Mainstream economists and opinion writers were quick to sense a boo-boo on the issuance by President Ferdinand Marcos, Jr. of Executive Order No. 39 which imposes mandatory caps or price ceilings on rice prices, purportedly to protect consumers against hoarding, profiteering, and cartels.
They are one in pointing to supply as the main problem why rice inflation is up, consistent with the basic law of economics that the Palace, said a columnist from one of the leading newspapers in the country, is trying to repeal under this EO. The President, he quipped, may have skipped his Econ 101 classes in Oxford to miss out on this textbook rule.
Professor Winnie Monsod, on her part, sees the issuance of EO 39 as ill-timed because September is the start of the harvest season. Combine the volume of projected harvests this season with the stock inventory of imported rice and there will be more than enough rice supply to cover the projected consumption of 14.75 million metric tons of rice for the rest of the year. And seeing no smugglers or hoarders in jail prior to the issuance of this EO to justify both the existence of an emergency and market manipulation, this price control measure, she said, makes no sense at all.
But whether the premises and numbers laid down in the formulation of this EO were truthful or not, the situation now awaits the response of a confused market where a miss may lead to disastrous consequences. There might be something the government is hiding from us for it to wager on price control.
Effective September 5, EO 39 capped the price of regular and well-milled rice to ₱41-₱45 per kilogram respectively, to the shock of millers and retailers who, a few days before the issuance of said order, were selling these staple grains higher by ₱10.
The impact of this price cap on the side of consumers is easier to figure out. An average Filipino, according to the Philippine Statistics Authority (PSA), consumes 9.9 kilograms of rice per month. That means a sack of rice (at 50 kg) is needed per month by a family of five. In short, the price cap may reward that household with a savings of ₱125 per week or another 2.78 kilograms extra supply of rice at ₱45.
But this will only be possible if compliance in the market is high. Initial reports, however, suggest a wide range of passivity and defiance on the part of rice retailers who were hurting from the imposed cap. This prompted the government to extend assistance to cover their losses and to prevent them from opting out of the market.
Retailers, of course, will have to suffer the reverse impact of the sudden price rollback and run the risk of supply problems once dealers control their stocks in the face of a government crackdown. But worse off will be the palay farmers who need to cut down on their farmgate prices when traders force them to sell low because of the price cap.
Is it a case of unintended consequences? No. EO 39 speaks of hoarders and cartels, but government officials know certainly that the ax would fall harder on rice farmers and retailers for only their prices are most visible in the market and thus, can be effectively controlled. But who says, in a most certain term, that the ₱41 and ₱45 caps are the correct punishment rice cartels should pay for the market they gamed? Why not ₱20 as promised by BBM? Perhaps the only way to uncover the correct cartel prices is to seek its justice equivalent in prison terms.
Now let’s dig deeper into the wisdom of price controls. Based on what they said sharply against EO 39, pundits all agree that price control doesn’t work in agreement with textbooks and years of practical experience. Except for the single commodity that escaped fierce scrutiny from their brilliant minds: the correct price for labor.
Isn’t labor power, of all the commodities that are being sold in the market, suffering the most systemic and unjust form of price control?
The minimum wage is price control. It is a mandatory price tag that penalizes the seller of labor power similar to what’s going to happen to rice farmers, retailers, and traders. But unlike rice and other commodities where final prices are determined by the owners’ costs of producing and distributing their products, the price of labor is governed arbitrarily by an amount called wages which minimum are set not by the sellers of labor power but by the State through the regional wage boards. Wages are also not set in uniform amounts nationwide (unlike the ₱41 – ₱45/kg in the case of rice) to serve justice to the principle of equal pay for equal work. Thus, it’s ₱610 in NCR, ₱355 in MIMAROPA, and ₱341 in BARMM!
Accordingly, there are no hoarders, smugglers, or cartels in the labor market to talk about (except in cases of agency hires) to justify price control the way EO 39 does for rice. On the contrary, it is the buyers of labor power who exercise control over how workers are to be priced in the market. In fact, the minimum wage is not even comparable to the suggested retail price (SRP) for other products where the seller may still squeeze for a higher markup than what is being suggested by the DTI. The absence of CBAs in unorganized firms only makes this desire for higher wages close to impossible.
This economic anomaly, in short, made labor the most regulated commodity in the free market where the law of supply and demand perfectly operates. But where is the big boo from mainstream economists when the same NEDA Chief who justifies price control now declared at a Congressional hearing that “forced wage hikes” are more harmful to the economy?
I hear none, and we should ask them why. In the meantime, we rather continue fighting for our assertion that the economy gets healthier when millions of workers get the opportunity to spend more beyond rice due to higher wages.
Wilson Fortaleza is a fellow at Center for Power Issues and Initiatives (CPII), and LEARN. He is also the deputy secretary general of Partido ng Manggagawa (PM).