Stop cartels like Philip Morris

One of the reforms that President Aquino has forgotten is the elimination of oligopolies. An oligopoly is worse than a monopoly or cartel because it is formed by several companies in the same field of business and, therefore, has a wider reach than a monopoly or a cartel. We have many such oligopolies that the government should eliminate but against which it is doing nothing.

Monopolies, cartels and oligopolies are present in the cement, flour, cigarette, oil, pharmaceutical and rice industries, and even in toll roads. With them, competition is stultified and they therefore can dictate the prices of their products.

Even with laws like the Oil Deregulation Law, which was meant to break the stranglehold of the Big Three oil companies (Petron, Shell and Caltex), oligopolies’ influence on the market is constant. Yes, there are many small players in the oil industry retailing fuel products, but where do they get their products? From either Singapore or the Big Three.

The objective of the Oil Deregulation Law was to open the market to as many players as possible so that competition will drive prices down. But how can the small oil companies retailing oil products compete effectively with the Big Three, from whom they get their products? So they have to sell their products at prices dictated by the Big Three.

The cement industry is another case. It is controlled by a foreign cartel. We used to have many local cement companies competing with one another, but what did the foreign cement cartel do? It bought almost all the Filipino-owned cement companies, and now the cartel controls the Philippine cement market.

With so much construction going on all over the Philippines, you can imagine the amount of cement needed for these projects. All of that is supplied by the cartel at prices dictated by it.

Imported cement is cheaper, but what did the cartel do again? It persuaded the Department of Trade and Industry to increase the tariff on imported cement. Now we have to pay through the nose for its cement.

Then there is the case of flour. There are only about 10 flour millers supplying the whole Philippines, but they have organized into the Philippine Association of Flour Millers (Pafmil).

Flour is a very important commodity in the Philippines. After rice, it is the basic food of Filipinos. It should be priced as low as possible because two-thirds of our population or more are poor.

Turkish flour is cheaper than the Pafmil flour. We have been importing a small amount of Turkish flour which is used in low-quality breads like  pan  de  sal  and biscuits, most of which are consumed by the poor.

So what did the Pafmil cartel do? It mounted a lobby against Turkish flour.

Pafmil controls 97 percent of the Philippine flour market. Turkish flour has a measly 3 percent. But Pafmil is still complaining, saying that Turkey is “dumping” its flour on the Philippines. Pafmil has 97 percent of the market and it still wants to deny the 3-percent share of Turkish flour? Such greed! Pafmil wants to hog the whole Philippine market.

Then there is the case of cigarettes. Fortune Tobacco used to have a monopoly of the premium cigarette market. Philip Morris, maker of Marlboro, Philip Morris and other imported cigarettes, was a close second.

So what did Philip Morris do? It went into a partnership with Fortune Tobacco in which it had a controlling interest in the partnership. Philip Morris is the biggest tobacco company in the world. It probably became that big by doing what it did to Fortune—swallow it. Philip Morris wants, not only a monopoly of the Philippine cigarette market, but domination of the world market.

When the Philippines passed the Sin Tax Law to discourage smoking because it is bad for the health, the prices of cigarettes shot up.

Before the Sin Tax Law, there were several Filipino-owned companies manufacturing cigarettes using native tobacco and consumed mostly by the older folk in the provinces. They were not competing with the premium Virginia-tobacco cigarettes.

One of these small Filipino-owned companies is Mighty Corp. based in Bulacan.

Although it has been operating for more than a decade, it has been largely unnoticed by the people except by the country folk who smoke its cigarettes.

When the Sin Tax Law was passed, Mighty decided to manufacture cheaper Virginia-tobacco cigarettes. They were retailed at P1 per stick. Naturally, smokers shifted from the expensive brands manufactured by Philip Morris-Fortune Tobacco, which cost about P5 per stick, to Mighty’s P1-per-stick cigarettes. Philip Morris’ share of the market went down from 100 percent to about 90 percent.

Fortune Tobacco mounted a lobby against Mighty Corp. It accused Mighty of cheating on its tobacco imports. How can Mighty sell at P1 per stick when that is below production cost? it wanted to know.

We have lower production costs and overhead since they have been manufacturing lower-priced cigarettes from the very beginning. For one, we do not pay royalties to

foreign cigarette companies.

That is how cartels are browbeating smaller competitors, like Goliath fighting David. In order to progress economically, we should eliminate cartels, monopolies and oligopolies such as those cited above.