Input Policy in Philipines- Marites Tiongco


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  • Several decades ago, the country’s economy and employment have been dependent on agriculture. In recent years, however, the population has become less dependent on farming. In terms of share to the total economy, the agriculture sector’s importance has continuously dropped over the past decades. In 1946, about a third of the economy (29.7 percent) was agricultural, but the share of agriculture to the economy has declined over the In the early 1970s, rapid growth in agricultural production was experienced, averaging 7.7 percent, but started to decline in the 1980s (except for corn which was in growing demand) due to low world commodity prices combined with high costs of inputs such as fertilizers.The agricultural sector employs about one-third of the work force but contributes less than a fifth of GDP. In 1990, it was contributing 15.4%; Agricultural output declined by 0.5% during 2010 due to the adverse effects of drought during the first 9 months of the year, but grew by 4.5% during the first nine months of 2011. in 2012, it was contributing merely 11.1 percent to the economy
  • Share of ag in total employment in 2011==33% (has been declining from 2009 to 2011)It is also in the agriculture sector that labor wage rate is lowest compared to manufacturing and services sectors. Farmers are paid an average daily wage and salary of Php 156.8 in 2011 (LFS, Bureau of Labor and Employment Statistics, 2012). Given the low wage rates, it can also be seen from recent official poverty statistics that the concentration of the poor has been highest among farmers at 36.7% in 2009 (way above the national poverty incidence of 26.5%).In terms of share of agriculture to total employment, 33 percent (12.27 million people) out of the 37 million people are employed in the labor force in 2011 (Table 1). This share of the labor force engaged in agriculture has been declining since early 1980s, at 52 percent, down to 41 percent in 1990s to 36 percent in late 2000s, but agriculture remains a very important sector in providing employment and livelihoods especially for people living in the rural areas. The diminishing trend could be attributed to migration from the agriculture to non-agriculture sectors, which has been driven by wage differentials across sectors.
  • The Philippines, like other ASEAN economies, has likewise experienced changing structure of agriculture sector. For instance, the shares of Agriculture to the economy of most countries in the Association of South East Asian (ASEAN) have also been declining, especially in the case Vietnam, which was 40.2 percent agricultural in 1985, with this share reduced to almost half in 2011 (at 22.02 percent). Note that even if the share of agriculture to the economy has been declining, the Gross Value Added of Agriculture in 2011 for ASEAN countries has still been a considerable amount: leading are Indonesia (37,252 million US$), Philippines (15,397 million US$), and Thailand (14,182 million US$). In terms of employment, Thailand has the most number of persons in ASEAN employed in agriculture at 41.5 percent. But employment in agriculture has also declining, especially in Thailand from 70.8 percent in 1980 to only 41.5 percent in 2009.
  • WEAKNESSES (Scores less than 25)Corruption0.02.2) Public expenditure on agricultural R&D0.0Gross domestic product per capita (PPP)5.8While this profile of the agriculture sector may give more bullets for prophets of doom to point to the lackluster performance in boosting the sector, it is important to recognize that government has a number of policies and programs toward uplifting the lives of the Filipino farmers and fishermen. The budget allocation of the government to the agriculture sector, as indicated in the General Appropriations Act 2012, may seem meager but it has been continuously increasing from a share of 0.5 percent in 2007 to 4.7 percent of the total budget in 2013.
  • Incentives to producers raised domestic price above the world price
  • The policy focus of the government within agriculture is on rice as it remains an important food staple in the Philippines. The trend in the production and consumption of rice (Figure 4) is continuously increasing in accordance with the goal of the government towards self-sufficiency. On the demand side, per capita consumption has been rising along with modest improvements in incomes. On the supply side, rice yields are up but poverty among small producers persists at unacceptable levels. While the rice import is at 3% of the net availability of rice paddies in 2012, it has been confirmed that the self-sufficiency ratio of the Philippines is 98%, which is significantly higher than the 94% in 2011. Moreover, the government further seeks to improve the self-sufficiency ratio of the Philippines in 2013 and onwards.This goal was strengthened after the 2007/2008 food price crisis when some food exporting countries imposed restrictions on their food exports. According to Timmer (2012), national self-sufficiency in food staples will be achieved by raising productivity and competitiveness of Filipino farmers, by providing adequate economic incentives and enabling mechanisms, and by managing food demand including promoting diversification towards other traditional staples.
  • Food security is achieved if people have access at all times to sufficient and nutritious food that meets their dietary needs for a healthy and active life (1996 World Food SummitOne of the indicators of food security is the prevalence of food inadequacy, which captures an outcome of food insecurity due to inadequate food access. The table shows the food inadequacy across Southeast Asian countries from 2005-2012. The figures indicate that the Philippines ranks midway compared to its Southeast Asian neighbors. Brunei Darussalam has the least prevalence of food inadequacy, and Timor Leste has the highest prevalence of food inadequacy
  • Using household level data, Table above shows four measures of food security, namely: per capita real value of food consumption; non-staples as a share of food consumption; animal products as a share of food consumption; and reported number of months per year that the household has sufficient food.Table 3 shows the average values of the measures of self-sufficiency, food security, and standard of living in urban and rural areas in the Philippines. On average, rural households produce 14.4% (compared to 15.2% in 2006) of the cereals they consume (and buy the remaining 86%), and 14.6% of the rice they consume (Table 3). As expected, the urban figures are lower than the rural figures (except for the animal products and non-staples as share of food consumption), while the national averages lie between the two.
  • This regime is characterized with a growth in participation of the private sector, reduced public sector roles, market interventions, and protection of local industries from imports through tariff or non-tariff policy such as the tax exemption for fertilizer import.
  • Sustained investment in agricultureR & D : increasing incomes and profits, improving yield and quality, technologies in marginal areas /overcome CC Human resource capacity improvement: education, training and extensionIrrigation (e.g. critical for the rainfed areas)Infrastructure (transport, communication, power, etc) - lower transaction costs, facilitate info sharing (challenge for the remote areas, esp. upland/hilly areas)Leveraging public investment through private sector participation: strong public participation where market failure is evident, coherent programs with development partners
  • Land policy/land fragmentation: safeguard rights of farmers esp to land Managing natural resource: legal, institutional, valuationImproving incentives for efficient resource allocation within and outside the agricultural economy Reducing institutional obstacles to least-cost input supply and output marketing/trade: SOEsNew paradigm in rural credit which combines state agency (and regulation) with private actors
  • Input Policy in Philipines- Marites Tiongco

    1. 1. Marites M. Tiongco De La Salle University Manila, Philippines
    2. 2.  Profile of the agriculture sector  Evolution of agricultural input policies, highlighting the seed and fertilizer policies  Policies that facilitated the transformation of the Philippine agricultural sector
    3. 3. -10.00 -5.00 0.00 5.00 10.00 15.00 AnnualChange,Percent GDP Agriculture Industry Services
    4. 4. Employment by Industry Group Average 2009 2010 2011 2012 ALL INDUSTRIES 100% 100% 100% 100% AGRICULTUR E 34% 33% 33% 32% INDUSTRY 15% 15% 15% 15% SERVICES 51% 52% 52% 52%
    5. 5. 0 200,000,000 400,000,000 600,000,000 800,000,000 1,000,000,000 1,200,000,000 1,400,000,000 1,600,000,000 1,800,000,000 2,000,000,000 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Total Agriculture
    6. 6.  High cost of production inputs; quantitative restrictions  Inefficient supply chains—high transaction and distribution costs; poor infrastructures and lack of transport facilities  Weak agricultural extension service—links between technology producers and extension workers and farmers  Financial or capacity constraints of intended users— lack of credit facilities  Inappropriate government regulations—lack of incentives  Climate change
    7. 7. 0 20 40 60 80 100 120 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 20,000,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Riceself-sufficiency(%) RiceProductionandconsumption(mt) Rice Production (mt) (paddy) Rice Consumption Self-sufficiency ratio Note: Self-sufficiency ratio=Production/Production + Exports-Imports*(100); ratios closer to or over 100.00 indicate the country’s capability to produce its own requirements and generate export earnings
    8. 8. Country 2005- 07 2006- 08 2007- 09 2008- 10 2009- 11 2010- 12 Brunei Darussalam < 5.0 < 5.0 < 5.0 < 5.0 < 5.0 < 5.0 Cambodia 34 32.5 32 31 29.3 27.1 Indonesia 24.6 23.2 21.7 19.7 17.8 15.8 LaoPeople's Democratic Republic 41.9 40.9 39.1 38.3 38 38.3 Malaysia 7.1 7 6.8 7.1 7.1 6.9 Myanmar 34.6 33.4 32.9 31.7 31 29.5 Philippines 25.5 23.5 22.5 22.7 23.4 23.8 Thailand 18.8 19 19.1 18.5 16.6 15.5 Timor Leste 37.9 39 38.6 37.7 42.1 46.1 Source: Food and Agriculture Organization (FAO)
    9. 9. Indicators Urban Rural Overall Households with sufficient food for the past 6 months (as % of total) 19.73 37.69 28.74 Cereal self-sufficiency (%) 4.40 14.42 9.32 Rice self-sufficiency (%) 4.84 14.57 9.67 Per capita food expenditure (%) 28.43 27.98 28.20 Share of nonstaples in food (%) 65.34 60.12 62.72 Share of animal products in food (%) 32.73 29.53 31.13 Per capita food expenditure (Php/mo) 3,688.07 2,274.55 2,979.02 Source: Analysis of data from the 2009 FIES. Note: Three indicators of food self-sufficiency using the FIES 2009 are shown: 1) home-produced food as share of all food consumed; 2) home-produced cereals as a share of all cereals consumed; and 3) home-produced rice as a share of all rice consumed
    10. 10.  Government efforts during this regime include imposing tariffs on manufactured goods, overvaluation of the currency, export taxes on agricultural commodities, and price controls, which had a deleterious effect on the agricultural sector, making the sector relatively unprofitable.  It was during this time when the Philippines briefly achieved self-sufficiency in rice and became one of the rice exporters in Asia (Rosset, Collins & Lapp, 2000). ◦ High adoption rate of MVs of rice ◦ Increased Productivity and Profitability of farmers ◦ Brought by the introduction of the green revolution technology (Increased use of fertilizers & pesticides, Improved irrigation systems, adoption of MVs, associated management skills) ◦ But Large farmers were the main beneficiaries.
    11. 11. This regime is characterized with a growth in participation of the private sector, reduced public sector roles, market interventions, and protection of local industries from imports through tariff or non-tariff policy such as the tax exemption for fertilizer import. The Agricultural and Fisheries Modernization Act (Republic Act 8435)  Objectives: Food security; Poverty alleviation and social equity; Income enhancement and profitability, especially for farmers and fisherfolk; Global competitiveness; Sustainability  Strengths: Amended to further strengthen the expected impact; amendment included exemptions for enterprises engaged in agriculture from paying tariffs and import duties on importations of all types of agriculture and fisheries inputs until 2015; Fertilizer imports as well as hybrid seeds by direct users were granted total tax exemption  Weaknesses: Hybrid rice technology is 'quite new' to farmers and 'difficult' to follow; Rice is susceptible to pests and diseases, has high cost of production and is prone to seasonal variations in yield
    12. 12. FIELDS Program  Objectives: Beef up rice production; Attain self- sufficiency in rice by 2013  Strengths: Provision of subsidized fertilizer; Specified budget for roads, irrigation facilities, labor and research development, agriculturual credit, and post-harvest facilities; Seed subsidy and stock procurement of fresh harvest  Weaknesses: Use of certified rice seeds and hybrid seeds over good seeds
    13. 13. Food security policy thru the Food Staples Sufficiency Program (FSSP)  Objectives: Self-sufficiency; Food security; Raising rural incomes; Improve farm productivity; Enhance economic incentives; Enable mechanisms; Manage food staple consumption  Strengths: Provision of adequate economic incentives and access to credit and crop insurance; Guaranteed reasonable returns for farmers; Less government intervention on retail prices  Weaknesses: NFA’s role will be reduced to rice distribution and importation; Focus on buffer stocking and domestic procurement
    14. 14.  Green Revolution (1960s-1980s): Fertilizer manufacturing was subsidized; Increased use of fertilizers due to adoption f modern rice varieties and expansion of other crops: (including sugarcane) ◦ Growing fertilizer demand was mostly met by increasing domestic production supported by incentives and price policies  Fertilizer Industry Authority was established in 1972 to regulate prices, imports, production, and marketing, quality and safety of agricultural chemicals  Two-tier pricing of fertilizer, with producers able to access fertilizer at a lower administered price  Government subsidy (thru Masagana 99) in the form of distribution of discounted fertilizers to rice producers and sugar planters coops Two-tier policy was abolished but price-targeting policy remained, i.e., control imports thru QRs allocated to domestic producers and authorized importers; producers of fertilizer were exempted from control sand import duties of raw materials. Government paid cash subsidies to losses of local fertilizer producer incurred from administered pricing  Tax exemption for the importation of all kinds of fertilizers but later limited to imports of capital equipment
    15. 15.  Liberalization (1990s to 2000s): Deregulation of fertilizer trade (cheaper fertilizer) ◦ Discontinuance of the issuance of FPA Import Permit for fertilizer importations and FPA focused on developmental support and maintaining product quality and standards ◦ Tariffs reduced (1%-3% if from ASEAN country 0%; superphospahtes at 7%) ◦ AFMA allowed tax-free importation of fertilizers by agricultural enterprises ◦ No more subsidies, but sale and importation of fertilizers are exempted from the 12% value added tax ◦ Removal of procurement control (i.e. determination of import requirements, conduct of bidding and allocation of import volume); ◦ Scrapping of the price-setting function of the government; ◦ .  Post Global Food Price Crisis (2008-present): Improvement of organic fertilizer production; Maximize and develop what is currently available and affordable for the local farmers; Subsidized Fertilizer with budget of 0.5 Million pesos
    16. 16.  Green Revolution (1960s-1980s): Direct Subsidy on seeds; Free Distribution of MV Inbred Seeds;  Liberalization (1990s to 2000s): Granted total tax exemption on Hybrid seeds by direct users; Adoption of Hybrid Rice Seeds; Provide incentives to hybrid seed producers ◦ Additional subsidies for other farm inputs; Government buys at guaranteed price; Government sells hybrid seeds at half the price during purchase, with the remainder to be paid after harvest  Post Global Food Price Crisis (2008-present): Removal of direct subsidy on seeds; Promotion of use of certified rice seeds and hybrid seeds over good seeds; Seed subsidy through community seed banks;
    17. 17.  Agricultural input policies of the Philippines are geared to achieving high agricultural productivity, food staples sufficiency and food security, and sustainability  Open trading system; greater dependence on market  Tariff exemptions for a wide range of imported items generally used as production inputs; lowest applied tariffs on some goods ◦ High sugar protection prevented the inflow of lower priced sugar imports, and resulted in high domestic sugar prices. Reduction in sugar tariffs in the Philippines and in the rest of the ASEAN may potentially increase the flow of sugar trade within the region (Cororaton, 2013) because some countries are net sugar exporters (Thailand) while others are net importers (Indonesia) 
    18. 18.  The government has developed a policy environment that strongly supports private sector participation ◦ Economic structural adjustments geared toward opening the economy to competition and leveling the playing field of enterprise. ◦ A clear policy and institutional framework to permit tangential flow of private resources into the governments development program—esp. for the infrastructure sector  Examples: improvement of existing postharvest processing and trading centers; establishment of a cold chain system; multipurpose reservoir dam
    19. 19. 1. Increase (and sustained) investment in agriculture , esp. R&D, infrastructures, and smallholder productivity ◦ resource-efficient technologies, such as integrated soil fertility management using a combination of fertilizer and manure/compost; low-cost irrigation ◦ Public-Private Partnership infrastructure initiative ◦ Capacity building: education, training and extension 2. Improve access to inputs such as fertilizer and seeds—seed and fertilizer prices must be low enough for the farmers to afford and for the distributers to offset their costs and
    20. 20. 1. Overcome institutional constraints ◦ Land titling and use; safeguard rights of farmers ◦ Access to credit—a new paradigm of community banking (with private actors) ◦ Effective regulations or control mechanisms on input and output markets: privatization of SOEs
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