Lent and food prices

Lent is among those big “retreat days” for Filipinos due to the 4-days weekend. Many of those living and working in Metro Manila and other big cities retreat “back to the provinces or far away municipalities” and enjoy less stressful life where the air is cleaner and food prices are cheaper. But not this year’s Lent, it seems.

Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.

The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.

A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.

So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.

Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.

Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.

Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.

Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.

Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.

Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.

So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.

The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.