Suggested prices to minimize inflation, exploitation

Suggested retail prices (SRPs) can be effective in curbing inflation. Suggested farm-gate prices (SFP), a new initiative, can prevent exploitation. SRPs were introduced as the Department of Trade and Industry’s guidance to help identify possible profiteering and abuse. However, three conditions had to be met.

First, the SRPs had to be a consensus estimate by stakeholders—producers, traders, retailers and consumers. We would first research the product’s cost components for presentation to stakeholders for possible modification. Second, we would publish these SRPs as a guide for retailers to consider. Third, we would implement the Price Tag Law.

Those with no price tags were immediately charged, with several mayors authorizing the immediate one-day closure of erring retailers. Most outlets would therefore post price tags that were close to the SRP. It was initially very successful for both industry and agriculture products. Retailers whose prices varied significantly from the SRPs were made to explain why and subsequently charged if there was no valid explanation. But when a new order was given that DTI could cover only industry products while the Department of Agriculture would do agriculture products, the practice was continued by the DTI, but not the DA.

The five-coalition Agri Fisheries Alliance (AFA) succeeded in opposing the 35 to 40 percent tariff elimination for hogs and poultry, which would have caused the industries’ collapse and the loss of countless jobs. But AFA failed to convince the DA to implement the triple strategy of SRPs, price tags and penalizing profiteering retailers. The DTI has penalized several such retailers and brought discipline to the market. But DA has not penalized anyone.

For example, a reasonable margin between the farm-gate price and the retail price for chicken is P50 a kilo. Last week, the farm-gate price was P80 but retail price was P150. This week, the farm-gate price dropped to P70 but the retail price remained at P150. For hogs, a reasonable margin between the farm-gate and retail price is P75. Today, the farm-gate price is P150 but the retail price is P220.

There should be not only a retail price watch but also a farm-gate price watch (FPW). For the coconut sector, an FPW can deter the exploitation of coconut farmers. We believe the increase from 2 percent to 5 percent of the Coconut Methyl Ester (CME) component of diesel will soon be achieved. This is because a 1-percent rise in cost will yield at least 5 percent in returns.

At the World Coconut Congress last week, I talked to CME processors, oil mill executives and traders. They agreed there would be higher prices coming from the increased coconut demand. But they added that farm-gate coconut price wouldprobably remain at P4.50 a nut, down from the P11.50 six months ago.

With the FPW, the six government-controlled oil mills can share some of their expected profits by increasing the buying price from coconut farmers. This could then be the basis of the SFP that can be a guideline for other oil mills and traders to follow.

The law of supply and demand is good only when there is no failure of marketing conditions.
The possible high levels of retail prices and possible low levels of farm-gate prices suggest SRPs and FGPs should be implemented immediately.