Policing predatory profiteers

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“It’s obvious that the recent exponential increase in agricultural prices were the result of excessive profiteering by third-party traders, notably on delivered and landed costs — certainly not at the farm gate level.”

The Duterte administration’s trade and finance officials are not only unified in pushing the notion that the astronomical aggregate prices inflicted on us are largely the result of global geopolitical events over which we have no control, but also that these are products of unscrupulous local traders and profiteers. While there is little we can do to influence world events, fortunately, against home-grown Ferengis, there’s the law.

On global factors, we agree a hundred percent. The global impact is attributable and quantifiable. One, since the junking of the controversial US-Iran nuclear deal, global oil prices temporarily increased to as much as US$80 per barrel. Two, the United States Federal Reserve continues to impose serial rate upticks that draw investments away from our shores.

Both have severe short-term effects on Philippine inflation. But because these are temporary, it would be stupid to rewind the recently passed Tax Reform for Acceleration and Inclusion (TRAIN) based on momentary circumstances as suggested by some grandstanding solons.

Between volatile global oil prices and US interest rates, the latter would have a more lasting effect. Serial rate increases in the US siphon capital invested in our economy and shift those stateside where interest rates are higher and the returns more profitable. The capital outflow increases the relative amount of pesos in the domestic economy, effectively depressing the value of the peso and impacting profoundly, and indeed negatively, on a vulnerable economy. Taken together, the cumulative effect increases the prices of goods where some are either irreversible or some snowball further.

The second inflationary factor of unscrupulous traders and profiteers, which the government likewise blames for the high prices, is not only a distinct possibility, but a sectoral reality.

Compared to its predecessor, at least this government seems to care where high prices are concerned. The “knock-on-doors” tokhang tack of the price monitors show that the authorities are at least responsive to pleas that something should be done to alleviate the sudden inflationary impacts that, while largely due to uncontrollable factors, are nevertheless economically debilitating.

Unfortunately, despite the media mileage generated through police raiding warehouses and spot-checking traders, tokhang tactics are essentially inefficient.

The most efficient way to thwart profiteers is to empower consumers and invoke the paradigm of informed consent where the market and its retail consumers decide to either accept or reject a vendor’s price.

While most agricultural products are not slapped value-added taxes and are high in the supply chain, thus largely insulated from cascading excises, agricultural prices increased and the increase is being blamed on TRAIN. Note, however, that most of the incremental TRAIN excises have minimal effects on agricultural products at the farm gate stage. These are limited to fuels expended by farm machinery, devalued pesos used to purchase fertilizer, pesticides and other inputs, and electricity used for milling, processing and warehousing.

It’s obvious that the recent exponential increase in agricultural prices were the result of excessive profiteering by third-party traders, notably on delivered and landed costs — certainly not at the farm gate level.

Unfortunately, our agricultural sector is characterized by numerous small farmers deprived of market power yet arrayed against a powerful oligopoly of traders and middlemen, who set retail prices where excessive margins are slapped over the relatively lower values they add to the agricultural product.

Beyond those applied on consumer products, a Suggested Retail Price (SRP) mechanism for farm commodities is being mulled by trade authorities to guide farmers, traders and vendors. With this, the margins between farm gate and retail prices would expose reasonable pricing versus profiteering.

While SRPs cannot be imposed, these compel efficient farm production and empower consumers with choices.