Accounting for around 10% of GDP, the Philippine agriculture and fisheries sector’s importance to the national economy remains far larger than its direct impact on the bottom line. The industry is a crucial employer, accounting for 26.7% of the country’s 43.4m-strong labour force, and is one of the few trades available for many Filipinos living in remote, less-affluent regions. With President Rodrigo Duterte announcing the Philippine Development Plan 2017-22 and its aim to reduce poverty from 21.6% in 2015 to 14% by 2022, a logical place to begin would be the agriculture sector, as the rural population collectively lives within a poverty range of 35-40%.
The sector also plays directly to another of the president’s talking points about focusing on agriculture, tourism and manufacturing, with much of current industrial activity already devoted to downstream processing of agricultural products.
Economic Contribution
Although agriculture’s contribution to national revenues has been diminishing proportionately as overall economic growth has surged in recent years, the value of both agriculture exports and the sector as a whole continues to expand. Agriculture, hunting, forestry and fishing together contributed 9.7% to the Philippines’ fourth quarter GDP in 2016, down by 1.1% year-on-year, according to the Philippine Statistics Authority.
Severe weather fluctuations have led to erratic output in recent years. For example, long dry spells in 2015 – combined with the extensive damage caused by Typhoon Lando – adversely affected the sector, which saw production rise by just 0.11% since 2014. The crops and fisheries segments saw production fall by 1.95% and 1.96%, respectively, over the course of 2015, while the livestock and poultry segments grew by 3.8% and 5.7%, respectively.
The prolonged dry spell continued to adversely affect the crop segment in 2016, leading the agriculture sector as a whole to decline by 1.3%. As was the case in 2015, productivity increases in the livestock and poultry segments were not enough to offset the losses incurred in the crops and fisheries segments.
Budget
In recognition of the sector’s importance, the Department of Agriculture (DoA) receives one of the largest budgets of any government department, behind those related to infrastructure development, education, defence and social welfare.
In 2016 the agriculture sector as a whole was allocated P59.19bn ($1.25bn), up from P53.31bn ($1.13bn) the previous year, along with another P10.29bn ($217.7m) distributed for agrarian reform in 2016. One of the primary current challenges for the DoA concerns how to adequately and efficiently distribute these funds, a task which in the past has been made more difficult by a lack of institutional consistency in many areas. As a result, numerous development programmes have not been employed as effectively as they could have been due to shifts in policy priorities over time or the lack of local level interaction and capacity.
“If the government leads agriculture development, you will face the problem of absorption capacity,” Rolando T Dy, professor and executive director of the Centre for Food and Agri-Business at the University of Asia and the Pacific, told OBG. “There must be a shift towards more private sector- and local government unit-driven development because centralised development did not work well in the past.”
Spending Cuts
These challenges were reflected in 2017 budgetary projections, which have actually been scaled back despite a pledge by the government to renew its commitment to support the agriculture industry and reduce rural poverty rates. Planned expenditure for the sector has been reduced to P53.82bn ($1.14bn) for the year, well below the P71bn ($1.5bn) requested initially by Emmanuel Piñol, the secretary of agriculture.
The reasoning behind these cutbacks is not to reduce the resources available, but to cut waste and refocus efforts on more efficient programmes. This has resulted in the largest cuts coming from the Office of the Secretary, which said that over P5bn ($105.8m) had been trimmed from its budget, reducing it from P40.33bn ($853.2m) to P35.23bn ($745.3m) in 2017, while other programmes retained or exceeded their 2016 funding levels. Whether this reallocation of resources will have a positive effect on these agencies’ effectiveness remains to be seen.
Staples
The primary food staple in the Philippines, as in the rest of the region, is rice, which is an important part of the daily diet. However, with the country lacking the climate and large river basins present in other rice-producing nations such as Thailand, Myanmar, Cambodia and Vietnam, it remains partially dependent on rice imports, despite ongoing efforts by the government to attain self-sufficiency in this key commodity. These plans are embodied in the Food Staples Sufficiency Programme (FSSP), which was rolled out in 2011 with the goal of achieving full domestic rice self-sufficiency by the end of 2016, by which time the country targeted a rice production level of 21.73m tonnes. The timeframe has since been prolonged to 2020, with a production target of 21.67 tonnes.
There are many routes to self-sufficiency, and scientific developments can be a big help. “The use of modern farming technology such as hybrid and genetically modified seeds is a way of improving productivity in the agricultural sector,” Edwin Hernandez, president of marketing and distribution company Jardine Distribution, told OBG. “If the right variety of seeds is used to target certain crops, self-sufficiency can be tackled effectively.” In addition to rice, the FSSP addresses other less widely consumed staples, including white corn, bananas, cassava and sweet potato.
Reduced Production
The hotter, dryer air brought by the El Niño weather phenomenon towards the end of 2015 and into early 2016 had a negative effect on rice production across the country, as expected. Consequently, rice and corn production in 2015 fell by 4.3% and 3.2%, respectively, compared to 2014 levels.
The total rice harvest for 2015 was 18.2m tonnes, with yields dipping slightly from 4 tonnes per ha in 2014 to 3.9 tonnes in 2015. This trend continued into 2016 as rice production for the first half of the year declined by 8.1% from 8.32m tonnes to 7.65m tonnes, as a result of lower yields and a contraction in total harvested area from 2.06m ha to 1.93m ha.
Surprisingly, officially approved imports did not see a dramatic rise in 2016 to compensate, and rice prices remained relatively stable. As of November 2016 just 250m tonnes of imported rice had been contracted by the National Food Authority (NFA), the sole legal importer of rice into the country. The amount of imported rice is restricted by the NFA under a deal with the World Trade Organisation to protect domestic farmers by enforcing quantitative restrictions on the commodity. An extension of this programme until 2019 was still under cabinet debate as of April 2017.
Coconut
Coconut is an important contributor to the sector, although productivity is a major concern in the industry. “Whereas Philippine farms average 47-50 nuts per tree per year, Brazil averages 400 nuts per tree, Thailand 150 and Indonesia 120. Although Thailand has only 1m ha devoted to coconut, it produces three times the amount the Philippines does,” Tomas Medina, president and CEO of Brandexports Philippines, told OBG. “The bulk of coconut production is going into liquid by-products. However, the market for coconut water, which has experienced severe shortages over the years, is expected to stabilise by 2019.”
Tuna
Municipal operations for school fish such as mackerel and sardines provide the backbone of local fish production. Fish from these sources are primarily for domestic consumption, while commercial fleets ply the waters of the Pacific Ocean in search of stock for the country’s export industry. The tuna segment in particular employs extensive distant-water fishing fleets throughout the region.
Tuna is by far the Philippines’ top seafood export commodity, with a collective volume of 583,000 tonnes of fresh, chilled, frozen, smoked, dried and canned tuna products shipped in 2015 worth $767m, according to the most recent data available from the Bureau of Fisheries and Aquatic Resources. Canned tuna constitutes the bulk of tuna products exported, with the primary markets including the US, Japan and the UK.
Foreign Waters
Unfortunately for these companies, the productivity of domestic tuna grounds has waned in recent years and the areas supplying these operations with the bulk of their fish are now located largely outside the country’s territorial waters, in nations such as Indonesia, Papua New Guinea, the Solomon Islands, Kirabati and others.
To access far-flung fisheries, companies must pay for permission to ply foreign waters – often at an steep price. In addition, because Philippine companies have little say in how other nations manage their fisheries, they remain susceptible to policy changes, such as the 2015 enactment of a ban by Indonesia against foreign crew members fishing in the country’s waters.
Despite these challenges, the vessels supplying Philippines-based tuna operations have been able to increase their landed catch each year since 2011, when a total of 330,010 tonnes of skipjack, yellowfin and bigeye tuna were landed. The annual total had increased to 387,804 tonnes by 2015.
“As the primary contributor to production growth, aquaculture will drive the future of fisheries in the Philippines. The subsector will definitely play a key role within the country’s broader food self-sufficiency goals under the present administration,” Eduardo Gongona, the director of the Bureau of Fisheries and Aquatic Resources, told OBG.
Vessel Day Scheme
An example of the importance of distant-water operations is one of the country’s largest fishing outfits, Frabelle Fishing Corporation, which sources virtually all of its tuna exports from Papua New Guinea’s fisheries. To gain access to these bountiful waters foreign-flagged vessels must bid on fishing rights through the Vessel Day Scheme (VDS).
Under the VDS, Pacific Island nations which are signatories to the Parties of Nauru Agreement (PNA) designed to manage tuna stocks set the total number of days that can be fished in their waters combined and the apportionment of the total number of days between each country. Decisions on how many fishing days to allocate are calculated to allow for commercial fishing activity but at sustainable levels, by utilising stock assessment information on the target species of skipjack, yellowfin and bigeye tuna, along with economic information relating to the maximisation of economic returns and optimal utilisation of the resource.
The PNA recently set the total allowable effort – the number of cumulative days sold by member countries in a given year – at 46,610 VDS days for 2015 and 45,881 VDS days for 2016. The benchmark price set in 2015 was $8000 per day, which vessels from the Philippines and other nations must apply and pay for. This is the latest incarnation of a system first set up by the Pacific Islands Forum Fisheries Agency in the late 1990s to cap the number of distant-water fishing vessels plying tuna waters in order to regulate fishing activity at sustainable levels, while simultaneously benefitting the island nations controlling the waters.
To facilitate the permit process and allow foreign fishing vessels into Papua New Guinea (along with a number of Papua New Guinea-registered vessels also working for Frabelle), the company agreed to invest in a tuna processing plant in the Papua New Guinean port town of Lae. Although the $49.6m facility – developed as a joint venture with Thai Union Frozen Products as Majestic Seafoods – has the capacity to produce 150 tonnes of canned tuna per day, and has the potential to expand output to 350 tonnes per day, only around 30% of the tuna is canned on site, with the remaining 70% shipped out as loin due to the lack of production cost competitiveness of processing in the country.
Agrarian Reform
With large portions of the population still heavily reliant on the agriculture sector, particularly in the less-affluent rural areas, the government continues to be mindful of protecting small landowners from increased competition from larger agro-industry players and low-cost imports.
These efforts are enshrined in the country’s Comprehensive Agrarian Reform Programme and its implementing laws, which were passed in 1988. While these regulations have been somewhat successful in achieving their aim of shielding small landowners from an increasingly competitive marketplace, they have also had a distorting effect on local market prices, as well as restricting the expansion of larger, more efficient agro-industrial companies. One of the more significant of these regulations is a provision that restricts the ability of large agri-businesses to buy up and consolidate large contiguous plots of farmland.
“Corporate farming is very difficult in the Philippines,” Michael Caballes, president of Allied Botanical Corporation, told OBG. “Lots of investors want to come here but because of the agrarian reform law there are many restrictions. Foreign companies are not allowed to own land, so it is difficult.”
Another challenge created by the predominance of small-scale farming is the diversification of crops grown over relatively small areas. While this provides farmers with more options should a specific crop prove susceptible to pests or a drop in market prices, it also poses a challenge for purchasers who would prefer more plentiful, uniform crops supplied from one farm, rather than a mix-and-match approach.
As a result of these limitations, farmers and companies seeking to take advantage of economies of scale are forced to think more creatively in order to capitalise on the larger, mechanised, more efficient operations necessary to be competitive in the globalised agriculture industry.
Consolidation
One of the more widely utilised methods of achieving these goals is to consolidate dozens or even hundreds of individual farms into larger cooperative entities, which can pool resources. These cooperatives are able to use more efficient modern methods, such as higher-grade seeds and fertiliser, as well as benefitting from mechanisation, improved infrastructure and offtake agreements similar to those practices employed by larger agri-business units, while ultimately still benefitting the landowners directly.
“Under land reform, managing large farms is still possible provided that there is an agent of change that will consolidate small farms,” Dy told OBG. “Small farms will need to be consolidated to achieve economies of scale in inputs procurement, farm operation, financing and marketing. This can be effected by the private sector, local government unit or a well-managed cooperative. But this still is a second-best solution to a free land market,”
Already employed in numerous agriculture sectors and countries around the world, the nucleus estate model amalgamates smaller farms into cooperatives managed by larger private companies. These companies provide infrastructure, farming equipment, and inputs in the form of seeds, fertiliser and water, while the farmers provide the land and the labour. At harvest time farmers have a guaranteed offtake for the product at set market prices, while the companies maintain a steady supply chain.
Insurance
Despite the best efforts of the public and private sectors to consistently boost the yields and quality of their output each year, the agriculture sector remains at the mercy of nature. A prolonged dry spell can cripple and kill crops, a typhoon can uproot plantings and wipe out aquaculture pens, and heavy seas can inundate low-lying farms with salt water.
Looking to protect small-scale farmers, the government – and specifically the Philippine Crop Insurance Corporation (PCIC) – has been steadily increasing its efforts to provide crop insurance to farmers across the country to give them a safety net should disastrous natural phenomena strike.
With crop insurance, farmers are better able to recover financially from these increasingly frequent setbacks and get back to producing. “These efforts are especially needed in the Philippines because the country was ranked as the third most vulnerable to climate change events and variability in the world, according to the World Risk Index report,” Rodelia Pagaddu, business development and marketing department manager at the PCIC, told OBG.
Typhoon Threat
Further evidence of this risk can be seen in the rash of damaging typhoons that have struck the Philippines over the past decade, including the deadliest storm on record to hit the country – Typhoon Haiyan, known locally as Typhoon Yolanda – which was responsible for thousands of deaths in 2013, while millions more were displaced and billions of dollars worth of damage was racked up.
The recent emphasis on crop insurance began under the previous administration of President Benigno Aquino III. The number of insured farmers averaged just over 100,000 in the three decades between 1981 and 2010, with those insured working almost exclusively in the rice sector. However, between 2010 and 2015 the number of those insured increased more than 10-fold with an influx of funding, as the PCIC routinely exceeded its growth targets.
The industry reached a milestone in 2015, with the number of farmers insured breaching the 1m threshold for the first time, with a total of 1.19m registered, as well as exceeding P1bn ($21.2m) in indemnities for the year, hitting P1.38bn ($29.2m). This is in line with the government’s climate change efforts, which require all levels of government, including local government units, to mitigate climate change-related risk. This growth is due primarily to consistently strong government financial support for the programme, which grants farmers access to fully subsidised insurance policies. Since 2013 this has included 55% of the cost of policies covered by the PCIC, with the remainder coming from separate funds administered by the Department of Agrarian Reform as well as the DoA.
These funds have contributed P1.83bn ($38.7m) each year since 2014 for the insurance programme, supplemented by the PCIC’s own budget, which has increased substantially from P1bn ($21.2m) in 2013 to P1.6bn ($33.8m) in 2016, with a requested budget of P2.5bn ($52.9m) for 2017. To distribute and promote the products throughout the countryside, the PCIC’s staff engages with local government units and lending institutions in outreach partnerships.
Outlook
Domestically, the Philippines’ agriculture sector will continue to play an important role both economically and socially, supplying food for the nation’s table while providing employment for millions of Filipinos, including many of its poorest.
In addition, given the size of the domestic population and the country’s increasing wealth, significant opportunities are present for agriculture industries to move into import substitution roles by growing more commodities at home to compete with often less-expensive products from abroad, particularly in staples and the fresh produce segments. The country’s limited export market could also be expanded in both scale and diversity to capitalise on its success in producing a number of commodities, including coconut, pineapple, bananas and tuna.
However, in order to fully capitalise on these opportunities, both the public and private sector will need to follow through on implementing a wide range of much-needed reforms aimed at boosting domestic efficiency and bringing the country’s agricultural productivity closer to that of regional competitors.
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