By Cai U. Ordinario, Elijah Felice Rosales, Recto Mercene, Jovee Marie dela Cruz & Jasper Y. Arcalas
MANY may believe the ride toward economic growth and acceleration is just a train ride away. Apparently, it’s not that easy as some passengers, according to some, are not only freeloaders but also profit from the ride.
Since taking off in January, the government’s Orient Express for its ambitious fiscal road map called Tax Reform for Acceleration and Inclusion (TRAIN) has barreled ahead and added steam to inflation.
Inflation—the rate of increase in commodity prices—crept from 3.4 percent in January to 3.8 percent in February and to 4.3 percent in March.
As of end-April, inflation figures released by the Philippine Statistical Authority (PSA) recorded a three-year-high increase in prices by 4.5 percent, the Freedom from Debt Coalition said.
The PSA further reported that inflation disproportionately affected the poor, with low-income households carrying the burden of a record-high 5.3-percent price hike.
The latest inflation data for May will be made available next week but is also expected to breach 4 percent.
This has led to critics of the TRAIN law loudly whistling that the policy is adversely impacting consumers, especially poor consumers.
As of Wednesday (May 30), three resolutions have in fact been filed in the House of Representatives, seeking the suspension of the fuel excise taxes that are being blamed for the domino-effect spike in prices of most basic goods.
The latest resolution, filed Wednesday by 1 Pacman party-list Rep. and House Assistant Majority Leader Michael L. Romero, asked the government to suspend the excise tax on fuel from June to August 2018.
The two earlier resolutions were filed by Magdalo Party-List Rep. Gary Alejano and the Makabayan bloc, reiterating their call for the immediate review of Republic Act 10963 or the TRAIN Act.
Alejano filed House Resolution 1838 calling for a review of TRAIN’s inflationary impact, noting how the 4-percent prediction of Duterte’s economic managers has been exceeded.
Earlier, Rep. Dakila Carlo Cua of Quirino, the chairman of the House Committee on Ways and Means, said the lower chamber is now open to suspending the imposition of certain taxes to address the increasing prices of basic commodities.
Profiteers to blame?
For economists like Cid Terosa of the University of Asia and the Pacific, the culprit may not be the TRAIN law, but those profiteering from what is envisioned to be just the first major package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP). And as it is, unless the government can compellingly prove that TRAIN is simply being hijacked, its successor Package 2, next for Congress’s agenda, may be derailed as well. Package 2’s most significant features are the reduction in corporate income taxes and the rationalization of decades-long fiscal incentives for various businesses.
The UA&P School of Economics Dean told the BusinessMirror it is very easy to use the TRAIN as an excuse to cover up unwarranted increases in commodity prices.
“Yes, profiteering is possible. In my experience, trade and transportation margins account for a substantial portion of the rise in prices,” Terosa said. “Unscrupulous traders and sellers can take advantage of the situation.”
SRP, penalties
CONSUMER group leader and former trade official Victorio A. Dimagiba cited his personal experience to show there’s evidence the tax law has opened the door to profiteering.
He said he bought bottled water at P30 in a stall inside a shopping mall near SM North in Quezon City but the suggested retail price of that brand was only P11.
“The SRP [suggested retail price] list [of the Department of Trade and Industry] has been overtaken by events susceptible as the TRAIN law,” Dimagiba told the BusinessMirror. “If you check the list, the items listed are those called patronized by poor consumers, but there are many sizes and brands that are not on the list.”
Dimagiba is referring to a list that DTI personnel refer to when inspecting retail shops.
According to Trade Undersecretary Ruth B. Castelo, such list deters unscrupulous retailers. They know they will be penalized should they take advantage of the TRAIN law, she told the BusinessMirror.
Castelo said the DTI has yet to record an incident of overpricing in groceries or retail stores under the TRAIN law regime.
“On basic necessities and prime commodities, there is none. Either because the retailers know the DTI’s presence in the market, or that they are also doing their bit of goodwill for our people,” Castelo said.
The trade official, who heads the DTI’s Consumer Protection Group, said stiff penalties await those who will make use of the TRAIN as a reason to overprice merchandise items.
Penalty ranges from P5,000 to P1 million, she said.
Castelo believes profiteering couldn’t occur since government price monitoring teams are dispersed in different areas.
Oil pressure
RATHER than TRAIN, there are other factors adding pressure on prices, according to the National Economic and Development Authority (Neda).
NEDA Undersecretary for Planning and Policy Rosemarie G. Edillon said most notable are the rapid increase in oil prices and the increase in food prices. Both are caused by supply issues, she explained.
For oil prices, the strained supply in the international market has caused speculation to run high and drive prices recently to $80 per barrel. However, the assurance by Russian oil players they will increase oil supply has tempered oil prices in the past few days.
Nonetheless, oil prices, which can be seen from transport costs, accounted for 0.4 percentage points of the 4.5-percent inflation rate recorded in April. This essentially represented 10 percent of inflation.
And rather than the TRAIN law, the pressure of higher oil prices in the world market prompted airlines to seek approval of fare hike petitions.
For one, Cebu Air Inc. (PSE: CEB) spokesman Charo Lagamon-Logarta told the BusinessMirror “so far, the increase that we have to implement was due to the increase in fuel and the corresponding increase of the peso against the dollar.”
Airline petitions
LOGARTA said the TRAIN law has not been considered as a pressure point for the company.
“I think it’s [the rise in prices] really more in the overall increase of fuel per se in the world market,” she added. “That has more of a big impact.”
The BusinessMirror sought to clarify whether CEB combined the high cost of fuel and the TRAIN law’s effect on the fuel surcharge.
“I’m not sure if that was the pricing scheme,” Logarta said. “So far, we’ve mitigated the cost; first by not increasing the fares and, second, we filed a petition for fuel surcharge. That’s being heard now at the CAB [Civil Aeronautics Board].”
Ceb is one of two major air carriers that have filed petition with the CAB.
Both it and Philippine Airlines Inc. (PAL: PSE) have pending petitions to make a corresponding increase in fares “to mitigate the continued fuel-price increase in the world market.”
Air Asia Philippines did not file any petition for fuel surcharge. PAL spokesman Cielo Villaluna declined to comment.
“All I can say is that both petitions are subject to intense deliberations,” CAB Executive Director Carmelo Arcilla said.
After 20 years, transparency
The government, meanwhile, is apparently on to the possibility that some oil players have also been hiding behind the TRAIN law to deflect public anger over possibly irrational price hikes.
As continuing price surges have shifted public anger mostly to the TRAIN law that mandated higher fuel excise taxes, the government last week moved to require a more transparent, unbundled system for informing people of the breakdown of petroleum product prices.
The Department of Energy (DOE) released the draft rules on petroleum price monitoring, meant to guide the consumers in making informed decisions in the management of their fuel oil requirements.
It also fulfills a 20-year-old mandate of the oil-deregulation law requiring such unbundled price reporting.
The agency wants oil companies or bulk suppliers to submit a report on the computation and the corresponding explanation of the unbundled items comprising the price of all petroleum products.
On May 8, the DOE said in a press release the new policy is targeted “to be issued by the end of June this year,” and will enable “the unbundling of the base prices of petroleum products—gasoline, automotive and industrial fuel, kerosene, jet fuel, bunker fuel oil and household and automotive liquefied petroleum gas.”
The released draft rules said, “Oil companies shall strictly comply with the submission of the formal notice of price adjustments on a per-liter basis, containing the computation and the corresponding explanation of the unbundled cost items of all products.” The report should indicate the product cost; refining cost; import terminal/depot operation cost; transshipment cost; taxes; biofuels cost; hauler’s fee; unbundled other fixed cost; unbundled other variable cost; and oil company/bulk suppliers’ profit.
At present, there is no breakdown of the base price of petroleum products sold at various service stations.
“Identification of the costing for the major components of these petroleum products that may affect the pump prices would provide a higher level of transparency for our consumers, particularly the motorists,” said DOE secretary Alfonso Cusi.
Food prices
EDILLON said more than profiteers riding on the TRAIN law, in the case of food prices, there are three primary culprits: more expensive fish, rice and meat.
Apart from the regular closure of fishing grounds, Edillon said fish prices are increasing because of a general decline in fish supply. Higher rice prices, meanwhile, owed mainly to the pronouncement of the National Food Authority (NFA) that it only had three days’ worth of rice in its warehouses as early as January 2018.
In terms of more expensive meat products, this was affected by more expensive feeds which are corn-based. Corn prices have been on the rise due to lower production. Edillon suspects that corn-growing areas in Region 2 have not yet been able to fully recover from the typhoons that battered the region.
“Our sense is that it’s really supply pressure; there really is a shortage of supply. The price of meat and fish, you have seen this rising, including rice,” Edillon said. “We have seen this increasing since last year. We still did not have [the] TRAIN [law] then.”
She said that as a percentage of the 4.5-percent inflation recorded in April, food accounted for 2.2 percentage points or around half of inflation. This 2.2 percentage points is accounted for by fish (1.8 percentage points); rice (1.1 percentage points) and meat (0.8 percentage points).
Rice prices
The latest report from the PSA reveals that the average farm-gate price of palay in the first quarter expanded by 8.2 percent to P19.76-per-kilogram price level from the P18.27/kg recorded quotation during the same period of last year.
Furthermore, PSA data compiled by the BusinessMirror showed that this is the highest first-quarter average farm-gate price of palay since 2014, when rice output was slashed due to El Niño.
During the January-to-March period of 2014, the average quotation of palay breached the P19.03/kg price level, the first time since recent memory.
The increments observed at the farm level were translated into the wholesale and retail prices of rice in the domestic market.
The average wholesale price of rice in the January-to-March period grew by 4.5 percent to P40.11/kg from P38.39 average quotation in the first quarter of 2017.
First time
LIKEWISE, historical data from the PSA shows this is the first time that the average first-quarter wholesale price of rice breached the P40.11/kg level since 2010.
Industry groups like the Confederation of Grains Retailers Association of the Philippines Inc. (Grecon) said the price of commercial rice in the local market could go up due to the absence of NFA rice.
“There are around 10 million Filipinos who are depending on NFA rice, which is needed in non-palay-producing areas like the NCR. The consuming public will not have the option to buy cheaper rice in the market now. They will be forced to buy commercial [variants], which is naturally more expensive,” Grecon National President Jaime O. Magbanua told the BusinessMirror.
Kernel costs
As for corn prices, PSA data compiled by the BusinessMirror showed that average farm-gate price of yellow corn in the first quarter reached P13.34/kg, 17.32 percent higher than the P11.37 average quotation during the same period of 2017.
This was the highest first-quarter average farm-gate price of corn since 2012 when quotation reached P13.29/kg.
The double-digit hike in the farm-gate price of yellow corn translated to higher prices at the wholesale and retail market levels.
The average wholesale price of yellow corn in the first quarter rose by 11.23 percent to P19.30/kg, from P17.35/kg average quotation in the same period of 2017.
This was the first time that the average wholesale quotation for yellow corn breached the P19/kg level.
At the retail level, prices of yellow corn grew 1.9 percent to P23.19/kg from P22.77 from a year ago level.
Yellow corn
INDUSTRY sources told the BusinessMirror that there has been erratic production of yellow corn in some parts of country, like in Mindanao, resulting in higher prices for the commodity. Meanwhile, the PSA characterized the increase in the prices of yellow corn “as a result of better quality of kernels and higher demand from feed millers and processors.”
Double-digit growth was also observed on the farm-gate, wholesale and retail level prices of white corn during the first quarter.
In the January-to-March period, average farm-gate quotation for white corn expanded by 38.1 percent to P16.92/kg from P12.25/kg price level in 2017.
Likewise, the wholesale and retail prices of white corn during the reference period rose by 30.2 percent and 12.4 percent year-on-year, respectively.
Wholesale quotation of white corn in the first quarter reached P20.24/kg, while retail price reached nearly P30/kg.
91 centavos
The fiercest defender of the TRAIN law is the Department of Finance (DOF), which has said that for every additional peso spent for various commodities, only nine centavos can be attributable directly to the TRAIN.
Among the provisions in the TRAIN that affected commodity prices were the tax on Sugar Sweetened Beverages (SSB) and higher excise taxes for fuel and automobiles, among others.
However, this begs the question where the remaining additional 91 centavos is coming from.
If the NEDA follows the DOF estimate that for every additional peso spent for inflation and only nine centavos is attributable to TRAIN, the rest of the missing 91 centavos can be attributed to oil, food prices and conditions that are consistent with a growing economy.
Edillon said of the 91 centavos, around 50 centavos will go to food and 10 centavos will go to oil or transportation. This leaves 31 centavos for the impact on prices by economic growth, as well as higher incomes and population.
Consumer activism
While she can’t rule out profiteering, Edillon said what is needed to prevent this from happening is a dedicated consumer group that can help the government monitor unusual price movements.
She said this group can be similar to the Consumer and Oil Price Watch (COPW), which was headed by Raul T. Concepcion until the early 2000s.
“We need an active consumer group,” Edillon said. “It helps a lot if you have somebody on the consumer side. Before, that was really a service; it was public service. He [Concepcion] was not getting anything from the government.”
She believes the COPW “should be revived.”
“If you can have many more of the business groups banding together and then supporting consumer sentiment, that would be a big help,” Edillon said.
While Dimagiba doesn’t consider his group as a COPW copy, Laban Konsyumer Inc. has been addressing the TRAIN Law.
Petition in SC
His group is currently petitioning the Supreme Court to intervene and halt the implementation of the tax-reform measure.
Dimagiba also wants the DTI to rethink its statement that there has been no record of profiteering under the TRAIN law regime. The DTI must also look into retail outlets, not only supermarkets, he added.
“Now everybody rides on the wagon of the TRAIN,” Dimagiba said.
With a report by Lenie Lectura
Image credits: AP/Bullit Marquez, Alysa Salen