Quash inflation thru massive production and efficiency

Inflationary pressures are building up anew as industries are passing on the effects of the Tax Reform for Acceleration and Inclusion (TRAIN) package and taking advantage of new taxes to push for more margins, which can only be quashed with massive production and substantial improvements in cost efficiency.

When TRAIN motive goes Loco. For whatever reason the tax- reform package was baptized with the acronym TRAIN, or a “Locomotive,” which may be trivia, although its motives are noble given its objectives to be “fair, simple and more effective and efficient.”

Unfortunately, the “Law of Unintended Consequences” can make motives go awry for many businesses owing to external and internal pressures. Externally, prices of fuel, trucking, food, beverages and other commodities and services seem to be all rising, prompting businesses to join the inflation bandwagon. As prices rise, logically, costs also increase.

Internally, businesses are pressured on two tendencies. They become cost-centric and think they are beleaguered unnecessarily by rising costs on all fronts. Second, their inherent nature to make money push them to cash on the opportunity to ride on TRAIN as an excuse to increase prices.

Cries over price rise. Given these factors, it’s no wonder prices have shot up unnecessarily beyond suggested retail prices. A pancit canton, for instance, jumped by 75 percent in retail prices from P6.25 to P11 per pack; sardines from P13.25 to P15 per can, up by over 13 percent. There are many more products and examples, including frozen meat products, that we can enumerate.

Some stores were caught by consumers changing price tags of old dry-goods stocks, ridiculously arguing costs of producing them increased and that they were just following the TRAIN, or TREND.

Diesel prices, likewise, increased from P33 to almost P40 per liter, or a hefty 21-percent increase, although apart from the P3 per liter increase in excise taxes, global fuel prices have also increased. Jeepney operators are not affected much as they get fixed “boundary income” regardless of prices and passenger loads of drivers.

On consumption of 30 liters a day, this P7 per liter increase amounts to P210 in additional fuel cost and lost income for the driver.

Folly of cost-push free market. Left alone in a free market, every industry tends to make knee-jerk reactions by pushing costs forward, triggering higher retail prices shouldered by consumers. While TRAIN tax exempts taxable incomes below P250,000, allowing earners to absorb rising prices, jobless or unemployed people with no wages to start are hit the most with inflation.

A price spiral is something government cannot simply stop given a free-market policy regime, although suppressing markets through price controls may be worse as they distort markets. But transport fares are regulated mainly because if left wantonly free, the consequences are more catastrophic for potentially triggering a price spiral and
worsening poverty.

Because of TRAIN’s P3 per liter excise tax on diesel for 2018 alone, Pasang Masda wants a 50-percent minimum fare hike of P4 from, P8 to P12, which is grossly unacceptable and untenable.

On a 30 liter per day consumption per jeepney, this P3 per liter excise tax totals P90 a day, but Pasang Masda’s additional P4 minimum fare against a 200 passenger a day conservative estimate amounts to P800, or 788.89 percent more than the P90 in excise taxes. And 200 passengers are conservative for a 20-seater jeepney that can easily hit 200 passengers in only five round trips, and more trips are made in14 hours. As oil firms may use excise taxes as an excuse to increase prices to hide profiteering, Pasang Masda cannot also make the same excuse to charge higher boundary incomes.

Produce more to arrest prices. Social Weather Station (SWS) admits the rise and fall of figures on hunger and self-rated poverty are much dependent on price movements. While improvements were gained the past year, inflation, if not checked, can reverse all this.

Being a trader-dominated economy, we tend to react solely and solve problems along market-oriented solutions, which may be logical economically, but may not provide long-term solutions. If prices of agricultural commodities increase, the knee-jerk reactions of policy-makers is to import to flood the market and to dampen prices.

Although freer imports may solve prices temporarily, we need not lose track of the need to produce what we do best based on our comparative advantage. Imports may be good for the short term, which we’ve been doing for many decades, but farmers have never been empowered enough to produce, not only raw agricultural products but processed products, or the full-value chain with farmers empowered and organized to engage in agro-processing, logistics and distribution in direct market tieups.

In short, we’ve been so obsessed with being market-oriented and forgot the flipside coin of economics, which is production. Let’s, therefore, invest in ventures where they count most in reducing rural poverty through production-oriented industries by encouraging research and development, science and technology and above all, empowering farmers through massive extension work, including organizing them into strong cooperatives complete with postharvest facilities, logistics, agro-processing and market capabilities, etc.

Consumer-farmer symbiosis. By producing more, it actually brings us dialectically back to the dynamics of markets. Simply put, if we produce more massively, including processed foods preferably done mainly by farmers and fisherfolks who account for two-thirds living below the poverty line, we increase food supplies and other commodities, which will naturally result in lower prices.

In short, instead of tolerating the usual cost-push inflation, let’s push for production to lower prices through simple supply-demand economics. In fact, production helps reduce poverty in two ways. For one, bigger locally grown supplies reduce prices, making food affordable to the poor. Second, by being production-oriented instead of resorting easily to importations, we create local productive jobs among farmers and fisherfolks.

Consumers and farmer-producers, therefore, have this symbiotic relationship. When farmers produce more, consumers get cheaper prices and more choices.

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Michael Alunan was for many years a full time business journalist tasked to mind other people’s businesses, but he tried venturing later into business going left and right, up and down, zig and zag till he broke down with heart surgeries for aortic valve replacement and two cases of aneurysm. He is now busy with pro-bono coop organizing and social entrepreneurship development for basic sectors and just keeps a weekly column for the love of writing and to have fun and make pun, while contributing to policy reforms and program development.