Two daggers to the swine industry’s heart
There are two daggers that can kill the swine industry.
The first dagger is the very low price ceiling for pork at P270-300/kg. There is even less pork available today because the value chain players cannot make enough money to survive at these low prices. There was inadequate consultation and study in determining those levels. Information from a reliable source that looked at minimum reasonable margins for hog producers, viajeros, processors and market vendors showed P330/kg for regular cuts like pigue and kasim, and P360/kg for prime cuts like liempo. The second dagger is the recommendation to cut pork in-quota tariff from 30 percent to 5 percent in the first six months, then 10 percent for the next six months. For out-quota tariffs, it is from 40 percent to 15 percent, then 20 percent for the succeeding period. The in-quota volume has been proposed to be increased by eight times to 404,210 tons. In these cases, there will be lost government revenue of P12 billion and P17 billion, respectively.
Why is this happening? It is because inflation has increased, with pork prices being a significant factor. The two recommended solutions seem logical, but the devil is in the detail.
Consider the price ceilings. Pork was selling at an average of P400/kg, with many selling at P440/kg. At those prices, way above the P330/kg for regular cuts, there was definitely profiteering. This had to be stopped. But with inadequate consultation and study, a price ceiling of P270-300/kg was implemented. This is significantly below the P330-360 range. Had the second range been implemented, there would still be a significant inflation decrease. But at the mandated low price ceilings where losses would be incurred, pork disappeared from the market. Government subsidies are now being offered to meet the low price ceilings but they are insufficient. They are also unnecessary if the right price levels had been chosen. These subsidies are a waste of government resources that should be used instead to help the hog industry increase production and supply to bring down prices.
With no stated price ranges, profiteers take advantage, but the price ranges must be reasonable. The mechanism of a suggested retail price (SRP) is preferred to a price ceiling. The Department of Trade and Industry uses SRP very successfully to penalize profiteers. If anyone exceeds the SRP, he is immediately given notice of violation. He is not penalized only if he can prove justifiable cost considerations, like higher transportation or rental costs. The SRP also provides flexibility for unique cases so that the supply does not stop.
With the price tag law enforced, most retailers will follow the SRP. But it should be done only with proper study and consultation.
This brings us to the second issue. The main solution to high prices is increased supply. Increasing imports is definitely a correct solution. But though decreasing tariffs appears to be logical, the current situation should first be understood. The tariffs today already provide sufficient profits to secure needed importation.
An importer showed this computation. Even assuming the low price ceilings are complied with, the computed profit for a single transaction under the out-quota 40 percent tariff is P21 on an imported cost of P214/kg delivered to the market. This is a 10-percent return on investment (ROI) for a single transaction, and 120 percent if done once a month. For the in-quota 30 percent tariff, the profit is P36 on an imported cost of P199 delivered to the market. This is an 18-percent single transaction ROI or a 216 percent annual ROI.
The importer said the 120 percent annual ROI even with the 40 percent tariff was sufficient motivation to import. If we implement just the tariff reduction without expanding the in-quota volume eight times, we lose P12 billion in government revenue. With a quota expansion, this loss balloons to P17 billion.
The said amount should not go to the importers and traders who do not need it, but to the farmers and swine stakeholders. This will help them increase production and supply, which is the real solution to decreasing prices.
Today, swine tariffs do not go to the swine industry, but to the government’s general fund and can be used for other purposes. We should heed the call of Senator Cynthia Villar during a Senate hearing. The tariffs collected under the Rice Tariffication Law go to support the rice industry. She said the same principle should apply to the swine industry. These resources are urgently needed to recover from the African swine fever that has already decimated 40 percent (5 million heads) of our swine population.
Unless we correct the pork price ceilings and reject the tariff reduction recommendations, these two daggers can destroy our already ailing swine industry.
The author is Agriwatch chair, former Secretary of Presidential programs and projects and former undersecretary of DA and DTI. Contact is [email protected].
