One may look at the lingering pork price inflation triggered by the African Swine Fever (ASF) outbreak in our country through two lenses. The first is on the immediate task of bringing down prices to sustain our access to our staple meat. The other lens is the medium-term problem of re-herding and eventually eradicating the ASF virus.
BRINGING DOWN PORK PRICES
Authorities started out on the wrong foot, ordering unenforceable price caps on pork for 60 days. Price caps on staple food will not work. They may work — if the market disruption is expected to last for a few days, as those caused by extreme weather or volcanic eruption and affect a relatively small area. This crisis, however, will take a longer time to stabilize since the ASF virus hit the country’s supply capacity: Central Luzon, with the country’s largest swine herd, suffered a 50% decline in its herd in less than a year. Re-herding is a challenge because the ASF virus is still with us and may in fact be spreading into other areas.
Many people, including those in government, realized price caps are a “pig mistake,” as an article in The Economist describes the government’s response to the crisis. Prices will find their true level despite the resources fielded to enforce price control, particularly if the commodity is a food item. One can buy pork at the price of at least P400 a kilo in meat shops, which is P100 more than the official price the government has ordered all sellers to sell pork.
Let us compare this with rice. When we had rice price inflation in 2018, the government liberalized rice imports and prices stabilized — granted not to as low a level as everyone expected — but no one is complaining now about a rice shortage. And to the surprise of those opposed to it, rice output had recovered from the slump in 2019.
It is different when it comes to the pork price crisis. Our elected leaders apparently fear the political backlash of another import liberalization to address this crisis, perhaps because we are holding elections next year. We don’t hear the Senators who championed the rice import liberalization calling now for freer pork imports to address the current crisis. The dominant voices now are those who claim pork importation would simply kill the industry faster than the ASF virus.
Perhaps things may change when the virus hits the Visayas or Mindanao as badly as it did Central Luzon, and the price of pork hits P500 a kilo.
Without freer pork imports we are not going to avoid that. It will just be a matter of time. Price caps cannot bring down prices, but additional supply will, and that would be through supplies from the rest of the world while we are in the midst of this ASF outbreak.
There are three arguments we hear about why we need to slow down when it comes to expanding pork imports.
One is a legitimate concern of pork producers: we are not ready to safely open our borders to more pork imports. The virus came into this country through our borders. To paraphrase Chester Tan, the head of the National Federation of Hog Farmers, if “nalusutan na tayo ng ASF virus ngayon na 54,000 metric tons lang ang minimum access volume o MAV ng pork, how much more if the DA expands the MAV to 400,000 tons?” (If the ASF virus managed to slip in while the minimum access volume or MAV of pork was only 54,0000 metric tons, how much more if the DA expands the MAV to 400,000 tons?)
That is a good point to raise. But to me, the concern is a warning to the Bureau of Animal Industry and National Meat Inspection Service to do their surveillance work better, and to religiously monitor the flow of pork and pork products through our borders. In my view, Mr. Tan is not necessarily against expanding imports so long as the capability to protect our hog farms from the virus brought here through imports is made stronger.
Let’s get down to the bottom of this argument. We just have no option but to strengthen the capability of authorities to implement risk-based regulation of pork imports. A total ban or keeping the MAV at its current level is not ours to take: a total lockdown will raise pork prices even higher.
Secondly, the country can build up its capability to produce pork in the Visayas, Mindanao and other parts of Luzon like the Ilocos region (See the Box). We don’t need more imports: the national capital can “import pork” from the rest of the country. The Agriculture department’s program of getting pork or live hogs supply from provinces less affected by ASF to Metro Manila is eventually a zero-sum game.
The ASF virus is spreading and it will only be a matter of time before outbreaks on the scale that hog farmers in Calabarzon and Central Luzon went through in the last year and a half will also hit in the rest of the country. Increasing pig production in the rest of the country to export to Metro Manila or other highly urbanized areas is as uncertain as doing the same in two of the largest pork producing regions of the country.
Without filing the shortage through pork imports while the virus is here and local production is down, the Department of Agriculture’s program will only reduce the disparity of pork prices across the country by raising them to an average between the higher prices in Manila in the midst of the ASF outbreak, and the lower prices in the provinces.
We cannot afford a new normal in which pork prices in our country are bumped up to pay for the shipping costs of pigs or pork from other parts of the country into the largest pork market, Metro Manila. It is still cheaper to revive the capability of Central Luzon and Calabarzon to produce the pork supply that they were capable of before 2019. And that is when prices were in the neighborhood of P200 a kilo.
I asked a pork importer what his landed cost of pork was in 2020. He e-mailed me that it was P100 a kilo. Wow! If the new normal pork price is P400 a kilo, that would be four times what the rest of the world can supply us. That new normal price brings us back to the same problem we had before with rice: families with meager incomes will spend more on this staple meat and let go of other essential spending. Pork adobo will be a luxury! The prices of longanisa, chorizo and other processed pork will also go up.
Thirdly, we don’t need more pork imports because we can re-herd. Re-populating the herd is necessary. But this takes time. Spain, which suffered from the ASF virus in the 1960s, took 30 years to get rid of the disease. It was only in the 1990s that it began exporting ASF-free pork to the rest of European Union.
It is possible that we now have a better way of designing and implementing re-herding programs than Spain did back then. We have access to better testing laboratories and kits, disinfecting hog trucks, ICT which facilitates better and faster communication for improved surveillance, improved animal husbandry, and, yes, some countries may come up with an ASF-vaccine in our time. However, despite all these technologies of the 21st century which we can use in fighting the ASF disease faster and more effectively than Spain did, we still need years to succeed.
In the meantime, we must relieve the shortage with more imports even as we re-herd our country’s pig farms and contain or, better still, eradicate the ASF virus.
RE-HERDING SWINE FARMS IN CENTRAL LUZON AND CALABARZON
The Department of Agriculture’s first action against the ASF has to do with implementing zoning and hog movement restrictions depending on the level of ASF risks. It partnered with local government units to implement the plan. Checkpoints were raised and the movement of live pigs and pork products from infested regions into ASF-free areas were banned.
Some time in December, the department came up with its banner program called the Integrated National Swine Production Initiatives for Recovery and Expansion (INSPIRE) program. Sows have been distributed to pig raisers in ASF-free pilot areas in a massive effort to increase pork production. Secretary William Dar announced that the Department of Agriculture had earmarked P400 million to jumpstart INSPIRE in Central Luzon and Calabarzon. According to a report, the program establishes multiplier farms through clustering or a village-level approach. Each cluster has 20 hog farmers. Every member in the cluster is provided by the program with five piglets, 20 bags of animal feed, and biologics. A cluster can raise 100 piglets. INSPIRE was launched in Batangas city last month.
This program is only as good as the biosecurity measures in place to protect these clusters of hog farms from the ASF-virus. INSPIRE has considered biosecurity farming in these clusters.
What can economics contribute to building up the pig inventory of the country? Actually, there is something. Professor Eric Maskin, 2007 Nobel Laureate in Economics, laid down the foundation of mechanism design. Mechanism design uses incentives to transform personal objectives into the common society’s objective. I close by asking this: What incentives are built into INSPIRE to make it succeed? How does it organize key stakeholders, industry (backyard and commercial), local government authorities (province and municipal), National Government officials, and so on to come up with a good design for a hog re-herding program? Otherwise, as in countless development programs, we had learned that the lack of good incentives is key to wasting resources.
Ramon L. Clarete is a professor at the University of the Philippines School of Economics.
THE COUNTRY’s swine herd had increased from 12.7 million heads in 2016 to 13.01 million in 2019, with Central Luzon and Calabarzon being the top two contributing regions, respectively at 18% and 17% in 2019 to the total herd of the country.
In 2020, the country’s inventory of pigs declined by 13%, from 13 million heads in 2019 to 11.27 million, and the top two producing regions suffered the largest decline of their respective swine herds, 51% for Central Luzon and 9% for Calabarzon. Both regions are top pork exporters into the National Capital Region.
Central Luzon’s pork supply was down by 28.4% in 2020 from its average supply of four years (2016-2019). Calabarzon followed with nearly an 8% cut of its pork production. Altogether nearly 60% of the country’s pork output took a dive in 2020, clear reason for the spike of prices in 2020.
