DOJ: Cartel to blame for high garlic prices

Posted at 09/03/2014 3:51 PM | Updated as of 09/03/2014 5:53 PM

MANILA – The Department of Justice (DOJ), through its Office for Competition (OFC), confirmed on Wednesday the existence of a garlic cartel in the country in possible collusion with government officials.

In a 32-page report submitted to Justice Secretary Leila De Lima, the OFC found that the spike in market garlic prices in recent months, which led to the probe, was caused by the existence of a cartel in possible collusion with officials of the Bureau of Plant Industry (BPI) and Department of Agriculture (DA).

The DOJ identified a problem within the import permit authority being exercised by the BPI as among the root causes of the problem. The DOJ said the Plant Quarantine Clearance issued by the BPI should not have the same effect as an import permit.

Garlic supply in the country is derived from imports, representing 73 percent, with importations peaking at 55,000 metric tons in 2008, and local produce, representing 27 percent.

"Importation of garlic in the country is controlled mainly by at least four known individuals and allied interests through a web or series of dummy entities duly accredited by the BPI... the lack of clear-cut guidelines and established procedures in determining the allocation of import permits has made the BPI system prone to partiality, manipulation and collusion," the report read.

Big spikes in market garlic prices were noted in recent months, reaching a high of P287.06 per kilo in June -- more than a 100 percent increase from average prices, and a 74 percent increase within a one-year period.

Leah Cruz controls 75 percent of garlic importation

The DOJ identified a certain Lilia M. Cruz aka Leah Cruz as the lead personality in the so-called garlic cartel, cornering at least 75 percent of the total garlic importation nationwide.

Cruz controls several farmers' cooperatives and associations who are able to secure a BPI Sanitary and Phyto-Sanitary Import Clearance (SPSIC) necessary to import garlic and other plant products, the report stressed.

"That Cruz is behind these cooperatives and associations and gets to enjoy 60 percent of the total import permits issued is said to be common knowledge to the industry. But what most importers cannot ignore is that Cruz is even taking a share in the 40 percent allocated to legitimate importers through her dummy entities," the report read.

Only those with SPSIC are allowed to import garlic since the SPSIC was "turned" into an import permit by the BPI, according to the DOJ.

"Since BPI turned the SPSIC to be an import permit without which plant products cannot enter and due further to the lack of transparent procedure in its grant as well as the unrestrained discretion exercised by the BPI Director, several personalities ended up controlling garlic importation in the country.

"Interviews with eight BPI officials and three accredited importers revealed that Cruz is behind all eight farmers cooperatives and associations which are members of NGAT (National Garlic Action Team).

Furthermore, she has created several dummy entities to maximize the number of SPSIC that she would get," the report read.

The NGAT evaluates farmers' cooperatives and associations who intend to import garlic.

The DOJ said Cruz is affiliated with at least sixteen importers.

"These companies are all managed and controlled by Cruz as confirmed by importers interviewed. Some of them even carry the same office address and the registered owners are the same personalities involved with the NGAT," the report read.

In 2013 alone, over 300 SPSICs were granted to cooperatives, associations, and importers affiliated with Cruz.

"The single entity cornering the bulk of SPSIC issuances could, in effect, control garlic importation in the country. This could be said of Cruz who could have easily cornered 75 percent of total garlic importation.... [i]f this importer controlling 75 percent of importation passes on expensive garlic to wholesalers, such cost will be carried through in the supply chain until ultimately, the retailers bear the brunt of the high cost," the report read.

'CARTEL IN POSSIBLE COLLUSION WITH BPI'

The DOJ pointed out that "the lack of clear-cut guidelines and established procedures in determining the allocation of import permits has made the BPI system prone to partiality, manipulation and collusion."

The BPI permit system facilitated the establishment of a garlic cartel, possibly with the collusion of some BPI and DA officials, especially that the BPI Director has the "unbridled discretion to determine who among the accredited importers... would be granted an SPSIC," the report stressed.

"There are indications that certain BPI officials use this permit system (SPSIC) to engage in unlawful combination together with Cruz and altogether control the importation of garlic in the country. The control is so organized that it favors only a few selected importers to the exclusion of other legitimate importers.

"Officials ensure that trade in importation is limited only to a select group by restricting allowance of SPSIC only to favored dummies of Cruz when this could have been undertaken by giving all legitimate importers the opportunity to take part in the importation," the report read.

The BPI even revalidated expired permits involving hundreds of SPSICs in two occasions "without legal basis," the report pointed out.

Though still subject to further validation, the report said some of the personalities interviewed during the course of the OFC probe alleged that P50,000 is remitted to the BPI for every SPSIC released.

The OFC recommended for the National Bureau of Investigation (NBI) to pursue the leads and gather more evidence for the successful prosecution of those who should be made liable for violations of Republic Act (RA) No. 7581, also known as The Price Act, which prohibits cartels and penalized price manipulation, and Article 186 (on monopolies and combinations in restraint of trade) of the Revised Penal Code, among others.

The OFC also recommended the removal of the import permit authority of the BPI given the country's high garlic import dependence and supply vulnerabilities, as well as the abolition of the NGAT, calling it unnecessary, unhelpful and adding to the problem.

The OFC Report will be submitted to President Aquino; the DOJ OFC is headed by Asst. Sec. Geronimo Sy.