The logic is simple. All other things being equal, the price increases as supply of the particular good decreases. Alternatively, all things being equal, the price decreases as supply increases. Similarly, all else being equal, the price of the good increases as demand increases. And the price decreases as demand goes down.
That is the law of supply and demand.
An old joke goes that a national leader once wanted to repeal the law of supply and demand. The joke exposes ignorance of how markets behave.
Yet, our senators do not properly understand the basics of supply and demand. Consider their position on the pork shortage.
Prices have sharply risen because of the severe shortage of hogs brought about by the African Swine Fever (ASF). Also constraining the supply are rules that restrict the quantity of pork importation. The law’s minimum access volume for 2021 is fixed at 54,210 metric tons. But the economist Ramon Clarete estimates that in 2020, the supply gap for pork was more than 500,000 metric tons. The National Economic and Development Authority (NEDA), on the other hand, has estimated the supply gap in 2021 to reach 477,000 metric tons.
The supply gap estimates may vary, albeit insignificantly. But what is clear is that the supply gap is so huge. Hence, it comes as no surprise that year-on-year inflation in April 2021 increased by 57.7% nationally and by 68.5% in the National Capital Region.
Allowing significant importation is the only way to address the big supply gap and substantially reduce prices. However, to encourage imports, high tariff barriers likewise have to be eased. Hence, the President signed Executive Order (EO) No. 128, series of 2021, which is titled: Temporarily Modifying the Rates of Import Duty on Fresh, Chilled or Frozen Meat of Swine under Section 1611 of Republic Act No. 10863, Otherwise Known as the “Customs Modernization and Tariff Act.”
The senators however resisted this. Authored principally by Senator Franklin Drilon and co-signed by 18 senators, a Senate Resolution urges “the President to withdraw Executive Order No. 128, which provides for the temporary modification of the rates of import duty for fresh, chilled or frozen meat of swine, and to recall the recommendation to increase the Minimum Access Volume of pork.”
Senator Drilon, the most vocal in opposing Executive Order No. 128, ostensibly wants to protect the local hog raisers. But he and fellow senators dismiss the plight of the more than 100 million consumers who are reeling from the higher price of pork and its knock-on effect on prices of other goods.
Of course, we have to give support to the domestic swine industry, but it should not be at the expense of the Filipino people. The interests of the whole people must come first, especially during the pandemic.
The government has a plan to help the domestic producers. The domestic producers will be part of the solution to address the supply gap. Meeting the supply gap will not be exclusively done through importation. It is recognized though that the domestic industry cannot by itself immediately solve the huge gap in supply.
The Department of Agriculture is committed to improving hog production and accelerating the repopulation program. But while we are rebuilding our pig supply, the government cannot simply sit back and let inflation go haywire.
Hence, importation by increasing the minimum access volume and bringing down tariffs is an imperative. The Executive Order reduces the tariffs from 30% in-quota and 40% out-quota to 5% in-quota and 15% out-quota for the first six months and 10% in-quota and 20% out-quota for the following six months.
To be sure, the government has clearly stated that the lower tariff rates are only temporary. The measure intends to alleviate the crisis, until domestic supply returns to normal.
A recent development is that the Senate is seeking a compromise. Senator Ralph Recto has telegraphed the Senate’s message: “I don’t mind increasing the (MAV) minimum access volume, but why reduce the taxes? If the consumer does not get the reduced price, then what was the P13 billion for?” The amount Senator Recto is referring to is the forgone revenues resulting from lower tariffs.
Senator Recto’s statement does not make sense. We return to the relationship of supply and prices. Lower tariffs will encourage importation; lower tariffs also translate into reduced prices for consumers. The entry of imported pork also decreases prices as overall supply increases.
On the other hand, notwithstanding an increase in the MAV, high tariffs will remain a barrier to pork importation and will not lead to significant price reduction.
Neither the Senate’s original position nor the compromise it is seeking favors the Filipino people. The Senate position serves the interests of those who want pork prices to remain high.
Ironically, the senators are the ones crying for relief to the people in this time of pandemic.
We refuse to believe that they are ignorant of the law of supply and demand. We refuse to believe that they are ignorant of the fact that lower meat prices provide relief to our people who are suffering from a triple crisis — the pandemic crisis, the economic crisis, and the food crisis.
We hope the Senate sees the light. Executive Order No. 128 which modifies that tariff rate on pork imports and increases the minimum access volume will not at all kill the industry that our senators are protecting. Our paramount concern should be giving relief to the Filipino people, many of whom are now cash-strapped and hungry.
Filomeno S. Sta. Ana Iii And Jessica Reyes-Cantos are the coordinator and president of Action for Economic Reforms, respectively.