill “not only raises the costs of production of the local industry, but could also bring about negative effects for its employees, who could eventually lose their jobs.” He also observed that the Sicpa scheme is not in line with international agreements on combatting the illicit trade in tobacco products.

That is the same conclusion arrived at by our House Ways and Means Committee, two successive secretaries of justice, the BIR and all other public agencies that have looked at the unsolicited proposal. The rejection of this packaging gimmick notwithstanding, there appears to be a sustained lobby to adopt this useless scheme. The lobby is motivated by the prospect of fat commissions at the expense of workers in our domestic tobacco industry and consumers.

Stronger regulation on the peddling of tobacco products, along with stiff “sin taxes” imposed on them, have brought down demand for a commodity deemed injurious to health. Diminishing demand for tobacco products have widened unemployment in the tobacco-growing regions.

The introduction of an expensive packaging gimmick will cause more dislocation in the local tobacco industry. Those who are not tobacco lovers might think this well and good, given all the perils associated with the consumption of this crop. But the diminishing tribe of tobacco consumers will diminish even more if unnecessary costs are added to the product only to profit a Swiss company.

Smokers do not protest when “sin taxes” are raised. They will protest, however, if this useless packaging gimmick significantly raises the price of their preferred poison.