Wages and food prices

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Any discussion of the potential economic impact of the recently mandated minimum wage increases has shown how little our options are. That’s because our officials have failed to make the right economic policies through the years.

The BSP has warned that we are in danger of a more serious second round inflation than they have anticipated. The wage increase order blindsided them. That means they may have to keep interest rates higher for longer and that’s not good for businesses we depend on for economic growth.

Economists worry that rising labor costs, especially for labor-intensive and service-oriented businesses, make employers pass the extra costs directly to consumers by raising the prices of goods and services that people cannot live without.

Inflation for the poorest families is not just a statistic, but a direct threat to their food security. It acts like a “regressive tax,” hurting low-income households the most. When costs rise, wealthier families simply save less, but poorer families are forced to cut back on eating.

PSA data confirms that the bottom 30 percent of Filipino households allocate roughly 60 percent or more of their total budget to food. They are caught in an “inelastic expense trap” because costs like MRT/LRT fares, jeepney fares and electricity bills are rigid. You cannot negotiate your utility bill or commute halfway to work.

Food is the only adjustable variable in a poor family’s budget. Rising prices lead directly to smaller portions or skipped meals. Our people are denied their basic human right for food and nutrition. Children get stunted, adversely affecting their brain development. And that reduces their economic potential for life.

The primary goal of the 12 percent wage hike was to restore “purchasing power parity.” It intends to give workers back the buying power they lost to inflation over the past two years.

But here is a policy dilemma: If those higher wages trigger a new round of price increases by businesses, that extra P85 will be quickly wiped out by even higher prices for rice, meat and vegetables.

If inflation accelerates because of it as the BSP fears, workers end up right back where they started – with less food on the table.

The government is reacting in panic by giving out ayudas. While this may help for a few days, it is not sustainable. The tight fiscal space prevents BBM from doing this indefinitely.

The high cost of food fuels the urgency for increasing wages, minimum or otherwise. Food is uniquely expensive in the Philippines, compared to neighbors like Vietnam. This is why focusing on increasing wages alone is not enough.

Many economists believe that addressing high food costs should absolutely be the primary focus, because raising wages without fixing food supply chains is merely treating the symptom rather than curing the disease.

Independent polls, like the Stratbase-Pulse Asia survey, show that lowering food prices is the number one issue Filipinos want the government to prioritize – ranking significantly higher than raising wages.

What should the government do that it has failed to do?

The government’s core focus must shift heavily toward structural agriculture reforms to reduce the punishing food inflation we have been experiencing.

For example, high logistical costs eat up over 25 percent of a food item’s final retail price in the Philippines, compared to just 14 percent in Thailand. Workers are essentially paying a massive premium for our inefficient transportation infrastructure.

For years, our officials blamed our archipelagic nature for high food distribution costs. But Indonesia has 17,000 islands – more than double the Philippines’ 7,100. Yet, Indonesia keeps its food inflation significantly lower. Indonesia has shown that being an archipelago is an operational challenge, not an excuse that our officials love.

As of 2026, Indonesia’s food inflation is around 1.5 percent to 3.5 percent, while the Philippines grapples with 5.2 percent to over seven percent.

A Facebook post by a Filipino in Indonesia reports that a restaurant meal or market grocery run in Jakarta costs 30 to 40 percent less than a matching basket in Manila.

Indonesia aggressively uses engineering and right policies to disprove the excuse that geography is a reason for high food prices. Our stubborn insistence on using the cabotage system has kept domestic shipping costs for agricultural products high.

A direct comparison of shipping a standard 20-foot full container load (FCL) domestically reveals that the Manila-to-Davao route is roughly two to three times more expensive than the Jakarta-to-Surabaya route which is roughly the same distance.

It is often cheaper to import corn or rice from Vietnam or Thailand to Manila than it is to ship local corn or rice from Davao to Manila. High shipping costs act like a hidden tax on every single onion, potato and sack of rice transported across the country.

By treating shipping lanes as a public utility (like highways) rather than profit-driven private routes, Indonesia ensures that being an archipelagic nation does not translate into expensive food.

Our fragmented and low-yield agriculture is the other major reason why our food inflation is high. Even the DA acknowledges that local food production suffers from a severe lack of scale.

While Vietnam benefits from highly mechanized, state-backed mega-farms, Philippine farming remains heavily fragmented among smallholder farms with minimal capital expenditure. Our government is afraid to fix this problem because our agrarian reform program is somehow treated as sacred.

There were talks of the Department of Agrarian Reform launching a program to cluster farms to enable more economic scale development but nothing has happened.

Still another cause of high food inflation is agri waste. Up to 30 percent of harvested vegetables rot before they ever reach a supermarket or market stall. This artificial scarcity drives prices up.

There are other aspects of the mandated wage increase that we must examine in a future column. But focusing on lowering food inflation is a good long-term approach.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco