Good governance to prevent high prices

Good governance demonstrated by implementing a relevant law can prevent the high prices of agriculture products we see today.

At the July 3 Senate hearing on garlic prices, Sen. Cynthia Villar said that if the wholesalers decided to sell imported garlic at double the landed cost of P15 a kilo, “the difference between the wholesale price and the prevailing price of P360 per kilo is somewhere from 800 percent to 900 percent mark-up.” This could have been avoided by implementing the legislated Price Act.

The 1992 Price Act, amended in 2013, continues to stipulate that the head of the implementing agency (Department of Agriculture for agriculture and Department of Trade and Industry for industry) can use the mechanism of Suggested Retail Price (SRP) for basic and prime commodities. This will stop the skyrocketing of prices and penalize profiteers who sell excessively above the SRP.

When we started implementing the Price Act for both industrial and agricultural products, we used the following procedure, which was proven effective in controlling high prices:

1) The appropriate stakeholders meet to discuss and decide on the SRP for a given product. They include consumers, producers, importers, and government agencies.

2) The SRP is then announced for wide dissemination.

3) The Price Tag Law is implemented for all products. This way, products selling significantly above the SRP are easily identified.

4) If a retailer sells excessively above the SRP, that retailer is charged for profiteering. Profiteering is defined in the Price Act as “the sale or offering for sale of any basic necessity or prime commodity at a price grossly in excess of its true worth.” The fine ranges from P1,000 to P1 million.

5) Since the SRP is more flexible than a price ceiling, which cannot be changed, retailers are allowed slight variations if they have valid explanations. An example is a higher price because of higher transportation costs for a remote location.

6) The investigation may include identifying the concerned middleman. This is because the middleman, not the retailer, is often mostly responsible for the unreasonably high price.

7) Once a few retailers are caught, the word spreads. Most retailers then bring down their prices for fear of being caught. They likewise tell the middleman they can no longer buy at the middleman’s high price, or they will lose money. Thus, the middleman likewise brings down his price.

8) Sometimes, a time frame is given before apprehensions are made. This is done when the retailer has bought his products at an unreasonable high price from the middleman and still has to sell his current inventory. But after this grace period, the SRP is used to catch erring profiteers.

The DTI has consistently used the SRP mechanism provided for in the Price Act. This is why we do not see runaway prices in products like milk and sardines. There was a time when the DA likewise used the SRP mechanism effectively. However, we have not seen this during the past years. This is why prices of agriculture commodities such as garlic and rice have been allowed to increase to unreasonable levels.

The problem is mostly with the middleman. In the case of garlic, DA Region I Assistant Director Paz Mones said: “Prices actually increased when the goods were no longer in the farmers’ hands.” So if the retailer tells the middleman he can no longer buy from him at his high price because of the SRP, the middleman can easily absorb the decrease in his selling price.

The law of supply and demand is negated by unfair trade practices such as cartels, hoarding and profiteering. Good governance must prevent this.

The DA should not have been unduly influenced by a private sector-led group, which effectively controlled the volume of garlic imports. Though local production was generally the same for 2012 and 2013, imports for those years were less than half the 2011 volume. Thus, the garlic supply shortage was partly due to poor governance.

Taking to heart President Noynoy Aquino’s statement “Ikaw ang boss ko,” the Alyansa Agrikultura recommended that the DA implement the Price Act and the SRP mechanism in a published article on June 24, a press conference on June 30, and an official testimony at a House of Representatives hearing on July 1.

At this same hearing, a senior government official said that he would start work on determining the garlic SRP when he receives the congressional committee resolutions to do so. Good governance does not have to wait for a congressional resolution to implement a law.

The Price Act implementation should have been done by DA all these years, in a way that DTI has done. Up to now, there is no announced garlic SRP. The delay in this SRP announcement will be an indication of the quality of governance used in preventing the further skyrocketing of prices that we sadly see today.

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