Potemkin

The Department of Agriculture announced that suggested retail prices (SRP) on rice will be issued next week. At first blush, this seems to be another dubious “solution” to spiking rice prices from the same minds that brought us price caps last year.

For the life of me, I never fully understood what SRP means.

Since we are a market economy, government should never be caught price-setting. Our ingenious bureaucrats found a way to get around that, using the SRP to basically set prices.

“Suggested” is a slippery word in this concept. There should be no penalties imposed on retailers who chose to ignore government price advisories and instead obey market forces.

The prescription of SRPs allows bureaucrats to manufacture photo opportunities showing them to be patrolling market stalls, haranguing or bullying small sellers and otherwise creating a mockery of our market economy. One trade secretary made much political capital of this parody and sought higher elective office peddling himself as “Mr. Palengke.”

In the many years of imposing SRPs, however, government never once managed to stem inflation – especially if an inflationary episode is driven by cost spikes.

We all saw what happened last year when government imposed laughable price caps on rice. Wholesalers forced farmers to sell unhusked rice even cheaper, producing deeper rural poverty. Ordinary rice varieties were re-labelled to skirt around the price caps. More expensive rice varieties became, well, more expensive.

Then government, belatedly realizing the disastrous effects of the price caps on small retailers, offered to compensate them for the injury the policy wrought. We have never been provided a final accounting of the subsidies paid out, but it is easy to assume they ran into the billions. Those billions could have been better spent improving farm efficiency with more lasting effects.

On the whole, the rice caps failed to stem food inflation. They made truly edible rice varieties more expensive. Only the poorly milled, barely edible varieties were put out on the shelves to demonstrate compliance with the price caps. Then government made a show of selling rice confiscated from “smugglers” and “hoarders” at P25 in selected Kadiwa outlets. There was never enough of that rice-for-show to alter the food inflation picture.

That disastrous price caps policy on rice may be compared to creating “Potemkin villages” – those showy cardboard facsimiles once erected along the river bank through which Catherine the Great passed. It hid the real misery behind the props – and fooled no one, not the least the Empress.

The failure of the price caps will not deter bureaucrats anxious to erect an illusory economy, however. Their anxiousness has been magnified by continuing food inflation and poll numbers that show that 7 out of 10 Filipinos give government a failing grade for inflation management. These bureaucrats are under great political pressure to produce short-term results in the effort to contain food inflation.

I am not sure how SRPs on rice will be a more effective instrument than last year’s ill-fated price caps. To begin with, SRPs are a weaker version of the price caps. We cannot expect it to overwhelm market forces. This is bound to be another bureaucratic trick to falsely create the impression government is doing something to curb rising rice prices.

Imposing SRPs on rice will be like setting up checkpoints at the exits of expressways. Doing so will create a traffic buildup that negates the advantage expressways bring in the first place. The entire process of delivering a staple food to the final consumer will be stalled at endpoint.

Retail prices for rice, after all, are merely symptoms of what is wrong with our agriculture. It is not the cause. Rising production and logistics costs are the causes. The root cause is ultimately an agricultural system that we cannot modernize unless we reverse the breakup of the land into small inefficient subsistence farms.

Militant farmers’ groups oppose the impending SRPs on rice for all the wrong reasons.

They argue that it is the liberalization of rice trade that should be reversed. This is self-serving. It will be harmful for all consumers.

If we reverse liberalization of rice trade, there will be no check on high rice prices induced by an inefficient farm system. Consumers will be made to pay for the inefficiency of our domestic rice production. Domestic rice prices will be as expensive here as in Japan, where rice nationalism forces consumers to pay atrocious prices for a product produced at much lower costs elsewhere.

SRPs are a way of stemming the tide of food inflation downstream instead of upstream. It will always be a futile bureaucratic exercise.

Our agriculture is broken. The sooner we begin from that premise, the better we will be able to cure food inflation.

Last week, we were treated to the spectacle of upland vegetables such as carrots and cabbage being given away for free by farmers unable to sell them. Our vegetable production toggles between oversupply and severe shortages.

What this tells us is that the small farms we chose to maintain over all other options are unable to properly read market signals. Our agribusinesses are basically unable to process food stocks to extend their shelf lives. Our logistics system for food stocks is primitive.

We have to take a longer, more comprehensive view of what ails our agriculture. Stop-gap measures such as price caps and SRPs will not deliver a robust and reliable agricultural system for the nation.