PRELIMINARY VERSION FOR DISCUSSION ONLY
AGENDA FOR ACTION FOR THE PHILIPPINE RURAL SECTOR
AgriculturalPolicyand StrategyTeam
UNIVERSITY
OF THE PHILIPPINES PHILIPPINE
AT LOS BANOS-AGRICULTURAL
POLICY RESEARCH
INSTITUTE
STUDIES
FOR DEVELOPMENT
PROGRAM
AGRICULTURAL
POLICY
AND STRATEGY
C RISTINA C. DAVID WILFRIDO D. CRUZ FERMIN D. ADRIANO LOURDES S. ADRIANO CECILIO R. ARBOLEDA ERNESTO D. BAUTISTA FERNANDO A. BERNARDO LIBORIO F. CABANILLA MA.- CONCEPCION J. CRUZ WILFREDO P. DAVID LEONARDO A. GONZALES
RESEARCH
AND ADMINISTRATIVE
Estrellita E. Amante Evelinda H. Ballon Jose Benedicto A. Chupungco Felisa P. L. Cruz Dulce D. E1azegui Emma M. Escover Lorna B. Escueta Imelda C. Frago Prudenciano U. Gordonci110
TEAM.MEMBERS CIEL,ITO F. HABITO SATURNINA C. HALOS MARIO B. LAMBERTE FLORDELIZA A. LANTICAN MANUEL M. LANTIN MAHAR K. MANGAHAS ELISEO R. PONCE AGNES R. QUISUMBING AGNES C. ROLA ZENAIDA F. TOQUERO
SUPPORT
STAFF
Cristina P. Lim Marife T. Magno Loida S. Mordido Lourdes D. Ocampo Merlyne M. Paunlagui Romeo P. Perlas Joseph P. Timog Leovino M. Velasco
FOREWORD
After the February revolution, a small group of academicians at .the University of the Philippines at Los Banos met and decided to form a. team (the Agricultural Policy and Strategy Team) that will conduct, an-exhaustive analysis of policies affecting the agricultural sector. Such a study was viewed imperative because o£ (i) agriculture's overall importance to the economy i.e., 'it contributes more than a quarter of the gross domestic product and about one third if gross value added from agricultural processing is inclQded_ and almost 60 percent of our people live in the rural areas; and (2) its'key role in the national economic recovery effort. Given time constraint the team agreed to come up with a report within three months. Thus, this work should not be viewed as a final versiQn but was put together because of the urgent need to present coherent policy statements and programs for reforms in the agricultural sector. Most of the papers in this report were written by the members of the team except for rice and fertilizer which were earlier presented in one of the policy worshops sponsored by the Center for Policy and Development Studies, UPLB. The work is divided into six chapters and each chapter consists of several papers written/prepared by different individuals (their names are indicated in the footnote). To solve the problem of divergence in style and presentation, we provided overviews for each of the chapter. However, Chapter I summarizes the major policy recommendations of the various papers and weaves into a coherent form, the long and short-term agenda for reform for the sector. We have also included several papers as annexes because of their possible policy impact on particular problems of the countryside. Policy s£udy is a collaborative endeavor and this work isno exception. Several individuals and institutions generously extended their asslstance, materially and otherwise, to the grbup, The llst is long and thus what we did was to indicate them at the very end of each chapter. However, some of them need special mention., the University of the Philippines at Los Banos for allowing a number Of its staff to work as and with the team members; the Philippine Institute for Development Studies and the UPLB Winrock-USAID Agricultural Policy Research Program for jointly funding the effort; the International Rice Research Institute for allowing Dr. Cristina C. David to work with the group; the Visayas State College of Agriculture for lending Dr. Eli seo Ponce; the National Sciences Research Institute _or allowing Dr. Saturnina Halos to work on the research and extension
topic; Dr. Mahar Mangahas, President of Social Weather Station, Inc., and Dr. Fernando Bernardo, SEARCA Director for generously extending their time and assistance and to the Ministry of Agriculture and Food for reproducing this report. It should be stressed however • that the report •does not •represent the official position of the Ministry, U.P. at Los Banos or PIDS on the various topics discussed •herein. Hence, any errors of interpretation/analysls contained in this work are solely the responsibility of the team members. APST
£i
Editorial
Committee
TABLE
OF
CONTENTS
Title
Chapter
I.
An
Agenda
A.
Long-Term Policy Agenda for the Agricultural Sector Short-Run Recovery Program for the Rural Sector
B.
Chapter
II.
Addressing A. B.
Chapter
III.
Chapter
IV.
C.
Chapter
V.
Rural
Food
S. C. D. E.
Poverty
I.l 1.27 II.l
II.3 II. 57 III.l
Rice Pricing and Marketing Policy Policies for the Corn Industry The Livestock and Feed Industries Fisheries Sector Upland Agriculture
III.4 III.50 III.78 III.95 III.119
Exports
IV.I
Coconut Industry Policy Agenda for the Sugar Industry Policy Agenda for Non-traditional Agricultural Exports
Rural and A.
Reform
Crops
Agricultural A. B.
Policy
Rural Poverty and Poverty Programs in the Philippines Land Ref6rm and Redistributlve Justice
Traditional A. B. C. D. E.
for
Page
Credit, Services
Agricultural
IV. 4 IV. 18 IV. 37
Inputs V. 1
Policy Recommendations for Agricultural Credit Policy Issues on Irrigation Development Policy Recommendations for Pesticides Policy Issues on Fertilizer Policy Issues on Postproduction Systems on Grains and Perishables
iii
V.7 V. 28 V. 57 V.86
V. 95
Page
Title
Chapter
VI.
Research, Extension and Delivery of Government to Agriculture A.
B.
Annexe
Agricultural Extension: Improvement Suggestions Re form
the Services VI. 1
Research and Agenda "for and Action on Organizational
VI.6 VI.68
s A.
B. C. D.
Notes on the National Agricultural Investment Company and the Agricultural Incentives Act The Case for Removal of Export Taxes on Agricultural Products Rural Organizations Alternative Procurement and Release Prices on the
for Rice Level of
Interventions
and NFA
their Market
A.I A.12 A.16
Impact A. 32
iv
LIST
Table
Chapter
i
No.
OF _ABLES
Title
Page
II
Estimates of poverty lines in the Philippines (absolute poverty based on 1971 family income and expenditures survey).
Ii.
2
Time
II.7
3
Total number of families by broad industry group (National Standard): third and fourth quarters, 1980-1983 (in thousands).
If.10
4
Quintile
income
II.12
5
Estimates income,
of average rural and
6
7
8
9
i0
iI
12
trends
in poverty,
shares,
1957-1983.
1971-1983.
annual urban.
family If.13
Estimates of ratios of agricultural and non-agrlcultural incomes for workers, 1975-1983.
If.15
Daily wage rates of laborers in agricultural operations, 1970-1982.
If.15
Regional poverty lines incidence, 1983.
II.16
and
poverty
Percentage of agricultural and nonagricultural low-income families to total bottom 30 percent (national standard), third and fourth quarters, 1980-1983.
If.16
Comparative index of mean family by type of family (all families 1980-1983.
II. 17
Poverty incidence grouping, 1971.
by major
income = i00)
occupation II.19
Regional distribution of poverty incidence by occupation (1971).
V
II.20
Table
13
14
15
16
No.
Title
Poverty incidence income.
Page
by
main
source
of II. 21
Poverty incidence and agricultural prQductivity measures by region, 1971.
II.23
Scope of land tenure 1975 and 1982.
II.25
improvement,
Yield per hectare by crop type and variety, by region, Philippines crop year 1983 (sack of 50 kgs).
II.27
Employment status of the household population 15 years and over, fourth quarter 1982 (in percent).
II.30
Average completed family size, population under i0 years of age and dependency ratio by _ region, Philippines, 1960.
II.31
Integrated area Philippines.
development
If. 39
20
Summary
projects.
21
Summary of Network)
17
18
19
22
23
24 •
25
26
of
PBSP
lists of involved
Contradictions Programming.
in
program,
II.45
NGO's (PHILDRRA in rural development.
Foreign
II.47
Assistance II. 55
Potential impact of the programme, Philippines,
land tenure 1972 and
1979.
II.59
Land acquisitions of the Land Bank •under Operation Land Transfer: Comparison of targets and accomplishments, Philippines 1975-1981. ••
Ii.60
Area of farms, by type aSd tenure operation, Philippines, 1971 (percentage distribution).
II.62
Physical area of operator, (percentage
of farms, by Philippines, distribution).
vi
type and 1-971
of
tenure II.63
Table
No.
Chapter
1
2
3
4
5
6
7
8
9
10
ii
12
13
Title
Page
III
Contribution increasing production Philippines
of area and yield factors to rice growth in the (percent).
Rice production, procurement, disbursements, net imports, government stocks, 1962-1963 1983-1'984 (000 mr. milled).
III.6
and to £11.10
Rice per capita availability, 1962-1963 to 1983-1984.
III.ll
Comparison official
III.14
of world, domestic, and rice prices, 1960-1982.
Changes 1984
in real (_day).
farm
wages,
Changes 1975
in cereal staple consumption, to 1980 and 1980 to 1984.
Regional shift in paddy the Philippines, crop (000 metric tons).
1960
to III.17
III.18
production in year 1974-1983 III.22
Regional rice surplus and deficit in the Philippines, crop year 19-74-1980 (000 metric tons).
III.23
Regional farm price of paddy as percent of Central 5uzon farm price.
III.24
Regional wholesale price of rice as percent of Manila price (regions in order of surplus).
III.25
Regional rice price spread, crop year 1974-1983.
III.27
Percentage wholesale price increase from seasonal low to seasonal high for selected regions, 1973-1980.
III.28
Marketing Central
III.30
costs of rice millers in Luzon, Crop Year 1980-1981.
Table
14
15
16
17
18
No.
Title
Average variable costs incurred by millers in marketing rice, Nueva Ecija and Iloilo, SeptemberOctober 1984.
III.31
Regional shfft in paddy procurement, crop year 1974-1983 (000 metric tons).
III.33
Regional shift in rice disbursement, crop year 1974-1983 (000 metric
III.34
20
21
Estimates
of
23
24
25
the
determinanbs
of
paddy rice
procurement disbursement,
and
and by
floor region, III.39
Ratio between retail price anc_ ceiling prices per kg. of rice by •region, crop year 1974-1983. Estimated
III.35
III. 36
Ratio between farm price price per kg. of paddy, crop year, 1974-1983.
margin, 22
tons).
Comparison between regional rice disbursement as percent of regional rice consumption and regional procurement as percent of regional production in the Philippines, selected crop years.
regional regional 1974-1983. 19
Page
cost
of
the
1972-1973
narrow
to
III.40
official
1980-1981.
III.42
Average official floor and ceiling prices for rice in thePhilippines, crop year 1974-1983.
III.43
Corn area, production Philippines, crop
III.52
and yield, year 1946-1986.
Regional ranking in corn crop year 1984-1985. Corn supply• 1970-1971,
production,
and use, Philippines, 1984-1985.
viii
III.53
III.54
Table
26
27
28
29
30
31
32
33
34
No.
Title
Page
Comparison of burden and wholesale prices of white and yellow corn nominal protection coefficents, 1970-1985. Corn production of improved corn farms.
scenario seeds alone
Corn production of improved adoption, of farms.
scenario seeds with inputs for
Corn production adoption of technology.
scenario recommended
and III.57
I: 100% use for white III.61 If: 100% use minimum white corn II_.62 III: white
100% corn III. 63
Corn self-sufficier_cy white corn hectarage) scenario.
level by
(percent technology
of III. 64
Border price used in regional DRC analysis under different trade regions, Philippines, 1986.
III.66
Marketing costs by different Philippines,
III.67
for trade 1985.
corn by region regions,
economic
indicators
_.or
corn, white, open-pollinated, by region, by different trade Philippines, 1985.
regions,
Financial
Financial
and
and
economic
indicators
and
III.70 for,
corn, yellow, open-pollinated, by region, by different trade regions, Philippines, 1985. 35
Financial
and
corn, yellow by different Philippines, 36
economic
indicators
III.71 for
hybrid, by region, trade regions, 1985.
Breakeven yields of yellow production, by region to comparative advantage in Philippines, 1986. _
ix
III.72
corn sustain corn export, III.74
Table
No.
37
Title
Comparison of DRC under two price
38
39
40
41
42
44
1
2
3
4
5
6
for
broiler III.86
III.87
Research expenditures in livestock by discipline, 1974-1984.
III.88
Quantity by value of fish production, by type of production: 1950 to 1982. (Quantit Z in 1,000 metric tons and va i ueinmi 1 1 ionpe sos).
III.96
Total number of employed persons in fishery, number of licensed fishermen, and in fishpond operations: 1965-1982.
iii.98
ippinetilapiaproduct
ion.
III.102
The Laguna de Bay Fishery (1963, 1968, 1973 and 1976).
III.104
Philippine by sector
Chapter
estimates assumptions.
Livestock research expenditures, value added and feed imports, 1974-1984.
Phil
43
Page
shrimp production by 1977-1984 (in metric
species, tons).
III.ll6
IV
Export tax rates and estimated revenues for products subject to export tax as of November 1983.
IV. 10
Average number of coconut trees hectare by region, 1980-1984.
IV.15
Characteristics 1982-1983.
of
sugar
per
mills, IV. 20
Sugar production cost, selected countries. Cost of production of producing countries.
IV.23 major
sugar IV.24
Distribution of sugarcane farms and tota'l area planted by farm size groupings.
X
IV.25
Table
No.
7
Title
Sugar production farm size.
costs
for
different IV.32
8
Sugar
9
Percentage share of non-traditional andnon'food agricultural exports total non-traditional agricultural export receipts, 1978-1984.
i0
ii
12
13
14
15
1
2
selected
countries.
IV.33 food to the IV. 38
Number and area of farms by land use for farms less than 5 hectares 1971 and 1980 (Area of farm in million hectares).
IV.41
Percentage share of local and foreign investment in the Philippine agricultural and fishing sector, 1981-1984.
IV.44
Status of land use in the Philippines, 1970-1984 (in million hectares).
IV.45
Plantation area of DOLE and PPC in Mindanao, 1980 (in hectares).
IV.49
The area of banana companies by their TNAC affiliation, (in hectares).
IV.50
Estimated cost per multi-reforestation
16
Chapter
yield,
Page
classified 1980
hectare on selected projects.
IV.59
Potential crops that can be produced in the Philippines classified by different economic criteria.
IV.64
Share of irrigation investment in relation to the national budget, 1979-1984.
V.34
V
NIA on-going and newly completed projects by funding sources as
xi
of
1984.
V.35
Table
No.
3
4
5
Title
Summary statistics, irrigated area as design area.
V.36 in of
Percentage changes in volume and of pesticide imports in the Philippines (1980-1985).
value
Pesticides
7
Some possible production
9
1965-1983 maximum a percentage of
Extent Of irrigation development Philippines according to types systems and cost of development as of 1984.
6
8
Page
use
Pestxcides government chemical 1980-1983.
by
crops,
the
V.39
V.61
1984.
V.61
side ef.fects of the and use of pesticides. poisoning hospitals grouping,
cases admitted accorc_ing to Philippines,
V.62 to
V.62
Retail price of selected pesticide products, selected countries, (U.S. dollars).
V.68
CIF value per metric importation in the 1980 to 1985 (U.S.
ton of pesticide Philippines from dollars).
V.70
Wet and dry seasons: net profits for selected Central Luzon municipalities using different control practices (profits in pesos).
V.73
12
Seasonal
V.75
13
Insect control trials in irrigated rice farmers' fields by six regional crop protection centers 1980-1983 (BPI Crop Protection Division).
V.76
Yield of potato frequency of
V.78
i0
ii
14
15
Report on Program.
yields
(tons
per
experiment spraying,
Integrated
Pest
hectare).
with 1983.
different
Control V. 81
xii
Table
16
17
No.
Title
Summary of 1978-1985. Trends price
18
Total crop
19
20
21
22
23
24
25
26
27
28
in
FPA
Page
Training
Programs, V.81
the
fertilizer-crop
ratio.
V.87
fertilizer year
consumption
by
1967-1977.
V.88
Relation of domestic to border for four grades of finished fertilizer, 1973-1982.
price V.90
Pattern of fertilizer use on rice and fertilizer-paddy price ratio, in selected Asian countries, 1977-1982.
V.92
Means for threshing loss (THloss) by alternative groupings in post-production operations, Philippines, 1975-1977.
V.101
Average physical losses postproduction systems Philippines, 1975-1977.
V.102
among alternative by region,
Average percent head rice and other quality characteristics by alternative postproduction operations, Philippines, 1975-1977.
V. 103
Estimated grain loss per farm using manual and mechanical harvesting, 7 reaper owners, Bataan, 1984 (preliminary).
V. 104
Quantitative grain paddy by type of Luzon, 1977.
V.106
Rat incidence 17 farmers,
losses in stored storage, 17 farmers,
and damage in Luzon, 1977.
stored
V.107
Total milled and head rice recovery nine milling systems, wet and dry seasons, Bicol River Basin Area, 1976-1977. Postharvest vegetables
losses by
of
country,
fruits 1976. xiii
paddy,
for
V.109
and V.II2
Table
29
30
No.
Title
Losses in some vegetables at various handling points, Benguet to and in Metro Manila, 1980 (kg.). Preharvest vegetables
31
32
33
34
35
36
37
38
39
Page
losses
of
by
country,
fruits
V. II3
and
1976.
V. II5
The share of the cost on postharvest losses and marketing services on consumers' peso in cabbage by type of middlemen, Philippines, 1982.
V.117
Existing road length, and road densities Philippines, 1982.
V.121
Number and mechanical 1982.
surfaced by region,
capacity of thresher,
roads
NFA-owned Philippines, V. 124
Number of privately-owned palay threshers units, capacities, and amount of capitalization in the grains business, Philippines, 1974-1981.
V.125
Number and capacity of NFA-owned operational and non-operational mechanical dryers, Philippines, 1974-1981.
V.126
Numbe_r of units privately-owned Philippines,
V.127
Number rice
and capacity mechanical 1974-1981.
of dryers,
and capacity of NFA-owned mill, Philippines, 1973-1983.
V.128
Number and capacity of privately-owned rice mills by type, Philippines, 1979-1981.
V.129
Number and capacity leased warehouses, 1974-1984.
V. 130
of
NFA-owned/ Philippines,
xiv
Tabl_
@
_u
41
.
Title
Number of transportation equipment owners/operators, units, hauling capacities and amount of capi t'_l._'_&.ti0_Q i,,". _ he_.g_-_' i __d_6_, .,_h_!l_'_ "_ p_ ne_s,,-" 1,9_ e_ 901. " ...... "....... Corn
44
45
46
_ns).
_a tes_:_£ _eDuDf'd_l_,_I_c_Tic and sundrying systems,
cleaning region,
combined .w_%_<_s.,Urf...:_,_.7_n_." " ' ' _ by Philippines, 1975-1977.
V.134 a1
Compa ra_:V_j :_a.£._#__ Of__re_u%_1_r =,%_tqy me c han ise@ __y_s_t_ ;us_i_n _ ,:ail_z_ ve added wage rates and premi_m by region, _,i._i_-i_ne_., 19;7,S_9_7_. : Comparative
rates
region,
P_I/]_p_"
The
net
social
of
cost
return
%_.138
for
_ _5:-_9:?_ saving
V.137
of
V. 139
switching
_i. :_'9,9:8"_. "
V. 141
COmpa ]X_..V._,i _ab:o_,'_ _e_l%_emm r_t_,_f_r_ _ Bataan,
48
_l_8[-198_._seit_c
_-ompe_at_e threshing
,_'h_ s_ 47
, V, 132
m_l:ll_t_.:a nd::gr,_nd4ng i_apa_ciay_:,,Se _,_/_
'Ph_li_p_n%Fi. 43:
P.age_-
1984
(preliminary).
Ave rag_ _l:_b'_ _r_U irmen_ alternative postproduct by region, Philippines,
_m_c :_._no_m_ng fon_.:@_e_a_dons 1975-1982.
149_
A profile of co_pe_a_;_'ng.lmanUfa0tu_ers according to type of industry, c api ta i i_.ti o h_,a nd_:,_ 1 abo_a fe_¢ew._
50
Ef fec1_oo_:_me_hed-_zed
t_h_esh_jI'om
1982.
V.143
V.144
_he
V.148 XV
Table
No.
Chapter
Title
.... page
VI
1
Major problems agricultural
2
of the Philippine research system (1971).
VI.8
National multi-commodity research centerssingle-commodity re search centers, regional research centers and their commodity responsibility at the national and regional levels. 3
The
4
List of government the Philipplnes.
5
6
7
8
9
i0
ii
12
PCARRD-organized
research research
VI.10
consortia. agencies
VI.19
in VI. 20
Partial list of private corporations with research and development activities in agriculture.
VI.23
Distribution of among research
VI.26
scientific agencies.
manpower
The number of trained researchers sent through the PCARRD manpower development program as of November 1985.
VI.26
Main agencies providing agricultural and nutritional supporting services.
VT.30
Government manpower
VI.32
research expenditures and in agricultural research.
Total research expenditure (in million pesos at constant 1980 prices) by crops.
VI. 33
PCARRD-set priority areas agricultural research.
VT.35
in
Percentage share of selected commodities in gross value added, in research expenditures in agriculture and in the ratio of research investment to gross value added (research intensity), 1974 and 1984. xvi
VI.37
Table
No.
13
Title
Proportion o£ expenditures
15
Basic salaries technicians
16
research VI.53
and allowances (pesos).
and VI.56 of
Partial list of projects implemented by staff members of the PC_RRD Secretariat.
LIST
OF
APPENDIX
VI.57
VI. 58
TABLES
III
1
Regional paddy production Philippines, crop year (000 metric tons).
2
3
Chapter
agricultural by region.
Scientists With postgraduate qualifications in colleges universities and MANR.
14
Chapter
Page
in the 1974-1983, III.47
Regional paddy procurement in the Philippines, crop year 1974-1983, (000 metric tons).
III.48
Regional NFA rice disbursement in the Phillpplnes, crop year 1974"1983, (000 metric tons).
III.49
Value, volumes and average growth rate of nontradltional food and non-food agricultural exports• in the Philippines, 1978-1984,
IV.66
IV
I
xvii
LIST
Table
No.
OF
NFA subsidy operations
required for rlce (_ billions).
LIST
2
3
4
5
6
7
OF
A.40
A.42
FIGURES
II
1
1
Page
Highlights on estimations of government cost, marketing cost, NFA revenues and subsidy.
2
Chapter
TABLES
Title
1
Chapter
ANNEX
Poverty incidence, Philippines.
1957-1983, II.
III
Trends in production, area and of paddy in the Philippines.
yield III.7
Trends in adoption of modern varieties, fertilizer use and irrigated area in rice, Philippines.
III.8
Trends in the real prices and relative prices of rice rice to corn and wehat in the Philippines, 1960-1982.
Ill.15
Trends in fertilizer use per hectare in rice and in fertilizer/paddy rice.
III.19
Official floor and ceiling prices, and retail rice prices and farm paddy prices, 1974-1984.
III.38
Corn major trade flows from surplus to deficit regions, Philippines.
iii.68
Breakdown
III.99
of
the
fishery
xviii
sector.
Figure
No.
8
Relationshiup fishery and
9
Chapter
A matrix of Evaluating
1
2
3
4
of
open III.105
policies and issues in Philippine Forestry.
III.121
Ocular presentation of plantation development in Mindanao.
IV. 47
Rural
V. 9
financial
markets.
VI
National research network of centers in agri6ulture and resources.
research natural VI. 9
The organizational structure of present MAF research system. Research activities and agricultural research Classification for research systems.
5
Comparison
6
Organizational the National
7
between outputs aquaculture.
V
1
Chapter
Page
IV
1
Chapter
Title
of
the VI.24
the present systems.
VI.27
agricultural VI.39
salary
ranges.
VI.55
set-up of PCARRD Research System.
Organizational chart of Ag'riculture and Circa 1955.
of the Natural
xix
and VI_62
Department Resources, VI.70
Figure
8
9
No..
_Titie
Page
Organizational chart of the Ministry of Agriculture and Food (PD 1579 dated June ii, 1975 and Executive Order 967 dated June 30, 1984.
VI.7S
MAF regional-provincial structure.
_I.76
I0
Functional
reorganization.
VI.79
11
Suggested organizational structure for research, extension and production se rv ices.
Vl..81
LIST
areas
i
2
3
4
OF
for
organizational
ANNEX
MAF
FIGURES
Relationship between procurement price and release price and intervention buying by the NFA. Relationship between procurement and credit requirements of NFA rice procurement (Pbillions)
A.35
price for A.37
Level of NFA subsidy required for rice operations as a function of procurement and release price.
A.39
Philippine rice supply and situation, Circa 1986.
A.43
XX
demand
CHAPTERi. An Agenda for Policy Reform
CBAPTF.R
AN
A.
LONG-TERM
POLICY
AGENDA
AGENDA
FOR
I
POLICY
FOR
THE
REFORM
AGRICULTURAL
SECTOR
The most glaring evidence of the failure of Philippine economic development is the fact that no significant structural transformation has taken place over the past twenty-five years. Despite the strong industrial orientation of past economic policies, agriculture, fishery, and forestry continue to employ half of the labor force, contribute about a quarter of the gross domestic production, and earn two-flfths of export revenues. Over 60 percent of our population lives in the rural areas. Our country remains today as it has been in the past, a predominantly rural society composed of small farmers, agricultural laborers, fishermen, pedicab drivers, and others. The continuing importance and trade surplus position of Philippine agriculture clearly indicates a measure of comparative advantage in agricultural production. This is borne out by recent studies showing that the agricultural sector is, on the whole, a more efficient earner and saver of foreign exchange than the industrial sector. Studies have also shown that government policies -- both macroeconomic and sector-specific -- have suppressed the country's comparative advantage in agriculture by creating an incentive structure that tended on balance to penalize rather than to promote the sector. Measured as an implicit tax on agriculture, the penalty imposed has been estimated to be more than 20 percent of agricultural value added. This has caused a substantial drain on the sector's resources while burdening it with the absorption of more than its share of the labor force as the excessively capita'l--intensive investments in the industrial sector that could _ compete in the wo%-id market limited the flow of +surpl_S l_bor out of agriculture. BeCause of productivity gains in rice and the world commodity boom during the 1970s, the agL-icultural sector performed moderately well up to the end of the decade. Public expenditure for agriculture which increased relative to both total public expenditure and net value added in agriculture focused mainly on the rice sector in terms of irrigation, extension, and land reform. After 1977, the urban consumers received the major benefits of higher rice productivity as real price of rice declined rapidly. The agricultural sector, on the other hand, had to bear the
I.i
major brunt of. the adjustment cost arising from the worldwide recession and the economic crisis confronting the nation in recent years. The prevailing policy' structure designed to tax agriculture during the commodity boom period did not have the F.lexibility to protect agriculture during the present period of depressed prices with the sugar, coconut, and rice sectors taking the heaviest toll. Agriculture also suffered the heaviest cut with the contraction of public expenditure in the 1980s. Public support for the sector in real terms was reduced to 40 percent of the level in 1978 and its share in total public expenditures from a high of i0 percent in 1977 to 5 percent in •1985. By the early 1980's, production of major crops -particularly rice, sugar and coconut -- has stagnated as agricultural terms of trade dropped sharply. What is most disturbing is the rate at which rural incomes have fallen behind. Average family income in the rural sector is currently •only 40 percent of the urban income, down from almost 60 percent in 1970 and 75 percent in 1975. Over 40 percent of rural families live below the poverty threshold as c(_npared to only 20 percent in the urban areas. The rural sector accounts for abouk eighty percent of the poorest 30 percent of total households, with the corn and coconut farmers together with landless agricultural workers and fishermen being the most disadvantaged. An agriculture-based development strategy makes growth and equity consistent objectives as evidently, a strong economic potential in agriculture has yet to be realized. Moreover, rapid increases in agricultural incomes have stcong growth •linkage effects (i.e., income and employment multipliers) in the whole economy as consumptlon•of the rul-al p(;pulation is heaviiy oriented to food and relatively labor intensive industcial consumer goods and services. It should be stressed, however, that Philippine agc_¢ulture is characterized by a relative scarcity of land (in relation to people). Gains in production coming from increasing yield from traditional crops and shifting to higher valued crops will be translated faster into • higher per capita income when the proportion of the labor force engaged in agriculture decreases substantially. Hence, an employment-oriented growth strategy in the overall economy is also a key factor in raising rural welfare particularly in the upliftment of the landless cural workers. The basic aim of the new government is to lay the foundation for a_] equitable, efficient, and ecologically sustainable growth in the agricultural and rural sector. The perspective is one of incceasing a,_d securing income
streams particularly of the poorer rural households. Unlike In the past, the strategy will not be on achieving production targets or self-sufflciency in particular commodities. The commodity mix shall be determined Drimarily by long-term measures of relative scarcities and comparative advantage although concern for food security in Dasic staples and agricultural diversification must continue to be addressed. The role of the government would be focused on providing the policy and insti,tutional framework and the necessary public investments by which private initiative can propel the sustained economic recovery in the countryside. This means limiting the role of government in agricultural production and marketing except in price stabilization of 'basic food staples. The government's function in "price and marketing is to insure that output and input prices reelect their social opportunity costs and this can be most efficiently achieved by promoting competition. On the other hand, the government shall intensify its role in the provision of public goods, addresszng market failures, protecting the environment, and providing the poor more access to resources. The five principal thrusts to achieve the above goals are: a.
Institute
a
new
land
reform
program
in
scope,
-FZ_qble
compre_n%_ve implementation, b,
c,
Remove
progressive
sources
of
the
and
Strengthen
services
expand
markets.
Protect
the
higher
economy. to
increase
i'mpro-_e ma-----'rke-'__ciency,
and
lon_-term
of
conserva.tY_K pS_lq'6_e_ flooding and drought, pesticide problems. e
against
rural
p-_oductivity, d.
bias
support
is
in
in compensation.
grdwt_-an--6a-'Fffic-iency_in t-_ economic
that
sustainability
ag-ainst soil erosion, water pollution and
Increase effectiveness of the various @overnment enti'ties invol_ed wit-_ a_---_rl-cui_£ure support s-er-v-1_ces-a n-d - '5_om-o_e [ct i-"v e-pa-r-tq-61p-a-tq-6n -o-_-n-o_-_ver-nm%ntalrural--6rganlza£ions in the developmental process t.o enhance efficiency and account abi ii ty.
1.3
I.
Land
Reform
There is no available information detailing the distribution of land ownership and access to natural zesources. Most indirect measures, however, indicate that over the past twenty years ownership and access to land and natural resources have been further skewed. Land disputes are at the heart of the insurgency problem con.fronting the nation today. The Marcos-era land reform covering only rice and corn has so far issued emancipation patents to only about 1 5 percent of the number of tenants original ly estimated in 1972. Between 1970 and 1980, the proportion of rice area which are owner-managed or under leasehold has J.ncreased only slightly. The distribution by tenancy actually deteriorated in the corn areas. The most disturbing trend was found among coconut farmswhere the proportion of area tenanted rose by 1O percentage points. An agriculture-led, employment-oriented development strategy without a significant land reform program will not lead to a strong pcsitlve impact on the rural poor nor to sustained broad-based rural development. Returns to land and natural resources comprise from 20 to 80 percent of value added across various type" of agriculture. Title to land is related to access to credit, political patronage, etc. Benefits from new technology, irrigation, market infrastructure are capitalized into higher land values. The agricultural growth process, therefore, creat.es the risk of worsening income distribution when land ownership distribution is highly unequal. Indeed, the insurgency problem is already a serious obstacle to the rural development process. An expanded land reform has become a necessity at this point because without it, the insurgency pL-oblem can only get worse. While distributive justice is the main rationale for land reform, economic efficiency is no less a compelling basis for a small-holder institutional framework for Philippine agriculture over the long-term. Land is relatively scarce in the Philippines which now have the lowest ratio of land per capita among the large ASEAN countries. Population growth and urbanization will make land increasingly scarce. The inaependent small-holder operations tend to be more labor-intenslve and have higher yields than plantation type of agriculture. Contrary to popular belief, economies of _/cale are not pervasive in agricultural production. In any case, efficiency gains from large scale operators are not sufficiently large to compensate for their equity losses. Benefits from vertical integcation/economies of scale in terms of marketing cost, extension, research could be addressed by innovative management tools such as contract farming.
On the other hand, efficiency losses from a highly skewed distribution of land holdings are already apparent. Rapid encroachment of migrant families into the uplands has become a major threat to the sustainability of lowland agriculture. Yet many lowland areas are not intensively cultivated and area planted to plantation agriculture has grown at a more rapid rate than total cultivated area during the 1970s. Lack of security of tenure itself among migrants in the uplands discourages the use of technologies and farming systems that conserve and promote productivity. Tenure issues constrain the expansion of intercropplng in cbconut areas. Likewise, the threat of land reform is a major deterrent to crop diversification into rice and corn among sugar plantations. In the meantime, sugar workers have no income while the ladd is left idle. The new government must seize this opportunity to make land reform the central focus of the new government's ruralbased development strategy. Land reform is a question of just distribution of returns to Philippine natural resources and thus should not be viewed as specific to any crop, to type of tenure, or economic size of operational landholding. The mode and timing of implementation must be flexible, as the system of production and distribution of operational landholdings are highly complex and economic disruption in the short run should be minimized. Since there is no pri_or information on land ownership distribution to determine the appropL_iate land ceiling, the principle of progressive compensation should be adopted to protect interests of small and med i.um-sized land owners. The
elements
of
a genuine
land
reform
are:
a.
Democratize access to public domain including land, forest, _)asture, and water resources. Equity begins at home; if the state fails to allocate access to public resources according to tenets of social justice, the public will not tend to cooperate with its efforts to redistribute private resources.
Priority should be given to the return of ancestral lands to tribal minorities; distribution of sequestered, foreclosed, and open land to the landless; provision of security of tenure to small tillers in the uplands; review of lease contracts of public land to corporate sector, of access to fishing grounds and forest resources in order to extract the full econpmlc rent for the government; eventual shift of cultivated public land from a plantation type of •operation to a small-holder one via contract farming arrangements; and program divestment of multinationals in
1.5
agriculture country.
a_
land
constraint
limit
their
value
to
the
b.
Accelerate implementation of land reform in rice and corn and if necessary, implementing rules can be liberalized. Highest priority must be given to corn farmers as they are among the poorest families.
c.
Encourage voluntary systems of land reform in other private land although land reform itself should not be optional. Rental reduction may be a first step for the coconut areas. Social experiments on new institutions for land control of sugar, coconut and other type of plantations which will effectively redistribute ownership (such as cooperatives, profit sharing schemes), and which will satisfy the people's values regarding justice must be made within two years after which the government will have to apply an arbitrary formula.
d.
Impose a new ceiling on size of land ownership which differ by island according to population density. Accelerate conduct of cadastral survey and land titling.
Constraints to implementation of the above elements are basically administrative capacity and land owners resistance which can be addressed by appropriate financial support. Compensation to landowners should neither be confiscatory (except those obtained through socially unjust means) nor excessive. Now is the opportune time to determine landowner compensation because land prices are depressed. Payments to landowners may be in combination of cash, share from sequestered assets, or government bonds which can serve as bank collateral. In t_rms of implementation, highest priority must be given to provinces with the most severe poverty and insurgency problems, e.g., Negros, Bicol, Ca gayan Valley, Samar, and parts of Mindanao. A tripartite group composed of the government, landowners, and rural organizations' could be formed for each province to pool available information and design a land reform program for the area based on some general guidelines developed by the Ministry of Agrarian Reform. Public support services - credit, extension, physical and social infrastructure should then focus in thesame areas. All possiblesources of funds should be ex_ored - sequestered assets, budgetary support, direct or indirect use of foreign aid or loans. Land ref_m would not be able to _rovide access to land
1.6
Land reform would not be able to provide access to land to all landless households but it does set the stage for a broad-based economic development. The following policy reforms and initiatives, however, are necessary to increase employment for the landless and achieve a sustainable, longterm growth path.
II.
Removin_ the _i cu_re
Sources of Bias a_ainst a.nd Bmp--_o__ment ....
I___.Mac rroeconom ic Policies The most important source of bias against agriculture is from the industrial protection system which by defending an overvalued peso has not only raised prices of manufactured goods purchased by agriculture, but has also reduced the peso value of exportable and import competing agricultural commodities. Exchange rate policy has failed to make the necessary short-term adjustments to avoid prolonged overvaluation of the peso, further keeping agricultural prices relatively low over long periods of time. Credit policy -- mai'nly in terms of concessional interest rates -have not significantly altered the unfavorable economic incentives in agriculture caused by the price intervention policies. Interest rate ceilings discourage agricultural lending which is inherently characterized by higher co_t of _isk and administration. Despite preferential rediscounting, agricultural credit quotas, and supervised credit programs, real loans granted to agriculture in the 1970s declined. Ministries of Agriculture in the past have been concerned more narrowly with sector-specific policies. The new Ministry must be deeply concerned and make its position clearly known on macroeconomlc policies, particularl_ those which adversely affect agricultural development and rural welfare. It must place itself on the side of reforming the industrial protection system and of establishing a flexible exchang_ rate policy to improve agricultural terms of trade. In addition, it must support a flexible interest rate policy to promote viable financial institutions that can provide both credit and financial savings facilities to the small farmers. 2.
Sector-specif
iS
Policie
s
The sector-specific policies-e.g., export taxes and bans, government marketing -- were instituted during the 1970s intially to siphon-off windfall gains from floating of the exohange rate in 1970 and the unprecedented turbulence in the oil and commodity markets from 1970 to 1975. The
1.7
policy instruments used to address the short-term problems of price instability, however, eventually led to the pervasive regulation of the agricultural sector and government's direct involvement, frequently as monopoly, in the marketing of virtually all major agricultural products. Export tax ban on agriculture based £roducts. All e xpo_ t s-a-_e-a-l-r6a'_'y-[-mp_-_c-6q t-61y t_eE-5_-i 5 -t-o--2-0-p e rcen t through the undervaluation of foreign exchange that the industrial protection system defends. Export taxes ranging from 2 to 15 percent add yet another penalty to selected traditional and non-traditional agricultural exports, precisely the commodities the country •wishes to promote. The previous export ban on copra implied an even greater penalty and no government revenue. One justification for the export tax/ban is to capture monopoly rents in the world market. However, no such monopoly is enjoyed by the country for its agricultural exports. Attempts in the past to raise world price of coconut oll by restricting Philippine supply have proved futile as the proportion of Philippine share in the oil and fats market declined from 7 to 4 percent. To encourage agro-processing, direct subsidies are preferable as an export cax puts the burden of promoting agro-processing on poor farmers and is not consistent with • the long run objective of increasing dofnestic supply of raw materials. Removal of export taxes/copra export ban will contribute to a more rapid r.ecovery; the loss of government revenue amounting to thtt2 pe_ceni: oK total tax receipts can be very sho[tly recovered through other forms of tax having no adverse effects on agricultural incentives. Tariff and sales tax on agricultural inputs. Until the penalty to agrzculture [_e to the overva-luatlon of the peso is reduced, it is economicaly justified to exempt agricultural inputs from tariffs, sales tax, and import licencing to offset at least part of the penalty on agricultural output prices. This is most important with respect to fertilizer which is a major source of growth in productivity. The 10-_eso surcharge on fertilizer price which imposes the burden of repaying the debts of Planters Products on all farmers must also be eliminated. To avail of volume discount in international procurement of any imported inputs, the government may continue to provide marketin_ assistance. If the government wishes to protect domestic fertilizer manufacturers such as PHILPHOS, direct subsidies are more appropriate than tariff protection. In any case, PHILPHOS and Planters Products should eventually be prlva tized. • Government Monopolies. mono_I_ 5_ _ abrq_-_-E_ral
Prior trade
1.8
to was
1974, government limited to rice
importation. By the 1980s, corn, wheat, soybean meal and other feedgrain together with rice were exclusively importedexported by the National Food Authority; meat was imported by P,HIILBAI; cotton and copra by Philippine Cotton Corporation and UNICOM; while NASUTRA had the sole authority domestic and international trade of sugar. In effect, these various agencies were conferred the right to implicitly tax trade in these commodities and directly spend proceeds, fragmenting and impairing accountability in the fiscal sySt era. We support the new government's move to dismantle monopoly elements in agricultural trade and production. Whether by the government or private sector, monopolies lead to inefficient allocation o£ resources. Except for rice and corn to be addressed be'low, the government should not directly engage in agricult.ural marketing or production. There are two major issues to be addressed in relation to this recommendation. Tariff structure and the livestock industry. The tarif-f stru6ture h-as ha-d--ll-m'_'te'oV-e-t_fY6-6 on agrlculture because a large number of commodities are either exported or non-traded, and government monopoly governed imports of a number of import competing commodities. With the dismantling of government monopoly in trading, the structure of tariff protection becomes operational. The livestock industry then suffers from having to pay a higher implicit tariff on inputs than the tariff protection conEerred on its output - poultry, meat, and milk. Move.vet, the large vertically integrated livestock producers who can import directly now have a cost advantage over small-scale livestock producers who have to buy feed ingredients indirectly from importers. We recommend the rationalization of the tariff structure vis-a-vis agricultural output and inputs. In the short-run, before this is in place, NFA may have to continue importing se)ected feed ingredients. In the long-run, the issue of high cost of imported feeds will have to be addressed by increasing productivity of domestic feed ingredients and reducing marketing cost. Price Stabilization. Our proposed policy framework essent'_ally_ ai6s at providing price signals that will reflect long-run world prices and contribute to the integration of the agricultural sector with the rest of the economy through efficient market linkages. Agricultural prices, however, are inherently subject to yearly and seasonal fluctOatiOns due to volatility of world prices and domestic supply factors. As farmers move away from subsistence to market, oriented production and from traditional to modern technology requiring greater cash
1.9
inputsa they become increasingly more unfavorable changes in price relationship.
vulnerable
to
Because of the economic and political importance of rice and corn, the government will have to continue direct involvement in the marketing of these grains for the purpose of price stabilization. The government's role for the other crops must simply besupportive by facilitating long-term contracts and use of future markets, and by s_rengthenlng financial markets. An exception in the short-run is in the sugar sector which is experiencing serious adjustment problems to fundamental changes in price relationships. Grains.
Price
policy
must
meet
several
i. Allow normal seasonal price geographic spread to provide incentives to carry on normal storage operations surplus to deficit regions. 2. Allow prices to run world prices to avoid into the rural economy. 3. Respond often conflicting and of consumers'
eventually building
objectives.
fluctuations for private and marketing
converge significant
and trader from
toward longdistortions
to the overwhelming need to reconcile the objectives of protecting farmers' incomes welfare in the short run.
These goals will be achieved by relying more on the private sector both to trade internationally and to hold stocks. Annual price fluctuation_ may be addressed by the use of variable export/impo_t taxes. A domestic price goal (i.e., a Manila reference price)consistent with the longrun world price could be set and then a variable export/import tax imposed that would be equal to the difference between the domestic price goal and the current world price. The private sector could then undertake whatever" trade would be profitable although the government must retain capability to enter the world market when the price policy goals are not achieved. Thus the government must continue to trade in the in{-ernational and local market, and hold stocks in order to increase competition and achieve price policy goals. In the domestic market, the government shall act as a buyer of last resort at the floor price in major surplus regions, and the seller of last resort in urban wholesale markets to defend ceiling price. The official margin Should cover all of the costs of the private sector activity (cost of the transport and of storage). This policy implies no substantial subsidy on marketin_ costs to NFA because we believe that scarce government resources are best utilized
1.10
in promoting domestic marketing efficiency, i.e., investments in transportation and communications infrastructure, research to reduce post-harvest losses and development of financial markets. It is desirable that an explicit budget allocation be made to cover the cost of limited market intervention set out above instead of implicit capital subsidies or profits. Credit line to NFA must carry market interest rate to encourage efficiency in running the NFA which obviously must be significantly slimmed down. There is a question of whether the average domestic price must be set to counter the penalty to rice and corn due to the overvaluatiQn of the peso. Defending such a price should De manageable for import competing commodities such as corn as this would bring in revenues but will be more difficult when the commodity is exportable. This problem will disappear, however, when the trade liberalization program has been successfully completed. Coordinating price policies of rice, corn, wheat and fert%llzer is a means of reconciling the conflicting objectives of protecting farmers income and of consumers' welfare in the short-run. Now is such a time. World grain prices, especially rice are much too low and are likely to stay low over the next three years. Rice and corn prices should be supported by restricting imports and by domestic procurement during the harvest season to prevent abnormal seasonal price fluctuation. Fer_illzer price can be kept low by tax exemptions and welfare of the urban consumers may be addressed by allowlng cheap wheat flour using food aid. Although wheat is not the best commodity to target benefits to the poor, it is the only commodity for which a low price can be maintained without negative effect in rural incomes. Proceeds from food aid may be used to finance rice price support and streamline NFA operations. Sugar. The s'ugar sector, more than any other industry, faces the most difficult task of adjustment to extremely low world prices. Crop diversification has been greatly hampered by the plantation structure and tenure question forcing the sugar workers to bear the greatest brunt of the 'burden of adjustment. The aim of policy must be to (a) llnk domestic sugar prices to the long-run world sugar price to ensure the long-run competitiveness of the industry, (b) effect an economically rational reduction of sugar production and milling capacity, (c) provide technical assistance in identifying alternative uses of mills and land, (d) minimize short-run economic and social cost of adjustment particularly for the poor sugar workers, and (e) secure more stable prices for exports through long-term agreements.
1.11 .
Over the long-run, a variable import/export tax should be used to achieve a border price equal to the projected long-run average world price based on long-term _ontract p_ices of major sugar exporters. In the short-run, an zmport tariff should be imposed to achieve the long-run border price and the US sugar quota auctioned or sold at that price. The proceeds should be used to fund land sharing programs to benefit/dlsplaced sugar workers. While Closure of some sugar mills (and milling districts) will facilitate the contraction of the industry and the achievement of greate.r efficiency, care must be taken to close only the most inefficient mills and farms. Alternative uses for the closed mills (e.g. for alcohol production) should be seriously considered if prompt sale is impossible, to avoid wastage of substantial sunk costs. Coconut. Coconut farmers who till almost 30 percent of culti_v'ated"land have been the most heavily penalized by economic policies over the past decade. As a consequence, coconut farmers are among the poorest _roups, yields have been stagnant, and the industry's share in the world market for fats and oils has declined. Aside from the removal of export taxes on all coconut products and the copra export ban, we recommend land reform (.which could initially be a program of rental reduction and land sharing) and focused effort on increasing productivity through research and extc_n_ion. _ massive replanting nor new planting program do not se.em warranted. Intensified research and extension on fertilization, intercropping and other coconut-based farming systems, and greater utilization of coconut productsandby-products will yield short and medium term impact while varietal improvement will pave the way for a more prudent replanting program. Proceeds from a full accounting of levy funds should be immediately used to finance the above programs. Agricultural Incentives Priorities Plan (AIPP). one of Marcos' last pres-identia[ Decrees I entitled "Declaring National Policies on Agricultural Development and Incentives" was aimed ostensibly at promoting rural development. The nature of incentives provided, however, runs counter to the new government's thrust of an employmentoriented -- small farmer focused agricultural development for the following reasons: a.
Several tax incentives, e.g., deduction from taxable income for "actual investment paid in," tax exemption on imported equipment and tax credit on domestic equipment, and preferential interest rates would favor capital-intensive investments over labor intensive projects. 1.12
b.
Tax incentives and registration general can be availed of agrlbusiness enterprise and not
procedures in only by large by small farmers.
c.
Inefficiency is promoted by limiting competition within BOI-determined "measured capaclty", by determining extension of incentives on the basis of "heavy financlal losses" and "distressed condition", and by basing tax credit on "gross 3ales" instead of value added or domestic content.
We recommend the repeal of AIPP. The policy reforms outlined above shall already substantially raise the overall profitability of agriculture relative to the other sectors, Implementation of this decree would only worsen income distribution and reduce the potential resources which can be used to effect a broader based approach for promoting the sector. Benefits from tax incentives are industryfirm specific while the policy reforms suggested above are available to all -- large or small farms. In the short-run, before the adoption of policy reforms, promotion of agroprocessing and large-scale export-orlented agricultural enterprises can be covered by the recently revised BOI general and export incentives law which has been purged of many of the objectionable provisions contained in the AIPP. Gcowth Points and Problem Areas. The increase of the profitab-Fi-_-ty of agrl_u_ture as-a co_nsequence of the above policy reform will be highest among exportable commodities particularly those that were previously subject to export tax and other potential non-traditional agricultural exports that do not suffer from depressed world prices. These are prawns/shrimps, tuna, coconut products, canned pineapple, coffee, cacao, bananas, abaca, pepper, mangoes, and other food products. Among import-competing commodities, the feed-livestock sector show bright prospects. There is considerable scoge for import substitution in corn and a technological breakthrough in corn and other feed ingredients would make possible an export-o_lented livestock industry. To push _urther the growth on these areas, accelerated public support to strengthen research and extension, irrigation, rural financial markets, market infrastructure and promotion, J.s called for.
1.13
III. i.
Strenthening Research
and
A_ricultural
Support
Services
Extension
While policy changes can lead to short-run improvements in rural incomes, long-run growth of agricultural productivity and rural welfare depends crucially on the rate of technological change. This, in turn, is largely a function of the level and efficiency of society°s investments in agricultural research and extension. Despite significant growth in rice productivity and in the productivity of a few other crops, technological progress in the Philippine agriculture as a whole has been very modest. Yields of almost all our traditional exports remained stagnant. This can be explained by the fact that, even by the standards of other developing Asian economies, the level of Philippine public investment in agricultural research has been extremely low. The ratio of Philippine expenditure in research to agricultural value added is less than 0.2 percent compared to 0.4 to 0.6 percent in other Asian countries and to over 1.5 percent in developed countries. Since 1977 the level of research expenditures has been declining in real terms. The allocation of research expenditures by commodities indicate a very diffused pattern. Major commodities -rice, corn, coconut, livestock and poultry -- are among those that are grossly underfunded. There has been a teudency to emphasize minor crops such as wheat, cotton, and others for which there seems to be less technology and ,,arke t potential. "The new government muse make a substantially stronger financial commitment to agricultural research and extension. An initial goal wi.ll be to bring the level of public investment in research to that of other countries. To achieve this, the level of funding for agricultural research would have to be raised from 0.2 percent of gross value added in agriculture to 0.6 percent in the next five years. A reasonable long term goal would be 1 to 1.5 percent of gross value added. Highest priority should be given to those commodities which contribute most to the total value of agricultural output. This can be modified to reflect potential for market expansion and technological breakthroughs, and equity considerati_)ns. More attention is needed to some research that are not commodity specific (.soil and water resources, biotechnology, agricultural sociology/anthropology, and agricultural policy) and beyond the production phase (post 1.14
harvest technology, agro-processing, and other marketing issues). Technology development must also focus on the unfavorable areas and disadvantaged farmers and be sensitive to ecological concerns, e.g., open-pollinated white corn, coconut based farming system, organic sources of fertilizer, integrated pest management, agro-forestry and so forth. Increased funding levels to agricultural research and extension must be contingent upon needed modifications in the present orientation, institutional structure, and quality of efforts. There is very limited farmer feedback and effective influence of small farms into the research and extension system. More progress is _equired in adopting a farming systems perspective where the research and extension essentially starts from the needs and capabilities of ruralhouseholds and therefore requires their participation, directly or indirectly, in the whole process of technology development and extension. The prevailing philosophy still is the diffusionist (technology transfer) model where the rural population merely receives and uses new information. Technology generation occurs mainly in the state colleges and universities (SCUs) under the leadership of the Philippine Council for Agriculture Resources Research and Development (PCARRD) while the extension including technology verification iS carried out by MAF. However, the linkages between research and extension are weak. In recent years, PCARRD has undertaken technology verification as MAF attempts to strengthen its research, further reinforcing the two-tracl,, nature of the research and extension system. The effectiveness of the research and extension system is also eroded by the fragmentation of efforts among many different departments and agencies on the one hand and overcentralization in the planning and implementation of research and extension. The "honorarium system", a response to the very low salary structure, contributed in a major way to this fragmentation and the resulting lower quality of output. Institutional reforms must achieve greater decentralization (as research and extension are locationspecific), closer linkage between research and extension and their rural clientele, and a more rational incen'tive structure. The
following
steps
are
suggested:
a.
Transfer administration of all field extension personnel to the provincial and municipal levels including some MAF experiment stations. MAP's role is to (a) provide technical and financial support, (b) lead natlonal/regional production, communications and extension training programs.
1.15+
b.
Strengtnen regional state colleges and unlv.ersities (SCUs) to assume leadership in technology generation and to work directly with the various local extension systems within its agro-climatic region. They should eventually absorb the MAF research activities except in areas where no viable agricultural education system exists.
c.
Integrate agricultural research and extension at the policy and field level by (a) attaching PCARRD as a semi-autonomous body to the MAF, (b) including MAF regional directors to the board of regional SCUs, and (c) developing a strong cadre of highly qualified extension subject matter specialists who will link researchers to field extension personnel.
d.
Move away from project to "formula" or program funding. Competitive grants should still be available particularly for basic research and for addressing some short-run technology comcerns. Salaries should be upgraded to avoid honorarium system.
e.
Streamline substantially the present operation of PCARRD. The main tasks shall be in coordinating the evaluation of research program performance of bhe regional SCUs, facilitating easy and smooth [ilow of financial resources to the research system, and strengthening of linkages between public and private research and extension and farmers.
Private Sector research and extension represents a larger portion of research effort than is normally recognized and attracts some of the best talent because of more favorable salaries. They normally engage in technology development where proprietary rights or patents can be obtained. There are also non-profit organizations that contributes to the continuum of research and extension. The government should encourage their participation in this area by subsidies or tax incentives and other regulations. 2.
]_rri@ation
.... ....In the 1970's, public sector investment in agriculture focused on irrigation development which contributed significantly to the achievement of rice self.sufflciency towards £he end of that decade. During this period, however, the efficlenc_ of irrigation investment suffered as evidenced by the substantial drop in the ratio of actual
1.16
irrigated area to design area .(93% before 1965 to 52% after 1972) among gravity systems constructed under the National Irrigation Administration (NIA). Easy access to foreign loans in part led to an emphasis on the consructlon of large scale gravity systems and relative neglect of the smallscale systems and of operation and maintenance (O & M). Systems design flaws and poor O & M necessitated the early rehabiltiatlon of several irrigation systems. Because of lack of expertise, many of the projects to develop small, pump irrigation sectors under the Farming System Development Corporation (FSDC) proved to be not feasible. The substantial reduction of available funds to irrigation in the 1980's has already forced changes in the administrative and program thrust in the irrigation sector. We believe that contingent to the adoption of major reforms, irrigation maintenance and development on rice and in other crops should continue to receive priority as population growth continue to press on limited land. The approach We approved must shift from a basically engineering one where performance is measured in terms of completion of infrastructure and treats design, construction, and operation as technical problems to an interactive or participatory approach. This means a highly decentralized set-up where the fa_rmer-beneflcfaries are actively involved in the conceptualization, design, construction, operation, and maintenance. Among our recommendations are: a.
Focus investments in rehabilitation of existing systems and on small-scale projects particularly those p_omoting crop diversification. This would cover low lift pumps designed primarily for supplemental irrigation of diversified cropping schemes; very small run of the river type or simple impounding type of systems for individual or small group of farmers; and the gravity type communal systems for 50 to 200 hectares.
b.
Provide greater access to soft loans and technical assistance to private sector. Subsidizing private sector irrigation development even at the expense of reducing overall government role should enhance the economic efficiency o£ irigation development and promote crop diversification.
c.
Improve systems operation and maintenance. This would involve increased budget allocation for O & M, intensified development of water users' group, and the gradual turnover of O & M responsibilities to t hem.
]'. 27
d.
e.
3.
Charge only the cost of 0 & M to farmer irrigators intensify the collection of the_e charges. Government subsidy to irrigation is economically justified as the major beneficiaries are rice consumers and to reduce to penalty imposed by economic policies on rice sector. It is more efficient and equitable to charge farmers the cost of irrigation development through the system of land taxation because improvements in productivity is capitalized into land value. Merge NIA and FSDC as a semi-autonomous agency under the MAF to reduce costly duplication of actlvlties, facilitate coordination of support servlcesat the field level and policy formulation at a national level. At the same time, there is a need to effectively decentralize planning, authority, and implementation at the regional and provincial level to reduce cost, allow more farmer participation, and promote accountability. Rural
Credit
The objective of policy reform in this area is to strengthen and improve the efficiency cf the rural financial markets (RFM) to be more responsive and effective in servicing the needs of the rural sector. This means improving its capability to mobilize rural savings, allocate such funds to the best alternative use, and llnk with the rest of the financial system rather than simply relying on the continued financial support of the government. A freely floating interest rate policy is in the interest of borrowers and savers in the rural sector. Availability and accessibility of credit and not interest rate are more important in farmer's decision to borrow. Many farmers do borrow from the informal credit market at high interest; interest cost is usually a relatively small part of production cost. However, the level of interest rate is cruclal to the viability of financial institutions in terms of its ability to mobilize rural savings and cover the inherently higher cost of lending to the agricultural sector. To lower the cost of borrowing, the proper response is co reduce banks' and borrowers' transaction costs and risk in agriculture. For example, simplifying loan procedures, increasing public investment in infrastructure lower transaction cost while irrigation, land reform and land titling to provide collateral to small farms reduces cost of risk.
1.18
The use of c_eap rediscounting facility to provide subsidized credit has made the Central Bank, effectively, a lender whereas its proper role is to control money supply and not to influence sectoral credit flow. It has also severely weakened rural financial institutions by inducing them to rely on redlscountlng and not on mobilizing rural savings. Thus we support the Central Bank move to have only one rediscounting window with a market-oriented rediscount rate. Similarly, we do not support the continuation of the agricultural loan quota policy (PD 717). It has not effectively induced banks to reach small farmers as the requirement to lend to agrarian reform beneficiaries was satisfied merely by purchase of government securities. To let lead banks (who will in turn directly lend to farmers) issue bills/notes which can be used to comply with PD 717 will not serve the purpose of developing a healthy RFM. This will give monopoly power to a few accredited lead banks, further segment the market, and be a disincentive to mobilizing rural savings as credit funds will be assured. Recent studies have already shown that by raising intermediatlon cost, continuation of PD 717 results in significant efficiency losses in the economy. Among agricultural borrowers, it is mainly the large borrowers including multinationals who tend to be benefitted at the expense of non-agricultural borrowers. To p_-omote the development of the financial inshitutions in the rural sec'tor, the following proposals are suggested. a.
LiberaliZe bank entry into rural areas by lowering prescribed capital requirements from _0.5 M to say _0.2 M, liftinq the prohibition on the number of banks per town, and allowing more branching so that the RFM will be integrated with the rest of the financial system.
b.
Rehabilitate immediately but selectively potentially viable rural banks in order to improve efficiency of RFM, not simply to ease the financial burden of RBs. Acrearages shall be converted into common shares to be entrusted with the Land Bank of the Philippines (LBP) but to be sold as soon as possible to interested individuals, institutions, or groups of farmers.
c.
Allow rural banks and other financial intermediaries to undertake non-allied activities. The linking of markets which characterize informal market lending will reduce rural banks' cost of risk and transactions. The policy of free entry,
1.19
on the monopoly d.
other power
hand, of such
will minimize institutions.
potential
Reorient the role of LBP to be more supportive of the development of RFM. It shall serve primarily as a wholesale lender to countryside banks, mobilizing resources through deposits, integrating existing special funds and rural-oriented credit programs, external loans and grants and bond issuances. Innovative retail lending schemes in areas where private financial institutions are absent could be piloted. It shall provide technical and developmental support to retail banks.
This set of policy recommendations may appear counter to the objective of promoting agriculture. It is too often overlooked that preferential interest rates do not affect relative profitability and that because credit is fungible, additional liquidity supplied by credit will be allocated to the most profitable enterprise or to consumption, whichever provides the greatest utility. By limiting loanable funds, cheap credit also inevitably resul_:s in rationing that tend to favor larger borrowers with collateral. 4.
Rural
Market
Infrastructure
The inadequate state of rural market infrastructure inclur]i,l.:lc_mmunication facilities is a serious obstacle to agric,]]tural diversification and rural industrialization. Manila and nearby areas have historically received more than their: share of market infrastructure. Relative to the total i nve::_tment in roads and bridges, the share of the rural sectoc (.for provincial, municipal and barangay roads) averaged only 24 percent from 1979 to 1983. This dropped to 18 percent in recent years and the level of expenditures in real terms for rural roads and ports in 1985 was only a third of the level from 1979 to 1983. Philippine average penetration of telephones is only a third of the average for the less developed countries and 71 percent of existing telephones are in Metro Manila. A massive rural infrastructure program will have farreaching effects in the rural economy. It will generate employment for the landless households in the short-run, helping not only to alleviate poverty but also raise aggregate demand in the whole economy. At the same time, it will open up new market opportunities, provide farmers with more favorable output-input prices, lower cost of agricultural products to consumers, lower cost of delivery of economic and social support services to the countryside and foster rural industrialization.
L2o
The poor state of maintenance for many roads indicate that highest priority must be given to the maintenance and where necessary restoration of existing infrastructure. Current amounts programmed for maintenance of barangay roads which most directly affect farmers and rural dwellers is only 35 to 40 percent of what is needed. Insufficient funding support is the result of unrealistically low budgeting cr_teria which have not accounted for the inflation factor since 1976. New penetration roads must a,lso be funded particularly in areas with higher concentration of poverty. Administrative reforms are necessary to decentralize planning and financing in the management of infrastructure development at the local level. Local participation promotes initiative, lowers cost, and ensures that local needs are met. Efficiency of port facilities is essential in a country with many islands and in promoting export trade. The cost of moving corn from Mindanao to Manila, for exam,ple, is twice as much than from Bangkok to Manila. This high cost arises in part from outmoded cargo handling facilities, long ship turnaround time and institutional constraints to efficient management. The first two issues may be addressed Dy appropriate investments in modern cargo handling equipment and by accelerated dredging work in the country's ports. Management of port activities by the Philippine Ports Aut_horlty (PPA) can be improved and port fees reduced if ifull _.Inanclal autonomy is allowed. At present PPA recei_e:s only a fraction of the port collections for opera:_'on and maintenance. Another alternative is to auc_,ion the right to operate the various ports in the coun t-ry to d_.fferent private sector groups to allow competitive forces to set efficiency standards in port management. 5.
Market
De ve 19]_men t
The government can play a very positive role i.n encouraging and assisting the private sector to exploit new markets particularly for non-traditional exports. This will involve the promotion of agro-processing through appropriate fiscal incentives and support services in terms of market infrastructure and research and development in post-harvest t echn olog y. Previous attempts at market promotion were too limited, fragmented, and lacked technical expertise. The Ministry of Agriculture and Food (MAF) must take a more active partnership with the Ministry of Trade and Industry in this area. A strong capability to collect and disseminate market information, conduct supplydemand analysis, and identify
I.21
investment be developed
opportunities to assist
The possibilities agricultural products
as well the private
as
market sector.
constraints
of obtaining trade in the international
must
concessions market must
on be
exploited vigorously. These can be pursued through direct country to country negotiations, the "Generalized Special Preferences" established by the US, Europe, Japan and Australia which give preferential treatment to less developed countries, and the Multilateral Trade Negotiations under GATT. Non-tariff barriers to trade are especially important with respect to agricultural products.
IV.
Protecting The
. Lo___n_n_[ Term
increasing
Sustainabilit_
requirements
for
food
of
A_[riculture
and
raw
materials
of a growing population have led to intensified exploitation not only of croplands but also of other natural resources. The management (or mis-management) of these r.esources, such as uplands and fisheries, has important implications for the long-term sustainability of agricultural production. Forestr is already productivity These have
Z. at
Denudation of forests and watershed areas critical levels, threatening agricultural through soil erosion, flooding, and drought. also led to siltation of irrigation canals and
reset voirrs, reducing the net benefit from costly investments. The main culprits are illegal logging and o vergrazing and the new government is justified in finally 'implementing a long-promised log export ban. With respect to commercial forestry, cutting charges are unrealistically low. Thus, to eliminate excessive economic rent from logging (for domestic purposes), the right to cut trees should be auctioned through competitive bidding or through stumpage appraisal system. The increased proceeds from this may then be used directly for replanting logged over areas and protection of standing forests. Providing
security
of
tenure
either
in
terms
of
individual or communal areas to forest lands is a key element is promoting conservation-oriented technologies. The rights of tribal communities to ancestral lands should be immediately recognized, and they can be effective partners of government in policing forest use activities within their communities. For migrant groups, security of tenure together with conservation agroforestry or social forestry programs can for incorporating erosion control methods activites.
1.22
establishing oriented be the basis in farming
Fisher_. Overfishing ir_ coastal waters, destruction of inangrove forest, pollution, reclamation and poor management of lake aquaculture are also threatening sustainability of yields of fishery resources. For lake aquaculture, the government should emphasize proper allocation of sites, strengthen pollution controls and increase license fees to capture more of the excess rent. The high rate of pollution in the Laguna Lake needs immediate corrective measures. For municipal coastal fisheries, the municipal governments should assert more control over small-scale fisheries as they would be more ef;fective in eliminating destructive fishing techniques such as trawling and dynamite fishing. Other appropriate conservation measures are a ban on the use of corals as decorative material and the protection of turtle. Pesticides. Though pesticides are important in modern agric_l't_r_l produoti0n, the detrimental effects of their overuse and misuse in the public health, environment, and sustainability of agriculture, are frequently not adequately recognized by its users. Thus, a moderate level (20%) of tax on pesticides should remain so that these external costs can be reflected in the market price of pest lcides. In addition, government regulation to assure product quality, efficacy, and safe handling in the use of these chemicals should he strengthened. Government efforts to lower the cost of pes_. control at the farm level can focus on greater investments for research and extension on integrated pest management covering judicious use of pesticide, breeding resistance to crop varieties, biological control, and so forth.
V. i,_
Imp rovlnq
Institutional
O_overnment
Reform
Effectiveness
Effectiveness of _the MAF under the previous government had been severely constrained by the fragme_itation of authority over specific commodities and policy areas in agriculture. MAF had no effective control over policies pertainlng to marketing of rice and cOr_, and other food commodities (NFA) and all aspects of development of coconut (PCA) and sugar (PHILSUCOM). Neither was there control over irrigation planning and infrastructure development, which was vested in two autonomous agencies, the National Irrigation Authority (NIA) and the Farming Systems Development (FSDC)nor over agricultural research (PCARRD). It was therefore quite appropriate that the MAY was referred to by some as the "Ministry of Gardening".
1.23
Within the limJted scope of its jurisdiction, the MAF suffered from centr_alization of planning and authority. There have been sincere attempts and some progress •made in recentyears. Until control over more financial•resources rests with the local government,• and with the regional directors, a "top down" approach to governance shall prevail.; The diversity and location-speclficity of problems and •policy areas confronting Philippine agriculture would not be effectively addressed. Reforming the government structure is obviously a prerequisite to an eff,icient governance of agricultural development as envisaged in the preceding discussions. There is a need for (i)consolidation of authority over the various commodities and functlona]_'areas in agriculture, (2) decentralization of the planning and administration of policy programs particularly those pertaining to research and extension, and (3) coordination between MAF and other government ministries and agencles in policy measures to promote rural development. The MAF must be given effective control over all aspects of the agricultural sector. •This means• that previously autonomous agencies like NFA, PCA, PHILSUCOM, NIA, FSDC, and PCARRD must be plaued under the umbrella of the MAF. It is only through such consolidation that a unified agricultural-policy program• and its efficient implementation can be pursued by the Ministry. Such consolidation can minimize duplication Of efforts and enhance integration of •delivery of essential government services. Within an expanded MAF an organizational structure along functional _reas of responsibility rather than by commodity would be [,ore effective. To effect genuine decentralization, local governments must be provided greater control and resources to plan and deliver certain agricultural support services such as extension to enhance efficiency and accountaibility to the rural clientele. Stronger regional •offices could• provide technicaland financial support to the local•government, concentrate on functions that need to be performed at a regional level •, and link the local government to the central administration. It is clear from the policy framework spelled out above that many Importantpolicy instruments affecting agriculture are beyond the purview of the MAY. Aside from the Ministries of Agrarian Reform and Natural Resources which aredirectly involved in agriculture, the actions of the Ministries of Finance, Trade and Industry, Social Services, Public Works and Highways, the Central Bank, and NEDA also have pervasive impact on agriculture. The Ministry of
1.24
Finance, in particular, controls the ta×ation, public expenditure, and foreign financing of the sector. Not only should coordination among the various ministries be wellorchestrated, the interest of these ministries on the welfare of the agricultural sector should be strengthened to pursue a vigorous, cohesive, agriculture-led development strategy. 2.
Strengthening
Pe0ple's
Organization [
Political economy factors have an important bearing on who gains and who losses from government policy. The fact that the bias against agriculture increased in the 1970's reflects in part the greater sensitivity of a centralized government to the organized consumer and employer groups in the urban sector. Policies tended to serve the interest of a few rather than the majority, particularly the poor who have no avenue for political participation. The rural clientele was seldom directly involved in the formulation and implementation of government programs. The changing political structure is expected to raise the rural sector's influence in the pol_.tical arena. However, without some significant measure of redistribution of assets, it may be the interest of the large landowning class that will dominate rather than smaller farmers, fishermen, and agricultural laborers. This problem can be partially addressed by strengthening rural people's organizations, particularly farmers' organization. People's organization have two important functions: to unify and st_:engthen the rural sectors' political voice and to participate in and improve delivery of services to the rural sector. Given the current thrust towards decentralization and iucceased private initiative, people's organizations serve as an appropriate institutional framework for the grassroots population to participate in decision making. The government must seek active participation of people's organization and other non-governmental organizations involved in community organizing, delivery of social services, food production and related activities, in the development process.
. V_II- Concluding
Remark ss
It may appear that the policy framework to promote an agricultural-led growth strategy will be at the expense of industrial growth. This is not true, as the policy reforms and public investments set forth are merely reducing the bias of economic policies against agriculture. In fact, we recognize that the failure of industrialization to absorb a greater amount of the growing labor force as a major factor
1.25
in lew rural incomes. It is therefore a successful industrialization which by accelerating the decline of the proportion of labor force engaged in agriculture can translate agricultur'al growth to higher per capita income for the rural population as the proportion of landless households in the countryside continue to increase.
Industrialization policies in the past have not only led to inadequate rate of non-agricultural employment, it has also been concentrated in Manila and a few other urban centers. The disadvantages of urban congestion and the growing disparities in regional income distribution are clear. A more rapid growth of rural non-agricultural (RNA) employment would, therefore have a very important positive effect on the growth of rural income, both agricultural and non-agricultural. About one-fourth of the total jobs in the Philippines are in the RNA sector and most of these (75%) are directly or indirectly dependent on agriculture. These include those linked Forward from agriculture (storage, transport, processzng, and trade), those linked backward from agcicultuL-_ (input manufacturing and distribution), and those th::_t serve the consumption needs of agricultural households. Rural non-farm employment is estimated to expai_d I-);_a factor of 1.2 to 2.2 for various non-farm activ:[ll[es as agricultural incomes increase. This suggests the "_-___onggrowth linkage effects of an agricultural-led growth process. The set of policies that would promote agriculture therefore _ould also spur rural employment-oriented industrialization directly and indirectly. A major reorientation of physical and social infrastructure towards the rural areas, for example, will directly promote the location of industr, ies on these area. The high cost of electricity as well as inadequacies of roads, coastal shipping, ports, water supply and social infrastructure such as schools, health facilities, and other amenities greatly hinder the location of industry in the rural sector.
1.26
B,
A SHORT
RUN
RECOVERY
PROGRAM
FOR
THE
RURAL
SECTOR
An economic recovery program concerned essentially with equity needs to focus on rural development. Average family income in the rural sector is currently only 40 percent Of the urban family income, down from almost 60 percent in 1970. Over 40 percent of the rural families live below the poverty threshold as compared to only 20 percent in the urban areas. The rural sector accounts for nearly threefourths of the poorest 40 percent of total households and the corn and coconut farmers together with landless agricultural labor are amonq the most disadvantaged. The continuing importance and trade surplus position of Philippine agriculture indicates a measure of comparative advantage in agricultural productlon. Recent studies do suggest that the agricultural sector is, on the whole, a more efficient earner and saver of foreign exchange than the industrial sector. Rapid increase in agricultural income would have strong growth linkage effects, i.e., employment and income multipliers, on the whole economy as consumption of the rural population is heavily oriented to food and relatively labor-intensive industrial consumer goods and services. Finally, given the fact that government policies over the past decade created an incentive structure that is significantly adverse to agriculture, a strong economic potential exists for agriculture to lead the economic recovery. The most important source of bias against agriculture is from the industrial protection system which by defending a lower value of foreign exchange reduces the peso prices of exportable and import-competing agricultural crops. Exchange katepolicy itself has in the past failed to make the necessary short-term adjustments to avoid prolonged over-valuation of the peso further keeping agricultural prices relatively low over long periods of time. The s_ctor specific policies which have reduced income IncentiVes to farmers were instituted during the 1970s _nitially as a policy response to the 1970 floating of the exchange rate and the unPrecedented turbulence in the oil and commodity markets from 1973 to 1975. The policy instruments used to address the short-term problems of price instability, however, eventually led to the pervasive regulation of the agricultural sector and government's direct involvement, frequently as a monopoly, in the marketing of virtually all ma_or agricultural commodities. The marketing monopolies, in particular, have been more successful than the notorious m_ddlemen in squeezing small farms and have generated substantial inefficiencies in the marketing system.
1.27
Credit policy, main, iy in terms of preferential rediscount rates and credit quotas, did not significantly _iter the unfavorable economic incentives in aq_iculture caused by the price and marketing policies. Real loans granted to agriculture in the 1970s and especially in 1980s decline. Public expenditure directly assisting agriculture did increase relative to both total public expenditure and net value adoed in agriculture, especially in the 1970s. The bulk of this increase however, went to the rice sector as public expenditure for irrigation, extension, and land reform. In summary, past government policies have required the farm sector to shoulder a disproportionate share of the burden of subsidizing consumption of the urban population and promoting industrialization (including those of inefficient firms, land even enriching a few crony capitalists and bureaucrats). Thus, the net outflow of agriculture's capital _esources to the rest of the economy was accelerated but the flow of surplus labor of agriculture has been limited by the excessively capital-intensive investments in the industrialsector that could not compete in the world market. As a result, real wages and family income in the agricultural sector have fallen behind.
I__:_. Obie_ctiyes
and
Action
A basic aim of the new government and of the Ministry of Agriculture and Food in particular is to lay the founda_'_ion for an equitable and sustainable growth in the agricultural and rural sector. Three principal themes of the new policy thrusts are : a. To create an economic environment for the farmer that is free from unnecessary and costly government institutional and policy interventions that have create_ disincentives to production and efficiency and have reduced the farmer's share of the product; b. To provide the farmer, especially the poor farmer, With access to land, and supporting services in terms of new technology, market infrastructure and information, irrigation to increase his productivity and income potential, and at the same time to provide the landless households and other elements of the rural economy with greater employment opportunities; a nd c. To increase the effectiveness of the various concerned ministries in pursuing the new thrusts in agriculture and the rural sector; decentralization will
1.28
lye a key feature participation government
of of
this effort the grassroots
decision
making
and
to e/nsure _ural
the effective population in
ru_al_1 development.
The whole range of policy and institutional reforms required to achieve the above goals will take considerable time to implement, as well as to bear fruit. Economic recovery, however, is extremely important at the moment. In this note, immediate measures to quickly stimulate an equitable growth in the rural economy are suggested. These measures are consistent with the longer range program, will reach the poorest sector, and will involve the least administrative cost. The specific objectives are to create directly jobs for the landless workers, redistribute land rental income to the poorest, raise agricultural prices, lower- ...... input prices, and increase productivity. The followin a-
@
immediate n Lau_ch
steps a
are:
' masslve
' Infrastructure
rural
£rograms
prlorlt Z to 6_e poorest region. Thls program _;i-_I _[?e_i y c-r-eit-e- e m-p-l-o-y-m-e n-t--f-o-rI and i e s s h o use h o i d s. Improved market infrastructure will lower marketing cost benefiting both farmers and consumers; while investment in irrigation, flood control and drainage will increase yields and cropping intensities. I. Roads n_aJI_tenance, pJ:ovincial and
-investment rehabilitation, baranga¥ roads.
should and
2. Ports -improve efficiency (-ion, make necessary investments c]_'edging, reduce port charges privatization.
be focused restoration
on of
of port operaequipment and and consider
in
3. Irrigation -focus on rehabilitation of existing systems, development of individual and small communal systems, improving efficiency of operation and maintenance, and provide private sector soft loans for irrigation, especially to encourag.e cr,op diversification.
and
_. Floodcontrol rehabilitation
drainage productive b.
facilities bottom
Immediate
land
t-r-l-hal communities
and drainage of selected in areas lands.
with
reform
program
to
ancestral
1.29
-- focus on repair flood control and the
highest
in
lands.
poorest
risk
and
areas,
Security
of
tenure for tillers (with size limit per family) in the upland areas should be announced. Implementation of the present p£ograms for the rice and corn should be accelerated, liberalizing conditions if necessary, and .giving highest priority to corn farmers. The government should encourage voluntary systems of land re'form especially in sugar which may or may not involve small holder management but will effectively redistribute ownership (such as cooperatives and profit-sharing schemes). c. Address the credit constraint primarily by..bringing interest rate do-_n--D-- _,e-n-e-raliy not s61%'ctivel'y /_b_y [nde_x ha& risen onl-y-5-percent and has not risen at all since nominal interest rates are far too
rate high,
over the
the end
last 15 of 1985.
of 20 percent and hampering recovery.
more,
months With real
The credit delivery system in the rural areas particularly the banking system iS in disarray. Rehabilitation of the whole system is a m_dium term proposition. There may be a need to mobilize quickly the more efficient ones to deliver short term credit to new agrarian reform beneficiaries. Direct financial assistance to cover excess cost o_ administratioh for credit tO the remote farmers should be considered. As an incentive, the rural highest repayment rates f6rthc0ming program of other banks serving the d.
Continueddismantling
banks/commercial should be given strengthening rural sector. of
government
banks with the priority in the rural banks and
orgovernment
supported monopolles. Much has a-_rea-_y been ac_leved in £he_iSternat1_n_al trade of rice, corn, wheat, and soybean meal (NFA), fertilizer (FPA), and meat (PhilBAI); domestic procurement of cotton (PCC); and copra (UNICOM). e. Support prices of rice, corn, and sugar. _ The gover-n-ment face s the _w][_--6"ask-K-_-f ,l-_6"gC'F6-6"-pol icy reform and early economic recovery the face of a worldwide depression of commodity prices. Current world market prices of sugar, rice, and corn are 30 percent to 50 percent below long-run world market prices. An important element in its policy package, therefore, must close
be to
concerned long-run
with maintainl, ng world market pr!6es.
domestic
prices
The US sugar quota can protect domestic producers in the short-run. A flexible import tariff should be instituted to achieve a domestic price equal to the
I. 30.
projected tong-run average world price. The quota may then be auctioned or sold at the price and the profi'ts used to fund land sharing programs to the benefit of sugar workers during this period of adjustmen t. To achieve an efficient regional distribution of production, the 15 sugar sugar mills under government control should be sold or mothballed. f.
Abolish
export
taxes
on
all
agriculture
based
imprlC-lt-ly-_e_ by:_l-5-percent to 20 percent through the undervaluation of foreign exchange that the industrial protection system defends. Export taxes further penalizes exports and reduce rural "_hoomes. Removal of export taxes will continue to a more rapid recovery; thusl loss of government revenue can be very shortly recovered through other forms of taxes having no adverse effects on agricultural incentives. g. Remove ten-_eso surcharge on fertilizer. Lowering " _ an effectlve "" _ - short [er_m instrument '.rti][_zer price zs for raising yields per hectare. While the government has expressed a policy of not subsidizing the fertilizer price, the farmers should not be expected to bear the burden of repaying Planters Products debts. At most, farmers must be charged only the world price of fertilizer plus marketing cost. Thegovernment should continue to provide marketing assistance to importers as long as the resulting savings are passed on to farmers. ; h. Relax ban on inter.-provincial transport of cara5-aos-a-n-_--of sla-u-ghter of ,{ale 6"ara6ao." T_.is 5as _e'_ced _n_e'ntz've-s--t_ gre'a-te_"p_o_T_c-t-i-6-n-andhindered progress of effective breeding programs for carabaos. i. Mobilize research and extension systems including s--6at_e_col l_eges an4f un1_versit=ies" of_gr[cu_-Eure an_ hOngovernm'e'nta_ and farmer _org_n_Iza't{6ns._--The_-oL_ect_ve _'s £'0q_uic_'iy'issess flel_[ pr6bl%ms and potentials, identify appropriate low-cost technology on the shelf, disseminate to farm families, and provide feedback to policy makers and research institutions. The emphasis must be placed on open-pollinated corn, crop diversification of sugarland, coconut intercropping systems, ralnfed and upland floe, agro,.Eorestry programs, and other low-input technology that are compatible with existing farmers, practices, beliefs, and resources.
lI.
3_
Immediately address the constraint on seed suppl Z rticular_on the_llina'ted corn--see-_. S_he_e t_e-planne_ i-_ort ban on -veSe'taSie_'s%-eds _a'nddevelop alternative means for promoting the seed industry. k.
Abolish
the
Agricultural
Incentive
Priorities
_e-6-r-eebenefits only the large agribusiness firms and promotes Capital intensivetechniques of production. The recently revised BOI general and export incentives law Should suffice in promoting agro-processing industries.
IIl.
Coordinatin_ the Lm_lamentation
of
the
New
Prq_ram
The proposed program for immediate action will" require a close coordination of effort among government ministries, non-government entities and foreign and international lending agencies. For example, on the government side, the Ministry of Agriculture and Food (MAF), the Ministry of Natural Resources (MNR), Ministry of Agrarian Reform (MAR), and Ministry of Public Works and Highways (MPWH), National Economic Development Authority (NEDA), and Ministry of Finance will play a central role. Non-government agencies who will be involved in the planning and implementation process include farmers organizations, non-government organizations (NGOs), private sector firms and universities. Foreign lending agencies will include members of the Philippine Aid Group such as the World Bank, the Asian Development Bank, USAID, and the Japanese Gore rnmen t. The first step in the process will be for each of the Ministries to develop their own plans in consultation with other Ministries and non-government agencies. The Philippine Government should then develop a coordinated plan to present to the international lending community. A consortium must be organized for Philippine Rural and Agricultural Development including representatives of the Philippine Government, non-government agencies, and international lending agencies. The first task of this consortium will be to review the Program for Immediate Action. However, the Consortium should be established to meet on a regular basis to review from a technical perspective the rural and agricultural development plans and to coordinate the financial support for the implementation of _hese plans.
,z.32
III.
Im£1ementation
St rateeg Y
The implementation of the new plan will entail both a national and a provincial thrust. The policy interventions in a_eas such as pricing will have a nationwide impact. National plans will also be developed for infrastructure development, for agrarian reform, and for mobilization of _esearch and extension. However, in keeping with the short term need to focus on certain problem areas (e.g., Negros) and with the longer term goal of the Ministry to decentralize development activities, a few provinces will be selected for implementation of coordinated provincial development projects. The objective of these provincial level projejcts will be to: Provide problems of
an poverty
Strengthen activities at
immediate highly and unemployment
the capacity the regional and
in
focused critical
for supporting provincial level.
attack areas.
on
development
Demons%rate a pattern for support of development activities by the Ministry of Agriculture and Food and other Ministries that can be extended to other provinces as additional f it_ancial support becomes available. The planning and implementation of the provincial projects will L-equire a coordinated effort among the minist¢leS. A clear distinction should be made between those provinces which have the important ingredients for immediate growth, and those provinces which have inadequate infrastructure such as roads, bridges, and irrigation facilities; lack production and marketing potential; and/or have major problems related to agrarian reform. In short, these projects should be tailor-made to each province. The projects should be planned and implemented at the provincial level relying as much as possible on regional or local provincial leadership and administrative capacity.
IV. Using guideline, conducted determine Compatible continued and others redirected
Review
of
Existing
Pro_ects
the objectives of the abuve program as a. existing foreign loan assisted projects being throughout the country should be reviewed to the degree to which they are complementary to or with the new program. Some projects should be or possibly modified to meet the new objectives, should be terminated so that funding can be and concentrated on the new priority projects.
1.33
CHAPTERII. Addressing Rural Poverty
cua_, rs, ADDRESSING
RURAL
POVERTY
OVERVIEW The critical importance of the distributional issue in rural development justifies its high priority on our, policy agenda. We believe that an agricultural sector "strategy must address the alleviation of widespread poverty in the rural, sector.. The disadvantagedposition of the rural sector is evident from the following findings: i. Poverty incidence in rural areas has been consistently higher than in urban areas. As of 1983, the percentage of the rural population with per capita incomes below a poverty line based on nutritional and other requirementswas 40 percent, .as compared to 20 percent in urban areas. 2. Rural-urban income inequality time. The rural-urban income ratio 0.75 in 1975 to 0.48 in 19_3. ag_=[cultural income per worker to income per worker correspondingly 0.46 in 1975 to 0.34 in 1983.
has worsened overt has de,lined from The ratio of non-agricultural decreased from
3. As of third quarter, 1983, there are over 5.3 million families in agriculture, representing 57 percent of total population in this country. Over 82 percent, or 2.3 million;families, in this sector belong to the bottom 30 percent income bracket. Occupational, employment andproductivity considerations are highly correlated with rural poverty, but we believe that.the key factor underlying its persistence is the poor's lack of access tO resources, whether privately owned, communally shared, Or publicly provided. Asset redistribution, particularly land reform, is viewed essential to continued growth and transfX)rmatlon of the rural sector. This chapter addresses the above-mentloned issues in greater detail and proposes both long-run and short-run policy recommendations. The first section reviews the data on poverty and inequality and iden[ifles poverty groups based on locational and occupational criteria. The discussion stresses that the heterogeneity between and within geographic regions and occupations necessitates both location -and group-specific poverty program planning and implementation. Alternative explanations of poverty; namely the productivity'oriented and the distribution-oriented approaches, are discussed. An evaluation of several
TI.I
existing poverty alleviation programs is also undertaken, classified into governmental and non-governmental projects. Greater emphasis on targetting, and more responsiveness to local level management, are the major points raised regarding these programs. Policy recommendations are classifled into general and specific programs. The general policies are: (i) collection of improved poverty-oriented data; (2) promotion of more targetted programs for at-risk poverty groups_ (3) implementation of more integrated, multisectoral programs; (4) development of increased local capabilitybuilding projects; (5) enhanced NGO participation; and (6) reorientation of public donor funds towards programs which are more sultable to rural poverty alleviation. The specific short-run projects suggested include: (i) accelerated rural infrastructure/ employment programs; (2) identification of prlorlty-area development packages_ and (3) implementation of short-term targetted food subsidies to nutritionally at-risk groups. The second section of the chapter deals specifically with land reform as an instrument of redistributive justice. Situating land reform in its historical and political context, the discussion points out that present-day inequalities have been the product of government policies involving land redistribution starting from the Spanish conquest up to the old regime. To the extent that past governments have previously exacerbated inequalities, popular resistanoe cannot be suppressed in the interest of justice. It is also argued that several myths and misconceptions have prevented the implementation of comprehensive land reform; based oq these, some minimum requirements for a successful land reform are identified. It is strongly recommended that the scope of land reform be extended beyond the original definitio_ of PD, 27, and that new institutions for land control be created which will effectively redistribute ownership and satisfy the people's values regarding justice. It is emphasized that these institutions cannot be created via a recipe or blueprint, that social experimentation and the research for viable and appropriate alternatives be done via participation and consultation of the groups concerned. An important point is that while voluntary systems of land reform should be encouraged, land reform itself should not be optional. A government committed to the improvement of rural welfare and the redressal of social injustice must address these issues squarely, for the success of the agricultural policy agenda will ultimately be judged by its improvement of the economic and social well being of the majority in the sect o r. ,.. II.2
_.
RURAL
POVERTY
_
I...:.
Pover.tz
AND _
POVERTY 7
and
m
PROGRAMS -,•
Inequality:
IN THE
PHILIPPINES ---
a/
An Overview
Although numerous rural poverty programs have been planned and implemented in past years, many have proved to be ineffective. Not the least of the reasons for the failure of these programs is the inadequacy of information on rural poverty, specifically the identification of different poverty groups. Lack of information, _or example, on the types of poverty groups, their numbers and distribution, and their conditions of employment, have made planning for the "poorest of the poor" unresponsive to current needs. We begin by reviewing trends in poverty and inequality. In Part II we proceed to a classification of rural poverty groups that can serve as basis for identifying separate intervention strategies for alleviating poverty. Part III provides a review of government and non-government rural poverty programs. Finally, we present policy recommendations for the design and implementation of rural poverty programs in Part IV.
TRENDS
IN
POVERTY
!'_ e_asuremen of the Pover
Line
Common indicators of poverty incidence are based on meas_,_/ements of relative and absolute poverty. In this section, we draw on the results of studies conducted by Abrera (1976), Tan and Holazo (1978), and the two World Sank reports (1980, 1985) in presenting a national and rural poverty profile. The data for these studies come from the series of Family Income and Expenditure Surveys (FIES) from 1957 to 1975 and the Integrated Survey of Households (ISH) for the _eriod 1979 to 1983 conducted by the National Census and Statistics Office (NCSO). In general, there are two approaches to measuring poverty levels across population groupings. The first measure, relative poverty, separates the poor from the nonpoor segments o'_-t_-6-population in terms of income shares accruing to the bottom 20 to 40 percent of the population. The Philippine government uses this approach in delineating the poverty cut-off as families belonging to thebottom 30 percent income bracket. As of 1983, families in this bracket will generally have a per capita income equal to or less than _I,420 per year. Such an approach, however, merely provides information on the inequality Of distribution of income and fails to define a minimum level of deprivation.
II.3
.The second measure, called absolute povert__,.conslders, spec1_led subsistence requirementsb_s-edi0n a comblnatlon of criteria such as mln.lmum daily nutrition needs for food and other basic necessities like housing, clothing, medical care, and others. Approaches to estimatingabsolute Poverty lines Include. (i) using a nutritionally determined food threshold and a total threshold that incorporates all basic needs (Abrera, 1976); (2) usi.ng a "least-cost" consumption basket (Tan and Holazo, 1978)_ (3) using a threshold based o,n the actual consumption basket of Iow-lncome familles (World Bankr 1980); land (4) using poverty lines based on expenditures on rice which can satisfy calorie requirements, ,blown up to a food threshold and to a total threshold using weights from FNRI (1982)and FIES surveys (World Bank, 1985). A thorough discussion of these approaches is found in Mangahas (1985)and Wor.ld Bank (1985); wedo not go into the details here. It is also worth noting that the Development Academy of the Philippines (DAP) has conducted poverty studies based on the self-perceptlon approach -i.e. the respondent rates ;him/herself as poor or non-poor, and is asked for. his/her estimate of a poverty line (Mangahas, 1985). 2.
Measures
of
Absolote
Poverty
Poverty profiles are estimated from different measurements of family _income and expenditure thresholds. Such thL-esholds or poverty linesare computed separately for rural and Urban areas. The poverty incidence rates, ,or the propo_:tion of the population falling below the poverty line, are cross-classified by l ocationt major occupation (or livelihood), ahd sometimes, by family size. This is u'sed to identify !'high .rlsk" groups 0 f the population and their relative concentrations in .the country. Table 1 contains f iv_ alternative poverty lines based on the NCSO -1971 Family Income and E×penditures Survey (FIES). The poverty lines range from F2,160 to F6,613, reflecting variabi_ities in consumer tastes and preferences and living conditions. It is important that good criteria for selecting the appropriate p overty line are-adopted especially sin:re the pove@ty llne could signiflcantly" affect the identificati.on of population groups considered to be
poor, in general, the poverty lines fall wit-_in the bottom 20 to 3D percent income brackets for rural areas. When these are translated to 1983 prices and applied to the 1983 distributions, they closely approximate the government's definition ()f"needy families" orthose families with. annual incomes in 1983 equal to or below _5,400 and which are qualified recipients of government, social welfare subsidies.
Table,Ii
Estimatesof povertylinesin the Philippines _absolutepovertybase4on 197i familyincome andexpenditures survey).
Annualpovertyline (in.P, [97! prices) ......... -.............. Per_apita Per_amiiy
Sourceo_iestimate
I. Tan-Holazo N978)
360
2_160
2.
500_90
_000 2_41
_. _brera(197_)FoodThreshold II Tote|-Threshold.2/
520 877
_120 5_2_2
4. R_iaR_search Organization8alIupInternetional(I971)
975
5.850
Ir102
.6_t$
5,
_orIdBank (I774) (|985)
Foodand Nutrition H_earch CenLer(1973>
l/annua! d_ets 2/
Lhri_h_fl_ basedon-a nutritionally
_dequate
ap_.,_'l Lhre_l_old in_otporatin_ to the food budget eXp_d_Lur_ -Tot other basic requirements such _s hoe_no,_loLhing_feeland _edi_alcare.
II.S
The number 22.6 percent 3.
of qualified of the population
Trends
i_n_n Absolute
needy families was or 2 million families Poverty[
about in 1983.
Incidence
Although a number of studies have computed poverty incidence, the only published sources which have poverty incidence per capita for a relatively long time series are the World Bank reports (1980 and 1985). This is in most part due to the fact that NCSO prepared detailed tabulations for the World Bank missions, which were not available to other researchers. It is also important to point out that both World Bank studies adopted different poverty line methodologies, resulting in different estimates. Aside from the differences in poverty line methodology, there are also significant differences involved in using family income or per capita income distributions in estimating poverty incidences. The opinion of the World Bank (1985) study is that using per capita distribution eliminates biases due to different household sizes across income groups. We present these data in Table 2. An examination of trends incidence indicates a decline 1957 to 1965, and then increases
in _er famil_ poverty "in poverty [_6"_'dence from from 1965 to 1979.
Using per capita poverty incidences, poverty incidence appacently_decreased from 1965 to 1971 (44.4% to 40.5%) but increased in 1975 to 45.3%, using the World Bank (1980) resu]it-_s-_-The World Bank (1985J trends, also show an increase in poverty incidence from 1971 to 1975, and a decrease in poverty incidence from 1980 to 1982, and a slight increase in 1983 (Figure i). These results appear to indicate that the poverty situation improved in the 1960s, deteriorated in the 1970s, and started to improve in the early 1980s until the onset of the 1983 economic crisis. If one believes these data, it appears that the benefits of relatively high growth experienced in the 1970s were not received by the poor during that period, and affected them only slightly in the early part of the 1980s. The main question, howev%r, is whether one can in fact consider the conclusion.s derived from these data as valid. An examination of the survey-measured income to the national accounts income ratio reve.als a large degree of income understatement which was greatest in the 1975 survey. The sharp increase in poverty incidence from 1971 to 1975 may have been due to income understatement in the 1975 FIES, and the app.arent decrease in poverty during the 1980s a reflectlon of better income coverage in the ISH. It may not, therefore, be valid to use the data to establish
II.6
Table2. Timetrends_npoverty,1957-I_83.
Poverty Line(per family) (pe_o_lannum in current prices Period andSource Rural &.........
m ........
Urban
TotaL
PovertyIncidence (X of families bellow povertyline) Per Capita Per Famkly Poverty Incidence PovertyInddence Rural Urban Total Total
_ ................................................
# .....................................
Surwy to NA Income Ratios w_mm
............
19_7
WB (1980)
-
1,348
n.a.
n.a.
n,a
72,l
O.a4
196L
WB (1980)
-
[,494
n.a.
n,a.
n.a.
57.9
0._5
i%5
WB (1980)
-
1,873
37.2
20,3
44.4
43,3
0.70
197l
WB (1985)
-
3_000
45.9
29.0
40.5
_4.9
0.68
W8 (1985)
2,341
57.4
3_.L
50,7
47.5
40.2
45.3
63.8
53.2
bO,_
n.a.
n.a.
n.a,
_6.7
28.5
40.8
47.8
28.4
41.4
-
0.58 0.67
1975
2,989
NO 41780) W+ (t+E_+;)
5,470 4_570
1979 SOBH;I_! (l={xi ,
5_514 -
8,204
0.68 53.2
c.53 62.6
1980
_'q(1985)
_537
7_758
19BI
I,_i (1985)
6,384
8_965
1982
_B (1985)
6_892
9,790
42.2
24.6
_6.b
-
1983
g8 (1985)
7_363 10,584
45,4
26.0
39,0
-
=_=
=====6==
_
-
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
0.55
0.60 _=============;;===_
- notcomp_ted
II.7
0,53
=_
poverty trends because of data incomparability. The shakiness of poverty incidence figures at the national level as computed from these NCSO surveys requires the use of supplementary data to make analysis at the regional and local levels meaningful, We turn to this in a later section. While the quality of the basic data is questionable, they point clearlyto higher poverty incidence in the rural areas (Figure 2). The severity of the rural poverty situation and the substantially greater incidence in rural areas point to the need to address the sector in government poverty programs. 4___. Measures
of
Relative
Povert[
The 1983 NEDA development planning committee adopted the relative poverty concept in measuring poverty incidence in rural areas. Families belonging to the bottom 30 percenh income bracket, and with at least one family member engaged in agricultural activities, were considered as among the rural poor. Table 3 provides data on the numDer of families for agricultural and non-agrlcultural income groups, broken down into pooc and non-poor families for the period 1980 tO 1983. As of the third quarter, 1983, there are over 5.3 milllon families in the agricultural sector, representing 57 percent of total population in the country. Over 82 percent, or 2.3 ,_iilion families, in this sector belong to the bottom 30 peccent income bracket. The annual growth rate of the bottom 30 percent income bcacket families is much hlgher at 2.8 percent compared to the 1.3 percent annual increase of their non-agricultural counterparts. In general, we can conclude that from the absolute number of families and population growth rates, the agricultural sector has experienced a substantial increase in poverty incidence relative to the rest of the country.
TRENDS
IN INEQUALITY
The increasing trends in inequality, aside from the inherent data problems, lead one toquestion the conclusion that poverty incidence has perceptibly declined in the 1980s. In this section, we review overall trends in family income inequality and rural,urbandifferentlals.
II,8
Figure
1.
Poverty.
Incidence,
1957-1983j
Philippines.
80 -
i
7o \ \ \ " _
\ 60
-
/_ Per fam£1y poverty
\
/
\
£nc£denoe
Q\
50
-
"_
\\ \
__,/
Per cep
ta .poverty
Wor 40
Per capita inclden, W0rid Bank
3°I .#.,
.! .. .... . 196_ ! 1 7 : 1-961
-Tg_I-_.... 1_75...............1'_8_0--'-1J9"83 YEAR
II.9
_'
Table 3,
ToLaJ number of families by broad industry group (National quarterS_ 1980-1983 (in thousands),
T h i
d
Qu a r t
e r
Fou r t h
and fourth
Qua r t e r
Average Annual 8rowtn 1981 1982' 1983 Rate (X)
1980 1981 1982 1983
Average Annual Growth 8ate (%)
8677 8894 9111 9382
2.4
8731 8948 9165 9382
2.4
4897 50_2 51_0 5346 3780 3852 3991 3982
3.0 1.8
4898 5042 _1905320 3833 3906 3975 4062
2,8 1.9
8otton30 Percent, Total 2599 2666 2271 2812
2.5
2618 2684 2748 2812
2,4
. Agriculture N_n-hgrJculture
2]24 2]84 2217 2310 475 482 514 493
2,8 1,3
2070 548
2196 2205 2223 488 543 589
2,4 2,4
Other IncomeGro......
6078 4228 6380 6525
2.4
6[13
6264
6417 6570
2.4
27'732858 2903 3036 3_Vo 3370 3477 3489
3.t 1,8
2828 2846 2985 3097 3285 3418 3432 3473
3.1 1.9
Philippines Agriculture Non-agriculture
:
r
5tandard): third
Agrici._It.L_r:. .
_ource: NCSO
II.lO
1980
i.
FAmily
Income
I/neguallt Z
From 1956 to 1971, the income shares of the bottom 40 percent were 12.6 percent in 1956, 12.1 percent in 1961, 11.5 percent in 1965, and 12.0 percent in 1971 (World Bank, 1985). Since the data are not strictly comparable, one can not make any definite statements about inequality in that period. Data on qulntile shares for 1971, 1975, and 1980-83 are given in Table 4. The data show that inequality increased from 1971 to 1983, as measured by the share of the bottom four quintiles in comparison to the top. Although economic growth was fairly rapid in the 1970s, it was accompanied by increasing inequality. As the World Bank (1985) report states, the rapid agricultural growth in this period, notably in the rice sector, and the agrarian reforms in rice and corn have not significantly reduced inequality in the family income distribution. The report argues that some "trickle down" effects led to decreased poverty incidence --a questionable conclusion given the previous discussion. Inequality did not improve • because "rapid economic growth over so short a period of time can hardly be accompanied by structural changes, productivity improvements and employment shifts that lead to sustained increases in real wages and enhanced share of labor income to national income which bring about a reduction in overall income inequality "(World Sank, 1985:17). With highly unequal asset distribution in the Philippines and low labor absorption in industry due to a capital-intenslve •bias in industrialization policy, it is unlikely that economic •growth alone •will bring about necessary structural changes. In fact, it is more probable that the benefits of growth will accrue to those who own or control productive assets, and in periods of rapid growth, this would lead to increased inequality. Although a land reform program was begun, its coverage was limited and did not affect the extent of aggregate inequality significantly. 2_.
Rural
Urban
Inegualit_
Large income and productivity differentials exist between the urban and rural sector. Table 5 pmesents estimates and comparisons of average annual family income for rural and urban areas. The data show that the ruralurban income ratio has declined from 0.75 in 1975 to 0.48 in 1983. Comparisons of agricultural income per worker to non-agrlcultural income per worker also s_o.w a decline from 0.46 in 1975 to 0.34 in 1983 (Table 6)-x/. Part of the decline in agricultural incomes is due to deteriorating agricultural terms of trade, partially brought about by price intervention policies implicitly biased against the agricultural sector. Part of it is also due to a deterioration in the real wage of agricultural laborers.
If.11
Table 4. QuinLile incomeshares_ 1971-1983.
: Year
Shares in total incomeo_
; _atio of ISH
: families belonging to : Personal Income :...................................... _ to National :Bottom:Bottom :Bottom:8ottom: Top: Accounts Estimate 20X : 40X : 60X : 80X i 20X :
1971
3.7
12.0
25.6
47.1
52.q
O.G8
[1975]
5.1
14.2
_6,6
45,0
55.0
0.5_
3rdQuarter1980
2.9
9.9
22.0
42.0
58.0
0.55
3rd Quarter 1981
2,8
9.9
21.2
40.8
59.2
0.58
_rd Quarter 1982
3.0
9.4
20.9
40.8
59,2
0.67
_rd Quarter 1983
_.4
9.8
21.3
41.2
58.8
0._0
Source:WorldBank (1985), fromNCSO-ISHbasicdata.
II._2
Table 5.
Estimates of averageannual fami|y incoH, urban.
Year
Urban (P)
Rural (P)
rural
and
Rural/Urbanratin ...................... _amity intone
Per capita iocole!/
1975
6_789
5_139
0,.7_7
0.7_0
1980
235991
8,689
0,362
0,446
1981
24,617
10,221
0.415
O.Sl2
1982
31,_91
12,895
0,4[!
0,507
198_
_]_929
]2_66
0,_87
0.#77
i/ In 1975, t_e urban and rural househo]e size ,ere respectively 6.0_ and 5.88. Ifi 1980, the urban householdsize ,as 6._5 and the rura] householdsize .as 5.15. These,ere used to _eL the ratio nf per capita intone for. 1980-1983, This changes Lo 0.776 if Lhe FIES household _zes. are repl.eced by Lhoeefrol the lntegraLed Census of Population (census estinetes are _.13 and 6,18forurban and rural respecLively). Source: gorLdBank (1985)s Table 18.
II.13
Table 7 shows daily wage rates in agricultural operations from 1970-82. Although nominal wage rates have increased, this is not so with respect to real wages. Real wages in palay, corn, sugarcane and coconut _ncreased from 1970 to 1977-78, and then started declining in response to depressed world commodity prices. The above discussion has emphasized the disadvantaged position of the rural sector. Due to the large degree of heterogeneity in the rural sector, however, such aggregate trends will not be meaningful to the design of poverty programs. • We now turn to an identificalon of•poverty groups based on locational and occupational criteria, with a focus on specific rural poverty target groups.
If.
REGIONAL
POVERTY
A Profile
of
the
Rural
Poor
INCIDENCE
Regional analysis of poverty is important because poverty incidence varies markedly across geographic regions. It is also essential asa first stage in identifying where the poor are and designing appropriate locatlon-spec__ interventions. The identification of regions wlth high poverty incldence, however, must be taken only as a first step because of wide intra-regional variation (e.g. between provinces and municipalities). Table 8 presents regional poverty lines and poverty incidence for 1983. Regions with the highest poverty incidences are Western Visayas (50%), Centr. al Visayas (48%), Bicol (43%), Cagayan •Valley (43%), Ilocos (40%) and•Western Mindanao (40%). The lowest poverty incidence rates are in Metro Manila (11%) and Central Luzon (2•7%). Unfortunately, separate rural-urban tabulations per region are not yet available for tDe 1983 ISH. i.
Occupationa_
Correlates
Agricultural incomes are substantially lower than nonagricultural incomes•. It comes as no surprise, therefore, that a greater number of families in the •bottom 30 percent of the income distribution are in a grlculture. If we average the figures in Table 9, for example, we find that 80."9 percent of the bottom 30 percent are in agriculture. A more detailed picture can be obtained by examining an index of income by occupation as compared with the national average (Table I0). ExCept for livestock and poultry operators, incomesln the agricultural sector are generally below the national average. For example, agricultural •wage laborers recelyed 55.6 percent of the national average income in 1983.
II.14
Table b. Estilates of ratios of _gric_ltural and non-tgricultural
Overall lncoae to BOPRatzo Year At Current Prices
incoeesfor workers_ 1975-1983.
_hare of A_ricuiture _ssuied [ncone-60P Derived ]nco_ MNA A¥_cultural in Total fOP Ratio in Agriculture BOPRatio in Productivity lncoeetMorker Non-Agriculture Ratio as a Ratio of _t Current Constant At Current Prices Non-Agriculture1 Prices Prices Incoeel_orker
1975
O.7B
0,29
0,27
0,9'0
0,73
0,37
O.4b
i9_0
0,75
0,2_
0,26
0,90
0,'71
0.2_
0._
_9_I
0,76
0,2_
0,26
0,90
0,72
0.2_
0,31
1982
0,75
0,22
0,26
0.,90
0.7_
0.27
0._4
198_
0,76
0,22
0,25
0,90
0,72
0.27
0.34
Source= gorld Bank(1985)_ Table 20,
Table 7_ _aily ,_ge rates a¢ laborers in agricultural ope_ations_ 1970-1982,
Year
Oaily _age Rates (pesos/day) ................................................. - ............................ _la_ Corn Sugarcane Coconut ............................... ---: ....................... _o_inal Real Noeinal Real Noeinal Real HOe/hal Real
Con_u_erpeice index outside Manila 1972 : 100
J970 1971 1972 1973 1974
_,44 3,85 4.36 4,46 5,56
4.35 4.24 4._6 3.91 _.6_
3,05 _,44 3.76 4,15 _,56
_,86 3,78 3.76 3,64 _,65
3.18 3.32 3.67 5.12 5.88
4.03 3,65 3.67 4,49 _.86
3.3e 4.21 4.41 4.73 6,_6
4,28 4.63 4.4! 4,15 4,18
79.0 90.9 lO0.O 114,0 152.2
1975 1976 1977 1978 I_79 1980 1981 1982
6.59 8.97 9.86 I0,42 I0.71 10,60 11.91 l_.07
4.00 5,1_ 5.2_ 5,14 4.44 3.72 3,69 3.68
6.41 8,77 ?.SS _.76 I0,_8 10,66 10,80 [l,II
_.89 5,02 5,06 4,81 4,-_t 3,74 3,35 _,I_
7.7B 7,28 10.96 9.99 11,00 10,97 ll,BB L2.76
4,72 4.16 5,BI 4.92 4.56 3.85 _,_ _,59
7.33 4.45 8,73 4.99 9,22 ].g9 lO, L8 5:02 10,62 4,40 10,71 3,76 13,45 4,17 15,]2 4,32
164.6 174,B ]88.6 202.9 24l,] 284.9 _22,5 355,0
Source: BAECON.
TI,15
Table8, Reoiona]povertylines andpove rtyinCidence_1983,
Value(P) Foodto Non{god Povertyline of [_ kgof rice ratio at.poverty per capita andother food!/ line_/ -per ounth c/ (in:pesos)(in pesos)
Region
Heir_ Manila llocos Cagayan Valley Central Luzon SouthernTagalog 9icol • NesternVisayas CentralVisayas. EasternVisayas WesternMindanao NorthernMindanao Southern Nindanao Central.Hindanao
82.7 8_.5 83.5 80._ g6.7 81,_. 79,2 8_.2 83.7 84,8 SS,i 81.3 8.i.9
0.59 0.74 0,74 0,69 0.68 0,74 0.68 0.68 0.77 0,66 0.75 0.6'6. 0.74
Poverty incidence (_)
140 11_ ilS 116 128 liO If6 [22 i09 128 ll_ 123 ill
II,2 40,_ 4_,l 27,4 3i.3 42,7 50.5 4S,i 3_,0 40.1 _8,6 _3._ 28,4
al -e Regional•rice•, prices sereused.. Expenditureon cerealsas a proportion•o_ total _ood expendiLure easaesusedtobe equalto 0,6 in all the regions, The1975FIE8Toodratios _ere raisedbya{actor of 1,2 (.hich is the ra_io of 0.68 "to 0,57 shere.O.68is theproportion spenton,Toodat the povertyline and0.57 is the overs]!proportionspentonfood,-both for the•Philippinesas a _hole}. c!gasedondistribution o_f.aeilies,by per capita/assure class, 3rd.quarter1983_. Sourco: Norld _anfi,l_5.
Table9. • Percentage n{ agricu!tural• andnon-@ricultur•a!lo#-inco_efaailies to•total bottos.30percent(national standard): third andfourth quarters,1980-.198_.
1980
THIRO OUARtER 19gl l9S2- 1983
[980
FOURTH OUARTER 1981 1982..,-[983
Agricultura
.81,..7
G1,.9 81.2
.S2,4
79.1
Bl.8
80;2
7%1
80.72
Non-agricultural
18,3-
18.1
17.6
20.9
L8.2
i9,8
20.9
19;0_
Total bottoz,
lO0,O 100.0 lO0.O lO0.O
100.0 100.0 ,iO0.O 100.0
,100.00 .
•
i6,8
.
Source:NationalCensus andStatistics Of{iCeINCSO}..
•
.
AVERABE [9B0-.1983.
....
,
Tab]elO. Coeparativeindexof meanfaeily income, by type of family (all fa=ilies = 100) 1980=.1983, =======================================================================================================================
TYPE OFFAHILY 1980
TH[RD GUARTER J981 1982
1983
L980
FOURTH OUhRTER 1981 1982
[963
Nl Families
100,0
lO0,O
100,0
100,0
100..0
100.0
100,0
I00,0
Agricultural Operators
66,0
64.2
65,0
6q.i
70,2
64,8
65.7
76.7
Palay Corn Coconut 8ugarcane OtherCrops LivestockandPoultry Fishing
67.4 56,4 59,7 15,4 ;67.4 112,6 66.6
64,I 49,6 55.2 101,8 63,4 114,3 72.3
64,4 46.2 57,$ 180.6 63,0 127,9 66.4
61,3 44,1 75.0 92,2 56,9 101,4 _8.4
B1,5 51.7 58,7 166,5 52.4 111,8 63,6
75.7 _O.t 4%2 322.9 49.4 L09,4 61.5
97,2 40.6 76,b 29%6 127.7 LlO.B 71+S
1013 40.5 70,B 76.I 54,2 91.3 62.2
figriculturaI gagesandfialarzes
50.8
50.0
50.5
55,6
63.2
46.1
60.6
44.3
Nonagricultural
142,2
144;6
143,1
144,7
135.5
144,3
162,2
129,3
IIol7
For more detailed cross-tabulati0ns, we refer to the results of the 1971 FIES, since crosstabulations of more recent data sets are not yet available. The distribution of poverty incidence rates by occupation, as classified in the 1971 FIES, reveals that tenant farmers belong to the poorest families in the country, comprising 24 percent of the total number of poor families (Table ii). Farm owners represent another 20 percent, fishermen 7 percent, and farm laborers 6 percent. The high proportion of poor families among tenant farmers of 56 percent is higher than farm owners with only 44 percent. While it is expected that landless workers would have higher poverty incidence rates than farmers, it is possible the census [nay have classified the workers as belonging to farming. Also since most of the expenditures of landless workers are not in cash, some measurement error in computing their thresholds may have occurred. In Central Visayas over 90 percent of the tenant farmers were below the threshold, followed by Western Mindanao, Eastern and Western Visayas, and 8icol with poverty incidence rates of 80 percent (Table 12). Fishermen in Central Visayas had a substantially large rate (87%), emphasizing the need for identifying both occupation and location specific groupings in the evaiuation of the spatial distribution of rural poverty. More recent data from the 1983 ISH permit us to analyze the breakdown o£ poverty incidence by main source of income as found in Table 13. The data indicate significant annual shifts in patterns of livelihood. In 1982, for example, 9.9 percent of the country's total families derived their income mainly from palay farming. This percentage decreased to 5.2 peJ:cent in 1983. At the same time, percentages of familie.:_ in coconut farming increased from 3.7 percent to 4.9 percent. In view of changes in crop mix due to yield and }_cice changes over time, income sources may also change. Thus_ "it is not possible to identify a fixed set of families as palay or coconut families, since no such clearcut set exists year after year" (World Bank, 1985). It is also alarming to note the increase in agricultural laborers, who are essentially, the landless workers. The data also indicate relatively high poverty incidences among families dependent on corn, coconut, other crops (notably sugarcane), and fishing, and among agricultural labor familie-s. Nonagricultural laborers had relatively low poverty incidence, indicating the potential of rural non farm employment as a source of employment and income growth in the future.
I1.18
TableLl. Povertyincidence by majoroccupation grouping, 1771.
Total Numberof Poor Families (in thousands)
Professional_ Administrative andClerical Norkers2/ SalesNork_rs FarmOwners FarmerPart-Owners FarmerTenants Fishermen,Laborers and Related Workers
PercentageIncidence of Poverty !/
31,9 94.0 50I,O 92.3 384.0 173.2
5.6 20.0 44,3 50.4 55.6 53,6
Loggers and Other Forestry Workers
18.6
41.4"
Hiners, Ouarrymenand Related Workers
4.1
2B.6
Transport andCommunication Workers Draftsmen andRelatedWorkers
103.5 287.5
28.7 31.2
5erviEes, Sports and Recreation Workers
81.2
27.7
Occupationnot reported or inadequately specified AllOccupation
170.1
28;8
2456,0
38.7
Basedon Povertylinecut-off of PSO0percapita. •211nciudes technical andmanagerial (farmandnon-farm) workers, BasicSourceof Data: NationalCensusandStatistics Office,FIES1971,as reported in WorLdBank (1979).
II.19
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II,20
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Table J3. Poverty incidence by main source of income.
Regionand mainsource of income
Urban
Third guarter of 1982
Third _uarter of tg_
Poverty l of total incidence families (%)
Poverty incidence (1)
l of total families
19,2
52,9
19.7
33.0
43.1 4L8 17.5 20.7 21._
2.1 0.7 1.0 _.3 1_7.
45.7 48.9 2_.8 20.1 t7.4
1.9 0.7 0,9 3.7 1.5
Oividends_rents andpensions 18.6 Non-agricultural labor 15.4
6.4 i7.7
IB.5 16._
6._ 17.7
Rural 42.9 Farming- Palmy 36.2 - Corn 58.8 - Coconut 56.0 - Other crops 5_.4 Agricultura] labor 53.B Fishing 51.7 Livestock_ pouttry, forestry 4].0 _anufacturing _7,_ Bhalesale and retail trade _4.2 Other services 3.1.0 Dividends_rents and pensions•48.7
&7.l 9.9 6._ 3.7 4. i 5.9 _,6 2.0 ].1 _i.0 1.4 11.6
4_.4 _3.5 62.5 41.0 52.6 56.5 52.1 4_.8 5i.5 ._5.7 28.9 50.0
67-.0 5.2 5.8 4,9 3.8 7.1 3,6 2.5 i,2 _.5 1,_ 12.1
Non-a¥icultural labor
1_.4
25.8
J6,0
Farming Fishing_ ]ivestock_ poultry Hanufacturing _hoIesale and retail trade Other services
24.2
Source: gor]d Bank (l?S5), from NCSO-ZBH tabulations.
II. 21
2.
Socioeconomic
Correlates
if:he above analysis dealt with aggregated poverty incidence rates, and even if occupational groupings are considered, there is still an implicit assumption that the poverty groupings are homogeneous. It is therefore necessary to draw on detailed descriptions and summaries of micro case studies to obtain some information on the socioeconomic conditions of poverty. While numerous socioeconomic correlates have been cited by various studies, we focus on/two _ignificant factors considered to be important determinants of poverty incidence and its distribution. The factors are classified as: (i) elements associated with agricultural productivity and (2) characteristics of the population and labor force. Agricultural _ctivity. Regional poverty incidence rates a-__[{fferent measures of agricultural productivity are provided in Table 14 based on the poverty threshold computed by the World Bank (1984), As a whole, there is a close correlationbetween low productivity and high poverty incidence, especially for lands planted to rice and corn. High poverty incidence regions llke Central Visayas and Western Mindanao exhibited low value added per hectare of _336.00 and P489.50, respectively. In contrast, the relatively low poverty incidence regions of Ilocos and Central Luzon have significantly larger contributions to gross value added per hectare at _i,034.80 and _i,141.10, respectively. The case of Cagayan Valley is unexpected, but the poverty incidence rate of 63.4 percer_t is much less than those found in Central and Eastern Visayas and Northern Mindanao. Such gross measures of agricultural productivity, however, do not reflect how the gains from increased output are distributed across households. For example, the high level of productivity in Western Visayas of _i,i08.70 per hectare is largely _ue to sugar plantation output but the profits from sugar production accrue to only a few segments of the population. Thi_{_ b_-ings us to a cross-comparison of productivity gainswith land distribution data. It Will be difficult, however;, ho establish distribution patterns using national data, give,] the poor information base provided for agrarian refo_m. Ledesma (1983)estimates that about 1.4 million hecta_-es of the total 3.3 million hectares of rice and corn lands are covered by the land reform program, excluding over 1.9 million hectares of owner,operated lands. The program limitation to rice and corn effectively excludes an additional 1.8 million hectares of coconut lands,
II.22
TabJe14.
Poy_rl_ inczdenceandagricultural productivity leasuresby region] 197•1.
Region
Poverty •incidence .................. AgricuL- Rice tura] and Ruralgetups- Corn tions farming
Value addedin agriculture, fisheries, forestry
Grossvalueof cropsandlivestock
Grossvelue of rice endcorn produce
(])
(2)
(_)
Per labor (4)
Per ha (5)
Per fare (6)
Per persGn (7)
Per ha (G)
Per fare (9)
Per ha (10)
CentralVisayas EasternVisayas HorthernHindanao _icol C_gayan Valley
7_.6 66.6 62.5 56,4 58,5
83,q 71.8 65,! 6_.7 62,6
84,5 72.3 69.4 60.8 63.4
1406 1821 3107 1373 2012
1564 1_69 L722 G66 1417
]758,1 2187,2 2755.7 2214.5 2631.7
304,9 369,0 432.2 3_8.5 43_.4
540,3 616,q 613.6 531.5 846,5
957,2 336.0 2t40,1 578.8 1632,1 572.3 2229,9 602,6. 3672,0 1157,5
SouthernHindanso Bestern Hindanao I]ocoa _esternVis_yas
49,2 42,5 42,2 45.9
56,4 56,0 50.4 49.1
56.t 55.6 4G,4 510
2563 2468 l_lO _46_
1567 1270 1947 3015
2Z22.9 2105.3 2679.4 4462.9
413,3 477.2 327.S 476,1 436.3 [ 457.5 701,71 106.7
2886/3 6]0.6 [952,2 489.5 28t4.7 ]034.8 2956,2 736.5
Southern TagaIog Centra!Hindanae Central.Luzon
_8,6 22,9 20.6
40,5 24.5 2_.D
44.1 26;9 2_.0
_10_ 2569 _767
2227 [172 _026
2766.[ _756.8 4435.7
446.4 755.6 52L,2 846.9 669.71 _.l
]704,8 776,9 _[76.6 6_2,4 3_85,7 I[4L,i
Columns. 9 andiO _erecalculatedby multiply]oRaverageproductionbyaverage1.971 price andthendividedby nuab_ of far_s andarea, Thefigures in thesecoluoesare-usedonly for cross-regionalcozparis0nandsay notbe consistent _i_hotherproductivity figuresfor anyoneregion.
Sources:Coluens[ to _: Statistical Appendix, TablesI.l and1.2. ColoNs4 and5¢ _O[_[gL_E_ J_g_ _9d..... _[_9_ _ HEDA RegionalDevelopment Staff, 1978. Table3. Coluims 6 to 8: 197[Census of AgrLcultur_ reportedin.Uorid Bank(19791_Table4.1, p. 60,
zz.23
300,000 hectares of sugar lands, and 1 million hectares lands planted to other crops (see Mangahas, 1985).
of
Because of the limited scope in •which land reform is implemented (i.e., in tenanted rice and corn lands) land • redistribution has been effective •mostly in Central Luzon but weak in plantation-dominated regions like Western Visayas and Northern Mindanao which are high poverty incidence areas. This is supported by data provided in Table 15 indicating that the coverage of the Operation Transfer (OLT) and Leasehold Operation (LHO) for the period 1975 to 1982 is biased against regions with low tenancy rates. Central Luzon and I locos, for exampler have the largest number of OLT and LHO recipients and the highest proportions of tenanted rice and corn lands of 76 percent and 54 percent, respectively, for •both regions. Both• tenants and landless workers : non-rice zn and corn lands number about 174,000 tenants and over 1 million landless workers (Ledesma, 1•983). Conditions of tenancy also vary across regions so that the present •land reform scheme addresses conditions that pertain only to rice and Corn cultivation. Census estimates of agricultural farm laborers place the population of landless workers at 48 percent of the total rural labor force, In 1975, landless workers reached 3.5 million, a figure closely approximating the estimates provided by Ofreneo in 1976 (3.3 million) and Bautista in 1977 (3.4 million). A compilation of studies on landless workers, summarized in Mangahas (1985), indicates that high •poverty incidence rates• and concentrations of landless workers are found in certain regions, notably Western and Eastern Visayas and Bicol. Incomes earned by agricultural workers in rice and corn lands• are slightly higher than incomes from sugar, •coconut, abaca, and tobacco lands•.• As in farming, ownership of assets such as boats•and equipment •among fishermen is highly unequal. •About 70 percent of fishing households own a fishing craft . but these are mostly less • than 3 metric tons. With •the small size of the boat, the high catch potential of deep-sea fishing (in areas greater than 7 •fathoms depth) is not availabie to the smaller craft. The large fishing •vessels, comprising only 16 percent of total fishing boats, earn more than 70 pelccent of total income from fishing (BFAR, 1982). Fishermen• without boats are the most disadvantaged groups with incomes from sale of fish catch substantially lowe_ than owner-operated boats. A recent Bureau of Fisheries and Aquatic Resources (BFAR) survey showed that owner-operated vessels earned 35 percent .... more than nonII.24
Table15, Scopeof landtenureimprovelent_ 1975and1982,
h)tal Region
PhiJs. I 11 Ill I'V V Vl VII viII IX X XI XII
9[5 173 90 1a6 97 84 80 69" 34 29 39 29 25
1975 >7ha, 7 ha. .Total (Operation(Leasehold ,Land OperaTransfer lion) 394 45 _5 "tO4 34 39 35 30 12 IO 2_ 11 1_
521 129 55 62 63 45 45 39 22. 19 17 iB .8
955 161 89 "180 80 87 96 7E 52 22 36 41 35
1982 Ratio of 1982 >7ha. (7 ha. rice _ corn (OperaLion(Leasehold tenantfarms Land Operato 19)0 Trans(er) tion) censusfarls 428 31 50 109 27 54 44 2& 21 i_ 16 17 22
_28 130 W' 71 52 _3 52 52 31 9 21 24 i_
2B 54 35 76 20 ".28 34 23 19 10 14 14 14
Sources: 1975froe ffakil andFerein_.197B_ p,i61 original sourceBAR, 1982fromB_Rdatabank(.unpublished), t984Statistical. Yearbook.Reported in Bangahas (I985), Table320.3_p. 185.
II.25
ownecs. Also incomes were •found to vary by type and quality of vessel. In 19Tg, the average net return _er year for _otor. ize_, _ _ ba_cas was _5,671; for nonmotorized bancas it was lowec at p3,166; and for fishermen using rafts, it was way be!,ow the poverty threshold (_2,745 per year). Cropping Intensi__ and Crop Diversification. Several stu_Ji'_-s-have shown that tenancy by-i_seif is not a close correlate of poverty incidence (Mangahas, 19_5; Barros, ig82). Variations in income•, farm size, and yields have been found in fact to be significant within tenure classes. This can be •.explained by the presence of microvariations in the environment and to different levels of cropping intensity and •crop mix. Land quality is enhanced by providing irrigation, with yields in irrigated farms being significantly larger at 1.6 times that of rainfed and upland farms. The hlgh ' •correlation of yield and presence of ir_igation by •region is shown in Table 16. Central Luzon, Southern and Central Mindanao exhiblt the highest •yields compared to the high poverty incidence areas of Eastern Visayas and Bicol. In general, cropping intensity due to an e xpanslon of irrigated area improved in the 1970s, coveting 54 percent of total rice lands in the country. Irrigated farming is also• complemented by the adoption of higher yielding varieties , with 94.8 percent of total irrigated farmlands using modern varieties. While lowland rainfed lands have an unusually• high 86.7 percent adoptlon rate •, over 76.4 percent of upland farmers still use traditional varieties (refer to Table 16). In addition to irrigation, crop diversification• has been •shown to improve income in terms of compensating for the low productivity of staple foodcrops which are sensitive to water applications. In some areas like Ilocos_ the planting of tobacco and vegetables offsets the small farm sizes by shifting to high "value crop mixes, •Especially for the uplands, _he diversified crop mix has been found to be conducive to local changes in the environment. Hbwever, high value crops often require huge investments in transportation and marketing facilities. Multiple Income Source. The 1971 FIES data showed that the pr-_p_V"6-{_6 _f r-dra--_milies mainly dependent on farm income alone decreased from 43 percent in 1960 to 34 percent in 197_. The proportion of households dependent on nonagricultural income, meanwhile, increased from 14 percent to 20 Peccent and from 9 percent to ii percent for families dependent on farm wage income in 1960 and •1971, re spa ct irely. II.26,
Tableib.. YieLdper hectareby croptype andvariety, by region, Phil|ppines CY1983(sackof 50 kgs.).
Philippine_ [. FIoco_ II. C. V_l]ey IH, C. Lu:on ::IV, 8. T_ooI_ V. Bko! _i. _l.Y_s_y_ VIi. E. V_say_ Viil,E.9_ayas IX. W.Bi,danao X. N. Hindanao Xl. 8.Hindanao XII, C, Hindanao
HYV
irrigated OV
Total•
HYV
Rainfed OP
Total
59.9 57.6 59.0 72_9 56.0 4%! 56.B 41.7 43.7 64.6 58,2 62.0 ,63,5
45.0 40.0 49.0 54.9 29.5 34.6 37.5 27.9 34.0 60.6 40.0 60.3 52,7
5B.9 55,0 5B.O 72°5 54.2 48,8 56.4 40.0 4_;4 63.8 58.0 6l,B 62,.5
_8,$ 46,4 33.4 5B.3 35.2 29.5 _5.2 20.7 2_,5 3B.O 30,6 39.t 50.5
26.6 35.4 24.8 47,4 24._ 19,5 28.7 18,6 17.B 36.B 25.4 24.1 30.3
_6,l 43.7 _l.O 57.8 32.2 17.1 _4,9 20.2 21.8 _7.7 30,336.4 46,6
Source=RangahH(19B5),Table380,5, p.. 204
II.27
The non-agricultural income sources reported in the FIES were livestock raising, small-scale trade, and operation of tricycles and agricultural equipment (reported in World Bank, 1974). Work in other lands provided up to 75 percent of total secondary income in some regions. The large peccentage of fishermen working as part-time farm laboreL-s, for example, is noticeable in the Central and Eastern Visayas regions_ The majority of poor fishermen (or those who engage in "municipal" f:[shing) also have little access to productive resources. Only 15 percent of fishermen have access to land and a small 31 percent of fishing households depend solely on income from fishing for their livelihood. Even within agriculture, multiple income sources have been observed for some households as security against famine. Many households currently occupying marginal upland sites, for example, still maintain seasonal farm work contracts in nearby sugar plantations. Cruz, et al., (1985), for example, found that over 65 percent of households surveyed in an upland community in Antique engage in seasonal migration to Capiz and Negros Occidental, often leaving their wives to cultivate a staple crop. I.n this instance, households prefer to retain the security of cash income derived from wage labor while cultivating and upland field. In terms of targetting specific sectors of the rural poor, our discussion has shown that while census and survey information provide some aggregate and regional trends in poverty incidence such data are inadequate for policymaking. For example, poverty-related programs aimed for the fishing industry are not necessarily distributive in nature' unless target groups are identified within the sector such as the non-owners Of fishing vessels. Population and the Labor Force. Population processes including varying birth rates an_migratory movements have been found to be effective correlates of poverty incidence. In areas with highly labor intensive production systems, such as the rice and sugar producing regions, population levels tend to be larger (and in some cases more fertile) and have greater mobility, rn this section three important economic and demographic factors are considered --labor force participation rate, dependency ratio, and migration. For the period 197.5 to 1980, population grew at a rate of 2.7 percent per year, which is lower than the 3.01 percent national growth rate in 1.9.60to 1970. However, regional growth rates vary significantly with Western and Southern Mindanao having a faster 4...3 percent annual II.28
increase. Concepcion (1985) explains that the high growth rate in Mindanao is from in-migration rather than natural .increases in population. However, in terms of infant mortality rates, Western and Central Mindanao exhibit the largest rates, indicating the disparity in availability of health services. Labor Force Participation. The Philippine working age popul-_on-l-s-_fined as the labor force 15 years of age and over. As of 1982, labor force participation has shown an increasing trend. For instance, in 1976-77, the rate was around 60 percent, whereas in 1982-83 it was around 64 percent. Much of the increase was due to changes in age structure on.the case of males and increases in age specific pa]:ticipation rates in the case of females (World Bank, 1985"21). It was also pointed out that the increase in labor: force participation rates put downward pressure on real wages and growing levels of underemployment. The highest labor force participation rates are in Southern Mindanao (71.7%), Cagayan Valley (70.2%), and Northern Mindanao (70.5%) as shown in Table 17. For rural areas, the labor force participation rate i_ 63.8 percent, with males having a higher 84 percent participation rate compared to the females with only 43 percent havSng been gainfully employed. More than half (52.1%) of the labor force is employed in agriculture, the largest concentrations being Eastern Visayas (71.4%) and Cagayan Valley (70.2%). In areas with a large labor force, labor absorption schemes have been observed. In a study of modes of economic adaptation in Capiz, for example, Yengoyan (1977) notes that rice and sugarcane fields are weeded and re-weeded to accommodate the excess labor moving from fishponds and deep sea fishing operators. Dependency Ratio. Another useful indicator of relative deprivation in rural areas is dependency ratio -- or the size of the non-working population to the working age population. The dependency ratio gives the number of dependents which the working age population has to support in any given period. For the Philippines, the dependency ratio is 83.3 percent, and as expected, Metro Manila has the highest dependency ratio. Metro Manila is closely followed by Bicol (97.6%), Eastern Visa_yas (93,5%) and Central Mindanao (93.1%) as shown in Table 18. Migration. Population movements provide an idea of the N locat__ockets of poverty, which are usually the outmigrating or sending areas. Except for Mindanao, in the period 1960 to 1970, poverty incidence rates are highest in areas that have large out-mlgration streams. Throughout the years, the major sending regions have been Eastern and Ii.29
Table 17, Eeploynnt status of the householdpopu[ation t5 years and over, fourth qearter 1982 (in percent).
Reo_on
LaborForce Eeploynnt Uneeploylent Z Participation Rate Rate •Employed Rate in _:ricutture
Z Total Popu_ation Eiployed Distribution in Non....... - ............ _oriculture _ Rural _ Urban /
l I]
62.4 70.7
96.9 95.5
3,! 4,5
62.2 70.9 •
_7.6 29,B
Bi,! BB,5
18,9 11,5
Ill TV V V! VII
57.3 62;_ 68.1 65:.2 67.4
94,t 95,_ 97.7 95.6 95.B
5,9 4,,7 2.3 4.4 4,2
$8.0 46._ 62.0 59.1 54.4
62,0 53.7 38;0 40,9 4_,6
70,7 70,_ 82,7 74i5 70,9
29.3 29,_ 17,_ 25.5 29,!
VIII IX
63.0 _,0 70;5 7i.7 69.7 55.7 6_,6
9_.7 96.8 94.8 92._ 96.9 87,0 94.5
4.3 3.2 5.2 7.7 _.1 13,0 5.5
71.4 69,0 61.0 62,0 69;8 1.6 52.!
2B.6 31.0 39.0 37.4 30,2 98,4 47.9
BO.,2 B_,l 81.3 75.0 85.4 66,9
t9.8 14,9 [8,7" 25.0 [4.6 100.0 _].1
X] X].l NCR Phi].
Basic Sourceof O_ta_ Integrated Survey of HouseholdsBulleti_ (Ser_es No, 51) - LaborForce, NEOA_ _SO - aune, 19B4| as reported in Eaffgaflas([985)_ Table ][O,_j p, [61.
II.30
Table 18, Averagecompletedfamily size, populationunder JOyears of age anddependency ratio by Region, Philippines, 1960. Total Fertility Rate (Average CompletedFaeily Size (1) Philippines HCR ] 11 III I? Y VI PlI VIII IX X XI XII
4,7 3.0 4.7 5.2 4.3 4.7 5.8 5._ _.5 5_ 5,6 S._ 5,4 5,6
PopulationUnder 10 Yearsof Age .................... Nueber Percent (2) (3) 14271643 J4&0554 990766 677_15 1404954 1822484 1114973 (341725 1081724 863_64 816933 857111 1065615 773825
2%7 24.b 28.0 30.b 2%2 29,8 32.1 29._ 28.1 30,8 32.3 31.1 31.8 34.1
Oependency Ratio (Z)
(4) 83.3 59.0 85.4 86.7 B3.7 84,0 97,6 86.2 8_,0 9_,5 90,3 B7.2 . 86.7 93.!
BasicSourceof Data: (I) Revised Population Projections forthePhilippines and itsRegions,1980-2030 (2) and (31Concepcion 1985,_roeCensusreportsof theNational CensusandStatistics Office. Source:Hangahas(1985),Table310,1,p. 159
II. 31
Central Visayas, Ilocos, and Southern migrants are known to occupy frontier Mi ndanao.
Tagalog. settlement
.Visayan areas in
In general, the inducements to migrate are of two types_ One concerns those factors which operate more or less constantly for all movements such as those associated with the push-pull model (Lee, 1966). A majority of case studies observed that "pull" (e.g., land availability) rather than "push" (e.g., hardship or poverty) factors motivated the movement to marginal upland sites. Of the total population residing in the uplands, over 21 percent are classified as lifetime migrants in 1980 with only 18 percent changing residence in 1975. This is consistent with Fleiger's (1977) analysis of intercensal migration patterns (from 1960 to 1970) where a positive correlation exists between interregional in-migration and intraprovincial population movements among upland communities. On the other hand, Bailey's (1982) study of occupational and geographic mobility among subsistence fishermen in Bicol indicates that fish.ing communities tend to experience higher rates of out-migration. Over 78 percent of out-migrants move inter-reglonally to nearby cities or to Metro Manila due to the limited nature of alternative economic opportunities to fishing.
ALTERNATIVE
EXPLANATIONS
OF
POVERTY
One's perceptlon of the dynamics of poverty in a particular situation will undoubtedly influence the design and implementation of poverty alleviation programs, it is interesting to look at existing alternative explanations of poverty in the Philippines (World Bank, 1980, 1985; Sobhan, 1983, NEDA, 1985) and to link these with their recommendations for poverty programs. i.
Productivity
and
Empl0yment-Oriented
Explanations
Two World Bank missions have come to the Philippines to conduct poverty studies. The first mission, in 1979, came up with a primarily productivity-oriented explanation of poverty. As Sobhan (1983) points out, the study tended to identify land productivity and occupational status as the main variables influencing the incidence of poverty _s between households and regions. Although farm size and tenure are introduced as variables, these tended to be subordinated to demographic pressures affecting the availability of land and its productivity. The Bank report also pointed to macroeconomlc policies which introduced price distortions as responsible for inefficiency, capital-
If.39_
bias, and low labor absorption in the industrial sector. Given that productlvity-oriented perspective, it is no surprise that the mission's recommendations are primarily investment-oriented programs. They pointed to the need for more infrastructure investment in backward areas, upgrading of education, and acceleration in family planning activities. Health and nutrition programs were viewed as targeted investments to the poor. At the margin, some target group orlen£e4 programs would be needed to seek o_t those not covered by investment-oriented and labor-creatlng programs. The redistributlve problem would be covered by fiscal policy which will tax the upper income groups to finance investment and target group programs for the poor (Sobhan, 1983), It has been pointed out that the capital, intensive, Investment-oriented nature of these recommendations is a _eflection of the Bank's own bias as a lending i nst itut i_n _. The 1979 mission, in its emphasis on productivity and investment, could not •adequately explain the increasing inequality apparently occuring in the 1970s. It did not give much emphasis to structural factors behind poverty, namely, access to productive resources and the incomes derived from them. The study concluded, without direct evidence, that "the pattern of growth during the late 1970s was such that the smallholder and subsistence farms should have benefitted at least equally from it." The above conclusion is unfounded given the more recent data cited by the second mission (World Bank, 1985), Which, although less comprehensive, offers many insights on the employment and wage aspects of poverty and inequality. Despite the evidence pointing to decreasing poverty incidences in the 1980s compared to the 1970s, the other findings point to adverse trends in income inequality and employment: declining real wages, an increase in underemployment, the relatively high rate of growth of npaid family workers in rural areas, the failure of ndustry to absorb additions to the urban labor force, an increase in family income inequality and widening ruralurban income differentials (World Bank, 1985), As mentioned earlier, the mission explains these t_ends as follows: while rapid growth in the 1970s had some beneficial effects on poverty incidence, the short period of time was not adequate for structural, productivity, and employment changes which would increase real wages and the labor share in national income and reduce inequality. In the longer term, investment and growth alternatives which will have favorable consequences on income distribution will be tho_ in which investments increase employment opportunitles.-- z/ To the extent that the macroeconomic policies created blasis for capital-intensity in industry, the previous patterns of II.33
investment were not conducive to increased employment in non agriculture. Given that nonagricultural incomes are substantially higher than agricultural incomes in the rural sector, and that urban real wages have been declining, increasing rural non farm employment rather than rural-urban migration appea_s to be a potential source of employment as well as income growth. 2.
Unequal
Access
to Resources
So bhan (1983), criticizing the Bank's productivityoriented interpretation, puts forth an alternative explanation of poverty, tracing it to unequal asset distribution. "...unequal private ownership in the command over productive assets and the concentration in the ownership of wealth over time provides a critical dimension ho an explanation of the growth of _ovet_ty at a time when the national i:_conomy is experiencing a high growth _ai:e" (Sobhan_ 1983:26) In a(]dihion, Sobhan views state power as a means of furtll,_i_ring income concentrati_-i-_ fa-v-o-r-of those gr%u/ps with pr.ivileged access to state resources and patronage.- _ Since Sobhan's perception of poverty is linked with unequal distribution, his policy recommendations stress the need for greater redistributlve measures. A comprehensive discussion of poverty a-6_--l-nequality cannot separate productivity from asset ownership, for the presence of complementary assets is essential to productivity increases. We point out, however, that since an increasing number of persons will derive, incomes from employment, not direct ownership of land or capital assets, neither should employment or human capital-using -opportunities be neglected. Access to resources, whether private, communal or publi_7--i-6-a key determ_-6-ant .of income distribution. Other forms of access besides private ownership are important because some resources are communally owned or controlled as well as publicly provided.. Tribal lands., upland areas, communal irrigation systems, and aquatic resources are examples of the former; publicly provided resources may be in the form of physJ cal infrastructure or social infrastructure services. A Food and Agriculture Organization or FAO (1981)study on rural poverty, 'for example, stresses the access factor; the poor do not nave adequate access to resources, to credit and infrastructure II.34
services, nor to publicly provided social s_r,vices. Carino (1980:363-364) citing studies by ESIA/WID--4/ researchers, points out that in many cases, the introduction of technology, the addition of infrastructvre, or the provision of a new government service tends to lead to a further deterioration of the income distribution structure. This is due to several factors, some related to: (1) various characteristics of the initial high-income earners (e.g. higher productivity and capacity to respond to novel approaches); (2) the nature of the programs themselves (e.g.. a tendency towards labor-saving bias in technology); (3) the tendency for public amenities to be available to big farmers (due to such administrative factors as the greater ease in reachlng"the more affluent because Ehsy live at or near the center, can understand technical language, etc.); and (4) some biases in p oli_y (e.g. excluding as poor risk for loans those who are poor, giving official prority to irrigated over non-irrigated farms, the latter tending to be the poore.r of the two). The above discussion suggests that initial r.esou_ce endowments may in fact influence access to subsequently-provided resources such as technology and govern'me_,_: D_:ogcams. In view of the above, it is necessary to take _ critical look at various poverty programs which have been ir_iplemented in the Philippines.
III. i.
_
Government Overview
Alleviation and
Non-@overnment
Programs.
An --
In its review of gove.rnment policies affecting lowincome famillies in agriculture -- defined as those in the bottom 30 percent income bracket -- a NEDA (1985) study classified _uch programs and policies into three types. These include: (i) macroeconomic policies which are not intended for but which have indirect effects on the lower income agricultural groups; (2) policies and programs intended for the agricultural rural sector; and (3) policies and programs which are directly intended for and which have more impact on low-income agricultural groups. Drawing upon the results of studies by David et al , (1983), it concludes that macroeconomlc policies in general have been biased against agriculture and have had negative indirect effects on the rural poor because of an unfavorable incentive structure a_d reduced farm incomes. Policies in the second category, i.e. traditional rural de_velopment projects and integrated area development projects (IADPs), have shown some positive impact, but have been bogged down by inefficiency and implementation problems, and, in some cases have resulted in increased Ii.35
inequality in project areas. However, policies directly intended for the low-income groups have tended to improve the welfare of the rural poor through increased production, incomes, and overall welfare. As
the NEDA study points out, the issues regarding direct poverty alleviation programs are: (i) the programs are inadequate in terms of quantity and coverage as well as in terms of quality of service; and (2) accesssibility of .the facilities or services to the poor may be limited by a lack of complementary assets l(NEDA, 1985_i0). Although the study is quite comprehensive in its review of policies and programs, some of the conclusions it makes regarding the benefits attained by the poor are not substantiated by adequate, dlstributlon-oriented data. Many of its conclusions are based on aggregate, project-level as sessments of the programs, except in the case of a few social services (e.g., MSSD) where there is closer tagetting of program participants. Even its assessment of nutrition, health, and education can be faulted because of its implicit assumption that the improvements in those areas were received by the poorest of the poor. For example, Carino (1982), in a case study of five rural health care delivery projects, indicates that these projects may actually benefit a larger group than the poor. pe_-h_._ps we are too concerned about gradations of poverty, but we must remember that it is precisely the poocest _ha£ such programs must seek to reach and benefit. In fairness to the NEDA study, this limitation is due to the absence of distribution-oriented indicators which can be used for monitoring and evaluation, a reflection of the official statistical system's lack of poverty-orientation. At this point, it is important to give credit to the nongovernmental organizations (NGOs) which have been conducting their own poverty programs. Although more limited in scope and resources than the government, the NGOs have succeeded in targetting their programs more directly to the poor. NGO activity includes both sociopolitical (community organizing) and socioeconomic (livelihood programs) dimensions, but perhaps the key feature of NGO work is its attention to developing local level capacity to design and implement projedts. Although NGOs are typicallly small, many of them are organized into networks. The operation and scope of these networks are well-documented in a review made by Ledesma (1985). We also include NGOs in this paper, albeit on a rather cursory way, due to lack of easily ava_-la_ and comprehensive data on individual projects.
II.35
2.
Regional and Programs
Rural
Dezelo_pm,e_nt i Policies
and
Historically, there have been three types of rural development programs undertaken by the government.. (1) the community development approach of the 1950s and 1960s; (2) the single commodity or project-by-project approach of the 1970s (up to the present); and (3) the more recent integrated area development (IAD) approach (NEDA, 1985). Although the first approach had organizational and institutional potentials, the absence of appropriate farm technologies hindered the success of the program. According to Castillo (1983), the community development approach was "rich in organizational prescriptions and institutional innovations but lacking in productive technolo@ies; politically ineffective due to the serious problem of land ownership and tenancy; emphasized social services rather than production; and therefore failed to improve the conditions of the rural populace." The decline of the community development approach is not unique to the Philippines. In a review of community oganizations in Asia, Korten (1980) identifies several weaknesses which led to a shift from this approach. According to Korten, (i) community development programs tended to accept existing power structures as given and no attempt _,;as made to change them; (2) responsibility for implemen_-:._tion of community development was placed in administrahively separate ministries and agencies; (3) cl.reater emphasis was placed on the expansion of social services than on increasing rural incomes; (4) implementation was done through tradit.ional bureaucratic structures with minimal local participation; and (5) little was done to build independent member controlled local organizations able to solve local problems and make demands on the broader system (Korten, 1980:482). The slngle commodity approach, on the other hand, was primarily production'oriented. Although there were complementary projects in "infrastructure and health, these were planned coordination observations
and implemented separately, with minimal among implementing agencles. A number of can be made regarding these programs:
(i) they are primarily production emphasis on specific commodities specific commodity mandates,
and
oriented, agencies
with with
(2) although some attempt is made to identify a target clientele, the targets are very broad, e.g. rainfed farmers, backyard livestock raisers, fishermen, agricultural producers, and not specifically defined
II.37
with respect locations.
to
poverty-group-specific
(3) the programs by themselves without the presence of support and infrastructure.
cannot services
geographic
be effective llke credit
The NEDA (1985) study also mentions that the "top-down" approach may be a reason behind the general ineffectiveness of this approach to rural development. Projects were identified by what policy and decision makers perceived the rural areas need, with hardly any feedback from the intended beneficiaries. The integrated area development programs listed in Table 19, attempt to address the compartmentalization of the single commodity approach by providing a multisectoral and multifunctional package of services. Some of the features of the IAD approach are" (I) simultaneous undertaking of related aspects of development like agriculture, smalland medium-scale industries, infrastructure support, and social services; (2) a focus on a contiguous area at the regional, provincial, or local levels to optimize complementation of programs and projects; and (3) grassroots participation wherein local people are encouraged to participate in the planning and implementation of programs and projects. In practice, the third feature has probably been neglected. Many IADPs still are over-centralized. It is also question]able whether the IADPs have brought about significant reductions in poverty, although they may have increased income and productivity. The bottom line, however, is that these projects do not attempt to undertake any meaningful asset redistribution and thus, in the short term, before employment effects are significant, the benefits will be distributed according to the initial resource endownments. In brief, one can say that these projects, while location-specific, are not really "poverty programs '_ since they do not deliberately target the poor communities as program beneficiaries. A welcome development, however, is the introduction of the Local Resource Management (LRM) project funded by the United States Agency for International Development (USAID). In order to promote better development planning and local resource mDbilization at provincial and municipal levels, the program provides technical assistance to provincial development agencies in designing and implementing programs, improving financial management systems and real property tax administration, and test approaches for linking private sector efforts more closely with local development activities.
II.38 i
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3.
Social
Development
Programs
Social development policies and programs include programs for health, nutrition, education, population, housing, and social services. In general, it can be said that the rural poor suffer more from endemic diseases, • chronic ailments, long-term malnutrition, low levels of education, and low access to and quality of basic social services. To what extent have programs and policies been designed for the rural poor, and to what extent have they benefited? In a review of food and nutrition issues, Qulsumbing (1985) points out that between 1978 and 1982, while overall nutrient intake increased, and the percentage of households below 80 percent of the food energy RDA decreased, the absolute levels and the rate of intake improvement were lower in rural compared to urban areas. Although this trend was reversed from 1984 _to 1985, due to the greater impact of the e conol, ic crisis on the urban areas, an examination of va_-ious indicators of malnutrition of preschool children reveals that while wast!n _ (acute short-term weight loss) may have been greater In urban areas, stunting (long-term growth impairment) was still highe_--_n rural areas. Although the Food and Nutrition program emphasis was expanded from assisting previously identified nutritionally vulnerable groups (e.g. preschoolers, pregnant and lactating women) to increasing access of families of landless laborers, farmers tilling less than three hectares, kainqineros and subsistence fishermen, among others, to energy-rich foods, its effectivity was hampered by the depressed economic situation and cuts in program budgets. Nevertheless, the nutrition program does have fairly effective outreach services in the rural sector, e.g. the Barangay Nutrition Scholar (BNS) program which makes use of community volunteers to provide basic nutrition services to the populace, and the Bureau of Agricultural Extension's Malnutritin Prevention Program. In the health sector, the Restructured Health Care Delivery System (RHCDS) was introduced in 1973 to strengthen rural services through the addition of new rural health units (RHUs), barangay health stations (BHSs), fielding of mobile teams and the development of health personnel. Volunteers from the village level such as the Barangay Health Workers (BHWs) and hilot were also mobilized. In 1980, the Primary Health Care "{-PHC)program was launched, which involv, ed a more holistic, preventive, and participatory approach to health care compared to the traditional individual, creative, and health-service delivery approach (Car'ino, 1980:367). Similar to other public services, there are regional disparities in the
II. 41
provision of health care facilities. For example, as of 1980, the average RHU to population and BHS to population ratios were 1:24,772 and 1:6,730 respectively but regional data reveal that certain regions have a disproportionately small number of health units in relation to the population. The most disadvantaged regions are Region IX (Western Mindanao), Region Xl (Eastern Mindanao) and Region XII (Central Mindanao) with respect to the RHU to population ratio, and Regions IX and XII with respect to the BHS to population ratio. The programs of the Ministry of Social Services and Development (MSSD) are targetted to low-income groups. These have shifted from a mere "dole-out" orientation to a more developmental approach, encouraging the development of disadvantaged families into self-reliant and productive members of the community (NEDA, 1985). Despite the policy shift, the distribution of clients by type of service still indicates that emergency assistance constituted the bulk of clients i,l ].984 (42.98%), with self-employment and practical skills training and job placement accounting for a meager 2.43 peL_cent. By region, MSSD assistance mostly benefited the bottom poor (e.g. in Regions VII, VI, VIII and II). Furthe_ reorientation of MSSD programs without compromising basic needs delivery will be necessary to achieve a developmental approach. In conclusion, the NEDA review says that access of the poor to social development prorams has improved over time, but that service adequacy remains a major problem. Facilities are inadequate and personnel, particularly indigenous workers, are less trained in most of the regions except those in NCR, Regions IV, III, I and VII. The study says that the quality factor is responsible for the lagging performance of the depressed regions. Service adequacy, however, is not the only factor to be considered in improving the effectivity of poverty-oriented social development programs; a greater poverty focus is required. Ca rino (1980) criticizes the inability of many programs to target selectively in favor of the poor, not only due to admittedly limited resources, but also because of variOus selection criteria directing coverage to areas which would improve the chances of the program to succeed on the implementor's terms, e.g., known income potential, proximity for monitoring purposes. In another study (1982) she stresses the need for greater community participation and decentralization in the provision of social services, as well as the need for complementarity in service delivery. Instead of separate agencies implementing their own programs at the local level, she suggests a multisectoral approach, e.g. a multipurpose social services center with a multipurpose community worker. II.42
Finally we £urn to organizations (NGO) social have been quite successful target clientele. 4.
Nongovernmental
a review of development in reaching
Organization
nongovernmental activities, which the poor as their
(NGO)
Programs
This paper does not attempt to make an extensive, review of NGO programs, but to highlight some of their features which may be useful to government pollcymakers in formulating poverty alleviation programs. This section draws heavily on a comprehensive review of NGOs by Ledesma (1985), for the Centre for the Development of Human Resources in Rural Asia (CENDHRRA), as well as interviews with individuals working with NGOs. Ledesma (1985), classifies NGOs according to their sectoral affiliation, namely: the church sector, the business sector, private social development agencies (PSDA's), people's organizations, the academic sector, and foreign NGOs. The Church sector. Composed of the institutional chuL-ch and church-related organizations, the church sector undectakes a number of development programs with a pred_ninance of projects in conscientization and community organization through seminars, basic christian communities (BCCs), community organizing work and other related activities. Unlike other groups (e.g. the business sector) which are oriented towards livelihood projects, the church sector's thrust in towards "imbuing the poor with the consciousness and the will to undertake their class/sectoral role in restructuring the system" (Ledesma, 1985:36). The major church groups invQlved in social development are the National Secretariat for Social Action (NASSA), the official social arm of the Catholic Bishops' Conference of the Philippines, the National Council of Churches in the Philippines (NCCP), an organizaion of Protestant churches, the Episcopal Commission on Tribal Filipinos (ECTF), the Inter-Regional Coordinating Committee on Basic Christian Communities - Community Organization (BCC-CO) and the La Ignaciana Apostolic Center (AC). As a social development institution, the church is the most significant nongovernmental organization having a well-extended nationwide network and structure, a high degree of credibility and acceptability, financial viability, and a strong motivation and identificatin with the people. It has been successful in reaching the poorest groups and establishing the foundations of genuine people-based community organizations, but faces a number of problems which arise from its stability, importance, and size. AS a stable institution, it has its own hierarchical structure as well as i tendency to overlook phasing-out, i.e., transfering local projects to people. In addition, there is 11.48
difficulty in delineating whic.h engendered much administration as we].]., as
pastoral critic:[s_ from more
f__oul political work, f_;om the previous conservative church
officials. Finally, there seems to be a 9_<owing perception that community orga_-._izing around ideolo.gical issues ep_ se is inadequate, that to sustain people's, i:{:iolvement, some D/ socio-economic activity' is desirable.The Bussines sector. Recent year's-have witnessed an iocreased response of the business sector to corporate _'.ocial _.-<,._;_,on;:-Lbili-ty c<ince_.'_. The major developmentoriented organization in the business sector is the Philippine Business for Social Prog,;ess (PBSP}, funded by contributions from 115 member corporations which account f_r 12 percent of the Philippines' top 1,000 corporations.--7 Despite the size of its operating funds and capital, whic.h makes it the largest foundation in the country, PBSP covers quite a small component of the business sector. Other corpoca-;._ • I,..,. ,._ls and foundations are even less concerned with di_.-ect s_zial development work, their areas of concern being mainly in social service research_ (25% of funds), education (24%), and scientific research and technology (20%; Ledesma (1985), citing data from the Association of Foundations). Community-building and l_ivelihood made up only 12 percent and 8 percent of project disbursements, respectively; cultural development and health/medicine making up the remaining ii percent. PBSP's social, development .work is predominantly in livelihood projects; specifically in providing the poor with "tools" which will enable them to improve their productivity and quality of life, notably capital and skills training. This socioeconomic orientation is evident in a breakdown of PBSP fund allocations. In 1984, PBSP allocated 37 percent of its funds to its small business program (see Table 20), of which credit programs make up the largest component, 22 perceflt to PBSP-managed projects (.the Center for Rural Technology Development, the Metro Manila Livelihood Program), 12 percent to human resource development, and a relatively small 4.5 percent to food production. As an organization, PBSP has been successful in keeping administrative costs at a low I5 perecn£ of funds disbursed to various projects, as well as in imparting technical •that they
and can
managerial eventually
skills manage
to its project proponent_,so the projects themselves. "/
However, as Ledesma (1985) points out, the PBSP experience points -to certain limitations business foundations face, namely, a lack of active involvement by •donor companies; over -concern for cost effectiveness and project groups;
viability, thereby low involvement in
bypassing high-risk If. 44
the lowe_, projects--_I;
income and a
Table20. SumHryof PBSP Projects. .
,
,
.
===============================================================================================
Finapcia]Progru
I]II
Financial Advances (P)
•Brant {P)
]77,50o,00 62,500.00 60,000,00 60,000.00
113,550.00 311j050.00 2.6 29,000.00 91,500.00 O.B fO_700.O0 70,700.00 0.6 60,000.00 .0.5
Tote] (P)
Z; Projects CategoryTotal Ne,
FoodProductionProgra. A. Agricultural•(Crop) l. Lo,]andcropProductian 2. UpLand CropProduction B. LivestockProduction C. FoodTechnology' Sub-Total
5 .l L [
3 1 1 i
8
-6
i_551_-000.00 481_400.002,032,400.00 jT;O 774,000,00 76_300.00 8S01300.00 7.1
.20 ]!
15 7
11557,525,00
_SjO00.O0 1,572,525.00 15.2
7
7 ,
_i862,525.00
592,700.90 4,455,225.00 37.3
3B
29
280,000,00 50,000.00
9021454.00 1,!82_454.00 q._ 56,500.00 56,500.00 0.5 144,22_.00 194,223.00 1.6
17 l _
9 l 'I
330,000.00 1_103,177.00 1_433_177.0012.0
21
il
3BOsO00.O0 15_1250.00
533,250.00 4.5
,If. S_a]lBusiness Program A.Social/Coeeunity Cre_i.L B. COOP'SEAP •C,Rura] Agrict!Itur_I C_"ediL Financing Sub-Iota] Ill.
Human Resource OeveXopmenc A. 6roupiCommunity B_ilding B, Hanagement DeveLopment C. Hanpo_er Skills Training Sub-Total
IV. PBSP Hanaged Projects A,Centerfor RuralTechnology OeveIopment I.CRTD AssistedProjects 323,550.00 B. MetroManila L_veIihoodProgram 85_,5B4:00 C. Others 20,100,00
347,810.00 347,810.00 323,550.00 24L,683.00 I,(_0,267.00 Blg_.O0 839_453._
2.9 2,7 9.2 7.0
2 9 1 4
2
Sub-TotaL
1,200,2_4,00 1,40B,846_002,609,0B0.00 21.B
16
11
V. SpeicaIFunds
1,2BO_O00,O0 1,629_02_,00 2,909,023.00 24.4
30
27
.BrandTotal
7,052_759.00 4,8_6,996.00 11,939,755.00100.0
113
B4
, ============================================================================================================
Source: £_g_gEgL 8Eog[_,1984••
II.45
9
tendency to favor proponents with good track records, to the neglect of smaller NGOs which have to turn to international organizations for assistance, Perhaps this is a reflection of the business ethic which is behind PBSP, as well as its tacit uninvolvement .in advocating substantial changes in social and economic structures. Nevertheless, social development activities of private business, following the initial steps taken by PBSP, deserve to be encouraged and strengthened, given the increased role of private initiative in the Aqulno administration. Private social devel_ agencies (PSDAs)' This group_-_--N-GDs-m_y-Se "c-'h-a-r-acter %ze-d-_)_ a'd-to-n-6m_d's',se i fdirecting and intermediary organizations, servicing, directly or' indirectly, communities or people's organizations or primary groups (Ledesma, 1985:64). PSDAs are .of two general types: (i) "community-based" PSDAs, which do actual organizing work among target primary groups; and (2) servicing PSDAs, which do not engage in direct community organlz4ng, but specializes in the provision of a particular service or expertise to both intermediary NGOs and primary groups. The PSDA approach involves three main components" leade_ship development and_ community building, values formation, and social awareness, and assistance in gaining access to resources. A profile of 88 PSDAs in a directory prepared by the Philippine Partnership for the Development of Human Resources in Rural Areas (PhilDRRA, 1985) is particularly helpul. Table 21 presents a summary of characteristics of these programs. (It is based on a tally of actlvltles; since a PSDA may have more than one activity, the totals do not refer to the number of PSDAs in the list). A geographical breakdown shows that a great majority (27.3%) have projects in the Southern Tagal.og Region, followed by Northern Mindanao (!5.6%). PSDAs al-so operate in Metro Manila (1.6%), Eastern Visayas (2.3%), Cagayan Valley (4.0%) and Central Mindanao (4.7%). (Region 9 was split into 9a and 9b, together, they account for 6.3%). A distribution by major concerns shows the predominance of education and training (16.0%), followed by credit and cooperatives (.1.4.1%)and organization of base groups (12.6%), showing the thrust in favor of -organizational and human resource development. This orientatlon has been underscored in many consultations with individuals involved with PSDAshuman development, ioca.l capability-building, and communi_ participati0n are essential elements of their approach.Z/ The emphasis on organization building is often mentioned in contrast to government hlgh-lmpact .projects which are usual!y1_ter the attainment of short-term quantitative targets. _--_ II.46
,,"
II ._. _
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Because initial levels of organizational capability among target groups are low the NGOs fill the need - temporarily -for a management support system. The dedication of field personnel is also viewed as central to NGO success; more often than not, they serve on a voluntary or seml-voluntary basis, with minimal fringe benefits or security. With respect to target groups, the majority involved in rural development direct their work farmers (25%), followed by1_o_en (16.1%), fishermen and the rural youth (14.2%)._-/_/
of NG0s towards (14.2%)
_Peop_le.lso_zations. People's organizations (POs) are groups Organized a'mong sectors of the poor, established along homogeneous lines (farmers, workers, fishermen, tribal Filipinos), or multi-sectoral community-based groupings. _Os include such organizations as cooperatives and livelihood associations which are primarily economic associations, BCCs Which are community-based but generally multi-sectoral, trade unions and federations which are formally registered as labor organizations/unions (Ledesma, 19.85:82). Although POs have been initiated in different ways, e.g., intermediate/service NGOs, government agencies llke the Ministry of Agraian Reform and the Bureau of Agricultural Extension, and by the targets themselves, their common denomination is their strong emphasis on people's participation. Thus, POs can serve as means for articulating and promoting collectlve/community needs and interest to development workers and as pressure groups to affect policies or decisions in favor of their interests. As Ledesma (1985) points out, in practice, since POs are at different levels of organizational growth, their success is highly dependent on such factors as leadership qualities, membership solidarity, organizational abilities, and the orientation of the initiating intermediate group, Being intecnally weak and without extensive support systems, POs are vulnerable to economic failure and ideological manipulation. However, they are a potent force which c_n be developed into genuine avenues for people's participation in the development process. The organization of workers' federations and cooperative networks is a welcome development in this scene. The academic sector. In general, social development work _-y aca-d_-_-c-i-_-6q-6_tions is based on involvement of students and faculty in extension and outreach services to a partlcular community or sectoral group. The work itself is organized along the mechanisms of academic related courses, school-based outreach programs, ahd special research and II.48
extension and training programs. Although schools have a profound influence on attitudes and profesional goals, the limited number of educational institutions with social dev_lopment !_.regrams, the schools' concentration ir]urban areas, the lash turn-over of student personnel, and the academic [ll_JhitUtiOnS' own professional priorities in training and research, may limit the effectivity of academic-based programs. However, there is nq question that schools will have to address, with increased importance, the. question of a relevant education, and thus expand their involvement in social development activities. _For_ee!_[nNGOs. Although a n.umber, of foreign NCOs fund or operate pro3ects in the Ph111pplnes, Ledesma (1985) singles out the International Institute for Rural Reconstruction (IIRR) and the Institute for Cultural Affairs (ICA) among the NGOs which primarily operate projects and do not carry funding functions. These NGOs are also characterized by the involvement of expatriates in the staff actually implementing community-based projects. Ledesma describes the operations of IIRR and ICA as focusing on problem/solving of concerns in specific communities, wlth interventions occuring by way of delivery of goods and services, and utilizing indigenous leadership training and consensus-building methods. Since their approach is nonthreatening to village officials, foreign NGOs are able to solicit the support of local governments. Their limitations, however, lle in their bias towards fundintensive projects -- whether in the use of personnel or the infusion of funds -- which makes replicability questionable. Also, cultural barriers, and the fact that they do not operate within their home country, have contributed to a limited agency development framework. Potentials of NCOs in rural p._overty _ro_rams. The NGO's-'mqc_-o_e_'6ea--_%d" communlty-]Sa-se-_ n_ature is its greatest strength as wel 1 as its weakness. Although networking and strong efforts towards increasing access to funding agencies are significant developments, perhaps a more basic question is whether NGOs would be as effecive as they are now if they were to expan d . Korten (1980:482), for example, discusses the often-made suggestion that what is needed is more private initiative in attacking the problems which government bureaucracies cannot manage, bur argues "there is little evidence to suggest that, when undertaken on anything approaching the scale requzre"----_,pr-----_vate _i Jn-6ar? ef forts ............. are cons ist-e'n-tl y"m"o_'eeF_'c_T_ than those of government (underscoring supplied)." The issue boils down to one o_ economies of scale: perhaps NGOs are effective at the community level precisely they are small. Although this is an untested hypothesis, the directions taken by NGO$ to widen their scope of operations seem to I1.49
support it; i._. instead of expanding their baslc units, many NGOs h_ve organized themselves into networks of independenh organizations. One scheme whereby NGOs could collaborate with government could be as follows: the governmen_i could provide financial resources, the NGOs local-level managerial training, still maintaining their organizational autonomy. IV__t Sum mar Y
and
Policy
Recommendations
The increasing trends in inequality and rural-urban income differentials in a period of high economic growth point to the fact that economic growth alone will not automatically lead to the reduction of poverty and inequality. Previous attempts to adopt a primarily productivity-oriented approach to poverty alleviation have not succeeded in eradicating poverty. Over 82 percent, agriculture belong to the The Rural-to-Urban income 1975 to 0.48 in agricultural and the years. Part
or 2.3 bottom ratio
million families, in 30 peL-cent income bracket. has declined from 0..75 in
1983, indicating that the non-agricultural incomes has of the decline in agricultural
gap between widened over income is
due to deteriorating agricultual terms of trade brought about by price intervention policies implicitly biased against the agricultural sector, and to decreasing real wages in the agricultural sector. Regions with the highest poverty incidence in 1983 are Western Visayas, Central Visayas, Bicol, Cagayan Valley, Ilocos, and Western Mindanao. Metrc Manila and Central Luzon have the lowest poverty incidence rates. When classified by occupation_ the poorest families are found among agricultural workers and tenants. In Central Visayas, fishermen had a substantially large 87 percent incidence rate. The different correlates of poverty incidence which help break down identlfication of poverty groups by sector are classifi'ed into broad categories -- by occupation and socioeconomic factors. In the latter category, descriptions of poverty-reZated trends are evaluated with respect to agricultural pcoductivity and labor force indicators. In general, the correlates indicate that even within specified locations, wide variations in poverty incidence are observed for relatively homogenous groups. Among fishermen, for example, it was necessary to separate the nonowners and small-scale, municipal fishermen from the large vessel fishing operators. Also, agricultural wage workers in plantation who have access to upland fields are found to be margin_lly better off than the full-time agriculturaI wage 1I. 50
earners. In the light..of the above discussion, it is neces_y to adopt programs and policies of a r.edistributive natu_, This is especially important since the extent to whi.ceh existing policies benefit the rural poor is a debatable question. Although rural development programs, of which infrastructure development and commodity promotion are a great component, somewhat mitigate, the effects of macroecnomic policies biased against agriculture, their direct distributional impact on the poor is-limited. Many of these programs stress physical infrastructure provision without adequate at.tention to social services, are still excessively centralized in planning and implementation, and do not have an explicit bias for the rural poor. Social services programs, on the other hand, have achieved modest success in providing services to the rural •poor, but their scope can be expanded. A sector with great potential in providing services to the poor, is the nongovernmental organization (NGO) sector. Due to their emphasis on community organization and people's participation, NGOs can be a vital link between the government and target groups in the design and implementation of participatory, communitybased and decentralized poverty _al!eviation programs. In what follows, we present general policy•principles and then proceed to specific policy recommendations.
GENERAL i__ t
POLICY
RECOMMENDATIONS
Poverty-Oriented
Data
One of the great difficultie s involved in monitoring trends in poverty and inequality is the absence _ of distribution-oriented data. Apparently, the collection and dissemination of such data were politically unpalatable tasks i6 the Marcos regime, but a commitment of .the present administration to poverty eradication must •engender a similar reorientatlbn of the statistical system. Disaggregated and •project-speciflc poverty data are also needed to be• able to access the impact of a projec t on different •poverty groups. •Most of the evaluations of rural development projects set targets which are not povertyrelated, and thus they assume that benefits will 'reach-the rural poor. The use of poverty-oriented data i.ncludes not only increasing access of researchers to official data series, but also the development of distribution-0riented indicators at both macro and micro levels. Distribution indicators can be made a part of standard project .appraisal processes. As M angahas (1982) suggests, just as purely growth-oriented investment projects can be appraised by benefit-cost ratios and internal rates •of return, projects
II.51
with re(listcibutive objectives can be rated according to vertical benefit eff_ (the relative share of the poor in total L_s), __ver ratio (the proportion of the poor's benefits which are surpluses relative to the poverty line) take-up ratio (the proportion of the target group thai; vofu-n-6-a-_ly--s-u_-scribesto the program), and the benefit gap ratio." Participatory research -- research unde_ by the community, gathering and interpreting community-level data -- should also be encouraged as an input to needs assessment, project design, and monitoring and evaluation. Data on the distribution of agricultural assets, particularly large landholdings and the incomes derived from them, as well as information concerning the allocation of public natural resources should be made available to the public and policymakers alike. It can be argued that the wariness to implement redistributive programs may be a function as much of ignorance and la.ck of basic data as it is of political conslderatlons. i
2__,
.More
,
Targetted
Rural development programs which aim to increase farm productivity and incomes must be directed toward areas and occupational __ which suffer from high poverty in_ences. For example, regions which have been identified as high poverty incidence regions, e.g., Western Visayas, Central Visayas, Western Mindanao, Cagayan Valley, Ilocos and Northern Mindanao, Bicol, Ilocos and Northern Mindanao, must be given greater priority in budget allocations. However, due to substantial income disparity within regions, more specific ways must be found to target poverty groups. It has been suggested that geographic targetting is a costeffective way of providing services to the poor. It involves less administrative cost than a purely incomebased criterion. A possible way of identifying target areas would be to draw up a list of low income municipalities with high infant mortality rates or malnutrition. Another is to use similar lists already created by agencies such as the NNC or MSSD. More intensive social services should be provided on a geographic basis at the community level; productivity-related services can be provided to at-risk occupational groups. The poverty incidence tables, for example, identify landless workers, corn, coconut and other crops (mostly sugar) farmers, and fishermen as high povertyinclden_ ..... groups. In addition, Community-based targettng or familyoriented l:argetting may be more effective than targetting to specific individuals, especially in rural areas where the interdependence of production and consumption decisions
II.52
within .is an
families important
and of production consideration.
decisions
among
families
An important caveat in this regard, however, is that careful planning is needed to avoid wasting resources by investing in resource-poor areas which should eventually lose population rather than attract it. For example, there are ecological limits to the number of people which the up.lands can sustain. Thus, in the longer term, it may be wise to identify which areas are poor due to neglect, and those which have a poor resource base. This consideration, however, should not override the need for short-term targetted interventions in the poorest areas. 3__. Mor___e_rated
Programs
Poverty alleviation lorograms should attempt to integrate production (livelihood) and consumption (welfare) aspects. Rathern than provide "dole-out" or palliative services, the programs must seek to improve the target groups' incomes through productivlty-related activities, employment assistance, credit and other cooperatives, and the like. Social services should also be provided as an integrated service to take advantage of complementarity between health, nutrition, etc. Carino has suggested, for example, the presence of an integrated agricultural wQrker to be consulted regarding production aspects, and a multipurpose basic health, 4.
social, service worker who _4_]/id take nutritlon, a.nd other needs._--_ _/
Increased
Decentralization
and
Local
care
of
C_lit_
g ............
Local level participation in planning and implementation has not been adequate. Local governments should therefore be given more autonomy and initiative. For example, the MAF could increase the authority of the provincial governor and provincial agricultural officers, as well as the implementation capabilities of the municipal agricultural officers. People's organization must be strengthened to increase community participation as well as to provide a cllentele-based performance indicator for municipal agricultural workers. Local capability building is crucial to the sustained success of a rural poverty program. There is greater potential in harnessing the organizational and managerial capacities of NGOs in this area. 5-
Enhanced
NGO
Participation
It is frequently suggested private initiative in attacking
that what is needed is more poverty-related problems
II.53
which government bureaucracies cannot manage efficiently. However, attracting thi's •solution may be difficult to .organize on a sustainable basis. It is important to stres's that• in emphasizing, the magnitude or scale required of poverty alleviation programs, lack of money should not be a crucial problem. -"IC NGO •involvement were to be encouraged, greater • emphasis on the following approaches should be considered. The:_e a[_pr,oaches include: (i) building community level capability _ather than centrally administered extension secvicing; (2) reorienting government •career service • pe,_-::_onnel towards greater sensitivity • to •local social structures; and (3) integrating technical components of project development with local needs •. 6__&.R@orient!ng
Publi_____c Dono__rFunds
A redirection of public donor funds to new categories of projects for the rural poor has been proposed by Tendler (1982) and Korten (1980). They argue that there should be less PreSsure to move substantially• large amounts of• f_nds without being supervise to local institutional capacities. Also there is a need to go beyond conventional donor • assistance directed merely for relief or welfare. Recently more emphasis on program is project funding has been proposed to reduce the donor agency's rigorous adherence to schedules and budgets which tend to neglect development of local capacit.ies for operation and maintenance. Within programs, institution-building must be a •major •component. Korten (1980)argues, however, that such actlon-based capacity building approaches, which are flexible, sustainable, and experimental in nature, are not possible since "donors are ill-equipped" to provide such assistance (Korten, 1980:485). The result is a gap between local c6nditions of poverty and donor assistance response (see Table 22•). The initiative for" changes in the approach to donor funding •must come, therefore, from the Philippines government. This calls not for more detailed preparation of programs but rather for new systems of dealing with community-level beneficiary needs and organizatinal competence and flexibility and address such changes.•
SPECIFIC• i.
and
POLICY Rural
RECOMMENDATIONS Infrastructure/Employment
Immediate increases in employment other:- rural poor can be achieved
II.5#
_Programs for by
landless workers hiring them for
Table22.
•"
Contradictions in Foreign AssistanceProgramming.
PovertyFocusedRural Development involves projects Hhich are:
DonorsRemainimpelled to prefer projects whichare:
l.
_aaJI
I. large
2.
administrative _d ,_ersonne]
2.
3.
difficLdt to _onitor and inspect
3. easyto monitorandinspect
capital and import intensive
4, slowto i_plement
4. quickto implement
5, notsuitable forcomplextechniques of projectappralsal
5,
suitable forsocial benefitanalysis
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
Source= David C. Korten (180), 'CommunityOrganizaLionandRural Development:A Learning ProcessApproa_h," Publ!_
T.SS
B.
LAND
REFORM
AND
REDISTRIBUTIVE
JUSTICE
Land reform can be defined as the revision of the system of econQmic access to land in the interest of social justice, and, as such, can be considered a justifiable encroachment on the system of private property and private enterprise. Its demands for a strong political will are so great that significant moves -- for better or worse -- have always occurred, historically, at the beginning of new political regimes: the "reform" by which the Spanish encomiendas were created, the American regime's purchase of the f_{a-_-_-ands (which had already been occupied by Filipino revolutionaries), the (undocumented) takeover of the Japal_ese plantations in Mindanao after liberation, the resettlement program of Magsaysay, the rental reduction program of Macapagal, Operation Land Transfer of Marcos, and, even now, the takeover of some of the lands of the Marcos cronies. The main lesson from history is that the inequities of today have been mainly the product of governmental policies -- starting from the Spanish conquest, the American occupation, the Republic, all the way up to and _ncluding the Marcos regime --rather than the workings of the market economy. It is not the system of private property that is fundamentally at fault, but the abuse of state prerogatives over the centuries to grant land and other natural resources to the privileged, and to a large extent undeserving, few. Whenever the claims of these few are not accepted by the people as just, regardless of their legality, they are resisted by the people and cannot be enforced except by repression, both political and military. Thus, to the extent that past governments have exacerbated unequalities, popular resistance cannot be suppressed in the interest of justice. We believe that a genuine land reform program should be an integral part of the agrlcultural policy agenda. In this section, we review the implementation record of Operahion 5and Transfer, present trenos in tenure status between 1971 and 1980, and, finally, propose general principles and recommendations for a genoine land reform.
I.
1.
O__ration
Land
PAST
EXPERIENCE
Transfer
Land Reform in the Philippines has been most conspicuously operationalized through Operation Land Transfer (OLT), which was established in 1972 by virtue of II.57
PD 27, that tenants in rice and corn areas would now be "deemed owners" of the land they were tilling. A system was established whereby some tenants could begin to purchase, by installments, their farms, while other tenants, while remaining as tenants, would benefit from a rental ceiling (Mangahas, 1985:218). Mangahas points out that the legal provisions in PD 27 and subsequent decrees set limits to the program which makes it only "moderately significant in size". To summarize, (i) the land must already have been in agricultural production by 1972; (2) the crop limitation to rice and corn excludes coconut, sugar and other cropland and the tenant farmers and landless workers on those lands7 (3) the fan4 reform applies only to tenanted areas; and (4) landowners are allowed to retain 7 _'e_t'[_'s-of their lands, and in these areas the form of tenancy allowed is leasehold with rentals subject to the official ceiling of 25 percent of the "normal" output net of the costs of seed, harv%stlng, threshing, loading, hauling and processing. Ledesma's (1983) computation of the legal coverage of OLT as of 1972 was 1,423,000 hectares (Table 23) covering roughly 400,000 tenant farmers, cultivating an average of 1.8 hectares each (Mangahas, 1985:2_i). Thus, OLT coverage was only 22.2 percent of total crop area in 19727 this decreased to 20.6 percent in 1979. This computation does not consider evasioDs of OLT through transfers, sales or mortgages of the land, as well as of conversions of rice/corn areas to other crops or to nonagricultural use. While identification of farmer beneficiaries and issuance of certificates of land transfer have proceeded at a fairly rapid pace, reaching 88 percent, and 8] percent of program scope in 1981, respectively, receipt and verification of landowner claims reached only 17 percent of the intended scope. Approval of payments for land transfer by the Land Bank reached only 15 percent (see Table 24) of its target, Mangahas, 1985:222). The major backlog appears to be in the receipt and verification of landowner claims, mostly because of landlords' unwillingness to cooperate, since the fixed formula (2..5 times the average harvest of three normal crop years before 1972) denies them the benefit of capital gains, and the prospects of yield enhancement arising from the adoption of high-yleldlng varieties (Sobhan, 1983). This has led to uncertain status of OLT beneficiaries who are not yet holders of emancipation patents. In addition, the landlords appear to retain some coercive aDillty to hurt potential beneficiatles through their control over assets such as water, credit, markets, and supply of inputs (Sobhan, 1983:55). Mangahas (1985:.241) points out that it is arguable that both the initial move in october 1972 and the subsequent shapings and modifications
II.58
Table 2_. Potential impact of the land tenure prograue, Philippines, 1972and 1979. =========================================================================================
1972 No.
Agricultural LaborForce (000 persons) 3, Total agriculture! 6314 eeployeenta/ 2, rio. of farzersb/ 2_54,S 3. Rice andcorn tenant 914.9 farsersc/ CropArea (000 ha) 4, Total physical crop areab/ 5, Rice and corn la_c/ 6. Rice endcor_ lands_/ covered by OLt and LHO
6424,[ 3301,7 1423
1979 Z
No.
X
100
7336
100
37.3 of (l) i4,S of (l) 38,8 of (2)
2_0J.7 JO05,[
34,3 of (3) 13.7 of (i) 40.2 of (2)
lO0
7117,1
100
5i,q of (4) 22.2 of (4) 43.1 of (5)
3764.1 1462,6
52.9 of (4) 20.6 of (4) 38.B of (5)
a/ _ure_u of CensusandStatistics (BCS), Surveyof Households, Bulletin Series No. 36, Labor Force November 1972end National CensusendStatistics Office (NC80)_Special Release No. 264_ December17, 1979. Data efer to 92 perCentof total employmentin agricu[ture, forestry, fishing and hunting, bi NCSO,1971Censusof Agricuiture_ 9o], 2: National Summary,Hanila: NEDA/NC$O (L97_). Employzentand crop area for 1979are basedon projections free the 1960 J971Censusfigures using an averagecompounded rate of 9ro_th. c/ Computed from percentagegiven by candBankof the Philippines_ figrar_an Refers Entates Development Hn_ncing Pro_ram_n.d. [able 1, p.4. d/ Ninistry of _grarien Reform (N_R), Operation Land Transfer: Accozpiish_ents as of December31_ 1979 (Hie_o).
Suuary
Source: A. _, Ledesea_'SevenYears of LandTenureProgram"in _RI/_CTC_The _9[_[!_0 _9[_ _[99[_!! _ _ _[ _ _ _g_ _Z_ University of the Ph|lippine_, Los g_nos_1983.
Tt.59
of
Table 24. Land Acquisitions of the LandBankUnderOperationLandTransferz Comparison of TargetandAccomplishments Philippines, 1975-1981.
Endof Year
1974 1975 1976 1977 1978 1979 19BO 1981 1982
Landowners' ClaimsApproved +orPayment by LandBanka/ (1) 42) (3) Cumulative _o. Camulative No. Cumulative
LandAcquisition as ProJected by theLandBankin 1975b/ i4) (5) Cu_,ulative No. Cumulative
of Landowners of FarmerHectaraqe Beneficiaries (thousands) (thousands)
of Farmer- Hectarage Beneficiaries (thousands) (+housands)
655 1544 2511 _469 5156 60_7 727EI
3.4 17,7 31.i 46.2 54._ 77.5 B8.3 _/7.5
6. ,3 33.8 _9.4 88.4 III.0 149.2 )71.2 188.6
1.1.6 30.I 53.B 8B.O 1_7,0 20B.I 297.4 393.8
26.6 _B._ I04. I 169m9 264,7 401._) 571.4 759.0
__/ Cols.(J).(2),43): fromTable3.1.6,p. 117of Ministry of Agrarian Reform,Th=Operation LandTransfer Progra_Of thePhilippines: ProcessandImpact, MaNia, 1983, bi Cols. (_)and 15;: fromTable3, p. 40 of Landdankof thePhilippine_, _Agrarian Reform E_.Lat.e ])e_ve]gg!ent .PEgg_r__!, no date (Circa _nd 1975) Source:Hangahas41985), Table7.10
"I"i.60
of the policy were done with consideration for the landowning fa rme r-bene f ic ia tie s.
as great, class as
if for
not greater, the potential
The land reform appears to have no significant effect on yield and farm productivity. Some negative correlation may exist between productivity and farm size, but since OLT was not modifying farm size at all, the effect was moot (Manganas, 1985"225-226). However, the Ministry of Agrarian Reform (MAR) has data which suggest that there may be a selection process by which the more productive farmers are accomodated earlier by OLT. The major problem, however, concerns those who were not covered by OLT but who are fast Decomlng an additional feature of the rural areas -- the emerging class of subtenants who operate some part of the land area of tenants but without any land reform privileges of their own, and the growing number of landless workers (Ledesma, 1983). Future programs will have to consider these subsectors of the rural populace, particularly the landless _orke rs. 2_
Chan_es
in Tenur__e Status
To what extent has the land reform program succeeded in changing overall tenurial patterns in the Philippines? We address this question by comparing results from the 1971 and 1980 Censuses of Agriculture, conducted by the National Census and Statistics Office (NCSO). At the moment, only preliminary tabulation from the 1980 census are available, and chang_, in definition of terms make comparison difficult._--_ _/ Nevertheless, we attempt to establish consistency by using categories common to both censuses. Tables 25 and 26• present the breakdown of farm area by type (crop grown) and tenure status of the operator from •1971 and 1980, respecbively. In 1971, 62.9 percent of total farm area was fully owned, 11.0 percent partly owned, !6.3 percent under share t_nancy, and 1.9 percent under a fixed rental/amount of produce basis. The rest were under other forms of tenure, including rent-free, manager-operated farms, and others. If we sum the subcategorJes, 73.9 percent were owned by the operators (both fully and partly), 18.2 percent either rented or leased, and the remaining 7.9 percent under other forms of tenure. In 1980 iTable II.B.4), 61.2 percent of total farm area was fully owneO_ 11.2 percent was under ownerlike possession, 20.5 percent was under share tenancy, 4.3 percent under leasehold, and the remaining 2.8 percent under other forms of tenure. Aggregating subcategorles, we have 72.4 percent under owner-operated status (both fully-owned and under ownerlike possession), 24.8 percent rented or leased, and 2.8 percent under other forms. On the aggregate, therefore. .11,.51
Table 25. Area of farms by type and tenure of operator, Philippines, 197l. (percentagedistribution) ========================================================================================================
Type of Farm
total physical farm
Tenure.of fares/ .................................... Owned Rentedor Leased
- ............................ Other forms
area
................................
7................
Full Part Forshare Forfixed Rentfree Hanager Othsrs O,ner Owner money/ produce
Alltypes lO0.O Palsy 31.3 Corn 17.6 Coconut 25.3 Tobacco n.s. Sugarcane 4.3 Citrus n.s. Vegetable 0.2 Tuber, root znd bulb crops 0.8 Coffee 0.6 Abaca 0.8 Banana 0.7 Pineapple 0.2 Other fruits 0.3 Chicken n.s. Hog 0,3 Cattle 0.5 Others 12.9
62.9 49.8 69.5 73.9 53,8 48.4 45.4 62.0 80,4 B6.5 76.9 63.5 3.5 73.7 64.4 60.8 50.5 71.5
ll.O 15.9 B.i 7.2 17.3 18.1 4.5 12.0 5.1 4_1 8.3 6.0 0,6 6.1 9.8 15.2 8.6 9.9
16.3 23,0 18.2 14.6 23.4 10.9 15.1 17.2 B.] 4.6 8.9 7.2 2.l 7.9 10.8 11.4 2.8 _.7
1.9 4.6 0.3 0.2 1.4 2.7 0.1 3.6 0.4 0.2 0.I 2.8 n.s 0.6 4.& 1.1 2.8 0.6
a/
As a percentage of total farm area devotedto a specific crop. n.s. _sans less than 0.09 percent. _ource:NCSO,1971Censusof Agriculture, P_ilippines,
II. 62
1,6 1.3 2.3 1,0 1.2 0.6 n.s. 2.1 3.0 2.6 1,4 3.2 0.4 1.9 0.6 1.5 2.1 2.2
4.1 1.5 n.s. 1.8 " 16.2 33.5 0.4 0.7 0,8 3.0 16.1 92.B B,5 5,5 8.1 31.O 4.0
2.2 3,B 1.2 t,3 2,9 3.0 1,4 2,9 0,2 l.] 1.3 1.2 O.O [,3 4,3 Io9 1.4 2.1
Table26. Physicalareaof farms,by typeandtenureof operator_Phil|ppines_197[. (percentage distribution)
Typeof farm
Tenureof fareg! of .......................................................... total O,ned Rentedor Leased Otherfores physical .................................... farm -Fully O,ner-like Forshare Forfixed Rentfree Other_ area _ O.ned possession amount of money/ , producer ,
_11types lO0.O Palay :' 3R.5 Corn 20._ Coconut 29.2 Tobacco 0.l Sugarcane ...._.2 Citrus 0,2+ Yeoetab]e 0,5 T_ber,root aBd . bul.bcrops l._ .8anana:-. O.O Pinqapp}e 0,2 +. .Coffee 1.2 . . Hango -0,1 Fiber crops " 0,_ • .gt_er:permanent . . :+ crops , _._ Othertemporary crop5 ..G.5 -1.S Cantle .... Hog., ., 0,2 Otherlivestock+ . 0.2 Chicken ... P.i Other_ouJtry_ n;s. • Othersnot_[.se,here classified 0.S
61.2 l i.2 55.2 12.9 65.1,: 10.2 64,5 _ 9,_ _9,4 8.6 65,2 -12,1 60.1 1_1 56,0 i7..0
20.5 21.9 18._ 24.0 _4,6 13.9 18,5 15.1
4._ 7.5 1.3 0.9 _.7 7.6 :. 6.5 + 5.2
h4 1.3 2.4 0.7• 2+5 0,_ 1.3 4.0
. l.q 1.2 2.6 0.6 [.0 1.2 2.7
6_.7 14.l 55,8 lO.8 6,8 1.4 .7B.? 11,5 66.7 .13._ ?0.0 12,3
64 _2L.7 _2,6 0.5 2,2 0,7 ..
5.5 .2,5 _.7 1.8 6,7 1,0
3,0 +1,8 3.0 1.1 1,5
1,5
l,_
3,'7
6.5 7.7 .,0..9 2.4 2.3 -
2.1 0.5 2,6 1.8 2,3 *
1.0 2,9 2.6 q,l |,6
l.E
_,6
71._
11.6
i2.4 7._ 2B.l 4,4 8.9 14,5 •• 10.S
_9,1 77,_ 72.7. 66,_ 75,4 71_
L0.5 10.8 L2._ 15.4 ll,_ i4,_
20.7 0.? 8.8 10.7 7.1 -
75,2
15.2
_;3
0,9
+ •.
.
"
..
A__percentaoeof total farmareadevntedto specificorup, n._. uans 2essthan0..09percent.. Sourceof ba_icdata: i.980Censu_ of Agricu]ture.NCSO.
11.63
_
•
the percentage of farm area which was owner-operated declined from 73.9 percent to 72.4 percent and the percentage uN-'-G_-_tenancy (either leasehold or share/tenancy) increased from 18.2 percent to 24.8 percent between 19'$I. and 1980. Although the changes appear marginal, the data lead one to question the past administration's commitment to redistributive measures such as land reform. The unfavorable trends in ownership and tenure s%abus are more evident from an examination of crop-speciflc data. Palay, coconut and cbrn make up the majority of farms by physical farm area, with rice accounting for 38.5 percent, coconut 29.2 percent, and corn 20.3 perecnt in 1980. With respect to palay, the percentage of farm area under owneroperated status (both categories) increased from 65.7 to 68.1 percent from 19.71 to 1980. However, the percentage of palay farm area whick was rented or leased increased from 2-7.6 percent to 29.4 percent. Furtnermoret_ the percentage under share tenancy decreased, that under leasehold increased. This is conslstent with the scheme to shift from share tez,ancy to leasehold operations. The situation in corn, which was supposed to be under the Operation Land Transfer program, Is slightly worse. Corn area operated by farm owners decreased from 77.6 percent to 75.3 percent, while that rented or _eased increased from 18..5 percent to 19.6 percent. It is relatively easy to shift land out from corn to avoid inclusion in OLT because corn production does not require so much semi,permanent land improvements as does paddy rice cultivation. A more dramatic deterioration occured in coconut: a drastic decline in percentage of owner-operated farms from 81.1 percent to 73.8 percent; a marked increase in share and leasehold tenancy from 14.8 percent to 24.9 percent. An analysis of the commercial crops - tobacco, sugarcane, banana and pineapple - is more difficult because of changes in category definitions. Many of these were reported as manager-operated in the 1971 census; this category has been eliminated in the later census, and it is not clear where the category has been absorbed. The logical conclus_:n' D (_rom an examcnation of the data) would have manageL'-operated farms under those leased for a fixed amount of money/produce; this is consistent with the leasing of large reacts fo_ plantation purposes from the National Development COrporation. Once again, the lack of detail in classification is deplorable _ it smudges up important aspects _ of land concentration in the plantatlon sect:or. The data reveal that the percentage of farm a_ea whlch was owner-operated increased marglnally for sugarcane and pineapple and decreased for tobacco and banana. However, there is a clear trend that the percentage of farm area under some form of rental or lease arrangement has
n,6
increased. Share tenancy has significantly increased in tobacco (23.4% to 34.6%) and pineapple (2.1% to 28.1%) but only slightly in sugarcane (10.9% to 13.9%). A great proportion of farm area in banana and pineapple is now under rental arrangements. It may be surprising that sugar does not nave significant increases in tenancy; but lan_ concentration rather than tenancy would be the issue in sugarcane: many sugar workers are hired workers, not tenants. To summarize the d_ta in Table 25 and 26: (i) there was an overall decrease in the proportion of farm area which was owner-operated and an increase in the proportion rented o= lease; (2) while the proportion of palay farm area which was owner-operated increased the proportion under share or leasehold tenancy also increased; (3) the proportion of corn and coconut farm area which was rented or leased increased; and (4) the propor'tion of plantation crops under rental arrangements also increased. Further analysis should examine the oistribution of farms by type and by size in order to shed light on land concentration in various crops.. The exclusion of the landless and the commercial crop Sector will have to be addressed in future land reform programs. We argue that a crop -based definition of farms covered by land reform will motivate landowners to shift land out of a particular crop to avoid inclusion in the program. This fs perhaps why there has been little progress, if any, in implementing land reform in corn. Mo_ever, the _endency for high asset concentration in plantation agriculture makes it a logical target for redistrlbutlve reform, although we hasten to point out that the scheme for redistributing the benefits to land ownership should not be uniform for all crops. Because of different production-marketing arrangements across crops and variations in patterns of land ownership which may have cultural and ecological bases le.g. tribal and communal lands), land reform schemes will nave to be locationspecific. Attention must also be given to various institutional arrangements under which this can take place.
II. ±.
PRINCIPLES Priorities
AND in
RECOMMENDATIONS
Land
Reform
The public domain should be the priority target for land justice. It should be interpreted broadly, to include legally privatized land which the people, by their resistance, obviously still regard as public. It should include all forms of natural resources, not merely arable land, or even "alienable and disposable" land. TJ_.65
Of course, land reform should not be limited to the public domain. But it should be obvlous that the Marcos reform of i972, while mollifying a major secto_ of social unrest, distracted attention from the continued grabbing of the public doma_in by the privileged few. 2.
Myths
and
Misconceptions
Regarding
Land
Reform
in the case of private agricultural lands, a number of mytlhs and _ed herrings have been cultivated in the public's mind concerning land reform. Whether or not espoused with sincerely good intentions, they have helped to obstruct land reform. These include: (!) the alleged conflict of productivity with equity; (2) the alleged exploltatlve nature of some contractual arrangements (such as share tenancy) but not of others (such as owner'management); (3) the alleged necessity of proper coordination with productivity concerns such as credit and technology; (4) the alleged abundance of unoccupied land in the public domain to resettle the landless; and (5)the alleged constitutional duty for the government to provide landlords with nonsacrificial compensation. There is a growing consensus that none of these issues makes a strong case a__ainst land. reform_'_'_To_la--_at. et_ Ehe "p-e_p'le,---%-_e rs--_-e ct z_z-er-ega-r-a-i n-E-wEt !s and wha t is not relevant to justice is used, then it should be clear that the type of crop, whether rice or corn or sugar etc. does not matter. Neither does type of tenure, whether leasehold or share-tenancy or owner-managed etc. really matter. For example, owning sayr five hectares, purchased from savings, and leasing one hectare to a landless worker under voluntary share tenancy can hardly be considered as exploitation so serious that it justifies violent revolution. Rather than type of tenure, it is the absolute concentration of ownership which is the <real issue. Land reform involves redistribution on grounds of justice. It should not bQ confused with the attainment of economic productivity or efficiency, the concern for which is no justification for denial or delay of land reform A just land reform is both desirable and attainable with or without accompanying programs of credit or technology, which are separate concerns. It is now accepted, even by the Ministry of Agrarian Reform (MAR), that Operation Land Transfer under P.D. 27 has had neither p osltive nor n egativQ effects on a grlcultural productivity. Due to population pressure, the amount of unoccupied public land available for distribution is no longer significant. Resettlement is no longer an available option,
Ii.66
as it was that some 3,
in the Magsaysay have • to sacrifice Requirements
era. Landreformnow so that others can
_for a Successfu_!
requires benefit.
Land•Reform.
The minimum requirements for a successful land reform arez (•1) dismantling of prlvate armed groups; the forces of the state should be for the protection of all, without dis criminati0n, (2) democratlcally-based, and nonec0nomically,based selection of local government officials, whose loyalties Would be more to the masses of their constituents than to the economic powers in their areasl and (3)' effective administrative separation of the function of promoting agricultural and na.tura! resource productivity from the function of promoting land ju_stice. " The ••agenda for a land justice agency should includei among other things, the establishment of long-term systems of land tenure for the cultural mlnorltleson the 'public' land.they, occ upyT review, renegotlatlon and, if necessary, term lnatlon of leases of public land to the corporate sector, including the multinational corporations, as well as of the acces s to lake fishing grounds, etc. 4.
Access
to
Information.
The public should have full access to i_formation on the access to land and other natural resources. When agencies such as the MNR and the LLDA can provide an open, published directory, corrobated by independent sources, on who has such access, what were the social criteria for deserving such accessi how such access was acquired_ and accord • i ng • to what contractual terms, •then , the people's suspicions of favoritism, i.e., social injustice, will tend to be lessened. 5__. ISsues
in
th e
Reform
of
Private
Land
Ow_,
In the case of land reform on private lands, the natural limit to redistribution is guidedby the social pressure exerted from below. When the pressure is _one (not merely covered up or .repressed), then land reform shall have gone far enough. The Marco_ regime's land reform did relese some pressure, but it refused to continue far£her. The problem with all past g0vernments is in not learning to heed the peopl e until violence actually comes about. In the area of program design, _ the great challenge is to create new institutlons for land control which Will effectively redistribute owne.rship and satisfy the people's values regarding justice. It is subaivlsion of owrLership
II.67
them. So they feel justified in looking for loophole= and 5argaining very hard for high compensation; (4; Although farmer-organizations are clearly important to safeguard and further promote land reform, non-voluntary organlzatlon_ cannot be expected to be viable in the long run.
II.69
NOTES
a/ Prepared by Ma. Agnes R. Quisumbing and Ma. Concepcion J. Cruz, Assistant Professors of Economics, University of t_e Philippines at Los Banos. b/ Prepared by Mahar Mangahas, President, Social Weather Stations, inc., and Ma. Agnes R. Quisumblng, Assistant Professor of Economics, University of the Philippines at Los Banos.
i.
These computations by the World Bank (1985) make assumptions regarding the income-GDP ratio in agriculture (which is higher than that in nonagriculture because of greater use of primary factors) and relative productivities in both sectors. Agriculture/nonagaricultural productivity was computed by taking the ratios of GDP/worker in each sector and is therefore only an index of labor productivity, not total factor productivity. Nevertheless, we can safely conclude that the gap between agricultural and nonagricultural incomes has widened over the years.
2.
We are indebted to John H. Power for this comment. He pointed out that the rate at which productive jobs can be created for those who do not know have them is I/k n, where I is investment, k is the aggregate capital labor ratio, and n is the rate of population growth.
3.
Ex post r-ole o£
4.
ESIA/WID, meaning "Economic and Social Impact Analysis/Women in Development," is the name given in a USAID-supported research program studying the impact of several government programs on eleven development concerns, one of which is income distribution.
5.
This opinion staff, March
6.
The member corporations pledged to set aside o,_e percent of the preceding year's net profit before taxes for social development work, of which 60 percent was allocated directly to PBSP. The remaining 40 percent was to be used by member-companies for social developmentactivlties of their choice.
7.
Interview Director,
this was a very perceptive evaluation of the Marcos administration in the economy.
was voiced 6, 198_.
with Ernesto March 31, 1986.
in
a consultation
Garilao,
II.70
PBSP
the
withCenDHRRA
Executive
8.
9.
This orientation may be changing in view 'of PBSP's recent identification of such at--risk groups as landless workers, fishermen, and small farmers as its target groups (PBSP Annual RepOrt, 1984). PSDA programs typically begin with barangay level consultatlons and baseline studies/needs assessment in order to determine the needs of the target group. As Eulalio Maturan (Dansalan College) pointed out in an interview on April• 14, 1986, programs are more effective if the people identify their needs and the program is designed to respond to them, rather than if the program is designed to fit in with needs as perceived by an outsider. Organization-building is an important, albeit slow, process. In an interview with CenDHRRA staff, Dr. Liem Huy Ngo, head of the University of Santo Tomas Graduate School Economic Research Center, said, "The NGO approach is slower, more patient. We wait until the people are able to absorb, manage, and become responsible for the project."
i0.
Liem also pointed out the differences in monitoring and evaluation styles.• NGO programs •develop the M & E capability of the beneficiaries in order to improve the program; the government, on the other hand, following a set time frame, may •verbally advocate participation but goes ahead with program implementation with or without people's participation.
Ii.
It may be surprising to note that • the rural •poor appea_:s to account for only 9.8 percent of the targets of p1:ogram ,activities. My view is that this is a matter of claSsification; undoubtedly,• many of the farmers, fishermen, and others served are poor. UnEortunately, we do not have adequate data on program beneficiaries to •support this.
12.
This• was suggested in an interview the University of the Philipines Administration.
13.
For example, we find that while the 1980 census, has more detailed breakdowns by crop, its tenure status data lack the detail of the 1971 census. For example, previously separate benure categories such as_cash and fixed amount of produce are lumped together in a single category in the 1•98•0census•. Furthermore, the data on size of holdings has become more detailed in the lower end of the distrlbution while the categories In the upper end have become vague, e.g., the category 50.0 hectares and •above was merged with 25.0 hectares and above. Such a change makes the identification of large landholdingsdifficult, it may be argued that the 1980 census sheds less light on distributional matters than its predecessor. II.71
on April College
8, 1986 at of Public
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World
of Rural Economic
Bank, 1980. Aspect of Poverty in the Philippines: A Revle' W and Assesment, Vol. If. Report No. 2984-PH-_ WKshf-6-gton, D.C.:The World Bank. 1985. The Philippines: Po ........ __v_ Employment and Wa__es. Washlngton, D.C.: The World Bank.
Recent Trends in Report No. 5--4--5--6---P_.
Yengoyan, A. A. 1977. "Demographic and Economic Poverty in the Rural Philippines, Com_e i__nn _ and Hist_ 16(11):58-72--
II;74
Aspects of Studies
small-scale rural infrastructure programs in priority areas. Corollary to this would be a food-for-work program which would not only generate employment but also assure the provision of minimum nutritional requirements. This may be supplementary way of implementing food assistance instead of large scale food distribution programs. 2.
Priorit_
Area
Development
Packages
For priority provinces such as Negros, and for tagetted areas _,Jithin those provinces, an integrated package of pr-ogram_s can be implemented at the community level. This wou] d include agrarian reform, small-scale rural infrastructure, economic support services (extension services, credit and marketing) and integrated social services. Some components could be financed out of local taxes and/or community financing (voluntary contributionsln cash or in Kind) and through subsidies from the national government, and donor agencies. Such projects would rely on intensive participation from a general agricultural extension worker and a multipurpose social service worker and from the community itself. N GOs could be tapped to provide links between the governemnt and the community. The scheme would require close coordination among the provincial governor, the provincial and municipal agricultural officers, extension agents and integrated social services workers. 3.
Targetted
Food
Subsidies
The experience of the National Nutrition Council in implementing targetted food subsidies in pilot areas of three provinces in 1983-1984 is worth mentioning. The project successfully utilized existing private distributors (sari-sari stores) as retail outlets, existing personnel of the Ministry of Agriculture and Food and local banks for the reimbursement of subsidies. The results of the project indicate that the area targetting scheme is a viable method for screening participants, in conjunction with careful monitoring and nutrition education to minimize leakages. Furthermore, the choice of a cheap calorie source reduced the cost of increasing calorie consumption. Costs per person were lower than similar programs in other countries. In the Philippine context, both foreign assistance and community financing should be looked into as possible sources of funds. It is conceivaole that a project could begin with external support, which would then be gradually phased out as the income level of the community and consequently, its self-financing capacity, and its nutritional status improves.
II.56
PERSONS WHO PARTICTPATED IN, WERE CONSULTED ON, QR REACTED TO THE WCRK OF THE VARIOUS AUTBDRS
i.
Mr. Romerico
Bepe.dictO
2. 3.
Mr. Joseph Francia Mr. Ernesto Garilao
4.
Dr. Uioleta Lopez-Gonzaga
5.
Mr. Femando
6.
Director Jose Lawas
7.
Fr. Antonio J. Lades,a, S.J.
8.
Dr. Antonio L. Ledesma
9. i0.
Dr. Angelita Yap-Ledesma Dr. Eulalio Maturan
ii. 12.
Dr. Liem Huy Ngo Mr. Jaime Tadeo
Hilario
Sariling Sikap, Inc. Z&nboanga del Sur Sariiing Sikap, Inc. Philippine Business for Social Progress Social Research Center, La Salle College, Bacolod City NatiOnal Secretariat, Kilusan ng m_a Magsasaka ng pilipinas _egional Planning and Development Office, N_DA Searsolin, Xavier University, Cagayan de Oro City Center for the Development of Human Resources in Rural Asia (CenDHRRA) CenDHRRA Dansalan College Marawi City Economic Research Center Kilusan ng togaMagsesaka ng Piliplnas
CHAPTERIII. Traditional Food Sectors
CHAPTER'
TRADITIONAL
ILl
FOOD
SECTORS
OVERVIEW In contrast to the pervasive intervention in the basic commod:[ty sectors that characterized the policies of the previqu;_ _,_dministration, the new government should e):p].icil:ly minimize its direct role in the agricultural economy. The motivation for this limited role is the view that (a) government involvement in the market is not always b,:_neflclal, and (b) markets and private initiative do not always lead to inefficiency. Indeed the reverse is to be argued: that governmen_ involvement in production and marketing is beset with more potential inef.fic[enclgs than private enterprise, because the former is not guided by the requirement of viability. Hence, an underlying tlleme in the proposed policy agenda for the food sectors (and the aQricultural sector [r_ general) is the need for greater reliance on the private sector in the production and trading of these co.]mod[tles This chapter deals wish issues and policies coclcer:nillg tl]e traditional feet] sectors in Philippine agriculture The specific sectors cove_ed are rice corn, livestock and feeds, fisheries, and up].and agriculture. Export crops like sugar and coconut are discussed in the next _hapter. Because of its dominant role as a food staple and income source of farmers, the rice sector is one commodity sector where some direct government price intervention ,nay be jssti.fied On the basis o_. past experience, it appears that keeping domestic rice prices close to world price trends would ensure the most efficient allocation of domestic cesource.s. The short run variability in world rice prices creates the need _oc some type of policy to prov.ide do,lestio price stabil'J,hy. A useful mgchanimn would be the .us8 of variable export/import ta_es set at the difference _etween the domestic price goal and the actual world prlce .The domestic price goal would be a reference Manila price that would follow long te_,n world market t._ends. Domestic _n_._keting costs would the_% determine other prices throughout the country. In the long-run, all rice p_oducers and consumers will benefit from the reduction of rice marketing costs. This will not necessarily be achieved by direct government involve,_lent in rice marketing; rather government's most appropriate role appears . to be in inves treents in transporta t ion and communica t ions,
IIl.I
infrastructure, and development,
researc1% to reduce post marketing of the rucal financial system.
losses,
Government policies toward the corn indus%ry should be directed at small corn producers. The ce_tcal problem co.ntinues to be low productivity.; to address this, the _followlng are reco.m,ended: i.
Promotion oF_ open-pollinated against hybrids);
o..
I,Iprovement varieties;
3.
Incl.-@ased budgetary support for research .in varietal •improvement, crop protect ion and post !]arrest loss r.eduction.
of and
.farmers'
(UP)
varieties
(as
access
to
seed
UP
The livestock .and feed industries are so closely .intertwined that policies affecting one sector will have profound effects on the other.F.or example, the poultry industry has required ` substantial protection in past years because of the cost disadvantage (v_s-a-vis othe.r countries' _oultry indust.ries) r.esulting from tariff p_ot,_=t[on given the domestic: C_.;_d _n/].ling industry. Thus the •long-term promotion • oE the domestic livestock sector _ests heavily on policies that will .[owe}: i:he costs oE feeds. This will in. turn enI:a.l.],poii c[es to increase pr<_uct.lV[ty in industries pcoducing. _.eedstocks llke corn, soybean, and Eisherles. There will also be substantial gains fr.om [nc_eaSe.d support for research in livestock particularly on ruminants (specially cattle and carabaos). In the short-term, the .lifting 06 the .carabao slaSghter and tr.ans port ban is expected• tolmprove incentives for increased productivity in carabao raising for meat. The ban has been widely shown to be both useless, and ineffective, and there are indications that-it h_S been counter productive. The flsher_es sector can bebroadly, classified in•to capture and aquaculture, fisheries. The former includes. •.municipal fishery and commercial fishery, while the •latter includes flsponds, lake aquaculture, bracki shwa te r aquaculture and freshwater aquaculture. .. The diversity within the fisheries secto= calls for specific policies ••addressing. particular• types of fishery •resources. For municipal fisheries, the recommendations include'. •
I.
Limiting
2.
Improving
3....Municipal
,
•access
accessto contrOl
,.
to
Ooast_l
•
resou=0es;
new ,fishing over..coasta_
III.2
grounds; resources;
4.
5.
Formulation f isheries;
and
of
institution
of
specific
compensating
rules
for"
municipal
subsidy
for
fuel
taxes.
For commercial fisheries, policies should be addressed towa_'ds e×pande4 economic activity in the sector: Fishpond _echnol'ogy should be made more accessible to small farmers and fishermen, while ensuring that less capital-intensive designs and methods• are promoted. The Laguna Lake fishpens dominate the lake aquaculture industry; here, a reduction of fishpens is ciearly needed, while institutionalizing limits to entry by more open fishermen. Seed supply, particularly for milkfi sh, is the central concern in bracki shwater aquaculture. Restrictions on fry exports should be continued due to unusually large foreign demand compared to limited domestic supplies. Seed supply is less problematic for freshwater aquaculture, but the basic problem of maintaining a qood source of broodstock remains. Policies addressed towards the uplands concern both the Ministry of Natural Resources (MNR_ and the MAF. The social• forestry program needs to be elevated to at learnt the same level as commercial or technical foresty management. Systems of secure tenure for upland farmers are required, along with viable agro-forestry technologies. To prevent environmental degradation, the government should b_ prepared to subsidize _rosion control activities since the private private
benefits cost.
of
such
will
not
IIl. 3
always
outweigh
their
a_/ A.
RICE
PRICING
AND
MARKETING
POLICY
The purpose of this section is to examine how govecnment policy has affected domestic rice prices and rice marketing, with a focus on the changes that occurred fror,l 1980 to 1984. In order to understand current events, however, it is necessary to review the trends in prices and intervention from 1965 to 1980. This historical perspective shows how the rice market has been affected by the curreng economic crisis. There is no single rice price in the Philippines a_ prices vary by location, form and season, reflecting the marketing costs of transportation, processing and storage. It is possible to talk of average price levels, however, as all rice prices move very closely together. The average level of domestic prices is determined by domestic demand and total availability in the country, including domestic production and net imports. As the government has a monopoly on international trade, the average rice price depends on government decisions about quantities imported or exported. _" The government prices, and buys This domestic market
sets rice ceiling and sells domestically intervention serves
and paddy floor at these prices. to either disburse
imports or to obtain supply for export. The ability of government to defend official floor and ceilingprices will depend on whether total availability is sufficient to clear the market at official prices. For example, if imports are insufficient to meet demand at ceiling prices,, actual retail prices will be higher than official prices. Similarly, if exports plus demand are insufficient to absorb supply at the floor pL-ice, actual farm prices will be less than official
pr ice s. Domestic
market
intervention
can
also
alter
the
relationships among domestic prices. If government buys at a higher price than private traders and sells at a lower price, this reduces the farm to retail margin. The government must then subsidize official marketing operations. Because of a desire to provide high prices to producers and low pr_ices to consumers, the difference between official ceiling and floor prices has often been less than the private cost of trade. Part I examines the impact of government intervention in international trade on the domestic availability of rice and the average level of rice prices. Part II looks at the impact of domestic market intervention to defend official floor and ceiling prices in different regions. In Part Ill,
III.4
some policy suggested.
directions
:I:. Rice .........
for
the
short
Supply, Government Trade "a'n_[ RIC_ Prl---'-'ec"es '
and
long
run
are
Intervention
This section reviews the growth in domestic rice supply, then looks at the impact of government intervention on pcl: capita availability, and finally summarizes the implications for average price levels. I.
Rice
_Supp_ly.
Between 1965 and 1980, l_hilippine rice production grew at an average annual rate of 4.5 percent. Yield increases accounted for four-fifths of production growth while growth in double cropping accounted for one-fi fth (Table 1 ). During this period cultivated land in rice actually declined. Yield growth was due to three complementary factors: adoption of modern varieties (MVs), increased use of fertilizer and expansion of irrigated area. Herdt and Capule (1983) estimated that MVs, fertilizer, and irrigation each contributed about one third of the total growth in yields (Table i). These three complementary changes in technology clearly increased land productivity. Production and yield growth were not constant over the 1965 to 1980 period (Figure i). MVs were rapidly adopted after their introduction in 1966. Yield growth was interrupted in 1972 by pest and typhoon damage and yields did not recover until 1975 (Figure i). Continued yield growth in the late 1970s reflects the greater productivity and sustainability of yields with newer MVs. Short duration (ii0 days), multiple pest and disease-resistant varieties were first released iO 1976. Later varieties were also more tolerant to moisture stress and adverse soil conditions. The greater sustainability of yields for second-generation. rice MVs allowed steady production growth in the late 1970s. After consistent annual increases from 1974 to 1980, total national rice production declined twice from 1980 to 1984. In crop year 80/81 production fell slightly to 1 percent less than 79/80. Production recovered in 81/82 and increased by 4 percent over 79/80, but then declined sharply in 82/83 to 2 percent less than in 79/80. The Bureau of Agricultural Economics' preliminary estimate of 83/84 p_:o_:hlctlon is 8,200 million tons of palay, up by 4.6 p,::ccent f.rom 79/80 production. This increase over a four yea_: period is only equal to the average annual
III.5
Table
I.
Contribution of area and yleld increasing factors production growth in the Philippines (percent).
to race
Philippines
1955.65_ / Area Yield
_v
J
19_5-8_ /
68 32
19 81
--
2_
Fertilizer
31
Irrigation
24
_/Source
of basic
data:
World
Rice
Statistigs,
IRRI,
1982.
_/R.W. Herdt and C. Capule. Adoption, Spread, and Production Impact of Modern Rice Varieties in Asia. The International Rice Research Institute, 1983 r p.21.
III.6
Poddy.production(000 mt) 8500 ....=: _. .............
:: -.
6500 I,
45100...---, __L_L L_L_J__t_ ! [_
_ 1 t l J l_j
:' ,_ldyc_rea(000 ha)
!
";';':')0 ":i_,, _f.,),r)
.... ,,:.,00 ._000 ...................................... Poddyyield (l/hc_) 2.4 2.2_ ?-.0. t.8 t.6 L4 L?.0 T__L_L_LLJ_J_J__LLJ :L _ _ _ i f _ = L r f:J61 63 6:)': 67 69 71 7:5 75 77 7g 81 r$sure
.8ource:
._,
Trends £n produccLon,, area paddy in the Philippines. Bureau of Min_scry.of
Agr_cul_ural Agriculture.
I_I.7
and yleZd
Econo=£cs,
of
Phi1$ppine
_5 NPK u_e
I
.,o
-
5
|_L_J_.._L_.J ....... i....... I.....l._.J.....I_.JL_J__L_J__L_L_J...... I__1....... L__L_L-- 0 i960 '62 '64 '66 '.68 '70 '72 '74 '76 '78 '80 '82 Yeor Fig. 2, Tret_dsm t_doptionof modern._odetie_,fertilizerur=eendirrigated ",xeoin r{ce Philippines Sogrce,:8ureouof AgriculturelEceaomics FhilippineMinislryof Agricullure
III.8
increase stagnated
for 1965 to 1980. in the last 4 years.
Thus
production
growth
has
Weather is one reason for the poor recent performance. The 80/81 production shortfall was the result of typhoon damage to the wet season '81 crop in Central Luzon and Cagayan, and dry weather throughout the Philippines in dry season '81. The sharper reduction In 82/83 production was due to severe drought from November '82 to June '83, particularly in the Visayas and Mindanao. The prolonged drought of 82/83 has had some spillover effect in 83/84. It delayed planting in Central Luzon in wet season '83. Furthermore, the low water levels in many 5uzon reservoirs meant that dry season '84 area did not recover to previous levels. The Pantabangan Dam, for example, only irrigahed about 1/3 of normal service area in dry season '84. As weather was good in the south total national production increased, but the recovery was weakened by after-effects of the drought in Luzon. 2.
Government
Intervention.
The growth ii production from 1960 to 1980 meant a change in the role of the government marketing agency. During the 1960s the primary function of the Rice and Corn Administration was the disbursement of imports in urban areas and domestic procurements were small. In 1972 the RCA was replaced by the National Grain Authority (NGA), renamed the National Food Authority (NFA) in 1981. Disbucsements declined as a percent of production from 1975 to 1982, while procu['ements increased (Table 2). The NFA's principal task became the disposal of surplus production through exports and increased government stockholding. Some idea of the growth in government stocks can be obtained by adding up procurements and net imports, and subtracting disbursements. The resul_ is the net change in government stocks at the end of each year. The sum of these changes over time gives a rough indicator of the level of _overnment stocks (Table 2). NFA stocks apparently grew very large after 1977, as surplus production in 1977 and 19 78 was not exported. These stocks were held for 2-4 years, and then disbursed in 1981 and 1983. The government impact on per capita rlce availability through imports and stockholding is Shown in Table 3. Per capita availability from production increased in the 1960s to a high of 92.7 kgs. in 1970, fell sharply in the early 70s, and then increased steadily until it reached 105.9 in 1980. Availability from production then fell slightly in 80/81 and even more sharply in 82/83. Imports generally
I III.9
IIio10
Table3. --_
Rice Per Capita
Availability,
.......
ii
1962/63 to I
l
1
FromProductlon plus Net Imports
1983/84. u
I
i
liE
Fr_n Producti_ plus Net l_orts plus Government StoGk changes
Year
Availability from Production
1963 1964 1965 1966 1967 1968 1969 1970 1971 197;1 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984
86.9 81.7 82.4 81.5 79.5 85.9 81.2 92.7 92.1 85.5 72.0 88.8 87.4 92.7 94.5 98. $ 99.9 105.9 101.6 104.0 96.4 99.6
92.7 94.3 99.4 85.8 88.2 84.7 81.2 92.7 97.0 100.9 80.0 93.8 90.9 93.9 94.9 98.0 99.1 101.0 98.1 103.8 95.9 102.6
92.6 91.0 95.1 88.5 82.3 82.3 81 o8 93.0 94.9 99.5 78.3 92.9 91.3 94.9 92.9 91.4 92.5 103.1 101.5 100.4 102.7 n.a.
84.9 83.4 98.3 100.4
90.7 91.4 97.4 100.1
89.1 90,5 95.0 101,5 a
&vexa_ 1963.- 1971 1972-1975 1976-1980 1981-1984
IL
Souzce:
Prodact;!on
net
imports,
changes
- 1 1-1,03 o.ly.
Iit.ll
in government
stocks
fz'ca
Table
3.
increased of 72/73. slightly.
and In
stabilized availability, with the L_te 19708 exports reduced
the exception availability
Actual. L)er caL)ita availability is the sum of pro(]ucl:_:_.on,net imports, and changes in government stock's. For example, the government can sell stocks accumulated in past years in order to offset, production shortfalls or the government can purchase and hold stocks when production is larger than average. Before 1975 changes in government stocks were small and had only a minor effect on availability. The build up of government stocks in the late 1970s set the stage for government response to production shortfalls in the early 80s. Export contracts were delayed or cancelled and only very small amounts have been exported since 80/81. Large government disbursements in 80/81 and 82/83 increased availability. The extremely large disbursements in 82/83 increased per capita availability by 6 percent above the level provided by production alone, and undoubtedly forestalled imports. Although production recovered in 83/84, the government imported 162,000 mr, the largest imports since 73/74. These imports were needed, however, in order to keep per capita _vailability at about the same level as in 81 to 83. Although imports might have been expected in 82/83 when production was very low, government stocks were released to meet demand and imports were delayed until 83/84. 3.
Domestic
Prices.
Without government intervention, imports or exports would keep domestic rice prices equal to world rice prices. The world rice price represents the opportunity cost of rice to the Philippine economy. When domestic prices are below world prices, domestic production is discouraged and the impo_t bill increases. When domestic prices are above world pJ:ices, resources are used in domestic rice production that could earn more foreign exchange in production of other crops. Because of the importance of rice in the Philippine economy, the social cost of resource misallocation in the rice sector is large. One jusl:ification for government intervention in international trade is the instability of prices in world rice market.s. The world price of ric_ fluctuates more than prices of otl]er major g_ains. Quantit_'ies of rice traded are small relative to total world production (Siamwalla and Haykin, 1983) and government policies in major rice producing countries tend to shift the burden of price adjustment to
III.12
domestic supply fluctuations and Monke, 1979/80).
onto
the
world
market
(Falcon
The intent •of government policy, as indicated by the official ceiling price, was to keep domestic prices below world prices in importing years, and to raise them slightly above world prices in exporting years (Table 4). The result of policy was just the opposite, however. Domestic rice prices were above world prices in importing years and below world prices in the exporting years of the i970s (Table 4). During the 1960s imports were usually too small to hold d_mestic prices equal to world prices, as strong producer interests in the legislature frequently delayed approval o£ funding for imports (Bouis, 1982). Thus during importing years domestic prices tended to favor producers (Table 4). One exception was in 1974 when domestic prices did not follow the sharp increase in world prices, as the government subsidized imports and rationed rice to consumers. As domestic supply grew rapidly in the late 1970s, domestic prices fell to border price levels and belbw. The government marketing agency was hesitant to export the rice surpluM, in part due to the limited world market for low quality Philippine rice. The government monopoly on trade prevented world quality premiums from being reflected in domestic prices. Lack of domestic price incentives for quality improvement forced the market intervention agency to incur reprocessing costs in order to provide consistent quality exports (Unnevehr, 1983). From 1977 to 1983, rice price policy taxed producers slightly as domestic rice prices were below border.prices (Table 4). In early 1984 domestic rice prices stayed very close to world rice prices in peso equivalent, so that they increased in nominal terms with the large peso devaluations (Table 4). Prices did not rise by more than the amount of devaluation, howeve _-, because of government actions to maintain per capita availability-at about the 1980 level. From 1960 to 1984 the domestic price followed the trend in world (border) rice prices, including the effects of the devaluations in 1970 and 1980 to 1984. Real domestic prices of rice declined, however, as the domestic rice price did not rise as fast as other prices from 19 75 to 19 84 (Figure 3). This decllhe is the result of growth in supply that led to the decline in nominal protection. 4. The benefited
Incentives
f.or Rice
Consumers
decline in consumers,
the real rice particularly
and
price the
Producers.
from 1.975 poor who
to 1982 spend a
III.13
I
Table
"4
Comparison of world, prides• 1960-82.
...............................
_ •
.....
_--_--_
domestic,
and
Period
C.I.F, -.F.O.B. va]_ue
rice
.........................
Ratios Manila
official
wholesale or
price
Thai F.O,B. 35 percent price
of to
the
Offic.ial ceiling price
Official ceiling pr{ce to C[F/FOB value
s
I!9(;]--_ 7 I,_,L-I_
1 •].5 1.06
] •34 I..12
I. 28 i.12
0 •91 0.g3
197] --_:_'].
O. 99
O. 94
O. 94
I..02
All ' ,..... 196(3-83
1.07
1. 16
1.11
O. 98
1984
n.a.
1.07
1.01
1.07
(Jan.-June)
Sources:
C.I.F. and F.O.B. values are from Teresa L. And_n and Adel ta C. Pala_pac, Data Serie_ e_ B!_ Statistics i_ _h_ Philippinee_ (Los Banos: .International Rice Research Institute, 1976), 'Fable 11, for 196.3-67 andS971-73, Other years are from the Phi].ippihe National Census and Statistics Office (NCSO). That F.O.B. prices are from the Rice Committee of the Board of Trade, Thailand. Manila wholesale prices are colllected by the central Bank, Ceiling prices are from the Rice and Corn Administration/National Food Authority.
ate:
_n.:;...,e figures are Z:,eriods shown.
the
III.1_
average
annual
values
for
the
Index (1964/66=101:))
_ndex
(1964/66=100)_
-
140
120
Real rlce 9rice 100
80 120
i
-'_80
_41_w_8_?
60
_ _,_
Rice/wheat
--J '_'
'6_. t ,.. r.. -_:_'6"6 '68I
1960
Fig,
3.
Trends In.tho rice to corn
i
,_. i '74, .I.... _'76,
" _72
real rice price and wheat in the
:]:II, 15
l '78J _,_.L.--L._.. '.'80 '82
and reiative Philippines,
pric_ of 1960-82.
substantial share of income on food. The budget share for ri_e alone is 31 percent for the poorest third of the population (SSD data). Some indication of increased purchasing power" for the rural poor is revealed in the ratio of the c,_r;_lwage to the retail price of rice. This ratio inc_ease(_ in the 1970s (Table 5). Since 1982, however, wages h av "-; not risen as fast as rice prices and the purchas:[_g [)ower in 1984 is only about two-thirds of the 1980 level. The increased supply and lower real price of rice in the late ]970s caused shifts in consumption. The elasticity estimates of Bouis (1982), based on SSD survey data, are used to simulate the expected changes in demand due to changes in prices and income. The growth in income and the fall in real prices Of staples should have induced an increase in rice and wheat consumption and a decline in corn consumption between 1975 and 1980 (Table 6). Food balance sheet data confirm the substitution of rice for corn durin0 this period (Table 6) . The large increase in wheat consumption may be due to changing tastes. Between 1980 and the first half of 1984, real per capita income declined but the real prices of staples remained roughly constant. There appears to have been a decline in wheat consumption but little change in Consumption of rice (Table 6). Data for corn are not available. It may be that the decline in income has led to an overall decline in cereal consumption. While the decline in real rice prices in the 1970s benefited consumers, it tended to reduce incentives to rice producers. One indicator of incentives to produce rice is the ratio of the cost of nitrogen from urea to the paddy price. This ratio increased during the 1970s, and at 3.8 was high by historical standards from 1980 to 1984 (.Figure 4). _hese unfavorable prices have contributed to the stagnation of production in the last 4 years as fertilizer use declined (Figure 4). The larger national average fertilizer use in 82/83 reflects a greater proportion of irrigated area, where more fertilizer is used than in ralnfed area. Other aut.hors (Unnevehr, et al. 1984; David 1983) have examined the impact of go_e'rnm_n--t policies on re_urns to central Luzon rice producers. Their findings indicate that increasing implicit taxation of _ertilizer and declining p_-otec_ ion on rice prices have reduced price incentives t.o both rainfed and irrigated producers in the l_te 1970s compared to the 1960s. Profits and income have increased, however, for farmers in public irrigatlom systems who have t-eceived fixed rent leases. Government investments 111.16
Table 5,
Changes in Real Faxm Wagese 1960 to 1984 (F/day)
Year
Farm Wage
Farm Wage/ Consumer Price Index (1972 = 100)
Farm Wage/ Retail l_ce Price
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982
2.79 2.78 2.79 3.05 2.93 2.93 3, 12 3.41 3.42 3.13 3.20 3.64 3, 78 4.40 6.41 7.46 8.97 9.89 10,05 10.44 11,72 12.51 13.94
5.91 5.82 5.52 5.71 5.07 4.95 5,00 5.14 5.03 4.52 4, 05 4. O0 3.78 3.86 4.21 4.53 5.13 5.24 4.95 4.33 4.13 3.77 3,90
6.49 5.91 6.34 5.87 4.58 4.80 4.16 4,06 4.68 4.17 4. O0 3, 37 3.29 2.91 3.24 3.93 4.42 4.71 4.79 4.44 4.70 4.56 4.67
1983
15.o0--
n.a.
n,a.al
2.ee-"
1984
n.aa/
2.e2
_:
.Wage a_ta and m'etailri_ Index fzom NC_O.
_mdc_
Centzal
lamon wage £or
pzi_
_
tzansplanting.
III.17
_rom B_
C_m_r
Price
0 1961
T63 Fifo 4.
v65
'67 ''69
171
'73
'75
,'77
'79
'81
Trends in fertilizer use per hectare in rice and in fertilizer/paddy rice
111.19
'83
in irrigation and the enforcement of land reform in some regions have substantially increased farm profits for some fortunate producers, while other rice producers have experienced a decline in profitability due to a cost price squeeze. As ferhilizer prices continue to be high relative to rice prices in 1984, the increase in rice prices has not reduced this "squeeze". 5.
Price
and
Sup l_
Outlook.
As population grows at more than 2 percent per year in the Philippines, and weak production growth is expected in 84/85, it is likely that further imports will be needed to maintain per capita availability atrecent levels. In Novembec, 1984 the government announced new import contracts for 130,000 mr. It is likely that in the short run the governmenh's market intervention role will be to contract imports and disburse them in domestic markets. The future price outlook will depend on government willingness to import enough rice to maintain prices at import parity.
II.
Domestic
Rice
Malrketln__
This section reviews the trends in regional supply Iand demand, regional prices and private trader's marketing costs, and then examines the e_fects of government intervention on domestic rice prices and marketing. The impact of government _arke t intervention is measured in two ways. The first approach examines the extent of NFA' s regional paddy procurement and rice di sburseme nt operations. This me thod measures the effectiveness of the program in achieving its goal of providing a ready market for producers and adequate supplies of rice for consumers. The second approach evaluates the effect of government intervention on domestic price levels by comparing the observed market prices and official prices, as well as the official pricemargins with private trader's costs. This determines whether NFA is successful in defending official floor and ceiling prices. i.
Regional
Supply
and
Demand.
Central Luzon has consistently contributed about I/5 of total production, the highest share of any region. There was a shift in the share of national production among other regions between 1974 and 1983. Western Visayas was the number four rice producing region in the mid 1970s, and became the number two region during the late 1970s and early III,20
1980s. Double cropping on rainfed farms significantly increased paddy production in the Western Visayas. Cagayan Valley remains the third most important produaing region. Southern Tagalog and Bicol regions shares of national production have declined, while the contribution of Central Mindanao has increased (Table 7). Table 8 shows the striking differences in rice consumption by region. The major rice consuming regions in 1974-.76 were 'Southern Tagalog (621.0 thousand tons), Central Luzon (536.3 thousand tons), Metro Manila (48.4.1 thousand tons), and Western Visayas (471.4 thousand tons). Demand for rice increased over time in most regions due to population and income growth, but rice consumption was still higher in Luzon than Visayas and Mindanao in 1977-80. A comparison of production and consumption data shows that the major surplus regions were Cagayan Valley, Central 5uzon, and Central Mindanao throughout the 1970s, and Weste_:n Visayas in the late 1970s (Table 8). The main deficit region was Metro Mani.la which required a yearly ave x:age rice supply of 484.1 thousand tons and 556.7 thousand tons during the 1974-76 and 19.77-80 periods, respectively. Other significant regional importers of more than i00 thousand tons of rice a year were Southern Tagalog and Eastern Visayas. The remaining deficit regions had less than i00 thousand tons of rice requirement per annum. 2.
Regional
Prices.
Price differentials between regions are affected by the distance of production areas relative to consumer markets. Surplus regions located far from the major markets generally receive lower farm prices because of high cost of transportation and transit losses, and limited number of buyers. Higher prices usuallyprevail in deficit regions due to the cost of transporting rice from surplus regions. Central Luzon, although a surplus region, had the highest farm pr.ice of paddy from 1974 to 1983 because it is closest to the Metro Manila market (Table 9). Other surplus regions such as Western Visayas, Western Mindanao and Central Mindanao had lower prices. Majority of the deficit regions had higher farm prices than surplus regions, with the exception of Eastern Visayas. The retail price of rice has the same regional pattern. Retail prices tended to be higher in deficit than in surplus regions (Table i0). Prices at the retail level in deficlt regions like Northern Mindanao and Central Visayas exceeded the Manila price between 1974 and 1983 (Table i0). The lower Manila price is due to its proximity
III.21
lii .liI! iiIIi i I _-_
_
l
_ _ _ _ _ _' •
t,-_)
,_ t_
,.,., _ L,, _
_
L, _
_
L, _
_
_
,_
_' _' _
_,,,_ _
,_ ___ _
_
_, _, _
,_ _
_
_
_
_ _
_
_, _
_,,,,,__._ _ _,_,_,_ ,,,,. ._
"
e.
iteg_o_l rice su_lus and deficit Yeaz 1974-80 (000 me_£o tans).
in tl_
Pl_Ll_pp_es,
Crop
1974-76
-
_---
_
.
_
"
ion
t_on
(1)
(2)
II
I
ence 11)-(2) (3)
I
i
n_ L
I
J
I
iotl
tJ.o_
{1)
12)
ll
.
l
-
enue 11)-12) (3)
._" ......
l_tro Manila
-
404.I
-484.I
-
556.7
-556.7
XI_)¢oB ite_Lon
348.3
4_3.1
- 84.0
401.1
471.9
- 70.8
Ca_ji_ms Valley
480.2
234.1
246.1
549.9
208.9
341.0
Central
_
700.9
536.3
164.6
778.6
538.1
240.5
Bmsthozn _aJLoq
498.7
621.0
-122.3
549.8
664.1
-114.3
B_col _
395.1
363.2
31.9
429.3
376.1
53.2
I_otez_
Vim
480.1
471.4
8.7
639.4
519.6
119.8
C:_t_c_
V_Lm_a8
81.0
140.2
-58.4
93.8
160.5
-66.7
l_mtern
V_Llmyalt
146.5
256.9
-110.4
170,3
280.8
-110.6
Wes4_HrniHLtndOaaO
180.3
167.3
13.0
249.4
187.1
62.3
_
120.2
206.9
-86.7
162.1
193.2
-31.1
8outJilelrn _
193.6
205.3
-12.7
204.9
304.4
-19.5
Conl_c_L _
313.6
207.4
105.2
451.0
245.1
205.9
....
.
'
1Pl_lJLlpp_u _"
.
"
Ji]
'-_
.
-
=,_
!
''
3939.3 \,
I
It
.....
L
,
4341 . ? III
_..
.,[.,.
,
-402.7
I
I
I
II
EomCCes IICSO, S.F. Aviguete_o et. a.l.. 11978,
iii.23
I
I
• -
. ,.
a
I1.1.1
_11
4759.5
4732.2
.......
.
19811 and IAEcon.
I
w
ill
27.3 _
Table
9.
Regional prlce. *
Region
farm price
of paddy
1974-76 m
as percent
1977-79
' ''
....
of Central
Luzon
1980-82
_
._.w
farm
1983
[. t
,...
IIocos
Region
I01
99
99
99
Cagayan
Valley
93
92
90
86
Southern
Tagalog
97
95
92
88
Bicol Region
87
87
84
83
Western
Visayas
87
86
88
89
Central
Visayas
90
92
92
84
Eastern
Visayas
86
84
83
80
Western
Mindanao
88
90
85
84
Northern
Mindanao
94
93
91
90
Southern
Mindanao
88
90
85
84
Central
Mindanao
-
92
88
85
•Central
Luzon farm price (_/_g) i i ii
Sorce of basic data:
I.05
I. 10
ii
Bureau
_
i
of Agricultural
III.24
1.40
i i
i iii
Economics.
i i
I.70
ii
i i
i
i i
i
Table
10.
.Regional wholesale price of rice as percent (regions in order of surplus). .--
.. ,..,=
Region
i
Jl..,
1974-76 --
..
i
p_¢e-.
.,,,
1977-79 i_
of Manila
L
1980-82
1983
!
Cagayan
Valley
99
94
93
87
Central
Luzon
101
96
95
92
Central
Mindan_o
102
108
103
99
Western
Visayas
96
94
92
100
Wester_
Mindanao
i 07
100
97
100
96
95
97
102
Biool
Region
Southern
Mindanao
95
I00
98
100
Northern
Minclanao
101
103
i03
98
Central
Visayaum
101
108
106
107
Ilooos
Region
102
96
94
74
Eastern
Vis_yas
94
97
96
10i
Southern
Tagalog
101
100
98
104
Source of
basic
of Agricultural
Economlcs.
data:
Bureau
III.25
to the major supplying regions, and, as will be discussed below, more government Inte_ventlon. The more remote deficit arma._ of Visayas and Mindanao tend to have higher prices. 3.
Price
Spreads
and
Seas___oonal-__Prlce _---.--_-_Increases'
The absolute farm to retail spread has increased over time with inflation in marketing costs (Table ii). The proportional spread, however, has remained fairly • constant in most regions from 1974 to 1983. Both proportional and absolute price spread varied among regions, perhaps reflecting differences in the distance from farm to retall center or differences in market infrastructure. Between 1974 to 1983, price spreads were consistently lowest in Central Luzon and highest in Central Mindanao. In general, the Visayas and Mindanao regions had the largest price spreads. Seasonal price increases r_flect the cost of storage between harvests. The most important component of storage costs is the interest on working capital tied up in stocks. If rice i_ stored fo£ 8 months from Decembe_ to August with storaqe losses of 5 percent and an interest rate on working capital of 21 percent per annum, then a 20 percent seasonal increase in prices will only just cover the cost of interest on capital. As interest rates rise above 21 percent, larger seasonal price increases are needed to cover costs. Average seasonal p.rice increases in selected•markets of the Philippines ranged from 12 to 30 percent (Table 12). Large seasonal price increases in 1973 and 1974 _ reflect market uncertainty about crop failures and imports in those years (Bouis, 1983). In all regions except Southern Tagalog, seasonal price increases declined in the late 1970s, due to growing government intervention in domestic market (Unneve hr, 1983). a decline in seasonal price increases means that returns to private storage of rice have declined. 4.
Private
Trader's
__Marketin@ Costs.
Most d.omestic marketing of paddy and rice is handled by prlvate traders. About 22,000 wholesalers handle 90 percent of sales at the wholesale level and 60,000 retailers control 99 percent of the rice business at the retail level. The N FA absorbs the i0 percent of sales at the wholesale level and 1 percent at the retail level (ADB, 1982). Wholesale trading of rice is mostly performed by commercial millers who are located in rice production centers. They have established credit relationships with farmers and barrio traders, who repay loans through delivery of paddy.
TI'£. 26
o'
i
"i
III.27
O CO
eo
_
¢_)
_O
_
_.D
"_
I_
n'_
0
I_ 0_I
_ _
_ tNI
M _
_
_0 ¢'_
O_ O'1
_ '_
_ ._'(
_ P=)
0 n')
_I_"
O-
M
CO
0
_
_
.
_-
_
_-"
"O'_
.o'1 o,)
%0 ¢",)
_ o")
)_ _
0'_ 04
CO ,"-
_ ,r_
_ O¢
a0 )--
O_
cq
O
'_
O')
0'_
M
t'--.
['-.
¢_
-
I O9 I%
_
tO 0 _t )'-t 02 : _)
I_ I_" _h
gA
"
-g t-.,.
_
..
u'_
H
I/I ill 01
'_ _
CO
).t")
_
0'_
_
%0
O'1
O_
).O
U -,-)
_
U
U
_
U
• ,=t
0
g
;d
_.. 0
4_ •
'0
._,
: '_
_
]
._
o
0
,-
._ "
U
o _,
o_
_
_o
_ .o __
_
_
o r_l.
Thus millers and informal
serve credit
important markets.
functions
in
both
rice
markets
A comprehensive study of the rice milling industry in Central Luzon in 1980/81 revealed that the marketing costs of one kilogram of rice stored for 3 months was _0.33. The major expenditure items were interest on operating capital, milling cost, and other costs which included insurance, license fees, mayor's permit and manager's fees (Table 13) Since Central Luzon is closer to Metro Manila and nearby wholesale markets, the transportation component o_ marketing costs in this region is lower compared to other surplus regions in Visayas and Mindanao. In 1984, higher interest rates on working capital of 36 to 42 percent per annum substantially increased the p_i%ate cost of t_ade, i-e._odevaluations also _nc_e_s_d the cost of fuel and oil, electricity, and i,nported parts for rice mills. Registration fees for vehicles and labor also inc,-eased. These factor's have changed the business operations of rice millers. Based on an informal survey of millers in Nueva Ecija, the high cost of working capital on commercial loans has caused the follow'ing: a) some mills are shutting down; b) those that are operating are cutting back on 1%ol.Jing stocks; and c) millers are cutting back on ]et,dit_9 to suppliers. As in Nueva Ecija, the high cost of capital zn Iloilo also has a strong impact on trade. With the 40-43 percent interest charged on commercial loans in October 1984, traders estimated that a price increase of _0.10 - _0.14 per kg. per month is needed just to cover their cost of capital. As they do not expect such increases, traders have drastically reduced stockholdings. The average variable costs incurred by rice millers in 1984 were _0.61 - _0.66 per. kg. of rice, which is nearly double costs in 1980/81 (Table 14). Iloilo rice millers had slightly higher costs than Nueva Eclja rice millers. With the recent high interest rates, the cost of working capital accounted for 50 percent of the total variable costs in both provinces. In Nueva Bcija, the interest on operating capital and the transportation costs increased five times and six times as much, respectively, from 80/81 to 1984. Higher marketing costs will mean larger price spreads between farm and retail rice prices. 5.
Extent of NPA Operations: R__e _[T-65al-Paddy Procurement.
During the 1960s the procured an annual average
Rice of
Ill,29
and less
Corn Administration than 2 percent
of
0
W
U_
O_
t
•
O_
a_ •
I"-
(_. m
(D
•
•
U'_
O_
CO
0
._1 __
.. •
._ lJ _J %.
o
_
';_
_ G'_, co _._ _,- (%1 ._ ._ _
i
u'_
,_
_'_
_
_'_
_
_0
_
_
,..
_
g -,-I
®
,-,
,-
,-
A
-
&
c;
d
g
_;
d
'm
m .,..i ,M
,- .d &
,- -
_
,4 .-
,_ -
d
d
,_ 4
-
g
,4 ,-.
,.-
d
_
d
_
,_
-.
o'i
,_ ,_
A
,_
g
.,_
_
o _co
,_ _
_
__
mm
_o
_co __
_m
__
_-, m oco __
_.
o
"_ "_
tt ,'_
_• •
_.
o
"_
"M
r'l
.lJ
M
_1
0
._, g _' t_
-
_
_
_,
_._ -ol 8°
.. _ _ _°..
_ "'_o _
g _
_ _
.'_ _ _ _
o _
Table
14.
Average variable costs incurred by millers in marketing Nueva Ecija and Iloilo, September-October 1984.
......
.
,
•......
.
Nueva Cost Pesos/ 100 kg
Item , m,-
l
Drying
....
and storage
_
Am
n
....
Ecij a Percent•
_
rice,
nn mm•
11oilo i Cost Percent •PeSos/ 100 kg "z
i
,
j
4.46
7
4.50
7
Milling
13.•25
22
15.10
23
Transportation
9.50
16
I0.20
15
Storage
losses
3.20
5
3.10
5
Interest on operating capital _/
30.22
50
32.78
50
Total Variable
60.63
I00
65..68
100
a/Based
Costs
on 39 percent
in Nueva
Ecija
f[I.31,
and, 41 peEcemt
in Iloilo.
pL_oduction. Procurements started to increase significantly when the Rice and Corn Administration (RCA) was replaced by the National Grain Authority (NGA) in 1972 which was renamed the National Food Authority (NFA) in 1981. Equipped with more funds, the NFA played a major role in domestic marketing. Over 500 buying stations distributed throughout the paddy producing regions carry out the agency' s procurement operation. Procurements increased five times between the mid and late seventies, and then leveled off in the early 1980s. Domestic procurements are undertaken in all paddy producing regions with the greatest bulk coming from Central Luzon which contributed an annual average of 89.5 thousand tons fr_n 1974-83 (Table 15). Western Visayas ranked second in importance in the mid 1970s and declined to fifth thereafter. In the late 19708, more paddy was procured in Central and Southern Mindanao. These regions had a higher proportion of government procurement to production than Central Luzon and other major producing regions in Luzon and Visayas during the late 1970s and early 1980s (Table 17). Given the uniform floor price for paddy, procurements in these more remote regions may be more costly for NFA. 6.
Regional
Rice
Disbursement.
Prior to the 1980s, NFA rice disbursement into consumitlg centers of Luzon and Visayas was larger than in Mindanao (Table 16). Among the deficit regions receiving more government market injections were Metro Manila, Ilocos Region, Southern Tagalog, and Eastern Visayas. Surprisingly, Central Luzon received substantial disbursements even though it is a major surplus region. DisbuL"sements increased in Mindanao over time, and were large relative to regional consumption in the early 1980s (Table 17). 7.
Determinants
of
Procurements
and
Disbursement.
The effects of regional prices, production and consumption on government market intervention policy between 1974 and 1983 we_.e evaluated using a multiple regression analysis. As shown in (Table 18), regional procurement as a proportion of total procurement is r.egressed on regional production as percent of national production; the ratio of farm to floor prices and a dummy for surplus or deficit region (Surplus=l). Results indicate that production is the most important determinant of regional differences ir_ NFA procurements from 1974-83. The estimated regression coefficient means that regional procurement as a proportion of total procurement increased by .981 percent as the proportion of regional production to total production
III.32
.p u •_I lq
_0 I r'-o_
°_ _J
_,_ •,,,i
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(D 0
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C_
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m
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r--
_
T-
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e_
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4_
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ill
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.
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,_
_._
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oo
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_'_¢1
,
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TM
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"_1_4
_
•
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__
_,_
_ __
_ _
_._
° oo _ III.35
Table
18.
Evtimetee of the determinants of regional and regional rice disbursement, 1974-83.
paddy
procurement
•
Du_blnS2
Wa _son Statistic
PRocP
=
0.612
+ 0.008 FAPRI _0.i03)*
4. 0o98_ PRODP (69.03) _
+ 0.013 SPLUS (1.38)*
.52
1,92
DISCP
=
0.009
+ 0.11
+ 0.037
- 0.001
,20
1,15
RETCE
(4.45)**
CONCP
(3.40) _
SPLUS
(-1.78)**
PROCP
=
regional ment
paddy
procurement
as a proportion
of
DISCP
=
regional men t
rice
disbursement
as a proportion
of total
FAPRI
=
ratio
PRODP
=
regional paddy production
production
RETCE
=
ratio
r, egional
CONCP
=
regional r, ice consumption co n,,_ um]?tion
SPLUS
=
dumr_y va,_able
between
between
re_3ional far*, price
and official
as a proportion
recall
total
price
of total
and official
as a percentage
floor
paddy
procure-
rice
disburse-
price
paddy
ceiling
of total
price
rice
&
•F -values _T
-values
where
a_e
in parentheses
are
in parentheses
i = surplus
region
III.36
and 0 = deficit
region
incL-eases by one percent. The ratio between flooL - price i's insignificant in determining
farm price procurements.
and
The effects of consumption levels and prices on the government disbursement program was also examined. R_gression results show that the regional disbursement as proportion of total rice disbursement is significantly affected by the ratio between retail price and official ceiling price, and by the region's rice consumption as a proportion of national rice consumption. The positive sign of the price variable indicates that the government tends to inject rice into the laarket where retail prices are high, but is not successful in keeping retail prices at the ceiling. Results of the two regressions indicate a consumeroriented market intervention policy. 8.
Impact
of
NFA
on
Domestic
Prices.
The government's stated price policy objectives are to: (i) provide an adequate supply of rice to consumers at affordable prices; and (2) provide income incentives through offering fair prices to producers sufficient to encourage increased output. These conflicting objectives are reflected in the offici'al floor and ceiling prices. Between 1974 and 1983, there has been no year in which both farmgate and retail prices are within the official price bounds (Figure 5). Farm paddy prices were below the official floor prices from 1975 to 198"3. Only Central Luzon and Cagayan Valley regions had an average ratio of more than one during 1974-76 peL'iod. The rest of the surplus Ee_ons had farm prices below the official floor prices. Central Luzon has an advantage over other surplus regions due to NFA's large procurement of regional production and the region's proximity to major rice deficit markets. From 1978 to 1983, the average ratio of farm to official floor prices was below one in all regions of the country (Table 19). Retail prices were above the ceiling price from 1974-78 Lhen showed the reverse situation in 1979-81. The availability of more supply throughout the country in those years of exportation has contributed to the fall in retail prices below the ceiling prices. Table 20 presents the aveJTage ratio of retail to official ceiling prices by region. "Highest average price ratios were in Central Mindanao markets during exporting years and in Central Visayas markets during importing years. Because of limited rice supply in 1984 as a result of typhoons, delayed arrival of fertilizer and high prices of inputs, retail prices rose faster than official ceiling price, while farm prices were above the official floor
III.37
_/kg
4,0
3 _0
Ceiling
price
\ Retail 2.0
prlee
,
_
Floor
price
_ _
2-"J 1,0
.
"' _' _ _ _
_
/
F_
price
#.
%j
I
1974
t75
I .... I '76
'77
I '78
,.I,
I
..l
I
'79
180
'81
182 '83
Ye_
Fig°
5o
official floor _d ceiling rice prices and f_p_dy III.38
. I ..... I '84 .;.
prices, prices,
_d retail .1974-1984
i _.._. r'0"_ _'-
_) .: _-
_-
-_I
_, _1
0
-M
I
i
I_
I 'q'_
.---._
U9
_.
Ch
ao
(_1
_o
U9
_'J
_
_
oD
---
D
_
•
o_ r'-
o_
0
cO c',,
_
('_
_
co
I_ __.
Co
_ O
_
_ Oh
c_
¢0 (_i
oI)
I.r) _h
co
_
oo
I_ O_
c_
_D _
OD
cO (3
_
e,; ,--
_
'
_
-.
_
CO u'l
r_
CO u9
c_
_, _
r_
I'_ kO
_
GJ "_
'0 _j -H
0 0 ,-I 4-_
o
-,-I
o U1
O_
iN
_ _i'
§ url
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_ _0
co
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,O_
,r'-,
c_ _
_
kO I_
_
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_
_ (0
.o_
_" 0
_
_ L,,1
_
•
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price. Based on a survey in Nueva Ecija in September 1984, the farm gate price of dry paddy ranged from _3.00 to _3.20/kg, as compared to a floor price of _2.65 at that time. Recent adjustment of the floor price to _3.35 has brought it to market price levels. The ex-mill rice price in September 1984 ranged from _5.60-_6.20/kg, as compared to a ceiling price of _6.00 in January 1985. NFA had difficulty in procuring paddy during the 1984 wet season harvest due to higher prices being offered by private traders as compared to official prices. In Iloilo, NFA implemented a policy to restrict shipments. Traders shipping outside the province were required to sell an amount equal to 20 percent of the shipment to NFA at official prices, which meant a loss to traders at _0.20/kg of rice. ThJ s implicit tax on shipments to deficit areas raised l?rices by F0.05/kg in Cebu, for example. As harvest s tatyte,] in Luzon, Manila traders undercut Iloilo suppliers in Cebu. NFA then revoked the policy and Iloilo shipments to Cebu and Mindanao resumed. The use of this type of policy to boost procurements only created inefficiencies in private trading, t'aising costs in deficit regions. Intending to provide both high prices to producers and low pr.ices to consu_ners, the gox}ernment has set official flooJ_. - and ceiling prices close together. The difference between official prices (official margin) may not be large enough to cover marketing costs. According to Unnevehr (1983), the size of the official margin in the 1970s was only sufficient to cover milling and transportation costs but not the cost of eight to teQ months storage of rice between major harvests. Because of this policy, the cost of NFA's stock holding has been subsidized by the Central Bank which has provided NFA working capital at only 6 percent interest. The estimated cost of the actual government subsidy in marketing was _i03.3 million in 1980/81. In order to successfully defend official prices it would ha're cost the government _213.6 million in 1980/81 (Table 21). With the highest cost of working capital, costs of fuel and oil, costs of electricity and other expenditures related to rice trading, it is not surprising to observe that current official price margins in' 1984 (_0.55/kg) are inadequate to cover marketing costs both in Nueva Ecija (_0.61/kg) and Iloilo (F0.66/kg). These marketin_ costs are underestimated and considering that storage costs including interest on working capital were computed based only on a three-month rather than an eight-month period of holding stocks (Tables 14 and 22).
III.41
.
0
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III.42
•
Table
22.
Average official floor a_d ceiling Philippines, Crop Year 1974-83.
•
prices
n •
n
for rice in the
n
tqlpm ,_
Crop
Paddy Floor
Rice Ceiling
Year
Price
Price
E_Qa
1974
0.81
(Pesos/kg) 1.86
0.61
1.975
1,00
1.90
0.36
1976
1.06
2.02
0.39
1977
1.10
2.10
0.4!
1978
1.10
2.10
0.41
1979
1.25
2.36
0.44
1980
1.36
2.51
0.42
1981
1.51
2.75
0.43
1982
1.65
3.00
0.46
1983
1.78
3.23
0.49
1984
2.23 b
3.98
h/Rice
ceiling
M/official s_uzces:
(Paddy support
prices
Unnevehr
III.43
b
- .65)
are up to June
(1983) and NFA.
Difference Between Official Prices of a
1984 only.
0.55
The small official margin creates a need to subsidize marketing costs, if NFA is unwilling to bear the subsidy cost, it may limit intervention. This may explain why N_A has not successfully defended both official prices in any year.
III_____. Polic Z Analysis
and
Conclusions
The government has relied on control of international trade to influence domestic prices, but this has had unexpected effects on the domestic market. During the importing years of 1961 to 1973, imports frequently arrived after the new harvest had already begun. Government delays in contracting and disbursing imports meant tllat supplies were not available during the lean season when tlley were needed. These delays exacerbated domestic price fluctuations in deficit years. D.uri.ng hhe surplus years of the late 1970s, the gove].-nment monopoly on international trade prevented world quality p]:'emiums from being reflected in domestic price's. Private PilleJ:'s did not have any incentive to meet world maJ_ke[: ._l_an<]aL_dsfor consistent blends of head rice and broker,_ o_: to develop quality control for international standa_.ds within the private trade. As a •result, the abili[:y to export profitably was reduced because the NFA had to rel._rocess rice to meet export standards. Government control of trade has led to domestic prices above world .prices in importing years and below world prices in exporting years. Growth in d6mestic supply thus led to a decline in price protection for rice producers. The government is to be commended for reacting to the shortage of domestic supply in 1984 with the timely disbursal of imports. Past exp_=cience suggests, however, that in t-he medium to long term some redefinition of government's role in the rice trade is. needed. The explicit budgetary costs and the implicit social efficiency costs of deviating from world price trends are large. Keeping domestic rice prices close to world price trends encourages the most efficient allocation of domestic resources. The short-run variability in world •rice prices creates the need for some type •of policy to provide domestic price stability. The central rice •price policy issue is how to manage international trade or domestic stock holding to provide for gradual adjustments to world market trends. The thin world rice market means that participants must bear substantial search and transaction costs. This•will be
III.44
particularly is likely exporter to and buffer surplhs and
true for the Philippines, because the country to continue to shift from being a marginal a marginal importer and vice versa. "Thus trade stock policy must be flexible to hand ie both deficit years.
The goal of providing price stability could be achieved through relying more on the private sector both to trade internationally and to hold stocks. In order to minimize domestic price fluctuatiohs arising in international markets, thegovernment cduld use variable export/import taxes. A domestic p_ice goal (i.e., a Manila refeTence price) could be set and th.en a variable export tax could be imposed that would be equal to the difference between the domestic price goal and the actual world price. The private sector could then undertake whatever trade would be profitable. Analysis of domestic market intervention shows that defense o6 the ceiling price has been more effective than defense of[ the floor price. Disbursements are determined by high prices, while procurements havQ not been concentrated where p_ices aL'e lowest. Domestic floor and ceiling prices are not t',:_Cinedwith respect to loca_ion, or rice grade for ceilii_] i_-ices. The recent redefinition of ceiling prices to allow _oc gL'ades may be unwieldy to administer, particularly if grades do not agree with consumer pre £e _e nee s. The difference between ceilin9 and floor prices has usually not been enough to allow private traders a reasonable return to storage between harvests, particularly now when capital costs are very high. Thus an important side effect of government market intervention was to replace some private storage with subsidized public Storage. Because intervention did not hold actual market prices within official price bounds, it was still profitable for private traders to store some rice. These results suggest that the government needs to reconsider itsdomestic marketing role carefully and to set limited explicit intervention goals. One alternative would be to set on.ly a reference Manila price that would follow world market trends. Domestic marketing costs would then determine other prices throughout the country. If the government wishes to maintain stocks, the intervention agency could purchase wherever farm prices are lowest and sell wherever retail prices are highest. In defining a domestic market strategy, the government needs to decide whether subsidizing marketing costs is desirable or feasible. If desirable, an explicit budget III.45
.
_
allocation to cover the stated goals of intervention could then be made, rather than financing operations from implicit capital subsidies. Given the sheer magnitude of the rice trade in the Philippine economy, it is likely that the government's role in trade will be small. Therefore the government needs to use its scarce resources to promote domestic marketing efficiency, instead of creating a segmented and inefficient market. In the long run all rice producers and consumers will benefit from the reduction of rice marketing costs. Investments in transportation and communications infrastructure, research to reduce post-harvest losses, and development of financial institutions will reduce marketing costs. The government's most appropriate marketing role is in these areas.
111.46
B.
POLICIES
FOR
THE
CORN
INDUSTRY
_/
Corn ranks second on to rice as the most important cereal consumed in the Philippines. About 21 percent of the population, mostly from the Visayas and Mindanao regions, eat corn as a staple food. Another major use of corn is as ingredient of feed rations for poultry and hogs. In the wet milling industry, corn can also be processed into starch, plus other by-products such as corn oil, bran and gluten. Some 3.3 million hectares are planted annually to corn. Total production accounts for 30 percent of all cereals produced. Avet_age corn yields, however, has remained low, i.e., around a ton per hectare. Low yield levels were primarily due to the lack of an adequate and effective technology i_._r_sfer strategy to reach small corn farmers. Over Lhe last five years, corn imports averaged 340 thousand metric tons per annum. These imports were in the form of yellow corn grain used as feed ingredients for the livestock industry. There is a well established structural linkage betweencorn feed and livestock demand. High corn prices translate to higher prices for meat and livestock products simply because commercial feeds of which corn is a prime ingredient, are a major cost component in livestock production. The rationale therefore for accelerating corn production centers on the _ollowing: (a) the importance of corn as a food staple; (b) the multiplier effects that corn generates for the livestock sub-sector; and (c) the foreign exchange saved through import substitution. The challenge ahead lies in the design of an appropriate and effective corn production program that is responsive to the needs of the majority of corn producers. Needless to say, the program strategy should be one under a policy environment which provides incentives to the small corn farmers, who form the majority of corn producers, to be more productive and efficient. In this regard we need to understand the corn industry, assess the current corn program and the constraints that impede its growth. We also need to evaluate the economic efficiency of corn production to determine whether proper incentives at farmers' level are present. It is only through this background assessment that we can recommend future policy directions for the Philippine corn program.
III. 50
I.
The
Corn
Industry:
A
Profile
The corn industry is generally characterized as a subsector composed of a majority of small farmers using very low levels of inputs and traditional farm management "practices. From the farm, the marketing of corn is generally handled by middlemen and wholesalers/retailers who are also involved in the rice/food marketing chains. White co_n is consumed as food but when yellow corn supply is scarce it can also be used for feeds. Although the major corn producer is Mindanao, direction of the National majority of the feedmillers I.
PrDduction
Table
23
shows
and the
the trade flow goes to Capital Region (NCR) where are located.
the the
Hectaraage total
yield for the Philippines. from the Mindanao regions. Mindadao accounted for 65
corn
area,
production,
and
The bulk of corn produce comes In 1985 the four _egions of percent of total production and
53 percent of area planted to corL% in the Philippines (Table 24). Prom CY 1946 to CY 1986 total corn production increased by more than eight times with an annual growth rate of 5.5 percent. These increases were due mainly to expansion in area harvested Father than improvements in yield. While total area harvested to corn increased by 3.8 percent annually, during the same period, yield increased by only 1.6 percent yearly. 2.
Corn
Utilization
The supply-use for corn is shown in Table 25. As mentioned earlier, the major usage of corn is for food and feed. During the rice importing years (1970-1976), slightly over half of total corn supply was used for food. However, during the rice self-sufficiency years (1978-1982) the share of corn for food declined to 41 percent. The utilization of corn as feed, however, steadily increased from around .32 percent of total supply in 1969/70 to over 50 percent of total domestic use in 1985. Total corn importation for the same period accounted for about 5 percent of total supply on the average. The crop year 1982/83 had the highest corn import of 406,000 mt which was II percent of total corn supply. Demand studies (Bouis, 1982; Bondad, 1982; Regalado, 1984) for corn in the Philippines showed that the income elasticitF for corn as food is negative. This implies that corn is an inferior food, and therefore, as a general rule, its consumption will decline with increases in household incomes. As feed, however, the income elasticity of demand
III.51
Table
Crop
23. Corn area, production CY 1946-1986,
Year Ending June 30
Area ('000
i--_6 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 • 1959 1960 19 61 1962 1963 1964 19 65 1966 19 67 1968 19 69 19 70 19 71 1972 1973 1974 19 75 1976 19 77 1978 19 79 1980 1981 1982 1983 1984 1985 1986
and
Total
ha)
yield,•
Philippines,
Production
Yield per Hectare (mr)
('000
mt)
571.09 ................................. 331.26 :......... _.5-6 812.30 472.19 0.58 826.49 519.01 0.63 866.20 534.07 0.62 909 .•00 573.73 0.63 95 3,17 603 .•19 0.63 1043.97 761.87 0.73 1101.25 709.48 0.64 1120.00 780.90 0.70 1388.40 770.13 0.55 1674.80 907.38 0.54 •1786.79 895.36 0.50 1380.62 852.07 0.62 2106.98 1015.91 0.48 1845.54 1165.27 0.•63 2•045.46 1209.56 0.59 2 01 6.27 1266.27 0.65 1949,51 1272.85 0.65 1897.57 1292.71 0.68 19 22.72 1312.68 0.68 2106.08 1379.83 0.66 2157 .•95 •1489.95 O. 69 2247.86 16.19.•15 0.72 2256.14 1732.83 0.77 2419.60 200..8.21 0.83 2392.20 2004.98 0.84 2431.70 2012.61 0.83 2325,41 1•831.13 0.79 2763.04 2288.70 0.83 • 30•62.45 2568.38 0.84 3256.98 •2766.81 0.85 3320 .60 2843.42 0_ 86 3222.10 2855.16 0.82 •3252.43 3090.26 0.95 3201.•07 3122.79 0.98 3238.69 3•109.68 0.96 •3360.70 32•90.18 0.98 3157 .•48 31•25.89 0.99 3.270..21 3346.24 1.02 •33••14,58 3438.76, 1.04, 2343.57 2866.97 1.2•2
¢:
Source:
First semester •estimate _ Bureau of Agriculturai
of crop year Economlcs.
III.52
1985-86.
Table
24.
Regional ranking .in corn crop year 19 84-85.
Rank
Reg ion
production,
Product ion (million cav. of 50 kgs)
Are a ('000 has)
22.16
767.01
I
Southern
Mindanao
II
Central
Mindanao
14.82
513.88
III
Cagayan
Valley
6.50
314.96
IV
Southern
4.62
242.47
V
Eastern
Visayas
4.44
199.30
VI
Central
Visayas
4.27
483;20
VII
Northern
Mindanao
4.00
222.49
VIII
Western
Mindanao
3.45
261.88
Tagalog
IX
Bicol
2.31
160.84
X
Ilocos
1.38
72.10
XI
Western
Vi sayas
0.67
67.63
XII
Central
Luzon
0.13
8.82
68.75
3314.58
PHILIPPINES
Source:
BAEcon
and
NFAC.
III.53
for cOrn was l?ositive (Bondad, 1982), implying that as inco_nes of. feed consumers (feedmillers, livestock raisers) increase so will the demand for feed corn. The livestock indusl_:,:-y;;l_e. cefore has a strong effect on corn feed demand not through livestock prices but through the livestock produc:'7[orl units. 3,
Corn
Prices
Over the past decade, the Philippines had pursued a wide range of pricing policies at the commodity levels. These policies carl be divided into two broad categories. Firstly, those which al.-edesigned to maintain stability or limit increases in l-he cost of living. The second category r_fers to prices designed to maintain minimum prices to producers. Corn p¢ice interventions up till the mid 1980s were implemented by the National Food Authority. From 1985 to the present, price decontrol was pursued as a policy for most of the foodgrains. Theoretically, if there were no price interventions, there should be no divergence between domestic prices and border prices. Market interventions ca0,be measured by using the nominal protection rate (NPR)'/-- congept which compares the wedge between domestic and border prices of the output. A positive NPR implies protection and therefore an incentive to expand the production of a commodity. The opposite however holds true with a negative NPR. A cursory look at wholesale domestic and imported (border) prices of corn from 1971-1985 showed that yellow corn output on the average was protected by 13 percent. The protection rate was highest in 1985 at 47 percent when world market prices of corn slightly dropped but with no corresponding decline in domestic prices (Table 26). A 47 percent NPR implies that domestic producers of yellow corn were getting 47 l)ercent more than world market (CIF) price level and therefore an incentive in the expansion of yellow corn production. Without pri_e adjustment accounted for by quality, the NPR of white corn for the same period was close to zero. Although the NPR was also highest in 1985 (34%), a consistent pattern of protection was hard to establish for whi1:e c.orn (Table 26).
.[f:[.The
Corn Production An ass-es-_en_
P_ogram:
The corn production program of the Philippines was originally patterned after the rice production program of the 1970's. It was conceived with the following objectives:
III.55
_able
26.
•Comparison of border and wholesale and yellow corn and nominal coefficients, 1970-1985.
Year
Aver__e
wholesale pr--I ces White _ Yellow (Pdw)
(Pdy)
CIF border price a/ (Pb)
prices of white protection
Nominal protection coe ffioient _ White Yellow (Pdw/Pb-i)
(Pdy/Pb
............ :==::=:== ......... 1970 19 71 1972 1973 1974 1975 1976 19 77 1978 1979 1980 1981 1982 19•83 1984 1985
360 600 540 620 898 904 885 i010 1003 1028 1183 1374 1443 1570 2670 3360
- i)
-380 670 640 730 1040 1097 1224 i000 1194 1170 1408 1595 1593 1780 2920 3680
5•82 720 750 1201 1035 978 918 930 942 1258 1609 1209 1649 2878 2505
Ave rage (1971-1985)
3 -25 -17 -25 -13 "10 i0 8 9 - 6 -15 19 - 5 --7 34
15 -ii - 3 -i._ £ •25 9 28 24 12• - 0.9 32 8 1 47
- 0.4
13
a--/For 1970 to 19••85, the average CIF price for corn imported fPom the U.S. and Thailand were used. The border •prices were converted into peso value using the following exchange rates: 1970, P0.59=$i; 1971, P6.4=$i; 1972, P6.7=$i; 1973-1974, P6. 8=$•1; 1975, P7.2=$I; 1976-1980, P7.4=$I; 1981-1982, 98.4=$1; 1983, Pll.l=$1; 1984, P16.7=$I; 1985, P19.0=$I. Source
of
b_sic
data:
BAEcon, NFA, and Foreign Statistics, NCSO.
I 'T.S6
Trade
i. tO support stock subsector
the expansion of the com.mercial by reducing feed input costs;
live-
2. to save foreign exchange by imports and become corn exporter;
eliminating
mounting
3. to provide an adequate eating populatzon, and
of
the
#
4.
to
improve
supply
food
to
corn
•
the
farm
incomes
of
corn
producers.
Since its inception in the early seventies, the present corn pL-oduction program of the Philippines has taken several structural configurations. It started in 1969 with the launching of the "National White Corn and Feedgralns Program" under the National Food and Agriculture Council ([qFAC). This program included not only corn but soybeans and sorghum. The p_ogram stressed the production of white corn for food to complement the food self-sufflciency program of government during the period. Until 1973, this program was centered on the major corn production/consuming regions of hhe Philippines. Operating under different program emphasis, it was hamed the "Ma saganang Maisan", "Maisan 77", and most recently, the "Maisagana Program", the "Expanded Yellow Corn Production Assistance Program" and the "Expanded Corn Program." All these programs had the major objective of attaining corn self-sufficiency• We are to date sel f-suf ficient in food corn but still import a sizeable volume of yellow corn for feeds. Perez (1985.) lists several reasons for the limited successes of past corn production programs. i. Lack of ada___uat_e technology. A1 though new h-rgh yieldl-_g -_T£1es have bee-n-developed, efforts to _ombat corn borer and downy mildew were not successful. 2. not
Lack of credit. The loan package offered was suffi"_czent to enable the farmer to apply the recommended package of technology for high yielding varieties. Under Maisan 77 only about 12 percent of cooperating farmers can avail of credit sfnce most rural disqualifled arrearages.
banks from
in pr/ogram extendlng
loans
areas due
to
were high
3. Inade_ quate.... manpower. There was a pronounced shortage of qualifie_-technicians to effectively supervise the farmers. From 1973-1976 the technician-farmer ratio for corn was as high as one technician to 250 farmers.
III,57
4. Low government procurement
price and hi_[h cost of support prTces were gave priority to rice.
marketing. rn_-force,
While NFA
The current Maisagana program was superior in design than previous programs because of the supposed presence of the basic elements of technology, inputs, credit, extension, marketing and procurement and program organization and management. The present program however has also failed in attaining self-sufficiency in corn because of the lack of a synchronized and consistent policy of program implementation aggravated by natural c_lamitles such as all:ought. Product ic)n ill the corn sub-sector is composed of 75 peccenl: white corn, produced by small farmers from the open-pollin_.l(:ed varieties. The program focus should be the small :fa_.-me_:s, i.e., through technology adoption of impcoved open--pollinated corn varieties. The proliferation of big pL_ivate seed companies (e.g., Cargill, Pioneer, San Miguel, Pacific) however in the Philippine in the 80s, affecLed the direction of the Ma isagana program. These companies p_-ovided financial incentives to seed dealers and government extension workers to push for the hybrid varieties. It was observed that despite the push on hybrids, only very large farmers could afford to adopt the technology. Because of the low resource endowments of the average corn farme,;s, it is estimated that not more than 10 percent of total corn area would be devoted to hybrid corn in the next five years. The failure therefore of P-he currenh corn program centers on its inability to reach out and cater to the needs of the small corn farmers. The primary need of the small corn farmer, in addition to the other padkage of that accompan_ies the corn program, is access open-pollinated corn seeds.
technology to improved
Since majority of the small farmers are white corn producers, in the very short _un the transfer of improved open-polllnat@d white corn seeds should be the immediate priority. This will build confidence among small producers who are used to .producing white corn for food and feed. Also at this point, the role of technology research, not only breeding for pest and disease resistance but also for improvement in grain quality, better drying to minimize aflatoxin poisoning, and postharvest handling should be recognized. To encourage the distribution of OP corn varieties, consistent policy on seed distribution should be spelled by the government to encourage the participation of both and small private seed producers in the program.
III. 5 8
a out big The
production of the foundation seeds should be initiated by the government but the multiplication of quality certified seeds for distribution to the farmers should be left to the private sector in the long-run. i.
Seed
and
self-sufficienc_
To illustrate our point on the major role that improved OP corn can play in attaining corn self-sufficiency, we did a desk calculation of the impact of the substitution of old traditional varieties to improved OP seeds on production and self-sufficiency. Our analysis centered on the old-new improved OP seed distribution a,nong the white OP corn farmers simply because they cover more than 75 percent of the total area and their average yield has remained low at 0.94 mr/hectare for the past several years. (We recognize, however, that a more comprehensive analysis should also include the old-new OP seed substitution among the yellow OP corn farmers. Of the 647,147 hectares planted to yellow corn in 1985, less than ten percent were occupied by hybrids and perhaps, a slightly higher percentage by IPB Vat i, an improved yellow OP variety. The traditional OP varieties are still the predominant type of cultivar being used by yellow corn farmers. Our desk calculation is admittedly very simplistic. We have not, for example, included in our assumptions the dynamic substitution in hectarage from white to yellow corn. The yellow corn hectarage can be further delineated into OP yellow and hybrid. Given their differences in yield, their respective impact on total supply can be estimated). We believe that technology adoption among yellow corn farmers is slightly more advanced than white corn producers and thus conservatively assumed that yellow corn yields will progressively grow at 5 percent per annum from their 1985 level of 1.5 rot/hectare. We also projected demand until 1995 usi,g the 1970 to 1985 data on production and import i.e., domestic demand will grow at around 4..75 percent per annum or an annual increment of 129,785 rot. Under these assumptions we projected selfsufficiency using three scenarios. Scenario I: use of improved OP seed alone. It is conssrvat1_-V-e-ly es6-i-m-a_-d that 0sing improved (OP) seeds alone even without change in the cultural practices among small white corn farmers will increase yield by 15 percent. At the average yield of 0.94 mr, an increment of 15 percent means an average yield of 1.08 rot/hectare. Scenario If" use of improved (OP) seeds with minimum adop£io-_of n[-np-uts. Th-is is a slIQ_ varl-a-tio-_o'f S-ce-'_o i in the-_ense that farmers are assumed to adopt
III.59
modern inputs (e.g., 1 1/2 bag of fertilizer) to barest minimum. Because inputs are. not employed at level, yield gains are assumed to be 50 percent than the incremental performance yield 1.30 mr/hectare under recommended technology (Scenario
the full less of III).
Scenario III: adoption of full recommended white corn tech_. Th-_-past performance _-f--the corn programs uslng seeds for 1982-1985 showed that white corn farmers with fiflancing had an average yield of 2.24 rot/hectare. This is an increment of 1.30 mt/hechare from the white corn base yield of 0.94/rot. 2.
Results
The projection showed that under Scenario I, the substitution alone of improved OP IPB varieties for old traditional seeds will provide an average incremental supply of 369 thousand metric ton but such gains in substitution will not be enough to cope up with projected demand. Thus the projected deficit Erom 1986 to 1995 ranged from 128,000 mt to 734,000 mt (Table 27). Scenario I implies that the strategy of switching traditional seeds alone into improved OP varieties although a necessary condition is not sufficient to attain self-sufficiency. In Scenario II, the calculations showed that under 100 percent seed switch plus minimum input adoptlon among white corn farmers, self-sufficiency in corn is not far fetched. At assumed constant yield improvement of 1.6 mr/hectare during the coming i0 years among white corn farmers, annual surpluses ranging from 1,243 thousand mt (1986) to 637 thousand mt by 1995 (Table 28) can be easily achieved. Finally, Scenario III, the most optimistic scenario likewise showed extremely high levels of projected surplus i.e., within _he 2 million mr/year range (Table 29). The above scenario analysis although based on desk calculations imply that self-sufficiency in corn productio'n is tenable if we adopt a realistic corn program. For example, over and above the current progr.am, we only have to target 29 percent and 14 percent, respectively, of total white corn area under Scenarios II and III if we want to achieve corn self-sufficiency in 1986 (Table 30). Each scenario projects a production target with the implied understanding that each target is accompanied by a we 11 thought of and we i I planned corn prog ram. The chall_nge is to work out a corn production strategy that combines the most cost effective alternatives given the very limited resources faced by the government. Because of the high prospects of attaining self-sufficlency in corn in the 111.60
Table
27. Corn production farms.
scenario
T. 100%
a/
USe of improved
b/
seeds
alone
for white
co_n
d/
c/
Corn-Demand
Yellow-647147.5 has Yield Prodn.
White-2636095 has Yield Prodn.
_stlma_d_ surplus (Deficit)
E stimatc seed requil_m0n_
(000 mr)
(mr/ha)
(000 rot)
(rot/ha)
(000 mr)
(000 mr)
(000 mr)
Average 1982-85
3637
I. 23
796
0.94
2478
(373)
52.7
1985
3784
1.50
971
0.94
2478
(335)
52.7
3994 4123 4253 4383 4513 4643 4772 4902 5032 5162
1.58 1.65 1.74 1.82 1.91 2.01 2.11 2.22 2.33 2.44
1019 1070 1124 1180 1239 ].301 1366 1434 1506 1581
1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08 1.08
2847 2847 2847 2847 2847 2847 2847 2847 2847 2847
(128) (206) (282) (356) (427) (4951 (559) (621) (679) (734)
52.7 52.7 52.7 52.7 52.7 52.7 52.7 52.7 52.7 5"2.7
level
Projected: 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 _
. .....
a--/Based on constant
_--_low
corn yle_d
increment
was
of
:_
-.
129,785
mr.or
assum,ed to increase
_/Straight shift of traditional, varieties gain of 15 percent of the current yield, i.e., tal yield of 0,14 mr/hectare.
white
_/Differenoe corn.
e/For
Basic
between
projected
OPwhite
corn only,
of d_t
B_E_
and NFAC,
souroe
using
III.61
:
......
4.75 percent
5 percent
..
per
annum
progressively
from
1971-_9£
in yield
per an_
to improved 0P varieties with average yie from 0.94 mt to 1,08 mr/hectare or incre_
corn demand
improved
.
and the projected
a seeding
rate of 20
production
kg/hectare.
o_ yell_w
a
b_e
28.
Corn production scenario II: 100% use of improved adoption of inputs for white corn farms._
0P seeds
with
minimum
L i
Demanl
647147.5 Yield
(000 mt)
(mt/ha)
erage 9_2-85
363"I
1.23
9_5
3784
3994 4123 4253 4383 4.5].3 4643 47"72 4902 5032 5162
level
has Prodn. (000
2636095 Yield
mt)
has Prodn.
Surplus (Deficit)
(mt/ha)
(000 mt)
(000mt)
796
0.94
2478
(373)
1.50
971
0.94
2478
(335)
1.58 1.65 1.74 1.82 1.91 2.01 2.].1 2.22 2.33 2.4.4
1019 1070 1124 I180 1239 1301 ].366 1434 1506 1581
1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60
4218 4218 4218 4218 4218 4218 4218 4218 4218 4218
1243 1165 1088 1015 944 876 812 750 692 637
r_jected: .986 .987 .988 989 990 991 992 993 994 995
_/Minimumuse of modern inputs such as fertilizer and insecticides. _/Based _rom
on constant
increment
of
129,785
mt or
4,75
percent
per
ann_i
1970-1975.
q/Yellow
corn yield
was
assumed
to follow
around
to increase
5 percent
progressively
per
a_numo _/Assum_d
_i10_¢improved OPo a yield increment
This is an equivalent of 0.66 mt/hectare.
e--/Differ_noe be_eenproJe_ted Ji= source
of data_
50 percent
BABoon
demand
of actual
performance
increase
from
and total
produatlon.
and NFAC.
Ill.62
increment
of
0..94 to 1.60 mr/hectare
Table
29, Corn production technology.
scenario
IITz
100%
adoption
of recommended
bl
_hite
corn
I
Yellow--
/
Demand
_47147.5 Yiel_
has Prodn.
J 2636095 Yield
has i_ Prodn,
Surplus (Deficit)
{000 rot)
(rot/ha)
(000 mr)
(rot/ha)
(000 mr)
(000 mr)
Average 1982-85
3637
1.23
796
0.94
2478
(373)
1985
3784
1,50
971
0.94
2478
(335)
1986 1987 1988 1989 1990 1991 1992 1993
3994 4123 4253 4383 45].3 4643 4772 4902
1.58 1.65 1.74 1.82 1.91 2.01 2.11 2.22
1019 1070 1124 1180 1239 1301 1366 1434
2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24
5905 5905 5905 5905 5905 5905 5905 5905
2930 2852 2776 2702 2631 2563 2499 2437
1994 1995
5032 5162
2.33 2.44
1506 1581
2,24 2.24
5905 5905
2379 2324
level
Projected:
, , ,
L
h/Based
on constant
increment
of
129,785
mt or 4°75
percent
per
annum
from
1970-198_
b--/Xellow corn yleld was assumed to increase progressively at 5 percent per year° _Assumed to follow the yield performance of improved OP yellow variety at reco_,en6 ilevels of InpUt. Autual realized yield is equal to 2,24 mt/hectare while the baseyield was 0°94 mr/hectare or an incremental yield of Io30 mt/hectareo
d/Difference
Basic
source
between
of data:
projected
BAEcon
demand
and total
and NFAC.
III.63
production.
near future, the long-term policy generations problem in corn production section.
Ill.
Com_ra
government at this stage should provide directions to minimize future second in corn production. Long term direction is partly discussed in the subsequent
___ t ire Advantage and Lonq-Run of Corn prod-u_i_n -
Viabi i ity
The long-run viability of corn production in the Philippines would depend to a majo_ extent on whether or not we have comparative advantage in producing corn. Comparative advantage is loosely defined here to mean positive gains in economic efficiency. There is comparative advantage in an economic activity if the social benefits generated from the activity far exceed their social costs. Operationally, we can interpret the meaning of comparative advantage by using the concept of domestic resource cost (DRC). DRC is defined as the ratio of the domestic factor costs used in production and the border price of the output minus t1._adable input costs. domestic costs in shadow prices per DR C= ..................................... _border price of output minus foreign in borde_ prices Our regional production assumed
comparative three basic
unit
of
output
cost
per
unit
advantage analysis trade regimes:
• of
corn
a, Import substitution. Each of the Philippine regzons zs assumed to be importing corn. The border price used is the adjusted CIF value at the wholesale market of the said regions (Table 31). The production costs included transport/handling costs from farm to the major wholesale market of each region (Table 32). D. Import substitution with interregional trade. H-ere we traced the _terregi0nal trade pattern (Figure 6) among regions with corn suppliescoming from the major corn producing regions to deficit regions. The border price used was the CIF a,djusted border prices of corn at the wholesale market of the importing region. The cost of production includes primary farm costs, transport/handling costs from farm to major market outlets of the producing regions plus the added costs of transporting/handling to the major market •centers of the importing regions.
III.65
TAble
3_,
Bo_der p_£ces uead l_ regional _eg_nes,. PhLl_pDlnes e 1996,
R_g£on
Trade -_egtme8a-_/
D_
Dorde_ P:toe:,r
analys£s
under
diffezen_
..Y_O_-T_adlnq N_Iees_S Ma=ket
_rade
CanCer_ Pc_:
(_/mc)
ilocnS
_s
102.17
ZS/ZW_ EP
182.17 112
Da_pan
La UnkQn
CaSayan
Valle¥
IS IS/IRT _P
197.24 179.22 lla
_quegarao
_a un£o.
C_n_ral
Luzon
ZS IS/I_T [_
195.98 195.90 112
C_ban_uan
Ha,lie
SouCho_n Tn_aloq
_5
179.22
ZS/IRT BP
179.22 112
ea_anqae
Cl_y
D_ang6e
Is
183.69
Biao£
ZS/IRT E_
183.69 112
H_g_ City
Lega=pl
Western Vlsayaa
IS IS/ZRT EP
179o22 179.22 112
Ceb_
Cebu
cenbral "'lua_a8
IS ZS/ZRT zP
179.22 179.22 112
Zlo£1o C_¥
Iloilo
Eastern Y£sayal
ZS ZS/ZRT EP
179.22 179.22 112
Tacloban
City
TaQloba_
IS
179.22
IS/IRT EP
_9.22 112
Zamboanga Clt_
Zamboanqa
Halaybalay
Cagayan de Oro
General Santos Ci_y
General Santos
Kidapawa_
Co_)ac_
Westa_Rindanao
Hortho_n
Hindanao
Sou_he_
Hindan_o
Cent_a_ Hind_nao
IS
182.65
ZS/_RT EP
182.65 I12
Zs
L79.22
IS/IRT EP
17%.22 112
ZS
106.29
IS/IRT EP
179.22 112
Ci_y
_/T_ade •IS
rog_mnn; - lmpor_ sub_tlcu_lon_ as,u_s _ha_ ,11 r_glons are Importin_ corn. _/Z_ _ _nor_ e_b.t_u_Ion piu, _nterref_onnl trade. Under a_ iaQ.m:b ,ubuCltut_on b_ada raglmo bu_ thu ,taJo_ co_n 1:_oduoing Eogionl _uppl_ earn _o.dof_olt rOglon, via in_0r_,g£onal _.3_ad.. m oxl_:t promot,,£cm, _a_h regioh ks _le_d _o be a po_en_;l earn ex_o_oE.
b-%/,ndar _S _,d zs/zr_ t=_e CZF 9_'it_eu t_ relevant marketing price ue_l vaa _he FOB 'prio_ at Sou_oe_
rag_ea, _a _o_er _r_oos channels, Undo= BP t_.4o the US GulE Port.
Gonzalee, eb el., Regional Agricultural Development 8t:a_aqy fo_ _he Ph£1ippines_
I II.66
_=a the _e_u_ce_ regime, the border
Dive_sificatlon as an AltecnaCive 1986 (forChoom£ng).
Table
32.
Marketln9 1985.
Trade
Assumption_
_/
costs
for
corn by
Transport IR IS
region
and by different
trade
Warehousing and, HandlSn_ Coe_ J IR IS EP
Cost _/ EP
P/m_
IIooos
regimes,
Philippine:
Total IS
IR
_F
............................
45.40
45.40
98.62
35.80
35.80
65.80
81.20
81.20
164.
Cagayan
Valley
409.20
33.00
432.36
39.60
29.60
59.20
448.80
62.60
491.
Central
Luson
96.00
96.00
467.20
33.80
33.80
84.00
129.80
" 129.80
551.;
Southern
Tagalog
435.20
96.00
120.00
45.00
33.80
70.40
480.20
129.80
190.t
33.00
33.00
121.16
33.60
33.60
97.40
66.60
66.60
210._
Biool Western
Visayas
61.00
61.00
81.30
31.60
31.60
64.60
92.60
92.60
145.c;
Central
Visayas
72.00
72.00
96.00
31.60
31.60
64.90
103.60
103.60
160.9
Jastern
Visayas
163.69
60.40
80.60
107.40
3_.80
74.10
271.09
99.20
154.7
Western
Mindanao
134.85
29.60
39.60
101.60
33.60
68.30
236.45
63°20
107.9(
Northern
Mindanao
29.60
29.60
96.27
30.80
30.80
63.80
60.40
60.40
160.0
Southern
Mindanao
193.31
54.40
66.80
99.80
32.60
66.50
293,11
87.00
133.3(
289.31
29.80
178.03
95.10
32.60
61.80
384.41
62.40
239.8[
trade
assumption
Central
Mindanao
--a/under the
interregional
_IR), these
costs
include
farm
to wholeshl0
transport, warehousing m_dlhandling costs for deficit/importing regions; for surplus/export _eglonsr these Jmolude fajsn to wholesale, wholesale to port and port .to wholesale market co of the importing _eglon° On the other hand, under import substitution trade assumption (IS these include only f_1_n to wholesale costs for all regions while under export promotion (EP it includes faz_: to _clesale plus wholesale to the port of exit costs. For trade flows, r to Figure 1.
farm
b/Transport cost to wholesale.
includes
freight
C-/Warehouslng
hen_ling
cost
and
ch_ges
between
includes
storage,
two different
loading
and
points
unloading
of trade,
fee
e.g,,
and port
charges.
_
as an Alternative
_lll
Gonzales, et el., Regional Agricultural Diversification strategy for the Philippines, 1986 (forthocm/ng).
111.67
Seuroez
Develop_
"
__gu_e 6.
Corn major trade flows from surDlus to deficit regions_ Philippines.
Producing Regions
.
Deficit Regions
,i,
i
i
i,
Iiqcos Region * (Dagupan CiCy) Cagayan Valley
........
Southern(BatangasTaga|Ogcity), "_ ,
,
_
,
•"
.
_|
_ ..
L. _ ......
.
(Divisoria)
I
l
Eastern Visayas_.
Bicol Region * City) Western Mindanao
l
"
(ZamboangaCity)l_
_ (lloilo City)
--_--, Southern Mindanao
I
. __
Western Visayas
Central Visa,yas (Cebu City) _ CentraIMindanao. (Kidapawan,Cotabato
c ty)
I_ |
I
"
"
t"
"''_ I
Northern Nindanao * (_.ia IaybaIay ) .
* Minor Trade routes III;68
l
ii
l'
i
c. _ promotion. This trade regime tests the v{ability of the philippines as a potential exporter of corn. Production costs included were those at the farm plus transport/handling costs from the farm of the producing region to the major international port for export. The border prices used were FOB levels comparable • to FOB corn prices at the US Gulf ports. The financial and economic indicators from the DRC analysis by region, by p,roduction technology under different trade regimes are shown in Tables 33 to 35. Table 33 summarizes the financial and economic indicators by region and trade • regimes of white open-polllnated corn technology. Except for Eastern Visayas, the net financial profit at both farm and wholesale levels were positive for all regions under import substitution and interregional trade regimes. The same was true for the net economic profit and the financial and economic value added of white open-pollinated corn production. The calculated DRCs were generally lower than the shadow exchange rate of the peso across regions and reade regimes ilnplying that the Philippines c'an gain economic efficiency in domestically producing white OP corn (Table 33). For the yellow open-polllnated corn technologyp the DRC estimates are shown in Table 34. Under both the import substitution and interregional trade regimes, the DRC estimates, with the exception of Western Visayas were relatively low, i.e., the DRC/SER ratios were less than one implying a comparative advantage of domestically producing OP yellow corn in contrast to corn imports. With the exception of Bicol and Central Mindanao the export potentials for yellow OP in Ilocos, Caga yan Valley, Central Luzon, Southern Tagalog and Western Visayas were not as robust as shown by the greater than one DRC/SER ratio (Table 34).• For the yellow corn hybrid technology, the financial and economic indicators ace shown in Table 35. With the exception of the Eastern Visayas region, there is _iso economic efficiency in domestically producing yellow corn hybrid in contrast £o importation. The analysis also showed the tremeddous potential of yellow hybrid corn as an export in the major corn producing regions such as the Cagayan Valley, the Mindanao regions and Western Visayas (Table 35). At an assumed FOB price of US$112/mt, we ran a sensitivity analysis on the minimum levels of technology (yield) that can sustain comparative advantage for corn export specifically for the OP yellow and hybrid yel,low corn technologies. The results showed that the breakeven yields III.69
Table33.
Ftnanolal and eoonomtc indicators regtme% PhJlJpptne% 1985.
_egto._
Tr.do_
for
corn, whl_ej open-polltnatedj
,_b_J
• Regimes
Farm
,_
Whole=ale
illoco=
v.l.o^dde_ Ftnanotal
.................. -
Wha
by regtonj
by d_fforent
CpR_
trado
OReo_c/s
EoonomtO
.................. -
(_)
C_gayan Valley
IR/I5 IR IS
2538 1953 1953
_111:1 3176 3031
1602 •1278 2375
7761t 7067 7323
5576 5112 5875
39,23 38.21_ 2t_.6t_
13,27 1_.25 11.32
0.50 0.62 0,50
C_ntral Luzon
IR/IS
1889
5226
2981
9522
7_25
"28,25
11.37
0.50
S_utlmrn Tagalog
IR IS
1987 1907
55a_9 6352
2035 2703
9970 10282
6355 6612
56.90 55.50
1 2.92 11.23
O.57 O.t_9
3tool
IR/I$
1266
3762
2020
6569
_8_7
35.5_
11,05
0,_8
t_stern V] sayas
IR/IS
2278
335_
2217
6992
586t_
19.23
11.82
0.52
:ept;ral Vteayas
IR/I5
601
15_,1
620
3210
2302
39.70
13.88
0.61
:a_tern VI sayas
IR 15
-187 -107
1108 1252
66 196
3655 3690
2629 2657
39.05 38.85
18.52 17.60
0.81 0,77
e_tern Hfndanao
IR IS
260 260
1327 14_t8
_86 595
2977 3006
2132 2157
39.60 39.39
14,67 13.76
0.6_ 0:60
12157
0.55
IR/IS
983
1296
1330
3891
3927
-0.92
)IthernHIndanao
IR IS
2189 2189
_61_9 5096
2125 2519
8899 9020
6335 61_35
40._8 _0,17
12.63 11,56
0,55 0.51
m_:ral Ht ndanao
IR IS
11_6 11_6
31_15 z_O06
1335 2078
7205 7396
5073 5t_65
=_2,02 35.32
1_,00 11.78
0,61 0,52
/
olthern
Htndonao
I
a--_rade regSms; IR _ tnterregtonal trade IS = import =ubstttutton _,EP -export pro_tlon = net if]nancjal profit. _.EP = net eoonomt¢ profit. • -g_PR = effeottv° proteot:ion •
rate.
.
°,.,,o.,o°.,
the Phi 1t ppt nes= 1986 (forths-oat ng).
....... • ..
..
....
.
=vo.,,,=.,o.°.^,,r..,vo o..,o,o.,, III,70
Tablo
34_ Fiamnc_al and eoonc_lo Indt©ator_ for oo_, yellcu, op_-pollln,_ed o by region, by dlffiPen_ _rade regfaml, Phll|pplnos0 1595.
Region6
Trada_ hglml
_ Faro
WP_ tilmlo.la
Y4LUa Added Flunolll [_uml e
I_R
_C
DitCISER .
IR/15 I_P
IIoaoe
642 642
ptM ...................
|
(_)
2520 2386
997 *1255
6647 $512
S143 2983
29.24 1|!.70
15.32 |6.98
0.67 1.18
IR
324
IO90
218
300.8
2965
30.95
17._0
0.77
C4gayU V4110y
IS i_
384 324
1463 1048
6GO -I0_
q028 3073
3416 1?23
17.91 124.90
14,2| 30,63
O.G| 1.34
C4n(;raI I.u:cm
IR/I5 (P
-49 -49
5480 3571
2432 -_15
17968 17294
14911 7125
20.50 142.70
15.90 36.11
0,?0 t.SO
Sould_ornI%9olog
nlc°t
W4,tarn YJsayas ¢4nC:fa I Yl :lOyd&
IR
930
3102
847
7368
4971
48.83
15.76
0.69
15 FJ_
938 938
3775 3573
1341 -SiS
7598 7582
5101 2986
47,22 133.90
14.06 24,83
0.62 1,09
IR/I$ EP
1492 149|
3307 3146
ZoIl *347
8:141 61Lq
4859 2059
_8.44 131.80
11.13 21.47
0.49 0.94
IR/I5 F.P IR I$
-778 -778
-511 -$43
-775 -1569 " *
$141 2136
1690 1131 " "
13.81 88.92 " "
ZGl?0
1.17 1.99
16
•
"
v
"
Eastern YJsa),as
15
.....
Western Hlndanao
la IS
-
-
.
w
o
45.37
" -
o
" " w..
•
IItJi5 F.P
853 -9
1392 268
1863 o1334
5109 3606
5838 2189
-8.3Z 73.88
12.79 )0.58
0.58 1,3_
$4uthern HIncllneo
IR IS (P
-5?9 -579 -57g
Soo 651 825
-297 -156 -1165
3199 3242 3238
2411 2447 1149
32,69 32.51 123.50
21,34 20_Z1 34.54
0,94 0.88 1,51
CMeraJ KinCbnao
lit 15 " EP
513 513 S13
2733 3205 2945
1327 1930 -360
$666 5810 5731
4220 4543 2403
34.26 13.02 28.07 10.93 1_11,40 21.84
0.57 0.48 O.G
Ik_rt:hern Hlndenaa
_:ado y._ ZS
:eg_oB, ,, .t_,_=_:u_jJ.ona3. bx'udo , _o::t: su_n_r.but_Lon
b-_H¥]_ - nab £1n_ac./.a.3, _££_,
Sautes
°_/N_
n net econm_,£oproE:Lt.
_/3P_
., e£_ecb£ve
p_t:ec;t;£o,
race.
Go_zelos, e_: at,, Rog_onel Agrleulburol O(versffloal:lcle es _n AII:ornal_Jv_ D_lopaIHt: ehe J_h|llpplnera_. 1985 (fort._:_lng).
III.71
5_raCeW fro"
Tab:Le
35_
F|n4natal
end eoonoafa lndfgata_'l
Phlllpplnel.
for
eorn_ ¥e11_
Reglms
Farm
l_m;elale
+
C408Yan V411oy
Luzon
b_rn
Taga]og
by r_lion+
by dtrforoh1:
1;ride r_llms,
Flnarm(i)
-
F_mncmfa
p/ha ...........
(_)
IR]I6 EP
307 297
1762 1658
551 -IZO_
5334 5307
4145 2460
28,68 115.80
1G.47 ;8.30
6,71 1,34
iR
4648
7439
4116
1K580
11140
30.6?
11.90
O_)
18 (P
4646 46_0
8786 7279
G4$0 -804
15110 14546
12782 8627
10.3| 110.50
9.41 20.45
0,_1 0,90
IH
-
"
15
....
i|ooos
C_tral
hybrid,
1888,
°
iR
"
"
.... w
61¢ol
v
°
w
,
lil/1$ (P
793 783
2502 2287
1197 -951
$91_ $86_
4626 ZSSZ
27.79 121.10
14.00 35.67
0,63 1.13
ffostern
VIsayas
IR_lS F.P
400_ 4082
5469 $302
4263 107
11362 11136
10104 GO62
12.44 06.36
10.80 18,67
0.40 0.82
Control
Vl&ayas
Ifl/IS EP
1037 1037
_$64 2500
IOIG -941
6117 6102
4574 3603
_.72 127._0
1_.76 25.67
0.6.5 1.13
(astern
Ytsayes
IVos_oro XIndanao
/_ork.h_rn Nl_14nao
,Sc)u t_e r*_ HIn6anao
Central
XIndanao
IR
-1704
-1170
-1841
2579
1953
33.02
38._1
t.63
15 F.,P
-1704 -1704
-1067 -1100
-1749 -3544
3603 3599
1974 1306
_1.91 115,50
35,8_ 5g.06
I.$7 2.$9
IR
397
1944
915
8327
5106
32,67
13.54
0.59
IS E_ s
297 297
2125 3070
1076 -296
4270 4366
3223 1869
33,54 125.90
13._5 22,00
0055 0,96
I1_15 I_P
3670 2670
_6_7 3389
4387 -459
9970 8879
10734 _103
-7,03 61.90
11,33 20.43
0.49 0,80
IR 18 EP
5021 5Q21 5021
12709 1385_ 1_595
7245 07.56 924
22579 38888 32060
IG979 17235 10135
32.98 33.80 125.80
Ip.89 9.90 17,27
O,q8 0.43 0.76
IR
1656
58?3
3098
11343
8456
32.96
12.04
0.53
15 EP
1858 1_58
6708 6221
4229 -6651
11529 11366
9062 .5049
27.23 125.10
10.13 19,7.S
0._4 0,84
_egiinon
a-_'_e
ZS,
-
lmpo_
b-/N_¥
-
neC
s
_ubotLtut_on
f£nano_alprof£_.
°--/_!_i_ - ne_ economic pro£t_,
brOil
GOAUIII_ ok el,. Regional Aorf_ltural ISle FhJl|pplnel_ 1986 (foPth_'_ing|,
Diversification
III.72
aa an Al_aroablveOeveln_nb
58ra_egM for
to sustain export comparative advantage under the OP yellow corn technology ranged from a low of 1.12. mr/hectare (Western Vlsayas) to 6.48 mr/hectare (Central Luzon). For yellow corn hybrid, the yield levels 60 sustain export comparative advantage ranged from a low of I.QI mr/hectare (Western Mindanao) to 4.39 mr/hectare (Southern Mindanao). Considering however the technology breakthroughs already attained on both yellow OP and hybrid technologies in the Philippines, these yield ranges are relatively low and therefore strengthens the sustainability of the relative comparative advantage of the Philippines in producing yellow corn for export (Table 36).
III.73
Table
36.
Breakeven yields of yellow corn production region to sustain comparative advantage in export, Philippines, 1986.*
Regions
Yellow
Hybrid
Yellow
-Ilocos
Open-Pollinated
mt/h
...........
I. 53
i. 86
Cagayan
Valley
3.19
1.24
Central
Luzon
-
6.48
-
1.82
1.58
1.50
Southe].-n
Tagalog
Bicol Weshern
V isaFas
2.61
!.12
Cent_.:;J1
Visayas
1.63
-
Eastern
Visayas
1.50
-
Western
Mindanao
1.01
Northe_'n
Mindanao
3.09
1.86
Southern
Mindanao
4.39
1.13
2.38
1.42
Central
*With
Source:
Mindanao
assumed
FOB
price
of
Gonzales, et Diversification Strategy for (forthcomlng).
by corn
$112/mt.
al., as an the
III.74
Regional Agricultural Alternative Development Philippines, 1986
IV.
On the we _ecommend
Recommendations
basis of discussions the ,following:
presented
in this
section,
I.
The focus .of a government sponsored corn production program should be the small corn producers. Since 80 percent of the hectarage planted to corn are composed of small-holdings of white corn •subsistence farms (using the traditional open-pollinated seed varieties), •targeting the needs of the small white open-pollinated corn farmers will have its maximum impact on equity especially in the alleviation o£ poverty among the rural poor. The unique farm management p cactices among majority of the corn farmers in the Philippines were the basic rationale in our argument for promoting OP corn varieties in general. Aside from cost consideration relative to hybrid seeds, small corn farmers usually recycle their own seeds instead of purchasing "their seeds every planting season.
2.
Since the white corn farmers are the most traditional in their farm management pr'actiges among the corn producers, it would be•desirable if immediate measures are taken in the very short run, for them to have ready access to the improved IPB OP white corn seeds. Access to and adoption of improved OP white corn seeds, will initially• develop • the confidence of small and subsistence corn farmers in, adopting the new corn technology.
:
3.
The slow rate of use and adoption by farmers of the new varieties • is by far the single most important reason, for the slow increase in corn yields. At present, less than 10 percent of total• •area devoted tO corn is planted to varieties (open-pollinated or hybrids) that were released during the last ten years. • Although the#e are several reasons why adoption of new •corn varieties by Small farmers has been limited, the major reason of non-adoptlon is the lack of an adequate and effective seed supply and distribution system. Through private initiative, hybrid seed production and distribution system has already been organized. Hybrid seeds are nov available in almost•all major growing regions in the country. However, t'he same could not be said in the case of open-polllnated varieties. The government therefore should encourage private seed companies With, seed processing facilities and existing marketing s_stems to engage in the production and distribution of OP seeds.
iII.75
4.
Considering the very l_mited success of government agencies (e.g., BPI) in the multiplication and distribution of seeds, private seed companles/growers should be allowed to obtain basic or foundation seeds directly from the breeding institutes to serve as the parental source of their certified seeds. This •shortens the time it would take seeds of new OPs to reach the farmers.
5.
A seed exchange program is a sure way of promoting the use of new varieties of corn and should be at least tried even on a limited (pilot) basis. Under this scheme, a farmer can be provided with good quality OP seeds in exchange for an amount of grain equivalent to the value of seeds. It is ideal to have the seed dealer serving at the same time as grain trader or dealer. The grain procurement arm of the government can enter into contracts with small seed growers and provide the mechanism for a seed exchange program.
6.
As in the other sub-sectors, the seed industry should be left to the hands of private sector. However, the government should take the primary responsibility in providing budget support for research in the generation and extension of technology specially in OP varieties. This includes, among others, varietal improvement, crop protection, technologies to minimize post-harvest losses, drying techniques and facilities to eliminate aflatoxin poisoning in corn. Private sector should be encouraged to pursue research and development of hybrid corn,
7.
There is strong economic logic in the domestic production of corn in contrast to importing the cereal. There is therefore economic gains in efficiency if we pursue a short-run objective of attaining self-sufficlency in corn. However, since there also appears a strong comparative advantage (at least for selected regions such as the Cagayan Valley and the Mindanao regions) in the production of corn _or export, it would be desirable to look further into the cost/benefit implications of encouraging long-term infrastructure investments for corn export. Although there exists a natural comparative advantage of corn production among these major producing regions, such natural competitiveness is necessarily diminished because of the inadequacies of post harvest facilities and marketing infrastructures that should facilitate the flow of corn from the surplus to deficit regions. Such Infrastructural inadequacies translate into lower farm gate prices received by farmers. Lower prices• act as disincentive to the expansion of corn production. 111.76
8°
Finally, the strong multiplier effects of corn to the livestock sub-sector justifies the encouragement of an efficient and sustainable feed corn industry. An efficient Corn production program implies a lower input production costs for livestock. Since the structural linkage betwee_ feed corn and livestock production is well established, it would be desirable on a pilot basis to identify regions in the Philippines with natural comparative advantage in corn productin to be tapped for feedmilling activities as well as livestock production. The feed-grain-livestock integrated production at the regional level if it becomes efficient will induce livestock exportation as a viable alternative development strategy.
III.77
-C_:. TH_
LIVESTOCK
AND
FEED
INDUSTRIES_
/
It is now fairly well documented that growth in the livestock industry in-the past has been made .possible through the importation of feedstuffs mostly yellow corn and •soybean meal •. This is primarily because the industry is dominated by poultry and swine production which are heavy consumers of these feed ingredients. As the government played a key role in this pattern of development, and in view of the current government reorganization, a decision on whether or not and in what manner the government should intervene in•the livestock industry is called for. The general po!icy direction •t.oward trade liberalization (e.g.,. the dismantllng of monopol.y powers of government entities l_ke the National Food Authority (NFA) and' the abolition of PHIL-BAI) is a step-in the right direction. However, tariff duties on poultry and feed ingredients remain high., giving undue cost disadvantage to local livestock • raisers• and ultimately penalizing consum_ rs. Thu poultry industrY started to develop, into a commeL'cial-, highly integrated venture in the early •sixties, • but it [,as remained uncompetitive in the-world market compared to Thailand'.s broiler industry which started ho develop only in the early seventies. •Thai producers• appear to enjoy some cost adv.antages over local producers, and this brings the question of. what the government shouid do in order to remedy this problem over the shor:t and the longrun. In thesame vein, domestic hog raisers have attempted 60 capture part ofthe Asian •meat market by.exporting live hogs to Hongk0ng, but t-he enthusiasm to•export-may be short •lived due to lack of government support. The ruminant •(.cattle and carabao) sector, on the other hand, remained • backyard in nature, .and beef continues to be the largest type of meat • imported for ..the country. Successful backyard feedlot fattening systems which produce qua.l fry beef comparable to the i_mported beef• remains localized in •certain areas in the co.untry and Ca_aba'o raising has t'ema'in_d ••oriented towards producing, work anima.ls. The other• sour.ces, of value added (meat and milk.) in •carabao raising which are popular in other countries remain untapped. All these"imply-that the government may have to; do more. in promoting the production of large ruminants in the country. In the rest of this section, we issues in the feeds-livestock.industries the agenda for. action for the sector.
III. 78
discuss.these Crucial and outline-briefly
I_.a"Industry
Profile
'_.he,il. lvestock in_us_L_ a_ _resent principally produces battle, ...... c_,.aoaos, hogs, and. chickens. These. animals are the main suD[_]iecs of meat and eggs in the economy with'the other: less popularly grown types like goat and turkey prov"J.dln<_ meat only-fo_ special delicacies and occasions. rJogs provide 60 percent of the total domestic .meat production" . ch'ickens provide 15 percent, and large ruminants 20 Percent. The country is relatively selfsufficient in chicken and pork, but beef is imported at an average of 4,500 tons annually.. Hog and' chicken production systems, most of which are located in urban consumption centers, are more commercially orient.ed than cattle production. Large c oinmercial ranches utilizing lan4 extensive systems a_e located in sparsely populated-areas where the opportunity cost of land islow. The main output of these farms are yearlings sold to backyard Eeedlot fatteners.to be grown into "finishers." Ruminant production .systems are not d_rectly linked to .the feedgralns/feedmilling industry as the bulk of the .feeds used consist primarily of, farm wastes ,with minimal oportunlty costs. Except for small amounts of corn which is used by large commercial raisers, m_stof the feedstuff used by backyard cattle bran.-ra_ers In are forage grass,leaves and rice contrast, hogs andipil-ipil chicken require high value _eedstuffs like yellow corn, soybean meal, fish inca.l, meat and bone meal, most of which are at present not produced domestically in sufficient quantities, Almost all of the soybean meal, £ish ,_eal, .and meat and bone meal are imported. In.addltioni more than 25 percent of the yellow corn required by the industry are imported. These four vital ingredients account for about 50-70 percent' of the total value of mixed poultry and hogs feeds. The feed milling ihdustry serving primarily:the hogs and poultr@ sectors is largely located around Met_.o Manila for two main reasons: (a). their clients are situated in these areas, and (b) the imported ingredients enter through the country's-premier ports in M anil_. There are .two associations of feedmillers at present - the .Philippine Association of Feedmillers (PAFMI) composed of about i0 large millers, and the Small and Medium Scale Feedmillers Associati, Oh (SAMEFA). Five of the PAFMI'members are integr_tors (i.e., they. produce chicks and feeds and engaged in ha.t<:h,_cy productlon, broller _towing," and processing) while ,_AM'}_[.'Acaters to independent hogs and poultry producers.
zz= !to!icy_ Issues i--
Tariff
on
Chicken
Importation.
Chicken receives tl%e highest taFiff pcotection rake and there i.s no other way for it but to go down not only because of pressures from the country's lending institutions but also because economic efficiency princi.ples so dictate. While the trend in" the nominal protection rate has been declining (Cabanilla, 1986) it is still quite high. This high nominal protection rate (around 60% in out" latest _stimates), while encouraging the growth of the poultr, y industry into a highly integrated e_nme _cial production syst,_m has penalized domestic consumers. However, the fact t ha t r_ .:.,_ in p .... _.nt protection level is still high is not, itself, an indication that the industry is technically less _ f f I,.. ie_1C I:h_n othec p_oduci ng countries like Thailand Rather;, _,J:::. .argue that it indicates that domestic producers • are sdbject 5o co_t disadvantages which do not affect other pro(]uc.e_:-s,, such as hl_e Thai. For example, feed conversion catio in the domestic broiler sector is comparable to about 2--2.5 for Thailand. The present protection rate, therefore, may be justified on the basis of these cost disadvantages that domestic producers face. As such, the issue that the present administration has to tackle is how to minimize or eliminate •these•disadvantages. An early solution to this problem will • have positive implication to the ind.u.shry's competitive position in the world market, and it should eventually lead to a decrease in protection rates and an increase in consumers' welfare. Two of these cost •disadvantages are high transport cost and tax penalties for imported feed ingredients which other foreign livestock raisers do not have to pay. In addition, cost of feedgrains (especially corn) is substantial. The situation therefore calls for both short and long-t era solutions. Removal of the tax penalty is a political decision and is shoF_-run in nature. The reduction of feed transportation cost and feedgrains production cost however, call for a long,run response. With respect' t'o transportat'ion cost, • the solution requires improvement in rural marketing infrastructure. With respect to feed cost, what is needed is a program of action to improve domestic product•Ion of imported ingredients, particularly yellow co_n and soybean meal which comprise 80 percent of the total value of feed imports. Improved corn but the same is Hybrid varieties planted by farmers volume) Indicate
technology is now available not quite• true for soybean of yellow co_n are now in and •studies (e.g_, see corn that the country possesses• III,80
to
the farmer production. fact, being paper in hbis ccAnpa_ative
advantage in corn production. This advantage must be exploited to the fullest to enable the domestic livestock raisers to avail of lower-prlced yellow corn. The present yellow corn production program is a move in this d}rectlon. In contrast technology development on soybean has not been as successful because of the limited research effort that has gone into soybeans. The country has imported around US $75 million worth of soybean meal yearly during the past 5 years, indicating that there should be significant return from increasing research efforts on soybean. Right now, it is much cheaper to import soybean meal than to produce it domestically. The other major components of feeds -- fish meal and _neat mild bone meal - do not have as good potential as yellow co_n and soybean with respect to their local /)rOc;klC:[LiOl'*. Indeed, tile demand for fish and meat for human cons,1,%,i.J.o,i is so high there is very little raw material ava:[labl,!; _or fish and bone meal production. This implies l:llal: l:heve is no comparative advantage in producing fish _ne_]. _nd meat and bone meal in the country. A decrease in l:he.i._" teL-ill is therefore called for. Our calculations indicate t_at given the present level of input and output [)rices, the broiler industry does not possess comparative advantage. However, it may be shown that when domestic feeds prices approach wo_id prices, the broiler industry becomes comparatively advantageous as indicated in Table 37. In addition, the long run effect of a decrease in feeds prices will be.a decline in the domestic price of chicken. 2.
Protection
on
the
Feedmillers.
Any protection for the feedmilli ng industry is a penalty on the livestock producers, which ultimately is passed on to the consumers of livestock products. Given the present structure of the feeds and livestock industries, it is possible that the protection system benefits some sectors in the industry more than the others. An independent livestock raiser who mixes his own feeds is affected mostly by the tariff rates and other pricing policies on feed ingredients. A small and medium scale feedmiller who sells mixed feeds to small independent livestock growers worries about the tariff on both feed ingredients and mixed feeds. High tariff rates on feed ingredients and low rates on mixed feeds will subject them to undue competition from foreign mixed feeds producers who may possess low cost advantages (e.g., they face the lower world prices of ingredients). On vertically
the
other hand, the large feed millers who integrated operations from grain production
III.81
have to
Table
37.
BROI LER
Comparison of DRC Price Assumptions
.ENTERPRIS
E
Estimates
for
DRC
Broiler
Under
Two
DRC/SER*
•Large
Farms
(A) 12
(B) 8.56
(A) 1,35
(B) .92
Small
Farms
13
6.10
1.46
,65
(A)
Assumes that domestic price•of chicken is than border price and domestic price of •23% higher than border price (i.e., under price conditions).
60% •higher feeds is existing
(B)
Assumes that domestic price of 25_ higher than border price feeds equal border price (i.e., feeds) .
more than price of tariff on
*
chicken is no and domestic• zero implicit
A D[<C/S_t_ ratio greater than one indicates that the induslcy does not possess comparative advantage while if it is less• than one, it indicates that the industry possess comparative advantage.
III. 82
broiler contract growing and processing would benefit from whatever protection is present in each of the production undertakings that it engages in. In addition, since they enjoy economles of size in terms of volume discounts and bulk storage and transport network, they possess a better co, pe titive edge over the small and medium scale feedmillers. As long all those in the industry face the same domestic prices, fair competition may be expected. However, dhe to structural factors, integrated operations may be enjoying undue advantage over the small-scale operations. A case in point is the trade policy on yellow corn and soybean meal. During the NFA monopoly days, all feedmillers and independent livestock raisers mixing their own feeds faced the same prices of yellow corn and soybean meal, but under the liberalized trade regime, only the large feed millers ace able to take advantage of the lower world prices. Small feedmillers and independent raisers who do not meet the minimum volume for one boat load of imported ingJ:edients are left with the option of buying from the large raillees or from independent traders. In either optio,], tl]e small feedmillers are at a disadvantage for two reaso,ls. Firstly, the small feedmillers will now face a higher price than the large millers because of the profit margin of the importers. Secondly, there is a danger that unscrupulous independent traders will sell adulterated ingredients which in turn entails strict (but usually hard to enforce) government quality control measures. To avoid put ting these small feedmillers at a disadvantage, it may still be necessary for NFA to import for them. This is particularly crucial for soybean meal because of the absence of domestic substitutes. A fair competitive position of the small feed millers vis-a-vis the large integrated feedmillers is a necessary condition for healthy competition in the industry. Without the small feedmillers, the feeds-livestock industry will be controlled by a few large integrators, making the industry more oligopolistic in nature. As it is at present, there are only about 5 large integrators engaged in contract growing who control the bulk of the broiler market. The contract growing scheme has created a captive market for their mixed feeds production, and, in the event that small and medium scale feedmillers are eased out from the industry due to unfavorable prices that they face, these integrators will dominate the feeds market while enjoying both oligopsony and oligopoly powers in the llve broiler market.
III.83
3. Yel low Co rn trad it-rio nal-F-6eds tu ffs.
Proo_r am
and
De_velo_p_ment
of
Non"
Traditionally, the main source of energy in livestock feeds has been yellow corn. Experience has shown however, that even after the hybrid corn technology and despite the extra land released for corn production from other crops like sugarcane, there has been a chronic shortage of yellow corn for the livestock industry. Thus the country had to import an average of 300,000 mt annually during the past 5 yea rs. Past corn production progr'ams have not been quite successful for several reasons, including low productivity and poor state of marketing infrastructure. It has lately beca, e apparent, however, that the most important reason ,is the government's importation of the wrong quantity of corn at tile wrong time. There has been several instances in the past when the NFA imported corn just about the time when the corn c_.-o}? is being harvested, creating serious marketing pr.'oble_._ for the domestic corn producers. Beyond the immediate economic effect, this has serious psychological effects on local growers who i,ay then be wary of particlpatin_ in improved corn programs to avoid the repetition of similar problems in the future. It may therefore be a wise move to ban the importation of yellow corn. This will create a more stable environment under which corn producers operate because it minimizes the risk of faclsg lower prices and unsold inventories. There is also a need to improve the marketing system in corn. The bulk oF. corn production in the Philippines come from Mindanao, and evidence presented so far indicated that it is relatively more costly to move corn from the South to Manila where the feedmilllng facilities are located than from Bangkok to Manila. The issue on the development of substitutes to corn (e.g., cassava) might in the medium term be side-lined as the country becomes self-sufflcient in corn. In fact, the use of cassava in feed mixing has been constrained primarily by the high domest.ic price (due to ,high implicit taxation) of proteih feeds like soybean meal. But cassava is a crop that does not require as intensive management practices as corn and therefore still merits some government attentlon. The demand prospects of this crop for human food' are pOo_ due to low income elasticity for food and its best prospect lies in livestock feeds. This prospect, however, depends on the pricing policy on protein supplement like soybean meal. It is therefore imperative that the implicit tax on soybean meal be decreased. Otl_erwlse, the government should engage
III,84
in a long industry. 4.
term
Ruminant
program
of developing
Production
and
the
the
domestic
Carabao
soybean
Slau_hter
Ban.
The significant amount of resources required to support (through imports or domestic production of feeds) the nonruminant sector which dominates the livestock industry calls for greater attention to the ruminant sector than what is presently given to it. The fact that the country has been importing an average of 4.5 thousand mt of beef valued at US$12 million annually indicates that there is room fo_ expansion in the ruminant sector. Government programs to support cuminant production (especially cattle and carabaos) will also have direct impact on improving rural welfare since ruminants product_.on is largely backyard in nature. This will also encoucage the greater utilization of _lant biomass with minimal opportunity cost since ruminants are efficient conw_rtecs of low-quality roughages -- something that is not possible with the non-ruminants. Finally, non-ruminants also CO nl)e.tewith humans for food, and therefore a livestock policy that does not attempt to fully exploit the potential c_itJ_ibutlon of ruminants is remiss in addressing this moral issue of human-animal competition for available food. The "Bakahang Barangay" program of the Ministry of Agriculture and Food (MAF) has been relatively successful thus far and therefore needs to be expanded. Available data show that loans granted under this program were a very small proportion of the total loans granted to the livestock industry. In 1980 for instance, the 112 million pesos which were Channeled to this program compri'sed only 4 percent of the total loans granted to the livestock industry, w,hich is very much less than the value of yearly beef imports and an insignificant proportion of value-added from the cattle sector. With respect to the potentials of carabaos, it should be noted that this important source of low quality meat (both for direct consumption and for the meat processing industry) has been, by virtue of the carabao slaughter ban, a source on'ly of draft power rather than meat. Available data, however, indicate that economic returns from. carabaos mainly used for draft are very low (Alviar, 1985). An obvious result of this is that farmers will not have the incentive to adopt recommended management practices in raising carabaos.
the
To ban
encourage should be
farmers lifted.
to produce more carabaos for meat, In addition, the ban is redundant
III.85
during times of high fuel energy and tractor cost since farmers will find the use Of carabao in farm operations more economical. If the reverse were true, the _armer's next best alternative is to raise carabao for meat. However, the. slaughter ban serves as an institutional constraint and since it requires enforcement costs to be effective, it will be better to allow the market to provide the signal on what farmers should d:o with their carabaos. 5.
Live.stock
Research
Technical innovations in the livestock industry were achieved both through improvements in the local aniinal stock and in managementorganization pa rticula fly among the caninercial farms. Better animal breeds were introduced t h_ough tax-free importations (through the PHIL-BAI ) of supecioc arlimals, from the United States and Europe. Con tr:ibu I:; :i.o n to •technical improvements from research is ii,pecceiJL:J.ble because of the very small research support chanm._l:_r ] Lo the industry. ' .[a;.)J.,, 38 shows that research expenditures in livestock •is VeL'Z small compared to value added. While feeds imports we}:e gL'owing ge_netrically, research expenditures have stagntlted. Research money has likewise not been allocated to where it will bring high long term returns. Table 39 for exalnple shows that the breeding research has been allocated only 14 percent of total research money in the •livestock industry. I'1
1".. " "1 ._.
Qn the development of the ruminants• sector, the importation of technology i'n hogs and poultry has worked well for the country but not for tl_e large ruminants. This is because hogsand poultry technologies are easier to t_ansfer across climati-c boundaries. The low productivity situation in the r.uminants sector need to be improved through research. This could be financed by the registration fees which the government collects from owners of large ruminants. • Research funds could also come from government income from l'ivestock auction markets and income from the importation of soybean meal.
III.86
Table
YEAR
38.
Livestock Research-Expenditures, Feed Imports, 1974-1984.
RES EARCH EXPENDITURES* (Million Pesos)
Value
VAL UE ADDED*
*
Added
and
F EED IMPORTS*
1974 1976 1979 198-1 1982 1984
3 7 10 6 12 9
4,-210 4,3.41 6,591 6,033 10,427 12,065
342 339 380 i, 153 1,420 2,067
AVERAGE
8
7,778
950
Sources of data: • PCARRD •* NEDA Statistical Yearbook • ** Foreign Trade Statistics
**
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APPENDIX
III-C
A Proposal For A t_lational Livestock Development
S!i_nj_.cance
of
the
Progra_
pr?posal
In spite of its high potential for sustaining Selfsufficiency and self-reliance in animal protein foods, the Philippines has been heavily dependent on foreign countries for food products such as meat and milk. Even if we have not been importing poultry, eggs and pork, the raw materials with which we produce them have been mainly imported. It is" estimated that 50-70 percent of the cost of production of poultry, eggs and pork are due to imported feedstuffs and breeding stocks. Government estimates show tllat over the last 13 years until i_8,2, importation of feedstuffs amounted -J/ to US$526.0 mill 1 on--. In the same period the cost of importation of meat and meat preparation is estimated at US$126.7 million while US$969.70 million was spent for milk. This importation represents a sizeable amount of foreign exchange that would have been used for the procurement of more important capital goods. The 1978 NEDA estimate shows that on the average, Filipinos were already 102.9 percent adequate in terms of protein intake. Considering that the bulk of our importation has been on milk and milk produc_s and on feedstuffs, and considering that the country has the potential to produce them as econQmically, it behooves the Ministry of Agriculture and Food to develop and implement a program for livestock development designed to meet our protein supply requirement without having to spend unnecessarily high foreign exchange outlay for imports.
Objectives i. and
To attain self-sufficiency other animal products;
2. To attain indus try ;
greater
in
meat,
milk
self-reliance
in
the
and
eggs
livestock
3. To i,nprove the efficiency L-esources in the production of and
of utilization of land animal protein foods;
4. to
the
To spread the benefits small and mediumproducers.
III.89
of
livestock
industry
con a_ The basic concept of the program is to achieve greater self-sufficiency in the supply of meat, milk, eggs, and poultry by establishing an industry structure that will maximize the utilization of cheap and locally-available agricultural products, by-products and residues by livestock and more efficiently convert them into hig h quality protein and at the same time minimize the dependence on imported inputs such as breeding stocks, feedstuffs and other production inputs. The
component
activities
I.
Conducting
2.
Policy
of
of
benchmark
Strengthening rs
5. Establi stations in
of
shine n£ strategic
6. Establishment system 7. Establl livestock center
program
are:
information
studies
3. Projects development, organization and credit feedgralns producers 4. raise
the
extension
and areas of
shine nt research
formation ava ilment to
of farmers ' livestock and
service
strengthening of the country
efficient
livestoc_
of and substantial and development
to
livestock
of
breeding
marketing
support institutes
to and
Ime1_ entation _e stra_te Z The[groject shall be implemented the ,_re important issues and simultaneously putting in place the will insure greater self-sufficiency live stock. Phase
I.-
Conductin_
of--benchmark
in phases addressing problems first but support systems that and self-relia_ce in
information
To enable the program implementors and policy makers to assess the total industry situation, a comprehenslve benchmark survey will be conducted, taking into consideration the consumption patterns for animal products (including fish) by Filipinos, the production patterns for the different species
III. 90
of livestock and of feedstuffs, procurement and inventory systems) systems, etc. This phase 8AEcon, BAI, NFA Phase
2 - Policy
may be jointly and BAEx.
(fee dstuffs marketing
conducted
by
s£udie_ss
During and ilnmediate ly after Phase i, existing policies affecting livestock shall be reviewed. If necessary, new policies shall be formulated in support of the attainment of the objectives of the program. The results of the survey shall serve as bases for the formulation and/or reformulation of policies. Policy issues shall be presented for public hearing before they a_:e approved for implementatlo_. This phase may be personnel of MAF, UPLB, sector representatives. Phase
3
jointly Central
conducted Bank and
by key private
- Projects development, formation of farmers' Organization and credit availment for i-rv-estock and feedgralns _roducers Areas where viable livestock production projects may be established will be identlfiedand economic feasibility studies conducted. Farmers' organization shall be organized as an effective means of delivering credit and extension services. Projects that encourage the utilization of cheap and widely-available resources in the area such as fibrous residues, grasses, etc. will be given priority. This phase may be jointly conducted by the BAEx, BAI, UPLB and other state colleges and universities, the Provincial Agriculture Office and the Rural Banks.
PhaSe
4 -Training of extensio_n and farmer-technicians
w_rkers,
farmer-leaders
Training activities that will improve the skills of extension workers in government offices and lending institutions and of farmer-leaders and farmer-techniclans will be conducted in different parts of the country.
III.91
Training modules on farmers' organization, different aspects of livestock production, animal health services, artificial insemination, feed formulation, range and pasture management, feed crops production, feed processing, meat processing, etc., will be prepared at and offered in different parts of the country.
other Phase
This may be undertaken by BAI, state colleges and universities.
5 - Establishment i.
of
su_o[t
services
to
BAEx,
UPLB
and
far_m_er__ s
Establishment and support of animal breedin__ centers and station-s----At--i-east s{x {eg1_al anlmal breed-{ng centers (2 in Luzon, 2 in Visayas and 2 in Mindanao) that will have the capability to produce and process frozen semen of livestock should be established to make availaDle good quality germplasm. An animal breeding station should be established in at least two provinces all over the country to provide natural and artificial breeding services to farmers. A promotional activity should be conducted to encourage farmers in the couqtryside to up-grade their stocks.
2. --
Es tabli shine nt and support of livestock r-esea-{ch--and _-vel_ntins-_itute-s----_ c-en'te{sTo p rov1_£-he--c-ont1__ s'_ply'-o--_ t%-_{i_c-a i ma npowe r and ac cel e ra te t he development of new and mo_e appropriate technologies for livestock production in the Philippines, the following R & D institutes should be established and given adequate financial support on a continuing basis: a.
Institute
of
Animal
Science
ex----i-sti-l[g ins'_itut--_n estaE_ shed by Executive Order in 1982 and attached UPLB. It is a center of excellence applied and animal science a training manpower in undergraduate b.
Dairy[ 1960s. supported
- AD an to for
basic research in all the disciplines. It is also resource for technical animal science at the and graduate levels.
Training
and
Research
It needs to be more substantially
nl. s2
Institute
-
expanded to take
and an
active role in the development Dairy Industry of the country.
project
the
c.
Institute of Tropical Animal Diseases T--6-fs--fs--stTll 1_'_--'_p-6opos--_l - stage to be based in the College of Veterinary Medicine at UPLB. This will address the continuing problems of monitoring, prevention and control of diseases prevalent and new in the Philippines.
d. --
National Animal Breeding Research Institute - Th is --_s st"[-il-q n the proposaY stage to be based in UPLB with cooperating centers at CLSU and CMU. This will address the long-term need of the country for highly adaptable and high-producing breeding stocks in the country. The private sector will be encouraged to active iy participate in the operation of this institute.
e. --
National Feed Technology. Center - This is still q-6--the proposal stage to be attached to MAF with UPLB as a cooperating center. It will address the continuing problems of monitoring of feed quality, development of shortand long-term strategy of feed supply for the industry, development of technology for the efficient and economical processing of feedstuffs.
f.
Forage and Pasture Develo_t Center _-_'-_s-stfli in the p-{oposaY stage to be attached to MAF with UPLS, CLSU and CMU as cooperating agencies. It will address the development of range and pasture areas in different areas of the country and the development of new technologies for the efficient production and utilization of forages and grasses for small-holder production s ys terns.
Duration The
o£
s_all
be
for
a period
Ill.83
of
six
ea_.
Estimated
Pr__/ect
Cost
It is hoped that external funding could be tapped finance this program. A Philippine counterpart will be up to cover the personal services and the maintenance of facilities.
Estimated Phase
Phase
Phase
i.
2.
Loan/Gra (us$)
Benchmark
Survey
(Dura£ion
:
Policy
3.
12
4.
P h _li-p-p-_-n%Government
50,000.00
900,000.00
months)
20,000.00
100)000o00
Projects development, Farmers'organization and credit availment Duration:
Phase
Cost
Studies
(Duration: Phase
9 months)
nt
6 years
Establishment support
to put the
I0,000,000.00
3,000,000.00
of
services
I. TrainingProgram 2. Institute and Centers
Total
1,000,000.00
•2,000,000.00
2,500,000.00
20,000.000.00
13•,570,000.00
26,000,000.00
III. 94
D.
FISHERIES
SECTOR
d/
As a proportion of the country's Gross Natfonal Product (GNP) the entire fishery sector's contribution is about 5 percent, of the total fishery output of about 1.90 million metric tons (m.t.) in 1982, the major part came from the municipal sector (52%), followed by commercial fishlhg (28%), and lastly by aquaculture (21%). (Please refer to Table 40.) In terms of value oE production (about PI5 billion in 1982), the proportion due to m_nicipal fisheries has consistently declined from more than 60 percent after the second world war to only about 49 percent in 1982. In contrast to this decline, value o_ production in aquaculture has consistently increased, and in 1982 this sub-sector accounted for 23 percent. Commercial fisheries provided the' balance of 29 percent. These trends indicate that there has not only Deen a relative decline in the output of municipal fisheries but also a change in the quality of fishes caught, leading to lower prices in the sub-sector. In terms of food consumption,_ fisheries provide the major source of animal protein for the average Philippine household (about 24 kg. per capita or 54 percent of protein in 1973, according to FAO). The sect6r is also important for its role in providing direct and indirect employment (both 7 percent of total employme,nt in agriculture)to a large numbe_- of people (Please refer to Table 41). Figure 7 presents a simple diagram of the many subsectors that may be defined in fisheries. Not all of these, however, ace of national significance in terms of production or employment so that the rest of this section will deal only with the key sub-sectocs of Philippine fishery: (a) fishpond and lake aquaculture, (b) municipal coastal fishery, and (c) commercia'l marine fishery. Because the sub-sectors in Philippine Fisheries are fairly distinct, the discussioR of problems and development opportunities will be organized according to t.he resources being expl-oited, the characteristics of fishing units involved, and the fishing technology utilized. According to present classifications following colnprise Philippine fishery units : a. Municipal waters such as
fishery rivers,
(in P.D. 704), the resources and fishing
resources include lakes, and coastal
III. 95
all municipal waters within
o_
i
_Q
o
IIl.. 86
_
hl
o_ _
°_
LL_--
_
-- "- 1
|
Table
4i.,' " Numbe= of Employed-.Persons in Fishery, Number of Licensed _ota.l. F.Ishermen.,and In"Fishpond_.Operation.: 1965 r 1982,
z/ Year
Fishe r_
Licensed Fisherme___n
Employed0perat£on inFishpond
19.65
386,438
31,I_0
137,250
1966
424,575
2.1,99.1
138,968
1967
427,275
29,723
140,055
1968
380,093
25,514
162,807
1969
-
28,433
164,414
1970
-
28,379
168,118
1971
426,668
29,844
171,446
1972
463,253
30,493
174,101
1973
524,205
48,641
17'6,032
1974
518,670
52,473
176,032
1975
524,340
4.4,866
176,032
_976
548,505
43,109
176,231
1"977
491,130
41,160
176,231
1978
568,485
41,156
176,231
1979
603,990
42,145
176,231
1980
5"70,578
53,843
176,231
1981
602,640
50,790
195,_I
198_-
602,032
51,514
195,831
:.._:
_/Assumed to be6.75 percent ofempl0yed in Agriculture_Fishing and Hunting; ASsumptfon based on the 1963 - 1967 Philippine statistics survey of Househoids(PSSH) detailed brea_down (unpublished). _/Based on the average of one man employed to every hectare, BFAR.
ni.98
OOT'III _o UOT3nqT=_UOO qSTq eqq SUTeTdxe OSTe sTq¢) °e-oT =d qe_:_w poo_ e SeT:Z:_eo _TTtZW_OU _onpo:zd eq:l _qfTq X:=e_ :lou e#_ spieT_ _T ue^e :l_q:l ST aes=noo _o _(e:zn:lTno qST_ITTW _o _TT_TOedse. ) e:zn_Inoenb_ puodqsT_,_o eSequeAp_ UTe= eq_ "(_86I t=nvqo) e:_e_oeq _ed "915_ L80,_ se_ 6L6T UT PTeTX eS_:_e^_ eq_ '_ue:l_odm30_l_ ST e:zn:lTno q_T_IT = e=_q_ 'u_T,_3_ UT _q:t 6UT_ePTSUOO '_OT,Z:_eA llT:i_ ST _T 'TeT:lU_qns.sT pTaT_ UT es_e=ouT aq_ aTTqt_ "e:_e_oeq _d "6_I ILL o'4 I_L_ mo_ pIeT X.uT _uemeAo:_dmT u_ se:l_oTpu T sTq¢ "suo:l OT_._euJ pu_snoq:l 9_I o_ 96 mo_) u_o:_6 seq eITq_ _e'_l_OBq puesnoq_ 9LI o_ 99I mo_ pe_t_e_llOl.IT !_l_l_ _IRd_RO
seo_no_e_ oT_vnb_ pu_ _eT:_eq'_T¢l _o nee=n_l "SuTs_e:_ou T ueeq svq e:zn_Tno e_d_IT:l qSnoq:lTt_ (_86T 'opuo=_zT3 pu_ 6uoqD) e#n:Iinoenbe qsT3_lTTm XTqUeUTmope:_d ST seuTddTTTqd eq_ UT (spuodqs,_ _o) e:_n_Tno_nbe peseq-pu_I spuodq_3
S_T_eqsT_
"T
• sme:lsXs pe_eq-e_T eq:l pue spuodqsT_ eqq, e:_z e=n_Tnoenbe UT s=o:loes-qns :lueq_OdUT o_:I eqz
• seT_Tunm=oo 5UTtU_e_ uT _uemZoTd=e e_T_U=e_Te pepeeu-qon= ePTAo:zd oq _TTTqe SqT (p) puv 'qonpo=d S_T _o TeT_ue_od-:l_odxe pue enTe_ :=eqSTq eq:l (o). ':lnd:lno S:lT _o Z_TTTqe_s eq:l (q) 'q_o_5 _se_ S:lT (_) :_o esneoeq _u_:l:=OdmT ZTSUTBVB=OUT emooeq seq _'T :to_oes e s_ _:lnd_no X:_eqsT) T_:lO_, ;_o qqano;_-euo ueq_, sBeT _onpo_d e_n:ITnoenbe qSnoq:ITY ean:iTno_nby
• 1:
• peq ToTclxe SeToeds qsT_ eqq pue '_uemuo_TAue eq_ _o s:_u_me_Tnbe_ eqq 'suoT_TPUOO oTmouooe-oToos (q peuTm_e_ep e_e _eq_ spoq_eu 6UT=ee= 3o 8uTqsT_ pus s:_ee5 ;_o epnqTqTnm eq:l e_e seT=o6e_eo o_:_ eseqq uTq_TM *seT=eqsT] e_n_Tno_nbe puv e=n:ldeo uee_:leq sT UOT_OUT_STP OTssq eq_ '_5OTOuqoe_ o_ _oedse:z q_TM "S:lTun 5u_qs_ _eTo_e==oo pe:=epT_uoo e:_ _uo_ _o:z5 ee:_q_ ueq._ e=om _o sqeoq pue 'UOT:lOTpsT=n,(T TedToTunm uTq:_T_ qou seo:zno_e_.eUT:Zem o:I :_e_e_ seT_eqsT_ TeTo_emmoo -o •e=n_Tno_nbe o m_o_ ewos eoT3,o_d -oqt_ e_oq:l e_e s=o:l.v_eclo /s_eu_o puodqsT_ pue 'pe_,e_edo :zo peu_o _Te'4_AT_d _ qvq:l _eo_nose= Z_eq_T_ pes_q-pu_T e_ spuodqsT._ "q •_uo:_ _Bo_5 ee_q:l oo, T_nbe _o .u_q:_ S_eT e:z_ eq:l s:l_oq esn ._o s_,eoq esn :lou op :_eq:_ eBoq_, e_e B_Tun uTqsT._ TedToTunm pue _euTT:_seoo eq:t mo_:I seTTw ee:_q:l
fishponds to value added i_ the national accounts.) However, the main problem with fishponds, as far as income distribution policy is concerned, is that the technology is not easily accessible because of high pond development cost. The production potentials, however, remain substantial so that there should be efforts to promote cooperative undertakings and to improve the productivity of existing ponds. A promising trend has been the move into the newer technology of tilapia culture. T_ble 42 presents data for tilapia area and yield. Total tilapia output is in the order of 50 thousand metric tons, mostly from aquaculture systems. For tilapia culture, the problem centers on the lack of quality fingerling sources and inadequate cultural practices. With respect to cultural practices, for example, the current tilapia production can increase with a shift from mixed sex to monosex sale. culture (male tilapia grow about 20 percent faster than female). One of the most promising avenues for tilapia-culture seems to be toward lake-based aquaculture, where the yield estimate (Table 42) of 10 thousand kg. per hectare per year, is about i0 times greater than that for fishponds. (Lake tilapia culture will be further discussed below.) Another technology is rice-fish farming but with respect to this system, the main problem is that the complexity involved in the technology, in addition to the environmental problems of herbicide and pesticide concentrations in irrigation water, will make technological development anddissemination very difficult. (See, for example, the discussion of Singh, et al.) General Recommendation for Fisho___qp_d _. On balance theref__-_[and'based aquaculture, is a continuing growth area, and there should be direct efforts to make this technology more accessible to farmers and fishermen. Cooperative programs in aquaculture may be one avenue for this. In addition, to help spread the benefits of this technology it will be necessary to tailor research and developmeot of fishpond technology to less capital-using designs and methods. 2.
Lake
Fisheries
The lake fisheries can be the most complex of fishing systems in that not only are we confronted with the complexity of the natural lake blomass but also with the presence of potential conflict between the lake's two modes of exploiting the fishery resource. In addition, many
III.101
Table
4_. PhilippineTilapia
Production.
(kg/ha/yr) --
I
I
_
I I
:
I
I
I
U
L
__
[
:
I
I
I
I
(rot)
-
A_cult_e Brackishwater ponds* _reshwater ponds Cages/pens
Open,water
182,000 12,000 1,000
100 1,000 I00000
18,200 12,000 I0,000
200,000
50
I0,000
fishing
Lakes-reservolres
Total
Tilapia"from aquaculture. Source-
50,200
.bracki shwate_,_on_s,, is..,pr_marily-, a _byproduct
Guerrero,
1985..
III._02
of milkfis_
external actors .... industry, •public _--are a!so directly dependent on lake.
utilities, agriculture some service from the
Notwithstanding the potential difficulties following from the complexity of the lake system, it is still possiDle to focus on the specific issues and potentials of the fishery subsystem. Of the many lakes in the country !totalling 199,571 hectares), PREPF (n.d.) has identified only six major lakes and 52 minor ones for fishery purposes. The _ Lake Problem. The situation in Laguna lake (the c--0-untry's la-_s£) ks: instructive i'n showing the great potential of lake resources for fish production and _mployment together with the major headaches that normally accompany •the management of complex ecosystems. The most apparent problem in the lake fishery subsystem for Laguna Lake has already found expression in the open conflict between small-scale fishermen and fishpen operators. The immediate issue was the small fisherman's lack of access to traditional fishery grounds due to the proliferation of fishpens along most of the lake. The fundamental problem, however, has*to do with the inherent conflict between the two basic technologies of exploiting the fisherY. Historical production data for the Laguna fishery is 4iven in Table 43 to emphasize •this point. The table also gives data on the growing number of,households dependent on fishing from the lake. Figure 8 gives a stylized picture of the relation between the outputs of the two fishing sectors. The total fishery curve is constructed as the vertical summation of the output of the open fishery and of aquaculture. It is clear from the data that • overexploitation of the fishery was already present in the early 1960s as total output has been declining at least since 1963 .It was the entry of fishpens in the early• 1970s that allowed output to improve. However, •subsequent overexploitation also in the fishpen sector eventually served Eo hasten the decline•of open fishery output. Even now the increasing "congestion of the fishery has been leading to poor yields for fishpen operators. If "Pareto optimal" is the condition wherelh both sectors./ have 'gained over time, this is clearly an opposite slituation that is fast approaching what may be termed "Pareto dismal." At present the 90,000 hectare lake contains about 28,000 heotares of fishpens. The Laguna Lake Development Authority (LLDA) is considering reducing the fis hpen
III.103
Ill.104
I
hectarage to about 20,000 to respond to the clamor from open lake fishermen to dismantle illegal fishpens. Two critical questions need tO be answered before plans for such a reduction aL-e finalized. First, what will be the effect of dismantling the fishpens on fish supply and prices in Metro Manila? Second, what are the benefits of this action on open lake production and employment of small fishermen around the lake? With respect to the first question, it is clear that the_e will be a major implication of fish Supply for the Metro Manila market. The lake currently produces about 165,000 metric tons of fish a year, and this comprises close to half of Metro Manila's supply. The average fishpen productivity is roughly 5 metric tons per hectare per year while open lake productivity is only about 0.4 metric tons per hectare per year. A transfer of 8,000 hectares of the lake from fishpens to open fishery will entail a net decline in output of 36,800 metric tons, roughly 20 percent of current supply to Metro Manila. (We presume here that the transfer itself will not affect current average productivity per hectare of bOth fisheries.) There will therefore be some pressure for prices to increase, but the actual increase can be forecast only if the characteristics of the alternative sources of supply to Metro Manila, as well as the nature of fish demand, are known. Unfortunately, hard information is not available. As a first approximation, however, it may be argued that, because fish demand is relatively elastic and there are many substitute sources of fish substitute products for fish itself, fish prices will be less thanthe 20 pr oduc t ion.
for Manila and many the present increase in percent decline in lake
With respect to the second question, the hectarage released from the £ishpens will mean much more area available both for fishing and navigation to small fishermen. These improvements will have substantial locational biases, and the communities that will most benefit, as well as the nature of the benefits to be gained, will need t'o be pinpointed. While it is clear that indeed the fishpen sector has been the _source of excesses during the past regime, it should be recognized that the technology itself is not the cul[_rit. The problem was the over-exploitation of the lake with too large a hectarage appropriated by the fishpen operators. The aquaculture technology itself has proved to be much more productive than open la_ke fishery, and the long-term challenge is to set the proper limits for fishpen
III.I06
lake use and to provide (through cooperatives and such fishpe ns.
opportunities for small similar organizations)
to
fishermen operate
Beyond the immediate concern to reduce the fishpen area, a more basic issue is the system of allocation and charges for the fishpen rights in the lake. If we presume that the current goal of keeping about 20,000 hectares of the lake as fishpen area is about right, in the long-term what needs to be done is to either auction off portions of that hectarage (including whatever improvements have already been put in) for a fixed p_riod of time or charge higher license fees from current users to capture more of the rent from the resource. (From a planning and management perspective, an auctioning system, will require less prior information to implement. ) For political and income distribution purposes, special reservations may be set aside for small fishermen's cooperatives and more assistance might be given to such operations through extension and marketing support. In any case, the large revenues that will be generated from the commercial fishpens can be the source of funds for improving over-all management of the lake. General Recommendations for Lake Aquaculture. For lake-E_--fisE_[-6s, poli6y-mak-fng-_s consE_i-n-_ to view not only the problem of improving the distribution of outputs but also of ensuring that the sum of outputs will not progressively worsen. The solutfon clearly calls for a reduction of flshpens. (From the approved 15,000 -- later 2C,000 --hectare fishpen belt, actual hectarage had about doubled at the height of the fishpea controversy last year.) At the same time, there must be an emphasis on institutionalizing limits to entry of more open fishermen. From the technical change aspect, the only promising approach lies in the tilapia aquaculture method. This more recent form of aquaculture requires less initial investment. A i0 x i0 x 3 meter cage, for example, will only need _'3,270 for construction and equipment and an additional _;i,600 for operations (Garcia and Medina, 1983). (Labor cost of about _I,200 is not accounted and is presumed to be supplied by the household.) Returns may also be attractive -- e.g., an annual gross income of _6,400 may be expected from such an activity. It is our view that the primary data inadequacy for this sector no longer lies in the biological aspects of the technology (although more site trials will help). The main problem is in the lack of research on the necessary institutional changes needed to regulate the lake fishery.
III.i07
3:.
Fr_
and
Fingerling
Supply
A distinct problem area for aquaculture development policy is that of fry and fingerllng or "seed" supply. The problem concerns not only the availability of a stable supply of seed but also the retention o'f quality stocking material; The requirements for brack!shwater vs. freshweter aquaculture .differ in this area. Brackishwater Aquaculture. Seed supply for brackishwa.ter aquaculture concerns primarily milkfish. In the past few years,, there }]as been substantial attention paid to attempting to .produce fries from captured broodstock, with the South East Asian Fisheries Development Center (SEAFDEC) Aquaculture Department being the main proponent. It is not clear, however, if this will be a successful or beneficial activity. The traditional method of fry gathering from coastal communities will continue to be the source of milkfish seed supply in the future, and the area for improvement may be in the improvement of dlstrlbution facilities for this source. Indeed, fry gathering activities may supply as much as 30 to 40 perGent of poor coastal municipalities' income such as in some Antique municipalities (Smith, 1981) and the fees being paid by fry concess.ionalres may actually be close to economic rent. Thus it is not clear that tinkerlngwlth the milkfish seed supply system should be a priority for gove rnme n t ,inre rye nti on. One ma,jor problem is the smuggling of fry, primarily to Taiwan. Fry prices in TaiWan are quite high relative to Philippine prices due to the former's very limlted supply and large demand. (for aquaculture and bait fish). In addition Taiwan prices are increasing by about i7 percent annually (Chaur, S hyan Lee, 1983) and is now in the neighborhood of _20 per piece compared to roughly _0.50 locally. The ban o n fry exports, may be justlfled.on._he basis of this unusually large foreign demand compared to our own limite.d supply. Freshwater Aquaculture. The seed supplypicture is very different for the fre-_water aquaculture sector. Both BFAR and Central Luzon. State University (CLSU) are major participants in projects to improve the poor quality and supply of tilapia fingerlings, but the basic problem of maintaining.a good source of broodstock, still remains. Around. 50 thousand metric tons of tilapia are produced each year,, this produ.ctlon may still be increased even from existing area by improving cultural practices and using genetically improved breeds. III.I08
4.
Conversion
of
Man@roves
to
Fishponds
The conversion of mangroves into brackish water ponds has been viewed as a means to make "non-productive" resources contribute to fish production. The problem with this view is two-fold. First, this is not as e£ficient a method of increasing output in comparison with improving aquaculture practices in existing ponds. The development of flshponds themselves takes as much as two years so that some ponds are actually abandoned even before they have become productive. In contrast, the potential output of existing ponds is not attained because of the lack of basic pond improvements and purchased inputs, such as fertilizer. An effort to provide extension support for improved practices coupled with a _easonable credit program should be preferred to a mangrove conversion program. A second problem with this view is that, in fact, t,angroves are not "non-productive." In many instances, they have an important ecological role especially in the the spawning of fish and as a refuge for immature aquatic animals. In addition, the mangroves do provide sources of building materials and fuels that are exploited by the "poorest 9f the poor."
II____. Munici e_ I..
C0astal
Fishery
Coastal
Fisher_
Over-exploitation
As indicated by the overall fishery statistics, municipal (also called traditional or artisanal in the literature) marine fisheries are the most important with respect to output and employment. They are also the most problematic with respect to equity considerations since both municipal and commercial fishing units compete for these resources. There have been attempts for an institutional demarcation between thesetypes of fishermen by reserving all waters within three nautical miles of the coastline for traditional fishermen. In addition, depth limitations have been set for the use of trawling equipment: trawlers of more than • three gross tons can" operate only in waters more than seven fathoms deep while the lighter ones can operate up to as shallow a depth as four fathoms (/BFAR, n.d.). These rules, however, have not been sufficient in preventing exploitation of municipal waters so that in general such municipal fisheries have reached the limits of their• sustainable productivity. Indeed it has been argued
ill.109
that in many instances, the coastal fish stocks have been so exploited that current catch or harvest is below what could biologically be reproduced by these stocks if they were given the opportunity to regenerate. For exampl_, in their survey of Philippine resources for municipal fisheries, Smith et al. (1980) conclude: "the overall impression given by research studies that have examined present and potential marine fisheries prod,_ction is that, in these areas where additional exploitable resources exist, they are probably beyond the present capabilities of municipal fishermen to catch. " Several factors contribute to this problem. The first is the increase in population pressure along the currently accessible coastal fishing grounds. This is directly tied up with overall demographic stress on resources (such as forests and agricultural lands) and with widespread problems of unemployment and poverty. To give specific examples of this problem (and others below), we refer to data from detailed studies of a particular traditional fishery -- San Miguel Bay in Camarines Sur -- which was the focus of an intensive study in 1980-81 by researchers from the International Center for Living Aquatic Resources Management and the Institute for Fishery Development and Research. In the case of San Miguel Bay (which is one of the more important and over-explolted fisheries along the country's Pacific Coast), employment opportunities (relative to regional employment) started to decline as early as the start of the 1950s and the opportunities for expansion of resource exploitation most probably disappeared by the 1960s (Cruz, 1982). In addition, the incidence of poverty among fishermen in the region is very high, with more than half of fishing households falling below the poverty threshold. The characteristics'of tropical multi-species stocks also add to the problem of over-exploitation. Because the peak occurrence of such stocks occur in shallow water (Pauly, 1979), there is a great incentive for most fishing, including trewling, to be done in coastal waters. For example, from a depth of 50 to 100 meters, the stock is about 20 metric tons per square kilometer; beyond the 150 meter depth, the stock radically declines to less than 5 metric tons per square kilometer (Smith et al., 1981). This has led tO encroachment of commercial boats, especially trawlers, on traditional resources. Again for San Miguel Bay, based on charts of the Bureau of Coast and Geodetic Survey, in the area of four municipalities that were surveyed, maximum water depth in no instance exceeds five fathoms. In fact, only very small IIl.110
portions of these fishing grounds exceed four f&thoms in depth. Thus not even municipal trawling is-legal in most areas (Cruz, 1982). And yet the largest catch in 1980 to 1981 was registered by the trawlers operating in the bay (Smith and Mines, 1983). Inadequate enforcement of regulations has fueled discontentment among traditional fishermen who complain not only of the indirect effect of trawling in terms" of decreased catch but also of numerous instances of destruction of nets and traps by illegal trawling. 2.
Recommendations
for
the
Munici a_.! Fisher_
Limiting Access to Coastal Resources. Our overview of the condition§ in t-_ munlc_p_al ma_ine fishery of the Philippines points to the need for concentrating on reserving access to such coastal resources to municipal or traditional fishermen. This is because the proDlem in coastal fisheries is primarily one of income distribution. For example, in San Miguel Bay, Smith and Mines (1983) report that large scale trawlers competed for catch with municipal fishermen and appropriated about 31 percent of total catch in 1980-81. These trawlers numbered 95 vessels, and half were owned by only 5 families. On the other hand, the rest of the catch was shared by about 2,300 small-scale fishing boats owned by about 2,000 households. Traditional vs. commercial fishermen differ greatly on the fishing gear that they utilize. T_aditional fisheries are characterized by low productivity of gear, low energy use and minimal trawling, and selectivity in the species caught. Commercial fleets require large capital investments; utilize powerful engines and a variety of trawl nets, and are-not selective with respect to species caught. By reserving near-shore resources according to the capability for exploitation by the traditional sector, this approach not only allows the community a greater opportunity for internally generated adjustments, but it also helps decrease the potential for both recruitment and growth overfishing in the coastal areas which principally arises from commercial intrusion. At the same time by limiting commercial fleets (primarily trawlers) to the off-shore areas that cannot be exploited by traditional techniques, capital will be channeled to the resources where the intensity of effort cannot be increased through the traditional fishery. Finally, it can be shown that this approach represents a rare case when the apparently conflicting national goals for fishery development in LDCs of increasing production III.11_
and promoting maritime community assistance (Emmerson: 1980) can both be adequately met. With respec t to assistance, preventing commercial trawlers from exploiting near-shore resources will undoubtedly have beneficial implications for employment in the traditional fisheries. Although not as obvious, it is also the case that hhe limitation of technology in near-shore areas does not _imply any long-term decrease in potential but merely the imposition of a better distibution of income. O
U
l_
p
U
t
The reason lis that _ne maximum sustainable yield of the fishery is essentially fixed and already being harvested so that the real questilon is who can appropriate the catch. Given the presumption that without management ;the commercial fishery lwill not only capture most of the catch but deplete the stock as well, this p_ogram of lmanagement not only contributes to a viable fishery but assigns I the problem of exploiting the more "inaccessible grounds (and adjusting to a smaller proportion of catch) to the commercial sector. With the flexibilfty and resources that such adjustment requires, the commercial sector will De in a better position than traditional fishermen to make the investment or to find alternative income sources. On the practical level, this policy of strict exclusion of commercial fishing units from the municipal coastal fisheries may be accomplished by a policy of gradualism. Since the traditional fishing grounds 'are fairly well known and demarcated, the government may, for the initial year, implement the policy only for a few of the fishing grounds. As total production stabilizes and as more lessons on enforcement are learned from the pilot areas, other fishing areas may easily follow. Improving Access to New Fishing[ Grounds. In this section we propose that one-m-a-j'or emphasis o-f-- development policy for coastal fisheries should be on decreasing the cost of exploiting new fishing grounds. One important way of accomplishing this is in the improvement of marketing infrastructure to allow settlements to expand to less developed _ishing grounds. It should also be noted in ,the past, market • infrastructure projects for fisheries o'ften included ice plants and cold storage facilities aside from the development of roads and wharfs/fish landings. There should be a detailed evaluation of whether the former should always be included in future government infrastructure programs or whether they should be left for the private sector to develop. (Ice plants and cold storage facilities, while clearly important in helping reduce fish marketing waste, are not standard public goods, and it is not obvious that government will be efficient at operating them.)
•,III.112
Munic_ Control over Coastal Resources. Another area fo_ im_vement_strengthening municipal control over coastal resources. While P.D. 704 assigns coastal waters to municipal cont'rol, to make such control effective, the municipality is required to pass an ordinance which should bhen be approved by the Minister of Agrioukture. The situation is thus not conducive to actual decentralization of coastal fishery management. Historically, there has been minimal formal or legal controls on fishing activity. This is asSOCiated with the lack of social organizations within the fishing communities for the purpose of coordination of productive activity. One may contrast this •to the case of rice farming communities where reciprocal labor ties, large-scale work mobilization and inter-village water management have found expression in institutionalized forms of resource .management (Bailey, 1980). Because of the absence of these resource management institutions in the historical experience of these communities, fishery •development Workers will have to explicitly encourage their formation instead of attempting to set up coastal management and enforcement systems that are independent of the community. This task, while difficult, is not insurmountable because of the growing interdepenaencies in fishing dctlvity -- both among traditional fishermen and between the commercial and' traditional sectors. In a sense, the community itself will be forced to evolve forms of cooperation for management of the resource -- forms that can more effectively control the growing interaction within the village level through more formal means of assuring access to resource use. • _c Rules for Municipal Fisheries. While the general theme o_mprov_ng management o-f coastal reources is the strengthening of municipal control over them, specific policies or rules may be made in support of the general approach. The first set of specific rules have to do with the constraining de flnltion" of what constitutes municipal fishing units •. The three ton limit, for example, has led to the proliferation of boats • that are 2.99 tons or small boats with huge engines (and nets). The limit for tonnage in the context of the three nautical mile extent of municipal flsheries'can be radically •reduced to, say, 800 kg. In addition, the use of trawling gear (with the exc_ptlon of special purpose fishing units) may be banned, even in waters greater than 4 fathoms in depth. Lower mesh size limits may be reduced to 2.5 cm. for all active gears (and 4 cm. for all trawlers).
III.113
The second set of rules or policies concern the enforcement of the management system. Municipal authorities, through village officials, should be empowered to actively enforce municipal fishery laws. aince the main practical point of enforcement is quite site-speclfic, at the fish landing areas, village-level control can be effectively established. The final set of rules are those governing the incomegenerating aspects of managing municipa.l fisl)eries. The most impor, tant of these concerns the licensing power that the municipality enjoys over all fishing units operating in its fishing grounds. These licenses should be explicitly non-nominal --that is, the municipality should attempt to capture a significant amount of the economic rent from the right of access to the fishery, with the funds eventually being used for improving its facilities for fishery management.
t
Compensating Subsidy for the Fuel Tax. This recomm-e-nd_t-ro6 -c-o-ncerns the specif'-c--effect o{-%--nationa 1 policy on fuel taxation on the fishery sector. While iris almost unavoidable that most macroeconomic policies will have some sector specific effects that are not entirely equitable, the ease of the fishery sector implications of fuel taxation are particularly pr_oblematic. The reason is that, for most of the municipal fishing units, the energy component of factor cost is usually the largest single item. Because most small boats use gasoline engines whi,le the larger commercial trawlers use diesel engines, the effect of the tax system becomes doubly inequitable. In the particular case of the San Miguel Bay fishery, where data on fishing costs and returns are available, Smith and Mines (1983) have argued that the fuel tax comprises about P5.5 million of the P53.5 million annual value of fishery production. In addition, removing the tax will allow the municipal fishermen to compete profitably with the diesel-powered trawlers that operate in the bay. The problem the_efor_ is that while the tax itself, for the whole economy, is beneficial its effects are negative for one of the most disadvantaged sectors of the economy. A method of direct subsidy to help off-set the tax for municipal fishermen should be considered.
IIl.ll4
III:.
Commerclal
Fishery
While the issues in municipal fisheries center on sustaining and improving the distribution of what is substantially a level of catch that has probably reached (if not over-exploited) the biological limits of the fishery, in commercial fishery the major concern of government should be on orchestrating growth. The fishery resources and the markets in this subsector indicate substantial potential for expanded economic activity. The two most important growth areas for commercial fisheries are prawns/shrlmps and tuna. In both, attractive export markets can provide the stimulus for grow t11. For tuna, Philippine deep-sea resources have not yet been significantly exploited and studies by the South China Sea Fisheries Development and Coordinating Program indicate that catch in places such as the Sulu Sea and the Moro Gulf could double. Export markets are large, especially in the U.S. and Japan where most of Philippine tuna are exported. Because it is a growth industry, the government's role should primarily be concerned with monitoring the entry of new enterprises and the levels of catch and exports. It has been pointed out, for example, that data on exports are of dubious quality, characterized by significant uqderestimation (Aprieto, 1981). Such catch and export data are important not only for purposes of ensuring government revenue Put also for assessment of the sustainability of the fishery. For shrimp and prawns, the export market is similarly attractive. Shianghao (1986) suggests the following recommendations, among others, as an agenda for exploiting marketing opportunities: (a) developing new markets, especially in the EEC and Asean; (b) establishlng joint ventures in production and marketing operations; (c) improving year-round production to take advantage of seasonal demand; and (d) increasing research on species that have better markets. On the production side, total shrimp and prawn output has steadily' increased, from about 44 thousand mt in 1977 to 64 thousand mt in 1984. (Please refer to Table 44). The highest growth has come from brackishwater fishponds, which accounted for only 6 percent of output at the s tart of the period but increased its share to 45 percent of output by 1986. One of the key constraints that still face this sector, however, is the high cost of feed, and it has been recommended that the development of this complementary industry be studied (Sianghao, 1986).
III.I15
Table 44. Philippine Shrimp Produution by Species, By Sector 1977-1984 (in metric tons).
Item
1977
197t_
1979
1980
1981
1982
1983
19_,
_btal
/#_,556 35,213 35,175 37,135 46,234 56,796 48,708 (_,]52
(_lllllal % of _bl:al
8,465 19
7,423 21
7,044 20
6,007 lb
3,538 8
5,474 •4,071 10 _
4,_54
7,072 1,393 -
5,905 578 716 224
4,790 507 1,313 434
3,892803 930 382
2,814 81 440 203
4,626 208 179 261
3j 741 40U 475 239
M_{te Shrimp (H_pongL_t_) _EgerPcawn(8ugpo) " gndeavocl'ca_1 (Sugpo) Acetes (Alining) Hu.icipal % Of. Total
3,2C_ 327 294 186
17,187 16,912 16,69b 19,584 33, 269 39, 091 23, 631 1_;,303 39 48 47 53 72 69 49 2<.)
_.P-e Sh_mp (H£po_ BJCO Tiger I_ (Sugpo) F._le_0r Pca_ (Su_o) Acetes(ALam_ llandMum_ipal Z of Total
10,455 103 345 6,284
9,281 9, 992 284 810 826 485 6,521 5,409
9, 575 11, 784 11,693 lO, 905 553 383 976 1,138 511 1, 742 736 1,664 8,945 19,360 25,686 9,924
9,412 b65 882 7,_4
16,242 8,148 8,362 36 23 24
8,417 23
5,507 10,426 8,945 12;138 12 18 18 19
16,242 8,148 8,362
8,417
5,507 10,Z_26 8,945 12,13b
(Pca_s)
2,662 6
3,127 8
_,920 8
_'_J:e _ (VEpot_g1:_t;£) TigerPrawn(Sugpo)
..... 2,662
Shr_(NoSpeel/_catio_ _k_l_aberL__shpoml % of _)_al
_rce_
2,730 8
2,730
3,073 9
3,073
3,127
3,920
1,805 12,061 28,857 3 25 45 903 902
2,774 2, 500 9,287 26,357
Sianghao (1986) based on da_a from Bureau of Fisheries and Aquatic Resources (BFAR).
•III.115
IV. i.
Research,
The
Role
Extension,
of
Government
and
Regulation
While the Ministry of Agriculture and Food (M&F) is committed to an integration of its service delivery system to its farmer-clientele, the specialized requirements of the fishery sector points to the need for a Bureau of Fisheries and Aquatic Resources (BFAR) that will continue to function as a line agency with regional or fishery location-related offices. Such a line agency role requires that BFAR properly organizes its functions both as a research and extension agency and as a policeman charged with enforcing fishery regulations. Ideally, the t_o functions should not be retained in one agency, and it might be feasible to pass on most of the actual enforcement to police agencies, such as the coast guard, or even to the municipalities through the local officials. However, it seems unavoidable that BFAR will continue to be required to exercise some regulatory role. In this case, this function should be vested in a division distinct from the one charged with extension work. Such a division might be one staffed by fishery wardens. 2:
Environmental
Management
It is to be expected that the general bias of a ministry such as MAF will be in production activities, but this should not lead ministry people to forget that, in fisheries and other aquatic resources, conservation is part of the job of ensuring sustainable production. For example, preventing fishery stock over-exploitation for the direct purpose of improving sustainable yield is, in itself, a form of conservation. Aside from the task of proper resource management for ensuring a stable fish supply, explicit conservation efforts need to be carried ou.t by BFAR. Among them,the most immediate would include (a) the eradication of destructive fishing techniques, (b) a ban on the use of corals as building or decorative material, and (c) the protection of turtles. With respect to the first, one of the most destructive fishing techniques currently being used is the muro-ami method. This method utilizes swimmers who encircle schools of fish and scare these into waiting nets by pounding heavy stones on coral reefs. The control of this method of fishing will have to be done through gear and crew III.117
inspection. Other techniques, such fish poisoning, might be controlled the fish landings.
as
dynamite fishing through inspection
and at
With respect to the prohibition on the use of corals for building and decorative materials and to the protection of turtles, these are justified by the observation that tangible monetary returns from the frivolous exploitation of scarce aquatic resources, whether living or inorganic, will not normally justify the larger environmental and social costs which are unfortunately not apparent.
III.li8
B.
UPLAND
L
AGRICULTURE_/
By definition, the uplands comprise: (I) marginal lands with slopes of 18 percent or highez4; (2) lands within mountain zones including table lands and plateaus lying at high elevation; and (3) lands with terrain classified as hilly to mountainous. Most upland agriculture takes place in altitudes of 500 to 2,000 meters above sea level and between slopes of 20 to 45 percent. Irrigation is hardly possible without terracing and there is an almost complete absence of large-scale drainage. The terrain for cultivated fields is hilly and oftentimes underlain with sedimentary rocks. Numerous minor patches of uncut forests are allowed to remain in the more distant upper slopes. The government's land classification scheme places 42 percent of total land area as above 18 percent slope, totalling some 12.9 million hectares as of 1980. Of the total cultlva£ed area in 1982, over 27 percent or 2.5 million hectares were planted to upland crops. Alienable and Disposable lands (A&D) which have less than 18 percent slope comprise 58 percent of total land area. More than 2 million hectares, however, of A&D lands remain Idle for speculative purposes while in the public forest lands, about 29 percent are already "titled" through the Bureau of Forest Development (BFD) Stewardship contracts. In terms of production potentials aside from timber growing, the uplands are generally s_itable for shifting cultivation and rainfed agriculture but with a more diversified cropping pattern than the lowlands. Some irrigated farming allows year-round monocropping of a staple crop such as rice or corn with intercropplng and sequential planting of root crops and vegetable. The conventional economic significance of forestry lies in its importance to Gross National Product (GNP). The whole sector has consistently contributed about five percent of net domestic product since the 1960s (Power and Tumaneng, 1983), with the logging industry accounting for about 12 percent of annual value added in agriculture and wood processing contributing eight percent of total manufacturing output (Segura, et al., 1977). In addition to its important role in GNP, forestry has been a major foreign exchange earner, with logs and lumber accounting for more than one-fifth of the value of the top ten Philippine exports from 1961 up to 1973. The peak for log an(] lumber exports was in 1967 when their value reached 32.5 percent of total top ten exports' value, making forestry number one in the llst (Segura, et al., 1977). However, (with the inability to keep yields s-_tal-nable due III.119
to over-cuttlng and the subsequent government restrictions on log exports), over time the contribution of forestry to economic growth has been decllning. The value, for example, of wood products in proportion to total exports has decreased to only 8 percent in the eighties (Power and Tumaneng, 1983). NOtwithstanding this decline, it is clear that the export orientation of forestry has been of major significance. This role in the export market, however, has been primarily limited to log production. It has been reported, for example, that from 1966 to 1975 (with the exception of 1974) more than 60 percent of log output has been exported (Revilla, et al., 1977). Thus, it is not unreasonable that concern f_ forest resource management has been unusually biased for the logging industry. And yet, as has been pointed out above, this sub-sector of forestry is just one component (albeit a very important one) of a much more complicated renewable resource system. Figure 9 defines the sub-sectors within forestry and represents an attempt to put into a development perspective the policies and issues that may be raised in evaluating the condition of Philippine forestry. Two major users of given forest resources are the commercial sector (composed of logging firms) and the informal forestry users (made up of households/communitles whose livelihood is significantly dependent in some form on forest exploitation). While the output of commercial forest f_rms is @rlmarily timber, the informal sector's use of the forest is less 6peclallzed. Also there are interdependencies between these two sectors which are recognized to be important but about which very little information is available. The non-forest sector focuses on the other users and uses of land presently under forest (the most important of which is the agricultural sector) and the external (mostly soil erosion) effects of forest exploitation (which centers on watershed ,,anagem_nt issues).
I. i.
The
C_)mmercial
Different
Forest
Uses
Sector
About 16 million hectares (or 56 percent of total land area) have been classified as forest lands by the Bureau of Forest Development (BFD, 1981), although not all forest lands are actually forested (Talbot and Talbot, 1964; BFD, 1981). Of these, about 7.7 million hectares (close to onefourth of total land area of the Philippines)hwere under some form of license or concession (BFD, 1981).
III.12o
Figure
9.
A Matrix Philippine
of Policies Forestry.
The
Forest
and
Issues
Sector
I...........................
The I
in
Evaluating
Agric.
Sector
i...............
Resource User
Commercial Logging Firms
Informal Users (Communities)
Agriculture Sector: Competing Uses of Forest
Output
Timber ---
Timber, Fuelwood AgroForestry Products
External Effects of Forest use on Watershed Management
Forest Management Log Export Restrictions
Social Forestry ..............
General Price Intervention and Trade Policies
Current Policy Affecting Sector
m.
III.121
I
With respect to forest management, the government approach is to control exploitation through (a) a system of licensing that limits the area and duration of .concessioN, (50 years including renewals), (b) the collection of these fees based on the volume cut; and (c) the enforcement of a maximum allowable cut derived from estimates of sustalnable productivity. In addition, the granting of licenses has been tied to a firm's abillty to set-up or llnk with a complementary sawmill or wood processing operation. The average size of concessions was about 30,000 hectares in the seventies (Segura et al., 1977) and increased to 36,000 hectares in 198_-_ t-_mber licenses numbered about 250, one-third of whom had 89 percent of total allowable cut. By 1982, however, there was an eveRing out of allowable cut among concessionnaires: There were 217 concessionaires, and 86 percent of these had 92 percent of total allowable cut. As far as employment generation is concerned, the commercial sector has historically generated many jobs. Although capital requirements per worker are large (about _50,000 per worker in the mid-1970s) incremental increases in employment have nevertheless been substantial. From 1961 to 1972, annual increments of employment in logging reached 26,009 per year while in the wood industries it was 64,000 per year. With respect to the technology or resource management scheme, the commercial sector Is required to follow the selective logging system (SLS). This system is designed as a sustalnable yield management system where the logger is required to refrain from cutting a certain proportion of trees in the concession as designated by the BFD. The residual stand is then supposed to be managed by the logger so that a second cycle of cutting can be arranged after a specific growing period. Even if the first cut were to damage 50 percent of the remaining stand, the initial allocation Of allowable cut is still conservative enough as to prevent any significant deforestation (Segura, et al., 1977). In fact, however, there has not only been a net drain on our forest resources but the drain has taken on alarming proportions. Estimates of deforestation differ, but there are indications that this has led to about 4.5 million hectares of denuded forest land (Segura, et al., 1977), with the annual rate of forest loss for t_-e-_70s of about 200,000 hectares (Segura-delos Angeles, 1981). Clearly there is something wrong with the management scheme that has been adopted for our national forests. It should also be clear that the problem is not merely a technical one, having todowlth the actual setting of III.122
cutting goals and techniques of timber extraction. Indeed the problem may be viewed as essentially an institutional one, having to do with the rules of access and control that the BFD has generally followed. In the first place, all forest lands are under the jurisdiction of the BFD and are merely leased to loggers who are supposed to undertake the selective logging system. It has been shown (C. Cruz, 1982) that, while the first cut cycle of SLS is profitable for the private logger, the timber stand improvement (TSI) phase is not profitable despite low fees paid to government. For example, in 1981 cutting charges ranged from only _15 to _30 per cubic meter of wood while the market value of wood exceeded _600 per cubic meter (Power and Tumaneng, 1983). However, the TSI phase for the second cyclical cut is not profitable due to the long time period involved in waiting for the second cut. Given this particular structure of incentives, it is only logical that loggers will attempt to maximize the revenues from the first cut and to forego any TSI phase. Attempts by the BFD to control this can only have limited success since it is unrealistic to expect credible enforcement of such a system over more than one-fourth of the total land area of the Philippines. In addition to the inherent problem with the SLS within the formal sector, the encroachment on forest lands by shifting cultivators and other "informal" forest users as soon as loggers have opened up the forest make the selective logging scheme unrealistic. The problem is not isolated in the Philippines, Panayotou (1983) reports annual deforestation in tropical Asia at about 1.8 million hectares between 1976-80. The problem of the incentive structure behind deforestation has also been cited in Thailand (Tingsabadh, 1983) where alternative management schemes such as clear-cutting with immediate re-plantin_ have been suggested. Local efforts to reverse the process of deforestation have similarly met with little success. For example, the reforestation goal is 1.4 million hectares by the year 2000, with an annual target for 1978-83 of 150,O00 hectares per year. From 1962-75, however, actual government reforestation was only 260,607 hectares. Within concessions, private loggers are supposed to undertake reforestation but this is seldom done. For example in 1975 only 14 out of 81 concessions had reforestation in about 33,000 hectares (Segura et al., 1977). More recently, reforestation efforts have some_h-at improved with the government sector (mostly the BFD) reforesting 33,296 hectares and the private sector (mostly timber licensees) putting in 31,2.45 hectares for a year (BFD, 1981). III.123
2.
The
Informal
Sector
The problem of managing the country' s _orests is compounded by the presence of a large "informal" sector of forest users. These are the users who have no legal claim to the resource (or whose claim is not recognized by the government). There are two general types of upland dwellers -- (i) the indigenous, often tribal, settlers engaging in shifting cultivation, hunting, and gathering of forest products, and (2) the migrants who practice some form of sedentary agriculture. The major economic activities o_ both groups include farming, forest gathering, and livestock raising, although a survey of three sites conducted by Cruz, et al. (1985) indicate that almost 60 percent of labor hours per year and 30 percent of annual cash income come from farming. As of 1980 census, the population in the uplands was 14.4 million or 30 percent of the total population in the country. Around 709 municipalities or 48 percent of the entire listing of municipalities are also classified as upland (with slopes greater than 18 percent) or as having 75 percent or more of its land area as upland. The annual growth rate of the upland population is 2.55 percent which is slightly lower than the national average of 2.71 percent in 1980. However, the national population increase is attributed largely to a high crude birth rate while the growth rate in upland population is largely due to in-migratlon. For example, the ratio of migrants to total upland population is 29.2 percent while on the national level, the ratio is only 13.7 percent. In addition, upland migrants are less mobile, preferring to stay in their places of residence once established, with only 18.3 percent moving residence in 1975 compared to the national average of close to 40 percent of migrants changing residence. Government policy has historically viewed these communities as "squatters, but while there have been consistent attempts at keeping them out of the forests these have largely been unsuccessful. Given the limited administrative resources of the BFD a policy of exclusion will inevitably be a rule that cannot be enforced. The recent shift to a policy of "social forestry" therefore represents an attempt to rationalize the government's approach to forest resource management. The strategy calls for (a) introducing forms of tenure to upland communities that recognize their rights of access to the resource together with (b) the introduction of the appropriate (agro-forestry) technologies for upland resource
III.124
use. The approach has only been recently implemented, and consequently the •proper mix of technology and forms of tenure together with the combination of government and local resources and participation still have to be determined.
II.
The
Relevance
to
Agriculture
The non-forest sector that we have already identified as a major competitor for forest lands• is agriculture. Increasing population pressure on given agricultural lands has led to both an intensification of agricultural technologies since the 1960s (Crisostomo and Barker, 1973) and the conversion of uplands to food crop agriculture. The former process (of intensification) has been facilitated by research into new technologies and by government support for their adoption. However, the process of conversion of forest lands to agriculture has been going on independently of public policy. Indeed in many instances it has been done inspite of existing •laws against occupying public lands. Lands devoted to upland agriculture account for 25.9 percent of total forest lands (14.3 percent of total land area in the country)or 4.3 million hectares in 1982. This large proportion of agricultural lands in forested areas is generally attributed to the high rate of forest conversion of 379,000 hectares per Fear in the period 1971 to 1981. The BFD estimates that _ majority of the conversion process was from widespread kain_in burning but Revilla and associates (1985) claim that-_6ut'-30 percent of the conversion was from •illegal logging and cutting for _uelwood. Land clearing is the most laborious and time-consuming activity In upland agriculture comprising 30 to 50 percent of total labor hours per household in one year. The average number of days spent for land clearing alone is also much higher at 45 to 75 man-days per year. Usually an area of land is cleared by cutting the standing vegetation then burning it after it has dried. The burn also serves to kill parasites, insects, and bacteria that interfere with crop productivity. With the burn, all nutrients from the cut vegetation are deposited as ash, and the effects of nutrient accumulation are more evident in the upper ten cm. of the soil. However, the usefulness of burning is closely correlated with the density of the previous vegetation. Most uplands have been cleared from grasslands rather than secondary growth forests in the past five years. In 1982, for example, over 500,000 hectares or 3.2 percent of total forest lands were classified as grasslands, but Revilla
III.125
(1984) estimates that a higher more realistic when grasslands are included.
proportion of i0 percent is within existing forest lands
Control of forest conversion into agriculture is crucial when viewed in terms oE soll erosion effects. Off-slte erosion estimates (or the volume of sediment load carried downstream) in open grasslands converted to agriculture, for example, reached 100 tons per hectare. Lands converted from inadequately stocked forests had erosion rates from 20 to 40 tons per hectare, while lands from adequately stocked, secondary growth forest had a lower erosion rate of 15 tons per hectare. The importance of these figures can be seen clea_ly in _he large land area subject to high erosion, which in 1982 was 3.8 million hectares or 20.9 percent of total forest lands under previously grassland vegetation. Soil conservation techniques, when applied properly, have been found to reduce erosion impact by as much as 70 to 80 percent, depending on the type of conservation approach used. Normally three inexpensive types of soil conservation techniques are used -- planting of trees, contour farming and strip planting. Rockwall terracing, which is slightly more expensive and labor-uslng, was introduced by BFD in a pilot site in Cebu in 1980 but several studies have indicated that indigenous forms of terracing have been in existence for centuries. From the perspective therefore of land allocation, the problem of conversion of forest lands to agriculture arises when the process involves lands which are physically not suited to the continuous cropping, associated with sedentary agriculture. In this case, while individual farmer net benefits might be positive (at least in the short term), the social costs of soil erosion might be substantial. The intermediate conversion from forest to shifting cultivation, however, may be feasible both from the private and social perspectives and may represent a response to population pressure that does not require major costs in terms of investment in terracing or other artificial or biological erosion control methods. It is Decause of these high social costs that up to 334,711 hectares have been proclaimed as watershed reserves (BFD, 1981). While logging is kept out of such watersheds, in many instances forest communities have settled there. Resettlement of households outside the watershed area is often not feasible due to its very high costs. At the same time, resettlement efforts offer no assurance that the problem of new encroachment will not arise in the future. In these cases, the job of watershed management becomes not III.126
primarily one the needs of r_qui rements watershed.
I
1.
Ii
_
1Po
!_C
of forest protection but the forest community for of controlling soil
Z
Recommendations
For
of mediating between a livelihood and the erosion within the
Philip_pine
Forestry
The Bureau of Forest Development (BFD) of the Ministry of Natural Resources (MNR) addresses two key sectors in Philippine forestry: (a) the logging sector through its timber management and industrial wood utilization program and (b) the informal sector (of upland dwellers) through its social forestry program. Forestry management at least indirectly affects agricultural development through environmental influences associated with soil erosion, flooding, and decreased water resources for irrigation. In addition, the conditions in the informal sector have a clear direct link with lowland agriculture through the migration process.
2.
On policies directed at the formal (logging) sector. The priority for government action should be on halting illegal logging since this is doubly destructive • i.e., the government earns no rent, and there are dangers of environmental degradation and social losses (through soil erosion) Reforestation should not be emphasized until illegal logging is controlled. The reason is that there is very little economic sense in planting one hectare of trees (with its very high current cost and long gestation period) when, at the same time, there are people cutting down one hectare of trees. The recent policy decision to finally impose the log export ban should be aggressively implemented since this will contribute substantially to the conservation effort. The low cutting charges and the Selective Logging System (SLS) have already been shown to be uneconomic. The cutting charge of _30 per cubic meter is unrealistic with current market prices in excess of _i, 000. This only leads to private incentives to illegally capture this excess rent. On the other hand, the timber Stand improvement phase of SLS is uneconomic from the private loggers point of view so the incentive is to forego this. An alternative management system may be based on an appraisal stumpage method to 111.127
capture more of the may then be tied pro.g ram. 3.
rent at the time of cutting. This in with an immediate replanting
On policies directed at the informal sector. It is vet'y important for BFD to informally recognize the cL_itical nature of the upland population. It is not, as their statistics on detected cases of "squatting" indicate, a limited problem, involving only about 1 million persons. Recent estimates from census data show that the upland population is actually about 14 million. In addition to the quantity, upland dwellers are not primarily ethnic minorities. They are made up mostly of lowladd migrants. Contrary to the sociologists' p£eoccupa tion with rural to urban migration patterns, the greater migration flows have been from the lowlands to the uplands. This makes social forestry programs a difficult challenge. unlike upland tribes that have co-existed with the environment for centuries, lowlanders tend to quickly over-exploit the uplands with technology suited only to sedentary agriculture. The social forestry program should therefore be elevated to at least the same level as commercial or technical forestry management. The critical task of such a program will be in promoting systems of secure tenure for upland farmers as well as introducing viable agro-forestry technologies. The first step here should be the official recognition of the communal rights of _ribal cemmunities over their ancestral lands. The second and more difficult step will be the establishment of tenurial systems for migrant communities. From a social perspective, the environmental problem associated with upland dwellers is secondary to that produced by illegal logging. Indeed soil conservation programs should be primarily aimed at critical watersheds where potential erosion and flooding have substantal impact on irrigation and agriculture in the lowlands. In these cases, government should be willing to directly subsidize erosion control methods since the private benefits of such will not always outweigh the private cost. Programs for erosion control are not equitable in this context since the farmer will then be unable to pay and would end up subsidizing the richer lowlands with his debts. III.128
4.
A future source of forest drain will be the demand for fuelwood. Since this is still cheaper than most other ene_:gy sources (sometimes by up to 1 to 4 for the same energy level), the demand will continue to increase. Genera]. pricing policy, especially with respect to kerosene and other energy sources, will be needed to address this problem as well as standard solutions such as the establishment of communal woodlots.
5.
Just as there are municipal fisheries, BFD should seriously consider the creation of local community -probably at the village or non-village level forests. This will be very important not only in enforcing forest use regulations (which BFD cannot effectively undertake) but also in establishing sustainable use systems for community purposes.
III.129
i" "14:. ... !
Prepat_ed by D__s. F].cr.:h:,_! :<":a ,:.+ .i...antJ.can and Laurian ,...U_[leve_l_, As_!::i<_l:.a_it Pro[,_,.J..:,<:_._ ...... . _-',:,:.:<-!::_,ent of Agricultural Economics, College of DeveJ.<:._,._e."_ _. _..-...r.<'-._.ics and Management, U.P. at Los _anos_. College, i.a..._._ ... ._i.:.l Visiting Associate [:c on cm i s t r _. __:_pa ,_,t me n t c_ ' ...'. ,., .... _tura! Economics, Int.er_nati<,ua[i" 7-i.:).c:e Re,.-_ea_ch I_Isti,-_..:.., r,-.:,<,oectively.
b/ Writ!:<_.'.':, L';-,; '-:'"s. [,eonardo [_ C-,::,_:_a].es and Manuel M. Lantin, Liaison ."_.::ienti. st fo: ASi3, ]._['RI and Agricultural Economi st _. [r_t.err,a tiona i Rice 5[esearch Institute, and Chai.cman, Deparhment of .Agronomy, Co]iege of Agriculture, U.P. at Los [_ano,3, College, Laguna, _.e_!):.:_r.:tively. i.
Non'ainal protection
where output
is
calcul._,_--+.das."
=- (Pd./pb
-
i)
Pd and Pb refer , respectively.
to
domestic
NPR
the
rate
x
100 and
border
prices
of
£/ This section was the primary responsibility of Drs. Liborio F. Cabanilla and Cecilio R. Arboleda, Assistant Professor, Department of Economics, College of Development Economics and Management, and Director, Institute of Animal Science, College of Agriculture, U.P. at Los Banos, College, Laguna, respectively. 2. Pineapple cattle producer 3. 1983 Development
Spulp is also in the South.
Philippine Authority.
being
Statistical
used
Yearbook,
by
a
large
feedlot
National
Economic
_d/ Prepared by Dr. Wilfrido D. Cruz, Assistant Professor, Department of Economics, College of Development Economics and Management, • and Executive Director, Center for Policy and Development Studies, U.P. at Los Banos, College, Laguna.
e/ Written by Dr...Wilfrido D. Cruz, Assistant Professor, Department of Economics, College of Development Economics and Management, and Executive Director, Center for Policy and Development Studies,.U.P. at Lo.sBanos, College, Laguna. This section " draws substantially from W. Cruz (1985) and from a still unpublished paper by Ma. Concepcion Cruz.
III.130
REFERENCES
A.
RICE
PRICING
'AND MARKETING
POLICY
Anden,
T.L. and A.C. Palacpac. 1976.. D__ata:Series _ on Statistics Jn the Philippines. Los Banos, Laguna.
Asian
Development Processing and Philippines".
Bank. 1982. "Appraisal of the Marketing Project in theRePub!ic Metro Manila.
Rice
AgrooF the
Aviguetero,E.E. et al. 1978."Regional Consumption Patterns in Major F-6-o_-, i974-76". Bulletin 78-13. Special Studies Division. Ministry of Agciculture. Quezon City. Bouis,
H.E. 1982. dissertation.
"Rice Policy in the Standford University.
Bureau
of Agricultural Quezon City.
DaVid,
Economics.
,C.C. 1983. "Economic culture 'i.Working Paper. Development Studies.
Falcon, W.P. and E.A. Monke. i:n Rice". Food Research Mo.3 _.
Philip
Ministry
of
pines"
Agriculture.
Policies and Philippine Agri83-02. Philippine Institute of i 1979/80. Institute
Gironella, A,I.N., " E.S. Piadozo Stu4y of i,termediaries and Marketing". _ UPLB. _College.
"international Studies. Vol.
S_ in Asla.
Multlple C_6ppinlg Agro-Climatic Re se a_:b.h Zns hl t_ute.•
Unit. .....
In_ernational c
National Cer_sus Man i la.
Office.
S ta.
Food
a l_d Statistics
Authority.
E.
Trade XVII.
and J.D;. V ito. 1984. Their Contribution to Laguna. ....
Herdt, R.W. and C. Capule. " 1983. Adoption, Production Impact of Modern Rice-9_ietzes .. Int-e'_-na--_z_ona I •Ri(_e -Research _Ins---_i EuEeZ'"
National
Ph.D.
Rodriguez. c'
Quezon
Mesa.
"A Rice
and
Rice
Metro
City. '
Siamwalla, A. and S. Haykln. 1983. The World Rice Market: Structure Conduct and Performan_.; _TI-6-_'rna-t'ional _ Food Policy Research Institute. Research Paper No. 39. Washington, D.C. III.131
Unnevehr, L.J. 1983. "The Effect and Cost of Philippine Gove_'nment Intervention in Rice Markets". Worklng P_]'per_No.9. Rice Policies in Southeast Asia Project. A joint project of the International Food Policy Research Institute (IFPRI), the International Rice Research Institute (IRRI) and the International Fertilizer Development Center (IFDC), et. el. 1984. "Changing ........ Advantage-[6"-Ph-i i-ip-pi-neRice Production, International Rice Research Institute.
Compacative 1966 to 1982".
World
Rice
8.
Rice Statistics. Institute. P0L][CIES
FOR
THE
1982.
CORN
International
Research
INDUSTRY
Bondad, R. 1982. Supply analysis for corn. M.S. Thesis. Kansas State University.
Unpublished
Bouis,
H. 1984. Rice and corn shpply demand in the Philippines: past trends and sources of growth. Paper submitted for: the project on Assessment of Food Demand/Supply Prospects and Related Strategies for Developing Member Countries of the ADB. IFPRI.
Gonzales, L.A., N.D. Perez, C.L. Opena, V.B. Marfori, M.E. Palacpac and L.T. Cuasay. 1986. Regional agricultural diversification as an alternative development strategy for the Philippines. Report to be submitted to the Asian Development Bank as a sub-component of the Study of Food DemandSupply Prospects and Related Strategies for D_veloping Member Countries of the Asian Development Bank. Phase II (forthcoming). Lantin, M.M, 1985. "Hybrid versus open-polllnated maize varieties -what is the score?" U.P. Diamond Jubilee Professorial Chair Inaugural Lecture. Department of Agronomy. College of Agriculture. U.P. at Los Banos. Minguez, G.R. 1986. The expanded corn program Philippines. Paper prepared for the Second Asian Regional Maize Workshop held in Indonesia. Perez,
M. 1985. Returns to investment the Philippines. Unpublished M.S. of the Philippines at Los Banos.
III.132
in corn Thesis.
in the CIMMYT
research in University
I
Regalado, B. 1984. The distributional impact of food policies in "human nutrition in less developed countries: the case of the Philippines. M.S. Thesis. CDEM. UPLB. College. Laguna. Upland
C1fof:)s National Cooperative Del)a1::lu*lent of Agronomy. UPL8.
C.
THE
LIVESTOCK
AND
FEED
Test
Report
(1980-85).
INDUSTRIES
Gonzales, L. A. 1984. "Philippine Agricultural Diversification: A Regional Economic Comparative Advantage Analyis". Report Submitted to the Asian Development Bank. Cabanilla, L. S. 1986. "The Effect of Government Policies on the Philippine Livestock and Feeds Industries". Paper presented in the Workshop on the Livestock and Feedstuffs Sector of the Philippine Economy. February 25, 1986. CEC. UPLB. College. Laguna. Alviar, N. (1985) "Economic Contributions of Carabaos to the Farm Households." Paper published in the Buffalo Bulletin. lhternatlional Buffalo Information Center. Bangkok. Thailand. Vol. 4. No. i.
D.
FISHERIES
SECTOR
_prieto, Virginia. 1981. Maritime Jurisdicuion. Environment and Policy
Fishery Management and Honolulu: East-West Institute.
Extended Center
Bailey, Conner. 1980. Social and Economic Organization in Rural Malay Society. Ph.D. dissertation. Cornell Un ire rsl ty. Chaur,
Shyan Lee. !982. Economics of Taiwan Milkfish System. In Aquaculture Economics Research in Asia: Proceedings of a Workshop held in Singapore. 2-5 June 1981. Co-sponsored by International Development Research Center and International Center for Living Aquatic Resources Management.
Chong,
Kee-Chai and Maura S. Lizarondo. 1982. Input-Output Relationships of Philippine Milkfish Aquaculture, In Aquaculture Economics Research in Asia: Proceedings of a Workshop held in Singapore. 2-5 June 1981. cosponsored by International Center for Living Aquatic Resources Management. III.13S
I
i
Cruz,
Wilfrido. 1982. Technical and Institutional Change in Renewable Resource Development (with Application for Traditional Fisheries). Ph.D. Dissertation (Madison: University of Wisconsin).
Delmendo, M. N. 1976. An Evaluation of the Fishery Resources of Laguna de Bay. The Philippine Journal of Fi she3:ies 14(2): 213-231. E,nmerson, Donald K. 1980. Rethinking Deve lol?ment: Western Concepts, Wol:]_l lsaul< Staff Working Paper D. C.
Artisanal Fisheries Asian Experiences. No. 423.'Washington.
Ga_:c:[a, A. M. and R. T. Medina. 1983. The Stateof Development of Cage Culture in Laguna de Bay. Paper p,:esented at the Semlnar-Workshop on the State of Development of the Laguna de Bay Area. PCARRD. Los Banos. Laguna. May 18-21. Guer_:_:o, [',.I). III. 1985. ][)l,i[[[_pines" in Philippine _;_liltll et al., eds.). Manila:
"Tilapia Ti.lapia PCARRD
Farlning inthe Economics (I. R. and ICLARM.
LLDA
1974. Survey of 1973 Fishery Catch LLDA Technical Paper No. i. Laguna Authority. Manila.
in Laguna de Bay. Lake Development
NEDA
1982. National
Pauly
D. 1979. Theory and Management of Tropical Multispecies Stocks: A Review with Emphasis on the Southeast Asia Fisheries: ICLARM Stud. Rev. i. International Center for Living Aquatic Resources Management. Manila.
PREPF
n.d. Population, Resources, Environment and the Philippine Future (PREPF): Scenarios for the Year 2000. A Research Consortium of the Development Academy of the Philippines. the U.P. Population Institute, Technical Report. Vol. IV. Inventoryof Natural Resources: Fisheries and Aquatic Resources.
Philippine Economic and
Statistical Development
Yearbook. Authority.
Sianghao, Rolando M. 1986. Shrimp and Opportunities and Pitfalls. Paper presented Foundation Symposium. March 21. Signh,
V.P. Culture.
et al. Rice Agronomy In ICLARM Technical
rII.134
in Relation Paper No.
Manila:
Prawns: at SGV
to Rice-fish
Smith,
Ian R. et al. 1981. Philippine Municipal Fisheries: A Review _ Resources, Technology, and Socio-Economics, Manila: Fishery Industry Development Council and the International Center for Living Aquatic Resources Mana gemen t.
Smith,
_3.
fan R. and Antonio N. Mines 1983. Fisheries of San Miguel Bay, Philippines: Production _nd Marketing. IF DR-_;PCF-UPV.
Small Scale Economics of ICLARM. UNU.
TII,[.A[.JD AGRICULTURE
Bureau
Of _'orest Development (BFD) • 1981. Forestry Statistlcs. Quezon •City: Bureau Development. Mihistry of Natural Resourc, es.
Philippine of Forest
Crisostomo, Cristina and Randolph Barker. 1973. "Growth Rates of Philippine Agriculture. 1948-1971". Honolulu: Conference on Agricultural Growth in Japan, Korea, and the _Philippines. Cruz, ."
Ma. Concepcion.• 1984. "Population Pressure, •Migration and Mackets: Implications for Upland Development". Paper presented at the Workshop on Economic Policies for Forest Resources Management. Club so lvlen£o. Calamba. Laguna. February. Sponsored by the Philippine _Institute for Development Studies.
, Cruz,
Ma. Concepcion, et Produotion Systems: •' • Sites. PESAM-UPLB.
al. 1985. An. Integrative
Philippine Analysis
Upland of Three
Cruz•,
C. A. 1982. "Economic Analysis of the Selective Logging System in Selected Areas in the Philippines". Unpublished Ph.D. dissertation. College of Forestry. University of the.Philippines. Los Banos. Laguna.
Howe,
Natural Policy.
Charles W. 1979. Issues, Analysis, and and SQns.
Resource New York:
0
Economlcs. John Willey
$
Power, John and Tessie Tumaneng. 1983. "Comparative Advantage and Government Policies in Forestry". Paper •presented at the Workshop on the Impact of Economic Policies on Agricultural Development. Tagaytay City. March 25-26. Jointly sponsored by the Philippine Institute for Development Studies (PIDS) and the PCARRD. (PIDS Working Paper 83-05).
• III.135
PREPF. 1977. Population, Resources, Environment and the •PhJli[_plne Future, (PREPF): Scenarios for the Year 200!) A research consortium .of the Development Academy of the Philippines, the U.P. School of Economics, and the u.p. Population Institute. Vol. II-3a. Philippine [.'o r.e st Resources. Revi]lla, ;!. V. Jr.; 1 M. L. Bonita; and lM. Segura. 1977. "Eval,,;!_tion of Certain Policies and Programs Affecting Fo_:eshY:y Production Through 2000 A.D." in Population, Resoulcces, Environment and the Philippine Future (I_RP:Pf? )• Segura, Marian; A. V. Revilla, Jr., and M. L. Bonita. 1977. "A Historical Perspective of the Philippine Forest ResouL-ces" in Population, Resources, Environment and the Philippine Future (PREPF). Segura-Delos Angeles, Marian. 1982. "Research on Forest Policies for Philippine Development Planning: A Survey" in Survey of Philippine Development Research II. Manila : Philippine Institute for Development Studies. •Talbot, Lee M. and Martha H. Talbot. 1964.• Renewable Natural • Resources in the Philippines - Status, Problems and Recommendations. Manila: South East Asia Project of the International ¢ommlsslon on National Parks and the •International Union• for Conservation of Nature and Natural Resources. Tingsabadh, C. 1983. "Issues in Forestry Management in Thailand" Paper presented at the Seminar on Management in Forest Resources. Los Banos. Laguna. July. Sponsored by the Agricultural Development Council and the •Japan Center for International Exchange.
III.136
P_O_S WHO P_ICI'PATED INl WERE CONSULTED OR RF_CTED _D._'HE_CRK OF _E VN_IOUS
ON,
Livestock i. 2.
Ms. Soledad Agbayani Mr. _fren Baoonawa
P A H R I Planning and Management, BAI
3. 4.
Mr. Augusto de Leon Mr. Mario M. Labadan
P A F M I Livestock and Poultry, Inc.
5.
Mr. Antonio Nocom
ANSA Farms
Iii.137
CHAPTERIV. Agricultural Exports
IV
CHAPTER
AGRICULTURAL
EXPORTS
OVERVIEW Since time immemorial, agricultural exports -particularly sugar and coconut -- have been top trade dollar earners for the Philippines, and have accounted for a substantial proportion of both agricultural land area and labor employment in the rural sector. Our current economic difficulties, particularly on the balance of payments front, have brought to focus the importance of the agricultural exports sector and the role it can play in the economic recovery and long term growth of the nation. While studies have confirmed that the country possesses comparative advantage in these products, there has tended to be an overdependence on a small number of agricultural cash crops. The results have been a severe vulnerability to world commodity price fluctuations. Unfortunately, the ones worst affected by crises precipitated by periods of low commodity prices have usually been the small farmers and landless workers, who also count among the poorest groups of Philippine society. Indeed, even in periods of relative boom in the agricultural exports industries, it has been observed that these groups have not received their commensurate share of the industry's benefits,
the
In the light of the agricultural exports
above, sector
i.
Encouragement of (and increased agricultural
2.
Increased exports;
3.
Greater farmers
the general include the
policy needs following:
of
removal exports;
impediments
to)
diversification and
of
orientation of policies and landless workers.
of
our
agricultural
towards
the
small
The most serious impediments to the further development of our agricultural exports sector are: (I) the overvaluation of the peso (i. e., an artificially low exchange rate) resulting from our tariff structure designed to protect the industrial sector; and (2) our system of export taxes have tended to penalize mostly the export products originating from the agrlcultural sector. The implicit tax penalty on agricultural exports arising from the industrial protection structure has been estimated to amount to about 15 to 20 percent; export tax rates range from 2 to 25 percent. These are substantial disincentives
IV.I
that affect all agricultural export producers across the board (i.e., both small and large agricultural enterprises). This suggests two policy changes that could significantly _nhance the much needed development of the agr.icultural export sector, i.e., (i) restructuring our import tariff structure to yield a more realistic exchange rate -- or at least, the adoption of an exchange rate policy that corrects for the above-described overvaluation, and (2) elimination of exports taxes, with the exception of those on logs. While drastic changes in the country's tariff structure appear unlikely (and probably impractical) in the short or even medium term, removal of export taxes is a measure that could be undertaken immediately without serious short-run costs to the Philippine economy. Indeed, the benefits from such a move can be expected to outweigh the cost (which is mainly the reduction in tax revenue). "Notes on the Removal of Export Taxes" in the Annex spe'lls out in greater detail the case for the elimination of export taxes. The main points to consider are (a) export taxes fall most heavily on the farmers who produce agricultural export products; (b) revenues from the export taxes have never been substantial in proportion to total tax revenues of the government, accounting for no more than 2 percent of the latter; and (3) removal of export taxes will result in significant growth in the country's agricultural export sector, and may contribute to even greater tax revenues from other tax source s. Recent discussions have pointed to the need for further promotion of the agricultural export industries, and one of the products of such discussion has been the Agricultural Incentives Act (AIA), which was issued as a decree by the previous administration in early February, While the AIA's intent is to promote further investments in the agricultural sector (particularly in agricultural exports), it has obviously been directed at large commercial-scale enterprises; and has been widely criticized for its capital and foreign exchange-intensive bias and its neglect for small farmers, among other things. "Notes on the Agricultural Incentives Act" in the Annex details the bases for opposition to the AIA. This chapter addresses the" policies required to sustain and further develop the agricultural exports sector. Recognizing the dominant role that has been played by the coconut and sugar industries, the first two sections are specifically devoted to these two commodities. Policies towards non-traditional export products (NTAX) are dealt with in the final section of the chapter. In the discussions, certain common guiding principles can be
IV. 2 '
gleaned, which form the recommendations made. These
basis guiding
be no direct and marketing
for specific principles are:
policy
i.
There must production
2.
Monopoly and monopsony from these sectors;
3.
Policie_ must be oriented towards small farmers and farm workers;
4.
The agricultural exports industries must be closely linked with the world market (i.e., via removal of export obstacles such as bans, taxes, and excessive bureaucratic procedures, and through appropriate pricing policies);
5.
Improved provided
6.
Land reform be expanded
7.
Increased support must be other rural infrastructure
8.
Support for substantially
credit for;
government involvemen't in of agricultural products; power
availability
must
and
be
eliminated
the
welfare
delivery
and other redistribution beyond rice and corn;
research and strengthened.
i"4.3
of
must
be
schemes
must
given for marketing development; and
and
extension
has
to
be
A.
COCONUT
INDUSTRY_/"
I.
i.
Introduction
Background
The key concern for government policy towards the Philippine coconut industry is to promote the welfare of the coconut farmers, who comprise a sizable segment of the rural population I/, and whom statistics show to be among the poorest groups within the rural sector (along with landless agricultural workers and corn farmers). There are clear indications that government policies achieved precisely the opposite, leading concentration of the benefits derived The policy agenda must therefore address farm incomes squarely.
in past years have to an even greater from the industry. the problem of low
Recent policy discussions on the coconut industry have revolved around the monopoly (or more accurately, nearmonopoly) of the coconut trading and processing sector which was institutionalized by the previous government. This monopoly control had been achieved and sustained through (I) acquisition of at least two-thirds of the country's oilmilling capacity, (2) a ban on exports of copra, and (3) an institutional structure for the industry which consolidated control in the hands of a few individuals. Under such circumstances, farmers to reap
it was hard the greater
to
expect benefits
the of
large majority the fruits of
of the
industry, notwithstanding the lip service repeatedly given to their welfare. While the current government has taken decisive steps to eliminate this monopolistic structure, much remains to be done to alleviate the plight of the coconut famers, particularly at this time when world market conditions are unfavorable. 2.
The
Coconut
Sector:
A
Sunset
Industry?
Such unfavorable world market conditions (i.e. low prices and intensifying competition from closely competing products) have led a number of analysts to give up the coconut industry as a "sunset industry",, and to advocate a gradual easing out o6 coconut production and into alternative export crops. We take the view that this is being overly pessimistic. There are several continued investment in improved productivity industry are warranted:
IV.4
in
reasons why the coconut
I. There remain many unique characteristics un ec onom ic al.
uses makes
for which substitution
the coconut's difficult or
2. Scientists continue to discover new uses coconut; indeed, many argue that the full potential the coconut plant has yet to be tapped.
for of
3. Even with the pessimistic outlook for world oils and fats prices, there is a great deal of potential for the coconut industry to remain competitive due to the substantial scope for productivity improvements in the sector. Hence, the proposed policy agenda for the coconut industry is based on th e premise that the industry could and should remain an important segment of the agricultural sector for years to come. Therefore, investments _n improving the industry's productivity will continue to be worthwhile. On the other hand, there must not be any attempts to further increase coconut hectarage in the country. The need for increased diversity in the Philippine agricultural sector has long been recognized and merits emphasis in the new government's agricultural policy agenda. Past experience with world market volatility has repeatedly demonstrated the desirability of avoiding excessive dependence on a few export crops (e.g., sugarcane and coconut). Thus, any investments in increased coconut productivity should be restricted to existing coconut lands (e.g., through replanting, tree rehabilitation or intercropping). The World Bank-sponsored Coconut Development Project, which explicitly provides for new coconut plantings aside from replanting, is therefore viewed with considerable concern and skepticism. 3.
Polic_
Agenda
Low incomes in the coconut farming sector have usually been attributed to two general factors: (i) low farm productivity, and (2) an inadequate share of the final purchase price (especially export prices) of coconut products. Low productivity can in turn be attributed to agronomic as well as socio-economic factors. The agronomic factors a_e the senescence (overmaturity) of a large segment of the tree population, and lack of inadequate farm management practices. Socio-economic factors include the i,adequacy of credit and extension services, and land tenure constraints. Lack of competition in the trading and processing sectors is believed to be the cause of the inadequate farmer's share in coconut prices. In any case, policy recommendations may be grouped into those that are to
IV.5
be dndertaken immediately (i.e., short term) are tO be undertaken in the longer term. Policies
•recommended
i.
Permanen_t
2.
Removal
3.
Re-evaluation
for
lifting
the
of
short
the
of export • taxes of
the
and
term
copra
which
incl_de: 2/
export
on coconut
coconut
those
ban;
products;
replanting
program;
4. Fullaccounting of the resources raised by the coconut levy, now in the form of assets of the United Coconut Planters Bank, UNICOM, the Philippine COconut Authority, and COCOFED, •among others.• On a recommended
longer :
term•
2. In•creased extension. 2.
Improved
horizon,
support
credit
the
for
delivery
following
coconut
research
to coconut
farmers;
3. Improved market facilities; and
infrastructure
4.
reform
Extension
The succeeding rec ommenda tion s.
of
land
discussions
II___tShort,term .I.
Copra
Export
into
and
•coconut
elaborate
Policy
steps
on
are
and
information
lands. thesepollcy
Imperatives
Ban
The cqpra export ban was a short-run measure that had outlived• its usefulness. It was •instituted in September of 1982• at a time •when severe droughts had significantly reduced coconut and copra output. As a result, intense competition for copra supplies among coconut oil mills and traders developed, as evidenced by average mill gate prices exceeding the copra export price. The ban had been intended to be .temporary, but was retained on the rationale oE promotlng the export of the higher value-added product, coconut oi 1 However, banningc0pra exports reduces competition for copra supplies, and given the substantial control enjoyed by UNICOM on th_ coconut oil milling industry, virtually •gave UNICOM monopsony controi over copra supplies from the farms'.
IVY6
The result was lower farmgate prices than would have otherwise prevailed. The copra export ban thus imposed an implicit tax on the farmers. In effect, the ban implicitly subsidized the milling sector at the expense of the farmers who are among the poorest members of the rural population. While promoting coconut oil milling is desirable (i.e., because of higher value-added), the cost of such promotion must be borne by society in general (e.g., from general tax revenues). The copra export ban was a highly inequitable way of achieving vertical integration in the coconut industry. It has recently been argued that removing the copra export ban will place local oil millers at a great disadvantage vis-a-vis the European oil millers, and will therefore be destructive to the industry. However, past studies have shown that the country enjoys a comparative advantage in coconut oil milling; moreover,it is hard to argue that European millers could enjoy a comparative advantage when they have to contend with transport costs for the raw material which local oil millersneed not face. However, it can be argued that the industry faces an exogenous distortion due to the European countries' discriminatory trade policies which permit entry of copra duty-free while taxing imports of coconut oil. But the way to deal with a distortion is not with another distortion, and certainly not with a highly regressive one such as the copra export ban. The ideal solution would be to negotiate for the removal of such discriminatory duties on coconut oll among our major markets. At a time when these countries have expressed willingness to ex_end aid to the new government, such trade concessions would represent a much more meaningful aid measure than outright monetary grants. But even if such trade concessions are not forthcoming, a ban on copra exports cannot be an appropriate mechanism for promoting the higher value-added product, for the reasons described above. Other means must be sought for improving the competitiveness of the country's oil milling sector, without unduly penalizing coconut farmers in the process. Thus, the recent lifting of the copra export ban, while being an inevitable response to the short run glut in the copra market, is also a justifiable long term policy, and should therefore be made permanent. Permitting copra exports is expected to reduce oil millers' profit margins on their copra purchases, and may eventually drive the more inefficient mills out of business. But this outcome need not be unwelcome, considering that the industry still has substantial excess capacity under normal circumstances; Capacity utilization remained under 60 percent as of 1983 (NEDA Coconut Industry Study, 1985). Moreover, the
IV.7
increased competition will encourage the milling improve its efficiency, and hence competitiveness •world market._ 2__. _
sector to in the
Taxes
Like the copra export ban, the imposition of export taxes was a temporary measure which has outlived its usefulness. Export taxes were instituted in 1970 to absorb the windfall gains to exporters from the peso devaluation, and were to be phased out by 1974. However, they were made permanent by the new Tariff and Customs Code of 1973, presumably for revenue reasons. As of early products• were as
1986,. the
export
Product
Export
Additional Duty
Total Duty
Copra
7.5%
7.5%
15.0%
Oil
4.0%
1.0%
5.0%
MealCake
4.0%
0
4.0%
4.0%
0
4.0%
Coconut Copra
Dessicated
March, follows:
Coconut
taxes
on
coconut
Executive Order Number 9, which lifted the copra export ban, also lowered the additional duty on copra to 2.5 percent, making the total duty on copra equal to 10 percent. It is our position that all these export taxes should be eliminated. The export tax on coconut oil is a disincentive that is inconsistent with the objective of promoting exports of coconut oil. Indeed, export taxes in general run counter to thedesirable objective, of strengthening the export sector. Moreover, because the Philippines is a price-ta_er in the world coconut oil market, the tax is largely passed on to the farmers in the form of lower farmgate copra prices. The 75 percent share of the Philippines in the world coconut oil market does not give it market control because the relevant market is the fats and oils market, of which coconut oil accounts for only 4.5 percent. That the country is a pricetaker in the world market has been borne out in past experiences with attempts at export price-fixlng. The most recent example was the check-price (minimum export price) mechanism employed last year, which proved counterproductive to the industry.
IV.8
Removal of the export tax on coconut oil will not have serious revenue consequences. Fqt illustration, the 1983 FOB value of coconut oll exports amounted to 4.5 billion pesos. The _ial export tax revenue from this was 410 million pesos (the a'_tual revenue was probably significantly less). This represents less than half a percent of tax revenues for 1983. Indeed, all export tax revenues represent just under 2 percent of total tax revenues (see Table i). It should be realized that whatever direct revenue losses result from removal of export taxes should be compensated by increased revenues that will result from higher output and incomes that can be expected with increased export activity. Thus, loss of revenue need not be of concern in the proposed removal of the export tax on coconut products, as well as that on other products. 3.
The
Replantin_
Progra________m
There has been a common belief that the senescence (i.e., overmaturlty) of a large proportion of coconut trees in the country has led to a significant decline in productivity of coconut farms, starting in the 1970s. Because of this, the government embarked on a nationwide coconut replanting program aimed at replacing old trees with "precocious, high-yielding hybrids". The program has often been characterized as having some degree of urgency. However, available statistics tend to indicate that the problem is not so serious on a national level. The proportion of senescent trees is about 21 percent of the national aggregate (PCA survey, 1979); it is only in the Southern Tagalog region where the proport.ion of trees over 60 years old is high (47%). For this and other reasons, some changes appear warranted in the implementation of the replanting program, namely:
,
I. A thorough re-examination of the private and social profitability of replanting with hybrid coconut varieties. It is not clear, for example, that there are significant benefits to planting hybrid varieties as against the traditional (and more easily accessible) varieties. PCA field trials have shown that in the absence of fertilization (which cash'strapped farmers are u'nlikely to undertake anyway), local varieties perform just as well as, and sometimes even better than hybrids. It has also been shown that with fertilization, yields of about 5 tons per hectare can also be attained with local varieties (Sangalang, 1985).
IV.9
Table
i.
Export Products 1983.
Tax Rates Subject
and Estimated to Export Tax
1983 Value of Exports (FOB PM)
as
Revenues for of November,
1983 Export Tax (%)
Estimated Revenue (PM)
i.
Bananas
1,661
4
66
2.
Coffee
588
2
12
3.
Abaca
198
4
8
4.
Frozen/Fresh Tuna
201
2
4
37
15
6
581
2
12
813
25
203
1,275
6
76
838
8
67
780
8
62
397
6
24
5.
Copra
6.
Canned
7.
Logs
8.
Canned Pineapple
9.
10.
ii.
Copra Cake
Tuna
Meal/
Dessicated Coconut Shrimps prawns
&
12.
Lumber
1,642 .
6
98
13.
Plywood
838
2
17
14.
Veneer
307
6
18
15.
coconut
Oil
Totals
source:
PIDS-Tariff Group
4,551
410
14,707
1,083
Commission
Joint
(1984).
IV. I0
Research
Project
Study
2. Removing the over-eml_hasis on the MAWA variety, which, while having been shown to be appropriate for some areas of the country (e.g., Mindanao), has also been shown to be _appropriate for others, especially the typhoon belt.! / Unfortunately, it is the areas in the typhoon belt which are in most need of replanting. 3. Use of the sequestered Bugsuk Island seednut farm to produce seednuts of other promising coconut varietiesr while establishing strategically-located seednut nurseries in the various coconut regions of the country, usln_ varieties best suited for each partlcular region. 4. Intensified research to evaluate promising new hybrid those that will not be heavily fertilizers and pesticides.
identify, varieties, dependent
develop and partlcularly on chemical
The soundness of the World Bank-sponsored Coconut Development Project needs to be thoroughly evaluated. It is doubtful that considerable resources need to be channeled into a massive replanting program in the immediate future, especially with borrowed funds. Available resources appear to be better spent on intensified research and extension, which will also pave the way for a more prudent replanting program. 4.
Coconut
_
Funds
A substantial amount of money (i.e., close to _i0 billion) had been raised with the coconut levy, with the expressed intention of using the funds to improve the welfare of the coconut farmers. While it is now widely agreed that the funds came predomlnantly out of the pockets of the coconut farmers, it is clear that they have not received their proportionate share of the benefits of the fund. Indeed, it was j_he oil milling sector and the coconut establishment which benefitted the most from the levy funds disposition (again effectively taxing the coconut farn%ers for the benefit of the oll millers, just llke the copra export ban). The n omlnal ownership by the farmers of levyfinanced "institutions li.ke UCPS, UN!COM, and UNICHEM has failed to be translated into tangible benefits for the thousands of coconut farmers around the country. Thus, justice demands that a full accounting of the levy funds' disposition be undertaken. This will also determine the amount of resources left of the fund for potential financing of the needed programs and investments in the industry.
IV.t1
III. i.
Coconut
Long-term
Research
and
_
A_enda
Extension
4/
Funds allocated to coconut research and development have been small in relation to the industry's contribution to gross value added in agriculture. Indicative of this neglect is the fact that no more than two agronomists with a doctorate degree are working on coconut plant breeding in the country; in fact, one known agronomist is cdrrently working to help .another country's coconut industry. Support for coconut breeding research is reported to have been abruptly discontinued by the Philippine Coconut Authority when the MAWA variety was first earmarked for exclusive use in the replanting program, for now obvious reasons. While PCA possesses the facilities for a potentially effective coconut research system, particularly for breeding and other agronomic research, lack of funding support has hampered their effective use. It has often been pointed out that our coconut research efforts pale in comparison to the support given by the Malaysian government to oil palm research and development. It is no wonder that palm oil has been steadily eating into the market for coconut oil in the world oils and fats market. Clearly, significantly increased support is needed for coconut remearch if the needed productivity gains in the industry are to be attained. 2.
Farm
Credit
J
The provision of credit to coconut farms will assume even greater importance as coconut farming becomes more input-intensive as a result of the hybrid replanting and intercropplng programs. This must be undertaken with new and creative mechanisms to overcome past problems experienced in agricultural credit programs. Seeking to supplant traditional credit sources especially the "suki" system does not appear warranted. These credit-marketing tie-ups have become a way of life in the coconut industry (as well as in other crop sectors) and fills a real need in the industry by providing £armers with a ready source of credit when formal credit is inaccessible for economic or practical reasons. It is also not clear that the effective interest rates charged by trader-lenders (collected through price discounts) are excessive, especially if one considers the usually high transaction costs of obtaining °formal credit. Hence, government should not attempt to eliminate+ linked credit arrangements as a matter of policy. In the context of an inadequate rural credit delivery system, traders appear to be useful conduits for channeling financial resources to the rural sector.
IV.12
The delivery of institutional credit to the industry (and to the rural sector in general) continues to need improvement. Rapid rehabiliSation of the rural banking system is the single most important step towards this goal. It must be noted that the greater challenge facing government is the improvement of credit delivery mechanisms, rather than the determination of "appropriate" interest rates. In the light of the general scarcity of capital in the economy, preferential or subsidized credit as a policy instcument should be used prudently and sparingly to ensure the most efficient use of capital. (See chapter on rural credit policy.) 3__:.. _
infrastructure
Tangible benefits could be provided to coconut producers by simply improving their links to the market, through better market information and transportation facilities. Such improvements can be expected to result in higher prices for farmers, by helping reduce monopsony power in copra trading at the farm level. While the importance of market infrastructure and information improvement has long been recognized, there continue to be insufficient investments in these areas of the industry. The other area for marketing development is in the intercrops for coconut-based farming systems. One of the most serious constraints to coconut intercropping has been the lack of marketing support (including postharvest facilities) for crops commonly recommended for coconut intercropping, e.g., cacao, pineapple, coffee, etc. Investments in these marketing facilities should be sqpported to help coconut farmers obtain higher incomes from their coconut lands. 4.
Land
Re form
There appears to be • a widely-held presumption that larger farming units are more efficient than small ones (i.e. under 5 hectares). This has become the major basis for recent recommendations for consolidation of small farms into cooperative farming schemes and nucleus estates. The coconut industry is one important sector for which the argument has been made, as. embodled in the NEDA Inter-Agency Coconut Industry Study. With this as a premise, land reform is justified purely as a redistributive measure but is perceived with some reservation as potentially detrimental •to farm productivity. However, examined more •coconut, where
the premises thoroughly, 26 percent of
of such arguments need to particularly in the case the area planted is operated IV.13
be of by
share tenants recognize that
(PCA 1979 the observed
survey). better
It is important productivity of
to large
coconut plantations as opposed to small coconut farms does not necessarily imply economies of scale in coconut production. It should not therefore be used as basis for advocating the consolidation of small farms into larger cooperative farms or nucleus farming schemes, and/or exemption from land reform laws. The greater efficiency of the large coconut plantations is due mainly to three factors: (a) The large farms where environmental (b) and
are mostly conditions
These farms appear management; and
to
benefit
(c) These farms are relatively have younger, more productive It
is
really
these
circumstances,
situated in are favorable;
and
Mindanao,
from
better
planning
young, trees.
and
therefore
not
their
bigness,
that
counts.
About 65 percent of coconut lands are in units smaller than 4 hectares, 33 percent between 4 and 20 hectares, and the remaining 2 percent in units larger than 20 hectares (PCA 1979 survey). The large plantations tend to be concentrated in Mindanao, where farms benefit from good soil and a favorable climate, especially one that is free from typhoons. Tree spacing in Mindanao has also been observed to be more optimal (i.e., lower tree densities) than in the rest of the coconut-growing regions, contributing to higher yields in terms of nuts per tree (see Table 2). management practices tend to be superior in these plantations. For example, it is generally observed coconut farms in Mindanao are either cleared under the or
intercropped,
while
Luzon
farms
are
not
as
"clean".
Farm large that trees The
yield-enhanclng effects of clearing spaces under the coconut trees and intercropping (because of better soil cultivation) has been demonstrated by agronomists. Moreover, the large Mindanao plantations, being relatively young, also have younger and more productive trees. As shown by PCA and B_Econ statistics, coconut farming became significant in Mindanao only within the last 20 years; agronomists consider the ages of 15 to 25 years as the most productive for the coconut tree. Economies of scale tend to be associated with capital intensive modes of production, or those whose costs are predominated by fixed costs. Coconut farming is not such an enterprise. Costs and returns analyses have shown that variable costs (especially labor costs) predominate in the
IV. 14
Table
2.
Average Region,
Number of 1980-84.
Coconut
Trees
1980
REGION
Area (000 Ha. )
#. Trees (000)
PHILIPPINES
3126
llocos Cagayan Central Luzon S. Tagalog Bicol W. Visayas C. Visayas E. Visayas W. MindanaO N. Mindanao S. Mindanao
per
Hectare
by
1981 Ave. Trees/ Ha.
_-6_" (000 Ha. )
# Trees (000)
Ave. " Trees/ Ha.
417362
134
3105
402008
129
2314 935 2 298 548 94092 353_ 35812 94 14738 162 38986 369_ 56667 397 _ 43275 368 _ 45258 813 84987
178 134 149 172 I01 157 241 154 109 123 105
13 7 2 543 353 94 158 334 411 368 822
2315 960 342 93262 39097 14155 23472 51091 45000 46462 85852
178 137 171 172 Iii 151 149 153 109 126 104
13 7
1982
RSGION
Area (000 Ha.)
_. Trees (000)
PHILIPPINES
3162
Ilocos Cagayan Valley Central Luzon S. Tagalog Bicol W. Visayas C. Visayas E. Visayas W. Mindanao N. Mindanao S. Mindanao
14 7 2 543 330 118 158 345 452 368 825
1983 Ave. Trees/ Ha.
Area (000 Ha.)
# Trees (000)
Ave. Trees/ Ha.
409664
130
3187
407612
128
2308 982 342 93060 36791 18338 23472 50733 51069 46480 86089
165 140 171 171 iii 155 149 147 113 126 104
13 7 2 543 335 119 158 356 422 369 863
2310 999 405 92042 37274 18419 23488 51972 45103 4660-8 88992
178 143 203 170 IIi 155 149 146 107 126 103
IV.15
Table
2 (continued)
1984 REGION
Ar-_(000 Ha. )
# Trees (000)
Ave. Trees/ Ha.
PHILIPPINES
3217
410337
128
Ilocos Cagayan Valley Central 5uzon S. Tagalog Bicol W. Visayas C. Visayas E. Visayas W. Mindanao N. Mindanao S. Mindanao
14 7 2 558 364 105 155 357 423 369 863
2314 i000 411 92660 40475 16217 23006 51971 45162 47284 89837
165 143 206 166 iii 154 148 146 107 128 104
IV.16
coconut production system (see Habito, 1985). Thus, scale economies are not reason to advocate coconut farming in large units, nor inhibit the redistribution of coconut lands in smaller units to tenants. An important argument for extending land reform into coconut lands is that it will facilitate greater intercropping in coconut farms around the country, t-hereby increasing coconut farmers' incomes. The Agrarian Reform Institute (UPL8) reports a growing trend, for coconut landlords prohibiting intercropping by their tenantS, especially in the case of perennial intercrops. In these cases, the tenure status of the farmers becomes a constraint to obtaining higher incomes from their coconut lands. Land reform in such cases would not only improve equity, but would also promote h.igher farm productivity and incomes.
IV-
Conc.l_ud.in 9 Remark__,_s
Policies for the.coconut sector, because of the sheer size ,of the industry, will have a marked impact on the agricultural sector as a whole. There is much scope for raising the incomes of coconut farmers throughout the country. The new government should work for the reversal of the policy bias against the farmers that prevailed, under the previous government (notwithstanding claims to the contrary). We feel that the above suggestions will be consistent with this aim.
IV.17 •
B.
POLICY
AGENDA
FOR
THE
SUGAR
INDUSTRY
I.
Introduction
b/
Pessimistic forecasts for the world sugar market have tended to condition recent policy discussions on the Philippine sugar industry. These are set against a backdrop of current crisis in the industry that has arisen both from an unfavorable world market and mismanagement of the industry in recent years. The policy agenda for the sugar sector should therefore be directed at achieving a reduction in the industry's output While minimizing the short-term economic and social costs of doing so, and to provide for long term growth in productivity and incomes in the sugar areas of the country. The approach to policy reform in the sugar sector is complicated by the need for short term measures to immediately address the current crisis condition faced by all sectors of the industry. Thus, it is necessary to distinguish between short-term measures designed to accelerate the process of recovery and alleviate the suffering of displaced industry workers on one hand, and long term policies that would ensure the continued viability of the industry in the long run on the other. The difficulty lies in ensuring that the short-term policy measures would be consistent with desired long-term policy objectives.
llI.
Industry
PrOfile
Between 1979 and 1984, about 442,000 hectares were devoted to sugarcane with an annual production of about 2.4 million metric tons (MMT) of raw sugar. The industry employed about half a million workers both in production and processing, and contributed about 6.5 percent of gross value added of the agricultural sector in 1973-82. In the same period, the country's sugar exports averaged about 1.4 MMT per annum, accounting for about 12 percent of the total value of merchandise exports. There are an estimated 30,000 sugarcane growers around the Icountry, with about 77 percent consisting of small farms under 101 hectares in size, 18 percent with farms between I0 and 50 hectares, and 5 percent with large farms larger than 50 hectares_ However, in terms of total sugarcane area, large farms account for 43 percent, medium-slzed farms account for 35 percent, and only 22 percent are accounted for by small farms. About 70 percent of all sugarcane is grown in the Visayas (Panay and Negros Islands), with the
IV.18
remainder in r.uzon (25%) and Mindanao (5%). The heaviest concentration is found in the province of Negros Occidental, where 70 percent of total cultivated area has been devoted to sugarcane. There are 41 sugar mills currently operating around the country with a total milling capacity of about 3.5 MMT of raw sugar per annum, or about 190,000 tons of canes perday. (Table 3). The average capacity utilization between 1979 and 1984 was 70 percent. Nine of these mills, accounting for 17 percent of total milling capacity, were built in the 1970's with government-guaranteed financing, in response to favorable export prices that prevailed in the early to mid70's. The industry reached a turning point in 1984, after which production, hectarage and employment dropped significantly. In 1984-85, hectarage went down to 385,000 and production dropped to 1.7 MMT of raw sugar. For 198586, the corresponding figures (projected) are 321,000 hectares and 1.4 MMT. The resulting displacement of workers has become a major social problem which has brought dational (and international) attention to the island Of Negros in the last two years. The dramatic reversal of the industry, from a number one export earner in past decades to an industry in a survival crisis, makes policy directions in the sugar industry of crucial significance in the national agricultural program of the new government.
III.
The
Sugar
Crisis:
Its
Causes
An understanding of the root causes of the current sugar crisis is important for an effective identification of policy directions for the sector in _he years ahead. The dramatic •contraction experienced by the industry after 1984 was the direct result of three major factors: I. A decline in the availability of financing to industry due to overall liquidity constraints nan-payment for planters' •sugar by NASUTRA; 2. An unfavorable export market making other than the U.S. market unprofitable; 3. Deterioration (although this problem ).
is
exports
of peace and order in both cause and effect
the and
to
Negros of the
While these were the precipitating factors which led to the present problems of the industry, the present troubled state of the industry stem fundamentally from the insulation of
IV.19
the industry from the international sugar market, and particularly from the mismanagement of the U.S. sugar quota. If one sees the sugar industry problem on these terms, it becomes easier to identify both the long-run and short-run policies needed for the industry. The industry's insulation from the world market has brought about the situation where domestic prices have tended to be significantly higher than world market prices. This has been made possible by the high export price afforded by the U.S. sugar quota (which pays a price substantially higher prices than those prevailing in the w_rld market), the continued ban on sugar imports, and the mechanism chosen by the government for marketing sugar in the past years. These circumstances did not generate the initiative to achieve improved productivity and efficiency in the sector. With the pessimistic outlook for the world sugar market and the impending loss of the U.S. sugar quota, it is now widely felt that substantial excess capacity in sugar production exists in the country. Thus, when the state of the domestic economy worsened in 1984 at a time when the world sugar market was also becoming increasingly unfavorable, the industry was particularly vulnerable. Financing, which has traditionally been vital to the industry, became severely limited when macroeconomic stabilization policies called for tight credit policies. Also, the instability in the government's sugar marketing policy at the time is claimed to hawe inhibited some banks from extending sugar financing. Failure of the National Sugar Trading Corporation (NASUTRA) to pay for sugar bought in and after March, 1985, further exacerbated planters' cash flow problems. On the world market scene, the reduced growth in sugar demand due to the increased popularity of artificial and corn sweeteners has dampened long-term prospects for the world sugar market. The current world market price of about 7 U.S. cents per pound is not viable for Philippine sugar producers; a price of at least 10 cents per pound is needed for Philippine sugar exports to be viable, according to industry sources and World Bank estimates. Thus, the only exports the industry could profitably make at this time would be to the U.S. market, which pays about 20 cent.s per pound. However, the country's share of the U.S. quota has been steadily declining (210,000 MT in 1986, down from 310,000 MT the previous year) and most expect it to disappear within five years. Lastly, part of the reason for, but also part of the of, the decline in sugar production has been the growth of insurgency in Negros. Because of large
effect steady
IV.21
losses due to pilferage especially from more distant farms, planters have decided to leave these farms idle. On the other hand, the social displacements caused by such reductions in production and employment promote the growth of such insurgent activity.
IV. I.
The
Sugar
Policy
_
Agenda
A Sunset
Industry?
With the current situation and pessimistic future outlook for the world sugar market, many have argued that the Philippine sugar sector should abandon the idea of being an exporter to the world market, and should instead just target production for the domestic market and the U.S. sugar quota. It is often cited that the Philippines is a highcost sugar producer, and therefore cannot compete in the world export market. However, figures show that Philippine costs of production are about equal to the world average for sugar-producing countries (see Tables 4 & 5). Thus, one need not conclude that the sugar industry cannot become competitive, especially if one considers that: i. Considerable potential remains for increasing sugar productivity in the country, if the relative neglect for sugar research in the past years is reversed. Sugar yields continue to be low by world standards (see Table 6), and can be raised with increased support for research than has been given in past years. 2. A major reason for the cost disadvantage of the Philippine sugar industry is the overvaluation of the peso brought about by the government's industrial protection structure. With a more realistic exchange rate, sugar exports even to the world market can be viable in the long term. 3. The overall pessimism about the future outlook for world sugar prices may not be warranted. The U.S. Department of Agriculture reports that the substitution of artificial and corn sweeteners for sugar appears to be levelling off. Furthermore, the rece_it nuclear power disaster in the Soviet Union is likely to push commodity prices up as large quantities of .radiationcontaminated crops will have to be discarded. We take the position that market for sugar is premature. not to manage a contraction context of continued protection
abandoning the world export The approach to the issue is of the _ industry within the via an import ban; this will
IV.22
Table
4.
Sugar
Production
Cost.
Selected
Countries
Country
Production Cost (1978) (U.S. _/Zb.)
Australia
2-
Ta iwan
3 - 4
Peru
3.8
E1 Salvador
4.5
British
West
Indies
5 -
Philippines
5 Republic
4.-
Fact
sheet
5.5
6 - 7
World
Source:
_
4.9
Brazil
Dominican
3
prepared
by
UPLB
IV.23
5
Sugar
Cane
Committee.
Table
5.
Cost of Production Producing Countries
of
Major
Sugar
Country
Production Cost (U.S. _/ib.)
Peru
13.74
Colombia
14.79
Australia
14.30
South
12.00
Africa
Mexico
18.29
Cuba
15.33
Philippines
12.05
Brazil
ii. 52
Thailand
15.85
Source:
PHILSUCOM, " A Scheme for the Rationalization of the Philippine Sugar Industry." 1985.
IV.24
•
J IV.26
only perpetuate the insulation of the industry from the world market and the consequent lack of incentives for improved efficiency in the sector. A managed contraction (i.e., via production quotas) entails subjective judgements about the appropriate size of the industry, whereas such a determination is better left for the market to decide. And more importantly, a managed contraction will permit sugar producers, particularly big ones, to reap the short term benefits afforded by the U.S. sugar quota, whereas such benefits should be more equitably distributed in the industry. The appropriate policy is to llnk the industry more closely to the world market Via pricing policies. This will achieve long term improvement in efficiency and competitiveness of the industry, which need not imply the drastic contraction in th_ industry envisaged in most current policy discussions on sugar. On the other hand, this is an opportune time to attempt to achieve a wider diversity in the Philippine agricultural sector to correct our past overdependence on a few export crops and the vulnerability it brings. Thus, marginal areas opened to sugar production during the price boom of the 70's should not be returned to sugar production but instead used for other, more suitable crops. By definition, marginal areas are high-cost areas, and the above long-term policy will ensure this outcome. 2.
General
The long-term policy objective described above suggests a pricing policy that seeks to link domestic sugar prices to the world sugar price, while achieving short-run price stability. However, the volatility of the world sugar market makes the current world price on an inappropriate target for the domestic market; the target should instead De a lo.n_-run world price, which may be approximated by a movlng average of at least 7 years' interval. The prevailing situation where domestic prices significantly exceed world prices is one where consumers are being implicitly taxed for the benefit of the producers. Th_ failure of the industry to achieve greater efficiency arises mainly from the insulation of the industry from external competitive forces. In the long term, the appropriate size of the industry will be determined automatically within the oontext of a domestic price in line with the long-run world price. Short term policies should attempt to attain the above long term policy objective while minimizing economic dislocations in the short run. The proposed policies rest on the following principles:
IV.27
i. Displaced sugar workers alternative means of livelihood;
should
be
provided
2. The benefits of the premium from th_ U.S. sugar quota should not accrue exclusively to the producers_ but must be channeled to all distressed members of the industry; 3. The capacity of the sugar milling sector needst01 be reduced to improve efficiency and lower costs of sugar production; and 4. Policymaking for the sugar industry must not be controlled or predominantly influenced by specific segments of the industry, but must be vested in an impartial government body. 3.
Policy
Measures:
Long
Term
Pricing
The proposed pricing policy for the sugar industry is aimed at greater price stability and adjustment of domestic prices to long-run world price, levels. This implies the identification of a "target price" for domestic sugar to be pursued by the government. As indicated above, this target price may be determined as a 7 to 10-year moving average of the world market price to deal with the problem of price volatility. This is currently at" about i0 U.S. cents per pound. The target price can be achieved by imposing a variable import duty set at the difference between the target price and the prevailing world market price (assuming the latter to be lower). This ensures that imports will not be cheaper than the target domestic price. On the other hand, in the event that world prices rise sharply above the long-run price (i.e. the target price), an export tax should be imposed to prevent domestic shortages and sharp rises in the domestic price. The export tax must only be activated at a price slightly higher than the target price, to avoid removing the incentive for increased production when export prices rise. It must be noted, however, that the world market spot price for sugar may no6 be the appropriate basis for, determining the long-run price (i.e., as a moving average)" for the purposes described above. Since most sugar exports appear to be made under long-run contract arrangements, a more proper basis may be some weighted average of prices in existing long term contracts held by major sugar exporters. To the extent that there is a large gap between domestic prices and the defined long-run price, it desirable to "phase down" the target price to the world price for a smoother adjustment process. the current price paid by PHILSUMA to producers
IV.28
current would be long-runBecause (about
14 cents/lb or _400/picul) is signlflcantly higher than the long-run price of 10 cents/ib, the target price ma_ be initially set at about 12 cents/lb. An improvement in current world market prices, as is now likely after the Soviet nuclear accident, will shorten this period of adjustment. An additional matter to be dealt with is the U.S. sugar quota. Because of the higher U.S. market price (currently about 20 cents per pound), the quota provides a bonus to sellers able to avail of it. It is argued that this premium should not exclusively accrue to the sugar producers, but must also benefit the distressed members of the sugar industry. Thus, the government would be justified in obtaining at least part of this premium for financing land distribution and other amelioration projects in the sector. One way to accomplish this would be for the government to auction off the U.S. quota to producers. This ensures that the government largely obtains the proceeds of the U.S. quota premium, as producers can be expected to bid for the amount of additional benefit (i.e., economic rent) to be derived from sales to the U.S. market. Alternatively, if administering such an auctioning scheme will be difficult and impractical, a central (government) agency may take charge of export marketing (but leaving domestic trading to the private sector), while using the variable import levy to maintain the target domestic price. The agency will procure export sugar at the target price, and exports it at the higher U.S. price, thereby capturing the U.S. quota premium. Either way, these funds should be used to finance the land distribution programs=gnd other programs benefitting the distressed sugar workers._- / The extreme case would be to have an exclusive trading agency like the existing Philippine Sugar Marketing Association (PHILSUMA) handle all trading of producers' sugar, thereby achieving control over the domestic price of the commodity. However, past experience with the NASUTRA and the National Food Authority (NFA) for rice and corn fails to inspire confidence in this type of pricing mechanism. 4___._
Measures:
Short
Run
A_djustment
Crop Diversification. The most urgent area of concern on the sugar industry is the plight of thousands of displaced sugar workers who have been left to hunger and even starvation due to lack of alternative means of _ivelihood. 8ost agree that the most viable and lasting solution would be the promotion of crop diversification and crop substitution in the sugarlands, particularly in Negros.
l'V. 29
However, there have been serious impediments to these efforts which need to be urgently addressed before such diversification could occur in the massive scale required: i. The largeness of reluctant to diversify;
farmholding
has
made
producers
2. Landowners are afraid that diversification, particularly into rice or corn, will make their lands subject to land reform; 3. Most farmers raising crops other
lack than
the technical sugar;
4. Lack of postharvest inhibits entry into the crops; and
and marketing production of
5. Appropriate financing particularly perennials with unavailable or inadequate.
that
for long
Land
redistribution
and
land
for
facilities alternative
alternative crops, gestation periods, is
These problems suggest some immediate are likely to have tangible impact, i.
knowledge
policy i.e.
sharing
measures
schemes.
2. Intensified extension efforts to disseminate information on appropriate alternative crops and farming systems. These efforts should include land evaluation and classification in order to optimize use of available lands in the sugar areas. 3. Support and encouragement for investments postharVest facilities and market organlzatlon alternative crops (e.g. corn, coconut, oll fruits, legumes, etc.).
in for palm,
4. Provision of financing schemes tailored to the long gestation periods of perennial crops which may be suited to the freed sugarlands. Investments in tree crops, while often recognized to have great market potential, will tend to be inhibited by cash flow difficulties unless financing schemes tied to their gestation period are made available. The breaking up of large tracts of sugar land will not only achieve improved equity in the distribution of resources in the industry, but will also facilitate crop diversification in the sugar areas of the country, thereby providing employment opportunities for displaced landless workers. Small farmers are more likely to shift readily to
IV.3O
other crops other hand, their lands to another
when some idle crop.
market large rather
conditions are unfavorable. farmers in Negros have opted than undertake a large-scale
On the to keep shift
The issue of land redistribution in the sugar industry is particularly interesting because sugarlands' exemption from land reform has been traditionally justified on the claim that economies of scale in sugar production warrant keeping sugar farms relatively large. However, production cost data based on surveys undertaken by the Philippine Sugar Commission (PHILSUCOM) lends considerable doubt to this widely-held assumption (Table 7). Cost estimates made by a recent World Bank mission further support these findings, indicating that unit costs are in fact smaller for low inputoutput (i.e. small) farms than for high input/ouput (i.e. large) farms. Moreover, the predominance of large sugar farmholdings observed in the Philippines appears unique; as Table 8 indicates, other major sugarproducing countries tend to have a much smaller farm farm structure. These data suggest that substantial economies of scale do not exist in the sugar farming sector. The economies of scale arise mainly in the transport and processing of the sugarcane; hence, the maximum landholding may have to be bigger than the 7 hectares for rice or corn. Thus, there appears to be no economic reason for exempting sugarlands from land reform. The strongest argument against large-scale land reform in sugarlands at this time is that it could create further disruptions in an already troubled industry. On the other hand, one can also argue that this is the best time to undertake land reform on a large scale, while the industry is in a state of adjustment. Land redistriDution can be undertaken on an initially limited scale, commencing with the sequestered lands formerly controlled by Eriends of the previous administration. It has also been suggested elsewhere that: I.
For
100,000 made a banks.
lands hectares prerequisite
2. Those lands I0,000 hectares) much as possible. 3. Lands should be has already
in in
arrears Negros), for any
already should
be
(covering voluntary land debt rescheduling
about sharing with
be the
foreclosed (approximately sold to workers' groups
as
kept idle for the past 3 cropping seasons immediately subjected to land reform (this been announced by the President).
' Table.7.
Farm
Sugar
Size
Production
Productivity (PS/ha )
"Costs
Product-. ion Cost _/ha)
forDifferent
Farm
Cost per picul (_) Tota[ Planters' Production Share
_ Small. farms (I0 ha and be iow )
50. 205
6,000 19,500
120 95
200 158
Medium farms (between i0 .ha and 50 ha)
60 73 213
8,500 10,0.00 20,100
142 137 94
236228 157
Large _arms (above 50 ha)
Ii 3 120 132 182
14,300 15, i00 .16,000 •14,000
127 126. 121 104
210 210 203 174
Source:
PHILSUCOM, AScheme for the Rationalization the .Philippine Sugar Industry,. 1985.
IV.H2
of
Size.
8,
Table
Sugar
Yield, +
Selected
Countries
++
Country
Yield (MoTo 19 63-65
Australia
9.68
11.38
Ta iwan
8.84
8.85
Peru
14.92
14.13
Brazil
5.55
5.16
Philippines
5.96
5.32
5.62
6.65
EEC
5.32
7.06
Argentina
3.97
5.90
South
6.58
i0+13
Indonesia
5.22
8.26
Cuba
4.42
4.25
_o_'ld
4..06
,4-.67
DOminican
Republ ic
Source:
Africa
From
Pabuayon,
1983.
]_.33
sugar/ha,
harvested) 1978-80
Finally, one deterrent to crop diversification in the past has beerl the apprehension that if sugarlands are shifted to rice or corn, it will become subject to land reform. A definitive policy statement that sugarlands will •also be subject to land reform (as has been recently anDounced by the new Minister of Agrarian Reform) makes it pointless to resist a shift to rice or corn on this basis, and should help hasten crop diversification efforts in the sugar areas. Closure • of Inefficient Sugar Mills. In the short term, rationa--_ion Of £he industry w1_l-l---6-efacilitated by the closure of the inefficient sugar mills. Such closures are important to alleviate the extremely low capacity utilization of the milling sector, which contributes to the high• production costs of the sugar industry.6/ The government has recently announced the impending closure of 15 government-financed sugar mills, mostly built after 1970. However, care must be taken to ensure that the mills to be closed are the least efficient ones, and that no efficient mill is clo§$d down. PHILS0COM data indicate that the 15 named firms--' / fall below the national average for both milling efficiency (national average: 1.52 piculs of sugar/ ton of cane) and cane yields of the areas they serve (national average: 50.22 tons cane/hectare), and therefore appear to be appropriate candidates for closure (see Table 5).•• The 15 mills • represent 30 percent of the total installed milling capacity of 3.5 million • tons of raw sugar •annually. With a projected annual production requirement of about 1.4 million tons, capacity utilization after closure of the mills will still be under 60 percent, suggesting the need for more mill closures in the future. The closed mills should be promptly sold and liquidated to free these resources for other productive activities in the economy. Institutional Structure. The sugar industry is compo_e---a--o_--aSou-[ hal_--a--mq-l-lion workers, about 30,000 producers, and a small number of millers and refiners. Any policies directed at the industry must address the interests of all segments of the industry. Hence, care must be taken not to vest control of policy in specific segments of the sector. In this light, the efforts of sugar producers and millers to establish a control body with formal government sanction (i.e. directly under the Dffice of the President) must be viewed with concern. While organizing into a qouncil or trade association for the sake af better organization and control is a prerogative of the producers and millers, such a body must not be given absolute control over •industry policies and operation, for the same •reason that the dissolution of PHILSOCOM and NASUTRA is being widely industry
sought. should
We submit that political control•over the be vested in (an) impartial government
IV.34
body(les), like the Ministry of Agriculture and Food and the Ministry of Trade. This will ensure that the wel'fare of the hundreds of thousand of workers in the industry will receive comparable attention in the determination of policy directions for the industry.
IV.
Concludln_
Remarks
The sugar industry is a focal point for the new government's agricultural policy agenda due to the crisis state currently prevailing in the sector. Any policies directed towards the industry must explicitly consider the distribution of gains and losses, aside from promoting the recovery and long-run competitiveness of the sector.
I'_.35
C.
POLICY
AGENDA
FOR
NON-TRADITIONAL
AGRICULTURAL
EXPORTS_ /
Past agricultural policies tended to focus• primarily on the food commodities (i.e., rice and corn) and the traditional agricultural exports (i.e., sugar and coconut) at the expense of non-traditional agricultural exports (NTAX). 8/ Despite this policy bias, the NTAX survived and flourished during the 1970s and the first half of the 1980s. Over these years, NTAX contributed on the average about 18 percent of the country's foreign exchange earnings. More importantly, they provided alternative employment opportunities and options for expanding income in the rural sector. This section addresses the past and current state of the NTAX subsector (Part I), the issues and problems in developing this subsector (Part II), and the required policy thrusts (Part III) and specific policy measures (Part IV)for developing the subsector.
I. i.
Trade
An Overview
of
the
NTAX
Performance
Between 1978 and • 1984, the NTAX accounted for about _ percent of total export receipts (refer to Table 9).Before the 1980s, the bulk of the NTAX revenues were generated by the non-food agricultural exports and in particular, by the manufactured agricultural products. At the outset of this decade however, food exports became the principal foreign exchange earner. In 1980 for instance, the value share of food exports to total NTAX receipts was 58 percent; by 1984, its share was morethan two-thirds of total NTAX revenues. Among the items in the food export category, fruits and nuts both in unprocessed (e.g. fresh bananas which in 1984 contributed 4.70 percent of total earnings Df the fruits and nuts category) and processed (e.g., canned plnea_ples, the second largest dollar earner •in this category) forms were the major dollar earners. Marine products (principally, canned tuna as well as shrimps and prawns) were the other items in the food export category which• generated foreign •exchange revenues for the country. These two it.eros alone constituted about three quarters of total food export receipts in 1984. In the non-food agricultural export category, the four commodity groups which generated the major portion of the dollar receipts for this category werez (a) _Irewood and other wood products, (b) oilseeds and oligeanous fruits, (c) marine products, and (d) textile fibers.
IV.37
Table
9.
Percentage Non-food
Share of Agricultural
traditional 1984- _I
Food
and Non-
Export
Receipts:
1978
1980
1982
1984
exports
42.3
58.2
67.9
73.2
i. 2.
25.9 16.4
34.6 23.6
31.5 36.4
36.6 36.5
57.2
40.4
31.2
25.7
22.9 34.3
3.0 37.4
5.8 25.4
2.5 23.2
O. 4
i. 4
0.9
i. 0
100.0
1 00.0
100.0
100.0
21.0
14.0
19.0
18.0
Unmanufactured Manufactured
1978
agricultural
i. 2.
Unmanufactured Manufactured
Other products of traditional agricultural exports Non-traditional
exports Percent share of nontraditional exports to total exports
_/The extracted Source
Food Total
Agricultural
Non-Food Exports
Total
Non-traditional Exports to the
of
FOB from
value for each Appendix i.
basic
data:
National
of
the
Census
IV. 38
subheadings
and
Statistic
below
was
Office.
-
During the first half of the 1980s, the first two commodity groups exhibited declining dollar revenues while the latter two showed promis'ing market potentials as its value trend for this period was increasing despite fluctuating• export volumes. The last item in the NTAX consists of the nontraditional products from sugar and coconuts.l---G/ Although the export revenues contributed by these commodities are insignificant when compared to the value shares of the previous two commodity groups, these are nevertheless important for two reasons: (a) with the declining trend in the export prices of the traditional suga r and coconut products, these non-conventional products from sugar and coconuts can serve in the short and medium-run as one option for transforming .a certain percentage of these agricultural commodities; and (b) the emergence of these products demonstrates the ingenuity of the private sector in identifying export-material products from, seemingly dying traditional agricultural exports. The significance of this latter point is expounded further below. 2.
Role
of
the
Private
Sector
• There were political and economic obstacles which could have impeded the exploitation and development of the NTAX in the 1970s. The first was the unfavorable policy environment. As mentioned before, the general framework of the agricultural poli:cles in the past poli tlcal regimes was biased against the development of the non-traditional agricultural exports as the major portions of the a grlcultural pOlicies catered to the needs of the food (i.e., rice and corn) and the traditional export (i.e., Sugar .and coconut) subsectors. Compounding this discriminatory policy structure in agriculture was the fact that the overall economic strategy in the past operated against the interest of the export sector and favored the import-substituting inefficient industries. The latter policy bias doubly burdened the fledgling NTAX subsector. The second barrier is related to the existence of varlou_ imperfections at the production and marketing levels in establishing ,the NTAX. Market._information about the supply and demand variables of these commodities is limited. Moreover, markets for inputs, and agricultural services (particularly credit) are restricted. Finally, information about production technology of non.traditional agricultural commodities/products is either not readily available and/or cannot be transferred tQ local producers without incurring substantial transactions and supervisory costs. :
,,,,
IV.39
__
It was the private sector II/ which was instrumental in overcoming these obstacles and in exploiting the NTAM profitably. The unfavorable policy environment at that time had not discouraged this sector in identifying the exportpotential agricultural commoditles/products as well as producing and exporting these items. On the contrary, the laissez-faire environment (i.e., minimum government interference and the operation of the price mechanism) which prevailed in the NTAX field I_7 stimulated the sector to initiate, innovate and to be efficient in their agricultural ventures. Indeed, in a study conducted by the World Bank (1985) some domestic agricultural traders who practised contract farming arrangements countered that the success in their contract arrangements with small farm producers was due to the lack of governmen_ involvement; they likewise added that "... if the public sector were to assume a promotional role, this could soon lead to red tape and obstacles commonly associated with the management of investment-incentives scheme" (ibid: 14). The real bottleneck in the development of the NTAX is the second barrier mentioned above. We argue below that it is in this area where government policy can be most productive. It should be pointed out however that several entities in the prlvate sector hav_ actually overcome the second barrier by introducing schemes that effectively linked production, processing, and marketing actlvltes. With the exception of a few agricultural commodities whose external market is dominated and controlled by transnational agribusiness corporations(TNACs) (e.g. fresh bananas, palm oil, rubber, etc.), most of the NTAX activities in the country are performed by domestic processors and exporters. The actual production of the nontraditional agricultural commodities is performed mainly by small farm producers. Table 10 indicates the extent of farm involvement in this form of activity by growers whose farm sizes are less than five hectares. Comparing the 1971 and the 1980 figures, the number and area of farms planted to tempo;ary and permanent crops have increased. The more reve'aling aspect of the data is the information regarding permanent crops (as these are basically the non-traditional cash crops). While the number of farms engaged in permanent crop production increased by only 16 percent (as contrasted with the number of farms involved in the production of temporary crops, which expanded by 47 percent) the area devoted to permanent crops in 1980 nearly doubled that of the 1970 figure (for tempor_a_ crops, the increase in land area was only 41 percent).±// These findings imply less land
IV.4o
Table 10..
Numberand_rea of Farmsby LandUsefor (Area of Fares in Hillien Hectares;
FarmsLess Than5 hectares 1971_ 1980
==================================================================================================
1971 Amount
Lanuse
Percent to Total
1980 Amount Percent to Total
.gf,Ee[e 1. Landplanted to temporarycrop!/ 2. Landplanted to permanentcrop21 3. Landunder permanentmeadows and pastures 4. Landcovered,ith Torest 9ro,th 5, Idle but arable land 6. Other classes of land use Total Numberof Fares
1,7_?,769 1,0805490 115,859
47.0 29.2 3.1
2,459,893 .1_254j213 72,_26
54.1 27.6 1,6
119,117 257,258 389,425
3.2 -7,0 10.5
83,106 264_669 409,901
1.8 5.8 %0
3,701,920
[00.0
4,544,108
lO0.O
2.53 1.15 0,07
62.2 27.9 1.8
3.56 2.24 O.lO
54.2 34.1 1.5
0,07 0,19 0.06
1.8 4,8 1.6
0,15 0.43 O.lO
2.2 6.5 1.5
4.06
100.0
_._7
lO0.O
Eeee I. Landpltnted to temporarycrop 2. Landplanted to permanentcrop 3. Landunderpermanentmeado,s and pastures 4. Landcovered,ith Torest 9ro, th 5. Idle but arable land 6. Other classesof land use Total Area o
i/ Temporarycrops are crops ,hich are 9ro.n seasonally and ,hose gro, ing cycle is less than one year. Suchcrops needto be replaced a_ter each harvest. Permanentcrops are crops that occupyland Tor a lon9 periodo_ Limeand do.not need to be repla_ed after eachharvest. Source: National Censusand Statistics Office, Censusof Agriculture, 197bl and 1980 (preliminary dFaFt)
IV. _
fragmentation land area per
in lands farm for
planted to permane.ntl_c_ops this crops category._z-
and
higher
During the period 1970 to 1985, a gamut of linkage arrangements connecting the small farms producing nontraditional agricultural crops to the end consumers in the domestic and foreign markets has evolved. A major proportion of the small farmer's produce is still transacted in the open market, the bulk of which i_.iourchased by multifarious indigenous traders (WB, 1985).--_/ _he latter in turn sell their output to domestic distributors, exporters, and small and medium food processors. In recent years, local traders (particularly those involved in the marketing of fruits, vegetables and other perishable goods) have increasingly relied on contract farming systems. An array of agricultural contracts have been established, namely: (i) on-farm collection contracts, which arranged the sale of the farmers agricultural to specific buyers during harvest which time at pre-set pr icel--_I/;Pr°sd_" (2) input-providlng contracts in addition to (i) bind the buyers to the production process as the latter agrees to furnish the farmers with essential input is_-8/; and (3) production-management contracts, which include the provision of technica'l supervision (in some cases, input resources) as well as assured markets for thel grower's produce. In all of the three contract arrangements, the grower mainly supplies land and labor, The emergence of the contract arrangements during the development of the NTAX is essenti_lly a stop-gap response by the distributors, processors and exporters of these commodities to the bottlenecks arising from the imperfections in the market. From the point of view of these economic agents, this form of arrangement has harmonized the adjacent stage in the commodity marketing channel, resolving in particular the problems arising from (a) controlling the quantity, quality and timing of the output as well as (b) synchronizing the supply with the demand (Glover, 1984; Minot, 1985). From the perspective of the small growers, the contract arrangement has produced some economic benefits. First, it has increased their incomes (WB, 1985) and has exposed these small-scale producers to "businesslike farming practices" (PCCI, 1986). Second, this organizati®nal form has become an effective mechanism for transferring production and marketing information to these small-growers as well as for expanding their financial resources. And lastly, the risks involved in the production of agricultural commodities are shared by both parties in the contract arrangement.
"
iv.42
3.
Domestic
Agro-corporations
and
Forei__9_ Investors
At the outset of the martial law regime in 1972, a vigorous attempt by the government was pursued to encourage domestic and foreign investments into the economy. Largely as a response to this call, investments flowed in to develop the agro-based sector. Between 1972 and 1980, a total of _3.1 M were injected into this sector (BOI, 1972-1980 data). Of this total, 53 percent were contributed by local investors, 16 percent by foreign investors, and 31 percent by both local and foreign investors (ibld). A detailed breakdown of the percentage share of local and foreign investment in the agrlcultural and fishery sectors for the years 1981 to 1984 is presented in Table 11. Unlike in the previous years which registered an upward trend in investment inflow to these sectors, the patt_ for the years 19.81 to 1984 exhibited a declining one.-=, An exceptional year was 1984 when investments in agricultural ventures nearly doubled; this could be partly explained by the positive expectations of local investors (the major capitalists in 1984; refer to Table 11 on the world marke_ for NTAX, specifically the fruits category. One important feature of the investment pattern in the agro-based sector was the increasing involvement of foreign Capitalists _r_ough joint venture projects with local counterparts.f-Z u/ Several reasons could explain this phenomenon. On the part of the foreign investors, this organizational structure allows them to exploit the host country's resources more freely without arousing nationalist antagonism; moreover, the risks involved in the production and processing of agro-based products are absorbed by the partners. On the other hand, from the viewpoint of the domestic investors, joint-venture projects enable them to expand their financial resources as well as to enjoy the technical expertise and the marketing advantage of their foreign counterparts. The participation of local exploitation of the countryside the establishment of plantation has resulted in the development activities. A dlscussion of rendered below.
and foreign investors in the has encouraged on one hand estates and on the other, of vertically integrated these two developments is
Plantation estates. A proliferation of plantatlon forms o--_ pro_c£1ve organizations occurred during the martial law era. Table 12 provides a rough index of this development. Between 1977 and 1984, the land area used for plantation purposes expanded at an average of 3.3 percent per annum so that by 1984, about one-fourth of
IV _3
Table11. Percentage:share of localandforeigninvestment in the Philippine agricultural and fishing sector, 1981-1984.
.
!_!
!_
..
!_
!_
Aeount
Percent to total
Percent Aeount to Total
Percent Asount to total
Amount
Percent to total
Total investeent in agriculture
_07.6
100.0
283,2
I00.0
206.2
100.0
438.6
100.0
Foreion Local• _oint venture
13.8 492.5 203.1
1.95 69.60 28.45
0.5 141.7 141.0
-0.18 50.04 49.79
59.6 146.6
28.90 71.10
341.9 96.7
77.95 22.05
Total investment
102.3
100.0
21.9
I00.0
23.i
100.0
I_.6
100.0
2%8 72.5
29.13 70,87
18.5 3.4
$4.47 15.53
9.5 13.6
41.13 58.87
13.6
100.0
in fishery Foreign Local Joint Venture
Sourceof basic data: BOARD OF INVESTBENTS
IV._
Table 12. Status of land use in the Philippines,
1970-1984 (in eillion
LgZO_
!9.Z_7
Percent Percent Hectares to total Hectares to total
hectares)
LgLo
I._L2
Percent Hectares to total
i_%s!
Percent Hectares to total
Percent Hectares to total
Total Philippines
30.0
IO(L. 0
30.0
100.0
30.0
lO0.O
30.0
101), 0
30,0
_00.0
]. Forest
15.9
53.0
13.1
43.67
12.5
41.67
12.0
40,0
11,5
30.33
1.1 Productive
14.1
47,0
11,3
37.67
10.7
35.67
9.7
32,33
9,3
31.0
1.2 Unproductive
1.8
6,0
1.8
6,0
].B
6.00
2,2
7.33
2.3
7,67
14.1
47,0
16.9
56.33
t7.5
58.33
IB,O
60.00
[8.4
61.33
2.1 Open]and
2.6
8.67
1,0
3.33
O.B
2.67
1.0
3,33
O.B
2..67
2.2 Nanagedpasture
O.O
2.67
1,0
3.33
1,0
3.33
0.6
2.00
0.7
2.33
2.3 North _ seal] _ater
0,2
0.67
O.l
0,33
0.!
0,33
O,i
0.33
O.l
0.33
6.8
22.67
7.2
24.0
247.3
24,33
7.5
25.00
2. Non-forest
2.4 Plantation 2.5 Cultivated cropland
9,8l/
32.6711
2.6 Urbanand others
0.6
2.0
7.2
24.0
7.6
O.O
2.67
O.B
1/ The figure coebinesplantation and cultivated croplands. Source¢ Bureauof Forestry a,d Oevelop=ent.
IV,q5
25.33 2.67
8.0 l.l
2b,67 3,67
8.2 1.1
27.33 3.67
the country's development.
total
land
area
was
commited
to plantation
The magnitude of plantation development via TNAC involvement and domestic agro-corporations with equity participation from foreign investors is most apparent in Mindanao. Figure 1 provides an ocular presentation of this development in the island. The key factor for the increase in plantation estates during the martial law regime was basically political in nature. Because of the need to attract investments into the ecDnomy in order to boost its performance, the government at that time opened the countryside for plantation development. To expedite its formation, Mindanao was specifically designated by the regime as the plantation island of the country (NEDA 5-year development plan 19781982; see the economic plans for Regions i0, ii and 12). Vertically integrated activities. Two forms of productive organi_a_-_ns are practl-s-e--d--_ydomestic agrocorporations and the TNACs in the production and export of non-traditional agricultural commodities. These are vertical integration, wherein one firm manages and controls the production, processing, and exporting of the commodities. The classic examples are the operations of Dole and Philippine Packing Corporation (Del Monte) in the pineapple export activity. The other form is vertical coordination, wherein the task of production is relegated to domestic producers while the processing and exporting activities are performed by the TNACs; the two entities are then bound by contract arrangements. The organizational structures that operate in the banana export activity typify the latter form. The contract arrangement involving the TNACs differs from those described in section (2) above. The main difference stems from the fact that in the former case, the provisions in the contracts regarding the production process are so rigid that the domestic producers become essentially disguised farm laborers of the TNACs. This means that this organizational structure actually approximates the vertically integrated form. Moreover, it has been observed that TNACs have a preference for contracting large farms. In the banana case for instance, Stanfilco, the only TNAC subsidiary which signed contract arrangements with growers whose farm sizes ranged between less than a hectare to 125 has. has decided, as of last year, to terminate these contracts and instead, concentrate its banana export activity on its leased lands and the plantations owned by large domestic agro-corporations.
IV.46
-
II. i.
The
Land
Issues
and
Problems
Constraint
As early as the beginning of the 1970s, several studies have claimed that in terms of land utilization for agricultural purposes, the country has already reached its land frontiers. (Encarnacion, etal., 1976:13; ILO, 1974). Moreover, it was noted earlier that while in 1980 the land area devoted to temporary crops doubled the 1971 hectarage figure, the number of farms between this period likewise climbed by as much as 39 percent (Census of Agriculture, 1971 and 1980). The end result was land fragmentation: in 1971, the average farm size cultivating temporary crops was 1.9 has. per farm; by 1980, this went down to 1.5 has. per farm.2- I/ For lands planted to permanent crops, the land size per farm incK_%sed slightly (from 1.8 has. in 1971 to 2.3 has. in 1980).__Z_/ The expansion of the land area devoted to crop production between 1971 and 1980 was made possible through a decrease in the hectarage utilized for other purposes. An examination of Table 12 would reveal that the area of productive forest and open lands declined during this period. For the years 1980-1984 the area for these two land use categories has continually declined the hectarage expansion necessitated cropland development.
as by
a consequence plantation
of [ and
Concomitant to the land constraint is the predominance of impoverished small-scaleproducers and landless rural workers. The 1980 to 1.983 data of the agricultural sector reveal that around 5.3 M families (or roughly 56 percent of the total number of families in the Philippines) are dependent on agriculture. Of this number, 43 percent belong to the bottom 30 percent 0f the income echelon. A distinct feature of this income group is that majority of these rural families are supportedby small farmers, small municipal fishermen, and landless rural workers. For instance, in land cultivation small-scale productive organization is clearly prevalent: of "the 9 M has_ or 82 percent of total cropland planted to rice, corn and coconut, the average farm sizes do not even exceed 5 has. The above discussion brings to the fore the equity and efficiency issues regarding plantation development. Considering that the frontiers of arable land have been reached and that a substantial percentage of the low-lncome rural populace is supported by small-scale producers, the establishment of plantation forms of productive organization is not justifiable on equity grounds. Moreover, a policy
IV. 48
promoting plantation development would be antithetical policy which is committed to agrarian reform.
to
a
A corollary issue relates to the formation of plantation estates by TNACs. The experience in the pineapple and banana export industries illustrates the gravity of the problem. In the former industry, two TNAC subsidiaries dominate the production and export of fresh and canned pineapples; these are Dole Philippines (a subsidiary of Castle and Cooke (CC)) and the Philippine Packing Corportion (PPC, a subsidiary of Del Monte). Dole has its plantation site in South Cotabato while PPC's plantation is situated in Bukidnon. The table below provides a breakdown of the estimated plantation hectarage of both corporations in 1980. Table
13.
Plantation area of 1980 (in hectares).
Dole
and PPC
in
Mindanao,
Area leased to NDC
Area leased from local farm producers
Dole PPC
8,000 8,000
2,100 12,000
I0, i00 20,000
17 35
Total
16,000
14,100
30,100
52
Source:
ARC (1984) M indanao:
Total Area
Percent to total area in Mindanao planted to pineapples
Showcases of underdeveloDment in Fi's6es.-][or-es_ and f-{5_s-(pp. F7-_--79_.
This table clearly shows that more than half of Mindanao's land area which is devoted to pineapple production is controlled by these two TNACs. Compared to the Philippine area cultivating pineapples, about 48 percent is dominated by Dole and PPC alone; the residual is cultivated mainly by small growers. In the case of the banana experience, about 30,000 has, are cultivated to export-quality bananas by domestic agrocorporations which have production-marketing ties with the TNACs (Table 14). This area constitutes about 19 percent of total banana hectarage in Mindanao. With the exception of the 2,628 has. planted by small growers for Stanfilco _ (and whose land size ranged between less than a hectare and 125 has.), the hectarage of the other domestic agro-corporatlons are between 120 has. and 5,500 has. (higher limit is controlled by TADECO; see Table 14) As in the case of the TNACs in the pineapple export industry,
IV.4_
Table
14.
The area of banana companies classified TNAC affiliation, +'1980 (in hectares).
by
their
I
Z
Companies
Area
Percent
to Total
PPC-Del Monte Group i. Marsman 2. AMS Farming 3. Laparday 4. Evergreen 5. Fa rmington 6. FS Dizon 7. Delta Farms 8. Soriano Fruits 9. Tadeco 10. Gruhing Ii. Nova Vista
1,220 949 • 575 532 511 497• 420 230 195 120 108
4.05 3.15 I. 91 1.77 1.70 •1.65 1.40 0.76 0.65 0.40 0.36
Dahltri Group i. Davao Fruits 2. Hijo Plantation 3. Turn Rivers
3,516 1,000 1,595
11.68 •3.32 5+3
Stanf ilo-Dole Group i. Stanfilo farms and small growers 2. Golden Farms 3. Chickered Farms 4. Diamond Farms
4,08.5
13.57
1,204 1,008 •6,000
4.00 3.35 19.94
Tadeco
5,535
18.39
414 207 176 -
1.38 0.69 0.59 -
30,097
100.00
Not Affiliated with i. Mabuhay 2. Mr. Apo 3. SEI-Agrlculture 4. Nupunga s
TNACs
Total Source
of basic
data:
Bureau
of
Plant
IV..5o
Industry•,
Davao.
most of these prime agricultural lands were acquired through leasehold arrangements With different local farm owners and various government agencies (such as the Bureau of Prisons for the lands owned by the Davao Penal Colony). .Moreover, through government intercession (see LOIs 58 and 790), the dominant domestic agro-corporations (notably, TADECO, F_ijo, Davao fruits and the corporate farms under Stanfilco} were assured not only of legally approved area expansion but also oligopolistic control of the industry (as th_ LOI's limited the production and export activities for bananas to specific domestic corponations). What the above figures highlight is that in 1980, the 24 pineapple and banana plantations controlled morethan a rhicd of the total land area devoted to fruits and nuts in Region i0 and 11 (Bureau of &gricultucal Economics). The residual was occupied by approximately 20.4 thousand small scale farms (Ibid). The disproportionate distribution of lands among the agricultural producers illustrates the social injustice in the present structure. This situation is aggravated by the fact that the area expansion of several of the above mentioned plantations occurred at the expense of domestic tillers and minority groups. What is more disconcerting is that the public sector was a prime accomplice in this problem as government institutions like NDC, Bureau of Lands, Bureau of Prison, etc. expedited the transfer of land control to foreign and domestic agroen te rpr ises. Not only has plantation development contributed to the problem of inequitable distribution of a fixed factor resource (i.e., land) but it was also an inefficient mechanism for'distributing the economic payoffs accruing from the employment of this fixed resource In the case of the banana export industry, the retalnld value in the Philippines from banana exports (presented by the ratio of the price of Philippine bananas to the retail price in the importin_o_ountry) for 1979 was just 17 percent (UNCT.NC, 1981:87)/_/. For the plneapple plantatlons, the companles pay fixed PPC rental fee Mto yearly NDC of forabout thousand per annuma for and _1.2 Dole.-y_169For the leased lands, they were paying approximately P800 per hectare. The companies also paid in that year around_ _143 thousand for tax. Overall, these payments to land constitute a measly 1.7 percent of total FOB earnings of these TNACs in 1980. In addition to the arguments presented above, several country cases illustrate that the foreign-dominated plantation crops can be efficiently and effectively produced in small-sized farms, in other words, there are no scale economies in the production of these commodities.
IV.51
Siamwalla (.1978) discusses t-he Thailand experience in pineapple production; pineapples are produced by small growers who have production ties with both domestic and foreign processors. For the bananas, the Guanchia's experience in banana production of Guatemala is a case in point (Jonas and Tobis (ads.) 1974). Finally, tea production which has been presumed before as a classic plantation crop has been successfully cultivated in small farms in Kenya (Stern, 1972). As a summary, the case for plantation development particularly by TNACs is unwarranted in the country for equity and efficiency reasons. This is primarily due to the fact that the frontiers of agricultural land have already been exhausted. Moreover, the major participants in the countryside are involved in small-scale production.
2.
The
Limited
benefits
from
TNAC
Participation
Whereas no comprehensive research has yet been undertaken to examine empirically the impact of TNACs on Philippine agriculture, several observations from various sources can be used as indices in identifying the benefits and costs accruing to the economy as a consequences of TNAC operations. Most of the literature on the impact of foreigncontrolled plantation enterprises in the agricultural sector have been characterized by their over-emphasis on the adverse consequences of the former°s operations in the latter (see for example Ofreneo, 1980; Tadem, 1982; Rivera, 1983; for a summary of their positions, see Adrlano, 1984a). The effects of TNACs opera tlng in this sector mentioned in these works are: (a) the limited forward and backward linkage spillov4rs to the domestic economy; (b) the development of labor skills and techniques of production which are highly specialized in the production of a specific crop and which cannot be employed in the production of other crops; (c) the large export earnings leakage as a re._ult of the corpoKation's employment of foreign managers and the practice of profit repatriation and transfer pricing; (d) the non-development of other competitive and domestic enterprises in the production of export crops produced by the TNACs as a result of the farter's monopoly of the production and marketing skills necessary for the export of these particular crops; and (e) the utilization of local financial resources which consequently divert credit away from domestic users. With corporate
regard systems,
the social these works
imp'act contend
IV.5z
of foreign-owned that the values and
behavior cemented by these economic structures are individualism, social irresponsibility, and low-key progress-orlented values. According to these studies, these values are antithetical to the values and behavior required for successful agricultural development. On the other hand, the benefits accruing from TNAC participation in the r_yl sector include: (a) the employment of rural labor_--_°/;(b) the generation of foreign exchange earnings; (c) the extension of their international marketing outlets to.the country; (d) the payment of higher wages to their plantation and processing workforce; and (e) the access to technical know-how and capital. The list of benefits and costs enumerated above should be treated with caution for presumably, different TNACs produce varied effects. Nevertheless, one can posit that the operations of the TNACs in the countryside during the past decade have not, overall, been advantageous for the rural sector. In other words, the adverse effects of their operations outweighed the benefits. A key factor for the limlted benefits of TNAC activities was the political environment at that time. The previous government had adopted a policy of almost indiscriminate encouragement of foreign capital into the country. One. form was the participation of TNACs. With the favorable political climate and the country's strategic location vis-a-vis potential market outlets (e.g., Japan, China, etc.), TNACs were attracted to invest in the Philippine countryside. Since the government did not provide (and at that time, had no intention of stipulating) the rules and regulations regarding the nature and conduct of TNAC activites in the rural sector, foreign agroenterprises were in effect given tremendous leeway in defining and determining the appropriate nature and form of their operations. The nonchalant attitude of the government on the extent and implications of unmonitored TNAC activities coupled with its slngle-minded objective of encouraging foreign investment regardless of their economic and social costs were one of the major reasons why the impact of TNAC activities is overall negative. 3.
Operating
Bottlenecks
The major operating bottlenecks faced by domestic agrotraders and .processors relate to the services provided by the government to the private sector. These problems are enumerated below. First, investors
a in
key deterrent to the entry agro-based projects is the
..IV.53
of potential complicated
procedures which the investors have to undergo prior to their actual investment. While there were constructive attempts by the government to reduce the red tape and streamline cumbersome procedures, the private sector still feels that there is further room for improvement. Moreover, they contend that the changing investment policies of the government have become a disincentive to the private sector. They suggest that a well-defined, stable and firm policy structure which stipulates thenature, mode and scale of domestic and foreign involvement in the countryside should be formulated. Second, the private sector requires assistance in terms of market information and promotion. Currently, local food exporters have difficulty in competing with other Southeast Asian countries which are also vigorously pursuing the policy of developing the NTAX (Allen, 1977). One main area of weakness of the local exporters vis-a-vis their competitors is their limited access to market information specifically on data pertaining to potential market outletss supply, demand, and price trends in the international markets_ and ,_arket requirements. Likewise, their competltors (particularly Taiwan, Thailand and Malaysia) have efficient government agencies which promote their export products around the world quite effectively. Although the government has established two units in the Ministry of Trade and Industry (MTI; these are the Philippine International Trade Corporation and the Center for International Trade and Exposition of Missions, Inc.) which are charged with the responsibilities of promoting theexport commodities of the country, they have been ineffective because (a) of duplication of functions and the fragmentation of their roles, (b) limited knowledge of the export potential commodities of the country, and (c) deficiencies in management. Lastly, there is an urgent need to beef up the support services provided by the public sector to the private sector. Rural infrastructures (such as roads, bridges), rural electrification, transport facilities (port_, wharfs), and communication facilities are extremely lacking in hhe countryside. Also, research and development has favored the food (rice and corn) and traditional exports crops (sugar, and coconut). Finally, the credit delivery system has not effectively harnessed the participation of local growers and traders in the rural sector into the production and marketing of non-traditional agricultural exports; as the discussion above shows, it was left to the traders, processors, domestic agro-corporations and TNACs to perform the task of the financial institutions.
IV.54
III.
Pol icy
Recommendations
Taking note of its past performance and considering the present issues and problems of the NTAX subsector, we propose a policy package which is aimed primarily at promoting the production and export of non-tradltional agricultural commodities and products. The discussion of this package is divided into two: part III outlines the general policy recommendations while part IV enumerates the specific policy measures. The
policy
thrusts
i.
Promotion
of
that
are
proposed
are
as
follows:
NTAX
The promotion of NTAX should be an integral component of the government's strategy for rural development. The public sector should especially encourage the production of nontraditional agricultural commodities by small producers. Such a form of development can increase the foreign exchange earning capacity of the country, expand the employment venues of the rural labor force, and augment the income of the rural populace. In tandem with this policy di_ectlon, the government should recognize that it was the private sector which played a pivotal role in establishing and developing the country's NTAX. This means that the government should allow the private sector to continue its instrumental role in developing the NTAX. Specifically, the public sector should not create public owned entities that. will directly compete with the private enterprises' production, processing and/or trade activities. Instead, it should limit its function to providing the public goods (like infrastructure) and services (e.g., research and extension) which the private enterprise cannot supply on its own. 2.
Small
Farm
Orientation
Taking into account the fact that the country _s already exhausted its land frontiers, the government should not allow TNACs to own or lease plantation estates. Instead, the government can encourage both domestic investors and TNACs to embark on contract farming arrangements, service contracts, or multipartite agreements that will ensure the participation of domestic participants particularly small and medium producers. Where certain cash crops require economies of scale in production, nucleus estates leased to domestically-owned enterprises should be encouraged _ (instead of direct plantation ownership by TNACs domestic investors).
IV.5_
The public sector should propagate the establishment of contract farm arrangement, s which will elicit the participation of small producers. The experience of the rural sector with this particular form of productive organization was that it has been an effective system for (a) reducing the production and marketing constraints of subsistence producers and hence improving the latter's economic welfare, as well as (b) ensuring a steady supply of agricultural commodities required by the private processors an4 traders. 3_2 .- Restrictions
on
Direct
Private
Foreign
Investment
The entry of direct private investment by the TNACs should be considered as an exception rather than the rule. Private domestic agro-entrepreneurs have illustrated in the past their capacity to develop the NTAX. The constraints •which this sector encountered did not stem from their inefficiency but rather from the failure of the public sector to pcoduce and deliver the public goods and services required by the private sector. Moreover, there are other options aside from divert private foreign investment that the economy can avail of. These are contract farm arrangements, service contracts, and multipartite arrangements. These alternative.s enable the country to take advantage of the foreign investors' access to market outlets and technological know-how without incurrin0 the monitoring costs and losses (e.g., lower retained value payments for the use of the fixed land resource) attendant to the direct private foreign investment strategy. If private direct foreign investments are to be welcomed, we propose that the government should at the outset (a) determine the areas (i.e., what agricultural commodities/products could be produced by foreign investors) where foreign investors can participate and (b) specify the nature, form and scale of foreign involvement•in the coun try.
IV. The following facilitate/stimulate 1. Review agreements While land lease Corporation Bureau of
S_
Policy
Measures
policy measures the development of
the government wi_]__-TNA_
are NTAX:
agencies' - -
expected
land
to
lease
the government should honor the tenure of the contract agreements of National Development (NDC) and other government agencies (e.g. Lands), it should establish a commission which
•IV.5F
will review the terms of these contracts and determine the legal procedures which can, if deemed necessary by the commission, reopen the contract for negotiatlone Likewise, the government should make it a policy to review these contracts on a periodic basis until their termination. It is envisioned that in the future, the power of these government agencies to lease large tracts of agrlcultural land will be removed. Instead, investors will be required to abide to the land ceiling laws stipulated in the Constitution. The commission should also review the other functions performed by NDC. Prior to 1970, the role of this publicowned corporation was limited to leasing public lands _equired by private investors but which were over and above the hectarage limit stipulated in the Constitution. During the martial law period, its function was expanded_ NDC was allowed to embark on joint-venture agricultural projects with foreign and local investors (an example of this project was the Guthrle-NDC palm oil project in Agusan). Under such • an organizational structure, this publlc-owned enterprise was given the function of obtaining the lands needed by the project in return for stock shares in the newly-establlshed venture. NDC's direct participation in such ventures (even if it only means performing a task identical to its land lease agreements) will contradict with the government's commitment of privatizing the production and export activities. It is thusthe responsibility of the commission to devise mechanisms of divesting the shares of NDC in such companies to prospective domestic investors. 2.
Implement
a land
tit 1 in 9 s__stem
It is high time that the government set aside a portion of its agricultural investment for the purpose of conducting cadastral surveys and designing an effective land titling system. A more efficient land titling system will go far not only in stimulating the establishment of a land market but also in preventing the problems of land grabbing and dislocation of small tillers without just compensation. 3_t. Pr_.,ovide_ _a legal_ support
system
The government should aim, foremost of all to reinforce the bargaining leverage of small growers participating in contract farm arrangements. To ensure the achievement of this objective, the public sector (i.e., MAF and its regional offices) should provide legal assistance particularly to small producers especiallyduring the
IV
framing of the contract agreements. AS a way of boosting its legal support machinery, the government could seek the support and participation of private institutions (NGOs, PCCI, etc.) and individuals to assist in this endeavor. 4.
Encourage
foreign
investment
in
limited
areas
Private and public direct foreign investment could be encouraged only in projects which will ensure the establishment of permanent investment structures in the countryside (e.g., prawn pond development of marsh lands) and/or the conversion of unproductive lands to productive units. In connection with this, the Madecor proposal (1986) on project development could be used as a point of reference. This proposal suggests the transformation of the swampy and eroded forest areas into productive and profitable sites. This study notes that of the present 12.2 M has. of forest lands, 30 percent (or 3.6 M has.) are denuded and eroded. Moreover, there are as much as 200,000 has. of marsh and swampy lands all over the country. It thus proposes that for the former, a multipurpose reforestration program wherein perennial legumes of tree crops are intercropped could be attempted. Table 15, shows 3 project examples together with their respective estimated costs per hectare. In the latter case, the study recommends the reclamation and development of these areas for agricultural purposes. Specifically, this study suggests the replication of the Soerdjan approach which is commonly practised in Indonesia and countries in Indochina. Essentially, this approach develops enclosed areas with multi-agricultural projects that are supported with community structures and infrastructures. 5__ t. Re_l
the
Agricultural
Investments
Act
We recommend the abolition of the Agricultural Investment Act (AIA) of 1986. The AIA is essentially a redundant law because most of its amendments are already Incorporated in the Omnibus Investment Act (P.D. 1789) and the Agricultural Investments Act (P.D. 1159). These PDs should however be re-examined as these legislations include some stipulations of the AIA which are objectionable on both efficiency and equity grounds. In particular, the following points should be taken into c on s ide rat ion: a. The fiscal incentives which encourage the use of capital and foreign exchange through tax credits, exemptions and allowances would effectively bias
IV.58
Tablel5.
Estimated cost reforestation
per hectare projects.
Legume-Mango Ka soy Development (Perennial
for
selected
Legume-Na rra/ Mahogany
multi-
Legume Rubber
Cost Legume)
Roads Strip Clearing Planting
860 480 i, 930
Sub-total
3,250
3,250
3,250
i, 740 2,175
2,540 3,630
2, i00 4,500
3,915
6,17 0
6,600
1,435
1,880
1,970
_Ii,300
_ii,820
Permanent Trees and Maintenance for two years Labor Materials Sub-total Contractor's Fee (20%)
Total
Source:
Madecor
_8,600
(1986)
Development
IV.5_
Project
Ideas
(p.
3).
production towards capltal-uslng and foreign exchange zsing technologies. Since-capital and foreign exchange are in extremely short supply in the economy partlcularly at this time, it would appear highly illogical for the economy to further lower their relative cost to producers, especially vis-a-vis labor. If there are costs that should be granted tax allowances or credits, it should be on labor and expenditures not on domestic or imported equipment p urcha se s. b. Preferential incentive because credit to its most
credit should not be used as this can inhibit the movement efficient user in the economy.
an of
c. There is an apparent bias for large-scale agricultural enterprise. This perverse bias appears to be based on the general premise that there are substantial economies of scale in all agricultural production. While the situation may vary among specific crops and enterprises, there has not been strong evidence to bear this out (refer to Part II section 1 above). d. The legislature failed co adequately stipulate provisions which will generate the participation of small agricultural producers who make up the vast majority of the countryside. Incentives that will promote the employment of contract farm agreements with small growers should be developed. e. the and and
The level of discretionary powers on the part of implementing government agencies should be limited well-defined so as to reduce the scope for abuse corrupt ion.
f. Finally, the role of marketing agents in the agricultural industry must not be forgotten. Apart from their usual "function of providing the necessary linkages in the market, traders have also traditionally been widespread sources of farm credit, especially to small farmers who are in no position to avail thems.elves of institutional credit. Thus, any incentives program for the agricultural sector must include incentives to traders, who perform their own useful function in the industry.
7V.60
Annex
Further A: 6.
arguments
Streamline
against
the
the
procedures
AIA
are
presented
for
registrations
in
and
To minimize the bureaucratic red tape in the procedures for registration and export activities, the government should attempt to (a) reduce the number of government agencies involved in these tasks to just i or 2 government bodies, (b) decrease the technical requirements asked from investors, and (c) streamline the time frame for the review and approval/disapproval of projects. It would also be worthwhile to examine and compare the procedures practised in Talwan, Thailand, Malaysia, and Singapore to see how the more efficient mechanisms can be replicated in the country. There is especially a need to overhaul and streamline the licensing procedures as wel 1 as the rules and regulations affecting prospective fishermen producers. In the immediate term, a board comprising of BFAR officlals and representatives from the private sector might be established. This board will review the following: (a) licensing and operations of fishing boats and other paraphernalia, (b) licensing and operations of flshponds and fishpens, (c) licensing and operations of aquaculture, marine culture and sea shell culturlng, 'd) the treaties signed by the Philippine government in international conventions, (e) the possibility of reducing the number of agencies involved in the registration activities and (f) the rules and regulations as we_l as the monitoring mechanisms which will protect the environmental aspect of the depletable fishing resources of the country. 7.
Determlnin_
the
priorit_
.........
a__ri-based
commodities/
The MAF and the MTI should jointly revlew , determine and publicize on a periodic basis the agricultural commodities and products which can be promoted in the countryside. In performing this task, both agencies should draw the technical support of public and private research institutions as well as non-government institutions (e.g., PCCI ). For the purpose of identifying the profitable commercial crops, there are already existing studies undertaken by private (e. g., PCCI, 1985 AYC, 1986) and public (e.g.,PCCARD, NSTA) which can be used as the basis for decision-making. The AYC study (1986) is the most comprehensive; it identified the profitable food and nonfood agricultural commodities in the 12 regions using six
IV.6_
economic criteria namely: export potential, domestic market potential, linkage potential, import substitution potential, possibility for intercropping, and cost comparative advantage in terms of production and trading. A summary of the study's results are presented in Table 16. In addition to the economiccriteria mentioned above, these government bodies should prioritize commodities that have the following characteristics: (a) commercial crops that can be cultivated effectively and efficiently in small farms (fruits, vegetables and other high value crops meet this criterion; see Glover (1983)), and (b) cash crops that can be inter-cropped with food crops (e.g., palm oil; refer to CDC proposal in Agusan (1983)). 8. Stren tg_hening the market information p--romo-t-lo_--n - cen_e--{E o£ the government
and
export
The government should improve its marketing information system not only for the traditional crops (rice, corn, sugar, and coconut) but more especially for the nontraditional agricultural crops. It should provide (on a regular basis) the agricultural sector as well as agricultural traders, processors and exporters with vital information relating to market outlets, pricing, supply and demand data, and market requirements. The public sector could seek the assistance of the media and non-government organizations in disseminating this information. The government should also examine the past performance of the two export promotion centers in the MTI (the Philippine InternationalTrade Corporation and the Center for International Trade Expositions and Missions, Inc.) with the end-in-vlew of improving their delivery system. 9.
Widenin_
the
role
of
the
MAF
This public agency should be charged with the responsibility of designing policies that will promote the development of non-traditional agricultural commodities and elicit the participation of small farmers and domestic private investors into this venture. In llne with _his policy thrust, it is envisioned that the MAF will have to perform the following functions: (a) establish a legal support system that will assist individuals and corporations proposing to embark in contract farming arrangements; (b) initiate the commission that will review the existing land lease contracts of NDC and other oovernment bodies with TNACs; (c) coordinate with MTII--9/, public and private research institutions and NGOs in determining the agricultural commodities and products that can be profitably cultivated in the country; (d) propose and develop
IV.62
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IV. 6q
guidelines defining the natuce, form and scale of pc.irate foreign investment in the countryside; (e) develop the forms of incentives that will stlmulate domestic investments in the rural sector_ (f) design a•n effective and efficient market information system for non-traditonal agricultural crops; and (g) assist in improving and strengthening support services that will facilitate the development of NTAX. 10___. Strengthening
support
services
Research and extension. It is suggested that the devel-opment of-N_'AX-b--6an fntegral component of research and extension service. It is proposed that there should be more emphasis in studies geared not only in identifying the NTAX but also in determining the organizational structures that can effectively emnloy the vast majority of the rural populace. Market infrastructure. Because of the limited finances of the private sector, the government should initiate the construction of communication and market infrastructural facilities in the countryside. The MAF in coordination With the Ministry of Publ Ic Highways, Ministry of Telecommunication, National Irrigation Authority and interested private enterprises could identify the basic and essential communication and infrastructure requlrements of the rural sector focusing on structures and facilities that will stimulate aqribusines_ undertakinqs. Credit _ system. It is imperative that in th_ medium run, the country's credit delivery system should be overhauled and mechanisms for attracting private commercial banks to provide loans to the agricultural sector should be developed. In this regard, the implementation of the recommendations which are detailed in chapter V, Part A of this volume can be the initial step toward rehabilitating the present credit delivery scheme. Of particular relevance to the NTAX sector iS the proviso which minimises the tax burden of banks that facilitate the production and marketing of agricultural commodities. Such measures will not only stimulate these banks to expedite the disbursement of credi_ tO the rural Sector but more importantly, can induce •these banks to actually perform trading activities for and serve as intermediaries fop providing technical services to the countryside.
•IV.85
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NOTBS
_--/This section was prepared by Assistant Professor of Economics, Philippines at Los Banos. estimated dependent
Dr. Cielito University
ii percent of on the industry.
i.
As of 1975, an population were
2.
Recommendations 1 and the new government.
3.
Agronomists have pointed out that the variety has a high inflorescence-to root-ratio, i.e. a greater profusion of leaves but a lower profusion of roots. Thus, there is great wind resistance and weak ground anchorage, making it especially vulnerable to typ boon s.
4,
Points raised in this section are based heavily personal communication with Dr. Juanito Sangalang the Department of Horticulture, University of Philippines at Los Banos.
4 are
b/Prepared by Dr. Cielito Professor of Economics, UPLB. 5.
With a quota pound and a premium would
6.
With total installed raw sugar and expected tons, average capacity percent.
7.
These BUSCO, Ormoc,
now
F.
being
Habito,
the
F.Hablto, of the
country's
implemented
by
on of the
Assistant
of 200,000, a U.S. price of 20 cents world price of 6 cents per pound, amount to $28 million in 1986.
per this
capacity of 3._= miliion tons of 1986 production of 1.3 million utilization will be less than 40
sugar mills are AIDSISA, Batangas, BISUDECO, Calinog, CASUCO, Daconcogon, DASUDECO, NOCOSIL, Passi, Sagay, SONEDCO, Tolong, and UPSUMCO.
IV. 68
C/This Instructor Development Philippines
section was written by Ms. Lourdes S. adriano, IV, Department of Economics, College of EconOmics and Management, University of the at Los Banos.
8.
The text below mainly refers to agricultural crops, marine and aquaculture commodities. An exception is the discussion of Section I (i) where firewood and wood products (e.g., bamboo sticks for planting) are included.
9.
Between 1970 and 1984, the country has witnessed an expansion in the range of commodities comprising the NTAX category. Appendix 1 provides a summary list of commodity groups classified under the NTAX category; this appendix shows the volume and value of the nontraditional exports of the country.
I0.
Non-traditional coconut exports comprise of fresh coconuts, roasted coconuts, flour, vinegar, nata de coco, charcoal, coir and the waste products of coir. Examples of non-traditlonal sugar products are sugar cane vinegar, panocha, natural honey, caramel, corn sugars and syrups, maple sugar and maple syrup, "bukay0" candies, chewing gum, nuts mixed with sugar, and flavored or colored sugars, syrups and molasses (excludinq fruit juices).
[I.
The principal factors in the private sector who spearheaded the production, processing and export of non-traditional agricultural exports are the local traders, indigenous small and medium food processors, and domestic agro-corporatlons. Indeed, it was their increased demand for commercial crops and marine products that stimulated agricultural producers to cultivate non-conventional cash crops and the fishermen to catch high-va'lue fish commodities.
12.
An exception to this case was the banana ex[_ort industry. The majority of the owners o£ the domestic agro-corporations who had political clout on the public sector used their influence to persuade the government to decree laws (i.e., LOI 58 and 790) which forbade the further entry of prospective competitors.
13.
These figures are corroborated by the recent PCCI agribuslness conference held in different regions last April and May, 1986. Small farmers who participated in the conference have discussed their shift into cash crops such as onions, tomatoes, mushrooms, etc.
IV.69
14.
For lands devoted to temporary crops, land size per farm shrank from 1.5 has. in 1971 to 1.3 has. in 1980, whereas for lands planted with permanent crops, land size per farm increased from 1.0 has. to 1.9 has. in 1971 and 1980, respectively.
15.
A similar marketing flow was observed by Valdeleon (1985) in the tuna production of small and commercial fishermen. In fact, this study identified 15 different responsibilities performed by the traders in response to (a) the inmperfections in the market information regarding the product, and (b) the limited market infrastructural services (e.g., transport and storage facilities).
16.
Some wholesalers and exporters of fresh and canned tuna obtain their tuna supply through this form of contract arrangement (Valdeleon, 1985).
17.
Some entrepreneurs engaged in prawn culture employed this form of contract (Valdeleon, 1985).
18.
A key factor that could explain the gloomy investment picture in the countryside for the years 1981 to 1984 was the increasing tension in the political scenery (this was largely attributed to the assination of former Senator Aquino last 1983 which sparked and accelerated opposition against the Marcos regime, and the deterioration of the peace and order situation particularly in the rural areas). Several (e.g., Allen, 1973 corroborate the above finding; these researches hypothesize the direct correlation between political and economic stability on one hand and the inflow of investments on the other (i.e., more investments are forthcommlng in countries which are politically and economically stable). In other words, this implies that one of the preconditions for investment (specifically foreign capital is the political and economic stability of a country.
19.
The more refined statistics of BOI for agricultural and fishing investments in 1981 to 1984 revealed that not only were foreign investments in these sectors declining during the years but more significantly, most of the foreign capitalists Who had the option of establishing either (a) wholly'owned enterprises or (b) joint-venture corporations with Filipino investors holding mlnority stockholdings, chose the latter organizational structure.
IV.70
have et
also al.,
_0.
mentioned in footnote farms whose land size
The figures are larger than.those 7 because the above data include are over 5 has.
2!i.. As w'as_expla.ineU earlier, this was due mainly to:the ...... increase i_n;th_ number of; farms c_ultiva_ting cash-crops. T-he increase i_S , the summation of (a) fa_rms- which to'tally s,_ffted'from food to cash :crop pr:oductlon and (b) farms _hlch supplement thelr ,incomes from food with cash crop production. 22%
Because of the rigid stipulations in the contract arrangements between sEanfilco and the small growers, the. produc'tion process in this form is basically controlled by the former party and the small" growers become essentially disguised hired workers. .
:.
..
,
,.,
23.
This figure may be a lower •estimate as it did not take into account the Supplemental payments:acoorded by some TNACs to their domestic partners, as well as the local equity of'the for4ign in#estors. ; '
24. •
T_e estimates for the payments •accruing tO l_nd were b as4d on the fo!llowing •informatzon. (a!) the lease agreements of PPC with NDC whi_ch expires on 1988 was pegged at _10 per hectare annually; (b) the rental• "_rate of Dole with NUC was _63 per hectare per annum; and (C)_ 'the'minin_um profit share •of NDC was, computed at _2 for every 1,000 kilograms of ._ plneapples harvested (while _2 was the amount agreed by Dole and NDC,) PPC's agreement on the other hand was lower, i._,, ._SO per 1000. kilograms; however, _Or this _eport, the computation 'was pla_d at the higher limitt i.e.,
,72). .... ' F(_r the Summary of the land Dole, see: T_nada, "1967: • _7-61.
lease
rents'of '_
PPC
and
251.
This benefit: is qualified by opp0sitioniscs, They stress that the capacity of foreign enterprises to ,"g_:ner_t_iI_abo_employment is _imlted _by:the capi'tal'.int_n.sri_e nature :of their productlion _echnol_gles. •
26. ......
.
,
:..
., ,
. .
,
• , •
.._
The MAF should coordinate its marketing information Wi:th t:we _M_-_*" J The la.kter has created a_ Exp'ort Devel opmeITt':S_tr:a:tegyGroup (laS_ i'198Z),: _nter alia, to forecast the external demand for fresh an---_pF6cessed
IV.71
REF ERENC ES A.
Coconut
Industry
Habito, Cielito F. (1985). "Policy Issues in the Philippine Coconut Industry: A Survey". CPDS working Paper No. 85.08, Paper presented at the Rice Economy and Agricultural Trade Policy Workshop. May 3-4, 1985. SEARCA Drilon Hall. College. Laguna. Sangalang, Juanito (1985). "The Coconut Replanting Program". CPDS Working Paper No. 85-09, Paper presented at the Rice Economy and Agricultural Trade Policy Workshop. May 3-4 1985. SEARCA Drilon Hall. College. Laguna . NEDA
Coconut
Study
(1985)
B__ t
_
_
For
the
Su@ar
Industr Z
C.
Pollc_
Agenda
For
Non-Tradltlonal
Adriano, L.S. 1984a. "A Review Transnational Agrlbusiness Philippines" (unpubllshed).
of the Literature Corporations in
.......... 1984b. "Comments on the CDC Project Proposal in the Philippines" Paper to the British Parliament.
Allen,
T.W. 1973. Direct Southeast Asla-Y"_ai
Investments of i and: OCCAPR.
on the
Palm Oil submitted
U.S. Enterprises
in
Allen,
Thomas W. 1973. Policies of Asean Countries Towards Direct Foreign Investme6-t-." Paper _u-_-m-l-t-t_edf o_ _n-_-r_n6"6 l%-t_e--M%-i_TSg6-ional Firms in Southeast Asia: Conflict and Accomodation. Sydney, Australia: W.D. Scott and Co. Pry. Ltd.
Alternate Resource Center. --Economy. Davao City. Feedback of Mindanao].
1985a. Data Philippines:
Map of Mindanao _o_'_oec0nomic
,
........ of AYC
MindaneO].
Davao
1985b. [Socioeconomic "City. Phi lippines.
Feedback
Consultants, Inc. 1985 An Overview of the P_illppines and Its Agricultural Sec'£-6r? _-C-'-C-on-_ t_t_s, Inc.
Ellis,
Frank.
1977
International
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of
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A
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Indus_
Encarnac ion, J, e.t al. 1976. . ghilippi_ne Economic Perspect.lv.e,.. OuezonC_'-_." --_tFE-_"-6_ Dev__" Revenue, UPSE. Glover,
D. .19_3..Contra.c_t Ph.D. DlSserta'_n"Unlv_
Farming
of
F_oblems Economic
an_d the Transnationals. of Toronto.
...... . 1984 "Contract Farming and Smallholders Outgrowers Schemes in Less Developed countries". World Development Vol. 12, nost 11 - 12, pp. 1143 - 1_: _
.
1985.. ",Transnational Corporations and Third W:orld Agri:culture." Prepared for the Overseas Development Council: Conference on the _uture of Foreign Investment in the Third WotlcL Washington, D.C. -
Go_dbe_g, R* 1974. Countries !
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Agribusiness La-tinT An)eC_ca.
Gonsale s, Leonardo a. Diversifica tion=_
A
-
Management _ :Developlnq LBallingei_;: Cambc_[dge
1984. Philippine Re gi o na---l-- _on'5-m
Agricu 1tufa i c'._-_____a--6T-6
-" .....
Hansen, Mogens, Buch and Benrick _arcussen. "Contract Farming and the Peasantry. Case _rom :KeP._a". Review _ A._rican Political 23:9 -.36. .
Jesse,
•
E. and
,
i
_ i
,_ ii
A. Johnson
con_.a_s., 52(4).545-55
1970.
Krinks_ Peter, t981. " ExportIndustry: Papers, Series
1982. studies
O£ Vegetable
"An Analysls
OoucnaI
of .Ag_cu!tu_e --
vertical _3_3_q 3"_.
]. e
....
&mertc_n ,5_---_
,, _'_-e_n_t-_a!
.
ion
H-e-g_5 e ___- k-es3_ c_ Centr• _or Agrarian-
Developmenb.
"Corporations A Preliminary No. 28.
in
.:
the Philippine Banana Account", ThirdWorld " '
Eusterer. , K:C. .et,al, 1981. , The Social A_ A cases Study oT'_lcS_a--l_ AID Evaluation _'pe_S_u---d-_ oN'_. _Y--U_'_" D.C.
IV,?3
, .
Impact of Guate-mal_-_ --Was__n,
Lamb, G. and b.: M dl let. •1982. Control Incenti'ves In a _fu_____Inst£t_ion P--aper-'No. 5_-_. "Wo_-1-Bd"_ Little, A. O.I Investments
Wash,ngton,
Inc. 1974.. Southeast bpp ortunities. .......
Lustz, _ Ernst et al. 1985. Sector. World Bank. Ma:decor. 1986. Madecor,.
Account ab_li:ty and •
Asia: _',_T.rade and ......,,, _
The Philippine
"Development
Project
D.C.
•FoOd 1_rocessin_ ...... . :
Ideas".
Phili-pp'_oes.*
McCommon, C. M. et al. 1985. Guanchias r.i_itada-* A Case Stud Z of an A_rarian, Reform Coo_eratlve a-ncT_s Honduras. AID Eva"uu_tlon Washington, D.C.'
s_cqa_-Stu-d-d_-n_.-'_2. .... USAID.
Minor, Nicholas Willlam. 1985. Contract Farminq and :_ts Impact on Sma I 1 Farmers _----_.--Eess D--------e v,eq6,o-'_ed C-o-u-n t_z_e--s.-_ -- U.'S_AgeZ_y- f_ r-I-_'e'rna'tqo n-a'_[)ev-e'_-, oPme-nt'_-
nes: NCSO.
. 1980.
Census
of
Agricult_., .. ,
-
.,
' . ,.
National Census and Statistics Office. 1971 and 1980. •Census of A@riculture. vol 2, Phi 1 ippine s: NCSO. -. Ofreneo, Rene. Philippine
1983. Agribusiness Development Forum.
Impact on Rural 1(1)." 103-110.
Sectu_".
Philippine Chamber of 'Com'merce and I.ndustry (PCCI).. i_:85,_ "Directory of Business Proposals_- Intramuros-: Peck:: PCCI
Regional Food Policy Conferences April °_ 5 - May 10, ' 1986. Manila Chamber of Commerce and industry, [
on Agri-Business, ." Philippine i !:
,,
.
., ;
Phillips, T,A. Millers, plantations, and: p r0_:esslng factories: Their place in the development of organized smallholders production" Tro_ica-i S_ci_n_e 7:99,108. . • .... " ..... Rivera, Temario. 1983. Some Contemporary Issues":. _!_n_ee ,127.
"The Philippine Agrarian 0uestlo.. Trends anc_ Continuing Conceptual Develo2men__t Forum. 1(I)_:':,_ 11S_ ..... ,': ,,
IV.7W
, •
%.
Slamwal
la,
Aromar.
•.1978.
"Fa rme rs
and
M iddl emen:
Aspect s
0 £ !1•t, Ao_ ic_.,_' a rk..e t'z,_: i..,: ;!ThaiI a_t_;_'-'',._;" su__ n _ _ ,Ka.i':.:M "._ ia"and _he-" ', ci_i_..,2_ ,z:) _ e-5_Econom Stern,
N.H.
Tadem,
'BdU._'_do. Minda.a_"."": 115-118.
Tadem,
Eduardo, et a.i, _ 1984. in Minda'na6: :.Fishes,
Third
1972.
World,
•An
"'1"983. ....P'Hi'I._ ::' ."' _'-
O.P,.
Appralsal.
" "Changes
of
la' Tor ce_
Showcases F_n'a-Fruits.
Tanada,' L. 1965.
..,
..
:
/1980.Control
Economic
on
Small
of
the
of:Onderdevelopment Davao
Philippine
City,
Banana
Ouar.terly_-::Review 13(3.)-5-16.
Jose,:: '•1•975. ".Foreign• investment
Dependency".. , ..,
Production
:i.'. t,.he..Rur'al "Economy of Develo._p_ent Forum•. 1(1)" ---
ZndUStry.,:.. ""AH_..:":Jspan-"Asia De
Tea
ic
Development
and
and
Cultural
Export Change.
•
1965. Quezo_
.Nationalism. '_!_ = P-_ex
A Summons tO Gr_eatne s. Pu-_h-_ng_lo_se I'6_s
Valdeleon, L. 1989. A publication; " :".:."
Stud Z
on
Tuna
Valdeleon etal;: !985. PCARRD publ ica_i6n.
A
Stud[
on
IV.75
Production,
.Prawn
PCARRD
Production.
P.BRSONB _ PARTZCIPATEO IN, WBRB OC_SOLTH) OR REACTED IO 7HE._RK-C_ _HE VARIODS At_
ON,
Coconut I.
Dr. Corazon Aragon
2.
Prof. Ismael Anunciado
_.
Dr. Eulogio Castillo
4.
Dr. Luzviminda Cornlsta
5.
Mr. Frits Gemperle
•6.
Dr. Emesto
7.
Dr. Pacencia Manuel
8.
Mr. Jose Romero
9.
Dr. Juanito Sangalang
i.
Mr. Fred Elizalde
2.
Ft. Antonio Ledesma, S.J.
3.
Dr. Teodcro Mendoza
4. 5,
Dr. Gerald Nelscn Dr. John Po_r
Lozada
College of Development Boonomios and Management, U.P. at Los Banos College of Agriculture, U.P. at Los Banos Agricultural .Credit and CoqoeratIres Instltute, U.P. at LOs Banos Agrarian Reform Institute, U.P. at Los Banos Philippine Chamber of Commerce and Industry College of Engineering and Agro-Industrial Technology, U.P. at Los Banos College of Development _onomics and Management, U.P. at LOs Banos Makati Business Club, Makati, Metro Manila College of Agriculture, U.P. at Los Banos
The Sugar Council, Makati, Metro Manila Xavier University, Cagayan de Oro city College of Agriculture, U,P. at LOs Banos Winrock Intematlonal Philippine Institute for Development Studies
Non-Traditional Exports i.
Mr. Gervacio Ascalon
2. 3.
Dr. Howarth Bouis Mr. Augusto de Leon
Foundation for Economic Development, Inc. IFPRI BCCI-FAF "
IV.7&
4. 5.
Mr. William R. Go, in Dr. PoncianoIntal, Jr.
6. 7.
Dr. Ce_r Jesena Or. David King
8. • 9.
Ft. Antonio Ledes_, S.J. _'. Vicente Lira,Jr.
i0.
Dr. Camilo Opena
11. 12. 13.
Mr. Frank Fanahon Core group of the FAF, POCI POCI regional officer and members Mr. Angelito Sarmiento Hr. Jo_ph Siahetiong
14. 15.
[]SAID College of De,fount _no_Ics and _ge_nt, U.P. at Los Banol SE_, CoLlege, Laguna International Developmentand Research Cenl:r_ Xavier University,Ca_yan PhilippinePackin_ Ccrpcratlon College of De_lo_nt _:c_omiasand Management, U.P. at Los
PO_I-FAF Daily Harvest Manufacturingand MarketingCo.
-IV.79
de Oro
CHAPTERV. Rural Credit, Agricultural Inputs and Services
CHAPTER
RURAL
CREDIT,
AGRICULTURAL
V
INPUTS
AND
SERVICES
oVERVIEW In order to sustain the growing population in the Philippines, gains in agricultural productivity must be achieved. Both crop production and post-production methods must be considered in our efforts to attain self-sufficiency in food. Agricultural production can be increasedin two ways: (I) by expanding the land area devoted to crops, and (2) by increasing the productivity of the existing land. Given the finiteness of our land resources, land intensive technologies are 4eveloped by modifying the agronomic environment of crops, i.e., through constant water supply, and by using complementary inputs such as seeds, fertilizer and pesticides. Existing improved technologies for rice production for instance, require this complementary package of inputs. They also require a big cash outlay and farmers with a small resource base and who are risk averse may not be able to use them. Thus, it is essential to ensure that credit is available for purchase of these inputs. This chapter highlights the importance of rural credit, agricultural inputs and services in increasing farm production and consequently, in attaining a higher welfare status for the rural sector. The policy recommendations on agricultural credit, irrigation, pesticides, fertilizer, and postproduction technologies are aimed to set shortand long-term agenda for action, which include strategies that are focused on overcoming small far mens' problems. Policy recommendations in the agricultural credit sector aim to promote a more effective rural financial market (RFM). At present, the issues and problems associated with RFM include low financialization of rural savings, urban-based nature of most financial intermediaries, the ineffectiveness of special credit programs to increase food production, the arrearages problem, the failure of agrlcultural loan quota policy and the important role of informal markets as a result of the serious institutional bottlenecks in the supply and delivery of credit by the formal markets (i.e. Rural Banks). Informal markets are generally more accessible than formal markets, because of timeliness of credit and low transaction costs. Hence, a strong argument is made to
V.1
establish a credit transaction costs institutions.
delivery as well
system that as minimum
will risks
have a minimum to the lending
It is suggested that a rediscounting policy of the Central Bank be used to control money supply, and not to influence the flow of credit to favored economic activities. A freely floating rate policy to stimulate increases in the volume of financialized savings is also recommended. We can create an atmosphere of competition in the RFM by having free entry into banking (with no government equity participation in the new banks) and by liberalizing regulations prohibiting rural banks and other financial intermediaries to undertake non-allied nonfinancial activities. Along the spirit of competition, outright removal of the agricultural loan quota policy (PD 717) is also suggested as it is assumed that with agriculture becoming an attractive enterprise, credit would naturally flow to this sector. The Land Bank of the Philippines (LBP) can refocus its lending towards agriculture and rural sector, and its activities be supportive towards the development of the RFM. Moreover, rehabilitation rehabilltated redlscounting restructuring i0 years.
there should be an immediate but selective of rural banks. The viable ones should be by: (I) converting into common shares the arrearages on supervised credit; and (2) by of the arrearages for a period not exceeding
It is also recommended established to coordinate fragmented agricultural credit
that certain efforts in machinery.
mechanisms be the otherwise
Current effort in irrigation development is also characterized to be fragmented, highly centralized and very bureaucratic. Several agencies, each with its own thrusts, orientation and strategies are involved in irrigation development. The lack of coordination and decentralization results in overlapping of activities, unnece ssar.y duplication of facilities, staff and field activities and inequitable distribution of benefits due to overdevelopment of irrigation facilities in some regions, but marginal in others. Other problems that were identified in the current setup include high overhead costs, poor systems operation and management, and weakness in planning and project formulation. Moreover, there are problems in institutional development llke the lack of viability of water users associations, the problem of irrigation fee collection, lack of private sector participation, lack of proper monitoring
V.2
and post project evaluation schemes, and failure hesitance of irrigation development agencies to make use of research findings, expertise and facilities research and academic institutions.
or full of
Policy suggestions aim to rectify some of these issues. First of all, to have more coordination among agencies involved in irrigation development, it is suggested that NIA and FSDC be merged into a semi-autonomous agency under the umbrella of the MAF. Furthermore, the following thrusts and strategies are recommended.. i.
Strengthen
2.
Focus
on
the
3. Encourage them access
regional
and
provincial
the deveIopment
of
small
offices;
systems;
private sector participation irrigation development funds;
to
4. Promote basic and adoptive research areas as hydrology, design criteria, etc; 5. Encourage development,
use of local i.e., technical
6. Strengthen implementing projects;
the MAF large
7. Continue policies potentials
resources expertise,
capabilities river basin
a. irrigation con tr ibut ion s,
fee
c.
foreign
loans
d.
cost
e.
acceptable
saving
pricing repayment
measures,
critical
in irrigation manpower, etc;
with full
high impact production
the financial status and recommendations
subsidy
b. irrigation
on
giving
in formulating and type development
focusing on short-term designed to harness the of irrigated areas;
8. Conduct a review of consisting of studies following :
by
and
government
and
collection,
of
the on
NIA the
equity
scheme, and
income-generatlng
measures.
Though pesticides are important in modern agricultural production, over-use and misuse of these could be detrimental to the public health and the environment. Lessons from other countries show that too much pesticide
V.3
use on crops causes negative side effects such as the building up of resistance of other pests, the killing of natural enemies, and the contamination of environment, among others. As such, the total benefits that we get out of pesticides may be overstated due to the unquantified social costs that we incur. Judicious and efficient use of pesticides is then, imperative to support the nation's objectives of increasing agricultural production and promoting general welfare of the rural population through better health and safety. The
policy
recommendatlonsinclude
the
following:
i. The creation of a more effective pesticide regulatory unit, which is independent of fertilizer and which must deal with pesticide registration and regulation. Regulations include monitoring and surveillance of farmers' safety, residue analys_s and quality control. The Philippines has one of the most stringent pesticide regulatory policies in Southeast Asia, but the problem comes with respect to their enforcement and implementation as FPA has a thin corps of field personnel to monitor enforcement of the rules and regulations. 2. Promotion of the Integrated Pest Management(IPM) approach as a national crop protection policy. This technology, which espouses judicious and efficient use of pesticides, is location specific as pest incidence and economic factors vary with the different agroeq01ogical a teas. 3. Strengthening of training programs on IPM dissemination and verification, and on pesticide use and safety. We need training programs on different levels: dealers' training, safe handling with extension workers, agro-medical practitioners and farmers. There should also be an occupational safety program for farmers. On the other hand, retail prices of pesticides had increased phenomenally in the past two years due to combined effects of high inflation rate and devaluation of the peso. In the short-run, there is a need tO lower these retail prices, but we have to be selective in the scrapping of import taxes on agricultural pesticides to achieve this end. We could promote safety as well as the IPM program if we apply taxes on the "extremely hazardous" pesticides and remove or reduce taxes on the safer ones. Fertilizer, like irrigation and other complementary inputs, is essential to increasing agricultural productivity. The recent decline in fertilizer consumption in the country can be attributed to the relatively
V._
unfavorable, caused both
fertilizer-output by the oll crisis and
price ratios after 1972 domestic pricing policies.
Past government policies were developed to ensure adequate domestic fertilizer supply for food security reasons. However, these policies failed to encourage domestic production to the level of self-sufficlency as indicated by a high growth rate in fertilizer imports due to the growing demand for urea. The recommendations regarding the fertilizer includes a refocusing of our ,,acroeconomic policies with respect to the industrial protection system, export taxes, and foreign exchange rate. It is suggested to liberalize import licensing, remove price controls and lift the _10/bag surcharge which is being paid by farmers. There must also be a move for eventual privatization of government subsidized fertilizer firms. Like pesticides, the urgent task however is to find means to lower fertilizer cost to the farmer. Some ways of doing this is to lower marketing cost and to promote research and extension for increasing efficiency of fertilizer use and substituting organic (such as Azolla) for chemical fertilizer. Availability of cheap fertilizer and other agricultural inputs will be absolutely necessary in our short-term recovery program. Furthermore, the policies on agricultural inputs aim to increase production as measured by physical volume at harvest. However, postproduction methods such as harvesting, handling, threshing, processing storage and marketing operations determine the quantity and quality of product that is made available for consumption. Available estimate on harvest losses in fruits and vegetables in 1981, for instance, was approximately 2.2 million tons or about 30 percent of the total production. There is a de'arth of in-depth studies on pOst production technologies, hence it is recommended that applied research be conducted in important crops to determine the technical, biological, economic and s oclocultural characteristics of existing systems and of potential alternatives. The research must be combined with complementary government efforts to develop policies and programs providing the correct mix of economic incentives thus making investment in the technologies profitable. Extension should support research to maximize the development of loss-reducing postproduction technology. Other
recommendations
i. Formulation of (aside from quantity)
on
post
a simple pricing V.5
production
include:
and adoptable systems;
quality
2. Development of a well defined, appropriate, acceptable grading and standardization systems grains and perishables both for the local international markets; 3. Support postproduct
ion
of the collective technol ogy/equipment;
4. Re-orientation packages to other 5. Prioritization structure;
of training farm household of
the
adoption
and for and
of
and technological members;
development
of
transport
6. Careful study of some under utilized/nonoperational government owned postproduction facilities and when possible, lease and sale of these to the private sector; and 7. Promotion of domestic manufacture and fabrication of post production machineries; and of rural based industries to accomodate "displaced" labor.
V.6
A.
POLICY
RECOMMENDATIONS
FOR
AGRICULTURAL
CREDIT a/
An important institution that Can facilitate the development of agriculture and rural sector is the rural financial market (RFM). An efficiently functioning rural financial market mobilizes financial resources and allocates funds to their best alternative uses. Unfortunately, however, current constraints on theRFM, both structural and policy-induced, impair the flow of much needed funds towards agriculture and the rural sector. Rehabilitating and strengthening the RFM is therefore an indispensable task if we are to give agriculture and the rural sector a central role in attaining the twin objectives of rapid economic recovery and long-run sustainable growth. While we recognize the urgency of rehabilitating and strengthening the RFM, we should take caution not to have a myopic view with regard policy proposals. One who is pressured to provide a solution to a problem in one sector may begin with the wrong assumption that the sectoral problem is unrelated to those of other sectors of the economy, and therefore hastens to suggest a solution which may be effective in a particular sector without adequate consideration of its intersectoral implications. In other words, we take the view that the solution chosen must not create distortions that would adversely affect other sectors. Thus, while we _ concern ourselves with rehabilitating and strengthening the RFM, we should never lose sight of the potential macroeconomic implication s.
I.
A Framework
for
the
Rural
Financial
Market
In this section, we discuss the function Of an ideal RFM in order to provide the proper perspective for an assessment of Philippine situation. It is our view that the failure of past policies to develop the RFM can be partly attributed to the. lack of understanding of its dynamics. The total financial market of a country is composed of many economic agents interacting w_th each other in order to maximize the benefits that can be derived from certain finadcial transactions. The RFM is just one subset of the country's total financial system which operates mainly in the rural sector, hence the name RFM. Financial instruments used in the RFM may be less complex than those used in the urban financial market. However, all these do not mean that its operations can be completely divorced from the rest of the financial system.
V.7
There is a•strong and positive •correlation between a country's level of economic development and its degree of financial development. Although we cannot.establlsh the direction of causality the positive correlation is a clear indication that Policies for economic development, must be accompanied by similar measures for the financial system's development. By this we mean that the country's entire financial system should become more effective at fin_n_Ya[ intermediation: a highly developed sector of the financial system coexisting with severely underdeveloped sectors does not conform to our concept of financial development. It is a mistake to favor one sector of the market over the other. Instead, strong linkages among the •various components of the financial system should be recognized and promoted so that one would not develop independently or at the expense of the rest of the system. One peculiar characteristic of an underdeveloped economy is market segmentation. Here, firms and households face different effective prices for land, labor, capital and produced commodities and do not have access to the same technologies. Oftentimes, policy makers in developing countries erroneously assume that market segmentation is a permanent feature of their economies. Thus, they tend to formulate policies and establish institutions that not only reinforce but sometimes aggravate market segmentation. Instead of these lamentable policies, reforms should aim at unifying the segmented markets because the benefit to society of a unified market is greater than when markets are segmented. Specifically, we believe that unification of the capital market is essential to eliminating other forms of segmentation. It is under this general framework that we have to understand the workings of the RFM. Figure 1 provides a schematic representation of the RFM. Ultimate fund-users use funds either for productive or non-productive activities. Productive activities include farm and non-farm activities. The reason for including non-farm activities in the framework is twofold. One is that income from non-farm activities was found to be partly •responsible for the narrowing of the gap between urban and rural household incomes in the 70s. Indeed, non-farm activities are becoming m6re important sources of incomein the rural sector. The other reason, which is important in the context of our topic, is that we want to highlight potentials for diversification in the rural areas. A recognition of the complementary role of farm and non-farm activities in raising rural incomes is indeed an important step towards framing credit policies that are neutral or are not overly biased towards one economic activity in the rural sector.
V.8
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There are several ways of financing productive activities. One is through self-finance, in which case, the individual is both a saver and an investor. The relatively well-off savers-investors can afford to invest in modern technologies, which usually require capital investment, as in the Philippine case where many farmers adopted new farm technology without resorting to borrowing. However,small savers-investors who may have similar production opportunities will be confined to low-productlvlty, traditional technology unless they have access to external sources of finance. This is where the role of financial intermediaries or institutions becomes crucial since they intermediate funds between savers and borrowers. Financial intermediaries perform two basic functions: savings mobilization and lending. They offer a variety of financial services that match the liquidity and risk-return requirement of savers. Their transactions cost is much lower than that incurred if borrowers themselves were to deal directly with many small saving or savers units. Thus, they can afford to offer higher deposit rates to savers, and lower lending rates to borrowers. We would also like to recognize the important role of the informal lenders as an external source of finance in the rural financial market. They are more important in areas where formal financial intltutions are small relative to the size of the credit market. In certain cases, informal lenders provide a wide array of services, such as marketing, providing information, etc., to their borrowers. Informal lenders are indeed a convenient source of loans to many deficit units since they are generally accessible and do not require burdensome loan documentation. Their highly integrated services allow them to reduce transactions cost considerably. We must say that the stereotyped image of the informal lenders as a socially exploitative group is becoming less and less accepted. Instead, the role of informal lenders in the development process is viewed as equally important to that of the formal financi_l institutions. The character and structure of the RFM is highly influenced by current monetary policy. For instance, such policies may tend to institutionalize market segmentation. Thus, we find highly specialized financial institutions, e.g., cooperative rural banks, rural banks, thrift banks, which by regulation cater to separate groups of individuals in the rural sector. Rules and regulations governing them couldbe so rigid as to diminish possibilities for growth, competition and diversification.
V.lO
Credit policies which impose a low lending rate ceiling can also be overly biased towards borrowers. These policies often disregard the savings mobilization function of financial intermediaries. The failure of financial institutions to mobilize savings considerably reduce loanable funds, and thus, ultimately hurt the same borrowers that policy makers would like to protect. The selective credit policy of the Central Bank has also profound effects on the character of rural financial intitutions. Cheap funds are programmed for targetted sectors with rural financial institutions acting as conduits. The relative attractiveness of this undertaking usually impairs the savings mobilization functionof financial institutions. Moreover, it increases the vulnerability of financial institutions to sudden changes in rediscounting policy. Without their savings mobilization function, rural financial institutions are reduced to mere fund brokers. Actually, we do not need specialized financial intitutions to serve as fund b_okers or conduits of cheap funds. Ordinary individuals can do as well as, and perhaps even better than, financial institutions.
II.
Review
of
Issues and Problems Financ_ f Mar-_
_
Rural
i. Financial Policies Pro_ .Market Segmentation. A'doml----_ segment o_h-6 P-q_ilfpplhe financ_all sector is primarily urban-based. This is due to several factors, such as better infrastructure and communication facilities in urban areas, restrictive branching policies, and macroeconomic policies that tend to favor the industrial and urban sectors at the expense of agriculture. Instead of relaxing these constraints to encourage existing urban-based banks to extend their services to the rural sector, the government opted for the creation of highly specialized financial institutions for the rural areas. The creation of rural banks (RBs) was primarily intended to provide rur_l areas access to low-cost financial services so that rural people would be freed from so-called "exploitative" informal money lenders. In the process, the government provided them direct and indirect subsidies. However, they were meant to be small unit banks, allowed to Operate only in a certain locality and to lend only to small farmers and businessmen. Moreover, tax policies tended to reward small rural banks and penalize big ones.
V.ll
The effort to democratize ownership of RBs fizzled out because of the strong resistance put up by owners of RBs. Actually, the plan to democratize ownership of RBs could have been successfully implemented had the government sold its shares in RBs to farmer cooperatives/organizations and individuals. Unfortunately, the government did not do this but instead allowed the creation of another type of financial institution, the cooperative rural banks (CRBs). Since they cater mainly to the needs of their members, CRBs hardly compete with other rural financial institutions. Today, barriers to Regulations with regard branches in one rural area is a constraint to the rural financial market.
competition still exist. to opening up new banks or are excessively rigid. This development of an efficient
2. Low Financializatlon of Rural Savings. Resources a--vai-_ble for l_Sding to the rural sector in general and to agriculture in particular have been limited by insufficient mobilization of rural savings. However, this does not mean that rural people do not save. In fact, it has been documented that farm households save between 13 to 18 percent of their total income. However, their savings are mostly in the form of real assets while only a small portion is in the form of financial instruments. The low financialization of rural savings is a result of a combination of monetary and credit pollcies which were based on the erroneous notion that the main function of financial institutions is that of credit delivery. In the framework discussed above, we have pointed out that savings mobilization is a function equally important as credit delivery. The low interest rate policy which favored borrowers made it extremely difficult for financial institutions to offer to rural savers a deposit rate higher than the return on real assets. In addition, the Central Bank rediscounting policy made it more attractive for banks to raise funds through rediscounting than through savings mobilization. In effect, rural financial institutions were turned into mere conduits or brokers of cheap funds. Furthermore, the absence of competition arising from certain regulations, e.g., that only one rural bank can operate in one town, also contributed to the lack of interest on the part of rural banks to mount an agrressive savings mobilization drive.
V.12
The usual argument against a high interest rate is that it only penalizes borrowers without necessarily •increasing financial savings. This has been proven to be false. In fact, the growth rates in deposits per rural bank were much higher during the floating interest rate regime than during the fixed interest rate regime. This is a clear indication that rural savers respond to price incentives. < Althoug'h most of the constraints to savings mobilization have been recently removed, their debilitating effects on rural financial institutions still linger on. With the closure of the rediscounting window of the Central Bank, many rural financial institutions found themselves in a financial bind. While many of the rural financial institutions are starting to learn the trade of mobilizing savings, unfortunately, they have to operate at a time when many of them are weakened by huge arrearages with the Central Bank (see below for related discussion). Weak confidence in the rural financial institutions is certainly a big factor working against •their effort to mobilize rural savings.
_n adequa-t-6 SpecLal volume Credit of Programs. Concerned with •the c-r-e-d_-6"-goingto agriculture and the rural sector, the government launched several special credit programs. Among the many objectives of these credit programs, the most common are: (i) to increase food production through the use of high productivity technology and attain food selfsufficiency, and (2) replace informal finance with lowcost formal credit arrangements by utilizing government resources. The most prominent credit program in terms of size of financial resources involved and the number of people reached was the Masagana 99 (M-99) program which was launched in 1973. Departing frDm previous government-sponsored production programs, M-99 was an innovation which offered an integrated package of inputs consisting of (a) physical inputs, (b) adequate financing from the Central Bank (CB), (c) technical advice from government extension agents, and (d) market support. In spite of other non-credit elements_ M-99 could be regarded primarily as a credit program. The government adopted the supervised credit approach in the program's financing operations. In support of this program and the overall objective of channelling investments to the agricultural sector, the government followed an explicit "supply-leading" approach through liberal selective credit policies such as low interest
V.13
rates, credit subsidies, loan quota, and loan guaranteesinsurance, complemented by similar interventions in the product and input markets through price support and input subsidies. In addition, specialized government banks and non-bank institutions were established to sustain the developmental thrusts, Central to the development objectives of the governmmnt was the provision of cheap credit through the rural financial system. Credit thus was utilized as a development tool. Implicit in this approach was the assumption that credit is a binding constraint in increasing productivity through the adoption of improved technology. With the liberal credit policy of the government in force, the volume of agricultural loans increased from _4.0B in nominal terms at the start of the M-99 in 1973 to _28.3B as of 198.3 or in real terms from p3.2B to _8.3B over the same period. These correspond to an average growth rate of 2.2.2 and 10.61 percent, respectively. Corresponding to the increase in the volume of formal credit to theagricultural sector was the proliferation of commodity specific supervised programs including livestock and fish. As of year end 1983, supervised credit programsnumbered twentyseven (27). These do not include non-supervised agricultural cred'it programs which similarly received preferential treatment at the rediscounting window of the Central Bank although at slightly higher rediscount rate than supervised credit programs. Although most of these programs have been modestly successful in meeting their production objectives, _he second half of the 70s recorded an alarming decline in bank credit and borrower participation as mounting arrearages took their toll on the private rural banking system and on government financial institutions which have been the main conduits of governmentsponsored credit programs. Of the seventeen credit programs with available data on repayments as of end1984, the recovery rates of six programs were below 50 percent and those of five were between 50 and 75 percent. The massive M-99 program had a relatively impressive repayment rate of 82 percent in its early phases. However, in subsequent phases past due loans kept on building up. The result was that 90 percent of all borrowers dropped out of the program due to nonrepayment. Several factors could explain the high delinquency rates of those government-sponsored credit programs. The most often mentioned cause was the attitude of borrowers. Specifically, most borrowers perceived such loans as government dole outs.
V.14
With the disqualification of a large number of borrowers from the formal credit stream, the informal credit markets' share of farm credit increased in the latter part of the 70s. By 1982 informal sources were again supplying credit to the majority of farmers, although in terms of amount they still comprised less than two-flfths of the loans obtained by farmers from all sources. The government'sponsored credit programs have a profound effect on the _anking system. They have completely changed the character of the rural financial institutions. With the relatively attractive spread between rediscount and lending rates --which was meant to encourage banks to support the credit program -- banks became increasingly dependent on borrowings from the Central Bank. From 197283, borrowings of the rural banking system grew by 36 percent while deposit liabilities increased only by 23.2 percent. Thus, when the Central Bank closed the special rediscount window, many rural banks started to encounter liquidity problems. A number of them could be insolvent by now. Before we leave this topic, it is important to comment on the use of special credit program to promote certain economic activities. There seems to be a mistaken belief that a loan is just like any other input, such as fertilizer, seed, etc. In reality, however, a loan is facilitator in the sense that one who obtains it has a claim over certain resources. An important characteristic of a loan is that it is fungible, that is, it can be used for purposes other than the one stated in the loan application. Thus, a special credit prgram may not achieve its desired results for the simple reason that the target borrowers can divert cheap loans to non-priority, yet more profitable, yentures. Some credit programs include designs to break the fungibility of loans. For example, more people are hired to strictly enforce Khe credit program. But this adds more costs to the program, which consequently renders .it too burdensome for society to undertake. Another example is giving loans in kind, e.g., fertilizer. But still the loan i/s fungible because the borrower who does not need it can sell it and use the proceeds for something else.
V.15 "
cheap
Due to credit
the to
fungibility of promote certain
loans, the argument economic activities
for is
weakened. However, if it is realy desirable to promote certain types of economic activity, perhaps the proper strategy is to make it profitable by setting the correct policies, e.g.a pricing and taxation policies. In this case, there is no need to have a special credit program because fund would flow naturally to these profitable economic activities. 4. Arrearages Problems. The massive arrearages on _oans extended _]_r-6-u-gh government supported credit programs pose very serious problem to the efficiency of the rural financial system and to the viability of government owned or supported financial institutions. As one of the principal conduits of these loans, the RBs were the most severely affected due to their almost complete dependence on CB liquidity and their limited capital accounts which give them little leverage to absorb the huge loan defaults of their borrowers. As a result, a large number of them have been immobilized. As of 1984, RB system's rediscounting arrearages with the Central Bank amounted to _2.97B which was 72 percent of their outstanding loans from Central Bank and representing more than three times their net worth and over three times their paid-in capital. A major portion of these is traceable to borrower loan default totalling _2.35B. Only one-fifth (20%) of the Usystem had a good credit standing with CB, and hence, had access to the rediscounting window. If the four CB criteria for RB participation in the Intensified Rice Production Program (IRPP) and Expanded Crop Production Assistance Program (ECPAPA) are strictly enforced, only 14 out of the 297 RBs in the identified program municipalities or 6 percent of the reporting RBs would be qualified to participate, leaving 13 program provinces out of 24 with no qualified RBs to serve their credit needs. Similarly, other government financial institutions involved in small farmer lending have not been spared. The Philippine National Bank (PNB) which at one point shared 50 percent of total loans under the Masagana 99 program has likewise been affected. As of December 31, 1984 PNB's rediscounting arrearages with the Central Bank stood at _355M, equivalent to a past due ratio of 25.8 percent. Unlike RBs, however, PNB carries a higher cost of funds for its past due since the Central Bank automatically credit it against its reserves. Thus PNB has become very selective in lending in recent times.
V.16
W/th the operations of other financial institutions hampered by liquidity constraints (e.g. the DBP) as well as structural or organization rigidities (e.g. Land Bank (LBP) and commercial banks (KBs)) the insufficient supply of formal credit to the agricultural sector will soon be more serious. Coming at the heels of the new government'S efforts to assign a more important role to agriculture in its overall economic agenda, the present issues confronting this sector deserve immediate policy attention. 5. Ar____ultural Loan Quota Policy. Introduced in _-975_ t 1"s " policy seek.s to augment funds for agricultural lending by mandating all banking institutions, government and private, to set aside 25 percent of their net incremental loanable funds for agricultural credit, i0 percent of which is to be earmarked for lending to agrarian reform beneficiaries and 15 percent for general agricultural ler_ding. Originally conceived to encourage the agricultural lending activities of urban-oriented financial institutions, the policy has so far had very little impact on the flow of credit to agriculture despite general over compliance with the quota. This iS due to liberal enforcement of its implementation and the lack of identified viable projects in which urban-based institutions can effectively participate. In general, most banks complied with the quota policy by simply investing in Central Bank and eligible government securities rather than by lending directly to agriculture. Aside from being ineffective, the agricultural quota policy has introduced new distortion since it effect increases bank intermediation cost which passed on to borrowers.
in is
6. Institutional Bottlenecks in the Supply and Del_ery of Credit. Inst_£ut_ona----I r--i'gz-_'I_s-'i-n--th-e _e'l'J-ver_'o_ C@edit have contributed in increasing both expllcit.as well as implicit costs of obtaining credit and reinforcing small f_rmers' negative perception of formal financial intermediaries as dependable sources of credit. These bottlenecks arise from cumbersome administrative procedures and requirements in the lending process, delayed loan releases, restrictive terms and conditions regarding loan amounts, maturities and collateral requirements, and relative inaccessibility. Thus, despite the huge amount of formal low cost credit channeled into the rural sector, the informal credit market gained much vigor and thrived along side the formal credit market. The
V.17
interest informal
cost of formal lenders, but
lenders may be low it's non-interest
compared to cost (e.g.
untimely releases of loans, etc.) could bE quite substantial. In the context of the new agricultural production technology which consists of critical timebound activities, credit availability rather than its cost, becomes more binding constraint to producers. Thus, input dealers as a source of informal credit continue to be popular especially in areas where the new rice technology is widely adopted. 7. Credit Machinerz. Similar to the economy's flnanclal system %_ government's agricultural credit machinery can also be characterized as fragmented. This argument is supported by evidence on the proliferation of credit programs sponsored bydifferent agencies of the government from the MAF to agencies such as the Ministry of Public Works and Highways (MPWH) which is concerned with irrigation development, flood control and drainage and rural roads construction, through its attached agencies namely, the National Irrigation Administration (NIA) and the Farm Systems Development Corporation (FSDC). Though the Presidential Committee on Agricultual Credit (PCAC) and its operational arm, the Technical Board for Agricultural Credit (TBAC), were expressly created to coordinate and oversee the entire agricultural credit system, organizational limitations as well as institutional considerations have limited the effectiveness of TBAC. As a result of the lack of an effective machinery, remains fragmented multiplicity and different government
III.
agricultural and uncoordinated, overlapping of ministries.
credit planning resulting in programs among
Recommendations
The overriding objective of our proposed package of financial reforms is to strengthen and improve the efficiency of the RFM so that it will be more responsive and effective in servicing the needs of the rural sector. It should draw its strength not from continued government financial support, but rather from its capability to mobilize rural savings, and to allocate such funds to the best alternative uses, and on its strong linkages with the rest of the financial system. We emphasize that the effectiveness of our recommendations depend upon the implementation of other policy reforms aimed at removing biases against the rural sector and improving the profitability of rural enterprises.
V'18
Specific
Recommendations
.1. The rediscountinq polic Z of the Central Bank s--_OU_--d-- b"e -u'_e--_'-t_" contr-o--1mo"r_ey sup_n--_t--_--6 T_r _e-n c_" t-h-_--f 1-6w -o-f--c-r-e'_ i_-'_Z f_ o r e-_T-e c-on'_m_
r-EW£
ffo
_ra-_i-tlonal function of stabilization, rather than on development financing. In the past, the Central Bank performed both functions, although it emphasized on the latter. However, it failed miserably on both counts, resulting in price instability and continued underdevelopment of sector's supposedly addressed by those special credit programs. Moreover, it weakened rural financial institutions which had become over dependent on Central Bank rediscounting as a cheap source of funds. .r
The selective credit policy was aimed at developing certain economic activities through credit subsidies. We have already discussed the failure of such programs. Perhaps, a less understood but equally important issue is the fungibility characteristic of loans that could frustrate efforts of well-intentloned credit programs. Other policies, specially those that affect input and output prices, are more effective in promoting certain economic activities. Thus, we support the Central bank move to have only one rediscounting window with market-oriented rediscount rates. 2.
We
advocate
a
freely
floating
interest
rate
ke_ factor towards developing a strong financial market. Financial intermediaries will be able to offer attractive rates on financial instrument as inducements to potential savers, whether in the urban or rural areas, to save in the form of financial instruments by foregoing a portion of their present consumption and/or shifting savings out of low-yieldlng real assets. Available evidence suggests that savers do respond to price incentives. In the long run increases in the volume of financialized savings will contribute towards bridging the gap imposed by s_if-finance. An often-raised concern argues that under a ••freely floating interest rate, banks would charge farmer-borrowers high interest rate to compensate for high transactions costs and high risk in agricultural loans. The high interest rate, it is argued, would be a disincentive to farmers to borrow, hence agriculture will never take off.
V.19
The policy response should not be to fix interest rate at low levels. Rather, the proper response is to see to it that bank transaction costs and risks in agriculture are reduced. There are some transactions imposed by the government that must be. removed for they are burdensome and costly to both bank and borrower. For example, a bank employee has to go through all the procedures before releasing the loan even if the borrower has already proven himself credit-worthy. In addition, there are transaction costs that can be reduced by providing the rural areas with necessary support facilities, such as electricity, communication and good roads. Some risks can also be reduced. For example, by providing irrigation, farms would be less subject to unfavorable weather conditions. Another example is giving farmers' opportunity to present collateral. Here land reform and land titling become very important. Still another example is providing farmers information regarding output and input prices. There is now a growing consensus that a high interest rate is not an important barrier against potential borrowing by farmers. In the first place, many farmers do borrow from the informal credit market at high interest rates. Secondly, interest cost is usually less than 15 percent of the total cost of farm .production, with fertilizer cost accounting for a greater proportion. Accessibility to and availability of creditand not interest rate when needed are crucial factors influencing the farmers' decision to borrow_ Accessibilitycan be improved if more rural financial institutions operate competitively in the rural areas. 3. We favor the immediate but selective rehabilit'-ation _ rural 5anks. Presen[[y, the'-vq'aS_'IT[g-o-f-_-6_ RB system-_s severe_'y impaired because of accumulated arrears with the Central Bank resulting from the default of loans of farmer-borrowers. Consideridg the important role of rural banks in the rural financial market, there is merit on the part of the government to assist in the rehabilitation of the RB system. It would give existing banks some room to compete with new entrants. However, this should be pursued as part of a Coherent national strategy to improve the efficiency Of RFMs (without fostering future dependence) rather than as efforts exerted purely to ease the financlal burdens of RBs.
V.20
•
•
•
•
AS par t of a broad policy action, it is proposed that the following general guidelines and principles be Considered by the government in its efforts to assist in the rehabilitation of the RB system, to wit: a. Government rehabilitation assistance should in no way compromise sound banking practices nor foster future dependence on the government. Nonviable banks should be closed. b. The r%habiiitation scheme should • be selectlve. As a bottom line, the government should not hesitate to liquidate or close RBs found to have been mismanaged or involved in fraud and not extend permit thereof to owners or their representatives to operate or engage in the same llne of business anywhere in the country. Closed banks should be disposed of or sold immediately to interested• parties, c. The rehabilitation only the rural • banks borrowers.
•
d. The broadening banks. The two-step
rehabilitation of ownership
rehabilitation process:
scheme should benefit not but also th_ farmer-
scheme should lead to the or democratizatin of rural
scheme
we propose
involves
a
a. The first step requires the Central Bank to immediately evaluate all rural banks in order to determine which banks are still viable and •which ones are not, even with our proposed rehabilitation scheme in place. b. The remaining be re}_abill tated scheme :
•
•
•
potentially according
viable to the
ones should fo!lowing
i. All supervised credit arrearages (inclusive of accrued interest) of rural banks as of December 1985 shall be structured for a period not exceeeding i0 years. Likewise the corresponding past due supervised credits of rural banks-borrowers inclusive of accrued interest shall be similarly restructured. The old rediscount and borrowing rates shall apply to the restructured arrearages of the rural bank and bank borrower, respectively.
V.21
..
2. From the total-radiscount"ing arrearages in (l), a portion of the redisco-unting arrearages shall be converted into common shares up to the unmatched common shares of participating banks. • These common shares shall be entrusted with the Land Bank. 3. In addition, old •owners of qualified rural banks shall draw up a •capital build'up program over a period not exceeding 10 years. For every additional private paid-in capital put up by the rural bank under the above scheme, the Central Bank shall match these by converting a portion of the remaining supervised rediscoUnting arrearages of the bank into common shares. The balance of the rediscounting arrearages not covered under (2) and (3) shall consitute the amount to be remitted rio the Central Bank upon collection from farmer borrowers. 4. The Land Bank •shall immediately sell all the required common shares under (2) and (3) in favor of the Central Bank to interested farmerrural organizations, institutions or individuals under. an arrangement wherein-buyers will have to pay the Central Bank through the Land Bank over a 5 year period. The new holders of these common shares shall pay an interest equivalent to the old rediscount rate on the outstanding balance. Any collections or repayments on the restructured borrower loans • subject to the conversion and or capital build-up program in (2)and (3) shall be credited to the paid-ln portion of the common stock subscribed by the new stockholders of the bank. 5. Rural banks whose rediscoun ting arrearages are being restructured and/or converted into equity may avail of the general rediscounting facility of the Central Bank and or of the•wholesale banking services of the Land Bank in accordance with existing guidelines. In the cases where the above rehabilitation program necessitates an increase in the authorized capital, the rural bank should effect an amendment of its Article of Incorporation to. increase such authorized capital stock to the extent called for under
V.22
the above cited capital build-up and conversion scheme. Likewise, a change in the Rural Bank Act should be done if it is necessary to effect the proposed program. 4. Liberalize regulations prohibiting rural banks and _her _inancial intermediaries £o underta--_ actzv-_tze_--s _'n non-a_-l-_, non'financial _-ctivi'£ies. One of the p_ o'h-_-6-F6-1-o-_on r u r a 1-'5-a-6-ks-a-n-2[-_t'Le-_f in a n c i a 1 institutions with the exception of universal banks is to undertake non-allied activities such as input dealership, palay trading, etc. This appear to run against the current efforts to unshackle the market from undue regulation. Viewed vis-a-vis the present set-up, the practice is clearly discriminatory, if not outright unfair. There is no compelling reason why universal banks, given their resources, be allowed to go into non-allied undertakings while smaller financial institutions such as RBs are not allowed the same privilege. In fact there is greater merit for allowing RBs to undertake these activities for the following reasons: a. RBs face a much more limited market in most rural areas, often characterized by greater uncertainty especial ly in production and marketing; and b. RBs inherently markets.
operate more
in rural imperfect
markets compared
which are to urban
Given the generally more adverse and imperfect environment faced by RBs and other rural financial intermediaries, lifting the restrictions on their sphere of operations will enable them to integrate their lending function with complementary non-lending activities, and, in the process, minimize their risk and transactions costs. Such interlinking of transactions as exemplified by the operations of informal credit lenders in rural areas has been the main factor responsible for their low transactions costs of lending and their generally good collection record on loans extended to the same type of borrowers. Contrary. to arguments that such an arrangement might lead to wealth concentration, our complementary policies of free entry and associated efforts to address equity concerns will provide countervailing checks.
V.23
Finally, in the long-run, the lifting of this restriction is consistent with the policy of enhancing the efficiency of the RFM. This can only be possible if RFM institutions can operate viably to maintain their presence in the market. 5.
We
advocate
banking to foster porlcles can "_e faulted for the insufficient flow of credit and the lack of banking competition in the rural areas. There is a policy of one rural bank per town, and rural banks are allowed to operate only within a prescribed area. The cost of entry is excessively prohibitive. The prescribed capital requirement for a newly-opened rural bank is p0.5M. Commercial banks are discouraged from opening up new branches or subsidiaries in rural areas because of the same prohibitive requirement.
pel- tion.
free
entry
into
xis-iT g rlnancla±
Out proposal to liberalize bank entry into the rural areas includes the lowering of the prescribed capital requirement from p0.5M to say _0.2M, the lifting of the prohibition that there should only be one rural bank per town, relaxation of ownership and more liberal branching policy so that the rural financial market will be integrated with the rest of the financial system. Of course, we do not favor government equity participation in these new banks. Our proposal to liberalize bank entry is even more urgent at this time, considering that many rural financial institutions are being immobilized. No interested party would buy these banks unless they first divest their portfolios of nonperforming •assets. Thus, free entry is an easier route towards restoring normal operations and functions of the rural financial market. 6.
We
recommend
the
outright
t- ral--l
removal
of
-7i-TTT.
the
agricul-
poiiay
_-e-en zne_'--_fe_tzv'--_--_ - 1"-_ T_n-_ng t--_ small farmers. Reference to some data may help clarify this statement. As of December 1985, out of the total net loanable funds of the banking system which amounted to 40 billion pesos, at least six billion pesos should have been allocated to general agricultural lending and four billion pesos to agrarian beneficiaries. With regard to the former, there was over-compliance since about eighteen billion pesos were booked as loans under this category. Note, however, that almost all of these went to big organized agricultural producers, processors and distributors including multinational corporations.
V.24
With or without P.D. 717, credit flowed to these enterprises because attractiveness.
would still have of their relative
The problem lies with the latter. Only 1.5 billion pesos were directly lent by banks to agrarian reform beneficiaries, while the rest were held in terms of government securities which were in turn used to finance budgetary deficits. The lack of expertise, experience and extension was often cited as the main reason for their preference for holding eligible government securities than for direct lending to small fa rme rs. There are now several proposals which can make this policy more effective. The most popular among them is the lead bank concept. Basically, the lead bank concept consists of a scheme with a few big banks that would take the lead in agricultural lending. One of the proposed incentives is that the lead banks can issue bills/notes that can serve as substitutes for the government securities eligible under P.D. 717. Banks which do not wish to go into direct agricultural lending are required to buy those bills up to the amount required under P.D. 717. The question however is. What should be the interest rate for those bills issued by the lead banks? If a competitive rate is used by the issuers, then there is no need for P.D. 717 since funds would naturally be atttracted to the lead banks. If the interest rate used is the same as that of government securities, then it would tantamount to forcing other banks to subsidize the lead banks. It seems that the lead bank concept implies substantial government subsidies. If so, then we reject the lead bank concept for several reasons. First, the accreditation scheme would virtually give monopoly power to a few accredited lead banks. Second, it would further segment the market. Third, it would serve as a disincentive to the lea_ banks to mobilize savings since they would be assured of the funds anyway. Lastly, it creates a distortion in the _inancial system. To an ordinary" bank, P.D. 717 is an intermediation cost which is passed on to borrowers. Thus, non-agricultural borrowers are being penalized. Available evidence indicates that lowering the agricultural loan quota from 25 percent to 20 percent would give us significantly higher economic activity. Other proposals in form of P.D. 717 contend that if it is abolished, then there is no way that credit would flow into agriculture. This is not so, however. If the package of policies we propose is implemented,
V.25
then agriculture will become an attractive and credit usually chases after the most enterprises, 7.
Reorient
the
ro_e
of
the
Land
enterprise, profitable
Bank
of
the
o'-_he ruraffinancla_m-_ket. The Lan-d _E-o--_ _Ei __---__L_--w-h-1_-_-is m_ated ilpplnes to finance the land reform program devotes less than i0 percent of its loans to agricul£ure. Currently, it functions as a universal bank. As such, the LBP does not have any reason to go into commercial banking because the Philippine National Bank is already in commercial banking and commercial banking seems to be efficiently managed by the private sector. At the same time, various government agencies are directly involved in a fragmented manner in agricultural lending. Our recommendations basically require the LBP to refocus its lending priorities towards agriculture and the rural sector. We suggest that all special funds and rural-oriented credit programs presently managed by various ministries and government agencies be transferred to and consolidated within the LBP. We specifically which goes
oppose any non-financial into direct lending.
To enable the LBP to support the rural financial market, we given expanded powers to include non-financial funct ionsz a.
Financial
government
the development recommend that both financial
agency
it
of be and
Functions
i. Resource mobilization through deposit mobilization, external loans and grants and bond issuances. We expect LBP to compete with the private financial institutions in mobilizing deposits and issuance of bonds. 2. Primarily, banks.
wholesale
3. Retail lending financial institutions
in
4. Administration, tation of all treasury programs.
lending
areas where are absent.
to
countryside
private
rural
management, and implemenand foreign funded loan
V.26
b.
Non-financial
functions
i. Technical and developmental support to retail banks wishing to develop their agricultural financing capability in project packaging and implementation. 2.
Other
developmental
3.
Credit
packaging.
4.
Development
of
5.
Coordination
with
assistance.
innovative
V.27
government
financing
scheme.
agencies.
b/ B.
POLICY
ISSUES
ON
IRRIGATION
DEVELOPMENT
I.
Historical
Background
Our interest in irrigation development is as old as, or even older than, the terraces that adorn our landscapes. Although its value as an integral component of agricultural and rural development is generally recognized, its full potentials as an important catalyst for agricultural development as well as an instrument of rural development and socio-economic welfare have yet to be harnessed. Quite often, the orientation and thrusts as well as the mechanisms and strategies for irrigation development in the country have precluded the full realization of these potential benefits. The course of irrigation development in the Philippines, in terms of its orientation, mechanisms, thrusts and perceived importance as a vehicle for national development, during the various political regimes of the country may be briefly described as follows: A.
Pre-Spanish
and
Spanish
Period
This period was characterized small irrigation systems. These maintained through the efforts of of farmers or local authorities.
by the development of were built, operated and individual farmers, groups An interesting feature of
these systems was their built-in stability as crop cultural practices, cropping calendar, soil and water management and conservation are interwoven into their design, operation and management. The development of the community or communal systems was participatory in nature. As such, these communal systems had very strong and viable farmers organizations. Some of these systems are still functional today. These systems served an aggregate area of about 25,000 hectares at the turn of the century. Though they were primarily designed for rice-based cropping systems, other crops (e.g., sugarcane) were grown on elevated beds and furrows in some of these systems. In others, upland crops were broadcast on level terraces or paddies and flushed ('control flooding) with irrigation water. B.
American
Regime
(1900-1936)
This period was characterized by slow but consistent expansion in irrigated facilities as the government took a more active role in irrigation development. The first irrigation law (Act No. 1854) which was passed in 1908, created an Irrigation Division under the then Bureau of Public Works. This division was responsible for constructing new irrigation facilities and repairing existing • ones. It did not, however, have operational
V.28
control of the irrigation systems as this function was entrusted to the regional offices of the Bureau of Lands. In 1921, Act No. 2152 was passed giving operation_l control of irrigation systems to the Irrigation Division. This Act was significant in a sense that it attempted to improve the performance of existing systems by optimizing the use of the limited expertise available at that time. On the other hand, it paved the way for the centralization of irrigation development and set in motion a seemingly irreversible process of conceptualizing irrigation development as a series of public work projects the planning, construction, operation and maintenance of which were mainly technical and engineering in orientation (e.g., roads, ports and bridges). During this period, the emphasis was on small medium scale projects designed to irrigate monocultures. Twelve national gravity systems serving area of about 91,000 hectares were constructed during per iod. C.
Commonwealth
and
Japanese
Regimes
(1937-1946)
There was very little irrigation development this period as preparation for war and independence as national safety and survival were the overriding of the nation. Early
Independence
Period
and rice am this
during as well concerns
(1947-1965)
During this period, there were concentrated efforts at rehabilitating the existing systems which were neglected during the war years. Also, 51 new, small and medium size irrigation systems with an aggregate area of about 122,000 hectares were completed. It was also during this period that attempts were made to serve the needs for irrigation facilities of individual rice and non-rice farmers alike. The Pump Irrigation Administration (PIA) was established in 1949 under the then Department of Agriculture and Natural Resources. Reorganized as the Irrigation Service Unit (ISU) in 1952, this agency greatly expanded the coverage of small, individual farms Dy pump irrigation. The establishment of the ISU was quite significant in two respects. Firstly, it was a move in the right direction as far as the integration of agricultural development components (e.g., irrigation, crop cultural practices, mechanization, extension, soil and water management, etc.) are concerned. Secondly, it provided greater access by individual farmers to irrigation facilities at reasonable amortization and interest rates.
V.29
Several significant dev_lopments occurred towards the end of the early independence period. The Philippine Congress enacted in 1963 Republic Act No. 3601. Commonly known as the NIA Charter, this act abolished the irrigation Division and created the National IrrigationAdministration (NIA) which had the status of a government corporation entrusted wi'th the task of developing, operating and maintaining irrigation systems all over the country. This new agency had an authorized capitalization of _300 million to be released as equity over a period of i0 years. It had a board of directors which functioned as a policy making body and an Administrator who served as its Chief Executive Officer. Drawing its key staff from the Irrigation Division, it remained basically engineering in orientation with a strong bias towards larger infrastructures. Another significant development was the initial focus on large, multipurpose water resources development projects. The first of these was the Upper Pampanga River Project (UPRP) . Conceptualized through the National Economic Council, the feasibility studies for this project were undertaken from 1960 through 1965 with the aid of the United States Agency for International Development (USAID). E.
Expansion
Period
(1966-1984)
The creation of the NIA and the ascendancy shortly thereafter into power of President Marcos, who put high premium on large infrastructure development projects, set the pace for accelerated irrigation development through massive investments in irrigation infrastructures. Following the release of the UPRP feasibility study in 1966, many agencies (e.g., NIA I Rice and Corn Coordinating Council which was later named NFAC, and NPC) were mandated to channel massive efforts in a vigorous follow up work. In May, 1969, the then Philippine Congress approved the Upper Pampanga River Project (Republic Act No. 5499) authorizing the construction of the Pantabangan Dam. A few months later, the World Bank approved a US$34 million loan to partly finance the initial implementation of the project thus se_ting the stage for new irrigation development projects which are characterized by massive investments on infrastructures, high foreign exchange requirements and greater reliance on foreign expertise. Viewed as a show window project brandishing the pride of the NIA, the UPRP established irrigation criteria and standards that became the envy of the management staff of other irrigation systems. The complete
emphasis control
on large project practically over irrigation development
V.30
in
gave the
the NIA country.
As most of the investment in irrigation were coursed through the NIA, individual non-rice farmers and individual farming sectors had very little access to local funds or loans which carried lower interest rates and longer grace periods. This was more so since the aid-seventies when the NIA stopped its small pumps dispersal program due to poor loan repayment and high cost of fuel for pump operation. In terms of crop served, the emphasis was purely on rice partly because of the national goal to attain food self-suffiency, and partly because among the major food crops it is the easiest to irrigate requiring the least in terms of drainage facilities and O and M technology.i/ Nevertheless, the very inadequate emphasis on the drainage aspects of rice irrigation aggravated the problems of wa£erlogging and resulted in the reduced productivity of the affected lands in many irrigation systems.2_/ While the emphasis during this period was on large projects, the NIA also encouraged the development of communal irrigation systems to a certain extent. Communal irrigation loans with no interest and payable in 50 years were made available to small farmers. Yet, the subsidy to communal systems was still much less than those for large systems. Moreover, non-rice farmers had very little _ccess to soft loans. This explains, in part, the very limited irrigation development in the non-rice farming sector. One important development during the latter half of this period was the slow but discernible shift from the engineering back to the more interactive or participatory approach to irrigation development. The engineering approach measures performance primarily in terms of completion of infrastructures; treats design and construction as mainly technical problems and, hence, are engineering prerogatives; considers design, construction and opera%ion as separate activities falling under separate bureaucratic jurisdictions and treats design mainly as a mechanical process aiSplying established engineering standards. The interactive approach now being contemplated upon by the NIA, on the other hand, measures performance primarily in terms of the wil'lingness of the clients to pay for the services it provides; views an irrigation system as a socio-t_chnical system with both technical and human dimensions; views design, construction and operation as interdependent processes and considers design as an interactive process which must integrate site-specific engineering, social and economic realities.3/ The by the evidences
gradual shift in the NIA's strategy was poor repayment of irrigation fees; of poor performances of NIA operated V.31
triggered in'creasing irrigation
systems; numerous research experiences of the concerned institutions in development of institutions and the present economic crisis.
NIA and viable
other rural
The interactive approach is a move in the right direction. However, its implementation has been limited to selected communal and small scale systems . There are still very few documented evidences of highly successful efforts even in the communal systems. Even with the presence of consultants who are experienced community organizers, the approached suffered from inadequacies. The approach has a strong bias towards the institutional factors. Some valid indicators of systems performances such as farmers net incomes and realization of targeted yields, cropping intensities and net irrigable areas were never fully addressed to. The so called interactions among the various developmental processes have yet to be demonstrated. In fact, in some of the early pilot communal projects, the target irrigable areas were not realized. Moreover, in the first pilot projects in Laur, the weir or major str q.cture was washed away during the first flood season. The approach as envisioned has yet to integrate vital hydrologic, agronomic and other biophysical constraints to irrigation systems development. For its initial experimentation with the participatory approach, the N IA gained valuable experience. This is more so in the areas of organizing water users groups and the need to strengthen local or regional technical capabilities that are required for the approach to materialize. This knowledge and experience could be put to best use through truly integrated project planning, design, operation and support services on comprehensive and long term basis. During the period from 1971 to 1974, the NIA targeted an average of 83,000 hectares for irrigation development annually. It was also during this period that national planners started viewing the government irrigation development program as an integral component(and not separate though parallel) of the agricultural developmen£ program. From 1975 onward, the NIA had an annual target of more than 100, 000 hectares for new irrigation systems construction and existing systems rehabilitation. The NIA's scope of activities was further widened and its corporate stature and independence strengthened with the imposition of Martial Law. Presidential Decree N0. 552 which was signed in 1974 authorized the NIA to undertake concomittant projects such as flood control, drainage, land reclamation, hydraulic power development, domestic water supply, road or highway construction, reforestation and
V.32
other projects to maintain ecological balance in coordination with the agencies concerned. This decree also empowered the NIA to implement projects using foreign loans as well as increase its capitalization to _2 billion. Presidential Decree 552 was further amended in 1980 (P.D. No. 2702) increasing the NIA' s capitalization to Vl0 billion and giving it authority to contract foreign loans. By virtue of the same decree, all amounts collected by the NIA as irrigation fees, administrative charges from beneficiaries of systems it constructed or administered, equipment rentals and proceeds from the sales of unserviceable equipment and materials are to .be added to its operating capital. It also authorized the NIA to impose an administrative and overhead charge of 5 percent on the total costs of projects it undertakes. The massive investments in irrigation infrastructures during this period is reflected in government investments in irrigation from 197.9 to 1984 as shown on Table i. The bias towards large scale projects may be gleaned from the fact that only about i0 percent of the _2.3 billion allocation in 1982 was spent for the development of small communal irrigation systems. The large investments in irrigation were sustained for so long partly as a result of equally large foreign borrowings. Table 2 gives an indication of the extent of funding from external sources or loans for NIA's irrigation development activities. The bulk of the funds for the development of the total on-going or recently completed projects as of 1984 come from foreign loans. Also, only about one fourth of the total service area of about 541,873 hectares is covered by small scale projec_:s. These small scale projects are the locally funded and World Bank assisted communal irrigation projects. The accelerated pace of irrigation development focusing on large projects led to an acute shortage of highly trained technical staff for irrigation projects identification, planning feasibility analys_s, design, construction, and operation and maintenance. This resulted in design criteria inadequacies, poor construction and improper O and M. The end results are widening irrigation systems performance gaps. Table 3, for example, shows the summary statistics of the maximum irrigable area as percentage of the design area during the 1965 to 1983 period of a sample of 43 run-of-theriver type irrigation systems. On the average, only about 75 percent of the design areas of all irrigation systems are irrigated. This implies that areas provided with facilities a's designed are not effectively served. Before 1965 (pre-NIA) the percentage is
V.33
Table
Year
I.
Share of national
irrigation budget,
investment 1979-1984.
Irrigation Investment (_ billion)
in
relation
Percentage Investment to
2.03
5.9
1980
1.83
4.6
1981
2.03
3.7
1982
2.30
3.9
1983
2.08
3.3
1984
1.73
2.9
Sison, J.F. 1985. Irrigation Productivity. Working Paper, Agricultural Policy, College, Laguna.
V.34
the
of Irrigation National Budget
197.9
Source:
to
and Rice Workshop on May 3-4,
Table
2.
Funding Source
NIA on-going and funding sources as
No. of Projects
newly completed of 1984.
Service Area (ha.)
Estimated Cost (_ million)
projects
by
Amount of Loans ($million)
a/ IBRD
i0
288,771
12,474
537
ii
153,683
7, 734
253
4
32,391
2,120
75
PADAP
1
3,650
48
-
a/ USAID b/
1
3,169
159
5.0
305
89,209
546
-
a/ ADB
a/ OECF
a/
LOCAL
TOTAL
332
570,873
23,081
870
a/ Source:
1984
Annual
Irrigation Training Development
Report,
NIA.
Development Material. Division.
V.a5
Program. Mimeographed NIA Training and 1985.
Table
3.
Summary Area as
statistics,a Percentage
1965-1983 of Design
Ca tegory
All By
Maximum Area.
Medi an
systems
Irrlgated
Mean
75.5
75.1
70.5
79.2
7.2.1
75.7
76.8
72.8
1965)
92.6
94.0
to
71.0
69.5
52.1
55.5
size Small
(less
than
Medium
(i000
to
Large
(greater
i000 3000
than
_]a) ha) 3000
ha)
Vintage Pre-NIA Early
NIA
Recent
Source:
(before
NIA
(1965 (1972
to
1972) 1983)
Ferguson, C. 1986, "Irrigation systems, costs and facilities, " Chapter 2, Unpublished Paper, Statistics are for run-of-the-river projects. For comparison, the corresponding percentage for the UPRP Project which is a storage reservoir type of system is 76 percent.
V.36
about 93 percent. In the early NIA years (1965-1972), a maximum of about 71 percent of the design areas are irrigated. Recently (1972-1983), only about 52 percent of the design areas are effectively served. 9hus during the NIA years, the percentage of maximum irrigable to design area fell by about 40 percent. More than anything else, this Wide performance gap may be attributed to technical capabilities being spread too thinly. The inadequacy of services in the existing irrigation systems is reflected, in part, by the fact that most of the early NIA and about 30 percent of the recent NIA, _un-ofthe-river systems have undergone or are undergoing rehabilitation under the IBRD-assisted National Irrigation Systems Improvement Project (NISIP) when most of these systems were designed for a longer life span. The accelerated pace of irrigation development also put severe strains on the resource capabilities of concerned agencies • to satisfy the requirements for parallel developments in essential agriculture support services such as inputs distribution, farm credit, marketing, adaptive research, extension, problem soil management, and farm mechanization. These resulted in the development of some projects with unfavorable socio-economic and environmental impacts (e.g., the target yields and cropping intensities in many of these projects have yet to be attained). These developments reinforced the view aired in the agricultural sector that the NIA with its traditionally strong civil engineering orientation had at times tended to equate irrigation infrastructure development with agricultural de vel opinen t. The NIA attempted to solve the problem of manpower limitations partly by hiring foreign experts and developing under its own organization umbrella some essential support services groups. For exam[_le, the NIA now has its own group of soil technicians with a well equipped soils laboratory and, until recently, a strong agriculture research group, Its agricultural staff _ that included agricultural technicians, economists, soil scientists and agronomists are now integrated within its institutional management and systems management departments. The NIA's emphasis on medium and large scale projects as well as its total concentration on rice irrigation created some vacuums or gaps for other interesLed parties to move in. For example, a small Development Academy of the Philippines (DAP) project dealing with barrio irrigators' associations grew into a large Farm Systems Development Corporation (FSDC), an agency which catered to the development of small pump irrigation systems. The Ministry
V.37
of Human Settlements also established an irrigatiqn development staff while the Ministry of Agriculture embarked on the development of small irrigation systems through small water •impounding structures (e.g., Kabsaka projects). As early as 1975, it has become apparent that the NIA had overstretched itself and spread its technical staff very thinly. With an increasing number of projects, NIA was not getting a corresponding increase of new but experienced staff. This problem Was compounded by the exodus of highly trained staff to various consultancy firms. Furthermore, the NIA established NIACONSULT, a •consulting firm that draws freely from the agency's pool of experienced staff for fielding under its foreign and local consultancy contracts. It has become quite evident that all is not well as far as irrigation development during this period is concerned. In many of these irrigation systems, full agricultural development was not achieved on time, thus delaying some of the expected streams of benefits. Also projected irrigaDle areas, hence, cropping intensities, were sometimes not realized (see Table 3). Recent findings showed that the siltation rate of the recently constructed Magat reservoir is actually from 2 to 3 times higher than that assumed during planning and feasibility stages. It is well-known that many farmer-beneficiaries of FSDC irrigation projects refused to pay their amortization fees because they were not satisfied with the services they were receiving. In fact, some of the FSDC projects turned out to be not feasible. The initial incursion of the Ministry of Agriculture into small water impounding types of irrigation projects was no more successful. Not a few of these impounding
schemes
suffer
from
technical
or
design
flaws.4/
At the end of the expansion period, the area with irrigation facilities totalled some 1.4 million hectares (Table 4). This table shows clearly that foreign assisted projects are more expensive to implement. Small scale projects especially those locally funded have the least development cost (and relatively shorter gestation periods).
V.38
Table
4. Extent of irrigation according to types ment as of 1984.
System
I.
Irrigated types of
No.
area by system
development in the of systems and cost
of Projects/Unit
Service
Area
128
56 9,126
Communal-gravity
5,556
694,600
Communal-pump
17,000
152,128
Total
i, 415,854
Construction hectare National
cost
(27
per
samples)
Local funding With foreign assistance Communal
(194
Feliza rdo, Mimeographed Development
_25,000 40,000
samples)
Local funding With foreign assistance
Source:
(ha)
the
National
II.
Philippines of develop-
i0,000 15,000
A.
C. 1985. The Training Material, Division.
V.39
NIA NIA
Organization. Training and
II.
•Present
Thrusts
o-T_ah'_
and
Strategies
DeveYq
mep_
The current government retrenchment policy resulted in considerable cutback in the irrigation budget. The response of the NIA to this has been some basic changes in its thrusts and strategies for project development, systems operation and maintenance and agency management and administration. "The present thrusts and strategies are briefly summarized below: A.
Project
Development
i. Reduce development. 2. new
Shift systems
the
hectarages
targeted
investment emphasis construction.
to
for
new
irrigation
rehabilitation
from
The initial step in this direction is the early completion (1987) of two on-going IBRD-assisted National Irrigation Systems Improvement Projects (NISIP I and II) covering an area of about 110,000 hectares. Thereafter, service improvement packages for other systems will be implemented. An annual fund coming from the government equity contribution will be set aside for this purpose. 3. Put more emphasis medium scale projects.
on
the development
of
small
and
The NIA plans to augment with foreign • borrowings the general appropriation by the government of at least _90 million per year for communal irrigation projects. The irrigation of other crops (mainly sugarcane) in cooperation with other agricultural sub-sectors, is being pursued. 4. Sequential projects.
imple'mentation
The primary targets improved or rehabilitated infrastructure development production potentials.• 5. Expansion technology.
in
of
here but to
major
multi-purpose
are areas already requiring additional harness their full
the application ....
of
computer
With its newly acquired computer, the NIA now aims to use computer tecnnology to improve its effectiveness and efficiency in planning, monitoring and evaluation
V. 40
to allow its response to de ve i opinen ts. 6.
.B.
Continue
management unforeseen
packaging
to
make decisions internal and
potential
irrigation
faster in external
projects.
This is developmental priorities and
designed to _ive the NIA management alternatives under the changing demands of national government.
O__ration
Maintenance
i. and
and
Improve M.
crop
productivity
through
better
systems
O
This has been a traditional NIA objective which is in essence a restatement of a very vital objective that the NIA has never fully been able to address or formulate concrete implementation strategies. Basically, the NIA now is calling for increased awareness among its irrigation system personnel and farmer-irrigators of this important issue : better planning, monitoring and evaluation of systems O & M, and a review of its past and on-going efforts in this undertaking. 2. of
Intensified efforts irrigation systems.
at
institutionalizing
the
O & M
This promotes the idea of gradually shifting O & M responsibili ties from NIA personnel to water use rs groups. It is not clear yet whether this is due to a recognition of the more effective and efficient O & M activities by farmers groups and other concerned agencies or institutions or, a means to significantly reduce NIA' s operating expenditures. However, the initial move taken by the NIA in this regard namely, the proposal to tur nove r to farmers groups the financially marginal or unviable and problematic communal irrigation systems show that its _,ain concern is to reduce its operating expense. From engineering and soci'al desirability viewpoints, the better systems should be the ones turned over to farmer-users. 3. Improve irrigation services charges.
fee
collection
and
irrigation
Even under the present fee pricing system, irrigation fee collection has always been below the level necessary to recover the 0 &. M expenditures for existing irrigation systems in spite of the various incentives provided to farmer-irrigators and irrigation
V.41
personnel. This is primarily because of the low capacity of farmers to pay. The NIA collection efficiency report for the period 1975 through 1983, for example, showed that the actual annual collection rates ranged from 31 to 61 percent of the collectibles. The NIA's proposed strategies in this regard include. (i) introducing additional fee collection incentives; (ii) writing off or clearing of back accounts; (iii) restructuring of irrigation fee rates to encourage crop diversification and, hence, increase irrigated crop areas or cropping intensities and (iv) review for possible amendments, legislations, rules and regulations governing the recovery of irrigation investments. C.
Agency
Management
and
Administration
To maintain its financial viability, the NIA embarked on two complementary measures to reduce its operating expenses and to generate additional income. To effect the first measure, the NIA laid off some of its personnel and offered generous early retirement benefits and separation pay. However, there may be a need to study the net effect of the laying off of technical O & M staff and the early retirement of experienced engineers and technicians many of whom found it easy to find other jobs shortly after retirement. Compounding the plight of these technical staff are the increasing demands from the NIACONSULT for NIA expe rti se. 5--/ As most of the FSDC pump irrigation projects turned out to be ineffective, the FSDC now shifted its emphasis from irrigation development into the formation of institutions in support of rural industries. Likewise, the Ministries of Agriculture and Human Settlements are also in the process of overhauling their staff and reassessing their development thrusts and prioritles. Their irrigation systems construction activities, no matter how insignificant compared to those of the NIA, will have to be re-examined under the reorganization plans for agricultural development of the new administration.
V.2
III. Suggestions on Irrigation Development, A_encies " Reorga niza t ion. Rea sse Sinen£ o f -0_ s--an-d ' Redirecti-on of Thfus£s "and Strategie_____ss A. --
General Comments on the Development Machinerfes-of i:
Hihg_
fra_nted
Problems of the Governme--nt
Irrigation
efforts
Under the previous administration, four agencies (NIA, MAF, FSDC and MHS) were engaged in irrigation systems construction. The coordination among these agencies was minimal. There was very little effort toward sharing limited technical expertise for project planning, design, and construction. There was also lack of coordination in the matters of project implementation especially at the bureau, region and project levels. As a result, there had been overlapping of activities and unnecessary duplication in terms of facilities, staff and field activities. In theory, coordination was to be assured at the highest levels (e.g., the Minister of Agriculture and Food sits at the NIA board and the NIA Administrator chairs the FSDC board). But in practice, however, this top-tobottom approach to coordination did not always filter down to the ranks. 2. Differences o'_ the concerned
in thrusts, a___genc_es
orientation
and
strategies_
The NIA management puts considerable emphasis on massive irrigation infrastructures. Its orientation is mainly rice irrigation under a government monopoly of the irrigation development funds. Its implementation strategies showed a lack of appreciation of the interdependence of the various components of agricultural development in irrigated agriculture. Often, very little or no funds at all are allocated to other agencies expected to deliver adequate support services. Usually, it is assumed that these agencies (e.g., MAF and MNR) will deliver the essential services using their own internal resources. As a result, the potential benefits of the projects may not be fully realized. This is more so in irrigated areas with problem soils and inadequate support services in extension, seeds, soil and fertilizers, and pest and diseases ma,agement capabilities. The FSDC puts more emphasis on the development of small, pump irrigation systems and on their institutional support systems with insufficient attention to the engineering, economic, hydrologic and agronomic details. This may partly be explained by the fact that the FSDC originated from a DAP program (BISA) looking mainly at the V.43
institutional aspects of small, tertiary irrigation blocks. It tried to extrapolate the limited technology it had gleaned from the operation of these tertiary blocks into the process of formulating, planning and implementing irrigation systems with often disastrous results. The Ministry of Agriculture to fully exercise its role agricultural development in so and formulation are concerned.
and Food has not been able as the lead agency for far as irrigation planning Its various bureaus and
units have not been able to assess their roles and, hence, complement the NIA's activities in formulating, planning and implementing irrigation projects. The Bureau of Soils, for example, continued to concentrate on its taxonomic soil classification scheme which some quarters view to be of academic importance but of very little practical field application. As a result, the NIA found it necessary to establish its own soils group which, to date, produces outstanding technical soil classification work. These differences in orientation stem, in part, from the high degree of fragmentation mentioned before and, to a certain extent, from the differences in management staff backgrounds. 3.
High
degree
of
centralization
at
NIA,
MAF
and
FSDC
In the formulation of plans and programs for irrigation and agricultural development, there was an overemphasis on national goals and targets which resulted in (i) less consideration on spatial and locational concerns that are essential and inherent in the agricultural development processes; (ii) overdevelopment in some regions (more irrigation development in the big islands) and (iii) a topto-bottom planning process which offers very little opportunity for people to participate in the planning process. Agricultural development goals were expressed in aggregate terms. The dispensation of services or facilities, however complementary, did not always go hand-in-hand. Thus NIA went full steam ahead with purely rice irrigation whilJ the MAF promoted crop diversification and the MHS push for self-sufficiency in food, energy, fiber and shelter. Within the NIA, project identification, formulation, planning and design for medium and large scale projects are so centralized (at the Project Development Department) that many special project studies (in Mindanao and Cagayan Valley) still maintain their main offices at the NIA Headquarters. Such practice could lead to many O & M problems as design philosophies and criteria may neither be fully understood by O & M personnel nor aggreable to fa rme rs.
V.44
There were attempts at regional development through river basin development authorities. Due to initial difficulties at inter-agency cooperation, there were delays in the implementation of their integrated development projects. It is too early yet to assess the performances of these projects. 4. Bureaucratic irrigation de_l'o_ent
and _-t_he
en__ineering NI_A_.
a_proach
to
Although the NIA had provided assistance to communal irrigation systems since its establishment, its main concern are the larger systems operated and maintained by its staff. These systems presented the greater technical challenge, commanded the largest budgets, and offered more incentives for advancement within the agency. There was, and there still is a bias towards "hardwares" or structures. Thus, while irrigation development dramatically increased the cropping intensities in irrigated areas, the full yield potentials in these areas have yet to be realized. Generally, irrigation removes the moisture constraints to rice production and increases yield up to say 3 to 4 tons/hectare. However, other related constraints such as fertilizer and problem soils management, pests and diseases control, drainage, seeds and seedling management as well as socio-economic and institutional factors must be attended to in order tons/hectare)
to
fully realize the from irrigation.
5.
Systems
Design
yield
benefits
(of
up
to
5
Flaws
Most of the problems asociated with systems 0 & M can be traced to improper systems design and construction. These flaws usually aggravate the agronomic, socio-economlc and institutional problems associated with systems operabtions. Central to the problem of system design flaws is the usual way of treating design, construction and operation as separate activities falling under separate bureaucratic jurisdictions. Design is treated as a mechanical process of establishing design standards and not as an interactive process which must blend itself into physical, agronomic, sbcial, economic and hydrologic realities on a site specific b_sis. Designers are not fully accountable and, hence, are not much concerned with the field relevance of their design. In such a situation, design flaws tend to be repeated before being corrected. Systems design flaws can also be traced to inadequate data base and the vulnerability of the process of packaging an irrigation project by interest groups. Lack of hydroclimatological data sometimes force designers to rely. on rules-of-thumb that may significantly be at variance with
V.45
prevailing local conditions. Design criteria that are often assumed in these manner usually include those on dependable water supplies, flood flows, percolation loss rates, irrigation efficiencies and sediment loads of rivers. The process of packaging a foreign-assisted project, for example, is vulnerable to manipulations by interest groups. These groups consist of those (i) from the lending institution (bank), (ii) the NIA project staff, and (iii) consultants. All groups can have a bias toward making a project look economically viable at the feasibility study stage. The NIA project staff would stand to gain recognition and project related incentives; the consultants could gain continued patronage in the succeeding phases (detailed design, construction supervision and implementation) of the project or other projects; and the bank staff are under pressure to reach lending targets. By the very nature of deriving them, project feasibility criteria like economic rate of return (EIRR) and benefit-cost ratio, are very sensitive to the changes in assumptions concerning design speci fications, costs and benefits. There are several ways of making irrigation look good (e.g., lower irrigation requirements, high irrigation efficiency and high yield targets). As far as systems 0 & M are concerned those that tend to overestimate water supply, underestimate water losses and underestimate the drainage requirements are the more potentially troublesome. In practically all projects, an overall systems irrigation efficiency ranging from 55 to 80 percent is assumed in planning when most studies (e.go, FAO comprehensive studies of rice irrigation systems in Asia) showed that the average global or sytems efficiency is in the order of only 33 pe rcen t. The shortage of technical staff and lack coordination among concerned agencies also contribute to technical flaws of many existing irrigation systems in Philippines. 6__ t
Hi___ overhead
of the the
costs
Although no exact overhead cost figures are available as these vary from project to project, the general impression is that the NIA's overhead costs are very high, particularly in the case of foreign assisted projects. The unit development costs of these projects are considerably higher than their corresponding locally funded ones. Fore ign'assisted projects, for example, tend to include modern office buildings and facilities, housing projects with modern facilities and large administrative support staff.
V...46
7__ L.
Poor
systems
operation
and
mana___gement
Although the initial seeds of a system's inadequacies may be introduced during the system design and construction, poor systems 0 & M may be partly traced to inadequate O & fund and personnel as well as institutional problems.
M
The NIA relies primarily on irrigation fees for its 0 & M expenditures. With its low irrigation fee collection, O & M activities are bound to suffer. As a result; many projects have to undergo rehabilitation much earlier than anticipated. In the Ferguson study, the O & M funds for sample run-of-the-river type systems averaged a little over ]_200 per hectare. For the reservoir systems (UPRP and Angat), the 0 & M costs averaged about _300 per hectare in 1980. In the run-of-the-river systems about 92 per cent of the O & M costs are for personnel salaries. The percentages of pe rsonnal salaries to the total O & M costs were estimated at 73 and 87 percent for the UPRP and Angat RIS, respectively. Thus there is very little left of the O & M allocation for other expenditures (e.g., travel and training) after O & M staff salaries are paid. It has been estimated that for proper systems O & M, allocation ranging from _400 to _;600 (double their present rates) per hectare would be needed. 8.
Weakness
in
__lanning
and
_t
formulation
The very low percentages of actual to designed or planned irrigable areas in many of the NIA constructed irrigation systems, indicate that the agency still lacks expertise in the many aspects of project planning and formulation. This is more so at the provincial and regional levels. Even in foreign assisted projects, not enough conssideration is usually given to the adequacy of agricultural support services, social desirability, and agronomic issues as well as environmental impacts. 9.
Problms
o__nn institutional
development
Many water users associations are not viable primarily due to the lack of incentives by some farmers (upstream irrigators) to fully participate in their activities; technical or design flaws resulting in the incompatibility between sytems designs and operation; lack of discipline on the part of some farmer irrigators; inadequate funds and know-how for systems O and M; inabiility of planners and designers to consult or involve farmers in the systems planning and design processes; and traditional aversion of farmers to paying duties, fees or taxes to the government.
V.47
While some of these constraints are quite difficult to overcome, the others can be partly surmounted by basic changes in the NIA's way of thinking and doing things. For example, under the present set up a farmer irri@ator has little to gain and stands to lose a lot (clean ditches, collect fees, attend meetings, follow water delivery schedules even if this means getting up at 3 o'clock in the morning) by joining a water user group. His resistance to participation may be softened up if other agricultural support services (e.g., minipacks with new seeds, production credits, inputs, extension, soil diagnostic tests and pests control measures) are coursed through water users associations. At present, these services are coursed through various channels. It is only possible to integrate these services if the NIA will make corresponding adjustments in its design and O & M philosophies. The NIA, for example, should pay more attention to existing farmers groups (e.g., groups served by individual extension workers and old water users groups) in its design of tertiary irrigation bl ocks .6/ The problem of irrigation fee collection is related to the issues of institutional devel oplnent and inadequate support services to farmers. A farmer does not pay his irrigation fees simply because he does not want to, or even if he wants to, cannot afford to do so. An average rice farmer is saddledwith high costs of production inputs such as insecticides and fertilizers. With inadequate support services, chances are that he will not get enough outputs. Without effective government price intervention, he gets a low price for his outputs. Hence, not paying his irrigation fee is a likely course of action as he has control over this. Maybe _rrigation fee pricing should consider, among others, the net incomes of the farmers. i0.
Lack
of
_e
sector
participation
Although many studies have shown that there are Strong economic justifications for irrigating crops other than rice (e .g., corn, soybean, cotton, citrus) and that many individuals and firms have shown interest insuch ventures, only a few o_ these firms actually invested, primarily because of the high interest rates on commercial loans. Those that invested in these ventures (multinationals for banana and pineapple, local firms for cacao, grain seeds, citrus, sugarcane and strawberry and individual farmers for rice, grapes, citrus and feed grains) did so cautiously. Their participation would have been more vigorous had they been given access to soft loans carrying interest of say 15 per cent or less. A feasibility study on the irrigation of sugarcane and other crops in the 7 hacienda s of the Canlubang Sugar Estates showed EIRR rangfng from 16 to 28
V.#8
per cent. As a result, only irrigation development as the was 22 percent. 1 I. La c k of proper eva--luat 1o-_--E sch-emes
one hacienda owner invested in then prevailing interest rate
mo__nn i toi__._n r g
an_dd
_
p_ct
Inadequate emphasis _as placed on project performance evaluation and feedback monitoring systems in spite of the faht that their resultant information are vital to the formulation, plac%ning, design and appraisal of new projects and the improvement of the performance of existing irrigation systems. This i's one of the reasons why design mistakes are repeated many times over. B.
Organization
Changes
The NIA and FSDC should be merged and placed under the umbrella of the Ministry of Agriculture and Food. This should, however, be preceded by a careful study of an effective merger process, which should then be done in a systematic manner so as to avoid adverse consequences on essential irrigation development activities. There are, of course, two sides to an issue, as always. The arguments against a merger include: a. Merging always adds to the bureaucratic layer, which is already thick, given the size of the MAF. Also, as a corporation, the NIA enjoys certain legi slat ire shields against bureaucracy and prerogatives so that it can accomplish certain &ctivities faster and more efficiently; such advantages could be lost in a merger. b. There are Dasic di ffe rences not only in the orientation, maaagement, and administration of the two agencies. For instance, in view of the ir mo re favorable compensation schemes, the NIA and the FSDC seem to enjoy more satisfactory employee-empioye r relations than the MAF. On the average, a NIA technical staff has a higher salary and enjoys more fringe benefits, such as continuing professional development through training. A merger that will curtail some of these benefits might trigger an exodus of highly capable technicians. There appear to be merger. These include : a. Irrigation agricultural
more
development development
compelling
is an and as
V.49
reasons
for
the
integral component such must derive
of its
thrusts and priorities from a broad framework of agricultural and rural development objectives. Nobody can •argue with this • logical premise. Somehow irrigation investments, thrusts and priorities must be viewed from an overall picture of agricultural development program whether such is on a national or regional level. b. A merger will foster if not ensure coordination. As it is, the country is not getting full benefits from massive investments in irrigation partly because of the lack of coordination (at all levels) among the concerned agencies. High-impact areas for improving the yield levels and cropping intensities in irrigated areas include : (i ) cropping systems optimization, (ii) crop diversification, (iii) problem soils _•nd fertilizer management, (iv) adaptive research, pilot demonstration of integrated soil, water and crop management practices, (v) extension, (vi) pests and diseases management, and (vii) overcoming the institutional and socio-economic constraints to irrigated agriculture. All these require more integration and closer coordination. These must now be promptly and properly attended to as these corrective measures can be implemented quickly and cheaply. c. Cost effectiveness can be promoted by reducing unnecessary duplication in terms of activities, staff and facilities. • There are tremendous possibilities for cutting down operating costs. Moreover, there are equally exciting possibilities for the full utilization of limited technical expertise which will ultimately improve regional orprovlncial technical capabilities. d. •Institutional problems are better integrating se _vices (e .g., better incentives is possible whereby good users water better
are rewarded extension,
in the etc.).
form
of
attended to by system of of irrigation
minipacks,
new
seeds,
e. A right step towards decentralization whereby spatial and locational concerns which are essential and inherent• in every agricultural development process are duly considered. f. The merger will be mutually enriching to all concerned agencies • and individuals. The MAF, for example, has more capability than the NIA and FSDC as far as crop diversification is concerned. The NIA, in turn, can provide the expertise in irrigation development, engineering design and other services that
V.50
the MAF services.
may
require
in
extending
agricultural
support
It goes without saying that the proposed merger is not without pitfalls. To accomplish its objectives, all agencies concerned will have to undergo a long process of readjustment. It should be stressed, however, that the merged NIA and FSDC must still enjoy some of the prerogatives (under their corporate status) that will enable it to perform some vital tasks. This implies that it be a semi-autonomous agency[ under the MAF. It should also be further stressed at this point that the proposed merger of the NIA into the MAF is premised on the MAF undergoing some basic organizational changes itself. Among others, reorganization at the MAF should include efforts at strengthening its regional and provincial capabilities, streamlining of its functions, and transferring or abolishing some of its existing units and agencies or integrating them with the NIA and vice versa. Because of the huge size of the N IA and the on-going irrigation development activities, it desirable to keep the essential NIA middle level structure and staff intact. A task force should
extent of would be management be created
to work out such details as which units or agencies should be transferred or integrated. Because of the very large size of the merged NIA and FSDC and the new MAF's various concerns, a Deputy Minister for Irrigation Development must be appointed so that pressing issues (e.g., foreign loan negotiations and large civil work contracts) and financial problems are given prompt and top level consideration. The integration of units and subbureau agencies should be a two-way process. This implies aboli tion or the subsequent phasing out of units or offices that do not perform vitaI functions (e.g., NIACONSULT) as well as those that perform duplicate functions be they at the MAF, NIA or FSDC. A long term goal here will be decentralization of MAF activities and functions. This should be done only after a careful study and implementation of regional and provincial institutional development programs (e .g. , development of staff capabilities for survey, design and packaging of pipeline projects). Eventually, decentralization is to run parallel with the proposed reorganization of the local governments which gives greater autonomy to the regional provincial offices. This implies a set-up similar to that of Indonesia where the administrative control of MAF field personnel
rests
with
the
regional
V.51
or
provincial
officials.
The the
technical MAF.
C.
control
of
all
personnel,
however,
rests
with
S__u_qested Thrusts and Strategie_s i. St___ren__ t heni ng ()ffices
of
the
•regional
and
provincial
The technical capabilities for project planning, packaging a.nd implementation of these offices musd be strengthened. Initially, this may be accomplished by tranferring excess personnel at the new MAF central office to the regional, provincial and systems offices. A program of manpower development and upgrading of facilities stressing the integrated aspects of agricultural development in order to reorient field staff of all units concerned must be immediately initiated. Areas of high priority as far as the NIA is concerned •include: (a) systems management for the effective monitoring and evaluation of existing irrigation systems; (b) institutional development for providing agricultural and institutional support services; and (c) staff development for project identification; planning, design, construction and O and M activities.
_
• 2_.t
Im_ov__ement
:
.._" .:
_
-
in
systems
_tion
and
maintenance
• ...
" _or eff{cien£ O and M, the presentailocation for this • _purpose must:be doubled, This• implies, a very high budgetary _ allocation priority for O and M. Specific areas • for improvement are technicians and farmers training, repair of on-farm facilities, strengthening the viabilities of existing . water users groups, systems flexibility for crop diversification and increased irrigation fee collection. • .
..
Greater" participati0nby farmers in O and M activities should be _encouraged through:a sys,tem of incentives as mentioned before. The implementation of the current NIA's policiy of gradually shifting O and M responsibilities to water users groups lshould be intensified. The •more viable irrigation systems should be turned over first rather than the more marginal or problematic ones. 3___. More
_is
on
systems
rehabilitation
In many cases, it is more desirable to rehabilitate existing systems rather than construct new ones. The arguments for rehabilitation include: rising unit cost of new irrigation systems development; economic viability; reduce cost of systems O and M espcially in systems with serious design flaws and greater flexibility• for crop diversification. The NIA must formulate•criteria for the selection of systems for rehabilitation and develop
V.52
_
implementation strategies that increased farmers participation. 4"
Focus
on
the
should
develo__ent
of
include
small
among
others
systems
These should include individual farmers' as well as communal irrigation s.ystems such as individual farmers small pump irrigation systems as well as small impounding or runof-the river systems. In pump irrigation, the emphasis should be on iow lift pumps designed primarily for supplemental irrigation of diversified cropping schemes. The prevailing scheme in Central Luzon where two or more farmers each has a tube well but share one pump must be encouraged. Pump irrigation, in this case, is mainly for manipulating cropping intensity (e.g., supplement rainfall in order to advance seedbed preparation for the first rice crop or save the second crop at the onset of the dry season). In the case of the very small run-of-the-river type systems for individuals or small groups of farmers, there should be a change in the NIA design philosophy. RatheF than apply national design standards, the individual features of these systems must be folly explored. Structures must be designed for lower return periods. In many cases, it is more economical to cut down on investment costs and replace or repair a structure every 5 or i0 years rather than design an expensive structure to last for say from 15 to 25 years. Gravity type communal systems serving anywhere from 50 to 2,000 hectares should also be giveD priority. Such schemes are cost effective and have very short gestation periods. The design of such systems should, however, allow for greater flexibility for crop diversification in response to more hydrologic and economic uncertainties. The NIA should also investigate the feasibility of simple impounding systems. The inundation schemes in Malaysia, for example, trap rain and flood waters from small catchments using earth embankments with slide gates in order to supplement the decreasing rainfall _during the drier months. The ponds are also used for fish production. 5. The private sector must irri_[atl_-_n develop_men_ funds_
be -_
_iven
access
to
Irrigation development benefits not only farmers but the general public as well. This has been the rationale behind the subsidy schemes for irrigation all over Southeast Asia. Hence, the private sector likewise must be given access to irrigation funds coming from soft loans. The most feasible way of doing this is to channel foreign loans into V.53
credit loans for private sector irrigation. Such credit loans may be national or regional in coverage and projects satisfying certain feasibli ty criteria (e .g. , economic feasibility, social desirability can be packaged under the loan). With the MAF as the implementing agency, the loan funds may be coursed through development banks. The NIA's role under such a loan scheme is to screen the technical feasibilities of projects proposed for funding. 6. Greater emphasis on basic and adaptive research on c--{itical areas such as hydrolog_ Y, design cr_--_-t-eria . d r7 _n-a_ a n---d-i-r _-_ion m e t h-()-dolo__e s -f o---{--d i V--ers-_e-_ c-_p_ng, -soiY--plan_,-w-ate_ re_i-at1_ons "an-_ dev-e-l()-m-e-n_ "o--{ l--_le v 6ropp1-_ng_ s__yste--m-s .... Hydrologic uncertainties are primarily responsible for structural damages, dry season water shortages and many institutional and economic problems associated with the operation of irrigation systems. Systems design based on imperfect criteria, i.e. inadequate data base, result in O & M problems as well as drainage and crop diversification constraints. The expertise of research and academic institutions should be fully tapped not only for basic but adaptive research as well (e.g., on-farm trials and field demonstrations) . 7. The t-oug hne_s
new MAF should l_-n--deal-rng---_h
exercise a Yend_" in_-ins
certain d_ree t i tu_-_1_-ons
of
Certain requirements such as those dealing with bids and tenders, construction methodologies, and consultancy services should be relaxed to the country's advantage. For example, the MAF should maximize to its advantage the use of local competitive rather than _nternational competitive bidding whenever and wherever possible. Also, where possible, the MAY should insist on manual (versus machine) labor in order to generate rural employment. The MAF should also put a premium on consultants (preferably local) who have exposures to the prevailing biophysical, environmental, and socio,economic constraints to irrigated agriculture de ve i opine n t. 8. an_d _ects
_n im_plementin_[
the I_
MAF capabilities for rive-_a_n type of
formulating[ dev_pmen_
River basin projects which cover more than one region or province •must be planned at the national level and implemented through coordinating authorities. As we have many on-oging river basin development projects, the new MAY should • promptly make efforts at developing technical and managerial capabilities in this area. V.5_
Also future river basin development should be viewed in the context of hydrology. A river basin is defined as a reference line across a stream or river. All areas the surface h_unoff waters of whose drained through the reference line constitute th_ river basin. A basin may be a very small or a large catchment. A large basin may be subdivided into smaller basins and vice versa. For optimum utilization of water resources, a larger river basin should be taken as the planning unit. Thus it is possible to maximize the utilization of water resources of a larger basin by coordinated development of its smaller sub-basins. This principle has been in practice for centuries by the Balinese farmers in Indonesia where the operations of small communal systems or subaks (within a basin) are coordinated resulting in as much as 8_ percent surface water utilization. 9. High initial and continuin_ _ focus on short-term b--ut hlg_-im_ct'po iTc z-_esd-----_s 1--_ed to-_rness-t-_-_J_ pr o--d uc-_l_n-_o t--e-_t ia-_s--6-_-i t__e-d r rI_[a - _reas-As mentioned before the high impact areas include integrated agriculture support services which feature, among others, (a) problem soils and fertilizer management, (D) improved drainage and water management, (c) pests and diseases management, (d) seeds and seedling management, (e) development of viable rural institutions as channels for inputs distribution, credit facilities, technology transfer and systems 0 & M coordination. The success of these depends on the quality and dedication of field personnel as well as the smooth functioning of the information tranfer channels. In many irrigation systems in southeast Asia, successes in these undertakings were made possible through pilot demonstration of integrated agricultural services, farmers and field technicians pa training, a more rigorous s.ystem of extension and formation of viable village cooperatives. I0. Revitalized e--_lua tion scheme
_a_ion
sxs tern
m_
and
This should allow independent, objecti_e outslder participation (e.g., research and academic institutions.). A performance evaluation of on-golng systems should be made continuously as soon as possible so that specific projectoriented improvement measures can be formulated and effected.
V.55
ii.
A review
of
The review recommendations on
the
financial
status
should consist the following:
a.
irrigation contributions;
b.
irrigation
c.
foreign
d.
cost
e.
acceptable
subs idy
fee
loans
saving
and
repayment
scheme;
collection;
measures;
generating
V• 56
studies
government
and
income
NIA.
of
p_icing
measures
of
and measures.
and
equity
C.
POLICY
RECOMMENDATIONS
ON
PESTICIDES
c/
Current wOrld statistics show that an estimated 30 percent of total agricultural production is being destroyed by pests and diseases. Pesticides still remain an important component of pest control measures to protect growing crop and harvest. Most pesticides, except flower inducers do not increase production. Rather, they are applied to minimize crop losses due to pests and diseases. Increased,usage of pesticides brings less benefits because of its negative effects to the environment as well as to non-target organisms. Also in the long-run, constant pesticide use causes the building up of resistance of pests to pesticides. Therefore, judicious and efficient use of pesticides is imperative to support the nation's objectives of maintaining and increasing agricultural production, While promoting the general welfare of the rural population, through better health and safety. The Philippines, like most developing Datlons, imports its pesticide requirements. It is the mandate of the Fertilizer and Pesticide Authority (FPA) to develop the national pesticide industry, and to regulate it for the sake of the handlers and users, the farmers and general public. The recommendatlons outline a pesticide policy I. increase production to
discussed in that promotes
local attain
export crops, pass quality and
environmental use of pestici_
I.
The
section aim following:
food (rice, corn, self-sufficiency;
2. more competitive mangoes, able to international market; 3. minimum handling and
this the
Current
vegetables)
i.e. bananas control in
contamination
to
and
and the
safe
Situatlon
Prior to its inclusion under the then Fertilizer Industry Authority, _he pesticide industry was totally-ln the hands of "the private sector. When the Fertilizer and Pesticide Authority w_s created in 19/78; it was originally given the tasks of the importation, manufacture, formulation, distribution, sale, transport, storage, labelling, use and disposal of pesticides and fertilizers. Among the main activities )esticide are (Magallona, 1980):
V.57
of
FPA
in
respect
to
I. Registration of pesticide active ingredients and formulated products - guidelines have been promulgated for registration of pesticide products as well as the label requirements and restrictions on use of certain highly toxic products. 2. Licensing of all control operators. monitoring and training risks in application.
pesticide handlers and pest This activity is aimed at pesticide handlers to minimize
3. Agro-medical training programs - This program aims at training rural health officers on the recognition and treatment Of pesticide poisoning cases as well as training the dealers, farmers and MAF field personnel on the safe handling of pesticides. Aside pesticides
from include
FPA, the
the other following:
agencies
involved
in
i. Agricultural Pesticide Institute of the Philippines (APIP). APIP is a trade organization representing 24 companies which account for 95 percent of industry sales. It collects and releases sales statistics on the consumption of pesticides. 2. National Crop Protection Center of UPLB. NCPC functions as a Crop Protection Research and Training Center that conducts problem analyses, laboratory and field research, and training for crop protection subject matter specialists through a Diploma course. It has the capacity for a range of basic studies such as pesticide residue analyses and computer simulations. 3. Bureau of Plant Industry (BPI) through its Crop Protection Division. The Crop Protection Division of the BPI functions as a National Crop Protection Service. It is concerned with the development and improvement of crop protection techniques and technology. BPI has organized the Surveillance and Early Warning SYstem (SEWS) which monitors pest incidence and endeavors to develop the appropriate crop protection measures. It has maintained 1,842 observation stations within 279 ecological units. In cooperation with the German Agency for Technical Cooperation (GTZ), BPI has set up pesticide analytical laboratories (PAL) which are mandated to analyze and monitor pesticide residues in agricultural products and assess their environmental impact. The laboratories, in collaboration with FPA, are also intended to conduct routine checks on pesticide formulations.
V.58,
4. National Food and Agriculture Council (_FAC). NFAC was organized to supervise, coordinate, and evaluate the implementation of the food selfsufficiency programs of the government such as the Masagana 99, Masaganang Maisan and Gulayan sa Kalusugan. These food programs provide financial assistance and extension service to farmers. At each planting season, NFAC provides a list of recommended pesticides and practices based on efficacy and user's safety including the proper application rates and approved government prices. 5. Bureau of concerned with pest management
Agricultural Extension the implementation of procedures at the farm
(BAEx). BAEx is the recommended level.
6. Bureau of Agricultural Economics (BAEcon). BAEcon is in charge of the monitoring of data for the Ministry of Agriculture and Food on agricultural production and input utilization. It compiles and publishes the "Prices paid by Farmers for Agricultural Inputs" document, which includes retail prices of pesticide products on a monthly and yearly average according to geographical regions. 7. University of the Philippines - Philippine General Hospital (UP-PGH). The medical complex has established a Poison Control Center. The monitoring of pesticide poisoning cases as well as the management of poisoning treatment are coordinated through this center.
II___t. _
Distribution
and
Use
of
Pesticides
Supply of pesticides depends on imports from multinational companies facilitated by their representative offices or subsidiaries. About sixty percent of the country's importations are formulated products and the rest are technical materials which undergo domestic formulation. Distribution of formulated products from the plant to the retail level is purely in the hands of the private sector; however, a trader must be first registered and licensed by the FPA, before he can handle pesticides. There are 135 licensed handlers of pesticide, engaged in different activities. Marketing of pesticides is usually done through national distributors. These distributors supply approximately 3,036 dealers all over the Philippines. By December 1983, 29 repacking and formulation plants were in operation, 12 of which concentrated on agricultural pesticides products. A total of 24,000 metric tons of
V.59
various types of formulations, -which represent 52 percent of total annual capacity were produced. Insecticides account for about 55 percent of technical materials imported and 62 percent of total local formulations of agricultural pesticides. All fungicides except for chlorathalonil are imported as finished products. Total insecticide importation increased at an average rate of 30 percent from 1980 to 198.3. However, in 1983, there was a marked decrease both in value and volume (Table 5), This exceptional decline in importation could be attributed to the severe economic crisis experienced by the Philippines which started to be felt in the 4th quarter of 1983, and resulted in the enforcement of strict controls on foreign exchange availability. The decline in the imports of technical materials in 1983 and 1984 and finished products in 1984 was due to a combination of a) poor weather, b) high inflation, c) price increases, and d) devaluation. The use of pesticide is most pervasive in 3 crops: rice, banana and vegetables. However, pesticides •are also used in mango, corn, tobacco, and cotton. In 1984 rice captured 36.6 percent of the total pesticide use, followed by banana, (25.5%) and vegetables •(14.3%) (Table 6)° Except for bananas and pineapple which use more fungicides, insecticides were mostly used in pest control for rice and other crops.
III.
Health,
Safet_
an___dd Pesticide
Us__e
A pest control strategy for increasing •yields should not onl'y emphasize economic returns, but should also consider possible on health and,the environment. Some possible side-effects-to the use of •pesticides are shown in Table 7. -These side-effects are the reasons for stribt regulations on the use of pesticides. Unfortunate!y, there monitoring with .regards to public safety and environment
has not been any effects of pesticide in the country.
careful use. on
_'or instance, data on poisoning cases have been fragmented. The available statistics on pesticide poisoning cases (Table 8) reflect data in government hospitals from 48 provinces for 1980-]1983. Acute pesticide poisoning showed a total of 650 cases in 1980, 633 in 1981, 238 in 1982 and 824 in 1983. The type of pesticides involved in these poisoning included o rganophosphates in 35-42 percent of cases_ organochlorine in 17.8 - 25.6 percent, and carbamates
V.S0
Table
5.
Percentage change in volume and value imports in the Philippines (1980-1985).
of
pesticide
Yea r 1980-1983 Vo iume Va iue
1983-1985 Volume Va iue
-19.5 -70.7 183.5 146.5
-7.6 -61.8 124.0 131.5
9.6 52.6 14.9 -20.2
26.2 42.2 7.4 -7.9
Technical Materials Insecticides Herbicides Fungicides Others
40.8 31.6 -I0.0 238.0
38.9 37.0 -26.4 202.5
-25.2 -19.6 -70.0 43.0
-30.0 -7.1 -67.4 -ii. 3
Total Insecticides Herbicides Fungicides Others
29.9 -22.9 128.0 152.0
32.5 -23.6 45.9 148.0
-21.3 -5.0 5.3 -15.1
-24.7 7.9 -12.2 -8.9
Fertilizer
and
Pr oduc t I. Finished Products Insecticides Herbicides Fungicides Others II,
Ill.
Source
of
Basic
Data:
Pesticides
Authority.
31ble6. Pesticides usebf crops,1984.
CZ_ps
_ _sticic_s Inmeticic_sFLngicid_sFszt_ck_ 000_sas % % % %
Rice 300000 Banana 205000 _jetables 114900 Mango 568_0 _xn 36062 _/Awcco_ 16620 Cbttcn 7013 Sugarca_ 4650 Pinea_ 2250 Cbff_e/C_:a3 3300
36.6 25.5 14.3 6.9 4.5 2.1 0.9 0.5 0.3 0.2
67.8 0.7 85.9 91.0 99.2 95.8 14.6 8.4 74.5
805O66 SClI_" F_-'t-_l"i_L-an:] _iCJ_S
A_ity
V.6_
0.6 62.6 11.7 0.I 2.2 5.7 81.0 4.5
31.3 9.3 8.8 24.6 10.6 _0.5
Table
7.
Some use
possible slde-effects of pesticides.
i.
Entrance and compartments chain.
2.
Occupational high biological
3.
Unintentional exposure of careless spraying operations.
4.
Careless pesticides
transportation, and pesticide
5.
Mismanagement plants.
of
6.
Ecological in disease
effects, vectors.
Source:
Table
8.
Chemical
of
the
production
persistence of pesticides into of the environment, including
hazards associated activity.
with
as
a
result
and
destruction
wastes
at
the
including
development
Environmental Pollution Development Report of Technical Report Series
of
1980
of
of
production
resistance
Control in Relation to a WHO Expert Committee, 718, Geneva, 1985, p. 21.
Pesticide poisoning cases admitted hospitals according to chemical Philippines, 1980-1983.
Organosphate Organochlorines Carbamates
with
storage, containers.
dangerous
Grouping
different the food
chemicals
people
and
1981
to
government grouping,
1982
1983
Total
%
229 116 8_
246 114 52
90 61 35
346 154 129
911 445 298
38.8 18.9 12.7
5 ii 19
5 70 1 7
5 4 2
5 8 ii
20 93 1 39
0.8 3.9 I. 6
Fungicide s Herbicldes Not Specified Mixtures Other Ag. Chemicals
7 148 32 1
1 3 114 14 3
6 33 3 2
1 12 126 26 6
2 28 421 75 12
i. 2 17.9 3.1 0.5
Total
650
633
238
824
2345
i00.00
Pyrethroids Chlorophenoxy Dipyridyls Rodentic ides
Source
compounds
of
Data:
UP-PGH. V.62
in 12.6 -15.6 percent (Maramba, 1985). The data also suggest that 60 - 71 percent of the cases were suicidal or non-agriculture related, because most nf these hospitals are located in urban areas. There are no available statistics from rural doctors who routinely treat patients for occupational "sickness" during and after the main spraying seasons. It was also noted that in Central Luzon, a doctor normally treats 30 patients during the rice spraying season for sickness attributed to pesticides, and that one farmer has observed that during windy conditions, his 3 hired workers always became ill for 2 - 3 days when spraying his rice crop with organophosphorous products. On the other hand, one objective of an on-going study in the Loo Valley (population = 2,000 vegetable farmers) is to monitor the incidence of pesticide poisoning in the area from 1978 to the present. The data consists of the number of admissions to the Lutheran Hospital in Benguet, due to mild and acute pesticide poisoning. There are also data on the number of people who have suffered symptoms of poisoning and their home treatments. Though the FPA has instituted the National Pesticide Safety Program through the Agro-medical services unit, this has not been effective due to lack of funds for training and supplies for first aid kits at rural health clinics. In addition, the effects of pesticides on the environment have not been properly monitored as well. Ideally, this should be within the domain of the National Environmental Pollution Council (NEPC) in collaboration with the FPA, but this linkage does not yet exist. On the whole, our future policies must take into account the importance of environmental and public safety vis-a-vis increased productivity of grains and better quality export crops. To do so, we must develop crop protection technologies that would consider twin objectives of increasing productivity while minimizing environmental damage (IPM is one such technology). Also, we must have a better monitoring system on handlers ° safety and proper pesticide use to improve public safety. This is one more justification for a more effective regulatory body on pe stic ides.
V.63
IV.
Recommendations
The set of recommendations following issues: (I) creating body; (2) pricing policy; (3) regardingl crop protection.
ORGANIZATION
v_
it,? PESTICTDE
being a more research;
proposed covers the ef£ective regulatory and (4) extension
REGULATORY
UNIT
(PRU)
Pesticides and fertilizers, both important factors of modern agricultural p'roduct ion, are technically very different and must not be lumped into one agency. No other country in the world combines marketing and regulation of these inputs in a single agency like the FPA. The key issue for pesticldespolicy is not marketing, which should be left to the private sector, but regulations and enforcement. Regulation is necezsary to assure product quality, efficacy, and safe handling and use of these chemicals. Pesticide-related include :
activities
i. Quality control -containers of pesticides even _.f._F normal distribution network;
that
need
regulation
to ensure that the content of matches the label description, periods of storage inthe
2. Registration procedures-to determine, technical and safety grounds, whether certain are to be ail_ow.ed in the country or not, limits to th_lr use in the field; 2. bafe handlinc in the distribution define _nd enforce minimum requirements formulating plants, transportation, clothing during application as well as disposal after application in the field;
based on chemicals and to set
system -- to on safety in and farmers' packaging and and
4. Training ana informatior -- to menitor extension de_._e_ ',' systems (i.e., _-_t_!_ information to farmers throu_I._ _cvernmen_ agencies and through dealer networks b_ _ sDot checks of these communications for technical accuracy). A Scperate called
ma_or recommendation therefore is to agency within the Ministry of Agriculture the. Pe_ ''__ Regulatory Unit (PRU).
V.64
create a and Food
Operational
components
of
the
PRU
should
include:
i. Policy Direction Committee -- to set PRU policy report directly to the Minister of Agriculture Food. Members should include representatives from: a. b. c. d. e.
MAF -- chairman and 2 others National Environmental Protection University sector Ministry of Health Fa rme rs
Council
and and
(NEPC)
2. Technical Liaison Committee -- to plan, direct, receive, analyze, and interpret for the policy committee all technical inputs to the PRU; to design •and evaluate field studies, enforcement of da.ta collection, and analytical procedures; and to serve as a technical liaison with the following agencies: a. b. c. d. e. f.
NEPC National Pollution Control Universities Farmers Organizations Industry Ministry of Health
3. Legal enforcement regulations.
Committee data, and
Commission
-- to assemble to prosecute
cases offenders
from of
4. Public Liaison Committee -- to report standards, regulations, and violations of these standards and regulations to the public to serve as an arena for the discussion of the views of various sectors including: a. b. c.
Farmers Consumers Industry
5. Training and Information Committee -- to advise government andnon-government agencies on the latest information on pesticides and to support and evaluate the technical accuracy of training for: a. b c. d.
Pesticide Extension Community Farmers
dealers workers organizers
The PRU should be responsible regulation of pesticides. Marketing left to the private sector. V.65
for the registration and of pesticides should be
Good policy guidelines for pesticide regulation exist but the FPA does not have enough enforcement capability because there are only 26 full time staff to monitor thousands of pesticide distribution outlets and their supply networks around the country. While collection of samples is not always a full time job, the only way to achieve real coverage of the country is to draw upon a larger pool of trained personnel. Using the specially trained crop protection staff of the National Surveilance and Early Warning System is the most logical solution to the manpower shortage because such a strategy, would immediately add over 300 people to the corps of field experts monitoring pesticide use in the country. Once analysed. Protection pesticides commercial
samples are collected they must be chemically There are analytical laboratories in the Crop Division of the BPI designed to measure and related compounds both in formulated products and as residues in food. These
laboratories are inadequately staffed. The annual capacity of these laboratories is over 2500 analyses per year but it is hardly being reached. There are also management problems in the sense that the results of analyses from these laboratories are not reaching FPA. There are other analytical both at private laboratories universities, but most of these
facilities in and at state have their own
the country, and private research and
service contract to meet so that adding the needs of PRU may strain their capacity. The PRU must have exclusive use of enough laboratories to handle the expected volume of analyses for regulatory monltoring. If the PRU cannot plan on having this capacity, it cannot effectively Undertake monitoring of pesticides in the fields or the distribution networks. As it will be part of the MAF, the PRU should be assigned exclusive use of the requisite laboratory facilities within the MAF to handle its basic analytical tasks. If this requires staff, salaries, supplies and other inputs, they must be provided in the PRU's basic budget. A basic aspect of scientific practice is independent confirmation of laboratory results. The PRU should have regular checking of the results of its analyses by independent analysts, perhaps covering 5 percent _)f the samples analysed. This serves as a check against problems in the chemical and administrative procedures Of the PRU. New standards are needed for: (i) field toxicity to applicators while applying and during re-entry to the field, and (2) maximum residue limits in foods.
V.66
There should be a network of field trials coordinated by the PRU and involving the Regional Crop Protection Centers, the UP Medical School, and agricultural universities including the National Crop Protection Center at UPLB. These research trials should allow the PRU to set standards and develop and test safe handling guidelines such as on proper clothing during application, mir]imum preharvest interval after final application, etc. To
summarize:
i. PRU must conduct quality control of chemicals on dealers' shelves. It must spot check chemicals to verify that quality is as stated label and conform to standards.
found these on the
2. To protect the Philippines from being a dumping ground for pesticides that are restricted elsewhere, the PRU must set and enforce standards on what chemicals can be used in what crop sytems. It should develop better local environmental classifications that do not adopt temperate zone standards. 3.
It must
4. It must
prosecute
PESTICIDE
be
offenders
protected
from
in court. industry
tampering.
PRICING
Presently, over 55 percent of total insecticides used in the Philippines are applied on rice. The most common insecticides used in rice (such as monocrotophos, methyl parathion, and azinphos-methyl) are all in the "extremely" hazardous classification -- class 4 as reported by Oudejans (1982) for ESCAP. They are the most common because they are available, cheap, and show clear knock-down toxicity in the field. These chemicals are restricted for use in many other countries, and the Philippines represents an easy market for them. There are alternative insecticides that are also effective against rice pest but are less toxic to people. They inoluc_e triaziphos, carbaryl, and cypermethrln. These are in the slightly to moderately hazardous class 1 or 2 of Oudejans (1982). These are neither as cheap nor as commonly available as the more dangerous materials. A comparison of pesticide retail prices of several Asian countries shows that the Philippines has one of the highest average price levels in the region. Available data (1982-19.83) show that carbaryl is priced higher in the Philippines than in Thailand and Korea (Table 9). It was V.67
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claimed that one of the reasons for such high prices in the Philippines is the relatively high tax imposed on pesticides because they are not classified as essential agricultural items. To encourage the use of safer pesticides, it is recommended that only those chemicals falling under the slightly and moderately hazardous categories be given tax relief in the form of reduced taxes or their outright removal. Taxes should be retained on those chemicals in the very and extremely hazardous classes to encourage purchasers to select compounds of lower intrinsic toxicity to people. Standard classification systems such as those adoptedOy WHO or ESCAP should be used to group pe st ic ide sZZ. In 1983-1985, there was no significant change in CIF level of pesticide finished product imports (Table i0). In fact, due to devaluation, inflation and high interest rates, the retail price of pesticides has been consistently increasing. Moreover, there is a possibility that even with the scrapping of import taxes of pesticides, retail prices may still be high as multinationals may find it profitable to increase their prices. One way of lowering prices at the farm level is to increase supply of pesticides by inviting small companies operating in countries like Taiwan and Korea to our pesticide market. However, this would entail the liberalization of our registration procedure as it acts as a barrier to entry. Our registration procedure is an expensive operation for potential entrants because we require a lot of data and experimentation in farmers' fields. Although this ensures safety and bioefficacy of the product in question, it at the same time discourages competition. If active ingredients have the same chemical structure as previously registered compounds, regulation should focus on quality control rather than duplication of field trials. RESEARCH
NEEDS
Total reliance on chemical control in the past has become a disastrous solution to the long-term problems of insect and other pests. Experiences from many parts of the world, i.e., cotton in Lat.in America and East Africa, show that too much pesticide misuse and overuse create a host of other problems llke insecticide resistance, pest resurgence, and outbreaks of secondary pests. There are other problems of environmental contamination and increasing food residue levels. These latter problems affect the general population and not only farmers and handlers. Furthermore, the rising cost of pesticides makes it essential to turn from peciodic or routine applications to judiciou_ use. V.69
Table
I0.
CIF value Philippines
+per metric ton of pesticide from 1980 to 1985 (US dollars)
importation
in
Product/Year
1980
1981
1982
1983
1984
1985
i. Finished Products Insecticides Herbicides Fungicides Others
4439 3343 2314 1581
8141 3657 1104 1551
8402 3553 2040 1244
51-03 4351 1828 1485
5829 4847 1677 1942
5872 4052 1707 1713
Technical Materials Insecticides Herbicides Fungicides Others
6182 2397 6208 7684
6421 2275 6145 7527
6848 2903 6668 7443
6098 2496 5075 6877
7117 2536 5865 3900
5704 2885 5507 4262
Total Insecticides Herbicides Fungicides Others
5868 2901 3431 1949
6674 2976 1805 2147
7097 3157 3203 2129
5987 2872 2195 1921
6979 3317 1946 2933
5730 3265 1829 2061
[I.
III.
Source:
Fertilizer
and
Pesticides
Authority
V+70
the
With respect to research in pesticide use, we need to define a national crop protection policy, where crop protection will not only consider increasing production and profits, but likewise, will maintain a reasonable level of environmental and public safety. Given this concern, our research thrusts should include i) development of the Integrated Pest Management (IPM) technology that maintains and increases yields, while minimizing environmental hazards as a result of judicious pesticide use; 2) research on handlers' and users' safety, i.e. from the formulation plants to the users whether they be hired workers or farmers; and 3) research on residues at the farm level. I.
Integrated
Pest
Management
(IPM)
technology
The intensification and _ncreasing complexity of crop protection problems, coupled with the associated environmental, financial and health hazards of heavy chemical use, have combined to stimulate great interest in the importance of crop protection and in the broad ecosystems approach to acceptable solutions of pest management problems. In this regard, the concept of integrated pest management_ (IPM) came into being. The IPM as a strategy for pest control is a systematic integration of chemical, biological, cultural and other control measures, and emphasizes economic thresholds and the use of selective insecticides. It is an effort to bring together a set of control strategies and tactics, or in the words of its proponents - "all of the right type, all of the right amount, all in the right sequence, all when the stage of the plant, weather and pest are right to achieve significant control" for the least cost (Pimentel, 1981). The origins of IPM as a philosophy are based in ecological principles. The approach integrates multidisciplinary methodologies in developing agroecosystem management strategies that are practical, effective, economical and protective of both public health and the environment. The overall philosophy of integrated pest management employs the strategy of maximizing natural control forces, i.e., natural enemies and plant resistance, by applying control measures when crop losses justifying actions are anticipated. Since the ideal IPM concept is complex, adaptations are necessary when introduced in the farmers' fields. In the Philippines, for instance, IPM is construed as the judicious application of insecticides based on some population density or action level. Whereas the current practice is to apply pesticides without regard to the presence of pest as in the prophylactic or preventive spraying and calendar V.71
spraying, incidence
the threshold-based in the area •before
Economic data on Central Luzon provinces economic threshold-based
spraying considers taking action.
the
pest
the rice• field experiments in 3 (1981-1983) show• • that in general treatments (ETL) are more
profitable than the complete protection or the •farmer's practice (Table l!). In this study, pest•population and pest damage we•re assessed in each treatment at weekly intervals starting a week after transplanting until ripening stage. Complete protection was sprayed with appropriate insecticides on a •weekly interval, while farmers' field plots were left to the farmers' own device of controlling pests. Threshhold-based action _l.ots were they reached the •pest threshold._ / Control unsprayed throughout the cr0pping season.
sprayed plots
only were
when left
In genera•l, the gross yields are not significantly different in complete protection and the ETL practice (Table 12). However, ETL gives higher net profits due to the savings one gets from less spraying. The return on investment in pest control for rice using the different treatments • in the study by Santiago, et. al. (1984) is also given in TaDle 7, for the wet and the dry seasons. Sumangil's (i984) •study further showed that if farmers can use thresholds to make insect control decisions, they can increase • the profitability of their insect control over preventive applications. Trials in 105 farmers' crops during the 1980 , 1983 study were conducted by the Regional Crop Protection Centers of Regions III, IV, V, VI, VIII, and XII under the coordination • of the Crop Protection • Division of the •Bureau of Plant Industry. It was also observed that probably due to resistant varieties and natural enemies, only 50 percent of those trials where yield losses were measured showed a significant difference in yields between completely protected and untreated fields. In 77 percent of all the trials, threshold-based insecticide applications were more profitable than preventive or •prophylactic applications (Table_ 13). A comparison of Masagana 99 recommended insecticide dosages with dosages used by farmers which is about 1/2 the Masagana 99 rates showed no significant differences in •yield in 25 farmers' fields during 1982 (Sumangil, 1984), Again, this result shows that farmers following the Masagana 99 practice may be unnecessarily••
over,using
pesticides.
Available • data on pesticide use in vegetables seem to support the fact that • vegetable farmers• are also using too much pesticides. A study in L oo Valley area in Benguet shows that in a crop duration of 75 to 90 days, farmers spray an average of nine• • times, using three to six kinds •of
V. 72
Table
ii.
Wet and Central Control
Net Profit
Location/Year
WET
Dry Seasons: Net Profits for Selected Luzon Municipalities Using Different Pest Practices (profits in pesos).
Added Returns from Pest Control
Cost of Pest Control
Return on Investment in Pest Control
SEASON
Candaba 1981
FP CP ETL Control
1884.85 2341.08 2990.86 2111.31
226.46 229.77 879.55 0
646.48 1007.58 312.92 0
0.35 0.23 2.81 0
1982
FP CP ETL Control
2949.50 2661.18 3610.90 3315.77
336.27 654.39 295.16 0
425.93 1005.25 127.83 0
.86 .65 2.31 0
1983
FP CP ETL Control
1.531.37 1585.37 2183.17 1348.37
183.00 237.00 834.80 0
315..65 526.10 217.35 0
.51 .29 3.34 0
FP CP ETL Control
4684.29 4770.29 5212.27 4710.79
26.50 240.50 501.48 0
702.50 1224.16 207.00 0
.03 .19 2.42 0
FP CP ETL Control
6258.00 6141.58 6443.50 5944.50
313.50 197.08 499.00 0
850.50 1191.75 191.66 0
.36 .16 2.60 0
FP CP ETL Control
5047.05 4527.37 3038.78 3760.97
1286.08 766.40 722.19 0
753.52 1804.00 100.00 0
.36 .42 7.22 0
Nueva Ecija FP 2968.67 CP 4527.37 ETL 3038.78 Control 3760.97
957.77 766.40 -722.19 0
733.52 1804.00 I00.00 0
1.75 0.42 -7.22 0
Baliwag 1983
Apalit 1983
San
Miguel 1982
Talavera, 1982
V.73
_able
ii.
(continued)
Net Profit
Added Returns from Pest Control
Cost of Pest Control
Return on Investment in Pest Control
FP CP ETL Control
560.60 686.75 1638.10 591.85
31.25 94.90 1046.25 0
315.65 526.10 217.35 0
0.09 0.18 4.81 0
FP CP ETL Control
2485.12 2615.45 3103. i0 2713.17
228.05 97.72 389.93 0
554.00 965.83 130.00 0
0.41 0. i0 2.99 0
Bulacan FP CP ETL Control
4450.70 4455. i0 4720.50 4847.00
396..30 391.90 126.50 0
160.50 160.37 130.00 0
2.47 2.44 0.97 0
tion/Year
SEASON C_ndaba 1981
1982
Saln Miguel, 1982
Source:
FP CP ETL
......
Santiago, A. C., et. al. Comparison of Rice Insect Control Five Villages with Farmers' Integrated Pest Control Groups Central Luzon, an Unpublished Paper.
= Farmers' = Complete = Economic
Practice Protection Threshold
Level
V.74
= IPM
in in
Table
12.
Seasonal
yields
(tons
per
hectare).
Fa rme rs ' Pract ice ........... gross sd
gross
sd
gross
sd
gross
sd
1981
5.05
.08
5.68
.14
4.3
.27
6.00
.44
1982
5.66
,28
5.75
.25
5.3
.30
5.91
.14
1983
5.56
.08
6.10
.20
5.02
.05
6.00
.06
Baliwag
1983
5.21
.42
5.00
.53
4.60
.57
5.40
.53
Apalit
1983
6.16
.28
5.41
.38
5.33
.28
6.35
.37
San Miguel, Bulacan
1982
6.30
.26
3.91
.08
4.54
.24
6.78
.09
Talavera, Nueva Ecija
1982
5.90
.08
4.70
.29
4.22
.26
6.11
.17
1981
4.72
.12
5.68
.13
4.30
.17
5.05
.i0
1982
5.5.6
.26
5.54
.08
5.02
.05
6.10
.13
1982
4,11
.ii
4.09
. 05
4 .... 09
17
4 13
22
Location
Wet
I
Year
Complete Protect ion
Season
Candaba
San
Con trol
Season _ ,,,,
Candaba
q.[Z D
ETL
M iguel
Source:
Note:
Santiago A. C. et. al., Comparison of Rice Insect Controls Five Villages with Farmers' Integrated Pest Control Groups Central Luzon, An Unpublished Paper. sd
- standard
deviation
V.75
in in
T ble
13.
Insect control regional crop Division).
=_====No..... of crop
#pc
seasons
trials in irrigated rlce farmers' fields by six protection centers 1980 - 1983 (BPI Crop Protection
No. of barangays
No. of farmers'
%trials with significant
% trials threshold
crops yleld lossesIPM)more pro Itabl than
I
with sprays
75%
5
5
33
1
1
3
0
100%
2
2
12
66%
100%
5
1
46
40%
60%
II
1
1
4
0
100%
I
2
3
7
50%
100%
50%
77%
105
of
40%*
preventive sprays
80%
i
irce:
Sumangil, J. P. IPM for Cost Reduction in the Masagana-99 Rice Production Program, Paper Presented at the Agri-Tech Fair, Philcite, Manila, September 9, 1984.
60% of pnfounded otection
trials in Region III, yield by farmers' higher nitrogen fields.
V.?6
loss studies were levels in maximum
9esticides, and in an interval of five to seven days or sometimes as short as three days. This is despite the that the average residual toxfcity of these chemicals not washed away, averages about 14 days (Medina, 1983).
even fact when
The study also cited that previous interviews with the farmers revealed that at least 40 chemicals are used in the area which include banned or heavily restricted pesticides like Endrin, Heptachlor and DDT. As such, poisoning is not uncommon in the place. For the vegetable industry in Loo Valley, the study was conducted to explore other methods of insect control to minimize pesticide usage. The resul_s show that reduced spraying (4 times) in potatoes has not significantly decreased the yield when compared to the actual farmers' practice, which is 9 sprayings (Table 14). This means thah in this particular case, spraying four times is as good as spraying 9 times. Of course, the determinant of the number of sprays is the level of pest population. The other five excess applications by farmers are "unnecessary and are therefore waste in resources, additional unnecessary exposure to pesticides by the farmer applicators, and additional unnecessary release of poison in the environment" (Medina, 1983). Further researches to be conducted in different locations will be needed in order to develop locationspecific IPM technology. The only way to do this is with many farmers' field trials, i.e., every province and eventually, every municipality. This research should be multidisciplinary in nature; there should be collaboration betwen social scientists and technical people and participation by the end user or the farmer. A crucial task in IPM research is the measurement of the trade-offs in terms of benefits and high 2. This
private gains to the farmer to society in terms of better level of safety. Handler'sLuser's concerns
safety the
and consumer, environmental
and the quality
research
establishment
of
a
minimum
standard
of Protective covering for the handlers and users of pesticides that will be conducive to our tropical conditions. The minimum time after application before reentry to the field is safe, must also be established. Also, it would cover areas like the provision of antidotes to pesticides being used. PRU must stipulate that the availability of an antidote to a certain pesticide be made a requirement during registration.
V.77
Table
14.
Yield of potato experiment of spraying, 1983.
with
Treatment per
plot
(kg)
different
frequency
Yield per
hectare(tons)
T
Control
i. 63b
3.26 b
Reduced
spraying
(4)
9.83 a
19.6 a
Farmers'
practice
(9)
i0.48 a
20.9 a
CV
= 18.45
Note:
Means with different.
Source:
Medina, Vegetable presented September
the
same
C.
letter
are
not
significantly
P. Crop Protection Studies at the Producing Loo Valley Area, Paper at the PESAM-CSG Seminar-Workshop, 7-9, 1983.
V.78
3.
Research
on
residue
analyses
at
the
farm
level
At present, the practice is to analyze the residues of the harvested crop at the market which is the prevalent method in Western countries. However, ourmarketlng system does not allow us to throw away produce due to high residue levels. For instance, if it is found that residue in food exceed the maximum residue limit set by FAO guidelines or our own FPA guidelines, nothing is done . With regards to our export crops, if they do not pass the quality control of the importing country, then, the produce is dumped in our local market. It is recommended that we do residue analyses at the farm level where, given a certain amount of pesticide being used, one could determine the corresponding residue based on a transformation function. Also, we need research that would relate toxicity levels and residue levels. 4.
Proposed
Research
Set-U_
IPM research should be a collaborative undertaking by farmers, the MAF staff and regional universities because of the location specificity nature of the technology. The National Crop Protection Center (NCPC) should be strengthened to carry out pure or laboratory researches (.they have the facilities and manpower) such as establishing standards for maximum residue limits (MRL's) and research described in (3) above. The NCPC at UPLB could be renamed the Crop Protection Research and Training Center (CPRTC) to better reflect its f_nctions and eliminate confusion with the Regional Crop Protection Centers (RCPC) which are administratively under the MAF regional directors. On the other hand, the Crop Protection Division of BPI should be called the National Crop Protection Service to better reflect its technical functions. Applied or field researches on IPM should be done by the Regional Crop Protection Centers and BPI in collaboration with regional universities and farmers. There must be more two-way linkages between NCPC-BPIRCPC in crop protection research. For instance, research results from NCPC may be fed to BPI or RCPC for field application or verification. RCPC should also supply NCPC results of their field studies. NCPC research priorities should be set with input from needs arising at the field level reported through RCPC, BPI and other channels. With regards to research on farmers' safety, there is an urgent need to develop protective covering for farmers during pesticide application. Some pesticide companies have
V.79
already developed protective clothing but they find it hard to disseminate this to the farmer because of the psychological effect (i.e., it warns the farmer that he is dealing with hazardous substances), and this may discourage from further using that particular pesticide. Hence, we need to educate the farmers on the proper use and handling of pesticides. We can do this through a strong extension program. EXTENSION
AND
TRAINING
NEEDS
Proper disseaination of research:results to the farmers, is a crucial task and mus£ be undertaken by welltrained extension agents. Integrated pest management (IPM) for instance, is designed to suit the particular local situation so that optimum impact is achieved. To be succesful, integrated cotrol of pests (IPM) must be accompanied by a marked improvement in training of farmers. One agency involved in training programs on IPM is the national Integrated Pest Control Program under the BPI Crop Protection Division in collaboration with the FAO Intercountry Programme on Integrated Pest Control in Rice (Table 15). Though their record has been impressive, there is still a need to train more farmers and technicians. The Philippine German Crop Protection Program (PGCPP) has recently supported construction of over one hundred farmers' centers where crop protection information can be distributed and has piloted a radio campaign on IPM. The other major area requiring more and better training is pesticide safety. One of FPA's roles at present is to conduct training programs for medicalparamedical personnel, dealers, farm technicians and end-usersfarmers, to ensure effective use and safety in handling of pesticides. However, the agency has not been very effective in this activity because of its low budget and lack of field personnel. As such, in 1985 only 144 dealers were trained (Table 16). The FPA has created the National Pesticide Safety program through its Agro-medical services unit with the primary objective of training medical and paramedical personnel on the recQgn'ition, treatment and management of pesticide poisoning cases. Through the Ministry of Health, monitoring of pesticide poisoning cases are done at the rural health units, emergency, provincial and regional hospital levels. About 3705 doctors and paramedical personnel have attended these seminars. The number has dwindled since 1983 due to lack of funds for training.
V.80
Table
15.
Report
on
Integrated
Pest
Control
Training
Program.
YEAR/ITEM ,:
1983
1984
1985
1986 (first quarter)
Number Number Number
199 33
65 2213 131
572 10167 4633
220 5318 -
of Training Conducted of FarmersTrained of Technicians Trained
Source:
Table
;16.
Integrated Pest FAO Manila.
Summary
Year/ Tra ini_ng Program
Medical/ Paramedical Dealers Certified Pesticide Applicator Farm Technician End-USers a.
Source"
Z
of
FPA
Control
Training
Training
Programs
Programs,
1978-1985.
in the
Philippines,
Total 1978-85
1978
1979
1980
Number Trained 1981 1982 1983
1984
1985
3705 54.25
283 -
1085 -
1085 680
432 677
415 738
224 2305
181 881
144
1122 11497 145
.... .......
321
298
179
162 .... -
162 11497 145
-
-
:=
Fertilizer
and
Pesticides
V.81
Authority
First Aid kits containing supplies for the initial management of pesticide poisoning cases were distribbted to rural health units and hospitals. The first aid kits should always be available in any health unit. Regional medical schools or outreach programs of Manila medical schools can be key channels to provide up to date information adapted to local needs. We need training for farmers and technicians in effective and practical location-specific IPM, including proper pesticide use. We also need training for farmers, technicians, and medical and paramedical staff in: (I) safe handling and use of pesticides, (2) proper disposal of containers, (3) symptoms of pesticide poisoning and antidotes, and (4) ways to minimize the water suppplies, aquatic resources, and wildlife. Of these, the most urgent are efforts to teach farmers about symptoms of pesticide poisoning and the proper handling and use of pesticides. SET-UP
OF
EXTENSION
DELIVERY
SYSTEM
The key issues for crop protection extension are quality control and accountability. Even if the latest research results are validated locally, if they are not passed accurately to extension agents and then to farmers they are only academic or bureaucratic exercises. There should be high quality decentrallized crop protection resource centers as close as possible to farmers, at the municipal level. These will form the key link in at least three flows of information: -
on farmers' identified problems on research results to farmers, on local adaptation of IPM technlclans.
to researchers, and among farmers
and
Existing agencies should support these resource centers through their ongoing activities. The (NCPC) Crop Protection Research and Training Center should continue to train subject matter specialists who will continue to pass cesearch results on to local resource centers and pass farmers' identified problems on to researchers. Extension agents trained by subject matter specialists and through programs of the (BPI) National Crop Protection Service will rely on these centers asthelr first line of resource in answering the questions and needs oftheir farmer clients. Regional Crop Protection Centers will form the next llne of information resources including backstopping of local adaptation trials for results coming from local agricultural universities andthe CPRTC. The SEWS will use the centers to alert local farmers and extension agents about pest problems, but also to get information on suspected pest
V.82
i
problems. IPM trainers for a municipality will operate from these centers as bases and get new ideas and materials for training through the network of centers. Most importantly, these centers will be close enough to farmers that farmers Can hold them accountable for the quality of crop protection information. Standard field skills evaluations can be made of all technical staff through these centers, as can assessments of farmers' training needs. Clearly these crop protection resource centers will include information on pesticide safety and use. But parallel efforts should also be made through Ministry of Health personnel to train their clients, monitor safe handling, and provide treatment of poisoning cases in farmers' communities. Barangay nutritionists and barangay health workers are effective contact points for this information. Our eventual goal is to build up the problem identifying and problem solving capacities of every barangay in the country. Innovative research, development, and extension methods with greater farmer participation and initiatives should be explored and encouraged. Pest and pesticide problems are intrinsically local in nature. National policy should nourish rather than squelch the capacity of every rural community to handle these problems effectively, profitably and equitably.
V._._. _ In summary, recommended:
the
o._f.fRecommendations following
strategies
and
policies
are
i. Pesticides and fertilizers should not be administered by a single agency. Apart from their use as inputs to production, they do not have any similarities with respect to technical aspects and marketing structure. The pesticides division of FPA should be taken out and a separate Pesticide Regulatory Unit (PRU) within the Ministry of Agriculture and Food should be established. The reason for the latter is that pesticides cannot be divorced from agriculture. 2. The PRU's role must be confined to pesticide registration and regulation. Regulations include monitoring and surveillance of farmers' safety, residue analysis and quality control. The present usage of BPI's Pesticide Analytical Laboratory (PAL) is sub-optimal. The three satellite stations are also not used to full capacity. We must
V.83
be •able to use these laboratories for monitoring and residue and formulation analyses. The PAL should be placed under the direct administration of the PRU to avoid delays in the issuance of the results of analyses due to administrative problems. 3. The existing Philippine pesticide regulatory policies are highly satisfactory. The problem comes with respect to their enforcement and implementation. 4. The Integrated Pest Management (IPM) approach should be the core of our national crop protection policy. This is not tantamount to non-use of pesticides; it just espouses judicious and efficient use of pesticides. IPM also involves scouting for incidence of pest attacks before treatment. This is a location specific technology as pest incidence and economic factors vary with different local environmental conditions. Field studies should be expanded to fine-tune the IPM technology to various agro-ecological conditions at the barangay level in the Philippines. 5. There should be a strong training program on IPM dissemination and verification, an4 on pesticide use and safety. The goal of crop protection extension should be the decentralization of expertise through the formation of high quality crop protection resource centers. Such centers will be the key link in loca.l IPM adaptation, training and extension, in problem identification for researchers, forextension and training on safe handling of pesticides, for monitoring of farmers' safety in pesticide quality and use, and for exchange of farmers' experiences in crop protection. 6. There is a strong case against the use of category 1 (i.e. extremely hazardous) pesticides. There is a need to look at this list and try to eliminate those with high toxicity. The data that we need would include the number of deaths due to their use, residue analysis and safety level, etc. We need to define the agency (maybe BAEX in cooperation with Ministry of Health) that will carry on the job of field monitoring of the safety practices at the field level. Residue analysis would be more important with urban consumers, vegetable growers and fresh fruit exporters. The primary aim is the safety of handlers and field applicators. There should be a minimum standard for protective clothing for farmers and other pesticide users. 7. In the selective
matter in the
of pricing scrapping
V.84
policy, we oof import
should taxes
be on
agricultural pesticides. We could promote safety as well as the IPM program if we apply taxes, on the "extremely hazardous" pesticides and remove or reduce taxes on the safer ones.
V.85
D.
POLICY
ISSUES
ON
FERTILIZER
d/
Although expenditure for fertilizer is still relatively low for most crops, fertilizer has been and will continue to be a major source of agricultural growth in the Philippines. Land-man ratio is low and declining, and thus technological innovations are directed towards increasing yields per hectare. The growth rate of consumption declined from an annual rate of 9 percent from 1952-72, down to 5 percent from 1972-1983. This decline can be largely attributed to the relatlvelyunfavorable fertilizer-output price ratios after 1972 caused t)oth by the oil crisis and domestic pricing policies (Table 17). With the recent shortage of foreign exchange and continued decline in real price of rice and sugar, domestic use of fertilizer in 1983 and 1984 dropped sharply to the 1977 levels. Use of fertilizer increased most rapidly in rice as its share to total fertilizer consumption grew from 26 percent in 1965 to more than 42 percent in 1984 (Table 18). In contrast, the share of sugar dropped from 52 percent to 37 percent during the same period, Over the past decade, corn, banana, pineapple have also accounted for an increasing share of total fertilizer use. Trends in crop yields followed closely the growth pattern of fertilizer use. The highest yield growth occurred in rice, banana, pineapple, and to a lesser extent, corn, while yields in sugar and other traditional export crops remained essentially constant. Demand for fertilizer depends on the fertilizer-output price ratio, cost (availability) of other source of nutrients, and on technologies raising _he yield response to fertilizer such as irrigation, type of seed varieties, cultural practices, etc. The government affects fertilizer demand through its policies on price, marketing, irrigation, research and extension. In rice, public support on irrigation, research and extension explain almost twothirds of the growth on fertilizer demand in this crop (Herdt and Capule, 1983). In general, however, the focus of government intervention on fertilizer has been in the area of price and marketing. As in food policy, the government's concern has been to achieve a balance between the conflicting objectives of providing low fertilizer prices to farmers a'nd giving adequate incentives to domestic fertilizer producers.
V.86
Table
17.
Trends
in
the
fertilizer-crop
Urea/ , Pal ay a/
price
ratio.
Urea/_, Suga r_/
1965-i973
2.77
2.48
1974
3.11
3.34
1975
4.32
4.73
1976
3.64
3.84
1977
3.28
2.69
1978
•3.28
2.08
1979
3.66
2.11
1980
3.72
2.01
1981
3.81
2.08
1982
3.89
1.96
1983
3.42
1.61
1984
3.80
2.21
a/Based
on
b/sugar
liquidation
Source:
price/kg
Fertilizer Bureau of
N. price and Pesticide Authority; Agricultural Economics.
V.87
TaDle
18.
Total 19 67
Fertilizer Consumption and 19 77.
1967 a/ Volume Percent Thousand MT share
by
crop,
1983 b-/ Volume Thousand
MT
Percent share
Food crops Rice Maize Vegetables
133.7 107.4 13.0 13.4
32.9 26.4 3.2 3.2
488.6 365.6 56.3 66.7
55.6 41.6 6.4 7.6
Export crops Sugarcane Others
283.0 221.1 62.6
67.1 51.9 15.4
389.7 323.5 66.2
44.4 36.8 7.6
Total
406.8
100.0
878.3
100.0
a/From
"Data Series on Rice Philippines, IRRI,
b/FromFertilizer
and
Statistics," 1976.
Pesticides
V.88
Authority.
Pricing
Policy
The government's pervasive regulation of the fertilizer industry began in 1973 as a response to the four-fold jump in the world pr{ce of fertilizer, coupled with the immediate need to recover from the 20 percent drop in rice production. Since then, the Fertilizer and Pesticide Authority (initially established in 1973 as the Fertilizer Industry Authority) has assumed powers to regulate prices, imports, domestic production, and marketing aspects of the fertilizer industry. It did this by establishing a domestic price ceiling defended by the following policy instruments: a) tax free importations of finished fertilizer and raw materials, b) import restriction in favor of the three fertilizer producers and two importing firms and c) cash subsidies for losses incurred by the domestic fertilizer producers. Note that there is no incentive for the efficient operation of the fertilizer industry. In fact, the least efficient firms would be able to sustain the greatest losses. The largest importing firms also have the potential to achieve greatest cash subsidies. From 1973 to 1981, farmers paid a price premium averaging approximately i0 percent over the border price (Table 19). This implicit tariff has varied enormously with fluctuations in world prices and across types of Eertilizer. Between 1973 and 1975 when a two price system was in effect, domestic price ceiling on fertilizer was lower than world market price for food crops but higher for export crops. As world price of fertilizer fell by 70 percent in 1975, official prices based on the very high world prices were maintained and cash subsidies were continued imposing a substantial burden on the farmer and general taxpayer. From 1973 to 1981, the price of mixed fertilizer has received a small subsidy but urea has been priced i0 percent above world prices, ammonium sulphate 27 percent higher, and muriate of potash (used in sugar and other export crops) 86 percent higher than world prices. Given the average price margins allowed by the pricing policy and the cash subsid'ies, the fertilizer industry has been heavily protected. The total subsidy is equivalent to about 50 percent of border price per unit of domestically produced fertilizer. About "one-third of this has been charged to farmers in terms of higher fertilizer price and the other two-thirds to the general taxpayer. Because of the substantial government burden, the cash subsidies were abolished in 1982. However, although domestic prices were not raised, farmers ended up paying much higher implicit tariffs because of the recent drop in world prices which was not passed on to agriculture. In
V.89
I I
Table
19.
Relation of domemtic to border price for four grades of finished fertilizer, 1973-1982. (Domestic price as percent of border price) a/
Fertilizer
Grade
Urea
Ammosul
Mixed
Muriate of Potash
Weighted Average
1973 I Food Crops II Export Crops
-25 31
- 9 39
-49 - 2
119
1974 I Food Crops II Export Crops
-ii 50
-23 44
-33 17
81
1975 I •Food Crops II Export Crops
-39 - 5
-43 - 5
-56 -31
86
1976
65
86
30
85
56
1977
55
59
13
105
41
197.8
28
37
- 5
96
19
1979
34
52
15
89
32
1980
7
43
-14
68
5
1981
8
45
-Ii
80
7
- 5b
7
-30
1973-1981 (weighted
average)
16
27
- 4
86
I0
1982 (weighted
•average)
44
103
42
iii
65
a/
198•3.. 1984
Source:
From C.C. David and A.R. Balisacan, "An Analysis •Fertilizer Policies in the Philippines," Journal Philippine D__eeveelopment, Vol. VIII, Nos_ 1 and 1981.
V.90
of of _,
1982, the domestic price of urea was 44 percent above'the import price, the ammonium sulphate price was 103 percent above the import price, and the muriate of potash price was 111 percent above the import price. Since then, the total burden of subsidizing the domestic fertilizer industry rest fully on the farmer. Filipino farmers face one of the most unfavorable price of fertilizer relative to output price in As_la (Table 20). One o£ the original goals of the governmentts regulatory program was to ensure domestic fertilizer products for food security reasons. This has largely been a failure as imports have grown from 30 percent in 1970 to 75 percent of total usage by 1980. This relative decline in domestic products can be attributed in part to the growing demand for urea where we have no comparative advantage. This is also caused in part by the government program of compensating domestic firms for losses incurred on fertilizer production which foster an:;:inefficient industry unable to compete in the world market. The fertilizer industry is oriented towards the production of phosphate based NP and NPK, although this type of fertilizer represent only 25 percent of projected demand. The industry consists of the recently constructed PhilphoS and of small, rather old, obsolete, production units located at Planters Products, INC (PPI) Atlas Fertilizer Corporation (_FC),and Maria Cristina Fertilizer Corporation (MCFC). These small plants have a basic capability to produce ammonia foz indigenous feedstock (refinery gas) and phosphorus acid based on sulfuric acid from local pyrites. None of these small firms are currently operating in part due to the shortage of supply of pyrites and sulphuric acid. However, farmers continue to pay a _I0 surchage for the foreign loan incurred by Planters' Products, Inc. Philph0s is a modern phosphate complex with a capacity to produce phosphoric acid part of this can be sold as such or converted to NP and NPK fertilizers. It was recently built in cooperation with the Republic of Nauru but with full guarantee of the Philippines for foreign loan of about $450,000. Its economic viability is based on the use of the sulfuric acid by.product from-the PASAR copper smelter. Because of change in the original design of PASAR, it can now supply only half of the sulfuric acid requirements of Philphos, and reliance on imported sulfuric acid lower the profitability of its operation. Planters and Atlas also suffer by having to compete with Philpnos in domestic supply asd import allocation of sulfuric acid and pyrite. The provide,
recent among
UNICO. fertilizer study funded by the others, some specific recommendations
V.91
ADB to
Table
20.
Pattern of zer-paddy countries,
fertilizer use price ratio, 1978-1982.
on rice and in selected
Fertilizer (NPK kg/ha)
fertiliAsian
Fertilizer/ paddy price rat io w------i_----m
Bangladesh
13
1.89
Thailand
21
4.46
Bu rma
22
1.81
Philippines
32
3.67
India
53
3.00
Pakistan
69
2.46
Malaysia
87
i. 44
Sri
Lanka
96
i. 95
Indonesia
ii 2
I. 52
South
244
0.85
Ta iwan
276
I. 18
Japan
356
0.70
Korea
V.92
raise the efficiency of domestic production of _P and NPK fertilizers. This study points, out the long-term prospects of Philippine exports of these products. Given the current 10w world prices of fertilizer, Philphos has already r0quested for tariff protection. The task of formulating fertilizer policy therefore is still complicated by the need t 9 reconcile the conflicting t_e fertillzer producers. fertilizer producer is also
interests of the In the Philphos the government.
Re commenda
farmers case,
and the
tions
Our recommendations must be viewed in the context of the existing overall policy bias against agriculture inherited from the past regime and the new government's stated goal of promoting rural developmen t. i, f_
2.
The overvaluation of the peso caused by the industrial protection system lowers prices of agricultural output by 20 percent. The degree of overvaluation is even higher as a consequence of the current contractionary policy. Moreover, price policies have not been able to fully protect farmers from the depressed world market prices of rice, sugar, and corn. Until some progress has been made in the macroeconomic polices with respect to the industrial protection system, export taxes, and foreign exchange rate, fertilizer imports must be allowed tax free. Farmers then pay a price of fertilizer equal to landed cost plus a reasonable marketing margins. To this end, we recommend the liberalization of import licensing, removal of price controls, and lifting of the _I0 surcharge. Import licensing may be retained only for the purpose of preventing monopoly profits and not to limit the function of FPA in fertilizer marketing should be simply supportive of private Sector's activities and not regulatory except in extreme cases of widely fluptuatlng world prices. These may be in terms Ofl monitoring prices to protect farmers from excessive margins, and assisting importers in bbtaining volume discounts, long - term contracts, and other infprmat$on necesary to assure low and stable prices to farmers. Philphos. and other fertilizer producers also suffer from the penalty imposed by the overvaluation of the foreign exchange. However, raising prices to offset this penalty would not only be inequitable but will lower agricultural production and farm income. Protection of these firms cannot be justified in terms of their capabality to export because most agricultural
V.93
products using fertilizer are also efficient earners and savers of foreign exchange. Farmers have for too long paid for the promotion of the domestic fertilizer industry. The government now may either remove the sources of bias against this industry or provide direct subsidies. In any case, any further support to these firms must be tied to increasing their efficiency and eventual privatization of Planters and Philphos. 3.
Other means of lowering fertilizer cost need to be given equal attention. These are in the areas of lowering marketing cost and in research and extension for increasing efficiency of fertilizer use and substituting organic for chemical fertilizers.
4,
Marketing costs have been estimated to account for 17 to 50 percent of the farm gate price of fertilizer (UNICO, (1985). Almost half of this is due to cost of physical distribution (loading, transhipment, transport handling) and 30 percent to the interest cost. The general recommendation made in this report on the acceleration of public investment in rural infrastructure and a more liberal monetary policy would • lowec these marketing costs. In addition, we adopt the following proposals contained in the UNICO study: promote the shift of fertilizer use from low analysis to high analysis products, e.g., urea (46% N) diamonium phosphate (18-46-0) muriate of protash (0-0-60) and NPK compounds (19-19-19), and consider establishing high speed unloading and bagging facilities for bulk fertilizer imports.
5.
Some progress has been made in the agricultural research to improve efficiency of fertilizer use (timing of fertilizer application, deep placeme_).t) and to organic substitute for chemical fertilizer in rice (Azolla, Sesbanu). A national effort must be launched to accelerate the development and transfer of these types of low-cost technology. Given the limited yield gains in sugar, corn and other traditional crops, varietal improvement in these crops w_uld go a long way in raising increasing productivity of fertilizer.
V.94
E.
POLICY GRAINS
ISSUES ON POSTPRQDUCTION AND PERISHABLES_ /
SYSTEMS
OF
Postproduction 9/ methods and technological practices are as importand as the crop production phase. The harvesting, handling, threshing, processing, storage and marketing operations determine the quantity and quality of product that is ultimately made available for consumption. Antiquated and/or improper postproduction operations will cause losses in quantity as well as substandard quality for the consumer. There are two major reasons why postproduction losses must be reduced. The first lies in its potential in increasing marketable surplus which can be achieved in two ways. One is simply by increasing the total amount produced which increases both the absolute amount sold and that retained for home consumption. The other is through the farmer's concomittant delivery of higher performance of the postproduction systems. A second reason is economic in nature wherein improvements in quality as well as quantity recovered raises the monetary value of output making recovery economically more important. The seriousness of the postproduction loss problem has been discussed at numerous meetings, conferences and symposia at the national as well as the i,ternational levels. Many studies on postproduction loss assessment have been conducted at various levels by institutions throughout the deveioping world. And during the last decade, a very large body of published material dealing with the many aspects of postharvest food technology (particul_fly for rice but not so much for corn and perishables such as fruits and vegetables) has emerged. Inspite of these developments, however, information.on the patterns, magnitudes and causes of postproduction losses remain highly variable. This is due to the fact that the characteristic of the environment within which these losses occur is changing (both in terms of crop i.mprovement and modified postproduction methods and technological practices) making precise recommendations based on previous studies inappropriate. Moreover, the loss assessment process is methodologically difficult. Unlike p_oduction estimates which are based on measurable genetic potential, postproductiOn losses are to a degree location-and seasonspecific which makes the Concept of average loss levels almost meaningless. There is no generally accepted ,definition of "loss" because of its complex and mUltifaCetednature. ' Loss may refer to: (a) quantity loss, which is measured in terms of reduction in weight or the
V.95
mass of product dry matter available for sale or home use; (b) quality loss, which is reduction in the state of excellence of the product measured in terms of appearance, taste, smell, nutritive value, etc.; (c) mgnetary loss, which is measured in terms of reduction in value or price; and (d) viability lossf which is measured in terms of redaced germinability of the seed. Each of these types of loss may have different degrees of importance that vary by country, culture, time and place and by the method and conditions of loss assessment and evaluation. Pos tproduct ion losses whether these are qualitative or quantitative, have economic value. When translated into monetary terms, postproduction losses are equivalent to a significant loss in the economy. For instance in the case of fruits and vegetables, postharvest losses in 1981 reached 2.2 million tons, about 30 percent of the total production. These losses were valued at 2,440 million pesos (Asian Development Bank, 1982). A deficit of 89 thousand tons could have been reduced if postharvest losses were minimized to a feasible level. This section attempts to examine potential policy issues on postproduction systems of grains and perishables. The developmentmodification of postproduction technologies could mean reduction in losses and stabilization of supply and prices resulting to an increase in income for the small fa rme rs. This section has four parts: the first, examines the patterns, magnitude and causes of postproduction losses for grains and perishables; the second, discusses the existing infrastructure and postharvest facilities; the third, deals on the effects of postharvest technology development. The final part discusses implications for research and policy implementation.
I.
Patterns,
Magnitude
Postproduction
and
Causes
of
Losses
Studies on postprod_ct ion losses are reviewed to provide insights to researchers and policy makers about the areas of concern that require further investigation to effectively assess the nature, extent, and causes of postproduction losses in grains, fruits, and vegetables. Such information will have far reaching implications on postproduction processing, handling, and marketinQ programs and strategies. It will help identify weaknesses in existing technology and explore other appropriate alternatives for minimization of losses. The policy imperative confronting the industry is to identify those elements of the postproduction system which are amenable to
V.96
changes and which would result in significant increases in output through the use of improved and/or mechanical, institutional, and managerial techniques. It is particularly important to determine the level of loss for each postproduction operation rather than make an aggregate estimate since losses at one stage depend on the previous stage(s). This allows establishment of priorities in the introduction and use of improved and/or mechanized technology and permits identification of complementarities between particular operations within systems. Postproduction
rice
Losses
in
Grains:
Rice
Among the four commodities commands the most number of
and
Corn
considered in this section, studies done in the area of
loss assessment. It is therefore possible to examine the issue of loss by postproduction operations. In the case of corn, studies on postproduction loss assessment and evaluation are very limited. However, there is consensus among practitioners and observers that losses do occur but probably in Lower magnitude than rice partly because of their basic natural differences. In contrast to rice which is dehulled corn is just
incurring removed
considerable from the cobs
losses in (shellings).
the
process,
Nature and Causes of Losses. In harvesting, results of field surveys and experiment indicate the importance of timeliness as it creates impacts on the subsequent quantity and quality of grain that is finally milled for sale or home use. Early harvest produces immature, unfilled kernels which tend to deteriorate more quickly because of the still active enzyme system. Delayed harvest, on the other hand, exposes the grain to all elements such as weather, birds, insects, rodents, etc. The common practice of in-field stacking and/or drying while awaiting for threshing (shelling) to commence subjects the grain to repeated drying during the day and re-wetting from rain and/or dew at night. This causes fissuring and/or cracking in the gra in increasing the likelihood of insect damage and more brokens during milling. The several loss components in rice harvesting include: shattering-, lodging-, standingcrop -, stackingand in-field transport-losses. These loss components can be attributed to varietal characteristic, weather condition, biological factors (such as birds, rats, insects, etc), methods and practices, etc. In the case of oorn, the grain is ready for harvest at 35-50 percent moisture content when the leaves and husk are dried and the kernels are nearly glazed or at its "hard dough" stage. Corn can be harvested in two ways: (a) as green corn, when it is intended for boiling ("corn-on-the-cob"), roasting or other meal preparations; and (b) as dried corn, when it is processed or milled either for food or feed. Green corn is
V.97
harvested at relatively high moisture contents, and immediately disposed and/or sold. Thus, very minimal postproduction losses is incurred. In the ca_e of dried corn, the cobs are left on standing plant for 3-4 weeks after maturity before harvest. The mature ear are bent at an angle to the stalk. This exposes the grain to the elements (weather, insects, microorganisms) and the husk completely enclosing the grain serves as its only protection. Other forms of losses and/or damages incurred include: (a) excessive loss of seed due to mechanical pinching; (b) further (c) severe husking losses (d) pilferage. In include
development when using•
threshing, the different loose straw or chaff
of ear mechanical
loss loss,
rot fungi; pickers; and
components scattered
in loss
rice and
unseparated grain loss. These can be brought about by varietal characteristics, initial condition of the grain to be threshed, the type or method of threshinq, the skill and honesty of the threshing crew,etc. For corn, shelling is done either by hand with small tools or by power-driven machine. Corn shelling by hand is hard, tedious and labor intensive. However, the method is efficient in stripping the cobs and in minimizing damages to the grains. It also permits hand separation of damaged or infested grain from sound grain. Another method of shelling corn includes beating bagged cobs with a stick resulting to increased losses (due to incomplete stripping of grains from the cob) and damages to the grain. There are two forms of losses during drying: (a) losses arising during the drying process such as contamination, fissuring and spillage; and (b) losses which occur because drying is not possible. Contamination may result during spreading of grains on cemented pavements, roads or highways especially when no underlays are used. This may include dirt, stones, dust, etc. which may pose problem during milling if not properly removed. In the case of mechanical dryers, contamination may result from improper operation of the machine thus introducing combustible materials to the grain. Dirt and other impurities may also get mixed with the grain to be dried if the drying bins are not cleaned properly before and after drying. Fissures and grain cracks result from the alternate heating and re-wetting of the grain during in-field stacking and drying. These grain fissures are the source of breakage during milling and it may also serve as entry points for the a track of insects and microorganisms during storage. Finally, spillage may be caused by improper handling of grains before, during and after drying operations. Torn or improperly sewn bags may further contribute to the problem.
V.98
I
Losses during storage are due to rodents, insects, birds, and microorganisms" feeding on, damaging, and contaminating the stored grains with their hairs, feces or excreta. In addition, environmental variables (such as relative humidity, temperature, etc.), the structure and/or construction of storage facilities, the initial condition of the grain to be stored (i.e. if the grain is damaged prior to storage), etc. all contribute to the physical and quality deterioration of grains in storage. Finally, it is only at the milling stage that the quality aspect of losses becomes apparent and measurable. LOsses during milling are related either to: (a) milling equipment being used; (b) condition of thegrain being milled; and (c) experience and/or technical eKpertise of the mill operator. Quantitative loss in rice milling is usually measured in terms of the amount of milled rice recoveries while quality deterioration is assessed in terms of percent head rice or whole kernels and the amount of brokens. Grading factors are not generally used in relation to quality control of milled rice. The degree of whitening (i.e. whether the milled rice is under-, regular-, well-, or over-milled) is the only quality criterion actually used in rice milling. In the case of corn, the milling technology currently being used is suitable for the production of corngrits both for food and feed. For human consumption, roller mills are used which have more sophisticated operations and higher capacitfes than grinder corn mills are often coupled with large concrete pavements for sundrying. In the grinders are used but hammer mills are more can be attributed to its low investment
mills. warehouses case of suitable. and
Roller and feed, This energy
requirements, and it meets quality standards for feeds. Hammer mills should, therefore, be considered future replacement of old grinder mills.
mixed in the
In the transport and handling of grains, the major part of losses during short haulages (i.e. less than 5 kin) is caused by the manual loading and unloading of stocks to and from the truck mainly through spillages from holes an4 rips on the bags used. In terms of short-landed stocks, an NFA experiment revealed three main sources of physical losses: (a) improperly sewed bags with sometimes overfilled capacity resulting to bursting of' containers especially when they are thrown on the scale; (b) use of nets or slings causing tremendous amount of pressure on the bag which usually burst especially when their seams are weakly sewn; and (c) exposure of the pilled stocks on the wharf to all natural elements and the hazard of pilferage (Hamburgplan Architects and Engineers et al., 1985).
V.99
done
Estimates of Loss. Inspire of on postproduction losses in rice,
of precise Philippines. evaluation conflicting
estimates Moreover, techniques, findings.
the number there is
based on extensive due to differences some of the
of an
studies absence
surveys in the in assessment and studies showed
Results of the farm level field trials conducted IRRI in Central Luzon and Bicol region showed that machine used as well as the timeliness in the performance each task greatly contributed to reductions
by the of in
pos tproduct ion losses (Toque ro and Duff, 1984). Timely harvesting and handling had significantly lower quantitative losses compared to delayed operations (Table 21). In the case of threshing and drying, the traditional system incurred 2 to 3 times greater physical losses than mechanical threshers and dryers (Table 22). The same behavior was observed when threshing loss (expressed in kg/ha) wa s compa red among alternative postproduct ion techniques (see Table 21). In terms of qualitative improvement, laboratory analysis of paddy samples taken from the same trials showed that timely and mechanized operations produced significantly higher percent head rice and better quality grains (less percentage cracked, damaged and fermented kernels) than samples from delayed and traditional system (Table 23). In the case of mechanized harvesting, a survey of reaper owners in Bataan indicated a range of loss from 0.06 to 4 percent with manual harvesting (using scythe/sickle) compared to 0.01 to 1 percent when using mechanical reapers (Table 24). Among the reasons cited by reaper owners for the reduced grain loss included the slow speed in cutting, the gentle laying and even distribution of harvested stalk paddy piled in neat rows, the cutting of all the stalks and the minimization of dishonest/lazy harve ste[rs (Juarez, 1986). A contrasting result was obtained by the National Postharvest Institute for Research and Extension (NAPHIRE) in their study in Isabela. They noted a higher loss with mechanical reapers (2 to 7.5%) compared with the scythe or sickle (0.5 to 1%). Mechanical reapers likewise showed more incidence of shattering and uncut stalks (NAPHIRE, 1984). As far as storage is concerned, studies indicate, lower losses for paddy stored at the farm level compared to those placed in commercial warehouses and/or mills. Paddy stored in the farm are usually in good condition, with optimum moisture content requirement, and very little impurities. This is partly attributed to the fact that farmers tend to store only the amount they reserve for home consumption. All the rest are disposed immediately or a few days after
V,100
Table 21.
.......... _ by alternative Moans for thr.e,_;hill_• loss !_.r_:,O_.q._ postproduetit:n _p_ratfons, Philippines, 1975-77,
grottplngs
in
'.."ITLO,qSa {kg/ha)
Differi;lic e
Harw;_ting Timely harvest Delayed harvest
023 ei 849 b
226"*'
Handling (bundle, haul, stack) Tinmly halldlirig Delayed handling
711 a 82.1 a
llf}
Threshing A::ial-flow thresher Threshing frame/flail
126 a .9,56 b
.-,,,,_'_"_
8.4'0 a 849 b
209''
695a 764 a
69
lCl,elii
or stick
Clealling AMal-flow thl'e,d_er Witmowing baskel;/wooden
wimmwer
Comparatiw.,TIILOSS by region Central Luzort BicolRoginn
b
a Threshing loss {TItLOSS) is i;he difference between potential harvest yield per heel;are altrJ, the yield obl.airted after the paddy _s threshed and cleaned. Treatment InOallS with the same letter are not: significantly different: from each ol;lier at, f).5 levt:l of significance. b*
°" difference
Source:
°highly significant
Toquero, Z. F. and B. Duff. Rice Postproducl:ion Systems",
;'Physic_ll Losses and Quality IRP8 No. 3.07, March 1985.
V.lO1
Deterioration
in
"['able 22. Average phy.qica] [osso._; amon_ _Iternative postprodnction ._ystemsby region,PhiliIJpines, 1975.77.
Ol.,er_,tions
Manual
Ccnl:ral LmJz¢>n (l-h_eshin_ vs a×lal-fl.ow) Bicol
3
Clear,:in_ Cenl:ral I.t_zon B£co1 (wooden
frame
v's axial-flow)
(w'ir_nowi..._ winnow,_-t')
Diffel'ence
fr.:.:_no
_fla.l.!/SL.tck v'-_axial-flow)
(Threshing
Mechanical
bask,:t.)
2.4
1.1
1,3
_.2
0.5
0.7
1.6
0.5
1.1
1 .I. I.i
a a
1.I l.!
l .2 1.2
O. I 0.',
i. I 0.8
9:__£. :,_ Ct_nL_.'a.l Bico]
l.,uzon
a With m.'._chanival tl_r_.shing using the a.um-..Ic, w tht'e..;heP, the threshing cleaning-Ol_.,r_l:.ion is _c_ompli._d_ed sbault.aneously during threshing, °
1
_
Souret_: Toq,,::,_,*, 7 .:: aud B. Duff, "Phys.ic_l Losses Alte:.n:!tive r::.i,-e Poatproduction Technologies"
V.102
and
and Q_.mlil:y Deteri_,ratio-n
in
Table_,
Average perc_mt, head • rice and otheP quality characteristics alternative pos_:product.iouoperations. Philippines, 1975-77.
rtem
_-Tead _ice.
Cracked .:_(ernel.'_
Fermented .'qernels
by
Damaged Kernels
H.arvesting Timely hm.vesting Delayed harvesting
83 a 73 b
•Htmdling Timely handling Delayed handling
85 a 70 u
6 a 9 b
0 a 2 b
1 a 1 a
Threshing Threshing frame Axial-flow I:hresher Flail/stick
_2 a 7_ a 70 b
3 a 5 a 7 b
1 a 2 b 2 b
1 a 2 a I a
Drying Timely batch drying Delayed batch drying Timely sm_ (Iryh_g !Delayed sun dt_'ing
83 a 77 b 77 b 76 b
3 a 6 a 6 a 1C a
2 a 3 a 2 a $ a
l a 2 a 2 a 1 a
I
a
Using I.),mcar_ Multiple Range Test Tre_tment means with t;I,e, stone lel:t.er other.
(.BMRT) at 5% !eve..l of significance. are ,or SignifiCantly different from eaclt
Source,: T,)qm_ro, Z. F I and B. Duff. "Physical Losses and Quality Det¢,,rim'aUon in B,ice Posl;pt:oduc_ion Sysl;ems". IRPS No. 107, March 1985.
.V,103
Table24. Estimatedgrahllossper farm using manual and mechanicalharvesting,7 reaperowners,Bataan, 1984 (preliminary).
Reaper owner farmer
Farm size (ha)
Average yield (cav/yr)
•Manual method
Grain Loss Mechanical reaper
I_erce,nt, 1
3.2
854
2.00
0.50
2
0.;
150
0.06
0.0]
3
0.9
150
0.67
0.13
d
2.0
488
3.00
1.00
5
3.0
316
3.00
1.00
6
2.5
375
1.00
0.50
7
5.0
I000
4.00
0.90
Source•:Juarez,F., A. Te, B. Duff and J. C. Flinn. "Reapers in•SmallRice Farm Production: A •Review of Evidence from Bataan and Pampanga." IRRI SaturdaySeminar,January 18, •1986.
•"
V.104
harvest. Thus, the storage responsibility is transferred to the different sectors in the marketing chain, primarily the millers and/or commercial warehouses, The estimated storage loss at the farm ranged from 1.4 kg/cav (a cavan weighing 50 kg) from container-type facilities and 8.6 kg/cav for granaries (Table 25). Quantitative losses due primarily to rats is the most serious and the only visible loss that the farmers can detect. Some farmers estimated that the rat damage to facilities At
the and
the
grain is about 0.5 kg/cav 0./4 kg/cav for granaries mill
and/or
warehouse
for container-type (Table 26).
levels,
antiquated
and
inadequate storage facilities result to about 2 to 6 percent loss (Valdez, 1976). According to the findings of an NFA/NAPHIRE collaborative research, rodent populations in both government and private warehouses were relatively low. However, when left uncontrolled, rodent population increases geometrically with a pair multiplying to as many as 1,270 rodents a year capable of consuming 9,994 kg of grain. The study also revealed as many rodents in rodentproof warehouses as in non-rodent proof ones and this was attributed to inefficiencies in both warehouse management and
design.
Microbial
analysis
showed
that
rodent
contaminated grains are infested with As__ergilus flavus and A. Ochraraceou s, two storage fungi a ssoczated w_-_h the p_oduction of carcinogenic compound capable of causing liver a_d kidney damage in humans (NAPHIRE, 1981). In terms of Ibsses due to birds, NAPHIRE reported that the bird population in private warehouses were 7 percent greater than in government warehouses due to the presence of piggeries and poultry houses around the former which provide alternative food sources for the birds. Bird consumption of grain in government buildings was found to be 5 percent greater compared to those in private holdings. The average daily grain consumption of a bird in a warehouse is approximately .0058 kg (NAPHIRE, 1981). Finally, NAPHIRE's initial findings showed heavy insect infestation in commercially stored g.rains and in the storage structures that house them. For paddy, the dominant insect species observed was the lesser grain borer, Rhizopertha dominica (Caliboso, 1981). In terms of rice milling, a technical and monitoring assessment of commercial rice mills in Bicol showed high percent milling recoveries for the rubber roll single pass mill (70.31%), rubber roll-steel huller combination (69.24%) and centrifugal huller (70.33%). By rank, the first three positions likewise belong to these three types of mills in terms of percent head rice. Cone-type mills and steel hullers ranked second and third in performance. It is interesting to mote, however, that the milling recoveries in two huller mills-Tortes and Olano rice mills-compare
V._05
Table 2_. Quantitativegrainlossesin storedpaddy by type of storage,17 farmers, Luzon.1977.
Type Granary
Both
9
8
17
3
6
9
6
Z
8
Storagefacility damaged
3
I
4
Accident a
3
1
4
1.4
0.6
1.2
Item
Container
Fro,reefs reporting: NO quantitative Qu_mtitative
loss
loss
Source of loss:
Quantitylost(kg/cav)
a Spillagewhile loadingor unloadingthe storagefacility. Source: Takai, H., L. Ebron and B. Duff. "Nature and Characteristics of Farm Lovel Paddy Storage in Luzon,Philippines."IRRI Saturday Seminar,Juno 3, 1978.
.V. 106
Table26. Rat incidenceand damage in storedpaddy,17 farmers,Luzon, 1977.
..... Type Container Granary
Item
Number of farmers
_ Both
9
8
17
Absence of rats
,1
1
5
Presellce
of rats
5
7
12
Quantityof lost{kg/oav)
0.5
0.4
0.4
Use of poison
3
2
5
Use of naturalenemy
],
2
3
Improve facility
0
I
I
None
5
3
8
Farmers reporting:
Preventivemeasures taken:
Source: Takai,H., L. Ebron and B. Duff (op,clt.)
V.I07
favorably with the rice mills using rubber hullers under ideal conditions (Table 27). This indicates great possibilities for improvement in this village-type mills (UPLB/IRRI, 1978). In the case of corn, a loss range of i0 to 12 percent in quantity harvested (expressed in shelled corn) is incurred when manual harvesting, mechanical shelling and sunair drying are used (Hamburgplan Architects and Engineers et al., 1985). Transport losses caused on different stages and by different modes of transport can be summarized as fol!owg based on the NFA study/experiment (Hamburgplan Architects and Engineers et al., 1985) : (a) on-farm transport (0L17%); (b) short haulage (0.10%); (c) warehouse to pier and vice versa (0.24%); (d} warehouse to warehouse (0.51%); and (e) inter-island shipping (0.84%). Implications. Results from the above mentioned studies indicate that considerable improvement is needed in the postproduction phase of rice and corn in the Philippines to reduce the extensive grain losses between harvest and consumption. The main problem is antiquated post production facilities and the prevalence of inefficient and traditional methods of harvesting, in-field stacking/drying, threshing, cleaning, drying, storage, and milling. The problem is further aggravated by inadequate support facilities such as transporation, feeder roads, etc. The conflicting results presented in some of the studies attest to the fact that "loss" figures are highly dependent on the methodology used in the assessment and evaluation process as well as the confounding factors affecting the efficiency of the technology under review. Whether it is traditional or improved and/or mechanized system, the efficiency of its performance does not depend solely on technical parameters but on the honesty, skill, and/or expertise of the operator, the condition and quality of crop or grain, institutional arrangements, weather, etc. Another factor that has to be borne in mind in the assessment of loss is the interest and extra care takem by the farmer, trader and/or processor in trying to recover the "loss". In a lot of cases, farmers seem to totally ignore and/or accept them in order to share part of his produce to small and landless workers who are usually hired to do the task. A case in point is in harvesting and threshing where the chief cause of loss is grain remaining unharvested or unthreshed. These unharvested/unthreshed grains are in principle easily recoverable simply by taking more time in the harvesting and threshing operation or by hand-stripping the straw (as is typically done by the gleaners in trying to recover shattered and/or scattered grains in the field or threshing floor after harvesting and threshing) which
V.I08
Table.27. Total milledand head ricerecoveryfor nine millingsystems,wet and dry seasons, B/col=_ver Basin area,1976-77 a
-
Milling recovery
Head rice
.Broken rice
Rubber rollsinglepass
70.31ab
62.51bc
36.34
Rubber roll multipass
68.98 hc
77.09a
22.37
69.24 bc
71.25 ab
28.02
(69.00)
(75.76}
(23.26)
71.53 a , 67.60coo 70.63a. a 66.25exg
75.55 a 75.19a 76.75a 75.55 a
23.41 23.67 22.32 23.65
(66.23]
(41.70)
(56.40)
65.50 fg, ca e 67.62. 63.13_. 68.74bcd
4?_14f. 4&07 aeI 31,96 g, 44.66e_
56.78 49.83 65.63 53.36
Stone dlsc-steel huller combination
66.99def
55.40cd
41.36
Multiplesteelhuller
68.15cde
51.45def
46.48
IRRI experimentalsinglepass steelhuller
64.76gh
54.45cde
41.53
Centrifugal
70.33 ab
73.76 a
25.53
Millingsystem
Rubber roll.steel
huller
comblnat.ion
Cone type (av.) Coneina RM Gon=mlesRM Libmanan RM NazarreaRM Steel huller (av.) Dyc¢co RM Olaao RM Ruta RM Tortes RM
huller
a Brewer'sricenot included. Note: Using Duncan MultipleRange Test at 5% levelof significance, treatmentmeans with at leastone common letter are not significantly differentfrom each other. Source:UPLB and IRRI, lhe ,Techn_qal and Economic Characteristics ¢f Rice P,0stproduc_on •Systems in the Bicpl, Riyer B_sinlApril1978. '....
7.:109
minimize into immeasurable proportions the levelsmagnitude of such losses. The Constraint-is the time involved, not the absence of a technique; the loss is preventable but it might not be economical nor socialy acceptable to do so. Merely providing time and location specific estimates of loss are not in themselves of much value. Further information of a socio-cultural and economic nature is required especially for rural projects if a common-sense approach is to be developed for the extension of appropriate loss reduction technologies and strategies that the ordinary farmer can safely afford, understand and be motivated to use. Postharvest For postharvest different practices;
L0s___sses in Perishables:
Fruits
and
Vegetables
fruits and vegetables, the discussion on losses is limited to comparison by country; seasons and handling points; postharve st and by £ype of middlemen.
Losses by Country. It is: recognized that postharvest losses on fru[t--_d vegetables are gene_ally highe_ In developing countries than in developed countries for various reasons. Developed coun tries have a ttained s ignl fican t improvements in postharvest handling as a result of increased urbanization. Both the private and government sectors have invested so much effort and resources in research toward improving and modernizing postharve st facilities and processes; and attaining a sore efficient market structure and channels of distribution. Research and extension activities have been closely coordinated particularly in the government sector for the advantage of fa rme rs. For several years, developing countries have suffered heavy food losses due to inadequate postharvest handling facilities which were further aggravated by the presence of inefficient marketing system, The government support was minimal and extension activities that complement research work were inadequate. It was only in recent years that postharvest losses on fruits and vegetables gained the attention of the policy makers. Based on the report made by the National Academy of Sciences (1976), postharvest losses on fruits and vegetables in developing countries ranged from 10 to 50 percent. In Asia, postharvest losses on fruits and vegetables ranged from 20 to 42 percent; in Africa, from 10 to 50 percent; and in the Middle East and Latin America, from i0 to 40 percent. Asian countries.like the Philippines (35%) and Sri Lanka (30%)had experienced on the average, higher percentage of losses while in Africa, Sudan (50%)and Ghana (32%) reported the highest percentage of losses. In the Middle East and Latin America, Egypt (32%) and Chile
V.llO
(30%) had the highest percentage losses. than 30 percent poshhandling losses (Table
The rest 28).
had
less
Losses by Season and at Various Hand lin_ Points. Postharvest losses vary by season in di_e-r'_t handii-_g polnts. Because of the highly perishable nature of fruits and vegetables, postharve st losses are incurred during handling and distribution from production areas to consuming centers. The extent of losses in vegetables during three periods: hot-wet period (July-October), cool-dry period (December-February) and hot-dry period (March-May) were compared at different handling points by Manto (1980). Results showed that postharvest losses in general were highest during the hot-wet period and lowest during the cool-dry period. There was no significant difference in postharvest losses of cabbage and chinese cabbage between hot-wet and hot-dry periods. Postharvest losses on cabbage, chinese cabbage, lettuce and celery during the hot-wet period were higher by 33 percent, 16 percent, 15 percent and 29 percent, _espectively than during the cool-dry period (Table 29). Severe losses in the former were in terms of weight loss and decay. A comparison of losses at different handling points reveals that at the wholesale level, losses are alarmingly higher than at the retail level. Postharvest losses from farms to wholesale markets are due to poor handling during loading and unloading, and transpiration especially in case of extreme heat inside the truck. From wholesale markets to retail, losses are attributed to trimming while losses at retail displays are due to retrimming and waste. Losses b_ T_[p.9_ of Postharvest Handlin_ Practices. Pac kag-l-_--i os se s are a tt_ i-6-ut-_ m-6st_y-_t he type of containers and the manner by which fruits and vegetables are packed. Because Df limited capital, small farmers usually buy the cheapest and most available containers in their area even though these are of inferior quality. The common types of containers consist of sacks, cartoons, and bamboo baskets or "kaings". The produce is oftentimes badly damaged due to bruising, puncturing and crushing. Although farmers know that using wooden crates can minimize losses, for economic reasons, very few of them utilize these containers as packaging materials for fruits and vegetables. The extent of transport losses depends largely on the manner in which fruits and vegetables are hauled. Observations in Baguio City and Cabanatuan City indicate that generally truckers in these areas practiced mixed loading of fruits and vegetables (Lantican, 1983). Eightythree percent of Baguio City truckers facilitated shipping vegetables in mixed load form and only 17 percent V.111
Table
28.
Posthnl,
vest
losses
of
fruits
and
Count.ry
Asia/Far
vegetables
by
country,
Reported
East
Percent
(20
28-42 20 20-30
Indonesia Thailand
25 23-28
Sri-Lanka
20-40 (10
-
10-40 50 30-35
Nigeria
10-50
East
(I0
Egypt Jordan _ran Latin
-
40)
25-40 l0 14-28
America
(I0
Bollvi_ Brazil Chile Dominican
Sourc_:
T..c)ss
50)
Rewan(|a Sudan Ghan_
Middle
o.f
- 42)
Philippines Malaysia India
Africa
.1976.
- 40).
17-30 10-40 30 25
Republic
National Academy Nal:io_a[ Academy
of Sciences, of Sciences,
Postharvesl; Losses Washington, D.C,,
V.I_2
iriDeveloping U.S.A., 1976.
Cou.ntries,
0
o _-
n li il in II II r.I
"G 0 .,..I
"0
,a_
_
_
_,_),
_
_1U
i
N n I | o |
P B *n
, U
, i
,, II
, '
_,
._ _
_ r'..
0
r,D
.
i In • u II II R II
| | | |
| l
, U
, n
, i
._ , ,,
_
0",
G'_
_ ""
v-s " P5
('4 _
•
..,
,.. o o o
._
..-o
..
,-. °
_(p
_
%
_
_
l II
_'" _J _
n
-.
n
: i
_
.
._
. o . _. _. ,,
i
-.
.
i
_
_,_
.
i
U Ul
,_n
i
i
_.
(;:)
_
o _ ,_ ,
_
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_
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•
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i a
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.
_._ ,
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;
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-_-
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-
considered single loads. In Cabanatuan, 74 percent of the _espondents preferred mixed loads of fruits and vegetables while 26%), single loads. Because of the high preference of truckers for mixed loading of goods, the incidence of losses in transit would be relatively high unless fruits and vegetables are carefully packed, sorted, loaded and unloaded. Other possible causes of heavy transport losses of goods are the presence of bad roads, inadequate transport facilities, delay in transport and hauling fruits and vegetables during a period of very high temperature. In because quality
the absence of grading, losses may be incurred of contamination between mixed rotten items and good ones after some period of time. Deformed fruits and
vegetables, those with splits, puncture and incipient rotting must be removed. By grading eggplant, for instance, rejects can still be sold even at a relatively lower price. These rejects consist of those which are young, whitish and tenderly curved, those with almost 20 percent scratches or are blemished, and those with hole of insects and mechanical damage. For tomatoes, rejects include those that are offshaped, very small, and'with insect holes. The present grading system for fruits and vegetables is far from satisfactory. Grading is usually based on subjective personal judgment considering the physical attributes of the product such as size, quality, variety, rather than on a well-defined and highly acceptable standard scheme. Market participants oftentimes rely heavily on their choice or specifications set by the buyers. Aside from these, standard grading as required by the Food Terminal Inc. (FTI), National Food Authority (NFA) and other agencies are not yet fully and satisfactorily implemented. Apparently, there is a need for upgrading the storage facilities and improving the storage practices of farmers and all marketing participants in the Philippines as reflected by the high post storage losses for fruits and vegetables. Storage losses were higher in cabbage (26.5%), accounting for about 50 percent of the total postharvest losses. Likewise, post storage losses for mango were also high (19%). Losses in sto_ing ginger and potato were minimal, accounting for 2.5 percent and 5 percent respectively. A significant part of the posth arvest losses on fruits and vegetables (about 40 percent in the case of onion,cabbage and mango) is retrievable to the advantage of the consumer, producer and the economy if storage facilities including thesystems for handling, grading, packaging and transporting of fruits and vegetables are {reproved (Table 30).
V.114
Table30.
Preharv(_st and p0stharvest Philippil_es,i982,
Commodity
losses
of
selected
fruits and
vegetables,
Irretrlevable
Pre-
Post-
Post-
Total Post-
Retrlecable
harvest Loss
harvest Loss
storage Loss
harves_ Loss
PostPostharvestharvest Loss Loss
Percent Cabbage Garlic
33 1
24.87 31.45
26.54 11.84
51 43
20 17
31 26
Ginger On/on Potato
28.5
44.8
2,50 7.13 5
2.50 52 5
1.25 21 2.5
1.25 31 2.5
Tomato
13
L1.87
12.07
24
7
17
Mango
15
31
19.32
50
20
30
Source:
C. C, Mangaoang, Report on Losses of Selected _'uits Research Division, Technical Extension D_ectorate. Authority, 198Z.
V.115
and Vegetables, National Food
Postharvest Losses by T__ of Middlemen. As indicated in Table 31, -_ the wh-_esaler [n_Jrre-d Eh-e'_ighest cost of postharve st losses (_0.74/kg) , followed by the agent (_0.4 0/kg) with the retailer incurring the least cost (_0.29/kg). The wholesaler handles the largest volume of fruits and vegetables so it is notl surprising that this type of middleman would incur the highest postharvest losses. The total Share of the value of postharvest losses out of the consumer's peso paid by Manila buyers for cabbage (_6.00/kg) accounted for 23.8 percent which was nearly five times as much as the cost of transport, packaging and storage. This indicates that a considerable reduction in postharvest losses for these middlemen would lead to an increase in their profit-margin. Ideally, under competitive condition reduction in postharvest losses can be translated either in terms of low consumer's price or higher producer's pr ice. _ations. The foregoing discussion reveals that signif_can6 amour of postharvest losses could have affected the economy and welfare of farmers, consumers and traders. Based on the available studies, it is quite apparent that an in-depth assessment of postproduction losses in the context of mult idisc iplinary approach is a prerequisite to the development of postproduct ion loss-reducing programs and strategies. Better understanding of the effects of socioeconomic factors on the extent and nature of postproduction losses in fruits and vegetables would warrant the inclusion of these factors in future researches. The major socioeconomic factors which may one way or another affect the extent and nature of postproduction losses are: size of landholdings, educational background and training of farmers and traders, level of income, attitudes, capital investment and financing, geographical distribution of farm, and managerial aspects of physical facilities. Surveys of different farms classified on the basis of land area devoted to the growing of fruits and vegetables would show whether the size of landholdings has a significant effect on the extent of postproductlon losses at the farm and different handling points. A comparison of the various posthandling practices among small, medium and large farms would enable researchers and pollcy-makers to identify more appropriate postproduct ion loss-reducing technology for specific group of farmers. The educational attainment of the farmer including his attendance in informal trainings related to postproduction technology, is another factor that need to be considered. In case of rice farmers, whose educational background is relatively low, their participation in various seminars, workshops and informal trainings on recommended farming
V.116
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_ s-
_l ._t U 0,_ U Lr) _.,_ n 11 It
o '_
_
s.
_
_-' _}
,-4
_J
;
o
q_
0
,, o n e
_u g o
',,_
o _"_ ._
u
B _"_
t""-
techniques enable them to be more receptive to the adoption of modern technology. Fast adoptors of modern rice technology had 12 percent more attendance to extension _ctivities than slow adoptors (Alviar and Lantican, 1980). Investigation of the farmers' attitudes discloses that some of them are not aware of proper handling practices since they are more concerned with preharvest losses caused by typhoons, drought, bacterial infection, insect damage and animal intrusion in the field. Others view postproduction losses as the end part of the total production losses rather than a separate one. Therefore, if preharvest losses can be controlled, postproduction losses are negligible. A study of Tomas (1984), argued that two general attitudes namely, fatalism and tolerance have led farmers to be less concerned about pos tharve st losses. Fatalism is the belief that nothing can be done if it is the will of god. Some believe that a farmer's loss or gain is the result of god's punishment or god's mercy. Others associated loss to chance or bad luck. Tolerance, on the other hand, is an expression that an allowance of losses can be made, and as long as postharvest losses are within tolerable limit (5 to 10%), these are still considered normal. Such attitudes call for creating awa rene ss on the importance of improved postproduction handling practicLes through intensive programs. Income is an important determinant as it affects to a great extent the level of capital investmest of the farmer. The income generated from farm to off-farm sources would determine whether the farmer is financially capable of reducing postproduction losses through investment on good quality seeds, better packaging materials, etc. Low investment has been argued as a chain effect of low income. The lack of adequate capital inhibits farmers from buying recommended containers for transport. Most often farmers may harvest immature fruits and vegetables during times when they need immediate cash for the family and or when price is high. Harvesting immature commodities result in low quality products. Middlemen become the common source of financing to the small farmers. Hnder the credit-marketing tie-up scheme, the middlemen provide loan to the farmers in exchange of the latter' s produce. Oftentimes, prices are dictated by bu ye rs. The farm' s proximity to trading centers and the condition of the road impacts on the amount of postproduction losses. Many production areas are located far from the centers where roads are rough causing longer transport time and mechanical damage to commodities.
_.I18
The possibility of forming a cooperative which can facilitate product collection and distribution requires complete information on the-membership of farmers in any farm organizations as well as its organizational structure. A well-managed and organized cooperative is expected to reduce postproduction losses as compared with individual farmer. Low
Government
Financial
and
Technical
Su_rt
Past records showed that the Philippine government had _llocated more resources into the rice sector at the expense Of other industries, such as fruits and vegetables. Considering that rice is an economic and political crop in the country, it has gained more government support in terms of credit and fertilizer subsidies, extension services, [_rice support programs, research funds for the upgrading of _)ostha rvest technology and to some extent, in the modernization and construction of more public warehouses and mills. Fruits and vegetables have lagged behind and have been perenially burdened by the problem of high pos tproduct ion losses and extremely low prices due to inadequate postharvest handling facilities. Notwithstanding the recent attempt of the government to encourage the development of programs that would minimize postproduction losses, this did not materialize to solve the problem. For example, the NFA has engaged in the procurement and distribution of perishables in 1980. However, this effort has been found not so effective because frul ts and Yegetables have different set of characteristics which require different individual handling, packaging, ZransDorting and storing methods and techniques. Moreover, tuFA has limited experience on these technical aspects of pos tproduct ion hand li ng opera tions. Fruits and vegetables do not only provide food for the growing population but also as potential sources of foreign exchange. A case in point are the once non-traditional Crops such as onions, garlic, ginger, black pepper, etc. which are developed for exports. These non-traditional oommodities may have comparative advantage in production over some traditional crops like sugar for the present and future generations. Developing the fruit, vegetable and to some extent the orn industries also require the channeling of funds into research and extension that would minimize postproduction losses. Village-level loss-reducing postproduct ion technology for corn, fruits and vegetables being developed by s_ate universities and other government R and D institutions should be pilot-tested in selected communities
V.119
to evaluate acceptability
its to
If.
technical the target
Existin_
and economic clientele.
viability
Infrastructure
and
social
and
This part examines the existing infrastructure and postharvest facilities in the country. It also determines the effectiveness and efficiency of the government sector in providing these facilities with respect to their availability, capacity utilization and geographical location relative to target users. Postproduction facilities include all equipment and infrastructure needed after harvesting gralnsand perishables from the farm to consuming points such as storage, processing, transport and distribution facilities. Transp_gr__tation
Infrastructure:
Road
Network
Szstem -
Considering the geographical characteristics of the Philippines, road transport and interisland shipping systems play a major role in developing the major producing areas and in facilitating themarketing and distribution of inputs and outputs, Despite the construction of more highways, the Philippine road network is still insufficient in mileage and quality aside from being regionally imbalanced. In general, rosd network is more developed in 5uzon than in Visayas and Mindanao. As of 1982, Luzon had about 45 percent of the total road kilometerage, followed by Mi ndanao with 35 percent and Visayas with 20 percent. However, even within Luzon, there is a considerable difference in the availability of transportation facilities as indicated in Table 32. Metro Manila is the most developed area in terms of road density while Cagayan Valley is the least developed. The percentage share of surfaced roads to total lengths of road in 1982 ranged from a high of 84.5 percent in Metro Manila to a low of 4.8 percent for Central Mindanao. Based on the study of Hamburgplan Architects and Engineers, et al. (1985), only Samar and Leyte in the Vlsayan Region are linked by the Maharlika Highway to the mainland of Luzon, although this involves the ferry service between B_col and Northern Samar. Even though the main road network of Panay, Negros, Cebu and Leyte is fairly developed in terms of road length and access, the road standards and conditions are generally poor. Samar and Palawan have a less developed network with several communities without accessible roads. This situation makes the marketing and distribution of agricultural products more costly and difficult. Past studies attested that poor road condition
v.no
T_ble 32. Existingroad length,sl_rf_ced roads and road densitiesby region,Philippines, 1982.
Density • Total Surfaced
Road kilometvrage Total Surfaced
ShareI
72,030
12,490
17.3
0.5
0.09
[locos
17,716
2.294
12.9
0.8
0,11
CagatyanValley
12,410
859
6.9
0.3
0.02
CentralLuzon
12,507
2,406
19.2
0.7
0.13
Southern
18,5[19
3,060
16.5
0.4
0.07
Biccd
8,161
1,635
20.0
0.5
0.09
M_.tro Manila
2,647
2,236
84.5
4.2
3.52
32,805
3,938
12.0
0.6
0,07
Visayas
12,781
1.463
11.4
0.6
0.07
CentralVisayas t EasternVisayas
10,969
1,432
13.1
0.7
0.10
9,0,55
1,043
11.5
0.4
0.05
M__ig_d ajp.a_q
46,639
3,034
6.1
0.5
0.03
We_ern
Mindanao
8,238
539
6.5
0,4
0.03
Northern
Mindanao
15,619
1,218
8,0
0,6
0.04
Region
L_on
Tagalog
.Vjsay__ We,_ern
Southern Mindanao
14,624
736
5.0
0.5
0.02
CentralMindanao
11,156
541
4.8
0,5
0.02
Philippines
154,473
19,461
12.6
0.5
0.06
Iperoentageof surfacedto totallengthof roads. 2Road kilometerp_.rsqtuarokilometerof total
area.
Sourc_e:Ministryof PublicWorks and Highways,MPWH
V.121
Infrastructure Atlas1983.
"
becomes farmers losses. at low outlets
a pressing problem of the fruit and vegetable because it leads to higher transportation cost and As such, farmers are forced to sell their produce price.s having no choice for better al ternative (Faylon, et al., 1981; Cueno, et al., 1981).
Tra_ortation Infrastructure: Waterwa_ Network Systems
Railwa_
and
The railway •network system is composed of a governmentowned Philippine National Railway Line (PNR) and a number of private lines operated by logging and sugar companies in Luzon, Panay and Negros. The PNR system which operates only in Luzon has the main line in the north running from Central Manila to San Fernando, La Union with a branch line from Tarlac to San Jose and the main line south running from Central Manila of 68 trains, Architects and
to
Legaspi. Of the total 28 serve the Manila Engineers, et al., 1985).
PNR's area
rolling stock (Hamburgplah
The importance of railways as an economical means of transporting long distance cargoes has declined after the 1960s due to three major factors, namely: poor tracking condition caused by typhoons; construction of more wellpaved roads and concrete bridges; and limited number of locomotive and poor maintenance of tracks. Altogether, these factors contributed to a decrease in railroad utilization in favor of road transport.
vital
For the waterway links between the
especially in marine vessels
network, sea-and
areas where into smaller
port facilities serve as land-based transport systems
goods can be land vehicles
transferred from and vice versa.
As of 1981, the Philippine Port Authority (PPA) that there were 396 ports which handled significant of cargo. These ports consisted of 19 main base and base ports operated by PPA, 63 municipal and other and 265 private ports.
claimed volumes 45 subports,
The main public ports are concentrated in the major trading centers of the country. In 1980, Metro Manila port• absorbed 47 percent of the total domestic cargo traffic while Cebu port accounted for 16 percent. The next important port was Iloilo, with 5 percent. Foreign trade at public ports was even more concentrated with Manila accounting for nearly 80 percent of total throughout (Philippine Port Authority, 1981). In consisted
the of
cargo-handling
past, narrow area.
most of the main ports wharves and piers with These
were
improved
V. 122
by
and sub-ports very limited building
modern
berths. handle proves heavily
At the end of the 1970s, berths containers at several ports. critical in areas where trade with dependent on sea transport.
Postharvest
were designed to Such development other regions is
Facilities
The government through the National Food Authority has engaged in grains marketing for a number of years by implementing pricing policies, procurement and distribution programs and monopoly in international trade. It was only in 1980 that NFA assumed its procurement and marketing intervention in non-grains sector, concentrating on garlic and onions. Two years later, NFA extended its operation covering more perishables for distribution to Kadiwa stores, and also for exportation to other Asian and Middle East countries. In support to these activities, the government sector considerably increased and expanded its investments on postproductlon facilities. The NFA-owned postproduction facilities include mechanical threshers, dryers, mills, warehouses, transport vehicles, etc. As of 1983, NFA owned 82 operational and 32 non-operatlonal mechanical threshers with a capacity of 68 and 32 mt/12-hr operation respectively (Table 33). In addition, the privately-owned palay threshers licensed by NFA in 1981 totalled to 3,315 units with a capacity of 2,480 mt/12-hr operation (Table 34). In terms of mechanical dryers, NFA owned in 1983, 478 operational dryers with a capacity of 255.4 thousand mt/12-hr operation, and 224 non-operational units with 65.4 thousand mt/l 2-hr operation capacity (Table 35). Privately-owned mechanical dryers registered to the NFA in 1981 totalled to 147 units with a total capacity of 487.1 thousand mt/12-hr operation (Table 36). There was a total of 206 operational and 16 nonoperatiorral rice mills with a capacity of 206 and 16 mt/12hr operation owned by NFA in 1983 ('Table 37). In terms of privately-owned mills, majority of the licensed mills in 1981 were the kiskisan type (9,713 units with 2,181 thousand mt/12-hr operation) followed by the disc-cone huller and the rubber-roller (Table 38). In terms of NFA-owned/leased warehouses, there was a total of 1,057 units with a capacity of 2.38 million mt recorded in 1983 (Table 39). These include old warehouses purchased and acquired by NFA, NFA-constructed, leased or sub-leased.
V. 123
Table
33.
Number and eapacit F of NFA-owned .Philippines,1975-1983.
mechanical
Operational
thresher,
Non-ope_htional
Year
Number Capa_it_ / 1975
6
3
"
-
1976
33
16
-
-
.1977
57
39
4
4
1978
66
50
2
2
1979
76
54
50
6
1980
64
53
15
9
1981
74
56
27
18
1982
92
,104
24
16
1983
82
68
35
32
•
Source: _/Capaclty
N._b_r Cap_it_ /
NFA Dlrectorate is expressed
,
_
for Gralns
in me_ric
• .
Marketing.
tons/12'hours'
V. 124
opera_ion'.
Table
34.
Number of privately-owned palay and amount of capitalization in Philippines_ 1974-1981.
thneshers the grains
units, capacities, business,
1 _/
2/
Year
Number of owners/ operators
Number of .units
Capacity
1974
3037
3318
31948
41919374
1975
2593
2903
23543
33871.471
1976
2756
3064
16958
32487420
1977
2839
3142
16608
32085736
1978
2761
3018
16294
38255448
!979
2815
3084
1925
38913265
1980
3179
3438
2344
44693375
1981
3061
3315
2430
40847193
SOurce:
NFA
Directorate
for
_/Capaci_y "
is
expressed
in me=ric
_/Expressed
in
Grains
Business
tons/12-hours
pesos.
V.125 '
Regulations. operation.
Capitalization--
Table 35.
Year
Number and capacity of NFA--ownod dryers, Philippines, 1973-_983.
Operathma]
Number Non--operational
operational
and non--operational
Capacity Operational
{mt/12--hrs. operation) Non--operational
1973
3.i
1974
52
1
18.9
1.2
.'1975
104
1
44.]
1.2
1976
253
5
95.0
2.7
1977
327
35
154.2
5.8
1978
375
3_
175.3
9.5
1979
395
6.1
203.0
7.0.3
1980
403
71
212.6
29.9
.198.l
495
76
305.9
45.0
1982
506
183
318.1
63.5
1983
478
224
255.4
65.4
Source:
mechanical
_14.5
NFA
V. 126
,,.
Table35.
Number of unitsand capacityof privately--owned mechanicaldryers, Philippipnes, 1974-1981.
Year
Number
Capacity('000mt/12-*hrsoperation)
1974
112
1024.9
1975
170
1999.6
1976
130
1774.1
1977
156
1613.0
1978
148
2359.2
1979
153
410.0
1980
169
858.]
1981
147
487.1
Source: NFA Directoratefor Grains Marketing.
V. 127
Table3_
Number and Philippines,
capacity of 1973-1983.
NFA-owned
Operational
rice
mi11.
Non-operational
Year Number
Capaclt_
/
Number
Capacity
1973
6
4
I
2
1974
Ii
15
I
2
1975
14
21
2
3
1976
23
26
2
3
1977
39
57
1
2
1978
46
66
3
3
1979
51
76
7
14
1980
57
93
4
13
1981
57
107
15
38
1982
58
129
20
48
1983
68
206
26
16
Source:
NFA
Dlrec_orate
_/Capacity
is
expressed
for in
Grains
metric
V.128
Marketing.
tons/12-hours
operation.
_I/
Table 38..Number and capacityof privately--owned ricemillsby type,PhiIippiues, 1979-198 I.
_tem
1979
1980
1981
numb(;r
437
913
1,247
c_,pacil:y ('O{)OmL/12--hr)
318.1
540.7
820.5
number
3,221
2,500
2,409
capacity('000mt/12--hr)
1,421.1
1,657.0
1,648.3
Rubber-roll
Cono
mills
mills
Kiskisanmills mlmber capacity
('000 mt/12--hr)
].0,036
10,028
9,713
2,015.5
2,04_.4
2,181.0
Source: NFA
V.129
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Finally, as of 1981, a total of 12,744 transportation units were registered/licensed at NFA with a total capacity of 120.68 million mr. Majority of these are trucks, jeeps and weapon's carrier (Table 40). Aside from being directly used by NFA, these facilities were made available to the private sector on commercial terms. However, at many centers, these facilities were found underutilized either due to technical problems or to the fact that these were not strategically located to producing areas/consuming centers. Recent evaluation of the Directorate of Corporate Planning at NFA on these facilities conforms to the contention that these were underutilized and deserved to be leased or sold to the private sector such as NFA unloading and storage facilities in Tabangao, Batangas; and rice-hull-fed thermal plant in Iloilo. At present, other facilities are under review to determine appropriate action for their disposition like I)igos Agro-lndustcial Complex. In the case of corn, milling capacities were generally concentrated in principal corn-consuming regions of Central Visayas, WesternNorthern-, and SouthernMindanao. While corn is also consumed in other regions, low-capacities were made available in these regions (Table 41). Therefore, in 1983 milling capacities in Cagayan Valley and Western Visayas would have been insufficient to meet peak requirements even if the mills operated at maximum capacity. For rice, it appeared that in some areas like Central Luzon, Central Mindanao and Western Visayas there is an undersupply of milling capacities (Table 42). It seemed that millers had little incentive to mill to differential standards because there was no price premium for good quality rice.
III.
Effects
of Postproduction
Technology
Development
In reviewing questions and problem areas dealing with postproduction improvement and/or modernization, technocrats and policy-makers have a general tendency to view them as a case of technical efficiency. So clo-cultural and economic factors as it impacts on efficiency and adoptability are usually relegated in the background. Although there is a need to examine the physical and quality deterioration losses scientifically, the economic and social consequences of such losses and the methods of overcoming them must also be studied before any changes are made. The solutions developed must be tested for relevance in the rural areas and examined for suitability for inclusion in appropriate
V.131
i
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o
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i.
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n
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+.-
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+_
i
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. = "
I i
:.
' _
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_=
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•
Table 4i. Corn millingand grindingcapacityper region,1981.
RollerMills (_FoodCorn). Units m.t./h
Region
Grinders {Feed Corn)_ Units m.t./h
2
I .45
240
34.40
Val l,_y
1
2.90
480
77.74
Cet_t ral
Luzon
-
-
67
38./+8
IV
Southern
Ta_alog
2
0,88
94
18.77
%;
Bicol
33
9.28
53
8.57
Vl
Western
Visayns
3
4.25
67
11.67
VII
Central
Visayas
121
223.22
131
22.82
VIII
Eastern
Vlsayas
2z,
13.68
78
16.21
IX
Western
Mindan_o
253
75.61
77
17.74
X
Nor _hern
Mindanao
303
89.64
190
KI
Southern
Mlndanao
220
88.49
357
96.78
XII
Central
61
33.58
203
36.76
XIII
Metro
6
3.40
15
4.83
1,029
546.38
2,052
455.14
I
Ilocos
II
Cag_yan
IIl
Phillppines
Mindanae Manila
Source: NFA
V.133
70.37
•
It
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n o n t
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l
programs we!fa re.
and
strategies
for
the
aOvancement
of
the
rural
In s_ite of the apparent magnitude of physical and quality deterioration in traditional and inefficient pcstDroduction systems, producers seemed resigned to them. This attitude can be attclouted to a variety of factors including_ (a) limited farm size and capital resources _n_cL _onstrain adoption of improved technology; (b) very i'"_I_ marketable surplus; {c) commitment of produce even before harvest; (d) lack of suitable low-cost technology; (e) lack of sufficient price incentives; (f) lack of awareness of existing technology; (g) lack of perception of the advantages of the improved techniques; and (h) indirect assistance to landless and small farmers, etc. Economics
of
Alternative
Rice
_Postpro_d_uct.ionTechnology_
Fr_n the above mentioned list, economic reasons appear to be a major factor contributing to the fa rme,r' s indifference toward postproduction losses. With small farm sizes, very little marketable surplus, limited capital resources and inadequate price incentives, small farmers tend to be very conservative in their investment decisions. Mere physical losses are not sufficient to convince them to change and/or adopt a given pos tproduct ion method or practice without due consideration to all the relative benefits and costs. In trying to assess the profitability of improved and/or mechanized postproduction system, a distinction has to be made between the profitability of a change in technology to an individual (private or financial profitability) and the profitability of that change to the society as a whole (social or economic profitability). Due to limited information, the succeeding discussions will draw heavily on studies done in rice. Private Profitabillt Z. In the analysis profita-_[ty, one _s fn£erested in the return capital derived or contributed by an individual
of private to the equity entity.
In order to compare the efficiency of alternative postproduct ion techniques, the potential annual rate of return on investment based on the time flow of money into and out of a given postproduction alternative was Used in Toquero's (1983) study. Using thel comparative rates of return (CRR)analysis (which measures the differential rate of return to total capital investment in an alternative technique compared to the traditional system), it wa.s noted that among the different systems considered in the CRR analyses, the alternative using the axial-flow thresher
V.135
combined with sun drying exhibited the highest CRR in splte of the foregone quality premiums assumed in tn_ system (Table 43). The low capital and operat in_ costs of traditional sun drying coupled with the _ fficient performance utilization this high
of the axlal-flow thresher and low labor requirements, CRR.
Next
in
rank
according
to
CRR
in
terms of capacity all contributed in
value
i E_
th_
fully
mechanized system using the axial-flow and batch dryer (Table 44). The mixed system where traditional methods of threshing and cleaning are combined with t_e vl_.._chanical dryer shows relatively lower CRR even with S_L .:-tantial quality price premiums (Table 45). This is due to t_c. high capital outlay and operating expenses required £or mechanical drying such that a p_ice premium of about 2 percent for each 5 percent in head rice yield is needed in order for the incremental investment to pay off. It was observed that the potential capacity of the mechanical dryers was the project traditional
not fully and this threshing
achieved during the implementation contributed further to the low CRR combined with mechanical drying.
of of
For all postharvest systems, higher CRR's were obtained when cost of labor was imputed from the prevailing harvesher-thresher's share. This is because wages actually paid in rice harvesting and threshing are significantly higher than the _legal agricultural wages, reflecting seasonal shortages of labor during the peak harvesting months as well as the social and cultural mores at the village
level.
Social Prof itabil_t'Y. In analyzing social prof it--_b_ty, what zs measured is the return of productivity of an investment to society regardless of who contributes to the cost or who receives the benefits. Juarez
(1983),
in
her
analysis
of
private
and
social
profitability of mechanical threshing in Iloilo and Laguna, measured net social profitability in terms of net social cost savings per unit of output threshed canpared with manual threshing. In this measure of profitability, it was assumed that the costs of all inputs in producing rice are the same for both me.thods, except for threshing labor. In this study, labor costs for mechanical threshing include the wage of the machine operator and helpers working with the machine. In the case of traditional threshing, labor costs Were imputed from the prevailing wages paid for threshing operation. Based estimation
on of
these
Shadow
above
prices,
mentioned the
V.136
net
_ocial
assumptions
and
cost
to
savings
Table 43. Comparativeratesof returnI in mechanicalthreshingand sun dryingsystems, compared with traditional Lhreshingand cleaningcombined with sun dryingby region,Philippines, 1975-77 t
Region and PosthalwestSystem
Cage Wage
Wage. in kind
p_ercen, t
C_mtra]Lt_zon
_121.042
191.492
BicolRegion
183.309
191.456
7.206
6.283
Thre_dn_ fl'_ime, u,d wonden winnower .withsun d___ _'3,i.!)_g Bicol Region
Source: Toquero,Z.F. "ComparativeEconomic Efficiencies Among Alternative Post.production Technologies,CentralLuzon and BicolRegion,Philippines, Sept.23, 1983.
V.137
Table 44. Comparativeratesof return I for fullymechanizedsystems usingalternative added wage rates•and premium by region,Philippines, 1975-77.
•Wage• rates and Pricepremiums
CentralLuzon
Bicol Region
percent Cash wage plus: No premium
34,068
41.672
0.5% premiul_
45.399
51.695
1.0% premi_m
56.254
61,415
1.5%
premium
66.818
70.936
2.0% premium
77.194
80,325 i
Wage in kind plus:
I
No premium
66.967
4d.750
0.5% premium
77.341
54,666
1.0% premium
37.590
64,317
1..5% premium
97.752
73.793
2.0% premium
107,853
83,149
Investmentcostsand benefitswere expressedin I_/100mt on a per annum basis.
Source: Toquero,Z.F.,op..cit.
V.138
Table .45.
Comparative rates of return 1 for traditional threshing and cleaning with mechanical drying by,region, Piiillppines0 1975-77.
_ **.lm_ml_lm T_Im m _ _mmm_mmmmmmmm
mm _a*_m_tmnlffiw_m_
Wage rates and Price premiums
_mlmmmmmmm_Riplmmt_um_mzm_
CentralLuzona
combined
_
_
Biool b Region
I
percent _ashwage plus; No premium•
Not feasible
0.5% premium
Not feasible
1.0% premium
.-1.618
t4.663
1.5% pre_dum
23.412
32.074
2.0% pre,nium
43.640
47.527
Wage ill kin.d plus: No premium
Not foasibie
0.5% premium
Not feasible
-37.527
1.0% premium
-1.601
16.236
1.5% premium "
23.425
16,236
2.0% premium•
43.65_I
48.764,
I Invest,merit costs•and benefitswePe expressed• in ]_/100mt on a per annum basis. •a Traditional system of threshingand cleaningis,withthe use of threshingframe and winnowing basket. ...... b Traditional system consistsof usingflailor stickand wooden winnower for c!eaning. Source: Toquero,,Z.F., op.cR.
V.139
society for using a mechanical thresher in Laguna were negative. This was attributed to the high investment cost of themachine compared to very low annual output of utilization levels (Table 46). In Iloilo province, the net social cost savings using portable thresher are positive. Price
Incentives
A cursory examination of current trading practices in cereals, fruits and vegetables indicates the very little or total absence of incentives for farmers to deliver clean, good quality and properly graded products. While price differentials exist, they are usually hidden and are not to the advantage of the producer. The lack of suitable grades and standards and the proper institutional organization to enforce them is also a serious shortcoming. Buying and selling on the basis of subjective personal judgement (considering only the physical attributes of the product such as size, shape, variety, blemishes, etc. in fruits and vegetables or moisture content and purity in the case of rice and corn); volume rather than weight, limited testing for such quality attributes; and at the retail level, no quality preferences based on set grades and standards all contribute to the producer's lack of interest in investing on improvements, particularly those which improve quality but not quantity. A case in point is the difficulty in promoting the use of mechanical dryers because farmers believe solar drying is still the most economical if not the best method of drying. Only under conditions wherein sun drying is rendered impossible (due to inclement weather and other unfavorable circumstances) does mechanical drying become the sole recourse. Part of the problem is the high initial cost of the machine which is beyond the reach of ordinary farmers. This is further aggravated by the high operating and maintenance expenses especially the rising price of fuel. One way to offset this is through price premiums which should be high enough in order to pay for the added cost of improved drying. However,' measures and prices are not standardized and do not often reflect moisture content, improved quality and other characteristics of the product. Welfare
and
_E_
Employment, distribution of income, and equi ty are very important considerations in the postproduction phase. It is at this point that workers and farmers literally reap the benefits of their labor. A farmer's attitude toward a new postproduction practice or input is greatly affected by the availability of labor. A shortage of labor may pose as a constraint to adoption of labor-intensive postproduction
V.lq0
Table 46. The net socialcost savingof switchingfrom traditional to mechanical threshing,1978.
Area and method
Pesosltoa
Cost of hand heating
54.75
Cost of usinglargethresher
78.31
Net soci_lcost saving
23.56
Cost of hand beati,lg
54.75
Cost of using
97.60
porb._ble tbr_:;sher
Net socialcost savin_
42.85
Cost of foot tre, ading
49.36 (83.0g) a
Cost of usil_gportableLhresher
.4_2_4.6 6.90
Net socialcost saving
{-_0,56)
sm
_
-
_
_
_i
_
, _
_..- _
_
_
_
u
i.._. ,.
_
=# -,
_
_.--_
_-_
a Figuresin parenthesesare t.hosewhen traditional threshingincludesmeals. Source: Juarez,F. "The Privateand SocialProfitability of Mechanical 'threshing " 3.983.
V. 1_I
technology while more appealing to are in areas undeveloped.
technologies which are labor saving may be farmers with limited family labor and who where the labor market is relatively
Harvesting and threshing have the largest total labor requirement in rice production. Together with transplanting, harvesting is characterized by a higher dependency on hired labor, amounting to as much as 70 percent of total harvest labor. Thus, postproduction tasks represent a major employment opportunity for hired labor, particularly the landless and small farmers (Barker and Cordova, 1978; Castillo, 1983; Toquero, 1983; Ebron, 1983). Compared to other agricultural work, harvesting returns a higher effective wage per hour. In rice, this work is generally paid-in-kind as a share of the gross harvest. As such harvesting answers an .immediate need and raises the prestige of the landless laborers. One important issue to consider with the introduction of new and/or improved postproduction technology is its impact on existing labor arrangement. According to Duff and. Toquero, (1975)... "The existence of very strong traditlon-based-iabor arrangements
in many parts
of the
country
mitigates
strongly
against
introduction of mechanization tending to displace or decrease labor income generated in harvesting-threshing operations." An example of this system is the "gama' contract agreement utilized in the rice-growing areas of Laguna
Province.
or weed
some designated
they are given portion. in this
Under
this system, plots
the exclusive
Attempts
examination
without right
to introduce
system have met heavy of the elements
laborers
agree
immediate
to harvest
mechanical
resistance
to transplant
renumeration
the crop
on
provided
their
threshing resulting in some areas.
of this labor system
whether alternative Institut-!onal arrangements might be utilized without concomltantdecreases
weeded
in changes
A
is required
and/
complete
to ascertain
employing mechanlcaldevlces in income and/or employment
opportunities. Mechanization
of activities
to affect
labor and employment
employment
opportunities.
in the postproduction
either Result
by direct of
system
displacement
studies
is likely
or foregone
conducted
at
IRRI
(Toquero. ._: 1983; Juarez, 1984; Ebron, 1984; Shields, 1984; J_eT_Z, 1986) indicate that mechanized postproduction systems are both timeand labor-saving. In the case of harvesting, results from the survey of owner and non-owner users of mechanical reapers in Bataan noted that the machine saved about 17.75 m-days/ha (Table 47). The problem with manual harvesting is that farmers often can not mobilize the i V. 142
total number of people needed to accomplish the task in a timely manner. Due to a scarcity of labor- especially during peak periods, farmers often can only hire half of the number required thus delaying harvest. If it rains, harvesting is halted resulting in further delays. In the case of mechanical threshing, a labor reduction of 16 to 29 m-hrs/t over the traditional system using either the threshing frame or the flail and/or stick was observed in pilot trials in Central Luzon and Bicol regions (Table 48). These savings would even be greater if the cleaning labor is added to the traditional system (Toquero, 1983). With mechanical dryers, labor requirements ranged from 2.5 to 4 m-hr/t compared to sun drying which utilized twice that amount (see Table 48). This efficiency in mechanized postproduction technique is achieved at the price of substantial labor displacement, Unless the growth effects, either in agriculture or in nonagricultural sectors are sufficiently great to create replacement employment or maintain wages, this could create social problems and damage the relative economic position of labor (Donovan, et al., 1985). Among the possible sources of alternative job opportunities include:
V. 142 a
_'able 47. Comparativelaborrequirementsfor manual and mechanicalharvesting, Bataan, 3984 {preliminary).
Manual
item
Mechanical
Difference
_ut_tjn_ No. of personsneeded/hectare
20
3
17
Days per hectare
I
0.5.1.0
0.5
Labor required
{rod/ha)
20
2.25
17.75
athcr_lin
g.__.'____ ack[n.g
No. of persons
2-]0
2-I{}
0
Days per hect:are
I
0.5-1.0
0.5
Labor
6
4.8-
1.2
1.5.2.0
1.0
0.5-1.0
required
(rod/ha)
).of¢l_D':__.fi__.'l_[....d_?yjn_ a
After cuttingand before gathering,haulingand stacking. urce:
Juarez, F. "The Effects of Mechanical Owners." (Preliminary)
Reaper
V,IL_3
Adoption
and Use: Reaper
Table48. Average laborrequirementper ton among alternative postproduction operations by region,Philippines, 1975-1982.
Operations
Manual
Mechanical
Difference
Maq.hours/ton T_hr.eshin_[ CentralLuzon {threshing frame vs. axial-flow) Bicol(flail/stick vs. axial-flow)
25,8
8.3
_7.5
38.7
9.6
29.3
CentralLuzon (winnnowingbasket) Bicol(woodeH winnowe,')
10.2 10.0
b b
10.2 10.0
CentralLuzon (sunvs. batch dryer) Bicol(suuvs. batch dryer)
5.3 9.3
2.5 3.5
2.8 5.8
Cleanin_
a Juarez,F. et.al."Reapersin SmallRice Farm Production:A Review of Evidencc from Bataan and Paml,anga." [RR]TSaturdaySeminar P_per,January 18, 1986. b With mechanicalthreshingusingthe axial-flow, threshingand cleaningis accomplished simultaneously duringthe process. Source:Toqu,ro,Z. F., "Comparative. Economic Efficiencies Among Alternative Postproduction Techno).os]e.s. CentralLuzon and BleatRegions,Philippines", September 23, 1983,
V._l_q
a. other producti<_n activities in the farm such as intensive cropping pattern, more crop care such as weeding, pest and disease control, etc. to enhance the crop' s high yield potential. The exploration and development of new product lines, the operation of which are more laborrather than capital-intensive will likely provide more job opportunities not only for the members of the household but also for other people in the community. Among the possible new product lines would include snack foods from cereals and perishables, jams, juices, purees, dehydrateddried fruits and vegetables, etc. ; b. and
offand Te (1984)
income are frequently
non-farm work. noted that the
very diverse with engaged in several
Studies sources
by Juarez (1984) of the household
one or more working member offand nonjobs;
c. domestic manufacture of postproduction machinery. Non-farm employment opportunities resulting from the local manufacture and fabrication, sales, service, repa ir and maintenance, etc. of pos tproduct ion machinery will likely help alleviate any possible labor displacement due to mechanization. A survey of nine manufacturers producing IRRI-de signed farm machinery during 1973-74 revealed that an additional 560 workers had been employed during the year as a result of rapid increase in the demand of their products (Duff, 1975). Based on the response from 100 MAF-IRRI cooperating firms in 1983, 73 firms employed from 15 workers and below; 21 firms had 16-50 employees and 6 firms employed more than 50 laborers (Table 49). This small sample of local manufacturers may not provide a cemprehensive picture of overall non-farm opportunities in the agricultural machinery industry since it is limited only to firms cooperating with the IRRI program. However, the surveys do indicate the highly favorabl_ employment generation effects embodied in the manufacture of simple, inexpensive equipment patterns of a large cross-section'of the farming populations. d. nature of the demand for labor. Mechanization also changes the nature of the demand for rural labor. Certain categories of rural labor will be displaced while certain skilled labor will be in demand.
Several studies show a decline in family labor and an increase in hired labor after mechanization (Binswanger, 1978; Habito and Duff, 1979; Smith and Gascon, 1979; Castillo, 1979; Herdt, 1981). This phenomenon may be explained by the fact that one farmer
:
V.lq5
Table 49. A profile, of cooperating manufacturers according to type of industry, capitalization and laborforce,Philippines, March 1983.
Item
Percent CooPerators
In_dt_try_ type and capitalization: Type
C.C_apitalization(__000)I
Cottage industry
(belowI_I00)
43
Small industry
(._I00to _I000)
43
Medium industry
(t_'i001 to P-4000)
10
Large industry
{aboveP-4000)
,I
N.utaber of employees: Below _
29
6 to 15
44
16 to 50
2]
•Above 50
6
1 Approximatelyl_10= 1US$ Source: Gonzalo,B. and R. Stickney,"MAF-IRRI Industrial ExtensionProgram for Small Farm Equipment", 1983.
V,1_6
can afford mechanization, family labor for other laborers instead.
he can also afford to purposes and hire
release outside
In a study conducted by Ebron (1983), a change in the composition of labor was observed. Before the advent of mechanical threshing, majority of the laborers involved in the harvesting-threshing operations in irrigated and rainfed areas were men and very few were younger than 15 years. Under the new threshing technology, more women and younger children were able to participate (Table 50). This change can be attributed to the fact that under the traditional "hampasan" system, the cutting, bundling and hauling of paddy to the threshing site combined with beating the stalks against wooden frames required more physical strength than women and younger workers possess. With mechanical threshers, harvesting is separated from threshing. Thus, eliminating the drudgery of manual threshing provides women and children with greater opportunities to earn. In the rainfed villages, a major factor increasing the participation of women and children is the out-migration of young male adults to the factories in Bataan and Rizal. The exodus left primarily women and children to perform the harvesting and threshing tasks. e. contract markets. The existence of a contract market for mechanized postproduction equipment can also augment possible labor displacement through creation of jobs for machine operators and helpers. Mechanical threshers require about 6-8 persons to operate, thus, its adoption will result in increased demand for labor per unit of time.
IV_____. Implilc_tions
fo__rResearch
and
Polic_[ Implementation
With the end in view of tackling the problem areas identified in this section and at the same time coming up with sound policies to improve postproduction systems, the following areas of concern are given: i. Research gaps in the alternative postproduction
assessment and technologies.
evaluation
of
a. It appears that there remain many gaps in our knowledge concerning both the technical, biological, economic and socio-cultural aspects of postproduction systems. Considerably more applied research must be conducted in corn, fruits, and vegetables to determine the technical, biological,
V.147
Table 50. _ffectof mechanizedthreshingon the compositionof laborused in harvesting-threshing operation,Cabanatuan City,1982.
Item
Before
After
percent
Sex Male Female Total
82 18
64 36
I00
I00
1 48 49 2
8 56 34 2
100
100
47 9 30 14
45 11 24 20
100
100
Age:Level Below 15 15 to 30 31 to 50 Over 50 Total ..Worker type Landl_ss worker Childof landlessworker Smallfarmer-hired laborer Childof smallfarmer Total
Source: Ebron, L, et.al."Changes in•Harvesting-threshing Arrangementsand Landless Labor." 1983.
V.Iq8
economic and socio-cultural characteristics of existing •systems and of potential alternatives. In the case of rice, research focus should be more on the economic and socio-cultural consequences of new and/or mechanized technologies as it creates impacts on labor and employment, institutional arrangements, tradition and overall welfare. For all crops (i.e. rice, corn and perishables), the research must be combined with complementary government efforts to develop policies and programs providing the correct mix of economic incentives making investment and use of improved and/or mechanized technology profitable. b. Improvement in the writing of postproduct evaluation.
sampling scheme and report ion loss assessment and
Loss estimates are very valuable in national and international planning and p_ojections. To be of greater value, it maybe more important to ensure that a truly random and representative sampling scheme is used rather than to focus on the fine tuning of loss methodology. "Estimates" of losses are often methodologically weak omitting defini£1ons of loss, the details of measurement and the operations considered in thestudy. To be ideal, these "loss" figures should specify the standard deviation and sample s ize tol allow calculations of a confidence•interval, which would indicate the reliability of the estimate, c. Re-focus of impact mechanized postproduction and small farmers.
analysis technology
of to
improved/ landless
Some of the technical change (especially those involving mechanized postproductlon) is invariably labor displacing and hence • often worsens income and food distribution. The labor displaced is often from the Poores t households of landless and small farmers • and this threatens their livelihood and survival, Village level impact of improved postproduction system will be influenced by broader questions of employment and •income distribution of the•small and landless workers rather than food loss prevention. d. Varietal characteristics is an important variable effecting physical and quality deterioration losses in grains and perishables. It is therefore necessary that varietal research
V,14s
and selection procedures include evaluation of postproduction management in addition to yield, climatic adoptability/tolerance, disease/pest resistance, etc. Genetic improvements which build in characteristics of the crop will greatly complement technological (engineering) efforts and may sometimes be a necessity for overcoming second generation postproductlon problems. 2. Increase in government financial and technical support to research and extension activities which are geared toward the development and a sse ssment of postproduction technologies on corn and perishables. 3. Create national centers for research and extension for grains and perishables under one coordinating body to maximize the development of loss-reduclng gostproduction technology. These centers shall develop and implement research activities and promote linkages among R & D institutions. With the core of trained Staff and well equipped facilities, the Postharvest Training and Research Center (PHTRC) at UP Los Banos and Central Luzon State University (CLS0), are identified as potential implementing agencies for perishables and grains respectively. The National Postharve st Institute for Research and /Extension (_NAPHIRE), on the other hand, will serve_ potential Over-all coordinating body that will m_itor and strengthen networking relationships among :institutions aDncerned. 4. Formulate Systems.
a simple
and
adoptable
quality
pricing
More attention is needed in the formulation of a simple, easily understood system of crop procurement and standards and the necessary instrumentation and enforcement to ensure that it is operable both at the farm and the processing/n_arketing level. [ Premium for quality is necessary if the production for higher quality products is to be encouraged. With the present price structure, there is no distinction made for quality and the only adjustment to price concerns the physical attributes of the crop based on the degree of preference by the buyer and/or consumer.
5. Develop a well acceptable grading and grains andperishables _nternational markets.
defined, appropriate, standardization systems both for the local
V_150
and for and
6. Support the collective t echnology/equi pment.
adoption
of
postproductlon
There is probably a need to explore t he possibility of collective adoption and/or ownership in the use and management of postproduction technology/ equipment. The high initial and operating costs in improved/mechanized system often inhibit small producers to avail of its use and/or possible ownership. The problem is further aggravated by the econosles of scale required to efficiently utilize it. One possible solution to this dilemma is collective or cooperative ownership provided it is supported by the government and complemented by strong leadership, good and honest management and active/supportive membership. 7. Re-orient to other farm children).
the training and technological packages household members (e.g. female and
Studies on. labor use and distribution indicate the more active participation of women and child_'en in the postproductlon phase. Therefore, future training and technological packages should probably focused more attention to these neglected section of the society. 8.
Prioritize
the
development
of
transport
structure.
As a prerequisite to social and economic development in rural areas, adequate transport facilities such as road and ports are needed to enable the farmers to bring their produce to market center's; to minimize delays in the delivery of grains and perishables; to reduce transportation cost and losses; and gene_*ally to boost agricultural production thereby increasing the income of the farmers. Roads ar_ likewise necessary in extending basic social services to rural communities. 9. Study carefully some underutillzed/non-operatlonal government-owned postproductlon facilities. One major problem with gove c_nt-owned, biQ capacity, capital-lntensive postproductlon structures and facilities is its low level of capacity utilization. In most cases its technical potential or installed capacity is not fully uti[_ized. However, ii is erroneous to conclude that "excess capacity" is a sign of inefficiency. One obvious reason for excess capacity is the seasonal variation in production and in the demand for such facilities an_ services. Another possible reason is the non-adoptability of such
V.15i
technology to local conditions aggravated further by the limited local technical skills and/or expertise. Therefore, the optimum level of utilization reflects a balance between the economies associated with size, and the technical, financial, and social constraints associated with using such facilities. I0. Lease postharvest
or sell facilities
underut ilized to the private
government-owned sector.
This is one way of attaining the new government's thrust of priva tization in industrial trade. Tne National Food Authority, meanwhile, should rehabilitate/modernize postharvest facilities in selected major surplus and deficit regions where government intervention would be more effective. Ii. Promote the of postproduction
domestic manufacture machineries.
and
fabrication
The high cost and inappropriate nature of existing postproduction machinery coming from the development countries have encouraged efforts to design and develop suitable and low-cost postproduct ion equipment for small producers. Such efforts will help promote the development of small-scale manufacturing, enhance local skills, provide employment in labor-intensive processes and reduce foreign exchange requfrements. The government should therefore support such programs with all the necessary economic incentives to maximize employment and provide backward linkages with the agricultural sector. Research institutions such as IRRI through its MAF-IRRI Industrial Program; AMTEC and RNAM can also help promote this activity. 12. Pr_not e alternative for
t he rural "displaced"
based labor.
indu str ies
as
an
Postproduct ion operations are still the major source of rural employment outside of direct crop production and collectively the ancillary activities associated with them are commonly the largest rural industry. The developmeDt of new product lines from traditional crops such as rice may include the utilization of by-products such as straw or hull in briquetting to serve as fuel, biogas generation, construction materials as bricksp wall panels, etc. In the case of non-traditional crops such as fruits and vegetables, off-sized, blemished, or mechanically damaged crops can be made into jams, purees, juices or dried/dehydrated products. This is where government policies and programs can assist in the training,
V._52
extension, financing
research such rural
and most important based activities.
V.153
of
all,
NOTES
a_/ This section was written by Mr. Ernesto Bautista and Dr. Mario Lamberte, Senior Re{catch Assistant, International Rice Research Institute, Research Fellow Philippine Institute for Development Studies, respectively.
_b/ This section was prepared by Dr. Wilfredo chairman, Department of Land and Water Resources and Technology, University of the Philippines at
P. David, Engineering Los Banos.
i
i.
Rice is a water loving plant and as such its drainage requirement say, in liters per second per hectare, is from 2 to 5 times those of secondary food crops such as corn, soybean and mungbean.
!
2.
Bhuiyan, S.I. 1985. Irrigation technology for food production: Expectatiods and realities in South and Southeast Asia. Paper presented at the Conference on Water and Water Policy in World Food Supplies, Texas A & M University, College Station, Texas.
3.
Korten, D.C. 1986. Editor, Transforming NIA Experience.
4.
For example, sOme already filled up operation. There control as well facilities.
5.
In 1984, for example, NIACONSULT was involved in six international water resources development projects. Locally, NIACONSULT was also busy providing consultancy services to the MWSS, conducting training courses for foreign technicians, and doing other specialty jobs such as well drilling.
6.
A case in poiht is the Palslguan River Irrigation Project. Supported by OECF, this huge project is attempting to expand irrigation coverage in Ilocos Norte by building a MUlti-purpose dam and a series of weir_ to command an area much larger than that currently served by existing weirs. In the initial design, the tertiary canal blockings ignored many existing water users groups (_). As the existing water users groups are qulte politically vocal, the NIA in the end, redesigned the tertiary canal blocks.
Draft Chapter for Robert and Irrigation Bureaucracy:
reservoirs in Panay with silt after only were inadequate head as on farm-water
V.154
Siy, The
Island were one year of and velocity distribution
_c/ Prepared by Dr. Agnes for Policy and Development Philippines at Los Banos. 7.
While collected
local to
C.
environment set realistic
Rola, Studies,
Researcher II, Center Un ire rs i.ty of the
impact accurate
data should standards for
be thin
Philippines as a tropical country, it is scientifically correct to carry over standard toxicological data as the parameters of human physiology vary far less than large scale environmental parameter. Given the normal pesticide application systems of Philippine farmers, these classifications may need to be even more exposed here than in the temperate zone. _
Pest threshold or economic threshold is the pest population wherein emergency controi should be considered, otherwise, significantly crop yield.
level of measure loss on
d_/ This Agricultural
section Economist,
was prepared International
by
Dr. Cristina C. David, Rice Reseach Institute.
e/ Prepared by Drs. Zenaida F. Toquero and Flordeliza A. Lantican, Visiting Scientist/IDRC Postharve st Economic Advisor (ASIA) and Assistant Professor, Department of Agricultural Economics, College of Development Economics and Management, University of the Philippines at Los Banos, respectively. 9.
In
this
paper,
postharvest. considered operations.
part In
postproduct
ion
is
not
the
same
In the former, harvesting operation of the total sequence of postproduction the latter, harvesting is excluded.
V.155
as is
R EF ERENC
C__ t
Poli_
Asian
Recommendations
on
ES
Pesticides
Productivity Organization. Management Conference. Tokyo.
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Agnes C. Impacts of Ph.D. Thesis.
1985. An Economic Analysis of Farm Level Pesticide Use Regulations. Unpublished University of Wisconsin - Madison.
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Wal fredo R. 1981. An Analysis of the Market Structure, Conduct and Performance of the Pesticide Industry in the Philippines. Unpublished M.S. Thesis, University of the Philippines at Los Banos.
Santiago, A.C., M.M. Salac, J. Dayao, E. Salenga, A. Mangahas, and H. Cajanding. Comparison of Rice Insect Controls in Five Villages with Farmers' Integrated Pest Control Groups in Central Luzon. Unpublished paper presented at Pest Control Council of the Philippines 1984. Smith,
Joyotee and J. Litsinger. for Insecticide application. Analyses. IRRI Agricultural No. 85-02.
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AdUlavidhaya, K. and B. Duff. "The Growth and Impact of Small Farm Mechanization in Asia" Paper presented at the Workshop on the Consequences of Small Farm 4 Mechanization in Thailand co-sponsored by the National Economic and Social Development Board. Dept. of Agriculture. Kasetsart University Research and Development Institute and IRRI. Bangkok. Thailand. Nov. i0-ii, 1983. Agricultural Credit Cooperative Institute _ACCI). "Second Partial Report on the Benchmark Survey of Prospective Samahang Nayon Members of the Philippines". UPLB. Sept. 1976. Alviar, N. G. and F. A. "Lantican. Factors Affecting Technology Transfer in Rice Production at the Regional Level. Journal of A_ricultu[al Economics and Development. Vol. X?. No. I. UPLB. C_La g u_aPhilippines. 1980. Asian
Development Bank. Marketing Project 1982.
Barker, R. and Production" Technology.
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V. Cordova. "Labor Utilization in Economic Consequences of Los Banos. Laguna
Bautista, Ofelia K. Postharvest _ Fruits and Vegetabies in A6ia. Int----erna_1_nafFood Congr-ess held
in Rice Ne___wRice
and Storage of Tropical Pape_-presenfed a_ _he at Singapore. 1982.
B_nswanger, H.P. The Economics of Tractors in South Asia. Agrcultural CouL_-fl-a--_ coun6i[and ICRISAT. Y_78-BoxalI, R. A. and R. Gillett. Eastern Nepal". Tropical C_liboso, F. "Decamethrin Against Major Insect Annual
_
Ca stillo, G. T. Preliminary
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"Farm Level Storage Products Institute.
Losses in May 1982.
for-Protection of Stored grains Pests." Proceedings of the 4th Grains
"Mechanization Analysis."
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Te'cLn'_1og--_.
the Landless 1983.
Labor:
Castillo, G. T., Beyond Manila: Philippine in Perspective. IDRC/UPLB. 1979.
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Some
Problems
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A. P., et al. "Marketing systems for Fruits in the Philippines: Some Practices and Problems." Journal of Agricultural Economics and Development. Vol Xi NO. _[. _uIy i981 Dept. of Agr-{c__g inee _ ing [ IRRI. 1975.
Duff,
B. and Z. Toquero. "Factors Affecting the Eficiency of Mechanization in Farm Level Rice Postproduction Systems." Paper No. 75-04. Dept. of Agricultural Engineering. IRRI. 1975.
Duff,
B. "Output, i Employment Philippine Agriculture". Ag. Paper No. 75.01. Feb. 1975.
and Mechanization Engineering Dept.,
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Ebron, L. et al. "Changes in Harvesting: Threshing Arrangements and Landless Labor." Paper presented at the wo_shop on the Consequences of Small Rice Farm Mechanization in the Philippines. Tagaytay City. Philippines. Dec. i-2, 1983. Ebron,
L. et al. "Changes in Harvesting-Threshing Arrangements in Nueva Ecija. " Unpublished M. S. Thesis. University of the Philippines at Los Banos. May. 1984.
Faylon, L. P. et a l. "Marketing System the Philippines: some Practices Journal of A_ Economics Vol. XI. No._ 2. July 1981. Gemmil. G. and C. the Economics Coun tries.
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" A Framework M_chaniza tion
Analysis University
for Research on in D_veloping
of Agricultural Press. Baltimore
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Pathnopas. "A Comparative Analysis of and Use in Thailand and Philippines". at the joint ADC/IRRI Workshop on the Small Rice Farm Mechanization in Asia. Sept. 14-18, 1981.
Juarez, F. "The Private and Social Profitability of Mechanical Threshing." Paper presented at the Workshop on the Consequences of Small Rice Farm Mechanization in the Philippines. Tagaytay City. Philippines. Dec. i2, 1983. Juarez, F. "The Private and Social Profitability of Mechanical threshing." Paper presented at the Workshop on the Consequences of Small Rice Farm Mechanization in the Philippines. Tagaytay city. Philippines. Dec. i2, 1983. Juarez, F. "The Institutional and Economic Impact of Mechanical Rice Threshing in Laguna and Iloilo, Philippines." Unpublished M.S. Thesis. University of the Philippines at Los Banos. May, 1984. Kikuchi, M., et al.. "Changes Central Luzon and Laguna." July 1979.
in
Rice Harvesting Systems IRRI Research Paper No.
in 31.
Lantican, F.A. and L. J. Unnevehr. Rice Pricing and Marketing Policy. Paper prepa red for the UPLB Center for Policy and Development Studies _CPDS) Workshop of the Agricultural Policy Working Group. Los Banos. Laguna. Philippines. May 3-4, 1985. Lantican F. A. The Structure, Behavior and Performance of the Philippine Fruit and Vegetable Trucking Industry. Ph. D. Dissertation. Colorado State University. Fort Collins. U.S.A. 1983. Lantican, F. A. Socio-economic an(J Political Dimensions of Postharvest Losses in Fruits and Vegetables. Paper presented at the ASEAN Workshop on Postharvest Loss Assessment of Horticultural Produce held at the Manila Garden. Metro Manila, Philippines. February 11-13, 1985.
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McMennamy, J. Improved Philippines.
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1984.
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National Academy of Sciences. Post harvest Developing Countries. National Academy of Washington. D.C. U.S.A., 1976. Philippine 1981.
Workers: Saturday
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for IRRI.
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Statistical
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Mechanization Study Paper.
in Asia." October,
Roxa s, N. M., et al. "Socio-Ec onom ic and Agronomic Characteristics of Existing Cropping System at a Rainfed Lowland Rice Area in I loilo." Paper presented at the Annual Meeting of the Philippine Agrlcultura] Economics Associatioh. Cagayan de Oro City. March 1977. Shields, D. Analysis Takai,
"Employment of Survey
H., L. Characteristics Philippines."
and Agricultural Results." 1984.
Mechanization:
An
Ebron and B. Duff. "Nature and of Farm Level Paddy Storage in Luzon, IRRI
Saturday
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V.161
June
3,
1978.
Thomas, Daniel K. Farmer's Perception of Postharvest An Analysis. PHTRC. Department of Horticulture. College. Laguna Philippines. 1984.
Loss: UPLB
Toque to, Z. F., et al. "Assessing Quantitative and Qualitative Losses in Rice Postproduction Systems." Paper presented at the Action-Oriented Workshop on Postharvest Losses in Rice. Keddah. Malaysia. March 22-30, 1977. Toquero, Z. F. "Comparative Economic Efficiencies Among Alternative Postproduction Technologies, Central Luzon and Bicol Regions, Philippines." Paper presented at a seminar in CDEM/UPLB. Los Banos. Laguna. September 23, 1983. Toquero, Z.F. and Deterioration Technologies." 1984.
B. Duff. "Physical Losses and Quality in Alternative Rice Postproduct ion IRRI Saturday Seminar Paper. February
University of the Philippines at Los Banos/International Rice Research Institute. The Technical and Economic Charateristics of Rice Postp_du6£ion Systems -i-6--[h-6 Post Bicoi R iver-Bas1_. Y978. ---
V. 162
PERSONS W_D PARTICIPATED IN, WERE CONSULTED ON, CR REACTED TO THE _rRK OF THE VARIO_ AUTHORS
Rural Credit i.
Mr. Noli Bajada
2.
Ma. Cristina Ginson-Bautista
3.
Leonila V. Chavez
4.
Friends from TBAC
5.
Mr. ViEginio Jamon
6.
Mr. Horacio Morales
7.
Benjamin Quijones, Jr.
8.
Mr. Leandro R. Rola
c/o United Coconut Planters Bank, Makati, Metro Manila Economics Department Ateneo de Manila University Coop. Rural Banks Federation of the Philippines, Inc. (BANGKOOP)_m. 300, 3rd floor Delta Bldg. West Avenue, QUezon City c/o Leo Caneda - TBAC, 19th Floor, Multi Storey Bldg., CB A. Mabini St. Manila Committee for the Democratization of Agricultural Credit_ c/o Rm. 47 Madrinoo Bldg. 2178 Pasong Tamo Makati, Metro Manila c/o Santiago Law Office, Ortigas Bldg.t Metro Manila. APRACA, FAO Regional Office for Asia and the Pacific, Maliwan Mansion - Phra Atlt Road, Bangkok ACCI, U.P. at Los Banos
Pesticides i.
2.
Mr. Ben Angeles and Other APIP Members who prefer to remain anonymous Dr. Carmen Castaneda
3.
Ma, Cecilia P. Gaston
Bayer, Inc.
U.P. College of Medicine Fertilizer and Pesticide Authority
V.163
4.
Dr. Peter Kenmoce
5. 6. 7.
Dr. Edwin D. Magallona Dr. Nelia Cortes Maramba Mr. Chito Medina
8.
Dr. Pablo P. Ocampo
9.
Dr. Femando
i0.
Mr. Jesus Sumangil
II.
Eng. Eduardo Viray
F. Sanchez
V.16_
FAD - IPC Integcate_ Pest Control Office U.P. at Los Banos U.P. College of Medicine Program on _vircnmental Science and Management, U.P. at Los Banos National Crop Protection Center U.P. at Los Banos National Crop Protection Center, U.P. at Los Banos Crop Protection Division Bureau of Plant Industry National Pollution Control Council
CHAPTERVl. ........ Research, Extension and the Delivery of Government Services to Agriculture
CHAPTER
DELIVERY
VI
RESEARCH, EXTENSION AND THE _ OF GOVERNMENT SERVICES TO AGRICULTURE
O__ERVIEW J
The previous political regime had the knack of issuing policy statements without translating them into actual policy reforms. The effect of this has been to gradually erode thW credibility of the government thus adversely affecting e_en some of its well-intentioned programs in the rural sector. If the new government is to avoid this pitfall, it must ensure that its policy pronouncements are actually implemented. Actual implementation of policy reforms can be facilitated if the structure established to deliver them is supportlve of these reforms. Thus, the new administration must examine (with the intent of changing) not only existing policies but as well as the structure that was established to implement them. A.
Research
and
Extension
Investments in agricultural research has always been low and inadequate to support an active technologygenerating system necessary for a developing agricultural economy llke the Philippines. As a consequence, research capabilities are weak outside of the UPLB. Public sector research has problems keeping highly trained manpower due to poor support and non-competitive compensation schemes, Publlc sector funds are spread thinly over too many commodities and are biased against basic research. On the other hand, private sector research investments are relatively c6nsldatable but could be induced to grow with favorable government policies. As for extension, besides the usual problems of inadequate funding of the activity, extension needs a new orientation from an emphasis on commodity product to farm family dev_lopment and from passive to active farmers participation in the design and generation of new technologies. This new orientation required improved technical skills on the extension agent who already is suffering from low salary, poor mobility support and too much paper work. In order recommended :
to remedy
these
VI.1
bottlenecks,
the
following
are
I. Greater research investments should be made to initially bring the level of public funding for research to that of other developing countries. This means increasing the current level of funding from 0.2 percent of gross value added in agriculture to 0.6 0.8 percent within the next five years. A reasonable long-term goal would be 1 tc 1.5 percent. 2. Existing government policies should be reviewed and amended in order to promote private sector investments in agricultural research in the Philippines. Highest priority should be given to research or commodities which contribute most to total agricultural output. 3. Greater capabilities in basic and applied research and technology transfer should be developed by maintaining a balanced investment on basic and applied research and technology transfer. A reasonable allocation would be: basic research, 20 percent; applied research, 40 percent; and technology screening, 40 percent. 4. Agricultural regional needs capabilities of long-range plan extension under and MAY research
research should be made relevant to by building up further the research regional colleges and universities. A to put regional agricultural researchthe leadership of strong regional SCUs centers should be adopted.
5. Extension services should be integrated by placing them under the responsibility of a single agency and decentralized at the provincial level. This will ensure accountability of the extension system and participation of its clientele. Such a move will necessitate the following measures: a. The old concept of extension should be changed from a simple process of transferring techno_oQy from research station to the farmers to one that involves farmers actively in technology testing and demonstration trials. b. Primary responsibilities for agricultural extension should be assigned to the provincial governments since activ.ities in extension are very loca t ion-spec i fic. 6. The linkage of research and extension and the client_.le should be 6trengthened by establishing institutional linkages among the regional SCUs, MAF, the local government and the clientele. In support of
VI.2
this, a strong training/retraining Matter Specialists (SMS) to between research and extension
programs for Subject strengthen the interface should be launched.
7. Immediate attention should be given to the upgrading of salary scale of scientists by adopting the RSTA career and compensation scheme, and of extension _gents by adopting the teachers' pay scale. _. Dynamic leadership in all research centers, i_icluding PCARRD should be ensured by appointing as :_ea_ oE such agencies tenured government sCientists _._]_ose appointments should be limited to at most two to,:ms and considered as tours of duty by their mother agencles. i
9. PCARRD should continue to coordinate, monitor and evaluate the agricultural Research and Extension system but MAF should have greater control. The composition of the council should be reverted to the former arrangement under PD 48 wherein the MAF Minister serves as Chairman. The Secretariat should continue implementing the above PCARRD functions with its evaluation and planning procedures simplified and decentralized. The Secretariat should refrain from implementing Research and Development activities to avoid conflict of interest. B__ t
Or_qaniza tional
Refo___
Despite the passage of several laws purporting to strengthen the Ministry, these enactments failed to enhance the capability of MAF to carry out its mandate. Several structural weaknesses have contributed towards erosion lof MAF's role as the lead agency in agriculture, among which are: (I) unclear mandate and conflicting policy objectives; (2) proliferation of agencies/bureaus dealing wzth a certain commodity; and (3) weak regional structure and nebulous provincial base. To remedy the above situation, we suggest that the present ceorganizational effort of the Ministry should follow functional lines, rather than the previous commodityapproach which led to proliferation of agencies/bureaus and programs/projects. The five functional areas wherein the reorganization of the Ministry can revolve are as follows= 1. Policy, Planning and activities which determine directions of the Ministry projects which are supportive ._cea can be sub-divided into:
VI.3
Programming - concerns the short and longincluding programs and of these thrusts. This
a. Policy Research Staff (including concern for credit) - will be assigned the task of formulating the short and long-term thrusts of the Ministry. b. Planning and Programming (including concern for rural infrastructure) - concerns with the translation of the above thrusts into programs and projects. c. Agricultural Statistics - Traditionally, the [unction of BAEcon staff can be distributed between the Policy Research Staff and the proposed Agricultural Statistics unit. d. Computer Services - backstopping the data banking need of the Agricultural Statistics. May also play a lead role in designing MAF's MIS and computer and data •netWork down to the regional level. 2. Marketing and Consumer Services - This unit is responsible for all actlvi,ties pertaining to promotion, trading, transporting and delivery of goods and services and the provision of information related to these activities. Under this concern, a number of units can be placed: a. Price Stabilization - primarily converted into the status of the other agencies concerned with these
NFA (possibly old RCA) and activities.
b. Market Analysis, Assistance and Promotion concerns with current and future state of t_e market and prices of commodities and the promoti_)n of agricultural commodities, domestically and internationally. The proposed agribuslness unit, export promotion division, BAEcon' s Marketing Division, MAF's Special Studies division, and NFA Directorate of Non-grains can be placed under this unit. ••3. Production Services - (refer to Figure 12) These refer to the whole range of activities which aids in increasing farm yields. a.
Research
•regional• network monitored, PCARRD. eventually Minister
- to
be
done
primarily
through
state, colleges and universities (to provxnclal colleges) and coordinated, and evaluated by a streamlined All agricultural research of MAF should be integrated into that system. The of Agriculture shall me the chairman of
VI.4
the PCARRD Governing attached to MAF (for refer to the research
Council and PCARRD shall be further details, please and extension section).
b. Extension - all applied communication, training and extension services (BAEx, PATC, FTC and PCARRD Applied Communication Unit) must be integrated. Delivery of integrated agricultural extension service should be a primary responsibility of provincial and municipal governments (please see research and extension section). c. Irrigation and other production services - a closer linkage should be ef letted with NIA especially in the delivery of supporting services to irrigated areas. Influence of MAF In NIA should be strengthened initially by having the MAF Minister as Chairman of the NIA Board. _. Conservation and Regulatory Services - These refer to the whole range of activities which concerns with striking a balance between maximizing productivity (and returns to entrepreneurs) and attaining a stable ecology. A streamlined BPI, BAI, BS, FIDA, BFAR, and the proposed Pesticide Authority fall under this area. 5. Administration refers to non-agricultural activities in MAF which are related and pertaining to managerial, financial, personnel and legal matters. Under this concern can fall units like Administration and Finance, Legal and Personnel Offices (including
MIS ). The reorganization of the Ministry along these functional areas will necessitate major streamlining of agencies involved in agricultural activities. Some of these institutionss llke PCA, Philsucom and NFA, might lose their autonomous status but the payoff will be a better coordinated implementation of projects and programs in the countryside. Reorganization activity is a continual process and desired changes cannot be accomplished in one stroke. Some o£ the proposals can not be immediately implemented as they will have a drastic impact on the lives of many MAF employees. But as long as the political commitment and will is there, these desired changes will eventually be attained.
VI.5
A.
AGRICULTURAL AGENDA FOR
Productivity
of
RESEARCH AND IMPROVEMEN-T--
A_ricultural
EXTENSION: AN----6--'ACT_ON_/
Research
and
Extension
While policy changes can lead to short run improvements. in rural incomes, long run growth of agricultural productivity and increased rural welfare mainly depends on the rate of technological change. This, in turn, is largely a function of the level and efficiency of society's investments in agricultural research and extension. Appropriate technological change resulting from wise investment in agricultural research-extension has the vital role of facilitating substitution of knowledge for scarce resources (Arndt and Ruttan, 1975). Further, technological change eases the constraints on growth dictated by the inelastic supply of resources such as land and capital. Ample evidence indicates that returns to investments in agricultural research have been high relative to other investment opportunities. Internal rates of return (IRR), particularly for developing countries, cluster around the 30 to 5_ percent level with some investments yielding returns from 70 to 100 percent. These levels of estimated returns, it should be noted, are well in excess of what could be normally considered good returns, i.e., long gestation investments with IRR exceeding 20 percent are well above the norm for most development projects (Kislev and Evenson, 1975). In Asia, Evenson (19.78) has shown that IRR for national level rice research and extension from 1960 to 1975 was about 75 percent (see also Evenson and Flores, 1978). The returns to extension alone tended towards normal levels as shown by the few available studies (e.g., Boyce and Evenson, 1978). The
Agricultural
The history system could be the establishment Research (PCAR)
Research
System
of the divided of the in 1972.
Philippine into two Philippine
of
the
Philippines
agricultural research periods: before and after Council for Agricul_ural
Prior to 1972, four major groups of organizations were engaged in agricultural research in the Philippines. These included the Department of Agriculture and Natural Resources (DANR) with eight agencies having one or more divisions involved in research; the National Science Development Board (NSDB); the agricultural colleges and universities; and the private sector. In turn, these four distributed their total resources to 16 public agencies, 12 private agencies and 18 colleges and universities.
VI. 6
In 1971, the National Agricultural Research System Survey Technical Panel, created to review the agricultural research system in the Philippines, listed 20 major problems confronting the agricultural research then (Table i). As a result of the panel's recommendations, a major reorganization of the country's research system was made. A _ital component in the rationalization effort was the establishment by virtue of Presidential Decree No. 48, Of Philippine Council for Agriculture and Research. Initially, PCAR was ad'mlnistratively attached to the Department of Agriculture and Natural Resources (DANR). Among other things, PCAR was charged with the responsibility to develop the national agriculture research program and to establish, support and manage the operation of a national network of centers of excellence for various research programs in agciculture. Later, P.D. No. 461 attached PCAR to NSDB due to the reorganization of DANR to DNR and DA. P.D. No. 864 expanded Lhe functions of PCAR to include mines research and chano,:cl its name to Philippine Council for Agriculture and Re::_c_lu,z_s Research (PCARR). This in 1982 became the Ph:i[i!?f>ioe Council for Agricultural Resources Research and Deve ] o[>ment (PCARRD), a sectoral council of the =e>_._]a,,ized NSTA (formerly NSD8). PCARRD, in the last developed the National consisting of national and stations which are described
10 years, has established and Research Network ([_igure i) regional centers and cooperating as follows:
National Research Centers act as the main research stations to conduct b-as1_pplled research in one or more commodities° They are either Single Commodity Research Centers such as the Philippine Tobacco Research and Training Center or Mul ticommodity National Research Centers represented by leading state colleges and universities of agriculture, forestry, and fisheries (Table 2!. Commoditybased national centers such as the Phillppine Suglar Commission and the Philippine Coconut Authority are adequately funded by tax levies. Multicommodity National Research Centers are academic institutions with broad based disciplines needed in fundamental research and very strong applied communications department. A multlcommodity National Research Center may also function as cooperating field station for commodities based in other national research centers. The _ Research Center_ conduct applied research for commodities of major'imporhan6e in the region where the center is located. These centers conduct studies to verify findings from National Research Centers. Regional centers generally have more than half a dozen commodity assignments.
VI.7
Table
i.
i. 2.
Major problems research system
of the (1971).
Philippine
agricultural
Agencies give low priority to research. Major portions of research funds• are spent for capital outlay. Conflict-of-interest issue in research funding institution which performed in-house research. Imba'lance in research with respect to commodities and problem areas. Insufficient technical training of research personnel. Concentration of expertise in some agencies and •disciplines. Excessive number of research stations and facilities.
3. 4. 5. 6. 7. 8. 9.
Lack of operational Liluited library [_]stitu tions.
I0
Multiplicity organ izations. _'ragmentation allocation. Insufficient implementing scale.
i]. ]?..
of
research
acts
in
many
to
support
specific
and
resource
responsibilities
mechanism research
planning and on a national
Imbalance teams.
14.
Many Department of Agriculture and Natural Resources experimental stations are administered by peop].e who do not understand research. Vague af_d loosely implemented procedures for preparation, evaluation and implementation of research projects. Ineffective documentation of research information
16.
disciplines
in
research
on a national scale. Cumbersome and time-c0nsuming procedures foe committing and expending research funds which results in uncertain and irregular fund releases. Inadequate incentives to attract and keep research_ personnel in the service. Inadequate and defective mechanism for planning _nd determining research priorities. Severely inadequate mechanism for disseminating research results to researchers and end-users.
17.
18. 19. 20.
Source:
scientific
for projects
research
13.
15.
of
of
budgets. facilities
NARSSTP, •
19.71 ,
VI. 8
, F_guPe
1,
National Eelma_ch netwmrk of research centers in agriculture _J_.dnatuEal- resources.
V'r.9
Table
2.
National multi-commodity research centers, single-commodity research centers, regional research centers and their commodity responsibilities at the national and regional levels.
--w
Commodity Center.
Nat
ional
Na t ional Mult i'-Commodi ty Research Centers University of the Philippines at Los Sanos (UPLB), Los Banos, Laguna •.-
•... .. _.._. ..
.. •",
".'. •' Central Luzon State University (CLSU), Munoz, Nueva Ecija
1
Legumes. Coconut Ornamental and Corn and Medicinal Crops Sorghum Rice and Other Fiber Crops Cereals (Abaca) Vegetable Crops Fruit Crops Be ef/Chevon Plantat ion (smal.l-farm Crops operation) Root Crops Carabee f (smallSugarcane farm operation) Tobacco Dairy _ :Bamboo, Forage, Pasture. Rattan and Grasslands Forest Vines Pork. and Poultry Medicinal -Agricultural Plants Engineering Dipterocarp Farming Systems and LesserSoll Resources used Species Water Res.ources Forest Applied Rural Plantation Sociology .and Agro, Ma Croe conom ics fo re stry ,Pines and •Other Softwood Species Non-me tal ii . Minerals ••Carabao (ranch Fiber Crops operation) (cotton Chevon (largeserioulture) scale Vege tableoperation) Crops Plantation Crops (sunflower•.) •.,
-.
Responsibility Regiona
,,,,
VI..IO
Table
2 continued
...
Ce nte r
Commodity Nat ional
Responslbili ty Re g ional
Aquaculture (freshwa ter pond culture)
Dairy (water bu ffalo, goat) Poultry Agricultural Engineering Farming Systems Soil Resources Water Resources Applied Rural Sociology Macroeconomics
Visaya_ .'._l.ate College of Agriculture (V:iGCA)_ [_aybay, Le '/I:. e
Fiber Crops (abaca) Root Crops
Coconut Corn and Sorghum Vege table Crops Beef/Chevon (small-farm operation) Forage, Pasture and Grasslands (smallfarm operation Poultry " AgriculturaJ Engineering Farming Syste, s Soil Resources Water Resources Applied Rural Sociology Macroeconomics
University of Southern Mindanao (USM), Kabacan, Nor thCo taba to
Corn and Sorghum Fiber Crops (kenaf, jute, ramie ) Fruit Crops
Legumes Riceand other Cereals Root, Crops Sugarcane
VI.ll
•Table
2 continued
...
Ce nte r
Commodity Nat ional
Responsibility Re gional
Plantation Crops (rubber, coffee, cacao)
National SingleCommodity Research Centers Cotton Research and Development InstJ.tute (CRDI), MMSU Campus, Bat a c, Ilocos t_orte Ph J.l_.p_:)_. ne Tobacco [_'.e _e a_-c'hand F;_.a]ning Center _''-' ' MMSU (i_j. _J.C), ,.am_.)us,Ba tac, Ilocos Notre Forest Products Research and Development Institute (FPRDI), College, Los Banos, Laguna
Forest Research Institute (FORI), College, Los Banos, Laguna
Beef/Chevon Carabeef (smai 1-farm operation) Pork Poultry Farming Systems Soil Resources Water Resources Applied Rural Sociology Macroeconomics
Cotton •
Tobacco
Forest Utilization Research on: Bamboo, Rattan, Forest Vines and Medicinal Plants Dipterocarps and Lesser-used Species Forest Production Research• on: Bamboo, Rattan, Forest Vines and:Medicinal Plant's.
VI.12
"
Table
2 continued
...
Center
Philippine Sugar Commission La Carlota City University of the Philippinies in Visayas (OPV) College of Fisheries, Miag-ao and Leganes, Iloilo Philippine Root Root Crops Research and Training Center (PRCRTC), Baybay, Leyte Philippine Coconut Autho c i_ty (PCA) Bago _!shiro, Davao City Regional L'_:_ se arch Ce n te _?_/_
Commodity Nat ional
Responsibility Re gional
Dipterocarps and Lesser-used Species Forest Plantation and Agro-forestry Parks, Wildlife and Forest Range Pines and Other Softwood Species Sugarcane Agricultural Engineering Aquaculture (brackishwater pond culture) Marine Fisheries
Rootcrops
Coconut
isabela State University (ISO) Echague Campus, Echague, Isabeia
Fiber Crops (cotton) Root Crops Vegetable Crops Pork Poultry Water Resources Applied Rural Sociology Macroeconomips
.VI. 18
Table
2 continued
...
Ce nte r
Commodity Nat ional
Cabagan Campus, Cabagan, Isabela
Responsibiiity Re gional
Legumes Tobacco (cigar filler) Bee f/Chevon (ranch operatlon) Dipterocarp and Lesserused Species Forest Plantation and Agroforestry Parks, Wildlife and Forest Range Forage, Pasture and Grasslands Coconut Fruit Crops (cashew) Legumes Root Crops Vege table Crops Bee f/Chevon (small-farm operation) Carabee f Pork Poultry Farming Systems Soil Resources Applied Rural Sociology Macroeconomics
Palawan National Agricultural College (PNAC), Arbolan, Palawan
VI.14
Table "
"E
_
2 continued "_ Z _ _-'_
...
_--'----" ''_ "_--__ _"
Center
. _'_-_ _"
Commodity National
Z _
._._ "
r. _._Z
_. Z --'--" ._._._--'-_-_"_ r.
Responsibili ty Regional
Camarines Sur State Agr icul tural College (CSSAC), San Jose, Pili Camarines Sur
Bureau ,of Plant Indus try (BPI) La Granja Exp't. Station, La Granja La Carlota City
Central aindanao Un ire ,:_; i£%, (CMU ), Hu_J_,), [nJkidnon
"-_
Beef (ranch operat ion ) Forage, Pasture and Grasslands ranch operatlon
Root Crops Ve ge table Crops Beef/Chevon (small-farm operation) Pork Poultry App!ied Rural ' Sociology Mac roeconomics Corn and Sorghum Legumes Vegetable Crops Agricultural Engineering Farming Systems Corn and Sorghum Legumes Plantation Crops (cacao, coffee and rubber Rice and Other Ce re al s Carabee f (ranch operation)
Dai.r.y ,
Agricultural Rngineering Applied Rural Sociology Macroeconomics
VI.15
Table
2 continued
Center
...
Commodity _at ional
Bureau of Plant Industry (BPI), Davao Exp't. Station, BagoOshiro, Davao City
Responsibility Regional
Corn and Sorghum Fiber Crops (abaca, kenaf, ramie, jute) Fruit crops Legumes Ornamental and Medicinal Crops Plantation Crops (coffee and cacao) Vegetable Crops Farming Systems Fiber Crops (cotton, sericulture) Legumes Riceand Other Cereals Tobacco (Virginia, Burley and Turkish) Vegetable Crops Beef/Chevon (small-farm operation) Farming Systems Soil Resources Water Resources Applled Rural Sociology Macroeconomics
Mariano Marcos State Oniversity (MMSU), Batac, Ilocos Notre
VI.16
1
Table
2 continued
Center
...
Commodity National
- _oun ta i. state
_ erui t Crops
Agricultural College (MSAC) La Trinidad,_ Bengue t
Source:
Responsibili ty Regional
(strawberry, apple) Root Crops (white potato, gabi) Ornamen tal and Medicinal Crops Plantation Crops (coffee) Vega table Crops Pork Forest Plantation "" and Agroforestry Farming Systems Soil Resources Applied Rural Sociology Macroeconomics
Valmayor, R. V. 1985. The Naking of Philippine Agriculture and Resources Research System: "A Case for the Developing World". PCARRD, Los Banos, Laguna.
VI.17
Co0Perating Field sites where adaptive• undertaken to take di fferences.
Stations provide facilities and/or tr la=-'I-s---o r field experiments• are into account micro-environmental
For purposes of regional these centers and stations regional consortia (Table 3).
planning and are further
implementation organized into
To date, there are four national multi-commodity research centers, seven national single-commodity research centers/consortia and 130 cooperating stations. Presently, agricultural research is participated in by 62 government •agenciesbureaus (Table 4), three international centers, and at least 30 private corporations (Table 5) whlchare linked formally through the above PCARRD National Research Network or through agency-to-agency memoranda of agreement, and informally through individual scientist' s membership In professional associations. Three international centers, the International Rice Research Institute (IRRI), the Southeast Asia Fisheries Development •Center (SEAFDEC), and the Southeast Asian Regional •Center for Graduate Study and Research in Agriculture (SEARCA) , provide the system with an international perspective. PCARRD coordinates the implementation of a national research program directed mainly towards technology generation. The program, in turn, is implemented by the national research network butmonitored and evaluated by the PCARRD Secretariat. It is also empowered to recommend research budgets of government agencies. The Agricultural Research Office (ARO) of the MAY, an ad hoc research coordinating office, has been established as part of the flve-year (1982,87) IBRD-funded Agricultural Support Services Project (ASSP) and USAID-funded Rainfed Resources Development Project (RRDP). In ASSP, ARO coordinates, monitors and evaluates a nationwide research network composed of the Regional Integrated Agricultural Research Stations (RIARS) situated at the regional offices of the MAF (Figure 2). However, other research activities of the MAF bureaus remain coordinated and monitored by the PCARRD Secretariat. The National Research Council of the Philippines (NRCP), a sectoral council of the NSTA, coordinates basic researches in all sciences including agriculture through support of individual research projects
Vl. 18
Table
3.
Region
I
The
PCARRD-organized
Ilocos MMS0 PTRTC CRDI Region
Region
Region
Agrlcultural
research
consortia.
Research
Center
II Cagayan Valley Integrated System (CVIARS) CSU IS0 BPI -Ilagan BPI -San Mateo NIA -MRMP
Agricultural
Central Luzon CLSU BPI -MRRTC NIA -Munoz ;?AC TCA
Research
Agricultural
Center
v and
Resources
VI (LGARC)
VIII 'Visayas Coordinated (VICARP) VISCA
Source
Research
Station Station
na Granja Agricultural Research Center PHILSUCOM - La Granja BPI -La Granja Experiment Station Region
Research
III
£Licol Agriculture Consortium (BARRC) C SS AC BPI -Bi¢ol Experiment -Albay Experiment SUCA BRBDP SS -Naga Reg ion
(ILARC}
:
Agricultural
Research
Vaimayor, R. V., 1985. The Making Philippine Agriculture and Resources System: A Case for the Developing World. Los Banos, Laguna.
VI.19
Program
of the Research PCARRD,
:able4,
List of gove Philippines.
cnment
research,
agencies
in
the
I. Office of the President i. Office of the President (Project Sta. Barbara) 2. Bicol River Basic Development Project (BRBDP) 3. National Economic Development Authorit_ (NEDA) 4. Philippine Institute .for Development Studies (PIDS) If.
National Science and Development Authority i. Food and Nutrition Research Institute (FNRI) 2, National Institute of Scl ence and Technology (NIST) 3. Philippine Council for Agriculture and Resources Researdh and Development (PCARRD) 4. Philippine Atomic Energy Commission (PAEC) 5. National Research Council of the Philippines (NRCP)
rII.
Ministry of Agriculture and Food i. Ministry o_f Agriculture and Food (Central Office and Regional Offices) 2. Bureau of Agrlcultural Economics" (BAECon) 3. Bureau of Plan.t Industry (BPI) 4. Bureau of Animal Industry (BAI) 5. Bureau of Soils (8S) 6. National Food and Agriculture Council (NFAC) 7. MA--Special Studies Division (MA-SSD) 8. Philippine Training Center for Rural Development (PTC--RD) 9. National Stud Farm. i0. Fiber Development Authority (FIDA)
IV.
Minl,_tl'l_o_
V.
_,linisl:,yof F,ducatlon, Culture I. _4in<_anao Regional School of 2, Nat:ional Museum (NM)
VI,
VII.
VIII.
Minis%ry of i. National Extension
Agrarian
Reform
of
and Sports (MECS) Fisheries (MRSF)
Natural Resources (MNR) Post-Harvest Institute (NAPHIRE)
Ministry of Trade and i. Philipp, ine Textile Ministry
(MAR)
Social
Industry Research
Services
VI.20
and
for
(MTI) _nstitute Development
Research
(PTRI) (MSSD)
and
Table
IX.
4,
Continued
Colleges Region Don
.
.
.
and Universities I
Mariano Marcus '( DMMMSU) Mariano Marcus State Philippine TQbacco ( PTRTC )
Region II Cagayan State Isabela State Sueva Viscaya
Memorial University Research
State
University
(MMSU) and Training
University (CSU) University (ISU) State University
Center
(NVSU)
Region III Central Luzon State University (CLSU) Tarlac College of Agriculture (TCA) Western Luzon Agricultural College (WLAC) Reg ion IV Camar'Ine$ Sur State Agricultural College (CSSAC) Bicol,University College of Agriculture ,(BOCA) -_ Region VI Iloilo State School of Fisheries (ISSF) West Visayas State College (WVSC) University of the Philippines at the Visayas Region VII Siliman University University of San Re
VIII U,_.v._=_'sityof Vi.:_-_.yas State
(SU) Carlos
(USC)
glol_-
Rastern Colle_e
[:,,e g {_j,_i X Central Mindanao Xavier University
Philippines (UEP) of Agriculture (VISCA)
University (XU)
(CMU)
Region XII Mindanao State University (M6U) University of Southern Mindanao
VI..21
(USM)
(UPV)
.,..:ible
4.
continued
...
National Capital Region Technical Panel for Agricultural Education Agricultural Colleges Association Philippines (ACAP) University of the Philippines (UP) Ateneo de Manila University (ADMU) De La Salle University (DLSO) University of Sto. Tomas (UST) Araneta University Foundation (AUF) X. Government
Corporation
i. Cagayan Integrated Agricultural Development 2. Cotton Research and Development Institute• 3. National Food Authority (NFA) 4. National Irrigation Administration (NIA) 5. Philippine Coconut Authority (PCA) 6. Philippine Sugar Commission (PHILSUCOM) 7. Food Terminal Incorporated (FTI) 8. Abaca Industry and Developmenet Authority 9. Laguna Lake Development Authority (LLDA)
Source:
(TPAE) of the
(CIADP) CRDI)
PCARRD. 1981. Directory Resources Researches in the PCARRD, Los Banos, Laguna.
of Agrioulture and Philii_plnes. Volume 2,
PCARRD. 1982. Directory ResourcesResearches in the PCARRD, Los Banos, Laguna.
of Agriculture and Philfppines. Volume 2_
VI.22
Table
5.
P._r. tial list of private corporations with _.,_,._ ,levelopment activ_tles in agriculture.
i. B. _Ti Do_,lin0o and Co. 2. Ca_]0un Farm Interprises, Inc. 3. ACES _oundation 4. Philippine Federation of Fishing 5. Green and Grow Incorporated 6. Dole (Philippines) Inc. 7. Philippine Packlng Corporatlo n 8-Stanfilco 9. Hijo Banana Plantation I0. Mengi Farms II. Victorias Milling Corporation
Association
12, Ansa Crop and Cattle Farms 13. Monsanto (Philzpplnes)Inc. 14. Dow Chemicals Pacific Ltd. 15. Rhone-Ponlenc Agrochimle 16. Boechst Far East Marketing Corporation 17. Shell Chemicals (Philippines) Inc. 18. Bayers (Philippines) Inc. 19. Onion carbide (Philippines) Inc. 20. Jardine Agchem 21. Warner Barnes and Co. Inc. 22. Wellcome Phils. inc. 23. Cyanamid Agricultu=al Research Foundation, 24. F.M. Zuelllg (M.) Inc. 25. 0nited Laboratories, Inc. 26. Planters Products Inc. 27. Ayala Corporation and its subsidiaries 28. San Miguel Corporatlon and its subsidiaries 29. Rhome and Haas, Phils. 30. Pioner HI-Bred Philippines 31. Cargill 32. Du Pont Far East. Inc. 33. Twin Rivers Research Center 34. Mindanao Agricultural Resettlement Agency 35. Economic Development Foundation, Inc. 36. GENU Products, Inc.
VI.23
Inc.
research
.... I I ARO .I........ .I I I I ,' I I , I -I
I I ___" iIm iii_i |___ I. MINISTRY I I I I I PIAF RCC I I PCARRD, I I I _ I I .... ._I i I .I.... _.................... _ __ _ __ ----_ ___I __ .... I...... . I-BUREAU, I RESIONAL I I I....... I . OFFICE I I I. I _ __ I ,I I I I .I ............ I I I I I RESEARCH I I AREA I RRC/RRD I- _ --I CONSORTIA, I.... I OFFIC
I . l
I
Inml----.
I
i
,
I ........... II l,I I
l I I I
I l RIIARS
I
....................... I I I I jllOTHER STATIONS I I ....... I
I
I I I ,I I I I I .I .I PROYINC:'_AL I I OFFICEZ i , I_ "I I I .... I.... I.- - . _.__ ' _I I ! I PVTVT I
I. I ,I I
I I STATION: I__ ____ I I I I I I I I
.,
i. :....
___1' I I' FARMER I ii_ii
.2.
_i
.I I
.
I .......
I I I
I .......
" I I I_,_
Ei.gure
I
j
I ........
f
I ..........
_m
_. I. I_
COOPERATORS _i
The ,organizational research system
wi_
iI
structure
VI.24
_
I
of
the,
presentMAF
, l I I I
by its state or
member private
scientists who often colleges/universitles.
are
staff
members
of
A considerable bulk of the research work, is undertaken by the state colleges and universities (SCUs) accounting for about 35 percent of total research expenditures. The SCUs have tho highest concentration of highly trained manpower in technical agriculture (Table 6) which has been reinforced by the manpower development program of PCARRD (Table 7). UPLB clearly holds a leadership role nationally accounting for at least 25 percent of the total research expenditures in the entire country. The PCARRD, ARO-MAF, and NRCP interact at the central planning level. The Technical Advisory Committee, a body that assists the Executive Director of the PCARRD Secretariat in evaluating and formulating the national research program, has for its Vice Chairman, the Director of ARC) and one of its members is the Chairman of Agriculture and Forestry Division, NRCP. Private fine-tuning applications activity. considerable _131 million
sector research is focused strongly on the of its own technologies e.g. , pesticide and corn breeding, a technology invention The private sector research expenditure is which in 1985 was _85 million as compared with for public sector research.
Functional relationships among these systems are depicted in Figure 3 which indicates the scope of activities by each system. Voluntary sharing of research results among scientists from both public and private sector occurs during the annual meetlngs/conventions of professional associations. Both the public and private agencies support these meetings and conventions. Organization
of
Agricultural
Extension
The history of agricultural extension in. Philippines can be divided into two. before and after decentralization of the Ministry of Agriculture in 1978.
the the
Prior to the reorganization of 1978, the Ministry has several llne agencies responsible for agricultural extension activities. These were the Bureau of Agricultural Extension (BAEx), the Bureau of Plant Industry (BPI), the Bureau of Amimal Industry (BAI), and the Bureau of Soils (BS). In addition, other ministries such as the Ministry of Agrarian
VI.25
Table 6. Distribution agencies.
of
scientific manpower
--=======
among
research
_---====
•m--
===:-== ==S ===_====--_--==
M.S.
%
Ph.D.
%
TOTAL
%
SCUs
448
29.2
198
93.4
646
83.1
MAF
46
8.1
2
0.9
48
•6.2
Others
71
12.i
12
5.7
83
i0.7
TOTAL
565
212
77..7
Source : Manpower Resources in Agriculture and ResoJrx:es Research in the Philippines. _JLRRD 1978. Los Banos, Laguna Table 7.
The nudoer of trained researchers sent through the PCARRD manpower development program as of December, 1985.
Degree
%
Non-Degree
%
Total
%
SCUs
403
46.5
545
38.2
952
41.6
MAF
98
11.3
275
19,3
373
16.3
• _R
54
6.2
109
7.6
163
7.1
NSTA
19
2.2
25
1.8
44
1.9
Inb_i_utes
77
8.9
124
8.7
201
8.8
Other Agencies
24
2.8
41
2.9
65
2.8
Private Individuals
109
12.6
8
0.6
117
5.I
PCARRD
82
9. 5
296
20.7
378
commodity
t6.5
Secretariat TCEAL
866
1,427
2,'293 •
Source : PCARRD, Office of the Executive Director
VI.26
_
-.
.-.
®
g • W
®
_
t,-t ¢_
.It
. i3 z
_ DI
•
_
•
--t
W
11
-4
e.
_'_"_ _ _o _._ o'_ _,_ 0 _l _ @ ,_I
O@
w w
_o ®'-_ _ _: 0 t_
_ _ _
e"le'-I_I I I_ _
,-I_ _
VI. "27
_ o
I_
Reform, and the Ministry of Local Government and Community Development have their own extension agents involved in agricultural and rural development activities in the countryside. In the late 70s, the personnel of the Ministry of Human Settlements joined the throng of rural development workers. The 32 colleges/universities of agriculture also have their own extension personnel and collectively account for about 10 percent of total government _xpenditure in extension. Thus, the Philippines certainly does not suffer from lack of manpower in ex%enslon services. However, serious questions have been raised on the efficiency and effectiveness of the numerous, independent and duplicative efforts in the technology delivery system of the country. P.D. NO. 461, issued in 1976, reorganized the DANR into two departments: Department of Agriculture and Department of Natural Resources. Two years later, P.D. 1579 renamed the Departments into Ministries in line with the change of the government structure from the presidential system to a parliamentary one. Also the decree converted all bureaus performing line functions into staff bureaus and created twelve regional MA offices with the aim of integrating the services-'including extension services--performed by MA at all levels: regional level under the regional director, provincial level under the Provincial Agricultural Officer (PAO) and municipal level under the Municipal Agricultural Officer (MAO). In 1980, the Bureau of Cooperative Development was transferred from the Ministry of Local Government and community Development (MLGCD) to MA. Then on May 21, 1982, Executive Order No. 803 was issued which provided for the establishment oF an Integrated Area Management System (IAMS), a scheme which intended to unify the operation of various government agencies involved in the delivery of agricultural services and inputs from the regional to the barangay levels. Besides the above agencies, there are other government entities which are engaged in extension. For instance, the National Food and Agricultural Council _NFAC) under the Minis'try has become more extensively involved in field extension, despite the fact that it was organized to coordinate national action programs on rice, corn, and other crops. The Philippine Sugar Commission (PHILSOCOM), Fiber Development Authority (FIDA), Philippine Virginia Tobacco Administration (PVTA) and other autonomous commodity agencies have their own extension agents rendering specialized assistance to farmers.
VI.28
In 198.4, Executive Order NO. 967 renamed the of Agriculture to Ministry of Agriculture.and Food transferred the Bureau of "Fisheries and .Aquatic (BFAR) from MNR to MAF. Like the other bureaus, converted from a llne bureau into a staff bureau.
Ministry (MAF) and Resources BFAR was
At present, MAF has about 13,550 field technicians involved in agricultural extension. Fourteen other government ministries and agencies are directly involved in the delivery of extension Service and the number of their extension Dersonne! totals to about 51t715 (Table 8}.
PROBLEMS, i.
NEED TO INCREASE THE PHILIPPINES
ISSUES
AND
RECOMMENDATIONS
AGRICULTURAL
RESEARCH
INVESTMENTS
IN
a. Public sector research. Inspite of the fact that interna_ rates of-return on investment in research cluster around 30 to 50 percent with some investments paying 70 to I00 percent, Philippine investment in agricultural research - and extension - has been extremely low. Table 9 shows that the Philippine ratio of expenditure in research to gross value added in agriculture is l_ss than 0.2 percent, the lowest of all six countries. The growth index of real expenditure is extremely low in comparison to Indonesia and Thailand. Among the six countries for which data is reported, only Pakistan had a slower growth rate than the Philippines. Indeed, public expenditure for research in the Philippines has declined in real terms over the last eight years (Table i0), Re commenda
t ions
Gradually bring the level of public investment research to that of the other developing counrles. achieve this= the level of funding for agricultural research should be raised from the current level 0.2 percent of. gross value added in agriculture 0.6 percent to 0.8 percent in the next 5 years. reasonable long teem goal would be 1 to 1.5 percent g_oss value added in agriculture.
in To of to A of
b. Private sector research. The private sector engages in research on technology development in those areas where they can obtain proprietary rights or patents on inventions. With the advent of biotechnology duriag the last decade, the area of private sector research in agricuiture has expanded e normo us ly.
VI.29
[
Table
8. Main agencies providing agricultural and nutritional supporting services,
Department/Agency
Approximate no. of field Staff*
Ministry of Agriculture Bureau o'-f Ag. Ex'tension
13,550 -
Bureau of Plant Industry
-
Bureau of Animal Industry
-
Bureau of Soils
-
Ministry of Agriculture: Attached _encieS . "" Phial.Coconut Authority Phil. Tobacco Authority Phil. COtton Grower's Assoc. (Philcotton) Phil. Sugar Commission (Philsucom) National Food Authority
Main function
Ext. for farm improvement, home mgt. and youth deV't. Research and regulatory work on pest and diseases. Ext. on animal health and husbandry to commercial scale livestock enterprises. Ext. on soil and fertility requirements.
i,065 220
Ext. on coconut and intercrcps 200 Ext. on tobacco production 170 • Ext. on cotton production 15
460
Ext. on sugarcane product ion Assist in marketing of food and feedgrains
Ministry of Agrarian Reform ' "
3,140
Assist land reform beneficiaries (withdrawing frcm agricultural extension work under P.D. 980)
MinistrY of Local Government and C_unity Development
2,670
Provide a very llmi_m_ amount of agricultural and nutrition services of other agencies.
Ministry of Natural Resources 2,340 Bureau o-{Forest Dev. 1,780 Bureau of Fisheries & Aquatic Resources
560
•Ministry of Education and Culture
6,520
VI.30
Forest regulatory research and extension. Ext. on fish production and handling. Mainly school and community educat ion.
Table
8 continued
... Approximate no. of field Staff*
Department/Agency
M/nis_- z Of Bealth
M_nistcyof
Social
" ' 13,300
Main
function
Rurel health, medtca'i, "" dental and nutrition services,
S_ices
"2,100
Social welfare including nutrition services.
_at'1onalIrrigation Adm.
5,740
Regulate and maintain irrigation water supply and provide a water advisory service in irrigated areas.
F_rm Systems Dev _rp.
460
Provide agricultural extension as part of cooperative development.
National Banking Agencies • .&_r'al Banks, "
830
Provide agricultural extension as Suppoct OE credit services.
*
Include field work supervisory staff
Sourc_ :
_ BANK (1978), p.5 as adoptedby. O.J. Nagel et al, 1983. The Modified Training and Visit System in t_-6Philippines: An Extension Delivery System in Region Ill.
Vl.31
Table
9. Government agricultural
C¥
India
research research.
Indonesia
expenditures
Philippines
Thailand
and
manpower
Pakistan
in
Bangladesh
Index of Real Research Expenditures 1959=100 1959
100.00
100.00
100.00
100.00
100.00
100.00
1962
119.00
400.00
131.00
273.00
114.00
117.00
1965
165.00
834.00
153.00
482.00
146.00
203.00
1968
184.00
1203.00
175.00
622.00
177.00
323.00
1971
266.00
1540.00
198.00
756.00
188.00
387.00
1974
269.00
1423.00
246.00
739.00
187.00
438.00
1977
418.00
7487.00
311.00
1517.00
191.00
660.00
1980
484.00
5887.00
343.00
1392.00
217.00
1546.00
29899.00
27613.00
1212.00
1320.00
Expenditures (Constant 1980 US$000) 1980 120167.00
33200.00
9533.00
21600.00
Manpower (SMYs) 1980
2345.00
1473.00
640.00
1264.00
Research Expenditure as a % of Agricultural GDP 1980
0.29
0.44
0.16
0.26
0.41
0.48
Sources:
Research expenditure and index numbers for India, Indcnesla, Philippines and.Thailand from Judd et al., 1983. Ban@ladesh index is from Pray and Ahmed 1984.---Pa'_istanindex is from Nagy 1984. Manpower from Judd et al., 1983 Expenditure/ Agricultural GDP from Oram and Bl_-nd_-{sh,1981.
Table adopted from: Pray, C. E. and V. W. Rutt_n. 1985. Completion Report of the Asian Agricultural Project Economic Dev. Center Bulletin No. 85-2. University of Minnesota, Minneapolis St. Paul, Minnesota.
VI.32
Table i0. Total re,catch expenditure (in million pesos at constant prices) by crop.
1.989
Commodity
1974 1975 1976 1977 1978 1979
1980
1981
1982
1983
1984
TOTAL RES. EXPEND *
74.3 69.0 74.0 91.5 66.7 87.8
83.8
79.1
73.1
73.8
67.1
Rice
4.5
4.6
6.3
6.9
6.8
8.5
8.0
i0,i
10.9
11.4
15.0
Corn
3.4
2.2
2.3
3,3
2.1
4.1
3.1
3.9
3.5
5.2
6.1
Sugarcane
Ii.0 ii.i 13.3 13.6 14.1 15.6
18.0
22.3
24.0
24.6
29.3
Coconut
2.2
2.3
2.6
3.3
4.0
5.5
6.1
7.3
8.9
9.7
11,2
Tobacco
0.9
0.9
1.3
3.0
1.8
4.4
7.1
7.9
10,6
11.3
19.1
Fruits & 2.8 Vegetables Other Crops 10.2 Livestock 4.5 & Poultry Other Res. 0.4
2.3
3.6
4.9
0,i
4,8
4.2
0.2
0.3
1.5
3.0
9.0 10.9 15.4 7,4 4.6 8,9
8.5 17.9 8.4 12,8
18.3 17.0
19.0 16.5
15.4 15.9
18.6 16.0
27.2 16,6
0,i
1.7
0.5
2.0
2.3
1.6
3.0
3.9
39.9 39.9 45.7 61.2 47.5 74.1
83.8
89.5
91bl 101.3 131.4
TOTAL
0.8
1.9
CPI 53.6 57.9 61.5 66.9 71.0 84.6 i00.0 113.1 124.6 137.1 195.7 (1980=100) *at constant 1980 prices. Source:
M. Sardido. C.A. UPLB.
VI.33
Private sector research in the Philippines represents a larger portion of research effort than is normally recognized and attracts some .of the best research talents be'cause of more favorable salaries. However, the amount of private sector research is still small. It is held back by the small amount of public sector research, and by policies that have been biased against agriculture that slowed down the rate of economic and agricultural development. There are three types of policies that can affect private sectors' decision to do research. First, there are the macro and sector-specific policies which influence the profitability of the industry in general. The second set of policies affect the supply of research by changing the cost of p_oducing new technology through research or the cost of importing technology. These policies include : (I) government sector research investment which cuts the private sector's cost of producing new technology, (2) government subsidies or tax incentives for research, (3) government regulations that increase the cost of research and technology transfer, and (4) policies that affect the creation and maintenance of scientific manpower. The third set of policies directly affects the ability of the firm to capture the benefits from research, such as patents, plant breeding rights, government policies which influence the farmers purchasing decisions, regulations to insure product quality control, and government extension recommendations. Recommendation a. Review to promote research in
the second and private sector the Philippines.
third set investments
of
policies above in agricultural
b.. Exert special efforts to coordinate public private sector research-extension activities. private sector has excellent research facilities good scientists who can do Level II, III and research. They can complement the research-extension programs of the government. 2.
NEED TO PRIORITIES
MODIFY
THE
SYSTEMS
OF
SETTING
and The and IV
RESEARCH
L_mited research funds are allocated thinly to too many commodities, apparently, as a result of the prioritysetting system of PCARRD, which ranks commodities into three priorities (Table ii). Although 80 percent of the research Vl.34
•geJble 11';, PCAR_0,- _e_.. .DrJ.OZ'£_ _l_Nm,:J_ leJcko_J;_
......
re6eacch.
PdodlyRanldngAmongCommodities. dily .. _ .. _........
n
_
PriorityI
80%
I. 2. Oomandsorghum 3. Fibermope(abaca,cotton) 4 Leoumes (soybean, mungo,eowpeLh.peanut, beans,peas) & Planlalloncrops(rubber,coffee,cacao) 6, Root crops(sweetpete!o,whilepotato,oaseave) 7'.Sugarcane 8. Veoelablecrops(Iomato,melons,0arllc,onion) g. Aqueoullure 10. Hlarlnefisheries 11.,Forage.pastureandgrasslands 12, C._rabeef. 13. Dlpterooarps andlesser.used species 14. PinesandotherSoftwoodspecies 10, Mangi'owend.beach-type forests • 16;Fol'emt plantationend_gro.fomatw 17, Bamboo,rattan,forestvinesandmedicinalplante£ 1¢' Metallicminerals. 1¢ Agdoultural.englr_edng •PdodlyII 1o% 1, Rru|lcrops(banana,mango,pineapple, papaya,citrusandcashew) 2. Rigsandothercerealgrains 8.*Tobaooo . 4, Bee#Ghevon _.' lehndwaters O, Molewe,type forests 7, Farmingsystems _, & 8oll resources O,Wat_ meoum_e 10. Non.metallic minerals" . PdodtyIII
3%
I_ Flberorol_(ramlejJute,kenaf,eedoultum) Ornamental and.medicinal crpps • PlanteUon crops(sunflower,africanoff,o_Loro1!species) 4. Rootcrops(gabl,yeu_.. ' " & Vegetab(ecrops(qggpiant,pepper,peohay,cabbage) e,,_ 7,
.•
e. P_,
wildlifeandfores!range
,
8ocio-Eoonoml_ and'Emergency Reeeamh' 1..AppliedruraJsociology 3, Mnoroooonond_ _
.
-
..........
.
7% --
..:
_
:::
-: a
VI.35
budget is allocated for priority i there are (19) commodities listed within this priority.
just
too
many
Consequently, the allocation of re'search expenditure by commodities shows that rice, corm_ and coconut, which together make up over 40 percent of_;s value added, are among those for which research has been grossly underfunded as research expenditures in these commodities constitute an average of only 0.08 percent of their respective gross value added (Table 12). Funding levels for research in livestock and poultry and fruits and vegetables are also low but here private sector investment in research especially for large scale operation (poultry, bananas, pineapples) is significant. Sugar cane and tobacco have relatively high allocations principally because special levies for research are collected. Recommenda
tions
a. At the national level, give highest priority to research on those commodities which contribute most to total value of agricultural output. This can be modified to reflect market expansion potential and potential for technological breakthroughs. However, much less emphasis should be given to commodities which are major items of import, but for which the Philippines would have difficulty gaining a comparative advantage in production. b. Attention should also be given to research that improve market potential such as post harvest handling and crop processing to develop new products. Also_ more attention must be given to researches that are not commodity specific such as soll conservation, water resource management, agricultural policy, genetic engineering, and agricultural anthropology and sociology. c. Priority attention must also be given to areas with the greatest social impact such as the generation of technologies for the small and marginal farmers, especially on staple crops of the poor, end nontraditional commodities with high market potential. d. At the regional level, priority setting in research uz,dertaklngs should be made by each region with the participation of the scientists, extension agents and farmers' representatives. This is possible if VI.36
Table 12. Percentage share of selected commodities in gross value added, in research expenditures in agriculture and in the ratio of research investment to gross value ack_ (research intensity), 1974 and 1984.
Sity
1974 % Share % Share _n in GVA Research
Research Intensity
% Share in GVA
1984 % Share in Research
Research Intenslty
iRice
22.45
11.30
0.09
19.70
11.40
0.07
Corn
8.44
8.60
0.19
7.14
4.65
0.01
Coconut
14.29
5.50
0.07
13.29
8.50
0.08
LSugarcane
9.55
27.60
0.55
5.07
22.30
0.53
Tobecoo
1.01
2.20
0.42
0.95
14.50
1.85
Fruits & Vegetables Other Crops
7.09
7.00
0.19
11.90
2.30
0.02
17.15
25.60
0.28
22.62
20.70
0.11
All Crops
79.98
87.80
0.21
80.67
84.33
0.i0
Livestock & Poultry
20.02
11.40
0.11
19.33
12.70
0.08
ITO_%L
I00.00
99.20
0.19
i00.00
97.03
0.12
I
Note :
Research intenslty=(research ack_d) x I00.
VI.37
expenditure/gross
value
regional flexibility 3.
research _ centers are granted in managing research funds.
NEED TO DEVELOP GREATER APPLIED RESEARCH TECHNOLOGY
CAPABILITIES TRANSFER
IN
greater
BASIC
AND
All research systems have four levels as depicted in Figure 4. Level 1 deals with basic research in general studies (chemistry, physics, etc.) while Level II research is also basic research but sometimes referred to as pretechnology science (plant genetics, plant physiology, etc.). Basic research tends to be dlscipline-oriented and is not location-specific. Levels III and IV are two different levels of applied research referred to as technology inveation and technology screening and sub-invention, respectively. These activities are both location,specific and thus must be conducted at several locations throughout the country. However, a clear distinction must be made between the two. Technology invention or generation requires a critical mass of PhD level scientists in areas such as plant and animal breeding, agronomy, plant protection, animal nutrition, soil fertility and agricultural engineering. On the other hand, technology screening and sub-invention or adaptation and transfer requires a lower level of scientific research skills, but a higher level of understanding of farmer needs. The main task is not only technology verification and adaptation, but also assisting farmers in gaining access to information on available technologies and related inputs such as fertilizer, pesticides and credit. The research at this level should involve simple screening experiments and demonstration in farmers' fields. it
is important
a. Inventions situation-specific. not.
to
recognize
two
important
(Levels Ill and IV) are Research at Levels
principles: locationI and II
and are
b. A "hierarchical" .relationship exists between the levels of research. Each level receives "potential" from above. Each level receives "demand signals" from bel ow Principle 1 calls for locational or regional focus. The Philippines cannot conduct its Level III research exclusively in Los Banos. It must have strong regional base. Level IV research and extension must be highly location-specific and generally sub-regional or provincial in character.
VI.38
_
i
, "
'
VI.39
_
,
Principle 2 emphasizes that even though the subinventions are utilized by farmers, investments upstream must be made to maintain potential for more improvements. If this investment is not made, potentials will be exhausted and sub-invention will not be possible unless inventions •are imported. The present Philippine system pays some attention to these principles but is quite•far from •Optional. a.
Maintain
a balanced
investment
on
basic
and
applied
research and technology transfer. A general rule of thumb based on an examination of the experience of developing countries suggests that the public sector research fund in agriculture should be divided as follows: Basic
research
Technology
in
agricultural
invention
or
Technology screening, transfer
sciences-
generation
adaptation
20% -
40%
and - 40% Ik
Research funds for ver i fi_ a _i6h and trials in MAF is only 7.02 pe_ent of the budget for the National Commodity _rogram. be increased to 15 percent and later to 20
adaptive CY 1985 This mus t percent.
b. Encourage and support• intellectual exchange with foreign scientists and international research centers. Most Philippine Level II researchers•will be using Level I and Level II knowledge developed in other countries. This requires substantial investments" in •scientific journals, books, germplasm, travel • by scientists and foreign training -- both short and long term. Efficient intellectual exchange also requires an investment in time and effort in developing relationships with international research organizations like IRRI, CIAT and ICRISAT. These are investments the
government
must
be
willing
to
make.
c. Further decentrali.ze planning and implementation of agricultural research and extension. Some progress has already been made with PCARRD's efforts to strengthen regional SCUs and MAF's efforts in establishing the RIAR' s. The next two sections el'abora te our recommendation in this regard.
V!.40
NEED TO INTEGR ATE RESPONSIBILITIES AND CL IE NTELE
There O_ extension
are three basic under the MAF.
AND DEC ENTRAL IZE E_TENS ION ENSURE ACTIVE PARTICIPATION OF
weaknesses in the These are:
present
syst
a. The present research-extension system fails insure active participation of the rural clientele. For more than three quarters of a century, t Philippine agricultural research-extension system h adopted a diffusionist strategy that emphasizes t! dissemination of technology packages from reseat centers to the rural populace who are treated as me receivers and users of new information. The initiati _ of planning, developing, and testing technologi resides in the research community. This strategy al the weak linkage between research and extension ha' limited small farmers' feedback and effective influen in the research-extension system. Consequently, it h spawned numerous research activities which fails take into the process the rich experiences and valuah insights of the rural clientele. b. The existing extension meaningful accountability extension personnel to the
system does not provide f, and responsiveness of fiel local population.
Field extension agents respond more to ti priorities of their own respective national agenciq than the priorities set by local governments becau_ they receive their salaries directly from the nation, government and their efficiency ratings and promotiol depend upon the accomplishment of nationally s_ performance objectives. Moreover, local governmeJ officials have little power to rechannel nationall controlled resources to'meet more urgent local neec and problems. Thus, local initiatives are stifled al agricultural productivity suffers. c. There is no single line of command of agricu-ltural extension service_
in
the
delive:
_
o
_
' lvI
_
The World Bank Appraisal Team in 1.978 pinpoint, the lack of a single line of command and support bol within and outside MAF for extension service. In tJ Ministry, four line bureaus--BAEx, BPI, BAI, BS ' previously performed separate extension activiti, which resulted "not only in administrative confusic
1
4•
7-
but also in the assignment of non-agricultural tasks to field workers" (Nagel et al., 1983). The reorganization of MAF in 1980 has partly solved the problem. Other line ministries/agencies such as the National Food Authority (NFA), Philippine Coconut Authority (PCA), National Irrigation Administration (NIA) , Farming Systems Development Corporation (FSDC), and Ministry of Human Settlements (MHS) have continued to deliver extension services under different lines of command. Many of the 48 SCUs of agriculture also have separate personnel for extension. Executive Order No. 803 has attempted to solve the problem of uncoordinated delivery of extension service at the provincial level, but little progress has been made along this line due to lack of administrative leverage of development councils in coordinating the activities of participating agencies. t
Recommendations a. Increase the income implementation
the share of the provincial and property tax to of Executive Order 803.
government support
in the
b. Change the old concept of extension as a simple process of transferring technology from research stations to the farmers to one that involves farmers in technology testing. This requires participation of farmers with the system benefitting from their valuable insights. This could be effectively implemented through farmers organiza tions and/or other nongovernment organizations to assure broad, voluntary participation of the rural populace. c. Assign primary responsibilities for agricultural extension to the provincial government since activities in extension ar_ very locatlon-specific. Strengthen and maintain provincial testing sites for technology testingr adaptation and transfer. To be effective in carrying out their extension responsibilities, provincial governments must strengthen and maintain a number of strategically located testing sites by transferring some MAF stations. However, this should be strongly linked to the regional SCUs or autonomous research centers which generate new technologies. This should _ add appropriate development • responsibili ties to the otherwise predominantly political concerns of local government leaders.
VI.42
d. Adopt a long-range plan to place all extension personnel involved in agricultural and rural development from the provincial to the municipal levels under a single line of command: the local government. The task of integrating the extension service should bring about a more effective and efficient delivery of agricultural extension services at the ba rangay level. Towa rds this end, the local government must have great control over extension agents and must take a direct responsibil_ ty in planning, implementing, and evaluating agricultural extension programs. In other words, the job of managing human and material resources including the supervision of field extension personnel should reside in the local government with the national government playing a supporting role through funding support and technical assistance. It is recognized that there are provinces which may not have the capability yet to undertake this proposed new responsibility. Further study needs to be undertaken regarding capability building and alternative systems for implementation. e. Develop a satisfactory formula for ing of extension services which consideration equity factors.
national takes
fundinto
This is necessary in view of the varying local government capacities to pay local extension. The national government can institute necessary safeguards to prevent provincial governments from misallocation of funds through a "carrot and stick" _olicy. As an alternative to direct national funding, efforts must be exerted to improve tax collection schemes to enable the local government to retain a fair share of taxes collectible from agricultural industries.
5.
NEED TO MAKE AGRICULTURAL RESEARCH RELEVANT TO REGIONAL NEEDS AND BUILD UP FURTHER THE RESEARCH CAPABILITIES AT REGIONAL AGRICULTURAL COLLEGES AND UNIVERSITIES
The Ministry of Agriculture and Food has been responsible for research and extension activities in the country for several decades now. While it _ has made significant progress in increasing rice production with the advent of high yielding varieties, its record in developing new technologies in other commodities has not been as successful because of its inability to develop regional strong research centers that could undertake both Level II and III researches. Its weaknesses are inherent in all bureaucracies, namely: limited research facilities and
Vl.4_
library, low salaries and rapid turnover of PhD level research staff, numerous institutional _esponsibilities and units that vie for limited financial resources, and •highly centralized management practiceS. Because of these, MAF cannot attract good Levels II and iII researchers and probably cannot provide the environment _hey need. To do so would require a major reform within the MAF and in the government policies on compensation and civil service rules and _;egula tions _ In contrast, the SCUs represent an important resource which should be fully utilized in s_rengt hening the research-extension system of the country. They provide several advantages which are not likely found in any other government institution. First, the greatest concentration of high level manpower (M.S. & Ph.D.) in agricultural research resides in the SCUs. Second, the academic environment, besides their relatively better pay scales, provides amenities that are difficult tO match by MAF or other government agencies:, better library and laboratory facilities, academic freedom and constant intellectual stimulation. Third, the SCUs optimize research_extension investment in the sense that their research and extension programs enrich and strengthen instructional programs thereby producing the high quality manpower needed by the coun try. Given these realities and the need to have a decentralized system of tecnnology, generation, verification, adaptation and transfer, it would be best to have only one research-extension system with the MAF providin_ national directions and support services (e.g., funds, information, facilities, inputs, etc.), the SCUs and strong MAF Res6arch Centers providing regional leadership in implementation, and the local government in assuring local participation and feed bac k. Recommendations a Adopt a long range plan tO put agricultural under the leadership of selected regional SCUs attached regional centers.
research and MAF
UPLB must continue to provide national leadership in agricultural research and conduct levels I to iII research. PCARRD has done much to strengthen regional _ SCUs. But they need to be further Strengthened to provide leadership catering to priority needs of different regions. This could be achieved by (a) installing a strong research-oriented leadership, (b) strengthening manpower capability through major investments in training at the PhD level, (c) formu-
VI_.4_
lating and implementing an active research program concentrated on a few major commodities, and (d) adopting a mission that concentrates on the needs of the fa rme rs. The regional agricultural colleges or universities must become strong enough to do both Level II and III reRearches. However, the Philippines cannot afford the high investments needed to develop a superior regional agricultural college or university in each of the thirteen regions. But there should be at least two regional centers of excellence each in Luzon, Visayas and Mindanao. Research programs of MAF including staff, facilities, and research stations (particularly the RIARS) should eventually be located and integrated into the university-based system for greater efficiency and effectiveness. Exceptions should be made in regions where the experiment stations have strong research staff and no regional agricultural state collegeuniversity exists such as in Region VI and Region XI. To provide learning experiences which should guide national implementation, a new research-extension system following the land grant model of the United States should be piloted in three relatively strong regional state colleges/universities of agriculture. Starting with ViSCA, CLSU, and basis, the proposed research-extension consist of the following:
USM on a system
pilot shall
i. The RIARS in the region shall be transferred to the regional SCUs. They shall be responsible initially for Level IV research using technologies developed in the regional SCUs. Eventually, they should be developed to undertake Level Ill research to serve the needs of the region. 2. The loc.al governments shall have major responsibility for extension since extension is very locatlon-specific. They should share the cost of extension activities. They must maintain and operate provincial testing station (Level IV research). Some MAF stations or agricultural' schools may be transferred to. provincial governments for this purpose. Joint appointments with the regional SCU for the Subject Matter Specialist, and with the MAF for other extension personnel should be made in order to attract highly qualified staff and maintain agency linkages.
VI.45
3. MAF shall provide national PCARRD and progide supportive services in terms of: o 0 o o o
Funding based on a formula funding scheme Training services Production of extension materials Technical support Regulatory services (seed certification, quarantine, etc.)
4. The following linkages shall o o
directions through and complementary
be
Membership the regional Inter-agency Council
mechanisms adopted: of the MAF SCU Board Regional
to
ensure
effective
Regional Director of Trustees Research-Extension
in
o
Interagency Technical Committees for research-extension p'lanning, evaluation and technology assessment, and production of farmers' technoguides and extension materials
o
Joint appointments personnel Joint sponsorship days, publications activities
o
5. Within the next more regional SCUs This will require: 0 o o o
of of
research-extension
demonstratiorls, and other
field special
5-10 years, develop one or two in Luzon, Visayas and Mindanao.
Strong research-oriented leadership A large investment for training Ph.D. level personnel An active research program focusing on a few major commodities or areas of concern A mission that concentrates on the needs of farmers
6. _n regions where there are no promising regional SCUs in agriculture, convert and strengthen major research stations of MAF to multlcommodity research centers. b. Continue to develop MAF regional experiment stations around regional SCUs with MAF control of these stations. Even if the regional SCUs are not ready to take full responsibility for research-extension
Vl. 46
activities, joint MAF-university appointments should be made. This will enhance MAF capacity to attract good scientists to join the MAF experiment stations. c. Rationalize the state agricultural system in the country and convert some SCUs into provincial technical schools to serve as technology verification stations. Towards this end, the Macro Plan proposed by the Technical Panel for Agricultural Education (TPAB) should be studied for immediate implementation. This should boost the capacity of the provinces to undertake technology screening, adaptation and extension activities. The regional agricultural colleges or universities must become strong enough to do both Level II and III re sea rche s.
6.
NSED TO EXTENSION
STRENGTHEN THE AND CLIENTELE
LINKAGES
OF
RESEARCH
AND
The organizational separation of extension agencies and the major research centers respons ible for technology invention or generation creates inefficiency. In the Philippines, technology generation activities are principally carried out by some SCOs and autonomous commodity research centers under the PCARRD network while MAF bears the main responsibility for agriculture extension activities including technology testing, adaptation and dissemination . Linkages between the technology generation system and the delivery of extension services are generally we ak. It is essential that strong linkages be established in order to (a) reduce unnecessary duplication of functions, (b) increase the adoption rate of research results, (c) reduce the time lag between development and adoption of improved technology, (d) increase efficiency in the use of limited resources, and (e) improve cost effectiveness of agricultural extension and research so as to ensure the attainment of common goals and objectives of increased production and income of the farmers. The low rate of adoption of new technology may be due to lack of knowledge, inability (lack of credit, inputs, etc.) or unwillingness (because of poor prices or lack of market) of the farmer to adopt the new technology. But one of the most important factors accounting for the low rate of adoption of new technology is its inappropriateness. For example, high yielding corn hybrids require more capital for
VI.47
the purchase of hybrid seeds and other inputs which are not readily available to the farmer. Problems like this could be avoided if scientists inventing new techologles work closely with extension agents and farmers. Their familiarity with the farmers' conditions and resources would strongly influence the direction of both basic and applied rese arch. Recomme nda tions a. PCARRD under a leaner but stronger structure should continue to coordinate, monitor add evaluate the research systems under the umbrella of the MAF. General suggestions on how to make the organization leaner is made in the next section. PCARRD should remain as an interagency council, but with the Agriculture Minister as its Chairman and the Minister of Natural Resources as its Vice or CoChairman. This move will provide considerable advantages in terms of: (i) strengthening the influence and support of MAF to agriculture research; (2) preventing the establishment of a separate research system under MAF as recommended by ISNAR, and (3) greater integration of research and extension at the policy and field level. The PCARRD system should, however, remain as a semi-autonomous unit to protect itself from undue political interference and to give reasonable flexibility in the implementation of research programs. It will help strengthen PCARRD if the membership of its original Governing Council is restored. This includes the Director General of NEDA and the Budget Minister. PCARRD should also exert more efforts in providing support for research-extension leadership training systems development and institution building in the different regions of the country with the involvement of MAF, MNR, SCUs and local governments and the private sector. It should also provide some funding for basic research to support technology generation. b. Other mechanisims are (i) the appointment of the MAF regional director in the SCU board of trustees, (ii) establishment of an interagency researchextension regional council, (iii) establishment of inter-agency technical commi trees for researchextension planning, evaluation and production of farmers' technoguides and other extension materials, (iv) establishment of an inter-agency committee for
VI.48
curriculum development and training, both formal and non-formal,(v) joint appointment of research-extension personnel, and (vi) joint sponsorship of farmers' field days and other special projects. c. Launch a strong training/retraining Subject Matter Specialists to strengthen between research and extension.
program for the interphase
Although ARO has an on-going program to train/ retrain subject matter specialists under the ASSP and RRDP, there appears to be a need to expand this in cooperation with national and international research centers and regional SCUs to develop a larger cadre of highly trained SMSs. They shall be responsible for conducting technology testing and refinement activities in farmers' fields in cooperation with researchers and fa rme rs. Also, the concept of dual appointments for SMS should be studied for implementation. The nature of the SMSs' job responsibilities requires accountability to both the research and extension agencies. In this regard, the MAF, the local governments, and the research institutions should share in the salaries of the SMSs through a funding formula they have mutually agreed upon. This should also serve as a means to strengthen the linkage of research and extension. d. Redefine the research-extension philosophy of the country in order to bring about a people-focused and a more dynamic participation of the rural population in the research-extension system. The farm families and communities especially the rural poor--not crops, animals or commodities -- should be the focus of research-extension services. This requires the institution of a participatory agricultural research-extension system that is capable of generating sustained technological progress at the farm level. This means a departure from the over-emphasis on technology packaging designed for a national audience of a presumad average Filipino farmer to a bias for building capacities of the rural populace in articulating their needs, identifying alternatives and implementing solutions based on resource variability and availability. A meaningful reorientation of the agricultural research-extension system must take into consideration some important "givens" at the farm level: limited farm resources, wide variability of farm conditions,
V_.49
high priority for subsistence and cash crops, and understandable reluctance of farmers to take risks. Farmers also have their own indigenous technologies and their potential as partners in research-extension activities has to be tapped. The Philippine research-extension agencies must take specific initiatives that effectively put a latent rural constituency at the center of the agricultural research-extension system. Linkages with rural organizations should be encouraged to promote effective influence of small-farmer interests and needs in the national research-extension system. 7.
NEED TO IMPROVE CERTAIN ...... FISCAL PRACTICES OF THECENTRAL GOVERNMENT ....... RESE-_%RCH-EXTE'NSION COORDINATING BODY
This section addresses PCARRD, MAF and the national a. Agricultural centrated at UPLB
problems and government.
researchis and Metro
AND AND
MANAGEMENT THE NATIONAL
issues
disproportionately Manila.
concerning
con-
The National Capital Region including UPLB has maintained through the years its share of about 50 percent of total research expenditures in the country (Table 13) although the distribution of the remaining 50 percent to the other regions has dramatically changed due to the strengthening of research capabilities and establishment of new institutions. The Ilocos region which used to receive only 3 percent or less in 1975 raised its share to about 12 percent in 1983 and 1984, 95 percent of which went to the Mariano Marcos State University (MMS0), Philippine Tobacco Research and Training Center (PTRTC) and the Cotton Research and Development Institute (CRDI). Likewise, there has been a steady increase in the allocation for Eastern Visayas from one percentin 1953 to an average of six percent between 1971 to 1986 due to the establishment of the Visayas State College of Agriculture and the Philippine Root Crops Research and Training Center (PRCRTC). On the other hand, the Southern Tagalog region had the most dramatic decrease in research allocation, from a high of 22 percent in 1953 to a low of one percent in 1986 which is due primarily to the shift of UPLB regional classification from Region IV to NCR., b. There is fragmentation of -previous 6_phasis on individual projects and studies.
VI.50
research because of short-ter_ research
Table
13. Proporti_ of agricultural region -:,.
research
expenditures
Year 1953
1961
1971
1975
•Region
1983-2/
1984
1985
1986
(%)
NCR, UPS & MAF
58
60
49
53
58
49
51
49
.... Ilocos **
1
2
2
3
16
15
13
12
C, Valley
2
3
2
2
6
3
5
4
C. Luzon
5
6
II
12
6
6
6
5
S, Tagaiog
22
10
15
15
1
1
1
2
Bicol
2
3
1
2
(0.4)
3
1
2
E. Visayas
1
3
7
5
5
i0
ii
14
W. Visasyas
3
6
i0
5
1
5
3
2
N. & E. Mindanao
3
4
2
2
1
5
3
2
S. & W. Mindanao
3
3
2
2
1
4
2
3
** About *** About **** About About
52% is handled by UPLB 95% is handled by MMSU, PTRTC and CRDI 87% is handled by VISCA & PRCRTC 88% is handled by UPV
i/ From Evenson, R.E., P.E. Waggoner, and P.R. Bloom. 1981. The Agricultural Research System in the Philippines. A reconnoissance report. Bulle£in No. 81-3. Economic Development QBnter University of Minnesota. 2/ Data for 1983-86 were summarized from PCARRD's Budget Release Recommendation for Agriculture and Natural Resources RBsearch series 1984, 1985, 1986. PCARR Governing Council.
VI.51
by
_
PCARRD has started placing more emphasis on longterm programs rather than on individual fragmented short-term projects or studies. However, a great proportion of researches being funded or processed are still individual projects or studies. A study, instead of a program, constitutes the present unit of evaluating research plans which takes at least 18 months to process. The present system also fails to promote long-term interdisciplinary and multidisciplinary research programs. Coupled with an honorarium system that is based on the number of studies undertaken without regard on the amount and quality of time devoted, the process could not assure scientific merit and encourages fragmentation of research projects. c. The does not extension
present research-extension incentive system encourage the retention of top scientists and agents in the public sector.
The NSTA remuneration and incentive system provides the best monetary reward in public sector research; however, its salary rates are still noncompetitive with the private sector. Most of the scientists are in the SCUs whose salary rates are still lower than the NSTA system. MAF offers the lowest pay, (Figure 5). The very low compensation of scientists In the public sector coupled with limited research facilities and bureaucratic red tapes has resulted in high attrition rate especially among top scientists. It is for this reason that MAF has failed to increase its number of researchers with Ph. D, degrees (Table 14). Extension agents are since they are one of the (Table 15).
far worse than scientists lowest paid civil servants
d. Actual project implementation by retariat raises a conflict of interest increased the size of its staff.
the PCARRD issue and
Sechas
The PCARRD Secretariat programs and allocates most of the government revenues earmarked for agriculture and resources research. Likewise, it evaluates and recommends research proposals from individual scientists either for local or foreign funding. From 1975 to 1986, members of the secretariat were involved either as project or program leaders in 37 relatively well-funded projects (Table 16) . The research community has raised questions on conflict of interest on this regard. However, this problem could be inherent in the structure of the Secretariat which has VI.52
Figure_.
Com_azisen
of salary
_anges.
VI.53
Table 14.
Agency
Scientists with postgraduate qualifications in colleges and universities and MA_.
Colleges & Hniv.
;
M.S
%
Ph.D.
%
Total
1970
1977 change 1970
1977
292
428
46
143
192
34
435
620
42
39
-23
3
4
33
54
43
-18
Ministry of 51 Agriculture & Natural Resources
change 1970
%
1977 change
From: Review of the Research System of the Ministry of Agriculture and Food in the Philippines. 1986. ISNAR
VI.S_
Table 15.
Basic salaries and allowances Of technicians (Pesos).
Basic Salary
Living Allowance
Travel Allowance
NFAC Allowance
Total
FMT I
700
i00
i00
200
i,100
FMT II
774
100
100
200
i,174
St. FMT
855
100
i00
200
1,225
HMT
603
i00
200
-
903
RYDO
603
i00
200
-
903
LI
603
100
200
200
i,103
MCDO
774
100
200
-
1,074
PPCT
700
i00
i00
200
1,000
Source.
Ministry of Agriculture
VI.55
Table
16.
Partial list of projects of the PCARRD Secretariat.
implemented
by staff members
Source of funds
Duration
Year Start Ehd
PCARRD
2 years
1981
1982
2. Controlled Breeding of Migratory Fishes in Naujan Lake
PCARRD
3 years
1981
1983
3. Inventory and Cataloguing of Municipal Fishing Gears in Regions V, VI and VII
PCARRD
3 years
1984
1987
4. Rainfed Resources BenchmarkAssessment (Fisheries Sector)
PCARRD
3 years
1984
1987
5. Classification of Philippine Soils Using Soil Taxonomy Framework for Agrotechnology Transfer
ASSP
5 years
1984
1988
6. Establishment
ASSP
Title
i. Culture
of Gracilania
of Data
1984
Base Information Storage and Retrieval System 7. Compilation and Evaluation of Soil Science Information from the Bureau of Soils Programs/Projects
ASSP
8. Soybean Program
PCARRD LBP
Pilot Production
3 years
1983
9. Interagency Rice Based Cropping Systems Preevaluation Program
PCARRD IRRI
1982
10. Cropping Systems on Rainfed-Wet Areas
PCARRD IRRI
1982
VI.56
1986
Tab'le 16
continued
. . . Source of funds
Title
Duration
ii. Herbicides Applied Research PCARRD Trial in Rice Direct Seeded IRRI in Dry Soil/Puddled Soil in Rainfed Wetland Areas Integrated Soil Areas
Lowland
Year Start Ehd
1982
and Saline
12. IRRI Rice Variety Trials: Very Early Maturing •Varieties/Selection Direct Seeded in Dry Soils in Rainfed Lowland Areas
PCARRD IRRI
1982
13. Variety Applied Research Trials Direct Seeded in Dry Soils in Rainfed Wetland • Areas
PCARRD IRRI
1982
14. Very Early Maturing and Early Maturing Varieties Applied Research Trials on Selections Transplanted on Irrigated Lowland Conditions
PCARRD IRRI
1982
15, Medium and Early Medium Variety Trials on Selection Transplanted on Irrigated Wetland Conditions
PCARRD IRRI
1982
16. Variety Trials DirectSeeded in Upland Rice Areas
PCARRD IRRI
1982
17. Variety Trials for Cold Tolerance at Banaue Rice Terraces and other Mountain Province s
PCARRD IRRI
1982
18. Rice Variety Manhilavka
Trial;
PCARRD IRRI
3 years
1984
1986
19. Rice Variety Mat isayon
Trial;
PCARRD IRRI
3 years
1984
1986
Pilot Project
PCARRD NSTA
3 years & 4 mos.
1982
1985
20. Wheat
....
VI,57
Table
16
continued... Source of funds
Title
Duration
Year Start End
21. Gracilania Culture Private Fonds
in
PCARRD
2 years
1983
1985
22. Rattan Production Village Level
at the
FORI
4 years & ii mos.
1982
1987
23. State-of-the-Art on Socioeconcmics
Project
PCARRD
5 years
1980
1984
PCARRD
2 years
1983
1984
ASSP
5 years
1983
1988
1 year
1984
24. Save
Our Soil
Project
25. Socio-Economic Impact Analysis of Agricultural Support Services Project
26. Return to Research PCARRD Investment in Agriculture and _2atural Resources in the Philippines 27. Crop Production and Land Capabilities of a Network of Tropical Soil Families
PCARRD, University of Hawaii
8 years & 3 mos.
1975
1983
28. State-of-the-Art Project on Non-Metallic Minerals; Fertilizer, Cement, Ceramics and Gemstones
PCARRD
7 mos.
1982
1983
29. Strengthening of the Philippine Carabao Research and Development Center
PCARRD, U.N. Dev. Program
30. Peanut
USAID
Collaborative
Research Support Program of the USAID and the University
of Georgia
31. Highland Agricultural Development Program (HADP) of the Ministry of Agriculture and Food
MAF
VI.58
1984
Table
16
continued
.... Source of funds
Title
32. Southeast
Asian
Duration
Year Start End
Potato
Program for Research Development (SAPPRAD)
and
CIP (International Potato Center)
33. International Sorghum and Millet Program
University Nebraska
34. Technology Generation Component of the ASSP
World
35. ASEAN-RPMarine
ScienCe
NSTA
Program
_STA
of
Bank
Program 36. KKK-NSTA
Action
37. Rainfed
Resources
USAID
Development Program (RRDP) Region VI Technology TransEer Component tlnder the Auspices of USAID, MAF, NEDA and
PCAPd_D Source s: i. For items 1 & 2, Directory of Researches in Agriculture, Forestry, Fisheries and Mines in thePhilippines. October 1981. Volume 2. PCARRD, LoS Banos. pp 73. 2: For Items 3 thru 28, Directory of Agriculture and Resources Researches in the Philippines. February, 1984. Volume 2. PCARRD Eos Banos, Laguna. pp 7-8, 119-127, 682. 3. For item 29, Directory of Agriculture Researches in the Philippines. February, PCARR, Los Banos, Laguna. pp 7. 4. For items 30 thru 37, PCARRD, NSTA, 1985, UPLB,
PCA_ Lagt_ao
VI.5S
and Resources 1982. Volume 2.
Annual Report, pp 59-61.
1984.
seven strong Technical Departments (Figure 6) whose staff's need for professional growhh must be satisfied. The technical[ strength of the Secretariat is a product of a strong manpower development program consisting of 378 grants'since PCARRD's establishment to date. Also, the continuing personnel increase at the Secretariat has •been attributed to the implementation of projects by the staff. e. Field • extension agents, besides being poorly paid, are generally overworked and handicapped by inadequate ski 1 is. In the ultimate analysis, the ability of MAF to operationalize a revitalized extension program depends upon its soldiers at the firing line: the field technicians composed of about 13,000 farm •management • technicians (FMTs), 2,400 home management technicians (HMTs), 700 rural youth development officers (EYDOs) and 1,500 livestock inspectors (LIs). Extension technicians, besides being the lowest paid civil servants (Table 15), are handicapped by inadequate skills in three fundamental areas: economics, ariculture or home science, and extension methods (Carino and Sison, 1975; Byrnes and Golden, 1967). Most field extension agents with inadequate •skills are products of sub-standard state colleges and universities of agriculture. During the last 13 years, a total of 32 agricultural high schools and MECSsupervisedagricultural colleges• -- institutions with ill-prepared faculty members and very inadequate facilities -were given charters and granted autonomous status and authority to offer baccalaureate degrees in; agriculture and allied •fields, Currently, overproduction of agriculture grad" uates, majority of whom possess doubtful marketable •skills, is donservatlvely estimated at 94 percent over •demand (TPAE, 1984). Moreover, extension agents are asked to accomplish numerous forms and other written assignments that 8hey have little time for actual farm and house visits, field demonstrations, farmers and homemakers classes, planning with people, and other related extension work (World Bank, 1978). Field technicians have to fill-up numerous forms for monitoring and statistical purposes, affecting work efficiency and effectiveness of extension personnel and reliability of the data being collected. Heavy work demand and lack of mobility forced technicians to "manufacture" data to meet
VI.60
I
,
Governing Gounc|!
J '
f, r
DirectOrs'C°unc|'
1
I
Ex°cullv°Dlreol°rl
l
'"
'
I Te=h:lca'A':vls°rYC°mrni/:°°-I
J''
'
'=
"i
DepulyExeoullveDlreclor } lot OevslopmenZ & / DopulYlor, ExecullveRoseerchDIroclor. ,.j
ii
• I
arm
e ross Re sisou a
F_'a,=
DI eclat Fisheries
I
[
Dlrec,or F_es!
Director Mines Research
I Director | 8oclo.Economlo_ / Research
Deparlmen_
Department
/
FiguPe
_.
Dlmolor uommunlosllon _ Applied
Dlreolor & Admlnr'alrsllon Finance
Re.,rohI r ResoarcP/h
Olreolor , Llveetoci_ Research
L__
FinancialManegemsnr . ---
_'.__
Il, Re.=h illf °" Ill " t_. ' oo.-":: fl Jla 'I O_olor Cr°l_
"
Dli,ocior Inslllulion Development
,
Oepertmenl
_......
i r
_! Nalionlla Mulll.Gommodlly
. Hellene! i SJngle-Com.modlly
RegionalResearch
ResearchCenters
ResearchCenters j
.
Qi-ga_Tizatlonal Se'_-Up Re._ea Pch Syst e_
V][.61
of
PCARRD
and
Oenler,_.
Che
:
i Coopera(ing
.
Natlo)_a2
Stellons
deadlines in submission. Likewise, field technicians' mobility is a major problem in interior villages and towns especially in less developed provinces. The situation is worst in upland areas. f. At present, there is no systematic mechanism by which useful information flow from the research system to the extension system. BAEx, PCARRD, research institutes/centers, R & D units of certain autonomous government agencies, and SCUs have applied communication units which are not structurally or systematically linked to one another or to the training program being undertaken by the Philipine Training Centers for Rural Development (PTCRD). The rural population and field extension agents have varying access to agricultural information, the level of accessibility being highest in the provinces around the greater Manila area. g. Even under a decentralized system, strict accounting and auditing rules hamper the smooth operations of research and extension. Through the initiative of PCARRD a revised manual for auditing research operations was approved by COA which liberalized to some extent existing restrictions. This needs to be revised and improved further. Moreover, the same manual should be made applicable to extension act ivi ties. Recommendations a. Aim for agricultural
a more rational research fund.
regional
distribution
of
PCARRD should take the lead in making a critical review of research fund distribution by region. Regions contributing greatly to national agricultural productivity as well as those with great potential should receive a fair share of the agricultural research fund. The regional research fund allocation is undoubtedly a function of existing strong research centers in the different regions. This implies that investments on institution building in high priority regions must be made. b. its
Reorganize functions
the along
PCARRD Secretariat the following:
and
streamline
i. Eventually transfer its present research extension activities to appropriate agencies the research-extension system and concentrate
VI.62
and of its
efforts in coordinating, monitoring the National Research Network.
and
evaluating
ii. Reorganize its Technical Advisory Committee to include leaders of regional consortia in order to assure the proper representation of the main implementors in the formulation of the National Research Extension Program. This action would eventually lessen the load of the technical depa rtme n ts. iii. PCARRD should adopt a rational formula funding scheme to support the medium and long term research programs of research centers. In addition, PCARRD should continue its competitive research grants (Grants-in-aid or GIA) to promote research quality and creativity of the research sector. iv. Once the formula funding scheme is adopted to support medium and long term research programs, PCARRD should make a yearly evaluation of the centers' researchprogram performance and total activity vis-a-vis the national research picture in lieu of the tedious review of individual studies/projects. The research centers should set up their own review mechanisms for individual studies and projects under the research program. These moves are expected to lessen the personnel requirement of the PCARRD Secretariat. Since PCARRD personnel are well-selected and highly qualified, they should be transferred along with their items to appropriate agencies of the research-extension system. c. Give immediate attention to the upgrading salary scale of scientists and extension agents.
of
the
Where necessary and advantageous, the NSTA salary scale for scientists must be extended to both research centers and technology verification MAF/provincial experiment stations. For the field extension agents or technicians not engaged in technology testing and demonstration trials in farmers' fields, a minimum salary of _2,000/mo. would be appropriate. This is similar to the minimumsalary level the Ministry of Education, Culture and Sports aims to give the public school teachers. With higher adopting the NSTA incentive system
basic compensation salary rate, PCARRD (i.e,, payment of VI.63
made possible should modify honorarium on
by its per
study, project or program basis). Toprevent fragmentation of projects and decreasing quality of research due to overl6ad, honorarium should be limited to two research projects regardless of number of studies. It would he ideal if the honorarium system is dropped altogether. d. all
Provide a system research centers,
of ensuring dynamic including PCARRD.
leadership
in
Research is dynamic, hence research leaders must be dynamic. To ensure dynamic leadership, the term of office of a head of any research agency, including key research division chiefs, should be limited to one or two terms of 3-5 years. Heads of research agencies/ centers should as much as possible be tenured university professors or researchers whose service in the agency may be considered as tours of duty. To avoid possible conflicts of interest, heads of research centers/agencies, including key research division chiefs who have a role in funding and evaluating research should not implement research projects. e. Streamline the present capabilities
responsibilities of field extension
and upgrade personnel.
the
Paperwork and report writing responsibilities of field technicians must be reduced such that no more than i0 percent of the working hours or two days per month is to be spent on such activities. The collection of statistical data which requires survey work should be removed from field extension workers' responsibilities. Equal efforts should be made on upgrading the competencies of field technicians especially on communication, organizing farmers and technical skills. Non-traditional methods of in-service training which are usually conducted by non-governmental organization (NGO) should be explored. The Ministry needs to review its Special Vehicle Loan fund especially the interest rate and the equity requirement so that it becomes affordable to the technicians who will use these vehicles principally in the performance of their official duties. Further, a more realistic travel allowance rate should be instituted.
VI.6_
f. Institute a strict standard minimize political appointments
for extension and nepotisms.
agents
to
This can be attained by instituting a board examination for extension agents. The examination may include practical tests to determine the technical as well as social skills of the examinee. g. Develop an integrated applied communication system in agriculture which will increase rural people's access to research information. The Bureau of Agricultural Extension (BAEx) should take the leadership role in developing a national applied communication system in agriculture which _should involve both print and broadcast media. Its long history in the delivery of extension service and its relatively good communication facilities acquired _through the World Bank-funded National Extension !Program place it in a strategic position to assume the lead position in cooperation with research centers and _stahe colleges and universities of agriculture. Besides the use of printed matters, a national network of rural radio should be established to bring up-todate information in agriculture including price information to farming communities who may not have access to newspaper. The role of the Philippine Training Centers for Rural Development should be re-examined. If BAEx takes _the lead role in applied communication, it becomes logical that it also assumes the responsibility of planning extension training programs of national importance. However, PTCRD facilities should be absorbed in the university system where they are located to improve the maintenance and management of these facilities.
VI.65
SUMMARY The new government must make a substantially stronger financial commitment to a_rlcultural research and extenslon. An initial goal will be to bring the level of public investment •in research to that of other countries. To achieve this, the level of funding for agricultural research •would have to be raised from 0.2 percent of gross value added in •agriculture• to 0.6 - 0.8 percent in the next five years. A reasonable long term goal would be 1 to 1.5 percent of gross value added. Private sector research must a.lso be promoted by appropriate incentives. Highest priority should be given to those commodities whlch•contribute most to the total value of agricultural output. This can be modified to reflect potential for market expansion, and technological breakthroughs, and equity considerations. A minimum size of budget and staff may be established for a research area to be funded to avoid diffusion• of research efforts. More attention is needed to some research that are not commodity specific and beyond the production phase. The agricultural research and extension system should also focus attention on the unfavorable areas and disadvantaged farmers. Beyond the level and allocation of research and extension funds, institutional reforms and reorlentation are necessary to increase efficiency of investments in agricultural research and extension. Greater decentralization (as research and extension are locationspecific), closer linkage •between research, extension and their rural • clientele, and a more rational incentive structure •most be achieved. More progress is needed in developing a farming systems perspectives where the research and extension essentially starts from the needs and capabilities of rural households and therefore requires their participation, directly or indirectly into the research and extension process. In terms of institutional reforms, the following have been recommended: •a. Adopt a long-term plan to transfer leadership for research and extension to strong regional SCU's and MAF research center with MAF playing a supportive and complementing role. Regional MAF research centers in areas where no strong agricultural university exists may be converted and developed into multicommunity research centers such as Regions VII and XI. This approach could be piloted initially in VISCA, CLSU, and USM. UPLB should continue to provide national leadership and also regional •leadership in the Southern Tagalog region. In the meantime other SCU's in the region must be strengthened over the next 5-10 years.
VI. 85
b. Adopt a long-range plan also to integrate all agricultural extension functions and put administratively under the local provincial and municipal government. To make this feasible, a satisfactory formul% for national funding and extension which takes into considerate equity factors should be arrived at. Farmers organizations may also be tapped to complement government's efforts in this regard. MAF should continue to provide technical and financial support. c. Strengthen linkage between research and extension and the rural clientele at the policy and field level by placing PCARRD (which would continue to coordinate, monitor andevaluate the research system) under the MAF umbrella; developing a strong cadre of subject matter specialists to interface between research and extension; by maximizing direct interaction between SCUs and extension field personnel. The research-extension philosophy should be to bring about a people-focus and a more dynamic participation of the rural population in the research-extension system. A strong training-retraining program for subject matter specialists (SMS) to strengthen the interface between research and extension should be launched. d. Improve fiscal and management practices including a substantial upgrading of the salary scale in research and extension; a streamlining of operations of PCARRD by moving away from project to "formula" or program funding and focusing on evaluating research program performance (evaluation of projects and studies should be left to the institution concerned) and overall institutional performance vis-a-vis the total research-extenslon system; providing a system of ensuring dynamic leadership in the whole research system; and instituting a more flexible and liberal system of accounting and auditing rules for research and extension.
VI.67
B.
SUGGESTIONS
ON
ORGANIZATIONAL
REFORM
b/
The victory of the February revolution has opened avenues for changes which once had remained inaccessible our policy,makers. Now, more than ever, conditions f social changes are ripe; the Filipino people are not on demanding changes but are expecting them. This is particularly true for the _ricultural secto the lifeblood of the Philippine • economy.--, If the sector going to play its envisioned role as the linchpin of t[ country's economic recovery, changes in policies affectil a grlculture and the structure that was established implement these policies are imperative. The previous chapters have suggested reforms for this sector. The challenge with an organizational structure that 'such re forms.
various poli( now is to come l will facilital
The discussion will be divided into three section The first section gives a historical background on t_ institutional development of the Ministry. This hel_ provide better appreciation of the growth of this governmer agency as it responds to the demands and challenges of it changing environment and role in the country's developmer undertaking. The next section gives a schematl presentation of the current organizational structure (i.e MAF structure inherited from the Marcos regime) of t_ Ministry. The final section discusses the group's suggest¢ organizational structure for MAF. The proposed structure formulated on the basis of the notion of an ideal set up fc the M_nistry rather than a structure constrained b political pressures.
I.
Historical
Background
The beginnings of MAF can be traced to as early a October 8, 1901 when the Bureau of Agriculture was create with the enactment of R.A. No. 261 by the US-sponsore Philippine Commission. The Bureau was placed under th administrative supervision of the Department of Interior which in •turn was entrusted authority over agriculture an natural resources. With the •passage of the Jones Law in 1916 (also calle the Philippine Autonomy Act), a reorganization of th Executive Branch of the government occurred in the followin year. Consequently, a full-pledged Department o Agriculture and Natural Resources grew out of the forme Bureau of Agriculture in 1917. Under this newly-create,
VT.68
Department Agriculture,
we.re three the Bureau
bureaus, of Lands,
Later, in 1930, one Agriculture) was split Industry and the Bureau reorganization occurred Agriculture and Natural Department of Agriculture implies, a new bureau, Communications, was placed of Agriculture.
namely, and the
the Bureau. Weat he_ Bureau.
of
of the Bureaus (i.e., Bureau of into two." the Bureau of Plant of Animal Industry. Another in 1932 when the Department of Resources was converted to the and Commerce. As its name the Bureau of Commerce and under the administrative control
Successive changes in the administrative structure occurred between 1939 to 1947. Commonwealth Act No. 418 created the Division of Soil Survey in 1939 under th_ Department of Agriculture and Commerce. A Division of Statistics, which was eventually converted into the Bureau of Census and Statistics, was later added. In 1947, the Department of Agriculture and Commerce was again renamed Department of Agriculture and Natural Resources (DANR). Eventually, a Bureau of Fisheries was formed and was subsumed under this reorganized Department. The 50s witnessed the expansion of the administrative responsibilities of the Department. The Division of Soils Survey was converted into a Eull Bureau in 1951. Republic Act No. 9997, as amended by R.A. No. 1241, of 1954 defined the administrative scope of Agriculture by placing government corporat'ions under it (refer tO Figure 7_). It is interesting to note that during this period the Philippine Coconut Administration and the Philippine Sugar Institute (forerunners of the Philippine Coconut Authority and the Philippine Sugar Commission, respectively) were under the supervision of DANR despite their important role in the economy. Their massive contributions _ to the government coffers did not warrant the creation of autonomous agencies catering to their needs. The 60s did not see any dramatic changes in the Department except for the usual modification of functions and restructuring of divisions and bureaus in response to the growing complexities of demands and problems of development. One of such responses was the conversion of the Agricultural Economics Division into a full Bureau in 1963. In contrast, the 70s saw successive restructuring of the Department corresponding to the dramatic changes in the country's socio-politlcal life as a consequence of the declaration of martial law in 1972. Nineteen seventy-four saw the promulgation of Presidential Decree (PD) No. 461 which enunciated the split of DANR into two: the_ Department
VI.69
Vl.70
o_ Agriculture and the Department of Natural Resources. From thereon all activities pertaining to and involving agriculture were placed under the jurisdiction of the former, while those relating to and involving matters on natural resources were assigned to the latter. With the conversion of the political structure of the government from the presidential system to the parliamentacy form, the Department was renamed into a Ministry through PD No. 1397 in 1978. The same year also saw the Promulgation of PD No. 1579 which created the ministry-wide regional offices in the Ministry of Agriculture (MA). This meant the abolition of _he various bureaus at the regional level and their integration/me rge r into a regional office under the supervision of a regional director. On the other hand, the various bureaus at the national level were retained although they were deprived of their line functions. These bureaus that performed staff functions for the Ministry were: (i) Bureau of Soils (BS); (2) Bureau of Plant Industry (_PI); (3) Bureau of Animal Industry (BAI); (4) Bureau of Agricultural Extension (BAEx) ; and (5) Bureau of Agricultural Economics (BAEcon). PD 1579 also stipulated that the following governme owned and controlled agencies and corporations would I aEtached to the Ministry: (l) Philippine Cott_ Corporation; (2) Philippine Virginia Tobacco Administratiol (3) Coconut Investment Company; (4) Philippine Tobac. Administration; (5) National Grains Authority (now called National Food Authority); this public agency was later separated from the Ministry to take care of marketing of grains and other important agricultural commodities) ; (6) Fertilizer and Pesticides Authority; (7) Philippine Virginia Tobacco Board; (8) Presidential Committee on Agricultural Credit; (9) Philippine Agricultural Training Council; (i0) Palayan ng Bayan National Advisory Council; a_nd (Ii) the National Governing Board of the Philippine Training Centers for Rural Development. In addition, several agriculture-related agencies were placed under the administrative supervision of MA, namely: (I) the National Food and Agricultural Council; (2) Green Revolution Expanded Program Action Committee; (3) LivestoCk Development Council; (4) National Meat Inspection Commission; and (5) National Artificial Rain Stimulation Committee. However, the Philippine Council for Agriculture and Resources Research was taken away from the Ministry and was attached to the National Science Development Board (now known as the National Science and Technology Authority). Two important enactments were affected the organizational structure first one, Executive Order No. 803,
VI.71
made in the 80s that. of the Ministry. The issued in 1982 provided
for the establishment of the "Integrated Area Management System for Agricultural Services" (IAMSAS). The strategy called for the coordination of the various services of the different agencies involved in agriculture in a specific area in order to maximize government •resources and have an effective delivery of services to the farmers. Although the notion of IAMSAS was good, it never really took off because of conflict between/among the priorities of the various government agencies in a particular area. As the field personnel were receiving salaries from the agencies they represent, they were forced to give priority to their national agencies' program despite their divergence to local prlorities. The second legislation, Executive Order No. 965 issued on July 9, 1984, renamed the Mini-%tFy of Agriculture to the Ministry of Agriculture and Food ±/ (MAF) in order to unite all agencies engaged in agriculture and food production under one Ministry. The renaming of the Ministry necessitated the transfer of agencies attached to other Ministries to MAY. For instance, the Bureau of Fisheries and Aquatic Resources (BFAR) was transferred from the Ministry of Natural Resources (MNR) to MAY, and like other MAF bureaus, was converted into a staff bureau. Likewise, the Philippine Fisheries and Development Authority was! attached to Agriculture from MNR. In addition, the Fishery Industry Development Council was abolished .while the Bureau of Forest Development's(under MNR) power to issue forest land grazing lease agreements was curtailed by giving MAF the authority to review and approve such decision.
II.
Thee Present
Organizational
Presidential Decree 1579 and provided the bases for the present of the Ministry. Figure 8 shows corporations, councils and boards supervision and control of MAF.
Structure
of
MAF
Executive Order No. 965 organizational structure the different agencies, under the administrative
Despite the passage of several laws purporting to strengthen the Ministry, these enactments failed to enhance the capability of MAY to carry out its mandate. The succeeding discussion highlights the organizational and administrative flaws of the Ministry. Unclear and conflictin_g policy._ objectives. The , , _-w ---_-- mandate , Mznzstry zs asslgned primar----Tly£he_task--o-{ "Kccelera_ng the development of agriculture with the objective of increased productivity and higher farm income". To carry out this mandate, MAF has to enunciate policies which can be translated into programs that are supportive of this
V:l .72
ta
_a
•
__.
_.73
I! ________________-
objective. Unfortunately, the previous policies promulgated by the past regime vis-a-vis the agricultural sector were detrimental rather than beneficial to it (refer to chapter I of this work and relevant sections of the various chapters in this report). The net effect of such policies was the outflow of resources from rural tothe urban sector. These policies therefore have acted as disincentives for improving productivity and have contributed in aggravating the already skewed income distcibutlon in the countryside. Moreover, the MAF structure lacks the flexibility required for responding to the changing demands of the environment. For instance, the oil crisis in the 70s led the government to subsidize fertilizer products to protect the farmers from high energy and fertilizer Costs. The change in the oil scenario found the gove_'nment protecting a domestic fertilizer industry that has become uncompetitive (and hence inefficient) because of the drastic fall in the world price of oil. Thecase above illustrates the myopic reaction Ministry to transitory events. It also indicates times, MAF is more concerned with the welfare consumers rather than the farmers. Stabilization benefit the lower prices
consumers for the
more than the farmers latter's produce.
as
they
of the that at of the measures tend
to
Given such a situation, it is clear that the Ministry had not adequately addressed its mandate of increasing productivity (as low prices discouraged farmers to produce more) and higher farm income (because of low prices for their produce). To correct this situation, MAF must first recognize that its first and foremost role is to protect and promote the farmer's interest. It must act as a "lobbying" group in the government on behalf of the farmers and leave the business of protecting the consumer to the consumer groups/associatlons. By starting with this presumption, the Ministry will be able to clearly define its mandate and formulate policies and programs that will carry out this mandate. Proliferation of Agencies. Although there have been a ser_es of laws and _s reorganizing the MiniStry they were issued and implemented for political and administrative expediency rather than for the purpose of strengthening the organizatio_n. Vital agencies in agriculture (e.g., NFA, PCA, Philsucom, etc.) were kept separated from MAF and this condition constrained the Ministry in pursuing its objective of helping the farmers. Consequently, this fragmentation slowly eroded the authority of the Ministry.
VI.74
A by-product of this arrangement is the proliferation of agencies dealing with the same comlnodity. For e×ample, there are six different agencies concerned with tobacco (i.e., PTB, VTFC, PTRTC, PV_A, PTA, PVTB) and five agencies (i.e., BAI, LDC, NMIC, PDC, PhilBai and PDC)overseeing the animal industry. Each of these units is concerned with a specific activity oF the c_nmodi ty (e .g. , ma rke _ing, production, regulation) thereby generating confusion in the delivery of services to intended clientele. Another consequence of this set-up is that policy formulation and implementation have become commodity/agencyoriented. Each agency pucsues thei_ specific concern usually without regard for other units of the government. The cesult is tlne proliferation of pcogcams and projects which overlap and o_tentimes conflict. Not only is there an array of agencies and buL-eaus but also a spectrum of programs and projects that are under tlle jurisdiction of MAF; each of these entities commands an administrative structure. The end-result is the diffusion of responsibilities, erosion of an effective ir_creasing difficulty
the development of red tapes, check and balance mechanism, and in managerial control.
the the
Weak Regional Structure and Nebulous Provincial Base. Fig u r_---9- s h6W-s--{he" MAr-Reg{6naf C p roy i_cfal-- -S £-r-u'c'£J{e.- .... ft is headed by a regional director who is assisted by two Assistant Regional Directors; one for crops and the other for livestock. There are two divisions unde_ this structure (i.e. , the AdminiStrative Division, Division), and three units performing Agribusiness, Legal, and Planning and
and the Technical staff functions (i.e., Management).
The Technical Division is responsible for operational activities; under it are five services units, namely: Agricultural Extension Services Section, Crop Regulation and Control Section, Soil Survey Section, Animal Regulation and Control Section, and Cooperative Regulatory Section. To aid the Regional Director in the implementation oE the Ministry's programs and projects at the provincial level, the provincial agricultural officer (PAO), the city agricultural officer (CAO), and the municipal agricultural oZficer (MAO) are placed directly under his supervision. This arrangement suffers from several flaws. One is that the functional relationship between the two Assistant Regional Directors(ARD) and the Technical Division (under which are lump togethec the crop and animal activities) is unclear. Assuming that the ARO for crops concerns himself only with crop regulation/ control and soil survey, it is not clear whether the ARD for livestock will take care of
V_.75
VI.76
the other functions (particularly Agricultural Extension and Cooperative Regulation). The second flaw is that integration of the various bureaus at the regional level has not really been fully completed because the Technical Division is still divided into traditional activities/ concerns of the national bureaus. Moreover, the Technical Division which is responsible for operations does not have a direct linkage with the field personnel and facilities which are needed to implement the programs and projects of the Ministry at the provincial/municipal/barangay level. Fourth, the provincialmunicipalcity agricultural officers can not avail of the services of the technical experts under tl]e Technical Division without the approval of the Regional Director, in the case of the provincial agricultural officer, and the Regional Director and PAO, in the case of _AO and MAO. This cumbersome procedure has the effect of discouraging the lower level officers to consult knowledgeable indi v'iduals/experts at the regional office on particular problems of their provinces/districts. Lastly, as the Regional Director and PAO directly report to the Office of the Minister, this means that they will give priority to programs emanating from the national office. This is alright iF national priorities jibe with regional/ provincial concerns, but most often, such fit is the exception rather the rule and thus reglonal/provincial priorities are celegate_ to the detriment of the people's welfare in this area.
III_____t. Suggestions Given the above Organizational structure guidelines in mind: I.
!
The
structure
for
the
Reorganization
considerations, is being made
follows
having
functional
commodi
ty-or ien tat ion.
2. It various
was based on the papers contained
policies in this
of
MAF
our suggested the following
lines
outlined work.
rather
in
than
the
3. It observes the general principles3/ formulated by the Presidential Commission on Government Reorganization team as guidelines for the reorganization of government ministries and agencies. 4. Finally research
it gives particular extension because of its
increasing services
to
farm productivity the clientele of
V£.77
MAF,
importance vital role
to in
and the delivery i.e., the farmers.
of
It
must
be
noted
tl_at
the
functional
lines
are
suggestive of structural directions whece the presently existing agencies can be categorized based on their dominant activity . The prerogative of deciding where to place them must rest on the Ministry people, and as such, the agencies cited in tile succeeding discussion should then be treated as mere examples. a.
of
Five
functional
areas
We see five functional the Ministry can revolve
for
areas (refer
reform. wherein the reorganization to Figure i0 ).
i. Policy, Planning and Programming Concerns activities which deteraline the short aod longterm directions oE the Ministry including progral, s and projects which are supportive of these thrusts. This area can be sub-divided into: a. Policy Research Staff (including for credit) - will be assigned the formulating the short and long-term of the Ministry.
concern task of thrusts
b. Planning and Programming ( including concern for rural infrastructure) - concerns with the translation of the above th_.usts into
programs
and
projects.
c. Agricultural Statistics Traditionally, the function of BAEcon. With the establishment of this unit, present BAEcon staff can be distributed between the Policy Research Staff and the proposed Agricultural Statistics unit. d. Computer Servicesbackstopping the data banking need of the Agricultural Statisties. May also play a lead role in designing MAF's MIS, and computer and data network down to the regional level. 2. Marketing and Consumer Services This unit is responsible for all activities pertaining to promotion, trading, transporting and deliveL-y of goods and services and the provision of information related to these activities. Under this
concern,
a number
of
VI.78
units
can
be
placed:
i
•
•
___ _°°_'__.. .____
_
•F'
o
,,-
,
73 ,
I
•
I
q
. '_.,
•
i
0
!
rJ
_l _-,,,:
_.
.
++++_ _'.,.+ .i,_
!
¢"
I
• - .,. ,_ '. ,_._ _.. r-I
'
,,
._ __.__,,
_,_'I 0
t_, ,,
r).l
___
V_:79
::,_.,
a. Price Stabilization primarily (possibly converted into the status of old RCA) and other agencies concerned these act i_i ties.
NFA the with .....
b. Market Analysis, Assistance and Promo-. tion - concerns with current and future stat_ of the market and prices of com,Ddlties and the promotion of agricultural commodlties, domes tic.al ly and internationally. The _proposed agribusiness unit, export promotion division, BAEcon's Marketing division, MAF's Special Studies Division, and NFA Directorate of Non-grains can be placed under this unit. 3. These aids
Production Services (refer ho Figure i%) refer to the whole range of activities which ill increasing farm ylelds. a. Research• - to be done primarily through regional state colleges and universities (to network provincial colleges) and coordinated, monitored, and evaluated by a streamlined PCARRD. All agricultural research of MAF should eventually be integrated into that system. The Minister of Agh-iculture shall be the chairman of the PCARRD Governing Council and PCARRD shall be attached t:o MAF (for further details, please .and extension paper). b. Extension training and
refe_
all applied extension • services
to
the
research
communication, (BAEx, P ATC,
FTC and PCARRD Applied Communication .••Unit) must be integrated. Delivery of integrated agricultural extension service should be a primary responsibility• of provincial• and municipal governments (please see research and extension pa_ec). c. Irrigation and other production services a closer linkage should be effected with NIA es[mecially in the delivery of supporting services ho irrigated areas. Influence of MAF in NIA should be strengthened initially by having the MAF Minister as chairman of the NIA
8oard.
.:
_.
4_ COnservation and Regulatory Services These refer:to the whole range of activities which concerns with striking a balance between maximizing productivity (and returns to entrepreneurs) and
• VI,80
i onx_ or _m _z.z_
|
,.
_IqIM_C"_CH ,Sq_R_CIS
! i
•
I
i ,
I
Gov'e=n.tn, ."Ca.l_
L.__.
•
I.
,
_
i
IR°aaa_ah 1"-'1 Xl_t'_t_
.I
"!SCU)Un_v"
_I .
I
.
II
z_Lz_I_Tz(_I '
I
....
II
....
•
I* .
I"-'l,.i
ILX_.Z.ON
I
I
I_
II
.co,,._o 0n°e°m_°h !,I....................
.
-I
r i_,_ _BR _SC,*
KoaoJ.I(ll]_r;gIK_L_y
"
1_ J_°erzc_s ---. _ llXII'IHI;X Oil
Ra'si_azoh Cel_t8_'l *,l'o:Ln_._jp._x)ln_nt.,
_ICUs
Can_'aJ. i _. UnlvereLty (Cr_u| vLnys$ Seats College of Ag_£cult:u_co (V_b"C^) Cont:nJ. HLndaMo _£w:-_ (c_u)
Figure
I_.
Suggested organizational Production services.
Vl,81
etr.L_cture for research,
I
it iiov./czTY III_IIGPAT_-D
extension
and
r
attaining BAI, 8S, Authority
a stable ecology. A streamlined BPI, FIDA, BFAR, and the proposed Pesticide fall under this area.
5. Administration refers to non-agrlcultural activities in MAF which are related and pe_ta_Ining to managerial, financial, personnel .• and legal matters. Under this concern can fall units like Administration and Finance, Offices (including MIS). b.
Other
Suggestions
for
Legal
and
Personnel ....
reforms.
Given the above structure, it is implicit that the functions of comlnodity specific agencies will be distEibuted to the appropriate units under a reorganized MAF. Thus, such agencies like the PCA, Philsucom and N_A will lose their autonomous status and their role will be confined to coordinating, industries.
monitoring
However, the cetained by the national commodity policy research-) recommended in the
and
regulating
their
•respective
advantages of a commodity approach establi shine nt and/or strengthening research (concecning both technical centers for major col,modi ties section on cesea_ch and extension.
are of and as
As for the Regional Offices, we suggest that it should be streamlined by confining its functions to coordinating, monitoring and evaluation of the delivery of all MAF's support and regulatory services. Research and extension will become the primary responsibility of SCUs and provincial governments, respectively (refer to researcll and extension section). This will ensure accountability of the Research and Extension system and faster delivery of services to the fa rme rs. It is also desirable i_ the Ministry could maintain an office Eor developing and assisting agricultural cooperatives (as they are veritable conduits for farmers' participation) although general cooperative development and management could be a Eunction of an independent unit _ such as a "cooperative Development Authority". Along the line of strengthening the participation of the farmers, NGOs_ and business sector in poli_y-making, they;should be adequately represented in the new NFAC (at all levels national, regional and provincial) or a special Multisectoral Council could be formed to link them directly with the Office of the Minister.
VI. 82
Finally, we believe that the National Nutrition Council ([_NC) should be retained, under the MAF because the policy instruments under the farter's control have a signlfican-t impact on nutrition conce,'ns (nutrition is primarily a poverty-related problem and one •will be .guilty of serious omission if one treats it merely as a health concern). Thus, the objective of NNC would be better served if it is linked with MAF.
V____t I Concluding
_Re_mma rks
The above suggestions are being offered as guidelines for the Ministry.• The decision on what agencies or bureaus to merge or gradually phase out will rest on the Ministry officials, for in the final analysis, it isthem who will be accountable for what happens to the organization. Reorganization activity is a continual process and desired changes cannot be accomplished in one stroke. Some of the proposals cannot be immediately implemented as they will have a drastic impact on the lives of many MAF employees. We cannot ignore this reality. Our ultimate objective of achieving an effective, efficient and cesponsible organization cannot be attained without taking into consideration this reality. In many instances, we have to work with this reality and accept the fact that changes will have to be worked out gradually. But as long as the political commitment and will is there, these desired changes will eventually be attained.
V_.83
'NOTES a/ Prepared by Dr. Fe rnando Be rnardo, Director, Southeast Asian Regional Center for Agriculture and Graduate Studies (SEARCA); Dr. Eliseo Ponce, Director, Center for Social Research, VisayaS State College of Agriculture; and Saturnina C. Halos, Researcher, Natural Sciences Research Institute, U.P. Diliman.
b/ Prepared by Fe rmin D. _driano, Deputy Executive Director Of Center for Policy and Developlnent Studies, UPLS. Aside from the members of APST, the following individuals consulted : Drs. •Gabriel Iglesias, Alejandro Ibay and Ledevina Carino, U.P. College of Public Adln inistration; Leonardo Ernesto
Montemayor, Ordonez,
Gerardo Presidential
Bulatao, Moises Sardido an# Commission on Government
Reorganization; Mr. Manuel Garcia, College of Economics and Management; Dr. Raul P. de Guzman, of UPLB; and Dr. Fernando Bernardo, SEARCA, Director. i.
The contribution and importance oE sector have been repeatedly cited sections of this work and thus we enumerate them again.
2.
The renaming pressure from fuse the National
the in see
Development Chancellor Executive
agricult-ural the various no need to "
of the Ministry was precipitated by international lending • institutions to • Food Authority (NFA) and the Minls•try
of Agriculture into a single agency. Unfortunately, the actual merger did n.ot occur because of political maneuverings. To give a serBblance of compliance with the pressure, the previous administration added the word "Food" to the Ministry (together with a few agencies) but maintained •the separation of NFA from MAF., •3.
il_
These
criteria
I.
Privatization
compete
with
are: -
private
2. Participatory interests of the 3. Accountability accountability?
Does
it
support,
rather
than
initiative?
- Does it seek affected constituencies? -
Does
•VI. 84
it
provide
and
serve
the
£or
sufficient
4. Decentralization making and implementation to the situation?
- Does it bring process to the
5. Cost effective - Does it operate to ,,aximize cost effectiveness?
on
the decision people closest
a lean
basis
Note that 2 and 4 are highly related to each other. What is missing in no. 4 is the question of resources, i.e., are L'esources being made accessible to the peoD1e? Does the structure adopted ensures that such resources are made accessible to the people7 The settlement of these issues are of eXtre{ne importance for obvious r.easons: participation without resources is an exercise in fcust_ation.
VI.85
REFERENCES
A.
A.9_ric ul tur al
Annual
Report. Philip
Arndt
and
•
pi_es V.
1985.
National
(NRCP).
Bicutan.
Ruttan.
Productivity Research". Boyce,
Researchand
E×tensiOn
:
Research
Council
Taguig.
19 75.
Age nda
Metro
"Resource
R.
of
the
Manila.
Allocation
in National and International ADC Seminar Report.
J.K and International
for
and
Agricultural
E. Eve neon. 19•75. Agricultural Research
National and an_ Extension
-A ricuY6;6/T-/Z661-opie-fi -C0-6"nc£f. e-W--f6-.k N.Y. i
Carino, L.V. Problems Delivery Programs.
and O.F. Sison. 1975 "Agricultural of Orga niza £ion and Profession". of Extension Services an d the Centec for Policy and Development
University Laguna.
of
Evenson. 1978. A Survey. Evenson. in
Philippines
Agricultural
and
Flores.
in Economic IRRI.
at
Research
1977. Comparative Evidence National and International
Evenson. 1976. The Impr oveme nt. Evenson
the
Los
and
Extension: Effective Masaga na Studies.
Banos.
College.
Extension
in
Asia:
on Returns to Investment Research Institutions.
Cost
and
Be,me•fits
in
Rice
1978.
"Social
Returns
to
Con seAu_ences - o[
th_e New
Rice
Technology
Rice
Research"
Techno!oc_z.
Evenson, R.E., P.E. Wagonner and P.R. Bloom. 1981. "The Agricultural Research sYstem in the Philippines: A Reconnaisance Report" Economic Development Center. Department of Economics. Minneapolis. Department of Agricultural and Applied Economics. St. Paul. University of Minnesota. Kislev
and R. Research Vol. 3.
Evenson, 1975, and Extension: An
"Investment International
vz.es
in
Agricultural Survey". EDCC.
Moseman, A.H. 1970. "Building in Developing Nations". Council. New York. N.Y. Mos he r, A.T. Ext e ns ion. N.Y. Nagel,
Agricultural Agricultural
Research System ' Development
19 78 An Introduction to Agr icultu_al Agr icu 1_Jr a l--D-e-v-e'l-6_/{4_ £" c_u-n c i 1Y.---_-e-W_-Y'oEk --1
U.J. et al. 1983. "The Modified Training and Visit System• in the Philippines: A Study on Extension Delivery System in Region III". Center for Advance Training in Agricultural Development. Institute of Socio-Economics of Agricultural Development. Techniche Unive rsitat Berlin. J
National Agricultural Research System Survey Technical Panel. 1971. "The Philippine Agricultural Research System; Evaluation and Recommen4ations". Survey Repo:ct NARSSTP. Manila. Philippines.
Papers
and Proceedings. 19 77. Allocation and Productivity International Research.
PCARR.
1980. PCARR's
"An Institutional Pre-Anniversary
n.d. the
"Challenge and 6th Anniversary
PCARR. of PCARRD
Co rplan
Conference of
on ResourCe National and
Self-Analysis". SympoSium (1979). Response at Celebration.
1984-1988.
1984
PCARRD.
Synthesis
P CARR".
Los
of
Proceedings
Bands.
Laguna.
Qui sumbing, E.C. 1986. Memo randum for the Minister of Agriculture dated Marcl_ i0, 19•86. Ref. No. 86-03-265. (mimeograph) . Quisumbing, Ministry Sison,
E.C. 1982. "The of Agriculture".
O.F. 1977. Professional
"That We Chair
Emerging Re•search System Part III. (mimeograph).
May Learn Lectures.
and
Teach with University
of
the
Wisdom" of the
Valmayor, R.V. 1985. "The M'aking of Philippine Agriculture and Resources Research System: A Case for the Developing World". PCARRD. Los Bands. Laguna. World
Bank Report. 1978. Staff National Extension Program.
_I1,187
Appraisal
Report
on
the
World
Bank Report. 1981. S_aff Appraisal Report of tile Agricultural Support Services Project in the Philippines. Report No. 3378-PH. Projects Department. Agriculture II East Asia.& Pacific Regional Office.
USAID.
1984. Agricultural 1984.
".Project Impact Research Loan
VI.88
Evaluation of Philippine If". (mimeograph). April,
ProgReSS WBD PARTICIPATED IN, WERE CONSULTED ON, OR RFACIED TO THE k_RK OF THE V&_I(XJSAtEHDRS
Research and Extension i. 2.
Dr. Higino Ables Dr. Cecillo Arboleda
3. 4.
Mr. L. Balcues Dr. Celia T. Castillo
5.
Dr. Le0nardo Chua
6.
Dr. Luzvimlnda B. Cornista
7.
Ms. Jovita Corpuz
8.
Dr.
9. i0.
Dr. Paul de Gum,an Dr. Alfonso Eusebio
II.
Dr. Dely Gapasin
12. 13. 14. 15. 16.
Dr. Arturo Gcmez Mr. Femando Bilario Mr. Chtto Irigo Mr, H. Imperial Dr. Emil Javier
17.
Dr. Fely Javier
18.
Dr. Ricardo M, Lantlcan
19.
Dr. Manuel [ant in
20.
Mr. Manuel Lira
Wtlfredo
U.P. at Los Banos Institute of Animal Science, U.P. at LOs Banos National Food Authority • Dept. of Agricultural Education and Rural Studies, U.P. at Los Banos
David
College of Agriculture, U.P. at Los Banos Agrarian Reform Institute, U.P. at Los Banos Agricultural Research Office., MAF Department of Land and Water Resources Ehgineering and Technology, ,College of Ehgineerlng and Agro-Industrial Technology, U.P. at Los Banos " U.P. at Los Banos Philippine Council for Agriculture Resources Research and Development Phili[:pineCouncil for Agriculture Resouroes Research and Development O.P. at Los Banos KMP-FRC National Food Authority National Food Authority National Science and Technology Authority Agrarian'Reform Institute, U.P. at Los Banos Office of the Director of Research, U.P. at LOs Banos • college of Agrlculture, U.P. at Los Banos Ministry of Agriculture
andFood VI,89
ii
I
21.
Dr'.EVelyn Mae T. Mendoza i i : :
22.
Dr. Tirso Paris
Institute of Plant Breeding, U.P. at Los Banos College of Development
F -onomies and. Management, Banos 23. Ms. Tess Pianas Lqational Food Authority •24. Dr. Edgardo Qulsumbing Agricultural Research Office, MAF 25. • Dr. :Eufemio RaSCo _nstitute of Plant ....... Breeding, .... "," ' " " • :","U.P. at Los Banos 26. Mr. Seg_ido Serrano Bureau of Agricultural .... • Extension, U.P.:at Los Banos 27. Mr. Siegfredo Serrano Pampanga Agricultural . _ .... ,.: . _ . . ,-.:,. COllege _ 28. Dr. Ramon Valmayor Philippine Council for ' ' ...."-... Agriculture Resources :"" " Research and '' ' " ,, " •' " Development 29. Dr. Ruben Villareal College of Agriculture , ,..... -. U.P. at Los Banos _I
l'
l
l"
I
l
....
'
l
l
I
U
"
P
"
fat
.[_)S
I
Government:Structures i.
Mr. Gerardo Bulatao ..... ' : ' _: " .... 2. Dr. Ledevina Carino :- •' ' • . 3. Mr. ConradO Gozun •, '.- ,, ••4. Dr. Alejandro Ibay ........ 5. Dr. Gabrlel Iglesias ' 6. Mr. Leonardo Montemayor ..... •" 7. Dr..Ernesto Ordonez L
i•
•'
"" 8.
!
• :
'•
•• •
.: Mr. Moises Sa_dido " "
.....
VI.90
Presidential Commission cn Government Reorganization U.P. College of Public Administration Ministry of Agriculture and .Food U.P. College of Public Administration U.P. College of Public Administration Presidential Commission -cn Government .ReorganizatiOn Presidential Commission on Government Reorganization Presidential _ission , (x_ Government ..,. Reorganizat ion
ANNEXES
Anne x •NOTES •
A
ON AGRICULTURAL a/CQMPANY AND THE THE NATIONAL, AGRICUL_UR&L INCENTIVESINVSSTMENT ACT 1986-5.
During the course of the team's work, there were several proposals/issues that emerged which the group felt _hould be addressed because of their possible impact on its 9olicy:recommendations. Two of the most important ones are: the, Ce,nter for Research and Communlcation's work entitled "Philippines: Some Approaches to Aid Utilization for Ag_.icultural Development"; and Presidential Decree No. 2_32, otherwise known as the "Agricultural Incentives Act of 1986" signed by former President Marcos on February 4 of this year. The first one proposed the creation of a parastatal agency ca_ipd the "National Agricultural Investment Company" (.NAGRICO)--_/whzch will make direct investments in private agricultural companies for the purpose of undertaking' "nucleus estates/small holders development programs including cacao under coconuts, oil palm, fruit trees and prawn farming." On the other hand, the second one offers a host of incentives, f L-om tax exemption' on imported equipment, breeding stocks and genetic materials to availment of numerous credits, to companies which would go to "preferred areas of agricultural ventures." As the team was working on a tight schedule, it was not able to make a coherent presentation of_ their reaction to the above issues although memoranda on the subject were constantly alrculating within the group and several i.nformal discussions were held on the topics. Below is a distillation of the ideas from these conversations and memoranda. A.
The The
NAGRICO
Pr__o_osal
highlights
of
the
CRC
proposal
are
as
follows:
- NAGRICD would contribute up to 50 percent of the equity capital requirement for any project, either directly • when the investment is '!large" (minimum of _i0 million) or indirectly through a private financial intermediary when the investment is "small". -NAGRICO would be a conduit for equity, joint ventures and foreign aid for agricultural investments. It would also receive funds from the government for construction and maintenance of support infrastructure for the projects. Private enterprises would corporation for each project; as
A.I
form much
a as
separate possible,
employ landless £arme rs and "integrate" small landholders within the area into the project; as much as possible,• allocate farm •plots of say half a hectare to each •farm worker family to grow food _or home consumption, and allocate I0 percent o_ profits for distribution to employees until such time that the employees acquire 50 percent of the outstanding shares. Although the proposal's concern for the interest of the rural poor is commendable, its basic flaw is that _t actually runs counter to the new govern|,ent"s thrust of (a) privatization; (b) proJnoting equity; and (c) promoting efficiency and: economic recovery in the short and medium term. .,...... '. I, On the .guestion in te r_EnEi-6-n
of
prlvatization
Vs.
government . .
. .
,
The NAGRICO proposal will involve .the government in equity sharfng (financed by _foceign loans) in large scale private co_:porations:, one of the worst features of tile Macros regime. It will be difficult to e×pla_'n to the public why the new government is divesting;its investment from one agcicultural production and marketing and then turning around to I reinvest again in another. At h he worst, th.is can be i nterp'.reted as transferring largesse and power fro., one set o.f oligarchs to anoti]e_. At the very least, thi.s institutes a stEucture .that will not promote efficlen_cy and may eventual ly corrupt: the newly conscie nticized business sector. •
,
"i
,
. .
.
'
•
If on the other hand, the primaL-y reason for th.e equity shar. ing scheme is to ensure that funds o£ c r.edlt become avai.lable to the private sectoE, it would be diffic.ult to justify such a strategy if theL first-best choice of reorganizing the credit and financial system (particularly the rural bank Sy.sEem)is still an open alEernative. For instance, slnce many agr. lbusiness investments require 10ng _ time horizons and that the cost of long term-credit is crUclal to _'the ViabilitF of 'suCh projects, the' government can exp10'_e _ the possibility of establishing 'a '10ng-te_rm lending facility with interest'rates at'Sofne ,_fixed premisln over the inflation rate (for e×ample 3 percent plus the inflation rate). Such a facility Could 'then be used to channel funds from donor a genCies intended to support privaEe sector" investment. ' ' '" _ _ ...... i " - •,
%
,.
.,
_
• • -..[
... "
... -
.
,
, .
.,
_
,
Instead of engaging in equity investment like this, it would be best for the government to focus its attention on 'creating_ an'envlronment generally "
A.2
"
:
"
"
i
favorable
to
the
rural
sector,
in
which
the
private
nvestment opportunlt[es using the capital that they gribusiness an generate or firms borrow. should Also, be .able it is. to important fund ampleto re_nember that the largest part of the private sector in Philippine agriculture is made up of small farmers and traders. It is this clientele that government policy _ust be effective in sti.mulating if reductions in rural _overty are £o be sustalnable for the long run. Small i_armer development strategies require significant _esou_ces from the government: investments in rural _nfrastructure so that input and output tnarketlng costs Can be minilnized; support Eor research on a@propriate _rop technologies and an extension •service that can disseminate them to s,nall farmers; investments in •rrigation and land-development programs that are _cessible to small farmers; and perhaps most Importantly in the short run, investment of policymakers' time and energy in the design .and implementation of a pt-ice environment that raises farmer incomes and stimulates their investment in output-increasing (and labor-demanding) activities. History has proven that it is better for the government _o confine its role within the above sphere rather than pursuing activities which the private sac tot can perform ,,ore eff_.ctlvely and efficiently.
2.
on the_ uestion_ oE promoting
The NAGRICO proposal suggests that the rural poor will be addressed (a) contract farming; (b) providing landless; and (c) phased divestment _smallholders.
the interest primarily land for in favor
of by: the of
a. Contract farming The raison d'etre of contract farming/growing (as in share tenancy arrangements or linking oE credit to product and input marketing) is efficiency not equity. For certain types of activities (e.g., poultry raising) it is an efficient means for sharing risks, technology, and returns to production but this is not generally true for many other productive aptivities. In any case, the proper role of government is to intermediate between the contract growers and the management, between the tenant and the landlord, or between the small farmers and the input/output dealer. The_e is a very real danger that by having the government as part-owner either by sharing equity or guaranteeing loans, the potential monopsony power of the management may be strengthened as we have
A.3
T
seen happenedin many past ventures -Philippine Cotton Corporationi Philphos, Planters' Products, etc. It ismore prudent to assume that "social conscience" will not dominate profit motive under the new government. b. Land for the landless The proposal suggests that land-less households will be provided access to land. This is a worthy objective, but the NAGRICO approach must be defended as superior to other land .reform programs. Indeed, this nucleus estate (NES) approach introduces further problems into this very crucial task of instituting a more broadly based land ownership. Since there is relatively little unoccupied land, linking th_ land reform program to an NES approach will unnecessarily lead to some coercion to compel present small tillers to participate in a consolidated management. ..... c. Phased divestment in favor of smallhoiders _-This scheme can only be successfully accomplls_hed if two assumptions are present: one is that co_po_ations involved in the NAGRiCO p_oposal play a paternalistic role vis-a-vis the smallholders and landless workers; and second is that farmers are well-organized. As for the former, it would be too much to expect that agribusiness firms will place public interest above private profit. In fact the ver_ relationship between the smallhoiders and the corporation is unclear. How will the latter be remunerated for services rendered? Will the former have to sell his output to t.he latter? What will prevent the emergence of unequal bargaining relations? Given the fact that answers. to such fundamental questions cannot be provided, it would be extremely difficult to implement the phased divestment scheme. As for the latter, the record in the Philippines a.nd elsewhere has unequivocally shown that farmer organizations ex'ercise little effective voice unless they have been established at the initiative of the farmers themselves, and not by outside agencies like that o£ the government or corporations similar to those in the NAGRICO proposal.
A,4
_.
On .prqmoting
sh-rt and
e_ficiency
and
term
economic
recover___
in
.........
: Implicit in the proposal is (a) corpora te s.tructu_e is independe_ ' _mall " farms are
the presumption superior (or undermanaged);
that that and
Ib) nucle_ h_othe< estate ASEAN development pervasive uccessful countries. is The agriculturaland sector in both developed and developing countries is 4ominated by indeppndent family owned and managed farms Mhich are s_aifk_!_--countries with limited land Eesources/capital and large where land supply is abundant. In the Philippines, the G047 program which required large corporations to produce _ice either by plantation operation •or by contract farming has fa_led Rot because it has been a Marcos sponsored program but _ecause its costs are higher. There is a vast body of literature that proves small farmers in less developed _ountries to be efficlent managers. _ Contrary to popular belief, econ_omies of scale is mot pervasive in agricultural production. Sugar is _lanted in seven hectares or less in India and Taiwan, _oth eaportecs of sugar. Any efEiciency gains from _arge-scale operation are not sufficiently large to 9ompensate for their equity losses. EVen in the mpecific example of rubber and oil palm, ther.e is no alear evidence that nucleus estate type o£ develo_o,,ent _s superior to independent small-holder type of arrangement in Malaysia and Thailand. There i_ little evidence of scale economies in rubber p_odudt_ion and @yen in oil palm production; such scale economies at _h e processing stage can be realized if central _rocessing facilities are available. The nucleus estate type of approach has involved substantial _)ubllc sector involvement with considerable Open and hidden subsidies and has always necessitated opening of new _ands. Compared to independent small holdings it _nvolves relatively management-and capital-iDtensive techniques both at the crop establishment az_d exploitation periods. The Philippines has much less supply of _and/capital than Malaysia, Indonesia, and Thailand. We do not have the large oil revenues nor the capacity to incur much more foreign loans than was the situation _n Indonesia and Malaysia. Furthermore, the focus on tree crops with long gestation periods and even longer $1nanclal breakeven periods will divert government ittention awaz from tl_e short-run policy reforms and medium-term investm@nt strategies needed to revitalize the rural economy. Some investments in tree crops
A.5
wouldbe desirable expec.[ence shows, independent small 4.
but as the Thailand and. Malaysia. these can be made e_ficiently by farms.
Su__[est___e_d.alternative to the
NAGRICO
proo__i
- The .CRC proposal identifies-potentially strong areas of investments in the non-traditional commodities -cacao, prawns, peppe_ fruits for exports, dairy, etc. The .overall goal of government policy should be to create an.overall investment environment in which those projects with true social profitability will find private, investors, A more desirable approach instead of direc.t equity participation is to: a. Establish the long-term, lending facility interest rate at some fixed premium over inflation rate (forexample, 3 percent Dlus inflation rate);
with the the
b. Support the effort to expand producti()n in these commodities thr.ough public investments in rural infrastructure, ..adequate provision oE researc|1 and e×tension, suitable planting material and .(where needed)processing facilities. The provision of these, faciliti, es need not.contain much subsidyelement if these crops are exported sin.re an expor_ tax. -- despite possible dlstortionary cosis -.-may .be a practical way of funding public sector activities; -. c. Promote agro-processing through 8OI incentives (not the Agricultural Act). Direct subsidies may also be agro-processing ;
the revised Incentives justifled F_or
d. .In order .tl!at small farmers and at least some landless households can participate in the expansion, of perennial .crops, a policy decision must be .made soon about access to land (or tenancy rights) by these poor households, With little po.litical cost (indeed with great political benefit), a policy statement can be immediately made on .the. lands owned by the publlc .(u_land areas) and sequestered from cronies. It .is only with someredistribution, of access to .land that expanded .liquidity through large agrlbusiness firms and public investment. in ruralinfrastructure can significantly contribute to an-. equitable economic growth.. The distribution of[ wealt.h-.(prlncipally land .in.the rural a_eas.)haS been so .skewed over the past twenty years, that
A.6
even an "employment-oriented" dev_lopment strategy .alone will not provide the strong positive impact on the rural poor necessary • for a meaningful equitable development. A major strategic error of the Marcos government is that the public sector to•ok over private sector roles. In our eEfort to correct bhis inherited structure of government, let us not commit the error of assuming that the private sector can assume much of public _sector's roles. The public .seCtor is there because there a_e market £ailures, public goods, etc. The best strategy then should, be to use private sector's experience to increase efficiency in the conduct of government functions.
8.
Presidential
Decree
No.
2032
or
the
A_[ricultural
I. The move to promote new investments in the country's agricultural sector, which signifies a recognition of the crucial role that agriculture will have to play in tI_e recovery from• the current economic crisis and foc long-te.rnl growth in the economy, is a welcome one. But while the. objectives of the Act ace commendable, the means by which it•would seek to attain them are disturbing. The main objections to the Act are as follows: First, its title is actually a misnomer becausethe incentives ace clearly _or a specific clientele, namely, agro-enterprises. However, the vast majority of economic agents in the agricultural sector ace small farmers and landless workers. Unf.ortunateiy, in its present form, the Act does not offer any incentives for them despite its avowed goal of "improv(ing) and stabiliz(ing) farmers' income and farmers' welfare." Second, participation in the rural issues.
even as of private sector, the
a measure to encoura@e domestic and? •foreign capital Act is flawed on a number of
On equity The Act is premised on the assumption that there are substantial economies of scale, in. all agricultural production, While the situation may vary among specific crops and enterprises, no conclusive evidence can be cited to •support this presupposition. This assumption on economies of scale is reflected in the way the Act accords disproportionate attention to large-
A.7
scale agricultural enterprises, while• small-and medium-scale enterprises are relegated to just one sentence in Section 28. There is very little in the incentives detailed in Sections 6 to 31 that would tax to do
be useful allowances
small not
to and
farmers, file tax
small farmers. tax credits are
a large number raturns anyway•.
of
For example, of little use whom probably Nor will the
privilege to employ foreign nationals be of any consequence to •them.• Furthermore, it is unlikely that small farmers will have any significant influence on investment prioritlzation through the Agricultural Investment Priorities Plan (AIPP). _ndeed, it is likely to be large-scale enterprises with their greater organization and lobbying clout which can best influence the investment priorities in the AIPP. Also, considering the fact that the scope for increases in agricultural area has become extremely limited since the 1960s and the competition for land has become more acute as a consequence of the high man-land ratio, the resultant displacement of farmers from their farms as agro-en terp¢ise s vie for land will f t_rther exacerbate the already skewed distribution of land in the countryside. By promoting the establishment of large-scale plantations, the Act will contribute to, instead of amelidrate, the growing disparity in income and resource distribution. On labor employment The Act will not •generate sufficient employment opportunities for the rural populace because of the apparent capital-bias of the incentives. The artificial cheapening of capital and foreign exchange (as a consequence of the incentives) will effectively bias production towards capital-using and foreign exchange-using technologies. Since capital and foreign exchange are in extremely short supply in the economy particularly at this time, it would appear highly illogical for us to further lower their relative cost to producers, especially visa-vls labor. If there are costs that should be granted tax allowances or credits, it should be on labor expenditure•s, and not on domestic or imported equipment purchases. Scarcity demands their best use; in foreign exchange, we
that resources the case of should be using
•A.8
be put to capital and them .,where
the rates of return are highest. The_e is no guarantee that the activities that will be identified in the AIPP would necessarily be the best uses for our scarce capital and foreign exchange. Indeed, our past experience with the Board of Investment's investment pcioritization under the Investment Incentives.. Act hardly inspires con fidence. On markeEing The role of marketing agents in the agricultural industry must not be forgotten. While the Act appears to be fostering increased agricultural production, it must be recognized that equally important is the provision for the efficient anarketing of these products. Thus, any incentives program for the agricultural sector must include incentives to the traders, who provide an essential service to agricultural producers. Apart from their usual function of providing the necessary linkages in the market, trade.rs have also traditional ly been widespread sources of farm credit, especially to s,_all fara,ers who are in no position to avail the,,selves of institutional credit. On the cole of the government Another worrisome feature of the Act is the increased amount of discretion that it vests in government bodies involved in the AIPP. For example, the phrase "reasonably needed in the registered activity" a.ppears in the criteria for both imported capital equipment and breeding stocks and geneticmaterials that would be subject to tax exemption or deferment. By implication, it would be the Board of Investments who would decide if the need for these inputs was "reasonable." We suggest that more precise definitions be spelled out £or such criteria in the Act rather than leaving their interpretation to thediscretion, and hence, potential abuse, of government decision-makers. Thus, for example, for imported capital equipment, the criterion for "reasonable need" could be replaced by t_ne requirement that the equipment be pilysically instal led by the purchasing enterprise, and its immediate resale must be e_pressly prohibited. On the criteria for choosing agroenterprise Another pCobl.ematical area of the Act is the ambiguity in its criteria for defining what types of enterprises can make use of the incentives. Given the present shortage of capital
A.9
in the country, the Act should have given priority or added incentives to firms which are laborbiased, rather than capital-biased, in order to generate more employment opportunities. Incentives must be extended discrlminately in order to achieve goals (e.g., employment) which are especially important in the present economic crfsis, On op_L-ational problems The Act is also silent in relation ho the Constitutional stipulation oE limiting corporate owhership/ acquisition oF_ land to 1,024 hectares. In order to attain perceived organizational economies of scale, a number of agro-enterprises will seek to acquire land mor.e than the stipulated ceiling° How then will the needs of the corporate enterprises be met without violating the provision of the fundamental law of the land? 2. If the Act intends not only to attract capital infusion into the agclcultural sector but a Iso to rectify the deficiencies enumerated above, we t-ecommend that the following measures be incorporated: a. Cadastral surveys of land being eyed by potential investors should be conducted first, in order to determine land ownership and thereby avoid displacement of farmer-owners. Moreover, additional incentives to agro-enterprises which promote the participation of small farmers and employ landless workers in their agricultural activity should be extended. b. Undue encouragement of the use of capital and foreign exchange through tax credits, exemptions and allowances must be avoided. Instead, su_ch tax incentives must be based on labor expenditures and foreign exchange sales to the Central Bank. Moreover, preferential credit should not be used as an incentive, because this can inhibit the movement of credit to its most efficient uses in the economy. c. Traders should be allowed to jbdiciously deduct bad debts from their declared taxes. This will allow the,, to continue their marketing operations and may reduce the interest rates they charge to farmers. Likewise, incentives to marketing enterprises must also be provided in the Ac t.
A.10
d. Placing discretionary powers on government bodies should be minimized. A more detailed set of, criteria for choosing the agro-enterprises which can make use of-the tax ,incentives should be incorporated in the Act. The criteria should stress not only the importance of establishing an efficient and productive agro-enterprlse but must also emp.hasize the need for employment-generating or labor-biased firms. 3. Even with the incorporation of the above recommendations, the Act does not still fully address the needs of small farmers and landless workers. It is suggested that another section be added to this Act which gives utmost priority to the needs of the vast majority of the rural populace. The following areas are recommended to serve as agenda for this purpose. a. Price disincentives such as price controls on agricultural commodities should not be used except possibly under unusual circumstances and only very temporarily; b. The provision of ket information, etc. sector. c. The activities increasing
services, e.g., not provided by
improvement of extension that will aid small farm productivity.
and research farmers in
d. And lastly, the rehabilitation of ing must be undertaken in order to extension of much needed credit to the
A._
roads, marthe private
rural bankfacilitate farmers.
Annex THE
B
CASE FOR REMOVAL.OF EXPORT ON AGRICULTURAL PRODUCTS
TAXES
The rationale for export taxes in the Philippines has never been very clear. Following the devaluation of peso in 1962 exports were, in effect, taxed for several years by the conversion of a part of export proceeds at the predevaluation rate. Again, in 197.0 when the peso was allowed to float to a lower value, export taxes were imposed as a "stabilization" measure. While designed to be temporary, they were subsequently given permanent status. Once again, in 1984, export taxes were raised to accompany a devaluation, though tl_e rise was sho_t-lived. This habit of accompanying devaluation with the imposition of, or an increase in the rates of, export taxes suggests a motive of capturing what may be considered "windfall" gains to exporters. If, however, the new exchange rate represents a correction of an over-valued peso, the improvement in expoct receipts represents the elimination of prior unwarranted penalty on exports rather than a windfall gain. The stabilization motive in the 1970 measure might have been directed at the effect on the money supply and subsequently on inflation of an expected surge in exports following devaiuation. The reason for a devaluation is, however, to alter the relative prices of internationally tradable and non-tradable goods so as to achieve a better balance in the international accounts. The imposition of export taxes simply hampers this process. There are ways to curb inflationary pressures without creating undesirable distortions in relative prices. For a time in the 1970s export tax rates were adjusted both up and down to offset fluctuations in world commodity prices. This can be defended as a stabilization measure in the form of a subsidy and tax system that aimed at a zero rate when world prices weEe "normal", so that there is no long-run distortion. A difficulty here, however, is the possibility of complaints frofn abroad whenever exports are subsidized. In any case, this is not an argument for a long-run tax on exports. Export taxes in agricultural, mining that are processed. taxing natural resource
the Philippines generally fall on and forest products, including some This suggests a possible motive of rents. It would be better of course
A.12
to tax these without argument for export convenience.
creating a bfas against exports. The taxes turns, then, on •administrative
It should be noted •, •however, that there exists an implicit tax _on all exports from the industrial protection system •. Protection of the domestic market by means of tariffs and import controls reduces the demand for foreign exchange and therefore, its equilibrium price. Exporters receive less per unit of foreign exchange earned than under •free trade. This implicit tax on all exports has been estimated, conservatively, in the range of 15 to 20 per cent. The industrial sector is, of course, receiving an implicit subsidy (for domestic sales)•from the same system. When these implici_ taxes and subsidies are taken• into account it appears that agriculture, for example, is bearing core than its share of the •total tax burden (see C, David, "Economic Policies and Philippine •Agriculture, PIDS Working Paper 83-02.) The existence of monopoly power in international trade represents a classic argument for an export tax. The optimum export tax would be at an ad valorem rate equal to the reciprocal of the estimated price elasticity of world demand for the export. This wouId restrict export supply and raise the world price in the nation's interest. It is difficult, however, to find any product where the Philippines has such monopoly power. Attempts in the past to raise the world price of coconut oil for example, by restricting Philippine supply have proved futile. In any case, as noted just above, the•re is already in place a 15 to 20 per cent implicit tax on all exports. Encouraging the processing of primary products represents still another possible argument for •taxing e_ports. An export tax on a primary product reduces its price in the domestic market, thus providing an implicit Subsidy to processing. The implicit tax to support this subsidy is however, borne by the primary producer --, _._:, in the •case of agricultural products, by poor farmers. First, of course, there must be established a valic] case £or subsid!z:ir_g _ a processing indus_:r,y. If there_ Is 14_ a:: case; the_ _&ix<should be borne by all Of society _,P::,t/Ma4%/_: being i'concen.trated on one re1_tiveiy poo_ segra_:.!J_fl :.; society. :,:,,(Th:me. argument does not" :<apply With ,"'_he.-oe_-:_6r.4e..::! _ -ia., th_ ,oh, sb'_ o_ _f6rest and, mlnlng produCts.}: ::: ..... _,..
.
•
.'. • !, ,'
.-,
:,
_
.
-
,,
A.13
._:
.
-
.. '... :
Finally, the motive for export taxes might be simply to raise revenue. This appears to be the reason for making permanent the temporary stabilization taxes.ln the 1970s. The attitude of the prevlou_ administration toward tax policy was exemplified by a Finance Ministry ever on the alert to discover a transaction not yet taxed. It is to be hoped that the present administration shows grea_er awareness of the need to minimize counterproductive distortions and disincentives in tax policy. This brief review and critique of the various possible motives and rationale for export taxes in the Philippines suggests at most some very weak second-best argument in their favor. More important is the fact that even without statutory export taxes all exports are taxed an estimated 15 to 20 percent by the undervaluation of foreign exchange that the industrial protection system defends. This is an exceedingly onerous burden on exports that has persisted for more than three decades. It is the principal explanation for the fact that the ratio of exports to GNP is lower in the Philippines than in any other East or Southeast Asian Country (mainland China excepted). In the long run a more liberal trade policy regime hopefully achieved in the context of world trade liberalization, would eliminate this burden. In the meantime, however, its existence imposes serious difficulties in the path of economic recovery and the resumption of economic growth. Recovery andgrowth will greatly increase the demand for foreign exchange for essential imports, and unless this is led by a surge of exports the process could be aborted. Exports now need every bit of encouragement that they can get. To subject •them to statutory export taxes in addition to the implicit tax burden from the protection system makes no sense at all. The least that should be done to encourage the export growth that is essential to economic recovery is the removal of the explicit export taxes. (An exception should be made for logs, though here Perhaps a ban is the preferred instrument. ) There might arise a conqern about the effect of this on government rewenues. Export taxes contribute about two percent of total tax receipts. Insofar as their removal will contribute to a more rapid recovery, there may be no net revenue loss at all. In any case ., prime emphasis should be given to elimination of wastefSl government programs and practices• of the Marcos regime, rather than to imposing or maintaining taxes that have serious adverse effects • on employment and growth. In addition, budgetary assistance from external sources canbe tapped, at least• in the short run until sustained growth is achieved.
,A. 14
Finally, it must be strongly emphasized that the burden of most export taxes is on poor farmers. Their removal will have a significant favorable income distribution effect.
Anne x RURAL
C
....
ORGANIZATIONS
b/
The purpose of this section is to analyze the different types of rural organizations; the problems and issues concerning them; and the policy directions that the government should consider in strengthening rural organizations foc development. I_
T_9__o_ie_s
of
Rural
Org_anizations
The seventies and the eighties saw the proliferation of rural organizations composed of farmers, fishermen, agricultural laborers, kainginezos, livestock growers, women, youth, and a host of oLher uural-based associations. The Bureau of Rural Workers registered for the period 1979198.5 a total of 459 organiza__ions whose sizes range from 14 to 16,000 members. The number surely is larger if the unregistered organizations ace included. It is estimated by the Director of the Bureau of Agricultural Extension (BAEX) that the number of rural organizations within a province ranges from 7 to 27. Based
on
who
initiated
the
establishment
of
the
organization, rural groups can be classified into four types, namely: (a) those which aL-e organized or sponsored by government agencies; (b) those which are established by groups generally known as non-governmental organizations (NGOs); (c) those formed by farmer-leaders usually at the national level; and (d) those special groupings organized by the NPA/CPP within their guerilla zones. Mot all rural organizations, however, were included in the discussion of the different typologles. Those mentioned are mere illustrations of specific classifications. i.
Government
Organized
or
Sponsored
Organizations
The government has been a major organizer of rural organizations. Generally, these organizations are instituted by the government to serve as conduits in the implementation of its programs particularly in credit and marketing, technology diffusion, irrigation water management, and even in the promotion and protection of the gains of a major government program such as agrarian reform. Cooperative has been always an important mechanism adopted by the gove_:nment in the delivery of its credit and marketing programs. The Farmers' Cooperative and Marketing Associations (FACOMA's) organized in the early fifties and administered through the Agricultural
A.16
Credit and Cooperative Financing Administration (ACC_A) iS one of the government's earliest attempts to make farmers organizations as conduits of its programs. The F_COMAs, however, failed despite its replacement by a new body, the Agricultural Credit Administration (ACA). T_us, of the 652 FACOMAs organized in the country only 250 were existing as of June 30, 1969 and less tl%an 30 were still active in 19.75 (USAID, 1975). Today, the FaCOMA is virtually unheard of as a rural organization. _ The Sa,{ahang Nayon (SN) established in 1973 is a_other ende?3vor by the government in using rural o_ganizations as a channel of its delivery system. Avoiding the mistakes of the FACOMA, the SN is co_Iceived to be initially a pre-cooperative association and envisioned to evolve ultimately into a real cooperative. At the beginning, the SN program had a very impressive growth pattern. After only one-anda half years of implementation, 15,451 SNs were organized wi_t_ 663,489 farmer-members. This represents 95 _>ercent of the targeted 16,000 SNs to be organized, and 66 percent of the expected membership of one mi!llion (DLGCD, 1974). By 1980, however, Montemayoc observes tliat "while on paper tl%e record oF the SN program and cooperatives promotion has been notable, yet it is now admitted that at least 80 percent of the SNs have died." While the more recent livelihood programs like KKK of the Ministry of Human Settlements and Integrated Estate Development Program (IEDP) of Land Bank have veered away from cooperatives, nevertheless, they still use organized rural groups channels of their programs.
the the the as
The extension proguam of BAEX is also anchored on rural organizations which are of three types: Farmers "Associations (.FAs) composed of household heads (usually the male spouse): Rural Improvement Clubs (RICs) for women; and 4-H Clubs for the youth. One fundamental criticism against the BAEX extension system is its failure to consider the farm family as an integral unit. Rather, it parcellized the family and organized it primarily based on sex roles and age. Hence, the existence of the three types mentioned above. The Agrarian Reform Beneficiaries Association (ARBA) is purported to be a private group which is "rural-based, non-stock, non-profit and non-sectarian organization of small farmers who have enjoyed unprecedented social and eGonomic benefits from the agrarian program of the government" (Pri,,er on ARBA,
A._7
n.d.). However, it is widely recognized as a creation of t'he Ministry of Agrarian Reform (MAR). &s conceived, ARBA will act as a linkage between the government and the beneficiaries in the promotion of the agrarian reform program and rural development and in the preservation of the benefits ensuing from the program. The association is to help its members in land amortizations, lease rentals and loans as well as in solvlng their technical, financial and agri-busln_ss problems. Arguing that the SNs have failed to articulate the interests of the agrarian reform beneficiaries since it is not exclusively for them, M_R believes that ARBA is a mo_e effective organization. In this sense, ARSA consequently more than of support services.
is also an interest group and a mere conduit in the delivery
Among gore rnmen E-sponsored rural organizations, irrigation associations (IAs) organized by the National Irrigation Administration (NIA) to manage the allocation and distribution of water are considered the most successful. The organization and strengthening of irrigators' groups has been the thrust of NIA 's institutional development effort. This is based on the precept that the use of infrastructure facilities is optimized with the active participation of the farmerbeneficiaries in both the operation and maintenance oE the systems and in the mobilization of various technical sources essential to group development. Consequently, the participatory approach becomes the focal point oE NIA's _nstitutionai development. By the end of 1982, NIA has organized 369 IAs involving 57,730 farmers working on 88,707 hectares (NIA Annual Report, 1982). While IAs are actually intended to operate and maintain national irrigation systems, a number of them have ventured into organizing credit and/or consumer cooperatives to meet the demands of its members. 2 t. Rural
Organizations
as
NGOs
or
as
Formed
b_y NGOs.
This type of rural organizations refers to groups organized among the rural folks, either along homogenous lines (farmers, fishermen, tribal groups, women, youth) or mult i-sectoral community based groupings. Many rural organizations are initiated by the people themselves. They are usually formed by farmers, fishermen, landless rural workers, and other peasant groups. As informal associations, they receive no substantial support from any government or private group and subsist only on membership fees and monthly contributions of members.
A.18
Because
of
the
weakness
oE
their
Structure
and
the
low level of organizational capability, they tend to become inactive and subsequently disintegrate unless aided by an intermediate group which can provide them leadership training, cohesiveness, and long term goals and objectives. This is the field where many NGOs focus their activities in order to assist their target clientele gain self-reliance in resolving _he issues of. poverty, marglnalization and lack of access to basic services. While many rural organizations are established by the people themselves, a considerable number of groups are organized by non-government organizations c_,monly known as NGOs. These NGOs are initiated by the Church, the business groups, and private social development agencies (PSDAs). Ultimately, they be cone forma]_ associations with varied goals and activities. Realizing that they had to do more than their spiritual and evangelical work, the church engaged in organizing and training peasants and workers. One of these initial attempts was made by the Jesuits who formed the Institute of Social Ordec (ISO, now known as the Apostolic Center) in the 1950s. In the 1960s, the resurgence and intensificiation of agrarian unrest led to the creation of the National Secretariat for Social Action (NASSA) by the Catholic Bishop Conference of the Philippines (CBCP). The NASSA then undertook the formation of Social Action Centers (SACs) in parishes and dioceses. Through the SACs, development work was done including the organization of cooperatives and other peasant groups. The realization that there was a need for strong organized groups at the community level led many church groups to organize Basic Christian Communities (BCCs), mostly in rural areas. The
social
escape the associations. associations
realities
of
the
times
also
did
not
attention of Protestant Churches and Ten Protestant Churches and seven formed the National Council of Churches in
the'Philippines (NCC.P), and through its Commission on Development and Social Concerns, undertook projects among peasants, workers, urban poor, and ethnic minorities. The plight of the ethnic ,minorities likewise bothered the CBCP. In 1977, it formed the Episcopal Commission on Tribal Filipinos (ECT_). The ECTF works for the building of interdependent yet selfdetermining communities among the minority and majority cultures.
A.19
While theL-e are ,,differences in the goals and approaches of the ..varied .grouPs in the Church. sector, . .most of them believe that. income-generating projects ...are, by themselves,, merely palliatives.. These projects must ...be undertaken within the context oE assist.lng •organized groups .not only to meet. their immediate needs but also ill the long-te.r_1 .struggle for social tra.ns.formation. Hence, formation of , , rural organizations, is. a major part oE the work of Church groups.. Generally their strategy consists of three main steps, namely: (a) conscientization o.f the poor by developing, their critical awareness o_ social real.ities;....(b) building, up of. community-based organizations with the ability, to negotiate for the_.r welfare; and .(c) the initiation of socio-economic p_ojects which aL-e integrated with the two previous steps of conscien.tization and organization. Apart from the government, the Church probably has the widest reach and .scope which makes it Possible for this. sector ho assist the 1._ural poo r . In the past, howeve,--, the activities of .the Church had been _iewed negatively, by-the government, .and many Church workers -were branded as subversives and. became victims .of -political repression .and salvaging. The business sector also contributes a portion of its resources to rural., development alt.hough in a limited, scale. Out of the..top 1,000 corporations listed by t.he Far Eastern Economic Review only 115 are members .oF. the .PBSP or Philip.pine Business for Social Progress (CENDHRRA;. 1985). Believing in the social .responsibility of private, enterprise and . the realization that "business c-annot prosper within a society t-hat remains discontented and which does not see any hope oE upli.ftment., °'.t.hese socially-conscious enterprises contribute one percent of their net profit (before taxes) to const i.tu.te .PB.SP funding. PBSP undertakes, a number of development projects, which hinge on rural organizations. Its brochure states that "PBSP inputs lead to organized community groups with trained leaders having increased skills and improved technology, implementing ongoing .projects for increased income or. production and community _ improvement towards self-reliant .cc_nmunities ." To do .t. his the PBSP em[91oys, five basic strategies, .. namely: community organization,, smallscale indust(ies, skills training, agricultural development, and cooperative .development. . _
Aside foundations activities
, .
from which which
.
,
PBSP there are other corporate-based are engaged in social development include the Meralco Foundation,
Ao2.O
"
_
_
C
8enguet l Founda'tion, -Tala l_OUnda t ionl, Ramon Aboitiz Foundation, Chito Foundation, Alaala Foundation, and the.Assisl Foundation. However,. most of their activities are on economic .assistance, skills training, and livelihood projects, with rural organizations occupying only a marginal role. In spite of this, the gcowlng involvement oF business concerns in development work is an enco,,raging trend. There are other small NGO groups which are involved in rural development. These are jointly called private social development agencies (PSDAs) . They are autonomous, self-directing and intermediary organizations which service primary groups llke communities or people's organizations. Most of the PSDAs started as informal organizations which were founded by individuals who became immersed in development work due to their awareness of the social and political realities of the times. F_ventually, they became formally organized as NGOs. Some examples of PSOAs are : Agency for Commun i ty Educa tion Se trice (ACES), Office for Training Research and Developmen_ (OTRADEV) Philippine Association for Intercultural Development (PAFI D), Sa riling Sikap, Inc. (SSI). Communications Foundation for Asia (CFA), and Mindan' ao Alliance of Self-Help Societies iMASS). A more detailed enumeration of PSDAs can be found in the Directory of NGOs in Rural development Philippines published by ANGOC and PHILDHRRA in 1983. PSD_%s emphasize the need to work for the development of self-reliance among their target groups which includesmall farmers, landless agricultural workers, fishermen, tribal groups, women, rural youth, and other low-income groups in rural communities. To attain this, PSDAs employ one or a c_nbi0ation of activities lake coope catives training, community organizing, food production and technology transfer, health and nutrition, livelihood, and values education. However, the importance of the work of PSDAs has not been fully recognized. Many of them still have to struggle for funds to enable them to carry out their programs and projects. Thus, even if they want to expand their opera tlons, "their limited resources constrain them from doing so. The PSDAs themselves lament the fact that their efforts appear to be very "micro" in the face of the general development pe rspect ire.
A.21
3.
Macro-Level Leaders
Rural
O_rganizations
Formed
by
Farmer
Macro-level rural or.ganizations are essentially interest groups. They are generally national in scope with regional offices, and provincial and munioi[gal chapters. Their activities •vary at different levels. At the local level, they engage in organizing peasant groups, provide training Lo their member, s, and initiate livelihood establish articulate members.
projects. At the national level, they liaison with governlnent off.ices in order to the needs and desires of their respective
The ideological diversity of these organizations ranges from the right to the left, but all of them profess that their interest lies ultimately in achieving the welfare of the peasants. The Kapisanan ng Mga Magsasaka sa Pilipinas (KMP) is one e_ample of the more radical farmers'organizations in the country today. The KMP considers itself a nationa list democratic movement which seeks to uphold the democratic and political rights oE the peasantry and aims to end the foreign control of land and agriculture. It claims to have a strongly organized mass base of 500,000 peasants and agricultural workers nationwide. On the other hand, there ace peasant organizations which have close linkages with the government and which are generally known as rightist in orientation. Examples of these are the organizations which formed a federation called the National Congress of Farmers' Organizations (NCFO). As stated in .its constitution and by-laws, the NCFO shall: (a) endeavor to protect and to promote the dignity, security and well-being of t.he small farmers and other rural workers of the Philippines who constitute tl]e backbone of the nation's economic, political, social, cultural and spiritual life; (b) cooperate with government and other sectors of society in order £o attain social justice, national unity and democracy; (c) assist the government in the formulation, implementation and evaluation of policies, activities government resources.
plans, programs, that affect the draws its main
and other governmental rural workers from whom strength, support and
Wiii:le acting as a federation, the different organizations within the NCFO maintain thelr individual identities with their own programs of activities. brief description of the ,,emberorganizatlons follows:
A.22..
A
a. Federation of Fc_e Far,_ers (FFF). Organized in 1953 by a group of Catholic laymen, the FFF has grown into a national organization with a total of 200,000 peasants in 60 provinces. As a sociopolitical movement, it asserts that the _farmecs have always been victims of social and political exploitation and injustice, and that national progress can_3ot be achieved and maintained unless the fa @sets acquire a socio-political-economic status that promotes tl_elr well-being and respects, their dignity and worth. The FFF has seen the need t0 continuously develop a philosophy of development which woul'd effectively motivate the farmers to organize for change. This was reflected in the numerous educational and organizational activities of the organization. In the field of agrarian reform, the FFF has assisted thousands of tenants ih defending their socioeconomic and civil rights in a wide variety of legal and administrative cases. It also uses its mass base for pressure group activities to gear governmental policies toward the benefits of the peasants. To improve the economic position of the farmers, the Federation of Free Farmers Cooperatives, Inc. (FFFCI) was establlshed in July, 1966. Today the FFFCI has 25,000 farmermembers in 21 provinces. It is now engaged .in the purchase and distribution of fertilizers and agricultural chemicals, crop marketing, operation of tractor pools, establishment and operation of rice mills, extension of crop loans, setting up of irrigation systems, bulk-buying of farm supplies and consumer items, processing and marketing of agricultural produce, and a social security sohem.e _. b. Foundation for Agrarian and Industrial Toiling Hands (FAITH/HUKVETS). This organization has as its core the Hukbalahap Veterans Organization. Hi'storically the Huk movement was founded to work for a better life for the peasants. The FAITH/ HUKVETS professes to continue with those same ideals by undertaking organizing work among peasants, and educational activities for its members. The o rga nlzatlon cla ires to have 258 chapters nationwide, with a total membership of a quarter of a million. c. Federation of Land Reform Farmers (FLRF). This was founded in May 1970 and claims to have 700,000 farmer-members who are mostly recipients of CLTs. Its most outstanding accomplishment was
A. 23
the the
mobilization enactment
of
of the group's RA 6389 which
strong amended
suppoct for RA 3844,
and RA 6390 whicll were both approved On September i0, 1971. At present, the group •works to "continue :to help the government disseminate vital information on the agrarian reform program." d.
The
United
Farmers
and
Fishermen
Association
of the Philippines (UF_'AP). This group was formerly known as the Federation of Farmers Ass_)ciationS of the Philippines (FFAP) whlch was •organized by the BAEX in 1953. Its main objective is to improve the socio-econom ic condition of every Filipino farmer and _isherman through the introduction of modern technology which will be undertaken by tile e×tension workers of the BAEX. Corollary with the members i socio-economic wellbeing,• the UFFAP also aspires• to improve theic moral values, making them better christians, loving and helping one ano£her for tlle good of the community. The leaders try to c_,munlcate and publish new findings on progress achieved by other members in other places. To inform its numerous members, slightly less than a million nationwide, it has a Newslette_ which publishes researches and government incentives to help the•peasants. e. The Earthman Society, Inc. serves as technical consultant
(BSI). of
The the
Society NCFO.
Formally organized in May 1971 as primarily a co, munications group, it began its activities by helping the gove rhluen t determine cost-saving alternatives .foc the country which was then deeply affected by the energy crisis. Ifhas maintained its interest in energy as its main function, but has agreed to •work with farmers' organizations as technical consul __ant. Its membership includes journalists, . .foresters; agriculturist•s, environmental worke._s, social scientists, and psyc!]ologi sis. . f. Agrarian Refor_ Beneficiaries Association (ARBA)., A RBA estiina tes indicate a total membership of one million, mostly rice and corn farmecs
benefited
?by
tl)e agrarian
r_for
The large number of ,.,embers at the macro-leve! .•rural organizations make • them ef]_ective . partners of the •government development. ,' . ,
A.2_t
m
program.
command of potentially in national ,, _.
4
Rural
Or_[aniza tions
Formed
by
m
e_[t
the
Radical
GrouPs
These are the community-based organizations which are initiated by extremist groups outlawed by the government, particularly the NPA/CPP. •Most o_ these •organizations are in communities which are classified by the .NPA as liberated or guerilla zones. The NPAs employ participatory approach, which is dialogic and confronEational in conmuni ty organizing. They initially focus on Single issues which are essentially land based. Consequently, •other relevant issues are tackled depending on the needs and preparedness of the group. According to our key informants the main interest o£ the NPAs in fo_ming rural organizations is to develop stronger groupings of rural people•who are capable of ultimately meeting tl]eic own needs • and solving thei_ own problems. Furthermore, our informants declared that there are ,numerous organizations which are effectively functioning in their respective cc_nmunities.
II_ .._PEob!_ems_ and_Issues Reievan %o R_ur_a! The preceding several problems and
discussion on issues relevant
typo icxjieS point out to rural organizations:
i. The initial intention of the gove rnmen t in organizing rural organizations is to make them condui_ts " of the delivery system, Since the different-government agencies implement their own development .programs through rural organizations, -•this results in multiplicity of rural associations catering to and serving the sponsoring government agencies. Thus, there is a possibility that a farmer can be a member of several groups e.g. ARSA, SN, Farmers' Association of BAEX, and Irrigators' Association. The competing interests of the various organizations on the farmer's t.ime and resources becc_ne the major complai.nt of "the farmer-member who either sticks it out •with one group or withdraw membership from all.. This explains, to a certain extent, why despite the numerous rural organizations established, only a few have remained active and effective channels of government .programs. The extension program of BAEX exempli lies the usual government approach in organizing rural groups. As mentioned earlier, groups were organized based on sex and age with the presumption that each family member has specific roles•. _or instance, it was assumed that only the male head is involved in
A.25
agricultural production and should b.e the primary target of their• extension pcogr.am.. A. recognition that this approach is unrealistic has recently led to the consilderation of the.._arm faini.ly as the proper clientele. Since gore rnme nt,sponsored, organizations are intended as conduits of' specific programs, thece seems .to be an inhecent bias towards top-down organization. In many cases,, rural..folks are forced to organize themselves in order to availof the benefits extended by thegovernmeht, e.g. ccedlt.. Hence,-these organizations 'fade. easily even", right after the beneEit has been .granted. Moreover', there is an appa_-ent bia.g towardscoopecativism. Past' experiences indicate that a cooperative is doomed to failure once its creation is _op-down :and compulsory volun tary ..' ':
.rather
than
bottom-up
and
N'IA's scheme in institutional development .presents a 'different approach of the government in organizing rural organizations. I.t concentrates, on community organizing - building awareness,[ developing, skil.ls and capabilities for group action, and promoting selfreliance .- through a participatory approach. This approach, is used in all phases of water management, from project planning to actual allocation and distribution of water. Hence,. the claimed success of NIA's 'Irrigators'Groups. • Although initially intended.as..conduits of the government,, certain organizations (e.g..SN and.ARB.A) have become interest groups for the articulation their sec"toral concerns. In this. sense, they.become °f i pressure groups. Since they are sponsored .by the government, .they are recipients of government resources and support. Consequentl.y, they are in .a .more favorable position than t'he non-government sponsored interest groups. This favored position poses as. a constraint to 'the .growth .of independent r.ural organizations. Moreover, as.experienced in the past dispensation, these"rural organizations have been used, to a .certain extent, as"political tools .by tho_e in powe r, 2. 'NGOs are widely recognized as effective developmentagents. ' Thus,. NGO-organized rural groups Seem to be more active and lasting. _he apparent success of rural organizations sponsored by NGOs can be attributed to several factors. First, the approach of NGOs is •community organizing at the'start.. Other developmentoriented projects .like hea'Ith and nutrition, .education and livelihood .are. reso_ted t'o" only after .the organizational phase. Second, .planning and
A.26
rather than government initiative, with the government providing adequate incentives and greater democratic space. The government, thereforei shouldpromote and supplement rather than hinder and:supplant' prlvat'e initiative in organizing rural groups. Concomitantly, all rural organizations should be given equal access to government resources. This means that NGO-sponso_ed groups, as well as macro-level rural organizations should also be made conduits o E governmenb prograins and projects. 2. The govern_nent, however, can initiate the organi.zation of rural groups in cases wl]ich concern the allocation and management o£ scarce resources like land and water. Its intervention is necessary to ensure the efficient and effective utilization of such resources to maximize social benefits. In this instance, the N IA's approach, in organizing irrigators' associations could serve as a model. This approach is essentially participatory and bottom-up. 3. Cooperatives should remain an important institution in rural development. To be more effective and 1,eaningful, they should evolve primarily from organized rural groups. The government, however, should rationalize the implementation of its cooperative developmen5 programs, which should"hinge on voluntary %nd participatory approach. 4. To make rural organizations effective conduits of the delivery system, the government should rationalize the existence of competing rural groups. Along this line, the implementation of the extension programs of the different government agencies should be devolved to the provincial government which would carry out the programs at the grassroot level through r_a-I organizations. It is likewise necessary to develop two types of extension agents: community organizers agd technical men. The community organizers will either initiate the establishment of rural groups or assist existing rural organizations. The technical-men, on the other hand, will provide technical support. These extension agents should always work as a team. 5. To ensure that the sect oral interests of rural )rganizations (specifically peasant groups) can be. Irticulated and inputed in policy formulation and )rogram implementation, they should be repr%sented in the political machinery of the .government at al 1 levels. For instance, they should be allotted
A. 29
representation in.the, Bayan and Sangguniang Asssmbly or Satasang
local councils Panlalawigan) Pambansa.
A. 30
and
(e.g. in
Sangguniang the National
RE_SRESCBS
Bureau
of Rural Workers. registered with the BRW,
Rural workers CY 1979-1985.
associations
Castillo, Gelia T. 21 July 1982. Has bayanihan gone out of style? Inaugural professorial lec£tLre as Carnation Philippines, Inc. Professor of Rural Sociology. Castillo, Gelia T. 1983. How participatory is participatory development? a review of the Philippine expe_ience. Philippine Institute of Development Studies. Center
for the Development of Human (CENDHRRA). 1985. Development
Resources profile:
in Rural Asia Philippines.
DePartment of Local Government and Community Development (DLGCD). 30 November 1974. Samahang nayon report to the president-No.20. Manila.• Dim alanta, B.O. August 1979. MAR unites p_ogca,, beneflciacles into ARBAs. Bagong Bukid, Quezon City: Ministry of Agrarian Reform. Montemayor, Jeremias U. 16 October agrarian reform under martial Papers No.8. College, Laguna:
•1980. Seven years of law. ARI Occasional ARI-UPLB.
Niduasa, Rosa L. 1981. in 'four • provinces thesis. UPLB.
Active and inactive samahang of Mindanao. Unpublished
Philippine n. d.
Social
Primer
on
Business
ARBA.
n.d.
Querol, Mariano • Solidaridad
Alvin. Stanford,
U.S.
Agency Reform farmer
Progress
(PBSP)
Brochure.
Asia.
Manila:
mimeographed.
N. 1974. Publishing
Reinoso, Mario M. Philippines. Scarf,
for
nayons M.S.
•Land House.
1979. History College, Laguna
1955. The California.
reform
in
of agrarian : ARI-UPLB.
reform
in
the _
Philippine answer" to communism. Stanford • Univ_.rs_ty Press
Eor International Development (USAID) Agrarian Division. February 1975. A study of Philippine organizations. Manila.
A.3_
Annex
D
ALTERNATIVE PROCUREMENT AND RELEASE PRICES FOR RICE AND THEIR IMPACT ON THE LEVEr. O._ NFA MARKET INTERVENTIONS This note analyzes the relationship between alternative announced procurement and release.prices for vlce and the level of interventions needed for NFA to deEend those prices. The empirical r_lationships Used here draw on a variety of materials, but especially on the work of Unnevehr on factors affecting rice marketing margins. These factors are similar to those in other countries as well, and the results reported here are likely to be quite robust in terms of the direction of change according to vaclous p¢icing changes. On t_-e-other hand, the specific numbers reported here should be treated as •only rough orders o_ magnitude, depending as they do on several assumptions about how quickly the private sector adjusts to the announced prices and the size of domestic production and consumption. However rough the Oumbers, the framework and steps used to determine them are quite general. As new parameters and empirical relationships• are established, they can be "plugged into" the framework used here. Despite the apparent complexity of the calculations reported •here, the actual logic of the framework is qultesimple: i. Milling and transportation costs are incurred between the palay price at the farm level and local or regional markets for milled rice during _he harvest; 2. Storage costs are incurred between the harvest price and pre-harvest price for rice in these markets; 3. These marketing costs will be incurred by the private sector .if NFA does not intervene, and must also be paid by NFA if it does•intervene into the market a.s a buyer (of palay) or a seller (of rice in urban markets) ; 4. In the absence between palay prices at pre-harvest w_ll costs;
of NFA intervention, the mar._in at harvest and urban retail prices reflect the full set of marketing
5. In order to narrow the margin between these two prices, NFA must pcocuce pal ay at an announced "procurement price" (PD) and sell ric_ into urban markets at an announce_ "'release price" (PR)/ 6. and
The narrower distribution
mar.gin enforced by NFA procurement will cause NFA to lose money on its
A. 32
rice operations subsidy in order
and this will cause NFA to to finance these operations;
require, and
a
7. The size of this subsidy will depend on the relative procurement and release prices, probably in a rather colnp!icated manner that wil_l involve the workings• of the entire rice economy. What follows is a rough attempt to work out this relationship in a simplified Eashion, in order to show the logic of how the system works. Many assumptions ace made along the way in order to keep the f,ramework and calculations manageable and so that actual results can be generated from the rather sparse data (and limited time) available for this exercise. The results are quit =,. signiEicant however, for the budget subsidy needed to Einance NFA rice operations is quite sensitive to relative procurement and release prices. For example, at" a procurement price of V3.5 per kg of palay and a release price of _6.5 per kg of milled rice in urban retail markets, the net subsidy for NFA is _1.63 billion. With a wider margin, where procurement price _s--_ per kg and release price is _7 per kg, the NFA subsidy is only J_77 million. These subsidies permit NFA to fully repay its (-_dl-6-_Kwn for procurement of palmy, plus full interest costs. In short, the subsidy calculated using the _ramework and empirical relationships in this note report the full social cost of enforcing various margins between the palay price and the urban pre-harvest price. The relationship is based on Unnevehr; private costs:
between prices and intervention plus the following assumptions
needed about
A. Transportation and milling costs from p ro_ .... ,_ent price of palmy (Pn) to local (regional) retail markets ace such that PL== 2.0P n * [Pn/0.65 * Mm] = PL, where M m = •milling and trans.p_ortati_)n costs as a mark-up (%) oE the milled-rice equzvalent palmy przce. From 1980_2 the _ regional farm-retail price spread as a percent of farm price (milled equivalent) was 37%, although it was oaly 23% for Central Luzon. A value of 30% is used here for M m, so Pn/0.65 * 1.3 = PL if ful/ c--_ts are paid -- hence pri_ate sector carr ies--6-6_ activity. i
B. Full Storage costs fro|. retail price at harvest to retail price a_ pre-harvest are 25% (for about 8 months of storage). This is tYased on rough our@ent cost calculations as well as [a_zevehr"s regression results:
A.._3
where
SI
= 24.61
-2.44
SI
= proportional i00 *
INT
- 0.84
seasonal
NCUS, price
rise
(in %)
PR - PL ........ PL
PR = NFA INT
NCUS
release
price
(urban
retail
= NFA intervention, measured procurement and distribution percent of production; and =
price
peak);
by size of in a year as a
"unexpected" changes in supply, either from production or NFA stock changes.
The intercept term (24.61) measures the seasonal price rise with n_ooNFA intervention or unexpected supply changes, so a value of 25% is used here. C. Combining equation that INT
the two relationships generates Figure I: = 51.25
-
20.5
* PR/Pp,
provides
when
NCUS
the
= 0
Figure 1 is constructed on the assumption that the procurement price and release price defended by NFA will be effective as regional price averages (there still can be individual localities with prices outside this range). The degree of intervention needed to achieve a given price band is taken from Unnevehr°s equation, but the parameters also correspond closely with informed observations about current costs and price relationships. At this stage in the analysis production and consumption are assumed to be in balance at whatever price band is chosen, bu_--6_Ys will be relaxed in the next stage of analysis. With these assumptions, Figure 1 shows the degree of NFA intervention needed to enforce alternative levels of P_ and PR" For example, a procurement price of _3.5 per kg palay, the current level inherited from the Marcos.reg.lme, will require a release price of _8.75 per kg of milled rice at the pre-harvest price peak if NFA is to play no (or very small) role in price stabilization. In other w--ords, the private sector can do almost all rice marketing within a price, band of Pn = 3.5 and PR = 8.75. The same thing is true _f, for exa_Bple, P_ = 3.0 and PR = 7.5. These results (and the minimal role i_plied for the NFA), assume that _the private trade knows and acts on the basis of this price range. Some NFA procurement may be required to establish the desired palay price, and NFA must vlSibly not sell until
A. 3_
A. 35
the announced urban release prices are reached. Once private sector confidence is established in this range, however, the NFA role should be nearly zero at the indicated price range. In Figure i, the lowest line (INT = 0) shows the various combinations o'f P_ and .P that will eventually lead to this minimal role f_r NFA,Rthe higher lines show progressively greater intervention levels required for NFA to defend the announced price range. If narrz)wer price margins are desired, NFA must play a more active role in procureJcent and distribution. To enforce a procurement price of _3.5 per kg and a release price of _7o38 per kg, for example, NFA would have to procure (and distribute) about 8% 06 domestic production (see example A in Figure i). If 1986 palay output is about 8.5 million metric tons (mint), this price range implies a palay procurement by NFA of roughly 680,000 metric tons. At the procurement price of _3.5, NFA would need a credit line of _2.4 billion for rice procurement alon__ee. Figure 2 shows the required NFA credit line for rice procurement for alternative levels oE procurement and release prices, assuming a 1986 harvest of 8.5 mint palay. Again, the relationships here assume "equilibrium" on the part of the private sector, i.e., full knowledge and confidence that the announced NFA price levels will actually be enforced and be realfzed in the market. The relationship used to draw Figure 2 is CR
= Pp
* procurement, INT
where
* Production
procurement
=
(mmt)
i00 =
4.36 8.5
Pp
- 1.74
PR
mint palay,
and
CR = N FA credit needed bi i I ions.
if
Production
for
rice
=
procurement,
in
It is clear from Figure 2 that the amount of procurement credit needed to enforce a given ran@e of prices increases as the procurement price (Po) increases, and decreases as the.release price (PR) increases. As examples, a procurement prlce of _3.5 per kg will require _2.5 billion in credits for NFA procurement if the release price will be _7.33 per kg, but only _1.5 billion will be required if the release price is _7.9 per kg.
A.36
A. 37
The procurement credit to NFA will be (partially) repaid thr.ough the proceeds E_om sales revenues at the release price. No subsidy is needed if the release price is higher than the procurement price by an amount equal to the full costs of marketing (PR = 2.5 P_). With thls prlce range, either NFA does not need to intervene (INT=0), or if it does, its costs will be covered by the tnargln earned. However, if tile margin is narrower than that implied by recovery of £ull marketing costs, then NFA will need a budget subs id# to cover the e_cess (or it will have an i outstanding credit at the end of the marketing year of the/ sase amount). Table 1 shows the necessary ca lculatzons needed to determine the size of The final resulting formula is: SUB
= 7.08
Pp - 5.66P R
+ 1.13
formulae an_ thzs subsidyr_
PR2/pp.
Figure 3 presents alternative assumptions about procurement and release prices as they affect the level of subsidy required by NFA to break-even on its rice operations (assuming NFA Costs are no higher than the average level of private sector costs used in the calculations; see Table 1 for details. The following table shows some highlights f_om these results-
A..38
1.
Table
Procurement
Cost
= Pp CR
CR
= Pp
Production x .w 200
x INT
= credit
(4.36
= CR
needed
- 1.74
for
procurement
by
NFA
- 1 x
100,
SO
PR/Pp)
where: INT
= 10.25
- 0.41
SI
= seasonal
SI,
increase
PR
= 2.0
= 51.25
Cost
= MKT
Marketing
INT
MKT
=
[Pp/0.65]
where:
MKT
NFA
- 1.74
= Pp (2.72
- 1.09
PR/Pp)
Subsidy
(4.36
- 1.74
- PR x
-
PR/Pp)
needed
SUB
Note:
x distribution
price
= PR X 0.65
= volume
(2.83
1.13
procured
(4.36-
= CR
+ MKT-
-- Pp
* Vp
=
Pp -
x Prod'n/100),
PR/Pp)
= R EV = Release (rice basis)
SUB = 7.08
0.6•5 (INT
transportation and milling margins margin due to storage costs = 1.25
(4.36
Vp
I
price• ,( in rice x full marketing l,arglns volume (rice basis)
(Mm x M s ) - I] x
Pp
Revenues
x PR/Pp
= procurement equivalent) x marketed
Mm = regional Ms = seasonal
= 0.625
Le_ NFA
x
- 20.5
x Pp
(1.625 5.66
REV
+ 0.625 Pp
PR/Pp)
1.74
Pp
* Vp
- 0.65
Pr
* Vp
Pr ) * Vp
P2R/P p
Because of the quadratic term in does not provide reliable estimates when extreme v_lues of PR are used.
A._
PR/Pp)
= SUB
- 0.65
PR + 1.13
volume
this equation it of subsidy values
= 1.3
AS is clear in Table 2 and_'igure 3, pricing has a dramatic iapact on NFA finances. DifEerent combinations DE Pp an_ PR can leave NFA wzth virtually no subsidy requirements (be6o_e allowance is made 6or relative balance between production and consumption at different price combinations). For example, a combination of either Pp= 3.3; PR = 7.5 or Pp = 3.5; PD = 8.0 will lead to an NFA _subsidy requirement of roughly 160 - 175 million pesos. Alternatively, an attempt to defend a price range of only P = 3.5; P_ = 6.5 will 16ad to an NFA s_bsidy requir'ement of _.63 billzon pesos. Introducing world prices and the possibility that iaports or exports might be needed to keep NFA stocks in balance complicates the analyses considerably. Figure 4 provides a frmae_ork foc organizing the issues. The supply and demand curves are drawn to represent (roughly) the s_tuation in the Philippines in 1986. Domestic production at a palay price of _3.5 per kg. (Pp) will just equal domestic demand at the retail-equivalent of that farm price, _8.Z5 (PR). The difference between the two supply curves reflects the full (proportional) marketing costs (the model assumes for simplicity that all production takes place at the floor price and all consumption takes place at the ceiling price). A different price policy leads to a different net trade position. If the release price is only _7 per kg. (PR*) and the procurement price _73 per kg of palay (Pp*'_, the _,arketing margin is still exactly covered, but now domestic consumption is larger than domestic production by 4.70,000 tons, which must be imported if NFA stocks are to stay in balance. If the margin is sqeezed, the situation can be different still. Let the procurement price be _3_5 per kg. o_f palay (.Pp) while the retail price is held down to only _7 per kg. of rice (PR)" Then imports are reduced by 120,00 0 tlons, a marketing paid equal PR*) xbut volume marketed subsidy by NFAmust to be ennforce the t°a(PRiY sm ersubsidy. However, an import profit would be made because imports are available more cheaply than domestic rice at the official exchange. The current world price Eor 25 - 35 percent brokens, FOB Ban0kok,is about $150 per metric ton. After delivery to Manila retail markets this is the equivalent of about _4 per kg. of milled rice. Consequently, keeping prices low for Philippine farmers 9nd <_onsumers (for example, at Pp* and PR _) will earn net income _rom imports. In Figure 4, the am6unt woul be V3 per kg. times 470,000 tons, or _1.41 billion. It is clear that defending the incomes of-_rmers wl_l-l--be expensive in terms of opportunity cost to the budget. This cost is worth [)aying because world rice prices are unusually low at the
A.Ll'l
Table
2.
NFA subsidy (_Billions).
required
f oc
rice
opecatlons
6.5
7.0
7.5
8.0
2.7
0.008
0
0
0
3.0
0.363
0.077
0
0
3.3
1.041
0,523
0.175
0
3.5
1.630
0.980
0.490
0.163
PR Pp
A,LI2
,_
.
l
i
I
,i
f
m
i
.. 2 c.-
,.
-
gl '
*
•
•
.
*
•
•
•
*
•
0
4
I
-
• •
4
I
moment, grains
even relative such as wheat
and
to the coon.
low
A°44
pcices
of
othe.c
majo_
NOTES
_a/ Comments on the NAGRICO proposal were prepared Drs. Cristina C. David, Mahar Mangahas and Fe rmin Adriano, while those on PO 2032 were written Drs. Cielito F. Habito, Fermin D. Adriano Lourdes S. Adriano. I.
From hereon, we will the NAGRICO proposal.
refer
tO
the
CRC
study
proposal
by D. by and
as
b/ Prepared by Drs. Luzviainda B. Cornista, Assistant Professor and Director; Renato L. Tala tala, Training Specialist; Filomena A. Javier, Training Specialist; and Ms. Eva L. Escueta, Researcher of Agrarian Reform Institute, UPLB.
A.45