Inflation and high pork prices-BusinessWorld Online

2021-11-24 05:47:30 By : Mr. Simon Huang

The national inflation rate is too high and uncomfortable. It was 4.9% and 4.8% in August and September, respectively, and fell back to 4.6% in October. Both BDO and ADB's economic intelligence agencies predict that inflation will hover around 4.5% at the end of the year. This is a worrying issue because the GDP is expected to grow by only 5% this year. This means that although the economy is growing, consumption power may remain the same.

One of the main reasons for the high inflation rate is the high price of fresh pork due to the shortage of supply. It is worth mentioning that African Swine Fever (ASF) entered our coast in 2019 through smuggled swill feed imported from China. Swill feed consists of food scraps and/or food waste, which may contain or may have been exposed to meat infected with viruses and other pathogens. In theory, the use of swill feed is illegal, but it is still widely used in the pig industry.

In the past two years, the African swine fever virus has caused a sharp drop in the supply of live pigs, especially in the national capital area. The national pig inventory has dropped from 13 million in 2019 to 8 million today. As a result, the price of pork has risen from 220 pesos per kilogram to about 335 pesos per kilogram.

In order to increase pork supply and solve the problem of high retail prices, the President's Office issued Executive Order No. 128 on April 7. EO effectively reduced the import tariff rate of imported pork from 30% to 5%. From July 8, 2021 to April 6, 2022, the additional import tariff rate for imported rations will be fine-tuned from 40% to 15%, the import tariff rate within the import quota is 10%, and the additional import tariff rate for import rations is 20%. Import quotas. In addition, the import quota has also increased from 54,000 tons to 404,000 tons.

The liberalization of pork imports should have lowered pork prices. Why didn't it work?

Two reasons. First, initially only traders (wholesalers and retailers) were allowed to import pork. Manufacturers of processed meat are not allowed to do so.

As we all know, a large part of the national pork supply is used by food processors to produce hot dogs, sausages, luncheon meats, etc. Unlike other Asian countries, Filipinos' protein does not come from milk and soybeans, but from processed meat and fish. On a per capita basis, Filipinos consume more hot dogs than Americans.

Banning meat processors from using imported pork leaves them no choice but to use local substitutes at high prices. This is why the liberalization of pork has no effect in preventing the continued increase in prices of canned and frozen meat products in the second and third quarters of this year. Just last month, the Department of Agriculture (DA) issued Memorandum No. 23 allowing food processors to use imported meat. Therefore, we can only expect the price of processed meat to fall in January.

The second reason is due to DA's decision not to allow the sale of imported meat at room temperature. Meat can only be sold if it is refrigerated and displayed and maintained at a temperature of -18 degrees Celsius.

As we all know, suppliers in our public market do not use refrigerators-they don't have enough funds to buy them. Meat is displayed at room temperature or on ice at most. DA's freezing temperature requirements prevent imported meat from entering the public market. Even today, the suppliers in the public market still make do with the limited supply of local pork, which is why the price has remained above 300 pesos per kilogram.

The main beneficiaries of DA temperature requirements are supermarkets. However, because the public market cannot provide price competition, supermarkets did not reduce prices, but kept prices high. For those who do not know, the landed cost of imported pork belly is only P220 per kilogram. Supermarkets sell at P265 per kilogram (increasing profit margin by 20%), but instead sell at P335 per kilogram, which is the same as the price of local pork on the public market. This allows the supermarket to obtain a 52% profit for every kilogram of pork sold.

The high cost of pork prevents most Filipinos from obtaining meat. This leads to a drop in demand. Importers and traders are now trapped by high inventories. According to DA, millions of kilograms of imported pork are stored in cold storage, a total of 80 million kilograms, which is about three times the normal monthly inventory before the pandemic.

Of the total amount of frozen pork, Metro Manila has 25 million kilograms; Calabarzon has 21 million kilograms, Central Luzon has 21 million kilograms, and Cebu has 12 million kilograms.

What makes DA's temperature requirements for imported pork controversial is that local pork can still be sold on the public market without refrigeration. This is not logical at all. The chemical composition of pork is the same, whether it is imported or locally raised. Why is it required to sell one frozen and not allow the other? If DA's intention is to avoid bacterial contamination, it should also impose freezing requirements on local pork. Simply imposing it on imported pork is not going to achieve the goal.

In addition, Filipinos usually eat well-done pork. It is not eaten raw or rare under almost any circumstances. Bacteria die at 62.8 degrees Celsius, which usually exceeds this temperature during cooking.

The strict temperature requirements imposed by DA are the reason why millions of kilograms of imported pork cannot be sold in the public market and cannot reach the public. This is the reason why import prices have not fallen despite the liberalization.

The only way to solve this situation is for DA to relax the temperature requirements for imported pork sales. Only in this way will we see a drop in pork prices. Only in this way will it have an impact on the national inflation rate.

Andrew J. Masigan is an economist