CASUAL tourists who have been to Bangkok, Ho Chi Minh or Hanoi will immediately notice that equivalent agri-food products in the Philippines are exorbitantly priced. They are right.
Thailand and Vietnam’s chicken is around 40 percent cheaper than the Philippines’. Our pork is around 90 percent more expensive than Vietnam while our refined sugar is more than double the price in Thailand. The same is true for rice: regular and well-milled rice in Vietnam and Thailand are priced around 30-40 percent lower than in the Philippines.
Across agri-food commodities, Philippine prices are much higher than our two neighbors. This is one of the major factors why the Philippines has become a less attractive tourist destination compared to Thailand and Vietnam. Their agri-food prices are not only cheaper; the products are of better quality.
Why is this so when our politicians and populist groups keep bragging that we have rich natural resources and an agricultural economy (a highly flawed statement as agriculture contributes just over eight percent to our gross domestic product)?
Firstly, as pointed out in my last column, our agricultural productivity is low and has been declining over the last two decades. Farm productivity growth can hardly keep up with our population growth. With less supply and greater demand, the result is high food prices.
Note that the understated policy of the government is to consign our small farmers to poverty through the protracted implementation of agrarian reform, ongoing for more than 30 years now. It resulted in the fragmentation of farm lands into minuscule sizes, now averaging less than a hectare. Economies of scale cannot be attained with this land size and — expectedly — there are also no significant productivity gains.
Politicians and populist groups thought the “land to the tiller” program would automatically result in incentivizing small farmers to produce more. They forgot that small farmers need sustained and systematic assistance through the provision of public goods (irrigation, research and development, extension, logistics, etc.) and not just “ayudas.” They assumed that our state is efficient and could easily extend these support services.
There is this half-hearted attempt to consolidate small farmers’ land by dangling subsidies if they organize themselves into clusters. But for clustering to work, there has to be continual community organizing work and farmer education, not just dole-outs. Production support services such as free seeds, fertilizers and fuel only last during the cropping season.
Once consumed, these are gone and one has to continue pouring endless “ayudas” to keep the engine running, unlike public goods such as irrigation, research and development and farm-to-market roads and storage facilities whose benefits are enjoyed by the community for a longer period of time and not just by an individual farmer.
The second major contributory factor to our high agri-food prices is multiple layers of traders operating between the farms and the retail or wet market. It has been observed that in Thailand, there are only 3-4 layers of marketing agents (traders). The Philippines has five or sometimes more.
Every layer contributes to raising the final cost of the product. Each trader will extract a profit from a transaction. With five layers, this means five increases in the cost of the product before they reach the retail market. Why so many?
Many small farmers are in remote areas. A consolidator-trader will collect and buy their harvests at different points of the community (some of which are inaccessible), which jacks up the cost. The trader will then deal with a wholesale buyer in the nearby local market. Once products are bought from consolidator-traders, these are then shipped or transported to the bigger markets in Manila or other leading urban centers.
In Manila, for example, these will be Divisoria or Balintawak. Wholesale buyers in these city markets will buy from wholesale buyers in nearby provinces or municipalities. This is the third layer of traders who expectedly will add to the price to earn.
Buyers from secondary markets in nearby provinces will then go to Divisoria to buy their supplies. In the case of Laguna where I partly reside, Calamba traders travel to Divisoria to make their purchases. This is the fourth layer.
In turn, traders from small Laguna municipalities like Los Baños, Cabuyao or Bay flock to Calamba to procure their supplies. This is the fifth layer before the product is sold to consumers in these municipalities. The price of the farmer’s produce will have risen five times just by a changing of hands.
The third contributory and more pernicious reason why agri-food prices here are high is collusion at the wet market level, which happens with the blessing of local officials. Wet market operations are under the supervision of a market master who is appointed by the town’s mayor. To be able to secure a stall, one has to be in the market master’s good graces. This means vendors should be supportive of the incumbent mayor. In return, the mayor extends protection to these vendors as a way of securing their votes during elections.
Market vendors can easily collude in terms of pricing. Thus, even if the product is directly supplied by a wholesale agent, which cuts the layers of traders, prices remain high. This is happening because of the symbiotic relationship between market vendors and the market master.
Not surprisingly, ambulant vendors who offer lower-priced products are hounded by wet market authorities unless they pay under-the-table rent. The government’s Kadiwa rolling stores offering lower-priced food products are shooed away by local officials because they pose competition.
It is obvious that rent-seeking behavior and activities have percolated down to the basic fiber of our society. It is no longer confined to high officials. It seems that even ordinary people, probably due to extreme poverty, have resorted to rent-seeking whenever opportunities arise.
It seems that our development problems are no longer just structural in nature but cultural as well. We might need a version of China’s Cultural Revolution if we are to institute deep-seated reforms among our people.