Why we should listen closely to the Warning to the cartels

Listening to presidential SONAs over the ears, the audacious warning against the rice cartels probably got these nefarious traders scrambling for their cellphones to speed dial their padrinos for an assurance that their illegal trade will be protected.

Cartel behavior is common in countries with the following elements: a high demand for a particular product, and a supply chain (growing and distribution) that is that is highly leveraged by loan sharks and independent creditors (traders or middlemen)  and countryside infrastructure is poor, making transport to market expensive, an essential element that only the trader will have the means to provide.

Thus, between the high transport costs and practically unavailable credit in the past, the farmer is at the mercy of these traders. The traders, therefore, control the trade. All the middlemen forming this supply chain from farm to table also derive their livelihood from such activities. The paradox is that while this is one of the factors to explain high rice prices, these are also essential to ensure the survival of the farm.

The truth is that given the realities in our farm sector,  we need the traders, or else there would be no rice. This catch 22 situation has persisted so long as infrastructure remained poor and credit nonexistent. To challenge the traders early would mean destroying the difficult supply chain, which may raise rice prices even more.

Other countries like Malaysia have solved this problem by achieving a balance by allowing cheaper imports to augment local supply. This is the logic behind the proposed rice tarrification law, a bold move that may signal a shift in agricultural policy away from pushing the impossible dream of rice self sufficiency to a more pragmatic one that can mean cheaper rice for more Filipinos, while strengthening the farm sector by allocating earned tariffs to boost production.

Duterte’s warning is thus a smart one. It comes at a time when more farm to market roads and no collateral credit through the Landbank and local credit cooperatives through the PLEA and SAAD Programs  have finally become available.  

With these, his government is prepared to provide what is needed to wean farmers away from the cartel driven supply chain, while providing cheaper rice to millions. Thus, even if the cartels get their backers to protect them from prosecution, the increased rice supply will force them to open their warehouses and lower their prices to compete. The market will kill them first.

These pragmatic realities render his warning more than mere words.