Vol. XXII, No. 84 [ BusinessWorld Online ]
Thursday, November 20, 2008 | MANILA, PHILIPPINES
Six-month shelving to help stabilize local prices — Malacañang
TARIFFS ON WHEAT AND CEMENT will be temporarily removed in an effort to stabilize domestic prices, Malacañang yesterday announced.
Import duties for both commodities, President Gloria Macapagal-Arroyo declared in two executive orders, would be cut to zero for six months "subject to further review."
Domestic cement firms and corn growers criticized the move, while flour millers and bakers said they would pass on the cost reduction to consumers. Feed milling industry officials were not immediately available for comment.
Finance Undersecretary Gil S. Beltran said the revenue impact would be minimal. Imports are in fact expected to increase, meaning that value-added tax (VAT) collections will also rise.
For cement, the Philippines imposes a 3% tariff on imports from within the Association of Southeast Asian Nations. For non-ASEAN countries or those with most favored nation status, the duty is normally 5%.
Executive Order 766, signed by Mrs. Arroyo last November 7, said removing the tariffs would "ensure the stability of prices and adequacy of the supply of cement for government’s infrastructure programs including low-cost/mass housing projects."
Wheat for food imports, meanwhile, is currently slapped a 3% tariff if sourced from within ASEAN. Non-ASEAN shipments have to contend with a 5% duty. Feed wheat imports, meanwhile, are levied a 7% duty.
Executive Order 765, also signed the same day as the cement EO, said "[A] reduction on tariff on food wheat would help stabilize the price of bread and other baked products ... A reduction on tariff on feed wheat would help lower the cost of feed ingredients and keep the prices of poultry and livestock stable."
Both EOs will take effect 30 days after publication in the Official Gazette or a newspaper of general circulation.
Trade Secretary Peter B. Favila told a press conference that the EOs were "part of government intervention to ensure prices remain in affordable levels."
Cement manufacturers, he said, are expected to lower prices to around P175-180 for every 40 kg. bag.
Cement makers Holcim Philippines Inc. and Lafarge Philippines in September increased prices by P10-12. Trade Department data showed that cement sold in Metro Manila cost P205 per bag as of the first week of November.
But Ernesto M. Ordoñez, president of the Cement Manufacturers Association of the Philippines, warned the EO would encourage the dumping and compromise supply.
"We will not be sure of the quality of the cement that will come in. You are also not sure about the availability of supply," he told BusinessWorld in a telephone interview.
Mr. Ordoñez told Reuters, meanwhile, that "At a time when everyone’s protecting their industries, here we are inviting more products into our territory."
"The 5% tariff is already very low and to take it out makes the situation worse," he said, adding other countries in Asia slap much higher duties on cement imports including Vietnam at 40% and Thailand at 12%.
The local units of Lafarge and Holcim, the world’s largest and second-largest cement makers, together produce more than 60% of the Philippines’ annual cement output of 22 million tons, he said.
Annual imports are only around 48,000 tons.
Roger Navarro, head of the industry group Philippine Maize Federation, said the government’s decision should also push growers of corn, which is used alternatively with wheat as animal feed, to plant less.
"With this move [to scrap the tariff], the importers are having a field day," he said.
But Ricardo M. Pinca, executive director of the Philippine Association of Flour Millers, said "Whatever tariff reduction, we would have to pass it down."
Philippine Baking Industry Group President Simplicio P. Umali said the entry of more imported flour would force local flour millers to lower prices.
"With increased competition, the flour millers will have to lower their prices to compete with the imported flour ... Once we consume our old stocks then prices can be adjusted."
Last month, the Philippine Association of Flour Millers said prices of hard flour, which is used to create pan de sal and loaf bread, would be slashed to P925-940 from P957 per 25-kg sack due to lower global prices.
Trade Undersecretary Zenaida C. Maglaya, meanwhile, said bread and pasta prices should be cut ahead of the EO’s effectivity.
"Flour [prices] have been moving down by P10-20 per week," she told BusinessWorld.
The Philippines resumed buying wheat for feed last month, purchasing about 120,000 tons from the Ukraine, following a drop in global prices, and could buy more next year.
It imported 393,000 tons of feed wheat last year, mostly from China, but stopped buying overseas until this month due to high prices. — from reports by ADBR with inputs from Reuters and Jessica Anne D. Hermosa
