Let me lay out the following propositions:
1. A number of rice farmers will never be competitive. The difference in average cost of palay between Vietnamese and Thai rice farmers and Filipino rice farmers is P4 to P5 per kilo, a huge gap showing the difference in productivity between Filipino rice farmers and our Asean neighbors.
This huge gap in productivity and average cost reflects differences in irrigation, the use of farm machinery, farming methods, average farm size, etc. A number of Filipino farmers, shielded by protectionist measures from foreign competition for so long, tilling fragmented lands, saddled with debt, exploited by traders, and deprived of critical agricultural extension services by an uncaring government, will never be able to compete.
2. The government is incompetent when it comes to making rice farmers productive, especially in the near-term, when farmers are reeling from the low prices of palay at the farmgate. It is similarly incompetent when it comes to extending a conditional cash transfer program that will provide relief to our suffering rice farmers.
We are talking here of 2.2 million rice farmers who the government must target to give financial assistance to.
I’m not denigrating the competence and integrity of Secretary William Dar who, I believe, is the best man for the job. However, he’s in charge of a bureaucracy that was home to the Napoles scam, the fertilizer scam, and many other scams. It’s simply unbelievable that this same bureaucracy can now deliver money to specific, targeted farmers — all 2.2 million them — efficiently, quickly, and without leakages.
(To see just how inefficient Department of Agriculture [DA] is, consider the study made by development economist Melinda Gayle-Limlengco for Nagoya University, who concluded that despite huge sums being spent, the DA’s regional expenditures had a negligible and insignificant impact on agricultural production.)
We are also talking here of government in general that is incompetent in most respects, whether it’s running the Bureau of Corrections, Customs, the MRT, the Philippine National Railways, the MWSS, the BIR, the LTFRB, or any other program or institution. As I had written before, the Philippine government is a reverse King Midas; whatever it touches turns into manure.
3. Increasing or even doubling the tariff rates is not a safety net. It will incentivize smuggling and increase rice prices for 105 million consumers. It will send confusing signals to rice farmers (How long is the increased tariff rate? Should I plant more or not?) and cannot be sustained without an impact on inflation.
4. It’s not acceptable, either, to go back to a status quo ante. The situation previous to rice tariffication was characterized by the rice importation monopoly of the National Food Authority (NFA). Unsurprisingly, the system only benefited corrupt NFA officials and the rice syndicates, penalized 105 million Filipino rice consumers with high prices, wasted resources subsidizing only a fraction of rice farmers (the NFA’s budget is good only for 3% of the rice output), enabled rice traders to capture most of the rent from rice protection, and caused last year’s consumer price inflation.
Worse, it gave the signal that our rice farmers don’t have to improve, despite the fact that our Asean neighbors are producing rice at almost half the cost. Therefore, when rice tariffication did finally arrive, government and the rice farmers were unprepared for the shock that happened.
5. There is no denying that a number of rice farmers will lose their present livelihood, especially those at the margins (no irrigation, limited access to financing, use traditional methods of farming). No amount in a rice competitiveness fund can sugarcoat this reality.
We can expect these rice farmers to quickly descend into dire poverty or move to cities to seek jobs as informal workers. This migration to cities will cause further squatting in slums, where crime and drug dealing fester. Or, for want of opportunity, they will be recruited by the NPA.
6. Therefore, a number of rice farmers cannot remain rice farmers forever. It would be wrong and foolish for the government to adopt an assistance program that assumes it to be so. We have to accept the reality of migration because that’s what industrialization and progress is all about. Farmers and agricultural workers at the margin move from their low productivity livelihood in the countryside to higher productivity jobs in semi-urban and urban areas.
Migration is not bad and should even be encouraged. The average income of Filipino farmers is only P100,000 a year. That’s much less than what a farmer could make as a worker with benefits (SSS, Philhealth, etc.)
Migration doesn’t necessarily mean migration from the countryside to the city. It could also mean migrating from less-productive work as a rice farmer to a more productive (and therefore higher income) work as a farm worker in an agribusiness farm.
7. If the government cannot provide the safety net, who will? The private sector — but only if the government provides the right policies for the private sector to come in.
What are these safety nets? One is the vigorous expansion of modern agribusiness farms which will take in the displaced rice farmers (and coconut farmers who are presently suffering from historically abysmally low prices) as agricultural workers. Industrializing farming and modernizing agriculture is one of the policy directions of DA Secretary Dar and he’s correct.
However, for this to happen, the government must remove the five-hectare retention limit on farmlands that is mandated by the Comprehensive Agrarian Reform Law. Successful and highly productive farmers aren’t allowed to expand. Imagine if Jollibee had been prohibited from expanding to no more than five stores. It wouldn’t be the world-class fast food chain that is employing thousands of Filipinos today.
The other safety net is the promotion of labor-intensive light manufacturing and cottage industries. Employment in this sector is not only a safety net for displaced farmers or their children, but is also a progression from low-income, low-productivity farming.
Again, I would like to state that internal migration from low-productivity agriculture to higher-productivity manufacturing and cottage industries is a normal and welcome process if the country is to industrialize. That happened in England in the 19th century and in China in the period after 1985 when it started its breakneck speed toward industrialization. Some 200 million people moved from China’s countryside to its urban centers.
However, this process is stopped in the Philippines because of the labor rigidities enshrined in the Labor Code. Instead of displaced farmers and their sons and daughters going into light manufacturing, they go to the cities to find work, if they can, in unstable, low paying service jobs or as illegal vendors. (The service sector accounts for the biggest share of the nation’s employment, mainly from low productivity service work.)
It’s about time to revive former Socio-economic Planning Secretary Gerry Sicat’s idea of labor-friendly economic zones, where labor-intensive light manufacturing can find a welcome home. The idea is to promote labor-employment, either through a temporary suspension of labor security regulations and the high entry level minimum wages (this had been done before successfully in a banana plantation in Central Mindanao) or through government subsidy of employment — a Conditional Cash Transfer (CCT) Program for employment. A CCT for employment is more sustainable than sheer dole outs to rice farmers. Perhaps the tax code could also be changed to encourage employment (150% deductibility of labor-related expenses). The Labor Apprenticeship Law should also be passed to encourage businesses to invest in the training of unskilled workers or displaced farmers looking for work.
Government can also do its part by providing the infrastructure suitable for light manufacturing, perhaps even building and leasing factory buildings and warehouses. Then all the capitalists must do is bring in the machinery. (Think garments, for example, or shoe manufacturing.)
Let’s face it: some rice farmers may become competitive under a regime of rice import liberalization, but a good number will not be. They will be forced to exit farming altogether or shift to other high value crops — if they can. For those who can’t make the transition, the government must provide safety nets for them. However, it’s wishful thinking that the government, through the agricultural bureaucracy, can target and dole out money effectively for 2.2 million rice farmers. Neither is a dole out sustainable or to the long term interest of farmers.
The real safety net is to get agribusiness farms to expand and absorb the displaced farmers. Or, for displaced farmers to find employment in labor-intensive light manufacturing and cottage industries. Anything else will fail and just fool the people.
Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.