CREDIT AND PRICE POLICIES PHILIPPINE
AGRICULTURE
C.
Crietina
David
STAFF PAPER SERIES NO.
PHILIPPINE
INSTITUTE
IN
82째2
FOR DEVELOPMENT STUDIES
MAY
1982
CREDIT AND PRICE POLICIES PHILIPPINE AGRICULTURE
C. David*
Cristi_
Government cultural reason
products
policies
in low income
for this has been
promote
policies
policies
interest
input price subsidies.
loans
(Bale and Lutz).
subsidies,
and extension,
have
often been
premise
output.
these credit
concern
for the negative
rural financial
markets
stressed
accompanied
The underlying
favor
low to
expenditures
and concessionary
adverse
from institutional
rates
who
public
of agri-
The primary
of food and materials
of funds carry high interest Officials
prices
effects
of price
in agriculture.
and programs
and have
undervalue
used to offset
incentives
of agricultural
rates,
in research
are frequently
The credit policies the volume
countries
Input price
investments
on production
typically
to keep _rices
industrialization.
on irrigation, credit
economic
IN
that hinder
the expansion sources
at low
by supervision
and
is that informal expansion
policies
effects
of such policies
toperform
efficiently.
have
of
sources
of agricultural shown
little
on the ability They have
of
also ignored
*Research Fellow, Philippine Institute for Development Studies, on leave fFom rJ_e _i_ity of _ l_ilLpplw et Loe Re_os. The author wishes to acknowledge support for this study from the Rural Financial Market Project of the Ohio State University, the Philippine Institute for Development Studies (PIDS), and the Philippine Council for Agricultural Resources and Research (PCARR). The analyses of price policies draw from the results of a research project entitled "The Impact of Economic Policies on Philippine Agricultural Development" funded by PIDS and PCARR. Dale Adams, Douglas Graham, John Power and James Roumasset have provided valuable comments.
.
....
2 the
fact
that these policies
distribution.
usually
result
in more
of credit programs
has usually
terms of their impact on agricultural
production,
adoption
evaluation
of new technology. however,
involved impact
studies
of production
from conceptual and consumption
Aggregate problems,
policies because
and non-price
credit
impact
but empirical
impact
decision
studies
results
on production,
to agriculture
can be attributed
technology
inputs and outputs profitability
the Philippines to analyze
and relative
of this paper are related
the eltemt
and
not be surprising
commodities
and between of relative
flows.
how credit Dolicies
incentives
credit
that
of loans
programs
determinants
is to analyze
cheap
in showing
should
of resource
to economic
to which
to credit
important
direction
methodological
and proportion
across
the fungi-
by lenders.
consistent
results
prices
are much more
and, hence,
The purpose
These
and they gene-
from the interdependence
also have similar
investment,
credit
Only a few studies
techniques
rationing
are more
(Herdt and Gonzales).
problems
of farm-households,
credit
credit
in generating
loan impact.
arising
in
and
of existing
useful
programming
problems
investment,
that most micro
and are more measuring
been measured
methodological
It was concluded
and mathematical
of credit,
granted
the serious
than in rigorously
rally suffer
little
emphasized
are descriptive,
use econometric
bility
A recent
(David and Meyer).
hypotheses
loan
(Gonzalee-Ve_a)
The performance
research,
inequitable
in
in agriculture
is am effective
w_y to
and
3 offset
various
policies
affecting
The second policies section
taxes
section
on agriculture.
structure
section
describes
the
credit
presents
of government
that
facing
first
growth of the formal agricultural
on the relative argues
The
estimates
prices
of agricultural
low interest
agriculture
of the effects
products.
rates do not alter
nor rosolve
equity
system.
The third
the incentive
problems
caused
by
price policies.
Credit
Agricultural
Policies
Credit has been Philippines. promote
a major
In the early
rural private
Farmer's
Association
financial
more
the Rural
especially
than a thousand
farm cooperatives, of serious
rural banks
credit.
providing
default
problems,
Credit Administration
small supervised
credit
The government's
objective
has been hampered
1981 interest have
program
rate reform,
been regulated
to promote
was supposed
to
credit,
and renamed
It now administers
a
reform beneficiaries.
of increasing
by low interest
60
distributors
and marketing
(ACA).
There
in about
the principal
The ACCFA
to
cooperative
sector.
it was reorganized
for land
in the
and Cooperative
operating
production
the Agricultural
culture
Credit
to the rural
They have become
supervised
instrument
Bank Law was passed
and the Agricultural
catering
of government-mponsored
but because
development
(ACCFA) was also established
per cent of municipalities.
develop
fifties,
banks
institutions
are currently
agricultural
the credit
rates
policies.
interest
rates
and other
by the Monetary
Board
to conform
flow to agriUp until
financial with
the
charges
the 16 per
4 cent
ceiling
decade, from
stipulated
allowable
by
interest
12 to 16 percent
depending
rates were
rates
3 percent.
about 6 percent
have been
negative
lower
consequence
and factor
were negative
in real
and penalized
savers.
rate of I0 percent
costs of transactions
proportion
official
20 percent
terms.
a number
1974, the Monetary 25 percent
however,
purchased
have strongly
certificates
credit,
reform
funds, with
in agriculture,
Organization).
excess
interest
loan demand
to small were
inherently
all lending
beneficiaries.
where
higher.
a certain
for agriculture
credit programs.
and at least Private
In
to allocate I0 per
commercial
this rule and have and other
rates
that limited
required
institutions
to agriculture
of
borrowers
farmers,
go to credit
agricultural
Because
rewarded
the government
resisted
on agricultural
of loanable
structure
of loans
of indebtedness
charges
the interest
the 1970's),
for lenders
funds
ranged
Supervised
investments
especially
directed
of their loanable
cent of total to agrarian banks,
during
of supervised
Board
credit
with additional
rates
price
Labor
This also created
portfolios
past
from 2 to 3 percent
deposits,
interest
This price
and risks
the
for time deposits.
(International
agricultural
of lenders'
and initiated
savings
but higher
the flow of loans to agriculture_
To increase
agricultural
on the rate of savings,
(around
During
loan charges
than the scarcity
intensities
rapid inflation
1916.
terms of the loans.
For rural
Since the late sixties, credit
Law of
of formal
and other
a lower interest
not exceeding
Usury
and additional
on the security
credit bears
the
government
simply securities
5 by the Central
issued
the high
Bank to comply with
cost of directly
lending
Table i lists the various
1973-1980.
fertilizer
tial rediscount tration
Between
price subsidy.
under
rates,
agricultural
total loans
Most of these programs
loans with extension.
of
linked
Financial
during
low interest,
non-collateral
were
financed,
tied to a
provided
and assistance
These were
the period
these were also
institutions
loan guarantees,
credit programs
granted
1973 and 1975,
these programs.
because
to farmers.
special
(SCPs) and their corresponding
the regulation
preferen-
in loan adminis-
in part,
by foreign
loans.
A major for almost objective priority
rice production
80 percent
promotion
of total
of Masagana
of rice production
after Masagana supervised
Problems documented
areas
to non-rice,
associated
(David).
loans came mainly
with
the Central
from additional
equity
by the increase
in the share
total resources
of rural banks
Low repayment
where
capital
the initial
crop losses
in 1973,
for rapid
was greatest.
Programs
in scale, attempted
and policies
two decades,
growth
Bank rediscount
of borrowings
to extend
are now well-
in agricultural
window
deposits.
This
rather
plagued
than
is evidenced
from the Central
from 8 percent have
Since
areas.
or savings
rates, which
99, accounted
the potential
these programs
Over the past
from
from serious
smaller
rainfed
Masagana
by SCPs.
in the short-run
99, although much
credit
granted
99 was to recover
was given to irrigated
expansion
1975.
loans
program,
Bank in
in 1961 to 54 percent almost
all supervised
in
6 Table
I.
Supervised Agricultural Credit Programs Philippines from 1973 to 1980.
Program
Commodity
I.
Masagana
99
2.
Masaganang Maisan Masagana 77
3.
Gulayan
4.
Cotton
5.
Integrated
6.
7.
in the
Loans Granted _/ (_ million)
Rice
4,554
Corn
521
and
sa Kalusugan
Vegetables
22
Cotton
71
Financi_ for Virginia Tobacco ='
Tobacco
34
Rice-Tobacco Supervised Credit Program
Tobacco
3
Philippine Tobacco (PTA) Farm Credit
Tobacco
3
Tobacco
1
Financing
Agricultural
8.
PTA Facility
9.
Bakahang
I0. Biyayang
Progress
Administration Assist. Program
Loans
Barangay
Cattle
Dagat
Fish
Total
_/As
of
December
_/As
of
1979.
Source:
31,
256 35
_5,500
1980.
Unpublished files. Technical Board of Agricultural Credit_ Central Bank of the Philippines.
7 credit
programs,
and further
threatened
damaged
these programs
credit
of Philippine
technology
since
credit
among borrowers.
While
the Masagana
rice production
trend
of rural
institutions,
The impact
of
at the farm level as well as at an aggregate
unclear.
in 1973, the growth rice
discipline
on production
level has remained recovery
the viability
99 helped
from the global
in rice production
the late sixties
the rapid
food grain
and adoption
cannot
crisis
of the new
be attributed
to Masagana
(Herdt and Gonzales).
Despite
these government
real and relative have
declined
took place
still far below
percent
of agricultural
since the late
of this growth
agriculture
levels
interventions,
1960's.
and total loans
in 1955-1969
production
The level
APL as a percent
granted
to 19 percent
2 indicates loans
that the
(APL) granted
APL grew in real terms but most
in the 1960'e.
that in 1969.
Table
declined
of APL in 1979 was
of net value
from 22 percent
and II percent,
added
in
and 20
resplctively,
in
the 1970's.
These trends relative
prices
outputs
are more
hence direction have
already
the effects agricultural overlooked
are perhaps
across
sectors,
important of resource
argued
commodities,
determinants allocation.
that preferential
limited
interest
effects.
and
inputs and
profitability
and Vogel
Policies
of trade
rates
technology
and between
Larson
that turn terms
will have
since
of relative
that the use of credit
of policies exports
not surprising
and others
tO compensate
against
food and
It is too often
do not affect
and
relative
for
99
8
Table 2.
Selected
Indicators
of Trends
Agricultural Production Financial Institutions,
in Loans
Granted
for
by Bank and Non-Bank 1951-1979.
Value of Year
Agricultural Loans_ / (_ Million in 1979 Prices)
1951 1955 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
376 534 2,757 3,636 4,022 4,461 4,503 4,420 4,582 5,556 5,665 5,794 4,557 3,943 3,424 2,590 1,725 1,718 982 1,096 2,534 3,378
h/Refers _/For reported.
to loans
later years,
Sources:
Asricultural Loans Agricultural Value Added
as a Percent of Total Loans Granted_/
13 17 14 19 21 24 25 23 24 27 25 22 22 21 20 19 22 21 13 06 13 19
granted
40 24 20 22 20 20 19 19 19 20 16 16 15 13 12 I0 12 09 08 -
for agricultural
data on total loans
production
granted
only.
have not been
Unpublished reports by the Technical Board of Agricultural Credit, Centr_l Bank of the Philippines, and the National Economic and Development Authority.
9 profitability. supplied
And because
by credit will
whichever
Price
Policies
The effects culture fact
that small farmers
between
agriculture
well
relations several, prices,
have been influenced often conflicting
stable
and increased controls,
prices,
and the general
important
past decade.
policies Domestic
other countries
consequences
product
by interventions
more
prices have
relative
also been
such as the US sugar
price
quota
revenues, price
nationalization currency
especially
influenced
policy
low food
In addition,
of domestic prices
as
to achieve
government
import tariffs,
overvaluation
affecting
these
intended
products.
crops,
allocation
food self-sufficiency,
farm income,
quotas,
among
and input prices
on resource
In the Philippines,
The
has been amply
relationships
between
of agricultural
taxes, trade
in agri-
in the Philippines.
Price
objectives:
higher
processing
export
of marketing_ been
distribution.
enterprise
incentives
and price-responsive
elsewhere.
important
liquidity
utility.
on economic
and non-agriculture,
to have
as on income
the greatest
attention
are rational
additional
to the most profitable
policies
adequate
by researchers
have been shown
provides
of government
have not received
demonstrated
is fungible,
be allocated
or to consumption,
Intervention
credit
prior
have
during
by policies
the of
to the 1970's
and the US PL 480 program.
The impact measured
of economic
by the nominal
policies
protection
Both NPR's and IT's measure
on agricultural
rates
the percentage
incentives
(NPR) and implicit difference
can be
tariffs
between
(IT).
domestic
10 price and border price prices
(usually
export
prices
used
of products
defined
as CIF import
official
that enter
exchange
and border
price
rates,
is attributed
and price
border
price by the shadow rate, which the general
the protection
Table dity groups government intervention balamce impact
system,
3 presents
i/
price,
rate,
price
overvaluation
exchange
rates are
opportunity
costs of at the
between
domestic
interventions
such as
hand,
by converting
of net nominal
all government
of the exchange
Border
or FOB
is converted
a measure
into account
policies,
rate defended
by
is obtained.
average
NPR's
for the Philippines
to highlight
of the agricultural
by major
many
prices
policies
sector. _/
were
of the floating
m
u
Pd
NPR _ Pb
i x 100;
IT = Pb
While
Pd = price
paid by the user,
instituted
of exchange
I x i00; m
commo-
the impact of increasing
period was part of the overall
Pd U
price
On the other
exchange
takes
growth,
on consumer
they represent
to government
policies.
in the later
economic
for importables
at official
When border
for two time periods regulation
respectively. _/
as in NPR or IT, the difference
fiscal,
including
because
trade.
trade,
protection
price
for exportables)converted
as bases of comparison
commodities
and inputs,
where
and Pd = price
government
attempts
to cushion rates
the
in 1970
P denotes
received
to
border
by domestic
producers and importers. Prices are defined at a comparable point in the marketing chain to insure that differences between domestic and border pzices are due to government interventions rather than to real costs. _/Annual differences in nominal protection rates were not shown because they would, in general, be related to price fluctuations rather than to policy changes.
II
Table 3.
Nominal Protection 1955-1980.
Rates
Proportion of Value Added
in Philippine
Nominal Protection Rate
(%)
Agriculture,
Proportion of Value Added
Nominal Protection Rate
Food Crops Rice Corn Other Crops
Export
Livestock
.25 .08 .18
-7 I 0
.09 .09 .09
60 -8 0
.09 .08 .12
-23 -22 - 4
.17 .07
28 77
.13 ,07
4 48
and Poultry
Livestock Poultry
e
4 2 0
Crops
Sugar Copra Other Exports
Average
.27 .09 ,13
(Total)
(I.00)
15
(1.00)
-2
(%)
12 and the oil and food grain
Import
Among
crises
Food Crops
Competing
the domestically
marketed
and corn, have historically tions. roots,
Prices
to border border
of other
and tubers were
structure, l/
Domestic
prices.
in 1973-1975
fourfold
because
food grain prices incentives defend
prices
when world
Food Authority
for producers.
a farm floor price,
Previous
studies
for urban consumers
farm price to raise
incomes
except
domestic
Drice
fruits,
potentially
prices
nuts,
by the tariff generally
rice price was below
of rice and fertilizer
and world-wide
grain
(NFA) is responsible for consumers
rice
interven-
this was due to the price
low prices
close
the interrose
shortages.
for regulating and adequate
in the domestic
but the amount
of imports
or exports
which
determinant
of grain
prices.
is the main
that the provision tended
of stable
to dominate
of small
farmers
market
price
It buys grains
monopoly
had noted
of direct
of rice and corn have been
In part,
to achieve
the food staples,
such as vegetables,
less controlled
of the oil crisis
are under government
prices
food crops
In the 1970's,
ventions
food crops,
been theobjects
price by 7 percent.
The National
in 1973.
and low
the objective
(}_ngahas).
to
rice
of supporting
This was
!/Tariff protection is redundant for exportable crops and does not apply to food grains where only the govermment can import or export. It should also be noted that tariffs are expected to be effective in raising domestic price over border prices only in potentially import competing products. Since most of the agricultural commodities are either subjected to quantitative trade restrictions or are not significantly tFaded, price comparisons have been used to measure NPR instead of legal tariff rates.
13 achieved
through
imports
1975, the domestic commercial
rice prices
rice exports
rice technology important
have
of production
became
occurred
and irrigation
upland
population,
during years
expansion.
a relatively
low price
Export
regulation
in the export
Moreover,
consumers
sector.
of agriculture Prior
to 1970_
the overvaluation
of exchange
foreign
exchange.
limited
exports
protect
domestic
However,
consumers
to the highly
incentive
effect
of the
of keeping
the
for maintaining
the 1970's,
policy
agricultural
the Bovernment crops
except
and other
of production
protected
quota
prices
government those
Since
rarely
regulations
intervened
export
access
through
relating quotas
were instituted
policy
significant
indirectly
Despite
this,
that provided
on domestic
generally
that would
the floating
crop exports
the
an export in a
sugar production.
reduced
have prevailed
of the exchange
have been
that
in 1962 to
from 1955 to 1969 resulted
policies
to
of Philippine
U.So sugar market.
rate of 60 percent
crops below regime.
in the 1970's has been
from the increased
than world
protection
of export
1970, many
reason
in the case of sugar,
of the UoS. sugar
higher
high nominal
rates
to 60 percent
producers
previous
20 percent
of corn.
and trade of export
prices
of the new
for corn, an
the policy
is another
in the production
During
policy
Some
Crops
Growing
price much
Price
After
competitive째
1978 as a result
food for about
also has the same bias.
price of meat low for urban
internationally since
crop and the staple
shortfalls.
penalized
domestic under
the
rate in
by export
taxes
14 ranging
from 4 to 6 percent.
traditional
exports
of copra
degrees
of processing
subject
to a 4 percent
molasses, export
abaca,
premium
and centrifugal
of agricultural export
bananas,
duties
the gains from higher imposed
The rate of 6 percent
prises.
measures,
levied
These
export
coconut
Between
on
to promote
Other
tax are processed
temporarily
world
as stabilization
exports.
and tobacco째
were
sugar
is levied
higher crops
products,
1973 and 1975, additional
to siphon
off part of
export taxes
were
initially
but they have been continued
as a
tax on agriculture,
In the case of sugar producers
rose to more
industries.
and copra,
than 20 percent
Since 1970, sugar
first under the Philippine National
Sugar Trading
and seller Producers
of sugar
which
are paid a composite
of export price,
price.
However,
transferring
income
and the Coconut industry rising
price
domestic
price
since
Fund
1973o
and falling
has become
price,
and domestic
export
producers
to domestic
Consumer
Stabilization
the world
the
have been
reserve
has served
prices
thereby
consumers.
Fund
imposed
have changed price
buyer
is a weighted
this arrangement
The tax rates
under
markets.
that theoretically
below
in these
the sole wholesale
and international
(Cocofund)
with
tax on
been nationalized,
Inc., and currently
significantly
the Coconut
Investment
has effectively
system,
from domestic
or implicit
due to new regulations
wholesale
as in the quota
Two taxes called
typically
Exchange,
Corp.,
average
coconut
trading
in both domestic
to lower the domestic
the penalty
over
of copra.
(CCSF) on the time, In some
15 years,
the CCSF levy in ad valorem
20 percent miller's
level,
About direct
of border
on domestic
to finance
Research,
to date,
industry
actually
On the other hand,
alternative of waiting short
conditions. source
programs
program
to harvest
run, the CCSF and Cocofund
under
coconut
of income have been hesitant
for three years
in the coconut
from these programs
small
a first
The
of the coconut
seeds will perform
Furthermore,
the
and scholarships.
segment
from the replanting
hybrid
at the farm level.
oil products.
integration,
the benefits
the gains
It is not known how well Philippine
of coconut
shows that only a small receives
at the
from the tax supports
development
vertical
a tax of about
the tax is collected
consumption
such as replanting,
represented
of the tax is clearly
of the revenues
is supposed
industry
Although
the incidence
20 percent
subsidy
remainder
price.
terms
(David,
1977).
are uncertain. diverse
farmers
with no
to face the prospect
crop.
At least
levies may be considered
for the
a tax on the
industry.
Livestock
and Poultr_r
The incentive rewards
structure
than for poultry,
sector.
However,
because
of government
prices
but both
the general
of livestock,
and 77 percent
for livestock
higher
policy
also seems
than their higher
pork,
to offer
favored
trend of declining
specifically
the 1970's and slightly
are more
appears
to have
than the crop
incentives
occurred.
and poultry
corresponding
were
border
than those predicted
lower
over time
Domestic 28 percent
prices
by their
prior tariff
to
16 rates, i/
In the 1970's,
somewhat
lower than the legal
and 70 percent
for poultry.
on those products
which
feeds and feedgrains, provide
a reasonable
Protection
non-agriculture on product
percentage
inputs
difference
of corn,
for producers
EPR for manufacturing
for livestock
controls
and other
during
to levels
controls
also by price
imposed on mixed
feedgrains
to
this period.
depend
flows between
on the effects
between
added
It takes
Since
paid by farmers
as estimated
(EPR) measures
of price
prices
protection
the
and value
interventions
of EPR for agriculture
the nominal
on agri-
in the non-
at domestic
the impact
estimates
rate
and
rate of protection
of policies
of incentives
protection
value
agriculture
by the nominal
The effective
tariffs
declined
and Manufacturing
Table 4 compares
to the implicit
imports
and on the nature
prices.
into account.
available,
accompanied
they also
sector.
difference
rates of I0 percent
are not only influenced
prices;
added at border
tariff
and rate of resource
input prices
agricultural
were
margin
price
This may be due to price
higher
of Agriculture
The direction
cultural
percentage
on
are not
rate in agriculture
for agricultural
inputs
and to
by Tan. z/
_/Since international trade in livestock and poultry has been minimal and confined mainly to imports of breeding animals, special cuts of meat for restantants or of fats for the meat processing industry and their border prices were represented by the average CIF import unit values in Hongkong. _/NPR's in agriculture are not expected to be substantially different from their EPR's because the proportion of intermediate inputs to value added remains relatively small in Philippine agriculture. Moreover_ one can expect EPR's to be lower than NPR's because of higher protection on agricultural inputS.
17 As can be noted, structure
government
that is significantly
added in manufacturing price
intervention
the last decade
Because
policies
through
is only will
subsidy
controls
and direct
implicit
tariff
domestic
manufacturing
indicated
tariffs
subsidies
for fertilizer째 of these
agricultural
higher
an important
The overall by the measure overvaluation the exchange
fer fertilizer
consideration
magnitude
tariffs because
interventions However, credit,
it as
from 24 to 46 percent
tax.
Despite
there
is still
of the price a positive
that the protection inputs, or IT{but of direct
which
of
is also
is actually subsidies),
has
of policy.
of the bias against
of net protection of the exchange
of agricul-
chemicals,
as a result
sales
It appears
during
to be some government
ranging
on fertilizer,
by the level of implicit
significantly
and formal rural
in agriculture
and indirect
this.
for agricultural
and feed mixes
protection
of legal tariffs
that government
there appears
value
input prices.
the objective
try to offset
irrigation,
Implicit
machineries,
will
oroduction
and higher
to dominate
While
by 44 percent,
agricultural prices
an incentive
agriculture째
raised
it was expected
later, where
the effective
structure
been
tend
input markets
to producers째
agricultural reduce
product
in the case of Bravity
be discussed
against
undervalued
lower
price policy,
in the agricultural
biased
have created
has been artificially
low food Drices
tural product
policies
rates
that
agriculture
includes
the impact of the
rate due to the protection
rate has been allowed
to float
since
is reflected
1970,
system.
Although
the structure
of
18
Table 4.
Comparison of Protection Rates D_nufacturing Sector, 1970Vs.
Agriculture
(Nominal
Protection
(Net Nominal Agricultural
Inputs
Rates)
Protection
(Implicit
in Agriculture
- 2
Rate)
-37
Tariffs)
Fertilizer _/ Agricultural Hand
and
i0 Chemicals _/
28
Tractors--b/
46
Four-wheel
Tractors _b/
24
Irrigation
Pump _b/
46
Irri_ation
Gravity
Mixed
(NIA system) _/
-55
Feeds--b/
Manufacturing _d/ (Effective
33 Protection
(Net Effective
Rate)
Protection
_/Based on price comparison of urea, fertilizer and phosphates from 1973-1980. _/Based
44
Rate)
ammonium
on legal tariff rate and sales
9
sulphate,
mixed
tax.
_/Based on comparison of NIA irrigation fee and estimates of annualized cost of irrigation system by Moya, P.F., L. Small, and S. Bhuiyan, "Cost of Different Types of Irrigation System in Central Luzon," Department Paper No. 80-10, Dept. of A_Zlcultural Economics, IRRI, June 1980. _/Based on estimates by Tan, N. "The Structure of Protection and Resource Flows in the Philippines," in Bautista, R., and J. Power, Industrial Promotion Policies in the Philippines, Philippine Institute for Development Studies, 1979.
19 tariffs
and other
thus increased Medalla
trade restrictions
the value
estimated
culture
of domestic
of the pesos
If this is taken
a 9 percent general
severe
policy,
be expected survives
Impact
with no price
and indeed
to agri-
currency
would
receives
As a consequence
of this
is less than what
such as coconut
intervention. suggests
free trade
still
production
consumption
in a 32 per
penalties
manufacturing
commodities
and
products
may be somewhat
higher
it
and than would
The fact that agriculture
an inherent
comparative
advantage.
of Credit Policies
To compare policies,
at border
the quantitative
the effective
of interest
rate subsidy
prices
difference agricultural Another
grows
to a balanced
rate.
agricultural
the level of domestic
resulted
of an overvalued
while
protection
should be, and for certain sugar,
effect
(-37 percent)
net effective
pricing
relative
for imports
For the mid-1970's,
into consideration,
net of the disincentive
be even more
currency.
demand
that the tariff and tax system
cent overvaluation situation, z/
has reduced
subsidy
impact rate
in the cost of borrowing loans multiplied
method
(ESR) which
as a percent
has been estimated.
is to estimate
of credit
policies expresses
of net value Subsidy
between
by the value the amount
added
is defined
agricultural of agricultural
of subsidy
to price the amount
in agriculture in terms of the and nonloans
accruing
granted.
to the
Z/The situation since the mid-1970's has been one of chrolic and growing deficits in current accounts, financed by heavy foreign borrowing. This indicates an even higher percentage of peso overvaluation than that protected by the tariff and tax system alone.
20 sector
due to the difference
between
the nominal
interest
rate and the
rate of inflation.
Differences agricultural most,
in interest
loans from _ormsl
2 percent.
of borrowing.
Moreover,
Typically,
cost than agricultural
Assuming
that
interest
rate amounts
to only
structure
financial
in favor
will not alter
mobilizing
financial
that is based
only part of the costs
has meant
less transaction
Even if interest
vis-a-vis
savings
incentive
created
rate policy
to efficiently
perform
impairs
the
incentives
an allocation rather
by price
seriously
It does not provide
and wealth
is
that the interest
the unfavorable
and it induces
subsidy
rate differential
non-agriculture
markets
on size of collateral
the effective
it is clear
low interest
process.
a cost of borrowing
of agriculture,
significantly
of rural financial
intermediation
are small, at
loans entail
in magnitude,
On the other hand,
the ability
represents
rate policy
times
in agriculture
institutions
and non-
for borrowers.
I percent.
two or three
policies.
interest
loans
of 6 percent
rate subsidy
financial
agricultural
non-agricultural
differential
increased
rates between
for
of credit
than productivity
of credit use.
The impact of the distribution is
shouldered
of
currency,
low
interest
tends by bank rates
low
to the
be
interest regressive.
lower
deposits, on
rate
income and
savings,
tax and
policy
on income
The implicit population, payers direct
subsidy
i.e., through
government
holders inflation, outlay.
21 Only about received
I0 percent
of the total
by agriculture.
not consistent
with employment
for agricultural labor without
Within
machinery
significant
tractors
was used
and equity
shifts
less than I0 percent
In supervised
credit
to institutional
landless
households
farmers
coconut,
tobacco,
locations
in production
of the implicit
with
of the implicit
farmers.
in the
Four-wheel with
the bulk
or more who constituted
are usually
Rice has been the emphasis
off than average
involved
Within
credit
in these
subsidies
as incentives
of setting
of inequity programs
99.
increases
loan limits farms.
in distribution was reported
have been received
mainly
relatively
for larger
The study
to lend to small
but
priority
i.e.,
for rapid
ceiling
of
in corn,
sector,
markets,
potential
n_mber
farmers
the rice
to primary
of Masegana
by the farmer borrowers
Program
areas.
dimension
one-third
of
the significant
a higher
institutions
than 15 percent
were purchased
The procedure
financial
use of
of farmers.
the greatest
analysis
credit
despite
close
important
subsidies
in a recent
two-thirds
areas
against
only farm operators
crops.
basis means
an even more
Esguerra
better
in the short-run.
on a per hectare Perhaps
credit
and other
was given to irrigated progressive
programs,
in the rural
are actually
of small
is
is also
Low cost
Mechanization
50 hectares
of total number
entitled
rice
with
allocation
system
Less
Bank Credit
farm equipment
of the loans by sugar farmers
credit
the incentive
tillers
rate subsidy
objectives.
impact on yield.
for power
and other larger
interest
agriculture,
the value of loans in the World Philippines
implicit
estimated
by that
5y participating
farmers
from non-repayment
and only
of loans.
Z2 Furthermore, borrowers farmers
the distribution
has been biased
can be increased
simply
transform
income
transfers.
in favor through
supervised
The common belief
of the subsidies of larger
higher
credit
that extension
were
In the case of rice9
already
of rainfed
adopted
farmers.
default
would
by 67 percent
be more
to
for effecting
effective
borne
varieties
of irrigated
farms prior to the Masagana
The subsidy
vehicle
is not clearly
the modern
to farmer
rates but this would
into a costly
with low cost credit and vice versa evidence.
accruing
if tied
out by empirical
introduced
farms
99 Program.
in 1967
and by 45 percent
The fact that the
rate of adoption increased to 85 percent and 71 percent, respectively, solely in 1977 cannot he,attributed to the program but rather should be viewed as a continuation extended little despite
of the long-run
since the late
dissemination the Maisan
technology
rural development, the efforts without
77 and Masaganang did not offer
of financial
markets
but the strategy
of scarce
significantly
competent raising
process
of the new technology
In the case of corn,
of new varieties
apperently
and development
1960's.
adoption
developed Maisan
higher
in the early
programs
of linking
repayment
because
profitability.
are indeed
technicians
there has been
important
1970's the new
Extension components
of
the two has dissipated
in loan adllnistration
rates
in supervised
credit
programs.
Concluding
Remarks
In summary,
interest
rate subsidies
hav_ not significantly
altered
23 the unfavorable policies. culture
economic
incentives
It is not surprising, in real terms have
quotas
and special
subsidies
because
Relative
determining
prices
make an unprofitable
income
farmers,
receive
to reflect replace
distribution the cheap
profitability
hand, more positive
instituted
credit
profits
liquidity
or utility
are the major
enterprises.
rate
due to pricing
Additional
marginal
to agri-
Cheap
are
factors
credit
will not
profitable_
credit
subsidies
because
through
When
interest
intermediation,
as the basis agricultural
low interest
only a few, typically
credit.
cost of financial
penalties
as yields
funds
rates of interest
of credit.
to most
activity
It is also clear that worsen
Even higher
where
ss well
rates of return
government
in offsetting
to activities
caused by government
that loanable
despite
credit programs.
of the fungibility
will be allocated highest.
therefore,
declined
will be ineffective
policies
in agriculture
wealth
of allocating
prices
rates
would
rates
progressive are not allowed
and political
credit.
benefit
power
On the other
more
low income
farmers.
The choice adverse grants
of credit
policies and loans_
do, this approach Cheap
and to other fails
increasing
retard
in rural exports,
agriculture
ease,
short-run
to achieve
also
institutions
sufficiency_
to compensate
is due to administrative
credit policies
financial
policies
availability
considerations.
either
equity
the development
areas.
of external
While
or efficiency of viable
The objectives
and improving
for other
income
easy
to
objectives.
formal
of food selfdistribution
24 requires
long run solutions.
in real and financial structure9 overcome
irrigation,
production
markets
This includes and making
research_
disincentives
correcting
investments
and extension.
price
distortions
in marketing
Cheap
caused by low prices
infra-
credit will not and/or
low yields.
25 REFERENCES Bale, M. and E. Lutz, "Price Distortions in Agriculture and Their Effects: An International Comparison", World Bank Staff Working Paper No. 359, October 1979. David, C. and R. Meyer, "Measuring the Farm Level Impact of Agricultural Loans in Low Income Countries: A Review Article", in Borrowers and Lenders, OEDB, London, 1980. David, C., "Structure and Performance of Rural Financial Markets in the Philippines", ESO No. 598, Department of Agricultural Economics and Rural Sociology, The Ohio State University, Hay 1979. David, Vo, The Barriers in the Development of the Philippine Coconut Industry, Unpublished MBA thesis, Ateneo de Manila University, 1977. Esguerra, E째, The Redistributive Potential of the Masa_ana 99 Credit Subsidy, Unpublished MA thesis, School of Economics, University of the Philippines, August 1981. Gonzales,
Vega, Claudio,"Interest
bution", American Journal No. 5, December 1977.
Rate Restrictions
of Agricultural
and Income
Economics,
Distri-
Vol. LIX,
Herdt, R. and L. A째 Gonzales, "A Reaction to the Study on the Benefits and Costs of Masagana 99 Program", Paper presented at the Fifth National Agricultural Credit Workshop, Zamboanga, Philippines, March 1981. International Labour Organization. SharinE in Development: A Programme of Employment Equity and Growth for the Philippines, Geneva, International Labour Office, 1974. Larson, Do W. and R. C. Vogel, "Interaction of Price and Credit Policies in Costa Rica Agriculture", ESO Noo 813, Department of Agricultural Economics and Rural Sociology, The Ohio State University, November 1980. Mangahas, M., "Philippine Rice Policy Reconsidered in Terms of Urban Bias," IEDR Discussion Paper 72-8, School of Economics, 1972. Medalla, Eo and J. Power, _'Estimating Implicit Tariffs and Nominal Rates of Protection", in Bautista_ Ro and Power J_ Industrial Promotion Policies in the Philippines, Philippine Institute for Development Studies, 1979. Moya, P. and Others, "Cost of Different Types of Irrigation System Central Luzon", Paper No. 80-10, Department of Agricultural Economics, International Rice Research Institute, Los Ba_os, Philippines, June 1980. Tan, N., "The Structure of Protection and Resource Flows in Bautista, R. and Power, Jo Industrial Promotion Philippines,
Philippine
Institute
for Development
in
in the Philippines", Policies in the
Studies,
1979.