Countries that rely on imported fuel and food like the Philippines have been using a number of mechanisms to keep inflation in check. The Philippine government has decided to make use of tariffs to prevent domestic food prices from soaring. Last year, the Duterte administration issued two executive orders—EO 134 and 135—that reduced the tariffs on pork and rice.
In May, a few weeks before the former president stepped down, the government issued EO 171, which extended the tariffs on pork and rice and reduced the tariffs on corn and coal (See, “Palace EO extends lower tariffs on pork and rice until December,” in the BusinessMirror, May 28, 2022). The EO slashed the tariffs on corn and coal to 5 percent and zero, respectively. The decision to slash the tariffs on corn and coal was made following Russia’s attack on Ukraine, which roiled the financial and commodities markets.
After Russia’s invasion of Ukraine in February, countries that rely on imported food items and oil have seen substantial increases in domestic food and fuel prices. This is because Russia and Ukraine account for 30 percent of global exports of wheat, 20 percent for corn, mineral fertilizers and natural gas, 11 percent for oil, according to EO 171. The spike in imported wheat prices alone exacerbated the pork supply situation of the Philippines as it caused feed prices to accelerate.
The ongoing conflict in Eastern Europe, which is now on its seventh month, will continue to put pressure on the prices of certain food items and fuel products. Countries that do not have oil wells and do not grow wheat like the Philippines would have to bite the bullet at least until the end of the year. The most we can do is to resort to tariff cuts and reduce fees to make it easier for traders to bring in these products.
It would do well for the government to also consider removing tariffs on fertilizers and farm equipment, as earlier proposed by Albay Rep. Joey Sarte Salceda, to prevent price spikes (See, “House leader pitches tariff cuts on fertilizers, farm gear,” in the BusinessMirror, August 4, 2022). As the Philippines is one of the world’s top rice consumers, it makes sense to remove the tariffs on fertilizers used extensively for growing the grain. Higher input costs could prompt farmers to reduce their application of certain fertilizers, which would be disastrous for the Philippines as this would mean more imports to plug the perennial rice output shortfall.
As for calls to extend and expand the tariffs on other food items that the Philippines produces (See, “Extend period for tariff cuts on pork, rice, corn, coal–FEF,” in the BusinessMirror, October 11, 2022), policymakers must be guided by data and inputs from sectors that will be affected by this proposal. The Foundation for Economic Freedom has raised issues that require careful consideration particularly in light of the Eastern Europe situation. There’s an urgent need for policymakers to immediately start discussions on EO 171 as demand will continue to strengthen and put pressure on inflation.