How about the poor farmers?

The recent passage of RA 11203 or better known as the Rice Tariffication Law and the sudden upsurge of posts on social media of concerned citizens about the plight of poor farmers having trouble selling their palay because of the influx of imported rice have brought to the fore the issue of the perennially mismanaged agriculture industry. I say the “agriculture industry,” because while rice farmers are the current hot topic today, the entire sector is beset by problems brought about by poor understanding of economic principles leading to poor policy formulation and management.

This post will try to tackle some of the most common misconceptions and misunderstanding when it comes to economic realities which affects our poor farmers – or indeed, all of us Filipinos.

So together with other netizens, I also ask: How about the poor farmers?

How about them indeed.

Back to basics

Before we can arrive at an understanding of the issues at play, it’s important to understand some of the basics. Much of these should have been taught at school, and some schools might even have taught it cursorily. But a solid understanding of the following economic principles I would be talking about is sadly lacking, even among college graduates. These economic principles are important, because they explain how markets and money works. Without a solid understanding of these principles, how can one even attempt to discuss a complex issue such as trade liberalization?

Supply and demand

If a good is in demand, its price will rise. If it’s not in demand, it’s price will fall. If there is more demand than the supply can meet, the price will rise. If there is more supply than there is demand, the price will fall. This statement holds true under one assumption: that we are operating under a free market and not under a monopoly, or that regulation hasn’t distorted the market. Let’s see this principle in play in a simple example:

Supposed there are 3 people (John, Peter, James) looking to buy apples. Each of them wants 5 apples at least. John has $5, Peter has $10, and James has $15. However, there is only one seller and he has only 5 apples. How much do you think the apples would sell for? If you answered $3 each, you’re off to a good start. You inherently understand that since there are more buyers than sellers, the buyers would be competing against each other to buy the apples – pushing the price up to its maximum. Let’s look at the opposite situation. Suppose there are more sellers than buyers, what would happen?

John, Peter, and James are all selling apples. Each of them have 10 apples to sell. However, there’s only one buyer looking for 5 apples. The buyer only has $10 to spend. How much would the apples sell for? Unlike the example above, the answer isn’t as simple as $2 each. In this case, the sellers don’t know how much money the buyer has. Not only that, they can only sell their apples to a price at which they don’t lose money selling the apples. So the correct answer to this question is: the cost of production + the minimum markup acceptable to the seller. Let’s say the cost of production for John is $1, for Peter $1.50, and for James $2. How much would the apples sell for?

If you answered anywhere from $1.25 to $1.45, you’re doing okay. For non-perishables, this might hold true, but since apples go bad, the seller is incentivized to sell the apples at breakeven price rather than risk the apples rotting and getting nothing for their efforts. In some cases, if the buyer knows they are the only buyer and there are many sellers, the price can be driven down to less than breakeven, forcing the sellers to take a loss. So the correct answer is $1 or less. It doesn’t matter how much money the buyer has. What only matters is how much the sellers are willing to settle for. And since they are competing against each other on who would sell the apples, a price war would ensue.

Seems simple, right? If there are more buyers (high demand) than there are sellers (low supply), prices would rise. If there are more sellers (high supply) than there are buyers (low demand), prices would fall.

Increased demand also means producers will flock to fill this demand. That’s because the prices are high, attracting producers to produce the good. This would continue until there is enough supply to meet demand. After which prices will start to drop once there is overproduction. After which producers will decrease, since the price dropping will mean producers will start decreasing again.

All in all, this process reaches an equilibrium until the price levels off at the point where supply and demand meet. This is called the price equilibrium or in market slang, the going price.

In general, the going price applies to most products, and the law of supply and demand functions in practice as described in theory. That is, until two things disrupt this process – regulation, and monopoly (let’s talk about price stickiness for another blog post, I feel I’m tackling an entire semester’s worth of lecture compressed in a short blog post).

When government regulates the prices of products, the supply and demand for something does not affect its price. So it doesn’t matter if there are more buyers or less buyers, or more sellers or less sellers. A product will sell for exactly the amount that the government dictates it will. It’s important to understand that wages are a part of this, since wages are nothing but the price of labor. So when governments mandate a minimum wage, that’s the government interfering with supply and demand. Why this is bad will take a lot longer to explain, so let’s leave that off for the moment. If you can follow the course to its logical conclusion, let me just give you this as a hint: minimum wages lead to higher unemployment. Another parting thought: if we want higher wages, we would be best served by practicing birth control (which I would then pose this question: do we really want higher wages? Or lower prices? Or more birth control?).

Another reason price equilibrium may not occur is when the market is under a monopoly (MRT/LRT), oligopoly (Philippine telecom companies), or a cartel (OPEC). In all of these instances, the price is fixed by the seller regardless of the amount of demand existing in the market.

How does this relate to rice trade liberalization?

In the Philippines, the market is captured by the rice traders, not the farmers. Those who have the ability to dry and mill palay and store them as rice can control market prices. Rice has an indefinite shelf life as long as it is kept dry and free from contaminant. Once you understand this, you will soon see why rice prices have a boom and bust cycle in the Philippines, with cyclical shortages occurring in predictable periods.

There are approximately 10,000 rice millers in the country. And they are not in (direct) competition. They have an association (PhilConGrains), that although does not participate in price fixing, does the same job unions does: negotiate for better prices. They affect market prices because they’re the ones dealing with large retailers. What prices they set will determine what the retailers will set. And what price the large retailers set will determine going market prices.

Following so far?

Now, when farmers harvest their grains, unless they’re part of a large cooperative or are a rich capitalist farmer, they have no access to drying, milling, and storing facilities, leaving them at the mercy of those who do. Un-dried, un-milled rice grain goes bad fast. As shown in the example above, the perishability of a product will affect its going price. Farmers can’t dictate their price. It’s the millers who do. They compete with each other until a going price is set. This competition is small, because naturally, a farmer will not canvass the entire millers association of the Philippines. They will only go to those that they can reach — a small subset of millers in a specific area (ano ka baliw, mag hakot ng palay region by region hangang maka hanap ka best price? lol. kung ako magsasaka, hihinto na ako dun sa pinaka malapit. fuck canvassing).

Do you see where I’m going? Points if you do.

So now you know why palay is sold at the lowest minimum the farmers can take (and often at a loss during typhoon season).

Now, let’s get to the fun part. The palay is now with the millers. They dry it, mill it, store it. They have huge warehouses. Sometimes larger than the NFAs. At this point, if kept properly, the rice will keep indefinitely.

Quiz time. If you’re the miller, when do you sell your rice? When prices are down? When prices are stable? When prices are high?

Another pop quiz. That’s what the NFA is for, right? To stabilize prices?

Oh, you poor sweet summer child. What can the NFA do when the millers can out-bid them yet outlast them? Why do you think the prices surge once the NFA starts running out of reserves? Pag naubusan na ng bala ang NFA, nagsisimula pa lang ang millers.

Btw, we are hemorrhaging more or less 7B annually in subsidizing the NFA.

And before the Rice Tarrification Law was passed, we had a shortfall of an average 1MMT (million metric tones) of rice. Compared that to when the law was passed, where for the first time in decades… to be cont.


“Saan Napunta ang Pera ni Juan?” at Iba Pang Economic Misunderstanding ng Karamihan

Sabi sa video na ito

Ang pera raw ni Juan ay napupunta either sa assets or sa liabilities. Ang mayayaman raw ay ginagastos ang pera nila sa assets (yung mga bagay na kumikita ng pera), samantalang ang mga mahihirap daw ay puro liabilities (yung mga bagay na gumagawa pa ng gastos) ang binibili.

Sabi ko sa sarili ko, napaka simplistic ng argumentong eto. Napakadaling humatak ng mga di masyadong nag-a-analyze.  Saan mo ilalagay ang mga necessities (tulad ng tubig, at pagkain)? Papaano kung ang sahod ng isang tao ay sapat lang sa pagkain at tubig? (napaka tragic, pero ang totoo mas marami pa ang kulang pa nga ang sahod para sa pagkain man lamang) Tapos babanatan lang ng gumawa ng video na ito at sasabihing “kasalanan ng mahihirap kung bakit sila mahirap dahil finacially illiterate sila.” Ni hindi man lang kinonsidera ang iba’t-ibang dahilang kung bakit pwedeng naging mahirap ang isang tao.

Isa sa pinaka tumatak sa isip ko tungkol sa isyu ng kahirapan ang katagang ito na sinabi sa akin ng kaibigan ko.

“Ang tanging naghihiwalay sayo at sa pulubing dinadaanan mo sa kalye ay kung saang puke kayo lumabas.”

Para akong lasing na binuhusan ng malamig na tubig sa mga sinabi nyang yon. Totoo kaya? Sabi ko sa sarili ko. Ipagpalagay na nating ang naging magulang ko ay palaboy at lumaki ako sa kalye, ano kaya ang mangyayari sa akin?

Una, dahil salat sa pagkain, malamang ang utak ko ay di ganito kasigla. Malamang retarded ako. Naturally, kung retarded ako, napakaliit ng chances ko na umasenso sa buhay. Patay! Sa simula pa lang, limitado na agad ang mga options ko. Either lalaki akong bobo or mejo bobo.

Pangalawa, sakali mang palarin, at malampasan ko ang samu’t-saring sakit na dadapo sakin, problema ko pa rin ang edukasyon. Dahil mas importante ang mabuhay kesa mag-aral, magtatrabaho ako kesa pumasok sa paaralan. Punyeta. Retarded na nga dahil di nabigyan ng nutrisyon ang munti kong utak, tapos wala pang pinag-aralan.

Pangatlo, dahil sa kalye ako nabubuhay, sa kalye ko rin makukuha ang edukasyon ko. Kung anong aral ang naglilipana sa kalye, yung ang makukuha ko. Di malayong mangyari na wala pa ako sa edad na trese, snatcher na ako.

Sabi nga nila, “The instinct to survive is a primal instinct of man. It brings the best in us, but also the worst in us.”

Napakaraming guru dyan na kung sino-sinong self-made millionaires ang tinuturo at ginagawang ehemplo upang sabihin sa ating “kaya mahirap ang mahirap ay dahil tamad sila.” Ni hindi nila kinokonsidera na sila ang exception, hindi ang rule. Statistical anomaly. Hindi sila ang pruweba ng katamaran ng mahihirap. Sila ang pruweba na sa isa sa isang milyon, may isang mapalad na malalampasan ang kahirapan. Kalokohang sabihing lahat ng yaman ng isang milyonaryo ay dahil lamang sa sikap at tyaga. Kailangan din ng konting swerte. Swerte, na kahit mahirap sya ay di sya dinapuan ng matinding sakit. Swerte na hindi sya napalibutan ng masasamang impluwensya. Swerte na lumago ang negosyo nya at di inabot ng malas.

Sa bawat self-made millionaire na maituturo mo, may isang milyon akong maituturo sayo na mas masipag pa at mas matyaga sa kanya. Ano bang pinagkaiba nila? Si mamang magtataho, araw-araw gumigising ng maaga para maglako; si aleng manlalako, uminit man o umaraw nasa lansangan para magtinda; ang mga magsasaka na magkanda-kuba sa pagtatanim – mga tamad ba sila?

So nasaan ang linya na naghihiwalay sa mga mayayaman at mahirap? Kung ang tanging mag-aangat sa tao sa kahirapan ay kasipagan, bakit marami pa rin ang mahirap kahit masipag sila?

Work smarter, not harder. Sabi nila. Sabi sa video: invest.

Putang ina. Lahat catch-22. Paano ka nga magtatrabaho ng “smarter” eh kung bobo (or ignorante). Eh di mag-aral! Eh paano ka nga mag-aaral kung sa murang edad pa lang eh nagtatrabaho ka na? Papano ka mag-i-invest eh perang nakuha mo sa pangangalakal eh kulang pa sa pagkain mo? Tapos sasabihin pa ng iba “Ay naku, yang CCT (Conditional Cash Transfer) na yan, nagpo-promote yan ng mendicancy.” Never mind na ang cash transfer ay nakasalalay sa mga kondisyon na dapat matupad. Dapat nag-aaral ang mga bata, dapat may monthly check-up sa health center, dapat walang bisyo…

Social mobility of people tend to be possible with more choices. Pero papaano nga ba lalawak ang gagalawan nila kung di natin sila bibigyan ng mas maraming tsansa?

Sabi ng kaibigan ko, okay lang daw tumulong basta nasa lugar. Sabi ko sa sarili ko “Saang lugar? Sa lugar ng mga hunghang? Sa lugar kung saan patay na sila? Saang lugar? Kelan pa nawala sa lugar ang pagtulong?”

Teach a man to fish daw.

Napaka idealistic di ba? Pero napaka hirap gawin.

Napaka tragic isipin na kahit ang mga nakapag aral na tao ay ignorante sa tunay na takbo ng ekonomiya, ng kapitalismo, ng pera. Tanungin mo ang isang tipikal na gradweyt sa kolehiyo kung paano gumagana ang kapitalismo at kung ano ang relasyon ng pera sa utang at bibigyan ka nito ng isang malaking “Huh?”

Oo. Ganyan rin yung reaksyon ko nung una. Kinailangan pang maganap ang 2007 financial crisis bago ko maintindihan ang mga isyung ito. At naintindihan ko lang ito dahil binasa ko ito, pinag-aralan ko mag-isa. Di ito tinuturo sa eskwela – sa di maipaliwanag na dahilan (marahil ignorante rin ang mga guro). Napaka mali di ba? Sa mundo na pinapaikot ng pera, ang kasaysayan nito, mekanismo, at pag palago ay di tinuturo sa paaralan. Kailangan mo pang mag MBA para matutunan ang mga yan. At minsan pa, mali pa ang tinuturo. Panay propaganda.

Isa sa pinakamahalagang natutunan ko sa pag-aaral ko ay ang leksyon na ang kahirapan ay sadyang di mawawala sa kapitalismong sistema. Dahil mismong kapitalismo ang gumagawa ng kahirapan.

“Kalokohan!” sasabihin mo. Pero totoo. Kahit nung una, ayaw ko ring maniwala. Pero unti-unti, sa pag-aaral ko, napagtanto ko nga na tama. Sadyang may mahirap kapag may mayaman. Hindi ito mawawala. Para may yumaman, kailangan may maghirap.

to be contd.

Moving Up Student’s Grade Levels Per Subject

Continuing from my earlier post on education, and emphasizing the need for further decongestion, I have realized that not only should we reduce the number of subjects in our schools, we should also stop boxing-in our students by grade levels for the entire curriculum. I realized we should move them up by grade levels PER SUBJECT.

Isn’t it stupid that we hold up a student’s moving up of a grade level because they failed one or two subjects? Isn’t it more rational to divide grade levels PER SUBJECT and not the ENTIRE CURRICULUM? In that way a student isn’t stuck on some perceived failed grade level because they aren’t good in one or two subjects (which if they are tested, would probably turn out to be their natural weak subjects), uselessly repeating other subjects they already passed.

Say a Grade 1 student good in Math can move up to Grade 2 Math if they so pass the subject, but may remain on grade 1 Science if they fail that subject. So a single student may be attending subjects of varying grade levels based on their performance on each subject. For example, an 8 year old kid might be attending Grade 2 Math, Grade 4 English, Grade 2 Science, Grade 3 History, Grade 5 Arts and Music – you get the idea. The speed by which they move up grade levels will depend on their performance in each individual subject. And teachers can recommend acceleration provided the student can pass the examination for moving up to the next grade level of the subject. And if that is not enough, each on of the year will bring a final assessment that will re-test the level of the students in all subjects so that by the next school year, they will be put in the proper starting grade level in each subject.

No more of this nonsense of moving up students wholesale. No two students are alike in the speed at which they may learn each subject. Their brilliance in one subject shouldn’t be punished by their failure in another. A 10 year old kid might be brilliant enough to be studying High School Math but under our present system, he or she is stuck being taught Grade 4 Math because he or she is just average in all his or her other subjects. Such waste! Both in time and potential.

One problem I foresee though is the mixing of different-aged students that might result in bullying, isolation, and difficulty in assimilating to the class. Students moved up out of their age group might have difficulty relating to their classmates who are not their peers. While students in that grade level who moved-up naturally (without acceleration; meaning they are in the grade level of the subject appropriate for their age) will resent their “moved-up” classmates, and discord will ensue. One solution I can think of is to create a special class per subject for “moved-up” students. While not a perfect solution, it would at least allow “moved-up” students to join “kindred souls,” in the sense that all in their class would be “moved-up” student who, like them, are considered gifted for that subject. In short, their peers. Maybe not in age, but certainly in subject aptitude.

This system of moving up also solves the problem of slow learners holding up the fast learners. Each student will learn exactly at the pace they are capable of, having been tested and put at the appropriate level for their aptitude.

Another problem that might arise is the students’ intentional neglect of their weak subjects resulting in a very unbalanced set of grade level subjects. Being weak in a certain subject, a student may grow to dislike the subject, and may in turn completely disregard the subject. So perhaps institute a minimum grade level for each subject for each aged student. For example, a student must not be in any Grade 1 subject class by the time they are 10 years old (this is just an example ofc, the age, grade, and gap allowed may differ depending on studies and research) Also, we are only talking of core subjects in here. The minimum does not apply for electives and other subjects.