Drop the ‘pork holiday’ idea

The two-day “pork holiday” that was declared by pork producers last week was less than a success. No one even noticed it. And threatening a longer five-day holiday isn’t going to succeed either. For three reasons, all of which one learns in an introductory economics course.

One reason is that pork is not a necessity. While food in general is, because if we don’t consume food, we die (eventually), pork is not. If we don’t consume pork, there are many who even think (erroneously) that this will be more healthy for us. What this means is that a pork holiday, which will tend to raise pork prices, will decrease the consumption of pork relatively more than the increase in prices. Which means that the revenues (price x quantity) of the pork producers will go down as the price of pork goes up, everything else remaining the same. Definitely not very good for the producers. In economese, we say that the demand for pork is price elastic, while the demand for food as a whole tends to be price inelastic. Necessities are price inelastic, luxuries are price elastic—and let’s face it, pork is more luxury than necessity.

Another reason pork producers should rethink their pork holiday strategy is that pork has many substitutes—there is beef, there is chicken, there is fish, there may even be vegetables. The “may” with respect to vegetables is because for some, vegetables are eaten together with (i.e., complementary goods) rather than instead of (i.e., substitute goods) pork. Note again that in contrast, food as a whole has very little substitutes. The point is, the more substitutes a good has, the more price elastic its demand is.  And so again, revenues of pork producers may tend to go down instead of up. At the same time, consumers as a whole may be only slightly inconvenienced by the temporary (or even longer) absence of pork in the market.

The third reason cited in an introductory economics course for why the demand for a product may be price elastic (rather than price inelastic or unitary) is if it constitutes a relatively large portion of a consumer’s budget. And let’s face it, a kilo of pork generally is more expensive than a kilo of other food items. So an increase in its price will hurt the consumers more than the same relative increase in the price of other products. Therefore, consumers will react more violently (buy much less of it) to a price increase for pork than for other, less expensive products.

And by the way, since they are not even supplying pork for the duration, their revenues are not just reduced but drop to zero. Talk about shooting oneself in the foot to get rid of a painful callus or bunion.

The bottom line, therefore, is: Drop the pork-holiday idea. Not only will it not succeed, it will be also costly.

A better alternative would be to get the message across that:

First, pork production is second only to rice in terms of value (in current prices, 2010). So the industry deserves the attention of and encouragement from the government.

Second, most of the pigs in the Philippines are raised in backyards—about 71 percent in 2010 (although this has been going down; it was 74 percent in 2004). I couldn’t get the data (maybe someone can provide the info) on how many backyard producers there are, but when you have a total inventory of 9.5 million (out of 13.4 million) hogs raised in backyards, you get an order of magnitude of how many backyards, and therefore how many small entrepreneurs are involved. Who knows how many of our medium- and large-scale businesses are owned by people who financed their education by raising and selling pigs? Again, reason for government help and encouragement.

Third, there has to have been a lot of technical smuggling of meat—for example, by declaring them as offal. How can we tell? Because in a period where the value of imports to the Philippines have been decreasing as a whole, meat imports have been increasing (they should give the figures, too). Accompanying this data should, of course, be the value of the revenues lost to the government because of undervaluation and/or misdeclaration (the latter resulting in paying 5 percent instead of 35 percent in tariffs and duties).

I am informed that Agriculture Secretary Proceso Alcala has weighed in in favor of the swine industry by calling for the Bureau of Customs to increase the reference price on imported pork (and poultry), but to strictly apply quarantine and rejection rules. That should be a great comfort to the swine industry.

At the same time, that will keep the prices up, to the detriment of consumers and households. There must be a better way, right?

The best alternative, therefore, is to look at the forest rather than the trees. The fact is—and this has been emphasized time and again by agricultural economists and researchers—that the Philippines has a comparative advantage in both pork and poultry. This means that the Philippines, everything else being equal, can produce these relatively more cheaply than other countries, and therefore, aside from the benefits of lower prices to domestic consumers, should be a net exporter of these goods.

So what went wrong? Short-sighted government policies resulting in higher input costs and loss of competitiveness. These have been detailed and discussed almost ad nauseam by economists, for at least the past 25 years.

Correct that, and the problem is solved, both for the producers and the consumers. Competitors beware.