Tuesday, May 13, 2008

Free Trade 8: Global RIce Price

Politicization of pricing is where political processes like street rallies, media releases, and political horse-trading among political groups and NGOs, and politicians and government bureaucracies is the main determinant of how much (price) and how many (volume) should a commodity be sold or bought by the citizens. It is usually done by administrative measures (a particular government bureaucracy sets the price) or by legislation (enactment of a law by a Parliament or Congress of a particular country).

This is totally different from price setting via the free market system, where producers and consumers "meet" at a particular price point at a given time and place for each similar product or service. Thus, the price of a particular variety of tomato can vary from one province or village to another on the same month, or its price will vary from rainy season to dry season on the same province or village. The quantity and quality of a commodity change on a particular place and time relative to the demand by consumers, resulting in different
prices for the same commodity at different places.

Producers predict or speculate that the price of a particular product or service will rise, or the price might remain but the volume will increase by a big amount, on a particular week or month (say during Christmas, city festival, or village fiesta), so they put their money, time, and effort ahead to prepare for said period in order to make a good profit. This should not be considered as "market manipulation" or worse, "hoarding" on the part of traders because consumers can also behave the same way, say stocking certain commodities when the price is still low in anticipation of future price increases.

In the home front, politicization of many commodities and services – oil, medicines, housing, fare, wages, rice, others – is happening. In rice, the bureaucracy in charge of politicizing rice prices is the National Food Authority (NFA). It makes artificial prices both to farmers and consumers, courtesy of the billions of pesos of tax money every year being plowed to it by Congress in annual appropriation and subsidies. Whether it is really doing its job with zero corruption and hanky-panky is another story; the main story is its role in
politicizing rice price setting, although one can safely assume that zero corruption and price politicization is an oxymoron, a big contradiction in terms.

In the international front, there is a proposed body made last week, calling for the creation of an Organization of Rice-Exporting Countries (OREC), obviously inspired by OPEC, composed of Thailand, Vietnam, Laos, Cambodia, and Myanmar. These are all neighbors of the Philippines and all are member-states of the Association of Southeast Asian Nations (ASEAN), the ASEAN Food Safety Reserve Board, as well as
the East Asia Emergency Rice Reserve (EAERR).

The initiator of this proposal was Thailand's government officials, noting that while Southeast Asia is the "food center" of the world, the region has had little influence on the price.

This is politicizing rice prices at the international level. Company A that buys the rice output of average Thai rice farmers cannot just sell rice to Company B in the Philippines that imports and sells rice to Filipino consumers. Company C that buys the rice harvest of average Vietnamese farmers cannot just sell rice to Company D that imports and sells rice to Hong Kong consumers. All companies in rice exporting countries will need the approval of their respective governments before any voluntary exchange through trade can take place between them and their foreign buyers. Although the bureaucracy is mainly on the supply and exports side, the demand side is also affected because private importers will have to deal with rice trading bureaucrats of the exporting countries. Besides, many governments of rice-importing countries have a rice or food regulatory bureaucracy that controls the importation and distribution of rice.

Hence, the creation of the proposed OREC is a bad idea. But if the proponents and architects of this idea have bad intentions, then it will most likely become a reality. Although bad ideas are sometimes made out of good intentions, most bad ideas come with bad intentions – to control prices, control trade, control who can buy and who cannot buy, control who can sell and who cannot sell. In short, control and manipulate the lives of other people, directly or indirectly.

For ASEAN member-states that are net rice importers, they might think that the creation of a rice export cartel might not adversely affect them since they are just neighbors and belong to the same club of
nations, the ASEAN.

For the Philippine agricultural bureaucracy in particular, they will most likely not find this anomalous. The NFA for instance has been in the business of controlling rice prices, rice procurement and rice trading at a limited degree for many decades now. Dealing with another bureaucracy from its neighboring countries whose business is similar to what it is doing, should be easy for it.

The evil desire to control and manipulate other people through various price control schemes and price politicization, which indirectly alters people's behavior in their consumption and production habits, will always remain in the minds of people who despise individual liberty. Giving other people various choices and options of where they can sell at what price, perhaps makes them shudder. These people should be exposed for what they really are and their evil intentions.

On April 10, 2008, I wrote this:

High Commodities Prices and Government Price Intervention

Are the agricultural producers in developing countries having a good time and good "chance at riches"? With the on-going hikes in prices of agricultural commodities like rice, seems that the answer is Yes.

But the “chance at riches for poor countries” have been there long before the current spikes in commodity prices, thanks to globalization. For instance, many fishermen have stopped fishing and became tour guides to foreign tourists out on scuba diving and/or island hopping. Or farmers who also become carpenters and construction workers during off-farming season to take advantage of construction boom by returning overseas workers who build new and/or expand their old houses with their savings.

What's happening now is “achance at more wealth for agri producers in poor countries”. For instance, major rice exporters Thailand and Vietnam are raking in big profit from the spiralling world rice prices. Although major rice importers like the Philippines are wobbling from the same phenomenon, but many (not all) rice farmers and traders here are earning well.

Many governments including that of the Philippines, are wasting taxpayers money with their rice price intervention. They have state grains trading monopoly corporation that monopolizes rice and corn importation. And they purportedly "buy high from local farmers, sell low to consumers", that's why they are losing big tax money every year. Subsidies often attract opportunists and corrupt government officials -- they corner these cheap and subsidized rice and sell high to big rice traders.

See also:
Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006
Free Trade 2: Unilateral Trade Liberalization, May 17, 2006
Free Trade 3: Protectionism Perpetuate Poverty, September 05, 2006
Free Trade 4: FTA in APEC, July 09, 2007
Free Trade 5: Business, Rock Music and Cycling Globalization, July 17, 2007
Free Trade 6: Counterfeit Drugs Worldwide, December 21, 2007
Free Trade 7: Class War, Eco-protectionism and Climate, April 02, 2008

No comments: