Crossroads (Toward Philippine economic and social progress)
Philippine Star, 21 August 2019


There is a price phenomenon about native fruits in the food basket. Why have our favorite local fruits become much more expensive?

The prices of our favorite fruits at home have led the way toward inflation long before. Aside from seasonal factors, the prices of these fruits have crept up with the rise of export demand for them.

Why our favorite local fruits have become expensive. A big part of the answer to this phenomenon is that these fruits are our major fruit exports.

The traditional explanation cannot come simply from our rising population and the relative scarcity of land for planting, although these are important long term factors.

During harvest time when the quantities of our fruits are in abundant supply, their prices are relatively more affordable. Yet their local supply tightens much sooner because some of that output goes to the export market.

The fruits in question have different harvesting patterns, and this partly explains the flexibility of their supply. The bananas and pineapples are plantation crops. Their market supply is relatively pliable because their output could be managed within a shorter time horizon of a year or two.

Mangoes are different. It takes at least six years for a new mango plant to bear fruit although improved planting has reduced that time for marcotted culture. The supply of mangoes is more dependent on existing tree stand and their productivity. When mangoes from Guimaras and other areas began to be exported, the local supply of domestic mangoes became tighter.

On the other hand, demand for fruits, especially for exports, tend to be less stable than local demand. Many more factors determine export demand and changes here naturally affects the supply of fruits going to the local market.

The volume of fruits that are destined for exports reduces the quantity supplied for local demand. Not only does the export price affect the determination of the local price. In general, the existence of a foreign demand for a domestic product reduces the supply of the product going to the local market.

This explanation does not seem easily to apply in the case of bananas. Our banana exports, mainly of the Cavendish varieties, were developed almost entirely for the foreign markets.

Filipinos prefer the local varieties, principally lakatan and latundan and saba, and there are many other local varieties, though lately Cavendish (the export variety), are gradually creating a local market.

Although from the standpoint of supply, bananas and even pineapples, might have production specifically planted for the export market, the fact is that they compete for the use of economic resources, especially land. Moreover, it is not exactly correct that they are entirely divorced from the varieties that the local market prefers.

The other consideration is that the nation wants more than just the native fruits for their consumption. There is a domestic demand for temperate fruits and tropical fruits that could be obtained through importation.

There was a time when import and exchange controls made most foreign fruits (apples, grapes, oranges) disappear from the local market.

Import liberalization of agricultural products realigned the benefits and costs of imports and domestic production more evenly distributed, with the result that the welfare of consumers and producers in the country were balanced better.

The plain fact is that the dollar earnings we get from our exports strengthen our capacity to import other goods that we need. One way of stylizing this is that we export our bananas, pineapples and mangoes to enable us to buy apples, oranges and grapes.

In fact, with liberal policies on agricultural imports we are able to serve on our meal tables most of the foreign fruits that we want. We can get the fruits that are in season in other countries also served for us for our needs, sometimes at prices that are outlandishly cheaper here than in the home countries.

If the prices of native fruits have risen, at least Filipinos can afford to buy foreign fruits at home at very reasonable prices.

Freer trade. In essence, the regime of freer trade in agricultural exports has helped to enliven the growth of agriculture lately. It demonstrates for us the perennial experience that a freer exchange of goods is important for stimulating our economy.

Only state policies, such as quotas, taxes, tariffs, fees, transport costs, and other add-ons to costs can render this commerce less smooth. Any state policies that complicates and distorts the operation of smooth trade, such as the practice of limited licensing of traders can add inefficiencies in trade through higher costs.

In general, when trade happens, all parties to it receive beneficial outcomes. This often results from the operation of competition which lead to lower prices of goods.

This also indicates the main benefits that accompany trade. So long as we focus on what we can advantageously and naturally produce, we can also buy from other countries the things that we cannot efficiently produce.

Who wins and who loses. The rise in the price of mangoes and other fruits might pinch the budget of domestic buyers. However, industry producers (or exporters) improve their position because of earnings growth.

This benefit affects a chain of economic dependents in the industry: workers and owners economic resources of enterprises that are involved in the growing industries. Their incomes and consequently their welfare improve.

Those who own land earn better incomes, for land being an asset that also has to earn its due returns from its use. And of course, there is also the value chain of workers and business institutions related to the logistics of the industry – transport, commerce and services.

The dollar incomes derived from exports enable the country also to raise the nation’s ability to import. The earnings from exports are dollars earned for the nation. Those dollars provide a means to buy more goods from other countries, thus creating a reverse flow of products.

As we sell our bananas, mangoes, pineapples etc., we are enabled to earn the means to buy apples, oranges, grapes and other kinds of temperate and other fruits.