Strong global market prices for food commodities served as the primary growth engine for the agriculture sector in 2014, led by rice, corn and fruit crops. Although production has remained largely static over the past few years for most crops in the Philippines for a variety of reasons – including a lack of mechanisation, very little expansion of workable land and dry weather conditions – prices paid to farmers for their produce increased by 11.13% in 2014 over 2013 levels. Prices of cereals and commercial crops had the biggest increases, at 19.28% and 22.87%, respectively, while fruit prices increased by 6.26%, livestock 6.01%, poultry 6.11% and fisheries 3.06%. The exceptions were vegetables and legumes, which were down by 2.56%, along with root crops and tubers, down 11.01%.
Workforce
The agriculture sector still retains its importance as a de facto social safety net, particularly in rural areas, providing job opportunities for millions of workers. Although these numbers are down from historical levels – due to urbanisation, the rise of the services sector and the continual outflow of overseas workers – as of the second quarter of 2015 the agriculture sector still employed 25.8% of the country’s 39m-plus workforce, while the fisheries sector employed 3.5%, according to data from the Philippine Statistics Authority (PSA). This is significantly less than the 39.9% of the workforce agriculture workers occupied as late as 1999. Despite these numbers, the sector is still the second-largest employer behind the services industry.
The sector’s historical roots run deep, and strong adherence to traditional practices in some areas continues to slow the pace of innovation and growth in the agricultural sector, as the aging workforce is often reluctant to adopt more modern and efficient practices. The service industry and other sectors of the economy are now fuelling steady economic growth, which has increased by more than 5.5% annually from 2012 onwards – far outpacing the meagre growth of less than 2% up to 2015 for the agriculture, hunting, forestry and fisheries sector, according to the PSA. From 2007 to 2015 sector growth ranged from between -0.7% (2011) to 4.7% (2007), averaging just 1.7% per annum, while the industrial and service industries posted substantially higher gains.
Foreign direct investment (FDI) has also been scarce in the agriculture sector, leaving new capital funding largely in the hands of large incumbent domestic firms. Inflows of foreign capital in the sector lag far behind those of other sectors, with FDI in agriculture totalling $9.47m, $16.75m and $4.56m annually from 2012-14. This accounts for less than 1% of total FDI in the Philippines over the period. This lack of foreign investment, along with rezoning of agricultural land as a result of creeping urban sprawl and a decline in able farmhands, has resulted in minimal expansion of farmland. The total area of land planted and harvested has changed little since 2011, varying between 13.12m ha (2011) and 13.36m ha (2012) from 2011-14.
While the overall resiliency of the economy as a whole has masked the sluggish growth of the agricultural sector to date, both government and private stakeholders are becoming increasingly proactive in boosting the competitiveness of the industry as regional trade barriers erode. This has been reflected in a number of big-ticket budgetary items rolled out by the state in recent years, including large expenditure boosts in the areas of irrigation, mechanisation, crop insurance, farm consolidation and infrastructure.
Sticky Issue
One of the primary focuses of both current and past administrations within the agriculture sector has been food self sufficiency, primarily in the form of rice and corn. The most current incarnation of the policy is the Food Staples Security Programme (FSSP), which was rolled out by the Department of Agriculture (DoA) in 2012. The FSSP represents an amalgamation of wide-ranging objectives brought under one umbrella policy for the purpose of increasing cereal yields and efficiency. In its bid to become self-sufficient in rice production, the plan takes a three-pronged approach to boosting supplies: lowering costs through farm mechanisation, reducing post-harvest losses and managing consumption.
Seeds
One of the more effective practices put in place under the FSSP so far includes the utilisation of higher-quality seed varieties, including biotech seed varieties for yellow corn. The government continues to distribute certified rice seeds – bred from higher-yielding, more resistant strains –, while private firms use more expensive hybrid varieties. The latter of these are engineered to not only be higher-yielding but also boast a shorter gestation period, meaning farmers can rotate more crop harvests in a shorter period of time. The downside to this higher productivity, which can double yields up to around 8 tonnes per ha, is that it is considerably more expensive, not only for the seeds but also for inputs such as fertiliser which is required in greater volumes to sustain the rapidly-growing crops. The Philippines, home to the International Rice Research Institute, is already one the most prolific users in the region of hybrid seeds produced by bio-tech companies, including SL Agritech and Sygenta. “Although the government provides support to farmers in the form of free fertilisers, seedlings and other farm inputs, many re-sell the fertiliser. Government funds are susceptible to corruption and farmers traditionally don’t have the technical know-how to make use of the inputs efficiently,” Takashi Sumi, president and CEO of Atlas Fertilizer, a local agricultural chemicals company, told OBG.
The FSSP is supplemented by the Philippine Agriculture 2020 plan, which outlines bold medium-term goals, including reducing poverty, achieving food security, and boosting global competitiveness and sustainability. Although the goal of complete self-sufficiency has experienced problems recently, the general principles remain in place and cereals producers have shown some of the stronger growth trends within the industry in their bid to reach the goal of staple independence in 2016.
Rice Production
Since the inception of these programmes, annual palay (unhusked rice) production has improved each year from 15.57m tonnes in 2010 to 18.97m tonnes in 2014. This has been the result of both increased rice acreage as well as yields. Yields have increased from 3.62 tonnes per ha in 2010 to 4 tonnes per ha by 2014 due to more efficient farming techniques for both irrigated and rain fed farms. Over the same time period, the amount of land allocated to rice farming also increased from 4.35m ha cultivated to 4.74m ha.
Corn output has followed a similar path in recent years, growing from 6.38m tonnes in 2010 to 7.77m tonnes in 2015. The harvested area worked by corn farmers has likewise expanded from 2.5m ha in 2010 to 2.61m ha in 2015, as yields have increased from 2.55 tonnes per ha to 2.98 tonnes per ha.
Although these achievements are laudable, they nonetheless fell short of the plan’s original goals for complete self-sufficiency by 2013. The programme targeted an increase in total production from 15.77m tonnes in 2010 to 22.73m tonnes by 2016 at an average growth of 6% per year. Harvested area was projected to expand by 2% annually, while yield would increase by 4% yearly.
While these government programmes and increased project funding – from irrigation to crop insurance – are a worthwhile effort in making the Philippines’ agriculture sector more efficient and globally competitive, the degree of successful implementation and execution of these initiatives will ultimately determine the development of the sector. This includes institutional cooperation and the continuity of the multitude of different government entities as well as private sector players.
“One challenge within the DoA is the movement of people – there is no institutional memory, as experienced employees retire or move on. This leaves little continuity within the system, with the quality of human resources becoming a problem,” 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. “What is needed now is implementation of greater connectivity between government institutions across the value chain and the re-emergence of inter-agency cooperation, including the DoA, Department of Trade and Industry, and others.”
Storm Brewing
Even the gains made over the past five years are now appearing difficult to build upon, primarily due to the negative effects of the El Niño weather system, which dealt a blow to the agriculture sector in late 2015 and early 2016. In March 2016 the DoA reported agriculture sector damages of P4.77bn ($105.9m), with 121,490 farmers, 349,620 tonnes of crops and almost 200,000 ha of farmlands affected throughout the country. El Niño events occur on a fairly regular basis, with an average occurrence of one every 3.5 years. While the effects of El Niño vary from region to region, and even between different events, they generally result in drought conditions for the Philippines.
The Philippine Atmospheric Geophysical and Astronomical Administration reported in February 2016 that the 2015-16 El Niño season was expected to continue through to May 2016, although the severity of the weather phenomenon had reduced to more moderate levels as of March 2016. During January and February 2016 most parts of the country received “way-below” to “below-normal” rainfall, with the Philippines‘ southernmost major island, Mindanao, taking the heaviest toll to agriculture production, according to the UN Office for the Coordination of Humanitarian Affairs (UN OCHA). “About half of the total 194,000 ha of affected farm areas are in Mindanao, 87 percent of which have no chance of recovery,” the UN OCHA said in a March 2016 report on the impact of El Niño.
To counter the adverse effects of the El Niño phenomenon, the Philippines’ government has established a special task force and allotted $375m in relief funds. Further measures to mitigate the drought effects include irrigation intervention, crop shifting using short gestation crops, rehabilitating vulnerable areas and cloud-seeding operations – a form of artificial weather modification – in the areas most affected by the drought. Additionally, 1m tonnes of rice was purchased by the National Food Authority between April and October 2015, with the government to import an additional 500,000 tonnes over the first quarter of 2016.
Pricing Policy
The effects and costs of this drought – and the resulting rise in imports needed to offset these losses – are likely to be compounded by the tariffs and non-tariff barriers currently imposed by the government. Under the ASEAN Trade in Goods Agreement, corn imports were subjected to a 5% duty while rice tariffs were at 35% through the end of 2015. The Philippines’ most-favoured-nation tariff rate for corn is 35% for the in-quota limit of 217,000 tonnes, while the out-of-quota rate was 50% through 2015. In July 2014 the WTO granted the Philippines’ request to extend quantitative restrictions (QR) on rice imports through July 2017. In exchange, the in-quota limit was raised to 805,200 tonnes (from 350,000 tonnes) and the in-quota tariff was reduced from 40% to 35% (the out-of-quota tariff remained at 50%).
These QR policies, however, have also created unintended consequences throughout the sector in terms of market price distortions. Commenting on the QR polices in September 2015, Arsenio M Balisacan – then the economic planning secretary and director of the National Economic and Development Authority – told local press that the QR’s overall cost to the economy had been high, as it led to double-digit inflation for rice even though overall inflation was only 2-5%. Furthermore, this had a higher affect on the poorer segments of society, which tend to rely more heavily on rice. As an alternative to the QR, Balisacan advocated the implementation of an import tariff set initially at 30-40% to protect the domestic industry, but with the understanding that it too would be reduced over time. One study by the Philippine Institute for Development Studies came to the conclusion that if the QR were removed, rice prices will go down to around P19.8 ($0.44) per kg from P33.08 ($0.73) per kilo. Household inflation rates for rice have substantially outpaced those of other food items and inflation in general since August 2013. Rice inflation hit 10% in January 2014, rising to 13.2% by August 2014 before trailing off slightly to 8.6% by January 2015. By contrast, inflation for food and all items in January 2014 was 8.7% and 4.2%, respectively, and 5.6% and 2.4%, respectively, in January 2015.
Just Add Water
One of the core priorities for boosting agricultural production across a wide array of crops is the expansion and rehabilitation of the country’s irrigation network, which was employed in just over half the irrigable farmland at the end of 2014. Of the 10.39m ha of designated agricultural lands, 3.02m ha are considered irrigable based on a maximum 3% slope grade, according to the National Irrigation Administration (NIA). A total of 1.71m ha (56.57%) of this was irrigated by the end of 2014, benefitting over 1m farmers but leaving 1.31m ha left for development. Existing irrigation systems are broken down into the following categories: 266 national irrigation systems (750,563 ha), 10,587 communal irrigation systems of less than 1000 ha each (595,653 ha), 16,648 private irrigation systems (194,841 ha) and another 6,712 other government-assisted irrigation systems (167,000 ha).
Up until recently, government efforts primarily targeted rehabilitation and restoration of non-functioning irrigation systems, including work on over a half million ha of land outlined in the NIA’s irrigation roadmap. Rolled out in 2011, progress on the national irrigation project has been carried out in fits and stops over the past five years. Much of the smaller-scale projects and rehabilitation work has been completed or is on schedule to be completed in 2016, according to the NIA. This primarily leaves the larger, more complex and more expensive commercial and multi-use irritation projects left to be completed over the years leading up to 2018. In order to meet irrigation growth targets, at least 130,000 ha of new irrigation would needed to be added each year. While progress has been made in some areas, a number of factors continue to inhibit irrigation efforts from reaching their ultimate targets. A focus on small-scale projects rather than the larger investments, that would add significant acreage in large chunks, is one reason. Another factor is the redevelopment of previously-irrigated agriculture land, which is sold and repurposed for commercial, industrial or residential use. This practice eroded the country’s irrigated land bank by at least 100,000 ha alone in 2013, according to the NIA, making it difficult to sustain momentum.
Budgetary Restrictions
The budgetary allocation for the NIA has risen substantially in recent years, with a total of P32.7bn ($712m) allocated from for 2016. In spite of this funding growth, the NIA maintains it will be hard pressed to carry out its dual mandates of both rehabilitation and maintenance, as well as expansion of the existing systems. “The primary reason for the meagre level of implementation is funding,” Angelina Angeles, department manager of the NIA’s corporate planning services division, told OBG. “The government has only approved a portion of our requested budget, which is not enough to carry out new irrigation projects along with our other duties, including maintenance and rehabilitation. Previous projects were funded with foreign assistance but now there are only four of these projects ongoing.”
Although budgetary restrictions are undoubtedly a constraint on irrigation efforts, some of these financial hardships have apparently been self-inflicted through misappropriation of funds. In early 2014 whistleblowers within the National Irrigation Administration Employees Association of the Philippines sent letters detailing financial anomalies to the office of Benigno Aquino III, president of the Philippines, as well as local newspaper Sun.
Star Cebu. Among other discrepancies, the letter detailed accusations that a top NIA official ordered the repackaging of P105m ($2.3m)worth of projects from “by administration” works to “local minor contracts” for the purpose of facilitating kickbacks. Because of these funding issues, the amount of irrigated land has fallen from 98.8% of the FSSP target at the programme’s inception to 91.47% of targeted acreage by 2014, according to the NIA.
These challenges are likely to be exasperated in the near future as total potential irrigable land could increase substantially under the next development plan, in which the maximum grade for irrigation is set to increase from three to eight degrees. Under this new, more inclusive paradigm, more than 3m ha of new land would be open to the possibility of future irrigation projects, although at a significantly higher cost due the technical challenges associated with irrigating steeper slopes. This new master plan, which would more than double potentially irrigable land to 6.15m ha, is scheduled to be completed by April 2016. The plan will also diverge from its predecessor by including not only standard infrastructure requirements for river basin development and hazard maps, but also other wider ranging issues, including increasingly erratic weather patterns such as typhoons and El Niño.
Seafood
After several years of growth the fisheries subsector recorded a 0.45% reduction in output in 2015, to a total of 4.69m tonnes valued at P241.94bn ($5.4bn). Downtrends in production were noted among the major aquaculture species, such as milkfish, tilapia and seaweed, while offshore marine fishery catchments of tuna, scad, sardines and other marine fish remained relatively static. The aquaculture fishery segment accounted for the bulk of value, worth P93.95bn ($2.1bn) in 2014, followed by municipal fisheries worth P81.81bn ($1.8bn) and commercial fisheries valued at P66.90bn ($1.5bn). The aquaculture industry is currently dominated by the tilapia and milkfish segments, with very little production in higher-value species. The fish are cultivated both in low-tech, traditional breeding ponds as well as newer, more efficient marine cages. The aquaculture segment also tends to favour saltwater cultivation, due to relatively low levels of utilisable freshwater resources compared to vast expanses of coastline throughout the country.
While the Philippines possesses thousands of kms of coastline, which have been used historically for small-scale artisan fishery activity, only small pockets of coastal areas possess the necessary infrastructure for larger-scale commercial operations. A lack of electrification across wide swaths of coastal regions, along with insufficient road or port facilities, has limited cultivation and export potential. In line with the agriculture sector as a whole, adverse weather has also taken a significant toll on aquaculture in recent years with typhoons wreaking havoc on fish farm infrastructure such as fishing boats, port infrastructure and marine cages.
Although the aquaculture market in the Philippines is still made up primarily of tilapia and milk-fish, efforts are being made by both public and private stakeholders to branch out into a number of other higher-value species of farmable fish. These include pompano, grouper, sea bass, snapper and rabbit fish, which would fetch significantly more money from both foreign and domestic buyers. In spite of promotional efforts supporting this diversification, many smaller fishing operations producing 10 tonnes per year or less remain wary of moving into new species which require new and more expensive cultivation techniques. Compared to traditional fish, these higher-end species require up to nine months to grow to harvestable levels, which also entails larger amounts of feed and medicine, as well as longer payment cycles.
“Diversifying into high-value species is the key to growing the aquaculture industry,” Phillip Ong, president of Santeh Feeds Corporation, told OBG. “This would allow even very small farming operations to become more profitable. Unfortunately one of the biggest problems slowing the growth of the sector today is not just unpredictable weather or a lack resources, but an aversion to risk by farmers entrenched in their traditional techniques.”
Outlook
Production from the Philippines’ agriculture sector in the short term remains largely dependent on capricious weather patterns affecting the country, particularly the effects of El Niño in terms of drought as well as typhoons. The projected decline in precipitation throughout 2016 is expected to adversely impact numerous crops, including sugar and rice, as renewed efforts to bolster national irrigation systems have yet to fully materialise. The Philippines was forecasted by the UN’s Food and Agriculture Organisation to gather 18.3m tonnes of rice in 2015, 3% short of 2014 levels and marking the first output contraction to occur since 2009. Exports will continue to be driven by tree cash crops, including pineapples and bananas, which together accounted for 37% of agriculture exports in 2014 and helped drive the 5.78% growth rate of agriculture exports overall in 2014.
The longer term efforts to boost yields through irrigation, infrastructure development, advanced breeding, mechanisation and modern farming practices should also help Filipino farmers and agribusinesses better adapt to adverse weather patterns and become more competitive in global markets as international trade barriers continue to erode.
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