Experts see long-term harm of pork price caps

MANILA, Philippines — Economists are wary that the government’s insistence on enforcing price ceilings for pork may lead to higher food inflation and bite the economy in the long run, stressing that the measure may push producers and retailers out of business and lead to rising prices of other agricultural products on the market.

They fear that the current pork shortage will add pressure to the government’s efforts to keep inflation at 2 to 4 percent this year. Last month, inflation rose to a two-year high of 4.2 percent, due largely to exorbitant pork prices.

“Any attempt at capping prices will only lead to distortions or even informal market prices. Selling below cost will eventually drive some businesses out of business, and thus we’ve seen some dealers close shop and [refuse] to trade,” said Nicholas Mapa, senior economist at ING Bank Manila.

“The current cap on prices will also lead to inflationary pressure, this time on the demand side as inflation expectations are fanned by the recent move,” he said.

‘Zero-sum game’

Ramon Clarete, dean of the University of the Philippines’ School of Economics, described the current situation as a “zero-sum game” as lower pork prices in Metro Manila would mean higher prices in places where the pork was sourced.

“Forcing supply out of the Visayas and Mindanao to go to Luzon may help consumers in Manila, but there would be compromise on the part of consumers from Visayas and Mindanao,” he explained.

“This would only worsen inflation. The fundamental problem must be addressed—the lack of supply,” Clarete said.

The spread of African swine fever in the country since 2019, which has led to the deaths of 4.5 million hogs, has not only tightened supply but also discouraged hog breeders to reinvest without any cure for the viral hog disease.

‘Whole-of-nation’ approach

Part of the Duterte administration’s “whole-of-nation” approach is to enforce price ceilings for pork for 60 days, pegged at P270 to P300 a kilogram against requests of industry groups to keep the figures at P330 to P360 a kilo.

This has prompted retailers to go on a “pork holiday” since Monday, when the price caps were imposed, to evade losses and apprehension from the government, forcing consumers to turn to other food items.

In a phone interview, Agriculture Secretary William Dar said the government was finding ways to cough up at least P800 million to stop the pork holiday by subsidizing hog producers and traders who could not meet the price ceilings.

The promised subsidies range from P10 a kilo for hog breeders in Luzon, P15 a kilo for those in the Visayas, and P21 a kilo for those in Mindanao.

With the limited funding of the Department of Agriculture (DA), however, potential cuts in regional budgets, as well as in the agency’s national livestock program are being considered.

Dar said that if realigning budgets would not be enough, the DA would ask the Department of Budget and Management for more funds.

Promised fund assistance

Chester Warren Tan, head of the National Federation of Hog Farmers Inc., said raisers from General Santos City were holding on to this commitment. Currently, a huge chunk of Metro Manila’s hog supply comes from Mindanao.

Tan acknowledged that the group’s members cannot meet the price ceiling without financial assistance from the DA.

According to Ernesto Pernia, the country’s former chief economist, price ceilings will eventually lead to the government handing out aid like this that will eventually hit the economy.

He noted that the government was already spending more than what it was earning, and with the coronavirus-fueled recession, raising revenues would be a challenge.

“This is not a good idea,” Pernia said in a phone interview. “Somebody will need to pay for the difference [in the price ceilings against the farm gate]. If the government shoulders it, it would result in a bigger government deficit, which is already high.”

For Mapa, the subsidy program may work for now, but noted that “shortages are always best addressed by increasing supply.”

“It will help keep businesses afloat and simultaneously work to keep a cap on price pressures. This will have an impact on the deficit but given the ongoing crisis, limiting inflation during the time of recession will help ensure GDP (gross domestic product) does not spiral even deeper,” he said.

More pork imports?

In a Malacañang press briefing on Tuesday, Dar said an advisory council had endorsed the increase in the volume of pork allowed to be imported into the country at lower tariffs to help stem the shortage in supply and rising prices.

He said the council recommended a minimum access volume (MAV) increase of pork imports to 388,790 metric tons, which would be called MAV Plus. It would be subjected to a referendum by the MAV management committee before submission to the President for approval.

Dar said another suggestion was to allow not just traders but also hog raisers to import pork.

A representative of the hog raisers, Rosendo So of the Samahang Industriya ng Agrikultura, said tariff for imported pork need not be lowered, adding that importers were already “making a lot of profit.”

At 40 percent tariff, the landed cost of pork is P110 to P120 per kilo, So said. If the costs of delivery and storage are added, the importers can sell their pork at P152.87 per kilo, he said.

Trade Secretary Ramon Lopez said the department had recommended the imposition of a lower price ceiling or suggested retail price on imported pork sold in grocery stores and supermarkets, pointing out that the landed cost of imported pork was lower than farm-gate prices.

The DA and the Department of Trade and Industry are still computing the amount, Lopez said.

Even with the possible importation of more pork, presidential spokesperson Harry Roque said the government’s first priority was increasing the local production of pork, including repopulation for which P600 million had been allocated.

Financing is also available to hog raisers, as well as hog insurance, Roque said. He cited P15 billion from Land Bank of the Philippines, P12 billion from Development Bank of the Philippines, and P500 million from the DA’s Agricultural Credit Policy Council.

He reiterated the provision of transport subsidies and the designation of nautical highways to facilitate the delivery of pork from the provinces to Metro Manila.

QC markets

In Quezon City, more pork and chicken sellers returned to public markets on Tuesday despite the difficulty of getting the meat from traders and suppliers.

“The vendors could not find suppliers that could comply with the price ceiling,” Procopio Lipana, programs and projects officer of the QC Market Development and Administration Department, told the Inquirer.

Mayor Joy Belmonte asked privately owned markets to waive the rental fees of vendors who were not able to sell due to the government-imposed price caps. She earlier inspected Mega Q Mart and Commonwealth Market.

Lipana said the city government already waived the rental fees in city-owned markets for those who opted not to sell during the period of price freeze.

—With reports from Leila B. Salaverria, Roy Stephen C. Canivel and Nikka G. Valenzuela