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Suggested retail price solution to high prices

05:15 AM June 27, 2014

According to an Inquirer article on June 21, “the seizure of the smuggled garlic came as retail prices for the commodity soared to as high as P300 to P400 a kilo from the usual P60 to P90 per kilo.”

A tried and tested solution we used at the Department of Trade and Industry (DTI) and the Department of Agriculture (DA) effectively controlled unreasonable price increases, such as the one we see in garlic today. It was the public announcement of a product’s Suggested Retail Price (SRP). This was accompanied by enforcement activities to apprehend unscrupulous traders who sold significantly above the SRP.

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SRP is still used effectively by DTI today in helping control price surges in products like milk and sardines. The DA should now use the SRP solution for cases like garlic and other agricultural products. In the past, the SRP was also used for fresh pork and chicken, but was not used for perishable vegetables, which by their nature had daily fluctuations.

Rep. Nicanor Briones had said that a margin could be determined between the pick-up price at the farm and the SRP. For example, if pork is sold at the farm gate at P130, an adequate margin of P60 would suggest that the correct retail price is P190. This can also be done with garlic.

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When retailers sell significantly above the SRP, they can be investigated for possible profiteering and correspondingly penalized. An apprehended retailer is given an opportunity to explain his significantly higher price. But if the explanation is not valid, the retailer is correspondingly charged. Word spreads about this.

There is then a chain reaction of retailers rolling back their prices for fear of being apprehended. We have seen this successfully implemented for both industrial and agricultural products.

It is important to determine what the fair SRP is. If it is set too low, the product will disappear from the market. If it is set too high, the price will go up to levels that would be detrimental to consumers. In the latter case, competition among retailers often brings the price down below these SRP levels.

Consider the figures provided by the Bureau of Agriculture Statistics (seetable).

The first observation is that there might have been much smuggling in garlic. The 17.44 million tons imported from China in 2010 (where most garlic imports come from) have dropped to 2.3 million tons in 2013. This is surprising, considering that the local production hardly changed from 10.96 metric tons to 8.64 metric tons during the same period.

The second observation is that this garlic is imported at a price ranging from P5.50 to P8.10 a kg on a CIF basis. Even assuming an incredible 1,000-percent increase in this price sold on a wholesale basis domestically, this would still be far less than the P300- to P400-a-kilo price reported today. Is undervaluation added to underdeclaration, misclassification and outright smuggling when it comes to imported garlic? The Bureau of Customs (BOC) should investigate this sector immediately.

When prices increase because smuggling is stopped, this is good for the farmers who have long been deprived of fair market prices. This will allow them to earn a decent livelihood. But when the price increase is exorbitant with most of the increase going to the traders instead of the farmers, this should be addressed by implementing the Congress-approved Price Act, which has identified the SRP to address this problem.

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Determining the SRP is done by having a meeting of the importers, farmers, traders and retailers. At this meeting, all factors are considered. For garlic, the increased price driven by inadequate supply and the Manila truck ban are among several factors to consider. In the end, this group comes to a consensus on the SRP.

Elias Jose Inciong, United Broiler Raisers Association president and Alyansa Agrikultura leader, has mentioned that when the farm gate prices of chicken go down, the retailer prices remain the same. This deprives the consumers of cost savings that they should get. If the SRP is given for chicken, then the retail price level will go down and follow the farm-gate price. This will benefit consumers.

There is a song: “Make new friends, but keep the old. The first is silver, but the second is gold.” We fully support the new government reforms. But the old practices that have proven successful should not be forgotten. Like the SRP, they should instead be used. They can be like gold for both the consumers and the farmers.

Quantity of Garlic (Tons)

Year China       Local Total      CIF P/ kg

2010 17.44       9.56   27.00      5.40

2011  7.83      9.06  16.88      8.21

2012  5.64       8.49  14.13      7.20

2013  2.31      8.64  10.95      8.10

Source: Bureau of Agriculture Statistics

 

(The author is chair of Agriwatch, former secretary for presidential flagship programs and projects, and former undersecretary for agriculture, trade and industry. For inquiries and suggestions, e-mail [email protected] or telefax (02) 8522112.)

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TAGS: Consumer Issues, garlic, retailers, Smuggling, suggested retail price (SRP)
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