The recent spike in rice inflation and its harm on the macro-economy and poverty incidence has focused attention to long-standing failures of our agricultural sector. This is evident in comparative statistics vs. peers, e.g. farm productivity (see table below), agriculture sector growth, rural poverty incidence.
Failed policies over decades: tunnel vision on rice self sufficiency (rice related spending accounts for over 70% of public spending for agriculture), the neglect of other crops and aqua resources where the Philippines has higher actual or potential comparative advantage, and a seriously flawed agrarian reform program that has only transformed landless peasants into “impoverished landowners,” as National Scientist Raul Fabella has found in his research.
I would invite you to read Prof. Fabella’s column, “CARPER: Time to let go” (Oct. 28, 2013),and my other fellow Introspective columnist and Foundation for Economic Freedom (FEF) President Calixto Chikimaco’s more recent “Agriculture, Agriculture, Agriculture” (November 2018) for a deeper analysis of why we are in this hole.
Looking forward, may I share with readers our FEF Statement calling for action. Some personal annotations are in italics.
TO THE DUTERTE ADMINISTRATION: PAY ATTENTION TO AGRICULTURE!
We, the Foundation for Economic Freedom, are calling on the Duterte Administration to pay special attention to agriculture because low agricultural productivity and anemic agricultural growth will increase the risk of a return of high inflation and will drag down the economy as it has in 2018.
Agriculture posted a measly 0.56% growth in 2018, way below population growth of 1.6% pa, exposing the dismal performance of this sector. Climate change and weather disturbances cannot be blamed because our ASEAN neighbors are posting healthy growth rates despite similar weather disturbances.
Without significant improvement in the agricultural sector, the government cannot hope to alleviate poverty in the rural areas where most of the poor people live.
Poor agricultural productivity will remain also a drag on the Philippine economy. High food costs translate into high wages and uncompetitiveness of our manufacturing and export sectors. Agricultural products also serve as inputs into food manufacturing. Therefore, high agricultural input costs mean high manufacturing costs and poor competitiveness.
On enhancing agricultural productivity, we ask the Duterte Administration to do the following:
1. Ensure that the P10 billion competitiveness fund for affected rice farmers under the Rice Tariffication Law be properly used to increase agricultural productivity with tight measures to prevent misuse and leakages. (We are all too familiar with past examples of bad, possibly criminal, spending — election linked fertilizer and pesticide programs, most loans under the WTO adjustment fund that went bad, “farm to pocket roads,” and suspicious procurements by NFA. This will need to be addressed more strictly in the IRRs of this new law. A straightforward use should be to directly assist affected marginal rice farmers , along the lines of the Conditional Cash Transfers program. Another would be to support much needed farm mechanization to realize greater efficiencies.)
2. Make rural infrastructure a significant component of the country’s Build-Build-Build Program.
3. Certify the Public Service Act Amendments as urgent in order to increase foreign investments in shipping and ports and thereby lower logistical costs for farmers trying to reach the market.
4. Amend the Comprehensive Agrarian Reform Law to reverse the fragmentation of farmlands, make CARP lands bankable, and enable efficient farmers to expand beyond the legal ownership limit of five (5) hectares.
5. Increase the budget for agricultural research and development, especially for research into crops that will be resistant to climate change. (I would add here, revisit and revamp broken agriculture extension program. This has been ill-designed under the Local Government Code — devolved to the municipal level, when it should have been done at the provincial.)
6. Liberalize sugar imports in order to make local sugar production more competitive and to lower the input costs of our food export manufacturing sector. (Although we are bound under ASEAN to 5%, all imports now are required to pass through the Sugar Regulatory Commission. Another NFA-like situation that has already led to the exit of a large multinational investor in a beverage company because of inability to source their sugar requirements efficiently.)
To these six, allow me to add a couple more:
7. Urgent action to utilize the P80-billion coco levy funds to revive the long-neglected coconut industry. This industry employs 3.5 million Filipinos; 60% and their families live in poverty.
8. Refocus public financial institutions to support agriculture and rural development, especially the LANDBANK and the Development Bank of the Philippines. Over the years, they seem to have been distracted into simply duplicating commercial banking services of private financial institutions, instead of doing development. As a corollary, scrap the failed Agri-Agra Credit Reform Act which mandates banks to lend a certain percent of their portfolio for agrarian and agriculture activities. No private commercial bank has been able to nearly comply and all prudently chose to pay the fines instead of risking money of depositors on bad performing loans. Ultimately it is just a bad tax that raises the cost of credit to all.
Romeo L. Bernardo is vice chairman of the Foundation for Economic Freedom and GlobalSource Partners Philippine Advisor. He was Finance undersecretary during the Corazon Aquino and Fidel Ramos administrations.