AGES ago, when I was a gangling student at the University of the Philippines, a joke in our economics class was shared by our mentor regarding a certain notable politician, obviously not well versed in economic jargons, who insisted that the law of supply and demand should be repealed to ease the pain of our local producers and consumers. While it might serve as a pun decades ago, the recent pronouncements of our agricultural authorities verge on a similar desire to discard this cardinal principle of economics.

The law of supply and demand, in a market economy (since we are not under socialism), simply means that when the supply of a good or service is abundant, its price will decline. Conversely, when there is scarcity in the supply of a good or service, its price will rise. The concept is very simple but difficult for some of our policymakers and legislators to fully appreciate, much more to accept.

The case of sugar

Take for instance the case of sugar — its prices have skyrocketed in the last couple of months. Prices of raw and refined sugar have doubled compared to less than eight months ago. Based on the law of supply and demand, the conclusion that one should commonsensically reach is that there is a sugar supply shortfall. But some of our politicians, cum sugar planters and millers, and agricultural officials adamantly deny this reality.

It is just an artificial shortage, they claim, as a result of hoarding activities by unscrupulous traders.

To support their claim, raids were conducted in select warehouses showing piles of sugar stored. Later, they found out that those stocks were legitimate as they await delivery to their users who do not have enough space to store them. And normally, big sugar users store around two months of their sugar requirements to ensure uninterrupted production operations. Ask any businessman and they will agree with this point.

To claim that only after passage of time will we be able to fully determine whether we have enough sugar or not simply smacks of lack of any business sense. Further, to think that sugar importation is like ordering from your favorite convenience e-commerce stores betrays ignorance on the workings of the agricultural supply chain.

Predictions and promises

Earlier, anti-sugar importation lobby groups predicted that sugar prices will decline beginning September because it is the start of the harvest season. That did not happen.

More recently, the anti-sugar importation groups announced that sugar prices will start to go down in November when the approved 150,000 metric tons (MT) of sugar imports start to arrive. They triumphantly added that by then sugar

prices will settle down to P70 from the current P100. Does this mean that the consumers should have a debt of gratitude for this act of benevolence on their part? Note that the price of refined sugar was P52 per kilo before it skyrocketed. And worse is that Thai consumers are paying only half the amount of the predicted P70 per kilo that Filipinos will be paying for their sugar in November, if ever.

My prediction is that the price of refined sugar will remain near the P100 per kilo mark in the months ahead because of greater demand during the Christmas season and that the approved volume of sugar to be imported (150,000 MT) is far from the one prescribed by the country’s economic managers to adequately meet demand.

The mystery here is why the official memorandum from our economic managers (in response to a directive from the former executive secretary dated Aug. 25, 2022) is not being shared to the public. The memorandum noted significantly higher supply deficits and recommended a much higher volume of sugar to be imported to reduce sugar prices and to adequately meet the demand of consumers and users.

Also worth mentioning here is the case of white onion wherein a senator declared that we have abundant supply of it only for the consumers to discover that white onion is hardly available in the market, and if ever, it is around P550 per kilo. This means that if there are 10 pieces per kilo, a piece will be more expensive than a kilo of rice!

The case of rice

Again, there is the assurance from our agricultural officials that we have enough rice supply this year. This comes at the backdrop of the inadequate fertilizer application by our rice farmers due to rising fertilizer cost and a typhoon hitting hard the Central Luzon region, the country’s rice granary. At the same time, our agricultural officials announced that rice prices will rise by around 15 percent to 20 percent!

Ostensibly, these two statements are contradictory because the law of supply and demand reminds us that when there is a shortfall, the price of the commodity will rise. And conversely, when it is abundant, its price will decline.

More worrying is the declaration that there is no need to import rice during the fourth quarter of this year because allegedly we will have ample supply. Yet, rice prices are expected to rise by 15 percent to 20 percent!

Rice inventory and ending stock

For those who understand the economics of rice, they know that it is vital that by the end of the year, there should be a robust rice inventory (ending stock) as a carry over to the next year. Depending on how the agricultural leadership sees it, the country has to have an ending stock of at least 60 to 90 days.

The 60-day figure is arrived at based on the amount of time required before a shipment of imported rice arrives on our shores. On the other hand, the 90-day figure is based on the amount of time needed to plant and harvest palay (unmilled rice), which is around a little over three months. Once harvest sets in, it is an assurance that our people will be able to secure their rice requirement for the next three months or so.

Daily rice consumption is around 32,000 to 33,000 MT. Thus, the Department of Agriculture (DA) usually targets an ending stock of around 1.8 million MT, which is enough to cover at least 60 days of our national rice requirement.

This ending stock is critical because the first quarter of the year is planting season, hence an off-peak season for rice supply. This simply means that if we do not have a robust ending stock by the end of year, we will most likely face a serious rice shortfall during the first quarter of the new year, particularly with the decision of the DA not to import rice during the last quarter of this year.

There were two instances in the past when the government miscalculated in the timing of the arrivals of rice imports, causing a serious rice supply shortfall as manifested in the emergence of the ubiquitous rice “pila,” particularly in Metro Manila. These were in 1995 and more recently in 2018.

In both cases, Filipino consumers suffered from these miscalculations brought about mainly by the self-assured hubris of our agricultural officials who were delusional that under their competent leadership of the Agriculture department, the rice self-sufficiency goal for the country was attained.