• Smugglers are better economic managers?

    DEMAND AND SUPPLY By Boo Chanco
    (The Philippine Star) June 23, 2014

     

    Last week, I wrote with some sarcasm that we must be a sorry people to have to depend on smugglers to keep food prices at reasonable levels. Now the administration just told us that indeed, gains in the anti-smuggling efforts are somewhat responsible for the various shortages we are experiencing in affordable rice, garlic, etc.

    Just to prove that point, the Bureau of Customs showed media two container loads of garlic declared as something else. I guess the spike in rice prices, using the administration storyline, can also be blamed to a more effective control of rice smuggling.

    I am sorry but this line of explanation only means our economy is better managed by allowing the smugglers to do their thing. It also means, we have pretty stupid policies that contravene basic economic laws to begin with. That shouldn’t matter for so long as government officials are unable to enforce these misguided policies.

    I can understand that. Smugglers are good entrepreneurs who weigh the risks of being caught or the cost of bribing Customs and NFA officials against the benefit of satisfying a strong market demand for rice or garlic or whatever commodity at consumer friendly prices.

    Our officials, on the other hand, cling to long discredited policies of import restrictions without doing enough to boost domestic production to meet market demand volumes. Then again, I don’t think our officials are that stupid. On the contrary, reason supports the suspicion that they benefit from the absurd policies they have on the books that they pretend to implement.

    Indeed, there may be reason to suspect that our officials, at the Department of Agriculture for instance, work in coordination with various domestic cartels to induce artificial shortages in the market to spike prices. It is easy enough to issue press releases blaming the law of supply and demand for the mess.

    But this need not happen in this administration. P-Noy has a very competent adviser on agriculture economics in his Cabinet in the person of NEDA Chief Arsi Balisacan. I am sure Arsi feels just as bad about what is happening at DA and NFA as anyone who knows reforms in the policies and the running of these agencies are badly needed.

    Discard whatever the DA and NFA are saying now to explain the spike in rice prices. They simply failed to import to provide for an anticipated shortfall in buffer stock when the harvest failed to meet expectations of self sufficiency.

    Not only did they import later than they should have, they also imposed the use of their favored hauler on the Vietnam rice exporter which delayed delivery of needed stocks. Thus, they really didn’t have enough buffer stock to make a difference in the price of rice in the market.

    I asked a former NFA GM I have known way back in high school (he was two years below me) what is going on and this was his reply:

    “NFA’s participation is to employ economic principles of supply and demand to influence market price. By injecting into the market subsidized priced NFA rice to temper commercial rice prices in the market, commercial rice prices would be dampened.

    “Besides, inasmuch as NFA claims to have sufficient rice inventory to weather the lean months, the inventory of which is also to be augmented by their imports… there is no reason rice market prices can not be stabilized by the government given competent management and political will.

    “The reality we face is we can’t expect businessmen to sell at a loss.” We should be aware that due to the significant price differential between NFA rice prices and commercial rice prices, it is very difficult to avoid unpatriotic businessmen who will divert NFA rice to gain unholy profit.

    “Even as NFA zealously tries to arrest this occurrence, it cannot succeed. All efforts in this direction are just for political consumption and do not help to arrest the problem of runaway rice retail prices.

    “As a suggestion to the NFA, to address the high rice prices, it is not sufficient to inject more rice through the retailers. Due to logistical issues and to temper the temptation to divert the subsidized NFA rice to be sold as commercial rice (especially since NFA is importing the same 15% broken as commercial rice specs), NFA must suspend it’s per customer rice purchase limit and allow retailers to sell whole 50kg sack per customer.

    “This policy moratorium on customer purchase limit would flood the market with NFA rice in no time and give the retailer an attractive profit for his efforts and legal participation. It will also temper the need for retailers to connive with corrupt NFA personal to clandestinely divert NFA rice to be sold as commercial rice.”

    I asked him why allowing retailers to sell more than the five kg per customer can stabilize rice prices. He said it is a matter of logistics as this speeds up flooding the market with the NFA rice.

    “The NFA rice retail purchase – limit of five kg/person is taxing on logistics. This is the bottleneck to get subsidized NFA rice into the hands of households.

    “The sale of 50 kg would be the maximum they can buy per person. This will improve the velocity to inject subsidized NFA rice into the market/households. Limiting the sale to only 5kgs will only cause long lines and encourage corruption.

    “Removing the purchase limit tempers opportunity for corruption via diversion/conversion of subsidized NFA rice re classified and sold as commercial rice. Retailers will make the same profit via volume sale instead of misclassification of subsidized NFA rice.

    “Rice retail prices would temper quickly and stabilize with the massive rice injection into Metro Manila market. The national inventory of rice remains the same as the shift is from NFA into households, this also monetizes NFA inventory reducing government risk as well as financial exposure.

    “All of this of course is on the assumption that DA-NFA statement on NFA rice inventory is correct. And that imported rice will replenish what is injected into the market.”

    Anyway, maybe the former NFA GM has a point in the matter of addressing the current crisis out in the market. But the more important concern of P-Noy and his economic advisers is how to revise the time worn policies and work flows of NFA that are at the root of the current spike in local rice prices.

    The current shortages that have resulted in serious increases in retail prices should be enough signal that something is seriously wrong that demands presidential attention and action.

    As for those two container loads of misdeclared garlic shipment intercepted in Batangas, I understand that Customs is duty bound to destroy all of that under an agreement with the Department of Agriculture. The DA is citing the absence of a sanitary certification for the shipment which it says opens the danger of disease contamination.

    The DTI is reportedly trying to gain control over the shipment because in the light of the current shortage, it could help alleviate the spiraling of prices in the market. It should be easy enough to check on whether the shipments are contaminated or not but it seems silly to just destroy all that garlic in the light of the current shortage.

    Oh well… Given that AFTA has taken away almost all barriers to entry except for rice, maybe we should just let the smugglers run the show. They have proven to have helped our consumers in a way our economic managers have consistently failed through the years.

    Operation

    In a train compartment, there are three men and a young woman. These four passengers join in conversation, which very soon turns to the erotic. Then the young woman proposes, “If each of you will give me $1, I will show you my legs.”

    The men, charmed by this young woman, all pull a dollar bill out of their wallet. And then the girl pulls up her dress a bit to show her legs.

    Then she says, “If each of you gentlemen will give me $10, I’ll show you my thighs”.

    And the three men, being what they are, all pull out a $10 bill. The girl pulls up her dress all the way to her legs in full.

    Conversation continues, and the men, a bit excited, have all taken off their coats.

    Then the young girl says, “If you will give me $100, I will show you where I was operated on for appendicitis.”

    All three men fork over the money.

    The girl then turns to the window and points outside at a building they’re passing. “See there in the distance? That’s the hospital where I had it done!”