In a discussion over the earthquake tragedy that happened in China just recently, killing more than 30,000 people, an Indian friend, Barun Mitra, asked, "In disaster relief, is it a case of market failure so government is seen as the only agency that can provide this service?"
My answer to Barun's question is NO. When Katrina hit New Orleans, I have read that private and voluntary relief work was larger than those given by FEMA + state governments + foreign governments. Here in the Philippines, when super-typhoons kill many people and knock down thousands of houses and trees, private relief is very often very fast, given by civic groups (rotary, lions, masons, etc.), religious and
church groups, media foundations, village associations, etc. This is because there is little if any, mistrust when one gives through these private and voluntary organizations. Where government entities are involved -- city or municipal or provincial or national government, public distrust is high. So government usually gives from its own "calamity fund" and attract little donation from private citizens. In addition, government relief would tend to be late because the Mayor or Governor or the President would sometimes be waiting for some media people to cover their
food and relief distribution.
In terms of weather forecasting, there's a Phil. government bureau doing this, but some people listen to CNN weather, a private news media, for additional info.
Meanwhile, The Foundation for Teaching Economics has created a curriculum addressing the role of the government and the market in dealing with natural disasters.
It's here,
http://fte.org/disasters/index.php
Monday, May 19, 2008
Filipino biologist disputes climate change alarmism
news report yesterday in one Philippine newspaper about an interesting lecture last week, May 14, by the Director of the Institute of Biology, University of the Philippines (UP), Dr. Perry Ong. His paper is entitled, “Anthropogenic Global Warming: Beyond the Hype, Doing the Right Thing for the Right Reason.”
It was a “centennial lecture” in UP to commemorate the 100th anniversary of UP this year. Centennial lectures are big events, where well-known UP academics from different disciplines and colleges are selected to give a talk before a big crowd, including the President and other officials of the university, then it is broadcast in a video-conference type so that other faculty and students from other provincial campuses of UP around the country could hear the lecture live, and they can participate in the open forum, also live. Some media people also cover the event.
Here, Dr. Ong solidly disputed Al Gore's "Inconvenient truth" documentary and partly the IPCC report. These 2 papers look like political documents with scientific twang, urging governments to take more drastic political and economic actions like more environmental regulations to cut emissions. These regulations can take many forms, from higher (or retention of existing high) petroleum taxes to creation of “carbon tariff” (eco-protectionism against exports by emerging and industrializing countries), subsidies to bio-fuels, over-regulate if not kill coal power plants, and so on. These regulations look cute but they can cost us big amount of money, from higher taxes to higher prices (in rich countries) because of protectionism and higher unemployment and poverty (in developing countries) because of protectionism.
Consequently, Dr. Ong is proposing adaptation since it’s not us, humans, who are the main “culprit” for climate change. And if we look around us, it’s not only climate that change – the worlds’ volcanoes, tectonic plates and geological formations, human culture, human religion, human mobility across the globe, etc. are changing.
Incidentally, I'm also a UP alumni, but I'm no bio-logist, I'm a "small-state-logist", hehehe.
Below are some salient points of Dr. Ong’s lecture as reported in the newspaper. I don’t know what other local or international papers covered the event.
Nonoy
------------
Blaming man convenient excuse; UP prof cites Gore errors
By Jocelyn Uy
Philippine Daily Inquirer
05/18/2008
....Dr. Perry Ong, director of the Institute of Biology at the UP College of Science, said human-induced global warming was among many environmental problems that interacted in the “eternal tug of war” between global warming and cooling…
Ong said GHGs spawned by humans contribute merely 33 percent to global warming compared to the 67 percent traced to natural causes, which include changes in solar radiation, volcanic eruptions and the shifting of the Earth’s tilt and orbit.
“Humankind is guilty of a lot of crimes against the Earth and pumping greenhouse gases is just one among many,” Ong stressed….
Ong has a Ph.D. in science for behavioral ecology and evolutionary biology. He was given the Outstanding Young Scientist award by the National Academy of Science and Technology in 2000 for his contributions to the better understanding of Philippine wildlife diversity. He was a former representative of Conservation International.
In his talk, Ong disputed Gore’s worst-case scenarios in the documentary, noting that its distribution as an educational material by the United Kingdom Ministry of Education has been challenged in court.
Later, a UK court declared the documentary as a political tract, citing nine blunders in the film.
Ong listed the errors followed by his contentions:
1. Sea level rise of 20 feet or 7 meters.
The 2007 United Nations IPCC reported in its fourth assessment that the harshest picture was merely .59 m at the extreme range with a 4-degree Centigrade rise.
2. Evacuation of Pacific islanders to New Zealand.
Ong said there was no evidence that this happened.
3. Shut down of the ocean conveyor.
The IPCC said anthropogenic global warming could slow down but not entirely shut down the ocean conveyor.
4. Humans, by releasing carbon dioxide into the atmosphere, are causing global temperatures to increase. According to Ong, temperature rises first, then CO2 increases.
5. Melting snows of Mt. Kilimanjaro.
Ong said this was caused by other reasons, not just human causes.
6. Drying of Lake Chad.
Ong said no sufficient evidence was presented to establish that anthropogenic global warming caused this.
7. Hurricane Katrina.
The magnitude of the calamity was apparently caused by the US government’s neglect to fix the levee (an embankment built alongside a river to prevent flooding) before it broke.
8. Death of polar bears.
Ong said only one study was presented with four deaths and this did not support Gore’s claim.
9. Loss of coral reefs.
This could also be attributed to overfishing and pollution rather than greenhouse gases emitted by humans, according to Ong.
“Climate change has become a convenient excuse when there are other [environmental] issues that need to be addressed,” Ong said.
“If we disproportionately blame ourselves for [climate change], our response will be different … we should look at the [bigger picture] and address other issues,” he added.
* To view the full news report,
http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20080518-137249/Blaming-man-convenient-excuse-UP-prof-cites-Gore-errors
It was a “centennial lecture” in UP to commemorate the 100th anniversary of UP this year. Centennial lectures are big events, where well-known UP academics from different disciplines and colleges are selected to give a talk before a big crowd, including the President and other officials of the university, then it is broadcast in a video-conference type so that other faculty and students from other provincial campuses of UP around the country could hear the lecture live, and they can participate in the open forum, also live. Some media people also cover the event.
Here, Dr. Ong solidly disputed Al Gore's "Inconvenient truth" documentary and partly the IPCC report. These 2 papers look like political documents with scientific twang, urging governments to take more drastic political and economic actions like more environmental regulations to cut emissions. These regulations can take many forms, from higher (or retention of existing high) petroleum taxes to creation of “carbon tariff” (eco-protectionism against exports by emerging and industrializing countries), subsidies to bio-fuels, over-regulate if not kill coal power plants, and so on. These regulations look cute but they can cost us big amount of money, from higher taxes to higher prices (in rich countries) because of protectionism and higher unemployment and poverty (in developing countries) because of protectionism.
Consequently, Dr. Ong is proposing adaptation since it’s not us, humans, who are the main “culprit” for climate change. And if we look around us, it’s not only climate that change – the worlds’ volcanoes, tectonic plates and geological formations, human culture, human religion, human mobility across the globe, etc. are changing.
Incidentally, I'm also a UP alumni, but I'm no bio-logist, I'm a "small-state-logist", hehehe.
Below are some salient points of Dr. Ong’s lecture as reported in the newspaper. I don’t know what other local or international papers covered the event.
Nonoy
------------
Blaming man convenient excuse; UP prof cites Gore errors
By Jocelyn Uy
Philippine Daily Inquirer
05/18/2008
....Dr. Perry Ong, director of the Institute of Biology at the UP College of Science, said human-induced global warming was among many environmental problems that interacted in the “eternal tug of war” between global warming and cooling…
Ong said GHGs spawned by humans contribute merely 33 percent to global warming compared to the 67 percent traced to natural causes, which include changes in solar radiation, volcanic eruptions and the shifting of the Earth’s tilt and orbit.
“Humankind is guilty of a lot of crimes against the Earth and pumping greenhouse gases is just one among many,” Ong stressed….
Ong has a Ph.D. in science for behavioral ecology and evolutionary biology. He was given the Outstanding Young Scientist award by the National Academy of Science and Technology in 2000 for his contributions to the better understanding of Philippine wildlife diversity. He was a former representative of Conservation International.
In his talk, Ong disputed Gore’s worst-case scenarios in the documentary, noting that its distribution as an educational material by the United Kingdom Ministry of Education has been challenged in court.
Later, a UK court declared the documentary as a political tract, citing nine blunders in the film.
Ong listed the errors followed by his contentions:
1. Sea level rise of 20 feet or 7 meters.
The 2007 United Nations IPCC reported in its fourth assessment that the harshest picture was merely .59 m at the extreme range with a 4-degree Centigrade rise.
2. Evacuation of Pacific islanders to New Zealand.
Ong said there was no evidence that this happened.
3. Shut down of the ocean conveyor.
The IPCC said anthropogenic global warming could slow down but not entirely shut down the ocean conveyor.
4. Humans, by releasing carbon dioxide into the atmosphere, are causing global temperatures to increase. According to Ong, temperature rises first, then CO2 increases.
5. Melting snows of Mt. Kilimanjaro.
Ong said this was caused by other reasons, not just human causes.
6. Drying of Lake Chad.
Ong said no sufficient evidence was presented to establish that anthropogenic global warming caused this.
7. Hurricane Katrina.
The magnitude of the calamity was apparently caused by the US government’s neglect to fix the levee (an embankment built alongside a river to prevent flooding) before it broke.
8. Death of polar bears.
Ong said only one study was presented with four deaths and this did not support Gore’s claim.
9. Loss of coral reefs.
This could also be attributed to overfishing and pollution rather than greenhouse gases emitted by humans, according to Ong.
“Climate change has become a convenient excuse when there are other [environmental] issues that need to be addressed,” Ong said.
“If we disproportionately blame ourselves for [climate change], our response will be different … we should look at the [bigger picture] and address other issues,” he added.
* To view the full news report,
http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20080518-137249/Blaming-man-convenient-excuse-UP-prof-cites-Gore-errors
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
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
Tuesday, May 06, 2008
Agri Econ 2: Rice Laissez Faire vs. Subsidies
As rice and other food prices were spiking in many parts of the world, governments were making matters worse by constraining what farmers and traders can store and export on suspicions of “hoarding”. In the Philippines for instance, some traders have refused buying rice from farmers sometime last month after the government’s grains regulation and marketing body, aided by the police have raided some traders and accused them of hoarding, a crime with stiff penalties.
Discouraging, if not prohibiting, bulk storage of rice removes the incentives for current and future profit and hence, people would rather stop producing since there is penalty in stocking supply.
Governments should better step away from regulating, directly or indirectly, rice production, milling, trade and distribution. Grape farmers, cattle farmers, aquaculture farmers, etc. are generally left on their own in the production to distribution aspect of their sub-sector; why should rice farming be exempted and heavily regulated in cases of price spikes?
If rice farmers and/or rice traders cannot stock their surplus rice for sale in anticipation of bigger demand or higher price in the coming weeks and months, many of them would not stay in that sector, and better move to other less-regulated sectors where profit will be higher. Many government agencies are in the business of stockpiling and hoarding, from government food/rice authority, the central bank stockpiling forex and gold reserves, etc., why would rice farmers and traders be treated differently?
Many people still cannot appreciate the virtue of laissez-faire applied in rice farming and agriculture in general. Their mind is too fearful of “market failure” and market abuse, forgetting that government failure and government abuse are often staring them in their faces.
Markets are composed of individuals, you and me, rich or poor, producer or consumer, politician or voter, governor or governed. So when we talk of “free market”, we are talking of “free individuals”. One individual has the freedom to be industrious and get rich someday, while another individual has the freedom to be lazy, poor and miserable. One individual has the freedom to become a farmer and food producer, while another individual has the freedom to become a consumer and a professional street demonstrator attacking high food prices, high oil prices, high drug prices, etc.
If we cannot be laissez-faire with rice farming, what’s the implication - government will subsidize all farmers, including the inefficient, if not lazy ones; then government will hike and hike various taxes to sustain the subsidy? I think that’s what Mr. Kim of North Korea is doing.
------
Last March 17, 2008, I wrote this
Zero Govt Credit is Possible
The WB recently held a "Partial Credit Guarantee Conference" and they learned that credit guarantees are the favorite scheme used by SME groups and government agencies involved in small credit lending. They also observe that "schemes where the government is in charge of choosing borrowers and recovering loans have typically higher loan losses."
In a small rice farming village in northern Philippines that I visit regularly, I notice that government credit program is zero, but the credit market is alive. The system is locally-called "tampa": for every PhP 1,000 of loan, the farmer-borrower pays the lender 3 sacks of 50 kilos/sack of unmilled rice.
Loan repayment is high because the lenders and borrowers know each other. Bad borrowers are easily blacklisted, or lent small amount only, until he/they improve their credit image among the neighbors. In case of disasters like strong typhoon that destroys or wipes out the rice harvest, the lender can wait for the next crop, or the borrower can pay in kind like chicken or goat or other farm animals.
Lesson: zero govt involvement in lending is possible, and is often desirable. No taxes and bureaucracies needed, no political patronage and small-time-cronyism.
* See also: Agri Econ 1: Food Prices and Government, April 13, 2008
Discouraging, if not prohibiting, bulk storage of rice removes the incentives for current and future profit and hence, people would rather stop producing since there is penalty in stocking supply.
Governments should better step away from regulating, directly or indirectly, rice production, milling, trade and distribution. Grape farmers, cattle farmers, aquaculture farmers, etc. are generally left on their own in the production to distribution aspect of their sub-sector; why should rice farming be exempted and heavily regulated in cases of price spikes?
If rice farmers and/or rice traders cannot stock their surplus rice for sale in anticipation of bigger demand or higher price in the coming weeks and months, many of them would not stay in that sector, and better move to other less-regulated sectors where profit will be higher. Many government agencies are in the business of stockpiling and hoarding, from government food/rice authority, the central bank stockpiling forex and gold reserves, etc., why would rice farmers and traders be treated differently?
Many people still cannot appreciate the virtue of laissez-faire applied in rice farming and agriculture in general. Their mind is too fearful of “market failure” and market abuse, forgetting that government failure and government abuse are often staring them in their faces.
Markets are composed of individuals, you and me, rich or poor, producer or consumer, politician or voter, governor or governed. So when we talk of “free market”, we are talking of “free individuals”. One individual has the freedom to be industrious and get rich someday, while another individual has the freedom to be lazy, poor and miserable. One individual has the freedom to become a farmer and food producer, while another individual has the freedom to become a consumer and a professional street demonstrator attacking high food prices, high oil prices, high drug prices, etc.
If we cannot be laissez-faire with rice farming, what’s the implication - government will subsidize all farmers, including the inefficient, if not lazy ones; then government will hike and hike various taxes to sustain the subsidy? I think that’s what Mr. Kim of North Korea is doing.
------
Last March 17, 2008, I wrote this
Zero Govt Credit is Possible
The WB recently held a "Partial Credit Guarantee Conference" and they learned that credit guarantees are the favorite scheme used by SME groups and government agencies involved in small credit lending. They also observe that "schemes where the government is in charge of choosing borrowers and recovering loans have typically higher loan losses."
In a small rice farming village in northern Philippines that I visit regularly, I notice that government credit program is zero, but the credit market is alive. The system is locally-called "tampa": for every PhP 1,000 of loan, the farmer-borrower pays the lender 3 sacks of 50 kilos/sack of unmilled rice.
Loan repayment is high because the lenders and borrowers know each other. Bad borrowers are easily blacklisted, or lent small amount only, until he/they improve their credit image among the neighbors. In case of disasters like strong typhoon that destroys or wipes out the rice harvest, the lender can wait for the next crop, or the borrower can pay in kind like chicken or goat or other farm animals.
Lesson: zero govt involvement in lending is possible, and is often desirable. No taxes and bureaucracies needed, no political patronage and small-time-cronyism.
* See also: Agri Econ 1: Food Prices and Government, April 13, 2008
Wednesday, April 23, 2008
China Watch 4: Chinese Nationalism, Tibet
Among the recent news this week about China, these 2 stories caught my attention:
1. China arms shipment to Zimbabwe.
2. Chinese move to boycott French and US products to protest anti-Chinese campaigns in those countries over Tibet.
The first was when the Chinese ship docked in S. Africa (to be transported by land to Zimbabwe) and the S. African dock workers refused to unload the armaments. More political and diplomatic discussions within S. Africa, later the chinese boat moved out -- not to go back to China, but to a port in Mozambique.
Earlier, Chinese shipment of armaments to Sudan was also in the news.
The shipment to Zimbabwe might be legal, but the timing was bad, at the time that Robert Mugabe is still not conceding defeat after the Presidential elections. Mugabe is Mugabe; he has used force and violence to quell opposition against his government in the past. He is capable of doing it again.
The second news was a new development. I have thought that many Chinese were sympathetic with Tibet, now millions of Chinese are sympathizing with the Beijing government and lashing back at countries where anti-Beijing Olympics sentiment is high.
My Chinese friend, Xingyuan, commented that the boycott of any French or US products is nonsense because we are living now in a postmodern world in which many US or French products have many inputs from other nations. The Chinese patriots in effect are boycotting goods and raw materials from their own country and labor of the that country. He added that the games this coming August is not "Chinese Olympic Games".
It was an excellent comment by Xingyuan. People usually boycott goods or services made by certain companies not because of politics or labor and environmental standards, etc. They do it because those companies' products are of bad quality and/or very expensive. This is also our argument why we are opposing "eco-protectionism", where some sectors in rich countries are proposing the imposition of a "carbon tariff", a new protectionist scheme, for exports of developing countries that do not have defined carbon emission cuts (china, india, mexico, brazil, many others).
People can be nationalist, that is their personal decision, the same way that other people can be pro-globalist, which is also their personal decision. What is wrong is when a government becomes nationalist, and drag the entire country and its people towards economic protectionism because people who aspire to buy other foreign goods will be adversely affected. If a country is a free-trader and pro-globalist, then some of its people who are not free-traders and pro-globalists can opt not to buy foreign products and services. People have a choice, and that's the most important thing.
And yes, it's not a "Beijing Olympic Games". It is the "World's Olympic Games to be held in Beijing".
------
Two related papers I wrote recently:
(1) Tibet and China
March 28, 2008
The Chinese government was adamant in suppressing the riots and pro-independence movement in Tibet. After Chinese troops have killed several demonstrators and rioters, injured and arrested several hundred others, Lhasa is said to be "quiet and back to normal".
From what I gathered, there are at least 2 major reasons why China will not grant Tibet independence or autonomy. One is that the Dalai Lama is looking for autonomy in pan-Tibet area, about 2x bigger than the current Tibet province, a proposal that Beijing finds unacceptable. And two, there are now at least 3 special administrative regions (SAR) as far as China is concerned -- HK, Macau and Taiwan (though the Taiwanese insist that they're not a SAR but a separate country). If Tibet will succeed to be another SAR, other provinces or regions that also want some autonomy from Beijing will be emboldened, and Beijing will have a new set of headache.
The communist bureaucrats in Beijing are not in the mood to reduce the geographical area of their influence and the number of people whose lives they wish to regulate.
(2) Party and State
March 31, 2008
There is a difference between the (ruling political) party and the state. The non-distinction or non-delineation between the two is among the biggest problems of communist parties in power in all communist governments around the world, both past and present. A Filipino Marxist academic that I talked to many years ago said that it should be possible to delineate the ruling (Communist or Socialist) Party from the State if the party respects political pluralism. If not, meaning the Party thinks it should be the monopoly party, no other big political opposition to be allowed, then that party will surely degenerate to a dictatorship.
The party formulates the policies to be implemented once it captures political power. The party leaders choose the people and officials, like Cabinet Ministers, who will run the state, and these appointed officials need not be party members. This separates the function of the party from the function of the State.
About Tibet, Beijing granting it a SAR status should be possible if doing so will enhance the latter's economic dynamism and competitiveness. This will have a domino effect of course, as other provinces may also demand a SAR status where they will have partial autonomy from the Beijing central government. But if more SAR would mean more HK or Macau type of economic dynamism, then Beijing will be better off.
The glitter and big money that will come into China in the Beijing Olympics just 5 months from now should help some Party hardliners in Beijing realise that they will have less political headache and more economic wealth if they will grant more autonomy to some of their "prodigal" provinces. I hope so.
* See also China Watch 3: World's Largest Traders, 2004, June 03, 2006
1. China arms shipment to Zimbabwe.
2. Chinese move to boycott French and US products to protest anti-Chinese campaigns in those countries over Tibet.
The first was when the Chinese ship docked in S. Africa (to be transported by land to Zimbabwe) and the S. African dock workers refused to unload the armaments. More political and diplomatic discussions within S. Africa, later the chinese boat moved out -- not to go back to China, but to a port in Mozambique.
Earlier, Chinese shipment of armaments to Sudan was also in the news.
The shipment to Zimbabwe might be legal, but the timing was bad, at the time that Robert Mugabe is still not conceding defeat after the Presidential elections. Mugabe is Mugabe; he has used force and violence to quell opposition against his government in the past. He is capable of doing it again.
The second news was a new development. I have thought that many Chinese were sympathetic with Tibet, now millions of Chinese are sympathizing with the Beijing government and lashing back at countries where anti-Beijing Olympics sentiment is high.
My Chinese friend, Xingyuan, commented that the boycott of any French or US products is nonsense because we are living now in a postmodern world in which many US or French products have many inputs from other nations. The Chinese patriots in effect are boycotting goods and raw materials from their own country and labor of the that country. He added that the games this coming August is not "Chinese Olympic Games".
It was an excellent comment by Xingyuan. People usually boycott goods or services made by certain companies not because of politics or labor and environmental standards, etc. They do it because those companies' products are of bad quality and/or very expensive. This is also our argument why we are opposing "eco-protectionism", where some sectors in rich countries are proposing the imposition of a "carbon tariff", a new protectionist scheme, for exports of developing countries that do not have defined carbon emission cuts (china, india, mexico, brazil, many others).
People can be nationalist, that is their personal decision, the same way that other people can be pro-globalist, which is also their personal decision. What is wrong is when a government becomes nationalist, and drag the entire country and its people towards economic protectionism because people who aspire to buy other foreign goods will be adversely affected. If a country is a free-trader and pro-globalist, then some of its people who are not free-traders and pro-globalists can opt not to buy foreign products and services. People have a choice, and that's the most important thing.
And yes, it's not a "Beijing Olympic Games". It is the "World's Olympic Games to be held in Beijing".
------
Two related papers I wrote recently:
(1) Tibet and China
March 28, 2008
The Chinese government was adamant in suppressing the riots and pro-independence movement in Tibet. After Chinese troops have killed several demonstrators and rioters, injured and arrested several hundred others, Lhasa is said to be "quiet and back to normal".
From what I gathered, there are at least 2 major reasons why China will not grant Tibet independence or autonomy. One is that the Dalai Lama is looking for autonomy in pan-Tibet area, about 2x bigger than the current Tibet province, a proposal that Beijing finds unacceptable. And two, there are now at least 3 special administrative regions (SAR) as far as China is concerned -- HK, Macau and Taiwan (though the Taiwanese insist that they're not a SAR but a separate country). If Tibet will succeed to be another SAR, other provinces or regions that also want some autonomy from Beijing will be emboldened, and Beijing will have a new set of headache.
The communist bureaucrats in Beijing are not in the mood to reduce the geographical area of their influence and the number of people whose lives they wish to regulate.
(2) Party and State
March 31, 2008
There is a difference between the (ruling political) party and the state. The non-distinction or non-delineation between the two is among the biggest problems of communist parties in power in all communist governments around the world, both past and present. A Filipino Marxist academic that I talked to many years ago said that it should be possible to delineate the ruling (Communist or Socialist) Party from the State if the party respects political pluralism. If not, meaning the Party thinks it should be the monopoly party, no other big political opposition to be allowed, then that party will surely degenerate to a dictatorship.
The party formulates the policies to be implemented once it captures political power. The party leaders choose the people and officials, like Cabinet Ministers, who will run the state, and these appointed officials need not be party members. This separates the function of the party from the function of the State.
About Tibet, Beijing granting it a SAR status should be possible if doing so will enhance the latter's economic dynamism and competitiveness. This will have a domino effect of course, as other provinces may also demand a SAR status where they will have partial autonomy from the Beijing central government. But if more SAR would mean more HK or Macau type of economic dynamism, then Beijing will be better off.
The glitter and big money that will come into China in the Beijing Olympics just 5 months from now should help some Party hardliners in Beijing realise that they will have less political headache and more economic wealth if they will grant more autonomy to some of their "prodigal" provinces. I hope so.
* See also China Watch 3: World's Largest Traders, 2004, June 03, 2006
Tuesday, April 15, 2008
Free enterprise and health innovation
I have always thought that product innovation – new rice and vegetable varieties, new cellphones and laptops, new shoes and dresses, new burgers and pizza, new drugs and medicines, and so on – is done by private firms and companies, not by governments. When a company is the first to innovate on something that is very useful to its consumers, then that company is rewarded with big profit and wide trademark recognition and support. That is why companies compete with each other in various forms of innovation – whether in new products and processes at various price levels, or the same/similar products and processes at a lower price or with better marketing package or better post-sale services, and so on.
Some documents by many governments and multilateral institutions, however, seem to suggest that it’s them who do the innovation and undertake costly R&D, or suggest that they can command and control the private companies that do the innovation, tell them what areas to innovate, how to do it, and at what prices the companies should sell their new products and processes.
One such document that I have encountered is the InterGovernment Working Group on intellectual property, innovation and health (IGWG, under the World Health Organization, WHO) global strategy and draft plan of action. It’s 26 pages long and unless you specifically look for it, you may not easily find it in the WHO website. This and related documents are very important if one wishes to see how the WHO and its member states represented by their respective health ministries or departments wish to “manage” intellectual property rights (IPR) and health innovation by private companies, especially pharmaceutical companies, to pursue certain public health objectives.
The IGWG global strategy and draft plan of action recognizes the important role of IPR on technological innovation but it also says that “IPR do not and should not prevent Member States from taking measures to protect public health.” And from this premise, along with many other premises, it identifies certain plans of action. Among them are the following.
One, health R&D of developed countries should reflect the health needs of developing countries. But governments of developed countries do not undertake R&D; it’s the health research and pharmaceutical companies based in developed countries that do it.
Two, promote and coordinate R&D for diseases in developing countries. This implies that the health ministries or departments of developed countries should coordinate the R&D work of innovator pharmaceutical and biotechnology research companies, and tell them to prioritize in their work the diseases in developing countries.
Three, build and improve innovative capacity of developing countries. Who will do this, the governments of poor countries, or the local health and pharmaceutical companies in poor countries, or both? If it’s the first, then this will require huge budgetary allocation for many years, which will require huge taxes and fees for many years, which can bleed productive enterprises including local health and pharmaceutical companies and disable them to improve their own innovative capacities.
Four, transfer of technology; from north to south. Technology transfer should be done voluntarily, where both the innovator and recipient bodies or enterprises will benefit. When the innovator company spent huge amount of time, effort and money – invested by stockholders and/or borrowed from banks, both of which expect reasonable returns – then it will not just transfer its technology and processes to other companies which did not help in its earlier efforts; or worse, they could be potential competitors. An innovator company will transfer technology only to its subsidiary or sister company which can give it reliable information on local conditions from which the mother or innovator company can consider in its on-going or future R&D work.
Five, manage IP to promote innovation and public health. This implies that governments should “manage” the IPR of innovator companies and if they cannot be managed, then governments can issue compulsory licensing (CL) to some of these companies’ effective and best-selling medicines. Or manufacture and export medicines without the permission of patent owner. The words “allow CL” and “export medicines without the permission of patent owner” are in fact contained in the said document.
These interventionist, if not invasive, “plans of action” by the WHO and its member-governments as drafted by the IGWG secretariat, are meant to socialize and collectivize the efforts and hard work by the innovator health companies. When you collectivize something, you normally disregard the rightful rewards of the innovators in the form of higher profit or wide trademark recognition by consumers. These are subordinated in the name of “public health” and capsulize in the slogans, “patients over patents” or “people over profit”.
Okay, fine and cute slogans. But if the innovators will not be properly rewarded, why would they innovate in the first place? And if there will be no more innovators, who will produce more effective and safe medicines to fight evolving diseases in evolving environments and communities? Or at least mitigate the pain and impatience of the sick or dying patients, like curing a disease in just 1 or 2 days instead of 1 or 2 weeks or more that existing medicines are capable of doing?
The “cheaper/affordable medicines” bill now in the bicameral conference committee by the Senate and the House of Representatives is generally treading along these lines contained in the IGWG document. The Senate Committee Report that produced the current Senate version even proudly declared that “for developing countries, the fewer the patents, the better”.
Fine, but if the few innovator pharmaceutical companies in the Philippines now will be threatened with weak patent and IPR laws for their innovations through “government use” which is more invasive than the CL scheme, and threat of price control of their effective and best-selling drugs by the DOH bureaucracy, are we not penalizing ourselves with even fewer innovator companies who can give us more effective and safe medicines for both existing and future diseases?
Some documents by many governments and multilateral institutions, however, seem to suggest that it’s them who do the innovation and undertake costly R&D, or suggest that they can command and control the private companies that do the innovation, tell them what areas to innovate, how to do it, and at what prices the companies should sell their new products and processes.
One such document that I have encountered is the InterGovernment Working Group on intellectual property, innovation and health (IGWG, under the World Health Organization, WHO) global strategy and draft plan of action. It’s 26 pages long and unless you specifically look for it, you may not easily find it in the WHO website. This and related documents are very important if one wishes to see how the WHO and its member states represented by their respective health ministries or departments wish to “manage” intellectual property rights (IPR) and health innovation by private companies, especially pharmaceutical companies, to pursue certain public health objectives.
The IGWG global strategy and draft plan of action recognizes the important role of IPR on technological innovation but it also says that “IPR do not and should not prevent Member States from taking measures to protect public health.” And from this premise, along with many other premises, it identifies certain plans of action. Among them are the following.
One, health R&D of developed countries should reflect the health needs of developing countries. But governments of developed countries do not undertake R&D; it’s the health research and pharmaceutical companies based in developed countries that do it.
Two, promote and coordinate R&D for diseases in developing countries. This implies that the health ministries or departments of developed countries should coordinate the R&D work of innovator pharmaceutical and biotechnology research companies, and tell them to prioritize in their work the diseases in developing countries.
Three, build and improve innovative capacity of developing countries. Who will do this, the governments of poor countries, or the local health and pharmaceutical companies in poor countries, or both? If it’s the first, then this will require huge budgetary allocation for many years, which will require huge taxes and fees for many years, which can bleed productive enterprises including local health and pharmaceutical companies and disable them to improve their own innovative capacities.
Four, transfer of technology; from north to south. Technology transfer should be done voluntarily, where both the innovator and recipient bodies or enterprises will benefit. When the innovator company spent huge amount of time, effort and money – invested by stockholders and/or borrowed from banks, both of which expect reasonable returns – then it will not just transfer its technology and processes to other companies which did not help in its earlier efforts; or worse, they could be potential competitors. An innovator company will transfer technology only to its subsidiary or sister company which can give it reliable information on local conditions from which the mother or innovator company can consider in its on-going or future R&D work.
Five, manage IP to promote innovation and public health. This implies that governments should “manage” the IPR of innovator companies and if they cannot be managed, then governments can issue compulsory licensing (CL) to some of these companies’ effective and best-selling medicines. Or manufacture and export medicines without the permission of patent owner. The words “allow CL” and “export medicines without the permission of patent owner” are in fact contained in the said document.
These interventionist, if not invasive, “plans of action” by the WHO and its member-governments as drafted by the IGWG secretariat, are meant to socialize and collectivize the efforts and hard work by the innovator health companies. When you collectivize something, you normally disregard the rightful rewards of the innovators in the form of higher profit or wide trademark recognition by consumers. These are subordinated in the name of “public health” and capsulize in the slogans, “patients over patents” or “people over profit”.
Okay, fine and cute slogans. But if the innovators will not be properly rewarded, why would they innovate in the first place? And if there will be no more innovators, who will produce more effective and safe medicines to fight evolving diseases in evolving environments and communities? Or at least mitigate the pain and impatience of the sick or dying patients, like curing a disease in just 1 or 2 days instead of 1 or 2 weeks or more that existing medicines are capable of doing?
The “cheaper/affordable medicines” bill now in the bicameral conference committee by the Senate and the House of Representatives is generally treading along these lines contained in the IGWG document. The Senate Committee Report that produced the current Senate version even proudly declared that “for developing countries, the fewer the patents, the better”.
Fine, but if the few innovator pharmaceutical companies in the Philippines now will be threatened with weak patent and IPR laws for their innovations through “government use” which is more invasive than the CL scheme, and threat of price control of their effective and best-selling drugs by the DOH bureaucracy, are we not penalizing ourselves with even fewer innovator companies who can give us more effective and safe medicines for both existing and future diseases?
Sunday, April 13, 2008
Agri Econ 1: Food Prices and Government
My two articles last month and today...
----------
Lent is among those big “retreat days” for Filipinos due to the 4-days weekend. Many of those living and working in Metro Manila and other big cities retreat “back to the provinces or far away municipalities” and enjoy less stressful life where the air is cleaner and food prices are cheaper. But not this year’s Lent, it seems.
Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.
The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.
A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.
So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.
Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.
Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.
Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.
Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.
Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.
Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.
So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.
The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.
First of all, while many people who try to analyze the current food price hikes phenomenon call this as "rice or food crisis", I do not believe that it is already in a crisis situation. A "crisis" situation is where you have a 50-50 chance of either surviving or dying in a particular condition, say a patient in an intensive care unit (ICU). I'd go along with a few who simply call this a "rice shortage" problem that can be solved by more rice supply, both in the short- and long-term.
Most of the literatures that come out recently analyzing the problem in the Philippines and abroad blame the government for "not doing enough" -- ie, not intervening enough -- in earlier years. They mean the government did not: build more dams and irrigation canals, more warehouses and other post-harvest facilities; did not undertake more research and extension work; did not produce more subsidized fertilizers and hand tractors; did not provide more agri credit; did not reforest enough watershed areas; etc.
The list can be endless, depending on how statist the person who is talking of writing. That is, the more statist and socialist-oriented a person is, he's likely to say that government should "provide everything" for agriculture and the farmers. Of course they won't say that they also advocate that the government should also "take everything" from the people to finance those "provide and subsidize everything" projects.
I am of the opinion that government should not provide everything and take everything; not even provide many things and take away many taxes and fees. The reason why rice -- and other food crops' -- supply has not kept up with demand is precisely because of too many government intervention. People respond to incentives and shy way from disincentives. If there is not much profit from producing rice, then there will be less people who will produce rice, and there may be less land that will be devoted to planting rice.
When governments say they are increasing the budget for agriculture, the first thing that they increase is the number of personnel, consultants, and officials in their respective Ministry or Department of Agriculture, plus those in related agencies like Ministry or Department of Agrarian Reform, state agricultural colleges, etc. And those plenty of personnel will require more salaries, more bonuses, more offices, more trainings, more travels, more cars, and later on, more pension and retirement funds. Then some local governments follow suit, and expand their own local agriculture bureaucracies, financed from their local taxes and fees.
I think one of the important moves if societies are to improve their agricultural and food production capacities, is to abolish those Agriculture Ministries or Departments, and cut the taxes that the state collect from the private sector that finance those expensive bureaucracies. Since rational people would not want to be jobless for long and die hungry, many of those currently in government agricultural and related bureaucracies will likely become farmers themselves or become traders and/or processors of raw agricultural products. And this expands rice and food supply. When supply grows faster than demand, then the price will go down, and people will have lots of food at cheap and affordable prices, and there will be less hunger and malnutrition in society.
But when government Agriculture Ministries or Departments are abolished, who will build the dams and irrigation canals? The warehouses and post-harvest facilities? Who will do more rice and agri crops R&D? Who will provide cheap credit, and so on?
Good question, and the quick answer is -- the productive people themselves. For one, many of those infrastructure and facilities are currently being provided by the private sector, and they are being operated despite zero taxes financing, at least in the Philippines.
When people know that there is an agency whose job is to provide lots of subsidies to them and they won't go to prison if they cannot pay back those subsidized credit, subsidized fertilizers, seeds and hand tractors, then they will get and abuse those government services without necessarily raising their farm output. For instance selling a few bags of fertilizers and seeds to other people and use the proceeds to drink and party.
Okay, abolition of those monster Ministry or Department of Agriculture is unpalatable and unacceptable due to big political risks. Then the next move will be drastic reduction of those bureaucracies, including privatization of some of their attached agencies and bureaus. In the Philippines for instance, the privatization of the government grains trading monopoly, National Food Authority (NFA) has long been proposed and discussed. The cost to taxpayers, as well as price distortion due to its trading monopoly function -- for many years, it is the grains importation monopoly; and in some municipalities, it is the single biggest buyer of farmers' palay (unmilled rice) output.
Rice shortage that result in high rice prices will naturally create incentives for farmers of other crops to shift back to producing rice. And other investors, including micro- and small businessmen, will flock to a sector (like rice) that experience high prices and high profitability, and leave those sectors that experience low income, if not losses.
Market failure, as some statists call this, always invite and create market solutions. The "failure" or displacement is temporary, the same way that high profitability in one sector is also temporary once entry of other players and competitors is not hindered -- a contestable market situation.
It is government failure that needs to be corrected by going back to the market, and not by "more government" intervention.
----------
MARCH 19, 2008
Lent and food prices
Recently, food prices in both global and domestic markets have been rising rather steeply. In 2007 for instance, world food prices have risen by almost 40 percent. And just this year, Philippine rice imports value have increased from $474 per ton in January to $708 per ton this month, an increase of 49.4 percent in just 2 months! And mind you, these are rice imported from our neighbors in the region, mainly from Thailand and Vietnam.
The volume of rice importation has also been increasing recently too. In other years, average importation was around 1 million MT a year. In 2007, rice import was 1.8 million MT, and this year, projected imports will be 2 million MT.
A country imports rice or chicken or shoes or any other commodity to plug the gap between a low domestic supply and high domestic demand. The higher the gap between the two, the higher will be the inflationary pressure of the undersupplied commodity. Hence, the need to import the projected gap in order to stabilize the price.
So food prices are the result of the supply-demand dynamics. As demand increases, supply must increase by similar rate, at least. If the increase in supply is larger than the increase in demand, then that country will experience price decline (or “deflation”) of that commodity, or it must export the surplus supply to stabilize domestic price, say to its previous year’s level.
Domestic demand, say of rice, is affected by many factors like change in appetite and preference, change in income, but the biggest factor is population growth. The Philippines’ population on average increases by 1.8 million people a year, net of death and migration. If each person is consuming 0.2 kilos of rice a day (roughly 4 cups equivalent), then consumption in one year is around 73 kilos per person. With 1.8 million new people a year, that’s 131.4 million kilos or 131,400 MT a year increase over the previous year’s total demand.
Domestic supply, say of rice, is also affected by many factors, like total hectarage devoted to riceland, irrigation, occurrence of very strong typhoons, price of fertilizers and other inputs, adoption of more high-yielding varieties, and so on. But the biggest factor is profitability of the farmers to continue producing rice, or stop planting and convert his riceland into a cattle pasture area and become a tricycle driver or construction worker in the cities. Hence, the bigger the projected profitability of producing rice, or corn, chicken, tilapia, pork, beef, etc., the bigger will be the incentive to expand production. Which stabilizes price, and consumers will not complain of steep hike in food prices.
Very often, food producers are faced with some non-natural obstacles if not enemies, that reduce their incentives to expand food production. The natural obstacles are of course those strong typhoons or prolonged drought or pest attack, other natural calamities that can wipe out potential harvests. Non-natural obstacles are man-made. These are the thieves and robbers, lazy neighbors and friends who always ask for free food, cartelized traders and wholesalers who depress farm prices, and the government food bureaucracy.
Smart food producers and traders can find ways to control or lessen the damage caused by robbers, lazy neighbors, and cartelized wholesalers. But confronting the food bureaucrats in government is difficult. Examples are bureaucrats from the Agriculture and Trade Departments who are quick to declare “price control” of those commodities whose prices have drastically increased because supply has suddenly dropped due to natural obstacles perhaps, or demand has suddenly shot up due to special events like a big fiesta or change in taste and preference.
Another group of food bureaucrats are those from the Agrarian Reform department. Some of their guys are on the prowl watching who are the dynamic and successful food producers with medium- or large-size agricultural lands, perceived to have “weak” political connection, and come up to them and tell them that their land will soon be for distribution to their farm workers. It has been noted by many local economists and agri-business observers that the endless, no-timetable agrarian reform, is among the biggest hindrances and disincentives for agricultural investment and efficient corporate agri-business endeavors.
Of course the silent but big hindrance to more food production, even if they are not directly engaged in the disincentive business, is the thick layer of bureaucracy in the food and non-food agencies. Taxes and fees have to be high and plentiful, partly to finance the salaries and perks of hundreds of thousands of government people working in air-conditioned offices. It is said for instance, that there are some 13,000 reasons why agrarian reform should continue forever – the 13,000 employees and officials of the Department of Agrarian Reform.
So, for long-term solution to steep food price hikes, the volume of food bureaucrats will have to be reduced; and the various taxes and regulatory fees that finance their salaries and offices need to be reduced. Then more people will be encouraged to become actual food producers, traders, processors and other food entrepreneurs, and not just food bureaucrats extracting rents and blood from those who actually produce food.
The political and economic Lent will be expected from the political and food bureaucracy. Then people and average food consumers will not experience the daily Lent of high food prices.
---------
APRIL 13, 2008
Rice shortage due to government intervention
Most of the literatures that come out recently analyzing the problem in the Philippines and abroad blame the government for "not doing enough" -- ie, not intervening enough -- in earlier years. They mean the government did not: build more dams and irrigation canals, more warehouses and other post-harvest facilities; did not undertake more research and extension work; did not produce more subsidized fertilizers and hand tractors; did not provide more agri credit; did not reforest enough watershed areas; etc.
The list can be endless, depending on how statist the person who is talking of writing. That is, the more statist and socialist-oriented a person is, he's likely to say that government should "provide everything" for agriculture and the farmers. Of course they won't say that they also advocate that the government should also "take everything" from the people to finance those "provide and subsidize everything" projects.
I am of the opinion that government should not provide everything and take everything; not even provide many things and take away many taxes and fees. The reason why rice -- and other food crops' -- supply has not kept up with demand is precisely because of too many government intervention. People respond to incentives and shy way from disincentives. If there is not much profit from producing rice, then there will be less people who will produce rice, and there may be less land that will be devoted to planting rice.
When governments say they are increasing the budget for agriculture, the first thing that they increase is the number of personnel, consultants, and officials in their respective Ministry or Department of Agriculture, plus those in related agencies like Ministry or Department of Agrarian Reform, state agricultural colleges, etc. And those plenty of personnel will require more salaries, more bonuses, more offices, more trainings, more travels, more cars, and later on, more pension and retirement funds. Then some local governments follow suit, and expand their own local agriculture bureaucracies, financed from their local taxes and fees.
I think one of the important moves if societies are to improve their agricultural and food production capacities, is to abolish those Agriculture Ministries or Departments, and cut the taxes that the state collect from the private sector that finance those expensive bureaucracies. Since rational people would not want to be jobless for long and die hungry, many of those currently in government agricultural and related bureaucracies will likely become farmers themselves or become traders and/or processors of raw agricultural products. And this expands rice and food supply. When supply grows faster than demand, then the price will go down, and people will have lots of food at cheap and affordable prices, and there will be less hunger and malnutrition in society.
But when government Agriculture Ministries or Departments are abolished, who will build the dams and irrigation canals? The warehouses and post-harvest facilities? Who will do more rice and agri crops R&D? Who will provide cheap credit, and so on?
Good question, and the quick answer is -- the productive people themselves. For one, many of those infrastructure and facilities are currently being provided by the private sector, and they are being operated despite zero taxes financing, at least in the Philippines.
When people know that there is an agency whose job is to provide lots of subsidies to them and they won't go to prison if they cannot pay back those subsidized credit, subsidized fertilizers, seeds and hand tractors, then they will get and abuse those government services without necessarily raising their farm output. For instance selling a few bags of fertilizers and seeds to other people and use the proceeds to drink and party.
Okay, abolition of those monster Ministry or Department of Agriculture is unpalatable and unacceptable due to big political risks. Then the next move will be drastic reduction of those bureaucracies, including privatization of some of their attached agencies and bureaus. In the Philippines for instance, the privatization of the government grains trading monopoly, National Food Authority (NFA) has long been proposed and discussed. The cost to taxpayers, as well as price distortion due to its trading monopoly function -- for many years, it is the grains importation monopoly; and in some municipalities, it is the single biggest buyer of farmers' palay (unmilled rice) output.
Rice shortage that result in high rice prices will naturally create incentives for farmers of other crops to shift back to producing rice. And other investors, including micro- and small businessmen, will flock to a sector (like rice) that experience high prices and high profitability, and leave those sectors that experience low income, if not losses.
Market failure, as some statists call this, always invite and create market solutions. The "failure" or displacement is temporary, the same way that high profitability in one sector is also temporary once entry of other players and competitors is not hindered -- a contestable market situation.
It is government failure that needs to be corrected by going back to the market, and not by "more government" intervention.
Friday, April 04, 2008
Price hikes and Congressional investigations
In many countries around the world, oil companies are either being investigated by their parliament or congress, or simply ridiculed by the public. The typical sentiment is that these companies are more of villains who benefit from the misery of the public due to high oil prices. Hence, they deserve congressional investigations and harassment.
But gold prices were almost on their historic heights; were there Congressional investigations for big gold miners and traders?
Rice prices — and wheat, corn, other food items — are also on their all-time high, were there congressional investigations for big rice, corn, etc. producers and traders?
There are 2 industries which are the subject of envy always of politicians and the public: petroleum and pharmaceuticals. People can invest in gold, copper, paladium, other minerals and if they make big money, the public and congress won’t crucify them. The same with people who invest in rice production, coffee, etc. Or in hotels and automotive and telecomms, etc. But people who invested in petroleum and innovator pharmaceuticals, they’re considered a bunch of greedy witches. Talk of double standards.
But gold prices were almost on their historic heights; were there Congressional investigations for big gold miners and traders?
Rice prices — and wheat, corn, other food items — are also on their all-time high, were there congressional investigations for big rice, corn, etc. producers and traders?
There are 2 industries which are the subject of envy always of politicians and the public: petroleum and pharmaceuticals. People can invest in gold, copper, paladium, other minerals and if they make big money, the public and congress won’t crucify them. The same with people who invest in rice production, coffee, etc. Or in hotels and automotive and telecomms, etc. But people who invested in petroleum and innovator pharmaceuticals, they’re considered a bunch of greedy witches. Talk of double standards.
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