Forgotten pitfall of price cap
While the price cap intends to address food security and alleviate the economic burden on consumers, it does not prevent the sale of substandard or contaminated rice.
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While the price cap intends to address food security and alleviate the economic burden on consumers, it does not prevent the sale of substandard or contaminated rice.
Price controls have long been considered an attractive solution to address the issue of skyrocketing prices. A closer look at the recent Executive Order 39 that imposes a mandated price cap on rice shows that while price controls may seem convenient on the surface, they often lead to unintended consequences and detrimental outcomes.
What has been forgotten in the price cap order that took effect on 5 September is the importance of quality monitoring to ensure that the rice sold at ceiling prices meets established safety and quality standards.
When producers are forced to sell rice at prices that do not adequately cover production costs or allow for reasonable profit margins, they may resort to cost-cutting measures.
This can result in compromises in quality as producers seek to maintain profitability within the confines of price controls. Consequently, consumers may find themselves accessing cheaper rice at compromised quality prices, ultimately diminishing their overall satisfaction.
In a market in Bicol, retailers were compliant with the P41 and P45 per kilo prices of regular and well-milled rice, respectively, afraid to face administrative cases with fines that can go as high as P1 million.
Under Republic Act 7581 or the Price Act, violators of the price ceiling set by the government "shall suffer the penalty of imprisonment for a period of not less than one year nor more than 10 years or a fine of not less than P5,000 nor more than P1 million, or both, at the discretion of the court."
Herein lies the catch: A seller could not help but admit to a suki or regular customer that the cheap rice is only suitable for pet dogs. Trusting the seller's advice, the suki bought two kilos for his aspin or asong Pinoy. But trust a canine's strong sense of smell (10,000 to 100,000 times better than a human's), this Bicolano said his pet snubbed his "cheap" rice meal.
While the price cap intends to address food security and alleviate the economic burden on consumers, it does not prevent the sale of substandard or contaminated rice.
Monitoring the quality of the rice sold at a price cap is essential to ensuring that consumers receive safe and nutritious rice while benefiting from affordable prices.
Without proper quality monitoring measures in place, EO 39 highlights the ineffectiveness of achieving long-term stability but potentially creating more problems than it solves.
Among the significant drawbacks is the creation of a black market, which would inadvertently foster an underground economy operating outside legal frameworks. Artificially suppressing rice prices makes it unprofitable for suppliers to engage in production and distribution.
This combination of diminished supply and heightened demand can lead to shortages that would worsen the very issue that price control aims to resolve — the essence of a social media post of recently booted out Finance Undersecretary for Fiscal Policy and Monitoring Cielo Magno.
Although the imposition of the rice price ceiling might not go beyond one month as the government expects prices of the staple food to stabilize in three weeks, EO 39 still makes no sense without considering that the regular and well-milled rice sold should be edible and that it prevents the consumption of nutritionally deficient or adulterated rice that could lead to health issues.
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