The Market Monitor Minding the Nation's Business
By Luis Leoncio
The next president of the Philippines should focus on agriculture, as this sector is vital to achieving broad-based and inclusive growth, a recently released policy paper of the Joint Foreign Chambers of the Philippines (JFC) said.
In a paper titled “Bond inclusive reforms for agribusiness for the next decade,” the JFC said “a sense of urgency” was needed to unleash, modernize and diversify the business of agricultural and food production.
The paper noted that, while the Philippines has been shifting away from an agrarian-based economy, with the broad agriculture sector currently accounting for a little over 10 percent of gross domestic product (GDP), close to one third of its workforce—or 12 million out of the 38 million able-bodied Filipinos—relies on agriculture for their livelihood.
In its Feb. 1 to 7 issue, The Market Monitor, in its banner story “Diokno: No inclusive growth under Aquino,” quoted former Budget Secretary Benjamin Diokno as having said that, despite the Aquino administration’s repeated boasts, the economy for past five years failed where it mattered most—in the agricultural sector and, thus, did not achieve inclusive growth.
Diokno, who is now a University of the Philippines economics professor, said that, while President Aquino could probably boast of the highest average growth rate among his predecessors, his administration lagged behind in spurring agricultural growth. This neglect of agriculture was “indisputable” under Aquino since from 2011 to 2015, agriculture grew only by 1.6 percent, which was even way below the population growth, Diokno said.
The JFC study said recent data revealed that agricultural output remained flat in 2015, growing by a mere 0.11 percent (from P788 billion in 2014 to P789 billion last year).
Over the past six years (2010 to 2015), the agriculture sector grew by an average of 1.3 percent, well below the average 6.2 percent growth rate of the broader economy, it said. The study’s quoted figure was even less than that cited by Diokno.
“While the Philippines can no longer claim to be an agrarian society, the agriculture sector still plays an important part in the economy, particularly for rural households that depend largely on exploiting the land for their livelihood,” the paper said.
It said that upward of 73 percent of the country’s poor reside in rural areas, where agriculture provides an economic lifeline and remains crucial to achieving inclusive growth.
Among the poorest in the country, farmers and fishermen face the highest incidence of poverty, or an estimated 38 percent, which has shown no significant change in over a decade, the study noted.
It added that, while the agriculture sector accounted for a small portion of GDP, its significance derives from employment, characterized as mostly informal, low-wage, and low-skilled.
“The sector’s contribution to employment has declined in recent years, the study said.
It added that, by many accounts, the country has not fully exploited its comparative advantage in agriculture, especially in Mindanao, considered the country’s breadbasket.
“Beginning with high input costs during production, agribusinesses in the Philippines must also contend with a supply chain that progressively erodes the sector’s competitiveness en route to consumer markets.
The paper estimates that, along this supply chain, a staggering 20 percent to 50 percent of fresh produce are lost in transit from the farm to consumers.
“By comparison, postharvest losses amount to an estimated 6 percent in Thailand. By the time agricultural products reach the markets, transaction costs have escalated, rendering many agribusinesses susceptible to external shocks, at best, and uncompetitive, at worst,” it said.
As evidenced by growing markups from farmgate to retail prices for key crops— rice, corn, bananas, and mangoes—constraints with logistics and supply chain compound already challenging production issues of quality and efficiency, the study said.
The formidable challenges and constraints along the supply chain that hamper the sector’s full potential include the high and variable cost of production inputs, lack of mechanization to improve productivity, limited access to finance to scaled up operations, inadequate provision of infrastructure, particularly in irrigation: and inefficient logistics and limited connectivity, exacerbating post-harvest losses.
The paper said bold measures were needed to open up markets, unleash capital, improve infrastructure and rationalize extension services.
“In terms of public resources toward these goals, the deployment of even a portion of the coco levy funds to aid coconut farmers will go a long way toward enhancing extension services, access to credit, investments in much-needed farm rehabilitation, and other poverty alleviation measures,” it added.
The JFC noted that devolved to municipal governments through the Local Government Code (LGC), agriculture extension services in the Philippines appear weak, limited and fragmented.