The missing link is agriculture

One of the weakest planks of Philippine economic policy, the missing link in the economic development of the Philippines, is found in the agricultural sector. The otherwise sound foundation of Philippine economic development over the next decade or so, that could lead to sustained annual growth of GDP of 6.5 percent, still suffers from the absence of a coherent plan to raise the country’s low agricultural output and productivity. This handicap from which the Duterte Administration continues to suffer was made plainly clear by the recent World Bank Report entitled “Growth and Productivity in the Philippines.” In great contrast with its ASEAN peers, especially Thailand, Malaysia and Vietnam, the Philippines has failed miserably to increase its exports of agricultural products, not to mention to feed its own population. In fact, the recent bout with high rates of inflation was just a symptom of this failure to increase agricultural productivity on many fronts.

The irony of it all is that a root problem of this decades-long failure is the very unenlightened effort to attain food security by focusing almost exclusively on rice self-sufficiency. This not only created the monster that the National Food Authority (NFA) became, mismanaging the importation of rice, but prevented the country from diversifying away from crops such as rice and corn into higher value crops like coffee, cacao, palm oil, rubber, fruits and vegetables which even late comer Vietnam has been able to do with such admirable efficiency. As the World Bank report accurately observed, despite the government’s inordinate support to rice producers, agricultural production only increased from 16 percent in 1991 of GDP to 22 percent in 2013. During this same period, its ASEAN peers diversified to and increased the production of higher-value crops, resulting in higher agricultural output and productivity.

Another major reason for the failure in improving agricultural productivity was the country’s lengthy and costly agrarian reform program that brought uncertainty to beneficiaries and undermined investment in agribusiness. The motivation of land reform, which started in 1988, was justifiable. It was meant to promote social justice by distributing large landed estates to small farmers. It was aimed at regulating tenancy, establishing a maximum limit on farm sizes, and supporting family farms. Some 7 million hectares of farm lands were distributed to small-scale farmers, and about 50 percent of the beneficiaries received assistance to improve farm productivity. But there was an utter failure to provide the farm beneficiaries with such indispensable support as farm-to-market roads, irrigation facilities, post-harvest and other services. The farmers ended poorer than before, especially in coconut regions, as they lacked access to credit and expertise, and there was less incentive for large farms to invest due to uncertainties. In fact, despite a law requiring banks to invest part of their portfolio in what were called “agri-agra” projects, most banks preferred to pay penalties of hundreds of millions of pesos because of these uncertainties. Although the Comprehensive Agrarian Reform Program (CARP) Law expired in 2014, there has been no clearcut policy to take its place. The uncertainties remain, especially in the lack of clarity about how small farms can be reconsolidated into bigger units to attain economies of scale, following such successful models as the nucleus farms of palm oil plantations in Malaysia or cooperative farming in Thailand or Vietnam. Hopefully, recent attempts of the Land Bank to adopt the “corporative” model can be given a chance to work in the planting of high-value crops, including coconuts. This model involves a large corporation working in tandem with small farmers who are helped by the bigger firm to organize themselves as cooperatives, including as workers cooperatives.

The problem of raising agricultural productivity is aggravated by the high vulnerability of the Philippines to natural disasters. For example, the El Nino weather phenomenon contributed to an agricultural output loss of 6.8 percent in 1998 and 0.4 percent in 2009-10. To make matters even worse, there has been an increase in the severity and intensity of tropical cyclones in recent years. Because poverty incidence in the rural areas is very high, farmers do not have the wherewithals to make the investments to mitigate the harmful effects of natural disasters. Compounding their problem even more, small farmers are caught in the cross fire of conflicting groups in the countryside. Because of these conflicts, farmers have little incentive to invest in new technology or new crops, or even just to expand their current production. A great deal of resources are redirected towards rebuilding or rehabilitating the areas that suffer destruction because of these conflicts. Of course, the long-term solution is a more determined effort to reduce the poverty incidence in these areas because conflicts are just symptoms of dehumanizing poverty in these rural areas.

Finally, the World Bank Report rightly points out to the need to improve the coordination of the departments and agencies that implement agricultural policies and programs. It may be easier said than done but it is imperative that something drastic be done with the existing fragmented institutional setup in the agricultural sector. This fragmentation results in weak coordination, increases the risk of corruption, reduces the clarity of policy direction and agency roles, and restricts the reach and depth of support provided to the sector. We can only hope that in the second half of the term of President Duterte, the highest priority is assigned to addressing these problems of policy formulation and implementation in the agricultural sector, the most neglected in Philippine economic policy making. President Duterte can start by appointing an agricultural tzar as competent, honest, and decisive as the economic managers on whom he relies to maintain macroeconomic stability.

For comments, my email address is bernardo.villegas@uap.asia.