Temporary Price Ceiling

President Ferdinand Marcos Jr. underscored the importance of keeping consumer prices stable when he ordered a temporary cap on rice prices to make sure our main staple remains affordable to all.

That is a Solomonic solution that good leaders resort to—intervene in the market for the sake of the majority. While it is not a long-term solution, the rice price ceiling demonstrates the government’s priority to put inflation under control in the face of supply constraints.

It is timely in the wake of the Philippine Statistics Authority’s report that the headline inflation rate kicked higher in August, following six months of deceleration. We know rice in the basket of goods as measured by statisticians has the biggest contribution to inflation in the Philippines. Rice inflation climbed to 8.7 percent in August from 4.2 percent in July, highlighting the urgency to prevent the price volatility.

Per the PSA, headline inflation climbed to 5.3 percent in August from 4.7 percent in July. The figure brought the average in the first seven months of 2023 to 6.6 percent, above the government’s target range of 2 percent to 4 percent for the year. The target range refers to what the government thinks is appropriate for a rapidly growing economy like the Philippines.

The higher August inflation was led by the faster price increases of rice, vegetables and fish amid the supply disruptions caused by recent typhoons. Non-food inflation also went up in line with the series of petroleum price hikes.

What the President recently did is he tried to remove the distortions in the market by ordering the opening of big warehouses and imposing a price cap that will discourage traders from hoarding grains. While some economists disagree with such action, the measure reminds us that the government has the responsibility to ensure food security for everyone.

The National Economic and Development Authority, the government’s highest economic planning body, supports the President’s Executive Order No. 39 that imposes a price ceiling of P41 per kilogram of regular milled and P45 per kilo of well-milled rice. Neda assured the public the government is working to ensure food security, protect consumers and provide assistance to farmers. 

Per Neda Secretary Arsenio Balisacan, the price of rice rose in August on expected lower rice production with the anticipated El Niño dry spell, as well as the export ban imposed by major rice producers, such as India and Myanmar. The Philippines is a net rice importer and relies on other Asian countries to augment local supply.  

We are among the biggest consumers of rice in the world, with many Filipino families taking three rice meals each day despite the availability of other crops. Other staple foods in rest of the world include corn, oats, barley, rye, millet, sorghum, soybeans, potato, sweet potato, cassava, yam, other roots and tubers, bananas, plantains, cabbage, lettuce and wheat-based products, such as bread and noodles.

Our heavy reliance on rice makes us vulnerable to supply issues. According to Neda, alleged hoarding incidents, artificial shortage and speculative business decisions of market players may have put further upward pressure on the domestic retail prices of rice in August. There was also the impact of Typhoon Egay and enhanced monsoon rains that resulted in rice and vegetable production losses.

Given all these factors, the government decided to impose the rice price ceiling along with other measures to help consumers, small-scale retailers and farmers who would be affected by the decision. The Department of Social Welfare and Development was tasked to roll out the Food Stamp Program to assist poor consumers and the Sustainable Livelihood Program to provide cash aid to small-scale rice retailers affected by EO 39.

There are also proposals to review the tariff rate on rice, which is now at 35 percent. This is worth looking into to lower the cost of the staple and counterbalance the rise in global prices.

Our Congress in 2019 passed the Rice Tariffication Act to allow the private sector to import the commodity, but the still-high tariff rate prevents the Filipino consumers from enjoying its full benefit.

Rice is our main staple, so its contribution to inflation will remain significant in the years to come. Local production is not enough to meet national demand, and imports are needed to augment supply.

The government is always trying to strike a balance between ensuring adequate rice supply and protecting local farmers. Both are crucial and complementary to each other. Stable rice prices will benefit farmers because they are also consumers, while improving farm productivity will lead to higher supply.

A temporary price ceiling on rice, in my opinion, works for the common good. It is the government’s way of prioritizing the interest of consumers and farmers at the same time. It ensures price and economic stability, which is good for the nation.