Stronger agro processing sector improves exports mix

Establishing a strong agro processing sector can greatly boost the sophistication of Philippine exports which has barely improved in two decades, said state-run think tank Philippine Institute for Development Studies (PIDS).

In a new paper titled “Discovering the Philippines’ Potential Export Portfolio through the Product Space: Some Products and Ways Forward,” the policy research institute said the misguided structural transformation of the Philippine economy has left the country unable to diversify its export products especially in the agriculture sector.

PIDS senior researcher Connie Bayudan-Dacuycuy noted that the sophistication of the country’s export basket has barely improved from 1995 to 2014.

For instance, a large portion of exports were integrated circuits, the sophistication of which is “very low” compared with the average sophistication of products in the world market, she said.

In 2014 alone, relatively sophisticated products such as static converters, semiconductor devices, telegraph equipment, electric capacitors, electronic printed circuits, cruise ships, and ferry boats were included in the export portfolio but these accounted only for a small portion of the country’s total export revenues.

This was attributed to the fact that the Philippines skipped the development of a robust industrial sector from an agricultural base before the economy became service-oriented.

“The problem with the Philippine case is that we seem to have skipped a step. We moved from agriculture to services without even industrializing,” said Bayudan-Dacuycuy, noting the industry sector spurs learning and innovation.

The study said the Philippines can tap into the potential of goods that have the same production requirements and are less costly to produce.

A bright spot in this would be the still underdeveloped agriculture sector where employment is still high but which contribution to the gross domestic product is declining.

The study said steering the agricultural sector into agro processing will produce goods with higher sophistication content like woven twill and processed meat such as swine belly and poultry cuts.

These, however, are still not among the most sophisticated agricultural products in the world like processed offal and cheese.

Bayudan-Dacuycuy said harnessing the potential of the agriculture sector despite the productivity issues present would enable the country to build on the production structures of other products like cereals, fruit mixtures, glycerol, and oils.

“The idea here is that if we’re able to improve our production structure now, then there is a possibility for new products to come along that can lead us to these products with high sophistication content,” she said.

As part of the study’s recommendations, BayudanDacuycuy urged the government to create an enabling environment by promoting competition, innovation, and research on science and technology.

She also mentioned the need to enhance industrial policies.

The paper was published at a time of transition to a new rice tariffication regime that removes the quantitative restriction on rice imports.

This was meant to drive down the prices of the staple and encourage farmers to diversify into the production of high value crops.

The implementation of the law, however, has come under fire because of rapidly falling palay prices and the still insufficient assistance provided during the implementation.