Crisis of agriculture: Rooted in bad economic assumptions

For a while, the agricultural sector was being touted as the nation’s salva-vida. At the height of the national quarantine last year, people learned to appreciate the critical role of farmers in feeding the nation. A number of city dwellers even became part-time farmers. An army of plantitos and plantitas also discovered the healing power and ornamental beauty of plants.

As a result, agriculture, on continuous decline in pre-covid period, even posted positive growth in the third quarter of 2020 before slumping again in the last quarter. However, for the entire Covid year of 2020, agriculture’s growth contraction was a minimal minus 0.2 percent compared to the disastrous growth numbers for industry (minus 13.1 percent) and services (minus 9.1 percent).

Today, the picture for the whole agricultural sector is not pretty. Almost all agri sub-sectors—from rice to sugar, from poultry to piggery, and so on—are in crisis. Production is plummeting down. Worse, rising food inf lation is threatening to transform the economic recession into a full-blown stagflation (economic stagnation and hyper inflation), which the country experienced in the 1980s, at the height of the debt-driven economic crisis under the waning years of the Marcos regime. This is why peasant unions and agribased civil society organizations are now joined by the agri-based industry associations and consumer groups in the clamor for the needed salva-vida for the farming sector and price stability for the consuming public.

The truth is that the agricultural sector has been shrinking since 1994, the year the Philippine government signed on to the World Trade Organization and adopted the WTO’S overall demand of opening up the domestic market through agricultural tariffication and the progressive downward restructuring of agricultural tariffs. Since 1994, the Philippines has become a net agriculture-importing country, reversing its record of being

a net agriculture-exporting country for almost two centuries. In 2019, the share of agriculture in the total GDP of the country was a measly 8.82 percent, and yet the sector accounts for a quarter of the country’s labor force.

So what can be done to prevent the slow-by-slow collapse of the agricultural sector? What can be done to prevent the sector’s measly GDP contribution shrinking further?

At the moment, the proposal from the national government is the convening of a national “Food Summit.” This is a welcome move, so long as all concerned sectors, especially farmers and producers, are invited, consulted, heard and given freedom to speak. And yes, the Summit Convenors led by the President should be open or prepared to accept that past premises and development frameworks advanced by the economic technocrats to grow the sector have not been working.

A case in point is the country’s experience with the Rice Tariffication Law (RTL), which is being credited by some policy-makers as the reason for the alleged stability of the rice market. Accordingly, RTL has benefited both the consumers and the palay producers.

Most of the peasant and civil society organizations will dispute the above claim. A recent statistical study by the Federation of Free Farmers (“A Litany of Broken Promises,” February 22) shows that RTL has failed to deliver the promised benefits, namely: reduction of prices paid by the consumers (especially the poor), higher production and profits for the palay farmers, and reduced government spending with the downsizing of the

National Food Authority (NFA). None have been fulfilled.

First, on the price of rice, statistics show that the average price of rice was virtually the same as in 2017, whereas the justification advanced by the pro-rtl lobby then was that rice price would decline by as much as P7/kilo below the 2017 level. This did not happen despite the flood of imports totaling 3.17 million tons in 2019. Note that the years 2017 and 2018 saw a rapid rise in rice prices because the Neda-led “NFA Council” refused to give NFA and the Department of Agriculture timely permission to import despite the NFA’S forecast of looming rice shortages (in short, rice inflation then was partly Neda-made and was used to justify the enactment of RTL).

On the other hand, palay prices plunged down immediately to belowcost-of-production level after the RTL enactment because the rice imports made by a dozen or so big private importers, who were able to “game” the importation business as reported by the Businessmirror, succeeded in controlling and influencing the wholesaling-retailing business. Per FFF estimation, the cumulative loss of the domestic rice farmers in 2019 and 2020 is a whopping P56 billion. The income of a rice farmer fell on the average at P6,000 per hectare per season. In 2019, palay prices went down to as low as P6 to P7 a kilo farmgate price compared to the cost of production of P12 a kilo.

As to the promised improvement in rice production output, the FFF insists that there was hardly any that can be associated with the so-called government assistance under the yearly P10 billion Rice Competitiveness Enhancement Fund (RCEF). The average yield per hectare in 2019-2020 was slightly better than the 2016-2018 period by only a trifle 3 percent. According to FFF, this rate of improvement means Filipino rice farmers will need 20 years before they can attain the six metric tons per hectare achieved by their Vietnamese and Thai counterparts.

Interestingly, most of the improvements in rice yield were recorded in rainfed areas, not in the irrigated areas, where most of the RCEF investments on new rice seeds and machinery are supposed to go. This implies something is not working in the RCEF system as envisioned by the RTL proponents.

So who have benefited from the RTL? The quick answer: the big private importers and their allies in the distribution business. Who are the losers? Domestic palay producers, consumers and, yes, the government. Despite the reduction of the role of the NFA in rice importation and the stabilization of prices for the rice consumers and palay producers under the old NFA’S rule of buy-high-sell-low framework, the government still incurred massive expenses. Why? It had to force NFA to buy as much palay for stockpiling purposes, had to urge LGUS to also engage in palay production to assuage the feelings of angry palay farmers, and, at one time, had to ask its own Philippine International Trading Corp. to import rice.

In sum, the Food Summit can be an opportunity to stop the continuing collapse of the agricultural sector if the Convenors are prepared to admit the false economic assumptions behind certain agricultural policies such as the RTL. Right now, there is a proposal for the total opening up of the whole sector to trade liberalization and importation. In the case of the piggery sector, one pro-rtl economist was even suggesting a uniform five percent tariff.

But if the solution to food inflation is simply more importation and more trade liberalization, what will happen to the domestic agricultural sector? If all the sub-sectors of the agricultural sector shall be swamped by imports under a program of trade liberalization, will there still be a domestic agricultural sector to speak of in the coming years?

Obviously, solutions to the farming sector cannot be reduced to a simplistic open-up-and-compete framework, or else you die. If this is so, why did the following countries provide so much subsidies to their farmers in 2019 —China, $185.9 billion; European Union, $101.3 billion; and the United States, $48.9 billion?

More in the next issue.