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Lacking in supply, the price of anything will go up to encourage producers to produce more while at the same time forcing buyers to purchase less commensurate with their means. The increase in price and adjustments in the quantity supplied and demanded will continue until such time when the price has gone up enough to equate supply and demand. How far the price can go up, however, depends on how big the gap is between supply and demand and their elasticity.
A product that is a basic necessity, such as rice, has an inelastic demand. This means that any increase in the price of price will be met by a less-than-proportionate reduction in the quantity of rice that we buy – or we go with nothing or very little of it, which is unimaginable for rice-eating people like us. With an inelastic demand, any cut in supply will also mean that the price will rise faster than our willingness to cut our purchases.
If as the head of a poor family you spend, say, 10 percent of your income on rice, then any doubling or tripling in the price of rice, as what is happening to the world price of rice now, will mean that your ability to buy other things will also be cut by 11 to 22 percent, if you insist on eating the same amount of rice. If that means not being able to take a jeepney ride when you go to work or not buying the medicine for your sick child, it is unfortunate indeed.
These days, we witness the sudden scarcity and rise in the price of rice in the local market. As the government seems at a loss explaining why, or is hiding the truth again, let me give my own answer.
Throughout the country, our farmers plant rice and harvest them at almost the same time. Our farmers, being mostly small and poor, need to sell their products immediately after harvest to buy the other things they need. In so doing, they flood the market with rice. This brings the price of rice down to the disadvantage of the farmers and to the great advantage of the rice traders. The bigger capital the trader has or the bigger is his milling and storage capacity, the bigger also is his opportunity to make more money by releasing rice long after harvest at higher prices.
Knowing the predicament of the farmers during harvest time, the government then thought of helping them by buying their produce at a guaranteed floor price, which is generally set higher than the buying price of the traders. The trouble is that the government can only buy a small fraction of the local produce, thus many still fall victim to the vagaries of the market. The low farm-gate price is what is making many farmers now to stop planting rice or for land owners to convert their rice lands into housing subdivisions and other land uses. This guarantees our missing our food-security target.
For the government, the way out had always been to import rice from our neighbors in Asia that have excess supply. Doing so not only guaranteed sufficient local supply but also stabilized the domestic price of rice because the price we used to pay for a ton of rice that we import from Thailand and Vietnam were very much lower than the local cost of producing price.
However, the difference between the import price of rice and local cost of production is so wide that it becomes necessary for the government to control its importation to protect the local farmers. The problem with government control though is that it can be abused to favor a select group to earn big profits. That is why we have corruption at the National Food Authority.
Moreover, stopping others from importing rice in favor of those who are awarded the right to import is also hard to implement. That is why we often hear of reports of rampant smuggling of rice. For what worries the smugglers if they are caught once or twice as long as they succeed in 10 or 20 other shipments? In fact, it is easy to see that some of these reported apprehensions of smuggled rice are stage-managed to make the Bureau of Customs and other concerned agencies of the government appear not so inept or corrupt.
Is there a solution to the growing scarcity and continuing rise in the price of rice that we are seeing now? Under the present system, I doubt if there is any to avoid both, but scarcity is easier to solve. Rice, being internationally traded, will tend to have the same price internationally. Just let the price of rice rise enough to cover cost and enough will be produced worldwide to meet demand. The question therefore is: Are we willing to pay the price? Well, why not? If the price of rice is not right, who will produce it in the first place? If because of low price we produce not much rice, why should the Vietnamese or Thais do?
And so you ask: What about the poor who cannot afford the high price of rice? In that case, my answer is that the problem already lies somewhere – the failure of this government to uplift our poor.
