PH Monday Macro: Here’s what the rice price ceiling will do in the short-term
Rice is a crucial staple in the Philippines. In 2020, Filipinos consumed an average of 118.81 kilograms of rice per person, totaling 12.9 million metric tons (“MT”) for the country’s population of around 108.66 million.
This highlights rice’s significance in the daily life of Filipinos, suggesting it remains inelastic even if its price rises. This is the reason why there are so many headlines regarding the recently imposed price ceiling.
Today, we will talk about what a price ceiling is, its purpose and how it affects everyone.
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A few weeks ago, President Bongbong Marcos issued Executive Order no. 39, implementing a nationwide rice price ceiling. This aims to address recent cost surges caused by a number of factors including the rising demand for rice, as well as hampered supply brought about by the weather.
Let’s take a look at what this cap means for the parties involved…
A price ceiling is a maximum price set for goods or services, protecting consumers from high costs during economic hardships and preventing price manipulation, especially by monopolies. Governments use it to ensure affordability and access to essential products for all income levels.
The new ceiling sets regular-milled rice at PHP 41 per kilogram and well-milled rice at PHP 45 per kg. It remains in place unless lifted by the President upon the Price Coordinating Council’s recommendation.
The rising prices of rice was undoubtedly a burden for countless firms, particularly rice retailers. With the farmgate prices of rice on a continuous increase since the fourth quarter of 2022, such businesses have had to pay higher for the said commodity since then.
Consumers are expected to benefit from the price ceiling, at least in the short run. It will protect them from having to pay abnormally-high prices for rice. The continuous increase in rice prices has been rendering more Filipinos less able to afford it. This cap ensures that such will cease to occur.
Farmers, on the other hand, will be adversely affected by this price ceiling.
If there is a limit to how much retail rice prices can grow, then retailers will have to bargain for lower costs when they buy from farmers, their suppliers. Such will restrict the revenue earned by farmers for every kilogram of rice produced.
This is particularly unfavorable given the rice shortage that is occurring in the Philippines now, implying that farmers do not enjoy the economies-of-scale needed to afford charging lower prices. With less revenue, farmers may find it even more difficult to continue production and may pump out less quantities of rice in the market, which may aggravate the shortage all the more.
According to the National Economic Development Authority (“NEDA”), the increase in the rice inflation rate could be attributed to the tight supply of said commodity.
A lot of factors contributed to this outcome, one of which was the increasing demand for rice. According to the United States Department of Agriculture (“USDA”), rice consumption in the Philippines is forecasted to increase to 16.5 million MT in the marketing year 2023-2024, surpassing a previous projection of 16.3 million MT.
Various weather conditions also contributed to the detriment of the rice shortage. Recent super typhoons, namely Egay, Falcon, Goring, and Hanna, brought about disastrous rainstorms that destroyed harvests, thereby hampering supply. According to the Department of Agriculture (“DA”), the rice sector suffered losses of 42,778 MT (worth P1.79 billion) due to typhoons Egay and Falcon. Furthermore, Goring caused a rice volume loss of 41,238 MT (amounting to P979.42 million), as per the DA’s latest tally.
To make matters worse, there have been discoveries of illegal hoarding of rice, which further exacerbates the said commodity’s shortage. The Bureau of Customs (“BOC”) recently unearthed P505 million worth of smuggled rice. 202 million sacks of imported rice grains from Vietnam, Cambodia, and Thailand were found stockpiled around various warehouses in Bulacan.
Although a price ceiling can benefit consumers in the short run, it can be detrimental if left unchecked. It will severely limit the revenue stream of farmers who can barely afford to charge low prices for their goods.
This will negatively impact the ability of said farmers to supply rice into the market, which could worsen the contemporary shortage all the more. As a result, Filipinos will be robbed of the rice which they deem so essential.
The crux of the matter is whether or not this ceiling on rice prices will improve the country’s agricultural situation. Will it really make rice more accessible and affordable for all, or will it simply worsen the shortage that said commodity is already facing?
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“The Monday Macro Report”
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