Philippine agriculture and COVID-19 impact
The Philippine economy is on a downward trajectory. The main culprit: the COVID-19 pandemic which has also affected over 120 countries.
In 1998, the economy declined by 0.5% due to the Asian financial crisis and the El Niño dry spell. The drought brought down agriculture by 7%. This year, the economy contracted by 0.2% in the first quarter, the first time in more than two decades. The turnout was somehow affected by the Taal Volcano eruption in January. Agriculture slid by 0.4%.
For the second quarter, the situation could be worse as the government imposed a lockdown in mid-March. There are possible ill effects caused by the drought in Mindanao and Typhoon Ambo.
Almost simultaneously, supply chain disruptions and demand compression fanned out. Supply chain lockdowns affected the flow of goods from farms to urban markets. Agricultural labor faced mobility issues. The reduction in local demand and export demand is pervasive as families lost buying power.
This article will focus on agriculture. Supply chains extend some 500 kilometers (km) from Tuguegarao to the National Capital Region (NCR) for grains by land and for fresh produce, longer at 1,400 km from Cagayan de Oro to Manila.
Local demand has reduced purchasing power due to job and livelihood losses. The lower class is heavily burdened and to a lesser extent, the middle class. Some 75% of the lower class’ (30%) spending goes to food as compared to an average of 42% spend on food for all families. Food demand reverberates to food processing and logistics services.
Agriculture accounts for less than 10% of the gross domestic product (GDP), food manufacturing like flour milling contributes another 10%. Agro-services (packaging, transport, trade warehousing, trade, etc.) add about 15%.
Agricultural exports are taking a beating, too. Cavendish banana volume is down as China traders have backtracked in the season of peak prices. Iran reportedly stopped buying with the collapse of oil prices.
Vegetables and fruits are mostly perishables. Lockdowns have affected deliveries like vegetables from North Luzon to Manila and other regions. Some areas are able to manage in that their harvests are being bought by the local government units, private sector and non-government organizations for relief distribution. Others are not as lucky, and they just let their produce rot in the fields due to the absence of buyers.
Fishery contracted in the first quarter of 2020. It is unlikely to quickly recover soon since the first semester is fishing season.
Livestock: Hogs production is down due to the African swine fever since 2019. The earlier lockdown on hog movement affected supply chains, from breeding to fattening.
Poultry production is up for at least two factors: a shift in demand from pork and heavy engagement of integrators like San Miguel and Bounty. However, UBRA’s Gregorio San Diego urged the government in a recent interview to stop chicken importation. There is an oversupply with the lack of demand as a large part of consumption comes from hotels, restaurants, and institutions which are closed due to the enhanced community quarantine period. The cold storages are full as demand has slackened. Egg production appears doing well.
Treecrops or permanent crops led by coconut, rubber, and coffee are unlikely to be affected as they are already standing crops, but world prices and demand have a strong influence on income.
Altogether, the sector’s annual target for the year is compromised. That goes for rural poverty alleviation, too.
What is next?
The Department of Agriculture is pushing for a P66-billion stimulus package to address the impact of COVID-19 on the sector. Some P31 billion is intended to go to its food security program called Ahon Lahat, Pagkaing Sapat (ALPAS) Kontra sa COVID-19; P20 billion to improve logistics and food markets; and P15 billion for its cash-for-work program.
The Philippine Chamber of Agriculture and Food (PCAFI) argued that the stimulus package should refocus towards programs that will improve output for poultry, hogs, fisheries, dairy and feed crops as demand slowly recovers.
Rice, meat, vegetable, and fish constitute the main basket for food security. The lack of supply could cause inflation. Rice appears well-supplied with local produce and contracted imports. But the other crops need to be revived to address food security.
Finance Secretary Carlos G. Dominguez III also recommended five priority measures to stimulate domestic consumption and jumpstart the economy despite the pandemic. Among these measures are the Build, Build, Build program; the promotion of manufacture of products with “strong and inelastic demand,” especially food production and logistics; and support to the whole food production value chain, including the setting up of food markets for more efficient distribution.
GLOBAL COMPETITIVENESS
COVID-19 or no COVID-19, the issue of global competitiveness remains. There are products with import substitution possibilities. Intercropping of 3.5 million hectares of coconut trees, and the planting of short gestating dwarf varieties remain in the doldrums. It will be an endearing legacy of President Rodrigo Duterte if the coconut issues are addressed.
Food systems have become increasingly globalized. The Economist reports, “The trade in agricultural goods amounts to $1.6 trillion annually, or 10% of total global trade.”
To compete, the Philippines must address long-term structural problems.
Investors find the Comprehensive Agrarian Reform Program’s (CARP) five-hectare retention limit a barrier to economies of scale. The sector suffers from a management deficit. In my talks with moneyed people, they need 20 hectares or more for sustainable operation.
After 34 years of CARP, Philippine crop productivity and diversification, agricultural exports, and rural poverty lag those of the ASEAN. Food processing is behind, too, due to lack of raw materials.
Meanwhile, the Local Government Code of 1991 failed to provide robust extension systems by giving autonomy to weak municipalities, instead of the provincial local government units.
Where do we go from here? Who will address these issues? Any innovative solutions from the Left and the Right?
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.
Rolando T. Dy is the Co-Vice Chair of the MAP AgriBusiness Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia& the Pacific.
