September 11th, 2022
‘Shift inflation-reduction focus from fuel to food; cheap nutritious food crucial for face to face classes’
As I told media this week (See: https://mb.com.ph/2022/09/03/oil-price-relief-salceda-foresees-monthly-oil-price-rollbacks-for-rest-of-2022/), fuel inflation is gradually but surely decelerating, although month-on-month, fuel prices from July to August still accelerated by 1.9%. I expect the August to September month-on-month figures on fuel to begin declining (or be negative), not just slowing down. As such, and reiterating my statement this week, we must begin to shift the focus from fuel to food inflation, which has also been slowing them, but which remains elevated and takes up a much larger share of the Filipino budget.
Month-on-month, which is what households really feel instead of year-on-year, food has continued to increase in prices by 0.7%, the largest increases of which have been in Sugar at a very high 7.3%, Milk, Dairy, and Eggs at 2.7%, Vegetables at 2.7%.
Sugar
The sugar issue is clearly affecting overall prices (26% year on year inflation rate for this commodity), and it has pass-through effects on bread and non-alcoholic beverage prices, which have also increased. Although sugar itself is not the healthiest portion of the basket of goods, it is a reliable source of calories for Filipinos. I expect only very moderate declines, if not outright increases, in the prices of sugar from here on, until we are able to address the issue of how much we really need to import. I continue to champion stronger government support towards a more efficient domestic sugar sector (fertilizers, more modern milling, more efficient refining and transport).
I also reiterate my position that the country’s import program should be more rational and data-driven under a national committee of experts on sugar, while domestic support should be streamlined in the DA, which has a better implementing capacity than the Sugar Regulatory Administration. The SRA in other words should be abolished and better institutions should be established or designated in its place.
On vegetables and protein sources
If we will address the nutrition crisis I warned about (especially its implications on learning poverty) dairy and eggs, and vegetables are especially very crucial. Eggs tend to be the cheapest source of protein available to the ordinary family. Vegetables should be the largest component of a healthy diet.
I have also already made reference to these commodities, and expanding production in the domestic sectors for these goods as critical to Filipino nutrition (https://mb.com.ph/2022/06/11/whos-the-most-important-member-of-marcoss-economic-team-salceda-answers/). We need to expand domestic production in eggs and vegetables, especially as face-to-face classes have begun and children will require proper nutrition to learn.
I have already discussed to Senior Undersecretary Panganiban that in my observation of the data, what appears to be the most promising area for domestic growth in agriculture is the livestock, poultry, and dairy sectors, which now make up 27% of the total gross value added in agriculture, forestry, and fishery (significantly larger than palay, which contributes just 18% to total GVA for AFF. Average nominal GVA growth in this sector (6% per year since 2017) has also significantly outpaced palay (4% per year).
In this regard, I am the House champion of the Livestock, Dairy, and Poultry Competitiveness Act which aims to lower the input costs (feeds, machinery) to these sectors, boost domestic corn with a corn competitiveness enhancement fund, establish a livestock development fund, and harmonize the regulatory and development agencies in these sectors. As Vice Chair of the House Committee on Agriculture, I will be pushing this bill in the House.
Overall outlook
I expected inflation to peak by November at the latest, so August inflation beginning to slow down year-on-year is a positive development. Some surprises could still take place in the world market for oil, but generally, I see that we should be focusing on food price inflation now. The effects of fuel price hikes on food inflation will dissipate much later than fuel prices will begin to decline (fertilizers, machines, and other inputs will have been made with much higher fuel prices). These are what we call lagged or second-round effects.
Food prices are especially crucial for our learning recovery. The empirical link between high food prices (especially protein), and low academic performance is well established in literature. If we want to accelerate our catch-up from learning losses due to COVID-19, we need cheaper food soon.