22. Philippines
Support to agriculture
The level of support to farmers, measured as a share of gross farm receipts (%PSE), averaged 27% in 2017-19. This is higher than the OECD average and one of the highest among all emerging economies covered by this report.
Market price support (MPS), which reflects the existing trade barriers (mainly tariffs and Tariff Rate Quotas – TRQs), is the dominant form of support to Philippine producers. Rice producers are the main beneficiaries of the price support policies. In addition to rice, substantial levels of support are provided to sugarcane, pig meat, and poultry, in particular through high import tariffs. The high level of MPS comes with an implicit taxation of primary consumers including the food processing industry.
Expenditures on general services (GSSE) as a ratio of agricultural value added have increased in recent years. Most of the expenditure on general services finances the development of infrastructure, in particular irrigation systems, and extension programmes. The overall cost of support to the Philippine agricultural sector was at 2.9% of GDP in 2017-19, one of the highest across all countries measured.
Main policy changes
The Philippines replaced quantitative restrictions (QRs) on rice imports with tariffs as of March 2019. There is a tariff rate quota system with applied MFN tariffs within and outside of the quota of 40% and 180%, respectively. For imports from ASEAN countries, a single tariff (35%) is applied. A special rice safeguard duty may be imposed to protect the industry from extreme or sudden price fluctuations.
There were important institutional modifications related to the changes in rice trade and related domestic market regulation: the National Food Authority (NFA) is no longer issuing permits, licenses, or registering trade and importation of rice. NFA’s role will concentrate on interventions on domestic market by buying into buffer stocks at administered prices from domestic producers, and also selling from these stocks at subsidised release prices to consumers. The food safety regulatory function of the NFA was transferred to the Bureau of Plant Industry.
In order to offset the effect of the liberalisation of rice imports the government established a Rice Competitiveness Enhancement Fund (RCEF) with an annual PHP 10 billion (USD 192.3 million) appropriation over the next six years. In 2019, the expenditures are planned to be spent as follows: (i) PHP 5 billion (USD 96.5 million) for rice farm machinery and equipment; (ii) PHP 3 billion (USD 57.9 million) for rice seed development, propagation and promotion; (iii) PHP 1 billion (USD 19.3 million) for credit; and (iv) another PHP 1 billion (USD 19.3 million) for extension.
Assessment and recommendations
The Philippines’ key agricultural policy objectives focus on food security and poverty alleviation through guaranteeing a stable supply of staple food (rice) at affordable prices. The goal of self-sufficiency in rice has driven a range of policy measures supporting rice producers – as opposed to the regional trend toward the diversification into higher value commodities – while contributing to the undernourishment of poor households that are heavy rice consumers and effectively taxed by higher prices.
An important institutional modification took place at the core of NFA, where its new role is to increase the country’s emergency buffer stock. However, the implementation of these reserves effectively generates an “intervention stock” rather than an “emergency buffer stock” as it is supporting domestic prices through buying stocks at administered prices; and reducing consumer prices by selling those stocks at subsidised prices.
In view of the Philippines’ high susceptibility to typhoons, tropical storms and flooding, the government should adopt a holistic approach to risk management and mainstream adaptation policy objectives across programmes and institutions. Moreover, the effectiveness of current risk management tools should be assessed – in particular, the extent to which insurance and cash-transfer schemes encourage risk-reducing decision-making on the farm. Lastly, farmers’ awareness should be increased by making information more readily available about local conditions, future projections and adaptive solutions.
The agricultural sector’s total factor productivity (TFP) growth is slower than the world average and slower than in most countries in the region. This is likely to be linked to decades of underinvestment, policy distortions, uncertainties linked with the implementation of agrarian reform and periodic extreme weather conditions. In 2017, the Philippines reallocated some funding from variable input subsidies to investment in infrastructure and through the re-orientation of agricultural knowledge systems. Continuing efforts to refocus budgetary support on long-term structural reform is key to promoting productivity growth.
Agricultural policies in the Philippines are designed and implemented by a complex system of institutions. The government could strengthen institutional co-ordination between the Department of Agriculture and other relevant departments and institutions that develop and implement programmes supporting agriculture; strengthen transparency and accountability of publicly-funded programmes; accelerate efforts to build a solid policy-relevant statistical system; and integrate monitoring and evaluation mechanisms into the policy process.
The Philippines is one of the countries particularly vulnerable to climate change. To improve the agricultural sector’s capacity to adapt to climate change the government should make climate-adaptation policy objectives consistent across programmes and institutions.
Policy responses in relation to the COVID-19 outbreak
Agricultural policies
The government of the Philippines issues the provisions related to continue agriculture production as follows:1 1) all farming and fishing activities shall continue; 2) all farmers, farm workers, fisher folk and agribusiness personnel shall be exempted from home quarantine. Provided that they observe safety protocols and number is at a minimum; 3) all agricultural supply stores, outlets nationwide and animal clinics must be allowed to operate under a skeletal force; 4) essential farm personnel (including veterinarians, farm hands, farm and fisher folks) that works at production areas, bearing proper documentation, are also requested passage at quarantine checkpoints.
The Department of Agriculture (DA) is promoting backyard vegetable gardens or “survival gardens” as source of nutritious food during the enhanced quarantine period. Some Local Government Units (LGUs) are distributing vegetable seeds.
The National Food Authority (NFA) has completed the prepositioning of rice stocks in the country amid the enhanced community quarantine imposed in the entire Luzon, Philippine’s most populous island. Some Local Government Units (LGUs) have bought excess produce from the farmers in the local communities to be distributed as part of the relief packs to those in need. Others have already prepositioned food packs for distribution to its constituents. An LGU in Ifugao Province will be targeting indigent constituents for the distribution of family food packs.
Agro-food supply chain policies
The Department of Agriculture has been issuing food lane passes. All vehicles carrying essential food commodities, agro-fishery products and inputs bearing government-issued stickers must be allowed passage at quarantine checkpoints through these food lanes.
The National Police (PNP) designated a “Cargo Lane” for agriculture and fisheries inputs and food products transported through all forms of conveyance (air, water, and land), across all modes of deliveries. Priority for entry to cargo lanes shall be given to truckers/suppliers with Food Pass 2. Food pass accreditation is free of charge 3. DA accredits suppliers and trucks to use the “Food Lane” (Cargo Lane) 4.
The DA identifies a list of food items that must be allowed unhampered and unimpeded in all quarantine checkpoints: a) all vehicles carrying crop commodities, and fishery and other aquatic products with carriers must be allowed passage; b) live poultry and livestock, including meat and meat products, are allowed passage only with proper documentation as in DA MC No. 5 series of 2020; c) movement of products and services related to farm inputs is requested for unhampered passage on quarantine checkpoints.
The Inter-Agency Task Force on Emerging Infectious Diseases (IATF-EID) has approved the food resiliency protocol proposed by the Department of Agriculture (DA) to speed up the transport of major agro-fishery commodities to Metro Manila and other urban areas in Luzon.
The DA is co-ordinating with the LGUs to ensure that households affected by the enhanced community quarantine will have access to the food supply. The DA’s distribution and marketing system identifies drop-points where farmers can directly sell their goods at retail prices, and where people can buy major agricultural goods at reasonably low prices. This marketing strategy directly connects the food producers to consumers, thereby lessening the cost of food products. It links the LGU in urban centres to farmer-producers in the different parts of the country to ease the delivery and distribution of food supply.
Consumer policies
The National Nutrition Council (NNC) issued their first Nutrition Cluster Advisory to support and remind the Local Government Units (LGUs) of useful guidelines that would prevent deterioration of nutrition. Government agencies continue to provide information and reminders on eating healthy at this time of crisis.
The Department of Social Welfare and Development (DSWD) provided official communication regarding the continuity of its major cash transfers programmes such as the Pantawid Pamilyang Pilipino Program (4Ps) and decided to do payouts earlier than scheduled.
The Department of Agriculture, Department of Trade and Industry (DTI), and the Department of Health (DOH) issued a joint memorandum circular imposing a 60-day price freeze for basic goods and agriculture products nationwide. Pricing is being monitored by DA (some spot-checks are being done jointly by DA and DTI) and information is released every two days.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to producers (%PSE) was around 27% in 2017-19, a higher number than the levels observed in 2000-02 (Figure 22.1). However, PSE declined from 2018 to 2019 due to a smaller price gap between domestic prices and world prices (Figure 22.2). Almost all producer support is provided through market price support (MPS), with a strong focus on rice. MPS and input subsidies without input constraints, both considered as potentially most distorting forms of support, explain practically the total value of support to producers. On average, prices received by farmers were 39% higher than world prices in 2017-19 (compared to 31% in 2000-02). MPS is also the main component of Single Commodity Transfers (SCT): rice, sugar and poultry and pig meat had the highest share of SCT in commodity gross farm receipts in 2017-19 (Figure 22.3). Expenditures for general services (GSSE) relative to agricultural value added more than doubled from 2000-02 to 2017-19, driven largely by higher investments in irrigation systems (Figure 22.1).
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
The Philippines is a mid-size country in terms of land area, but its population of 107 million makes it the world’s 13th most populous country. At USD 8 951 in purchasing power parity (PPP), GDP per capita in the Philippines is less than half the average GDP per capita of all countries analysed in this report (Table 22.2). Agriculture is an important sector for the Philippines, accounting for a quarter of total employment and 9% of GDP (Table 22.2). Farms tend to be small-sized with the average landholding at just 1.3 hectare.
Since 2012, the Philippines has achieved relatively stable growth of around 6% annually, and reduced its rate of unemployment (Figure 22.4). Inflation has fallen to a low of less than 1% in 2015 before rising again. Overall, the Philippine economy, including its agro-food sector, integrates well in international markets – as measured by the ratio of trade to GDP at 28% in 2018.
With limited land and a large population, the Philippines is a growing net importer of agro-food products. Of these imports, three-quarters are processed goods that are used directly for (final) consumption or as intermediate inputs by the processing industry. On the export side, 40% are exports of primary goods for consumption. Overall, half of all agro-food exports are going to final consumers (both primary and processed products), while the other half is further processed (Figure 22.5).
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
Total Factor Productivity (TFP) in agriculture is estimated to have stalled over the past ten years, down from already low TFP growth during the 1990s. Agricultural output growth has remained relatively weak and has averaged 0.5% per year, well below the world average (Figure 22.6). It has been driven entirely by increased use of both primary factors and intermediary inputs.
Agricultural land resources are under strain from frequent natural disasters, population growth and urbanisation. The Philippines has abundant water resources, of which the agricultural sector is the main user – accounting for almost 80% of total freshwater withdrawals (Table 22.3). Nonetheless, shortages can occur during the dry season in some regions. Agriculture share in total energy use has increased, but remains well below the OECD average. The Nitrogen balance has slightly increased, while that of Phosphorus has declined, but both remain well above the OECD average.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
Various measures provide price support to Philippine producers. Price support policies mainly focus on rice and sugar and comprise a combination of trade barriers and domestic market regulation. The system of quantitative restrictions for rice was abolished in March 2019. The rice price support policy is also implemented by the National Food Authority (NFA) through buying buffer stocks at administered prices from domestic producers, and selling these stocks at subsidised prices to consumers. Up to March 2019, the NFA also handled import restrictions. For sugar, production quotas and trade barriers are used for producer price support and market regulation.
Tariff protection remains the Philippines’ main trade policy tool. Trade liberalisation has primarily occurred within regional trade agreements, particularly the ASEAN Free Trade Area. The simple average applied Most Favoured Nation tariff on agricultural products was 9.8% in 2016. All tariff lines applied are ad valorem and range from 0% to 65%.
Tariff rate quotas are applied for 14 agricultural products, with in-quota tariffs ranging from 30% to 50% and out-of-quota from 35% to 65%. Products covered include live swine, goats and poultry and meat thereof, potatoes, coffee, maize, rice, and sugar. However, for three agricultural products (live horses, live bovine animals and beef), the TRQs are not applied. For three others (poultry meat, potatoes and coffee), it is only applied to a specific range of tariff lines (WTO, 2018[1]). Import licensing is required for all regulated products (including those under TRQs) and is intended to safeguard public health, national security and welfare.
In order to offset the effect of the liberalisation of rice imports (see section on trade policy developments), the government established a Rice Competitiveness Enhancement Fund (RCEF) with an annual appropriation of PHP 10 billion (USD 192.3 million) over the next six years (see the domestic policy development section). Several agricultural commodities are subject to export controls and require permits in addition to agency approval, namely grains and grain products, and sugar.
Budgetary support to agricultural producers, both through payments provided to farmers individually and to the agricultural sector as a whole (general services), is small compared to the importance of price support. During the 2000s, the main focus of budgetary support to producers was on subsidising the use of variable inputs, including seed and fertiliser subsidies. However, investment subsidies have increased in recent years. In 2019, such support increased due to the introduction of additional payments to rice producers in the form of seed and investment subsidies, compensating the liberalisation of rice trade.
Expenditures for key services to the agricultural sector have increased significantly since the end of the 2000s. The most important item is the development and maintenance of infrastructure, of which a major share is devoted to off-farm investments in irrigation systems. Financing extension services is another and increasingly important element of public support for the sector.
Since 1988, the Philippines has been undertaking an ambitious agrarian reform that covered close to three-quarters of the country’s total agricultural area. By end-2015, the redistribution of land was almost complete, but property rights remain to be settled. Almost half of the reform beneficiaries still have only collective ownership certificates instead of individual property rights. Various restrictions on land-market transactions and insecure property rights continue to limit on-farm investment and to weaken the potential economic benefits of the reform.
Domestic policy developments in 2019-20
Important institutional measures related to the changes in rice trade and related domestic market regulation were introduced by the Rice Tariffication and Liberalisation Law. The food safety regulatory function, and hence the responsibility for issuing permits, licenses, or registering trade and importation of rice has been transferred from the National Food Authority (NFA) to the Bureau of Plant Industry (BPI).
Today, the main role of the NFA consists of local paddy procurement from domestic producers and the management of buffer-stocks including sales to the domestic markets. In September 2019, the Department of Agriculture (DA) instructed the NFA to intervene on the domestic market by selling domestic rice from its buffers at PHP 27 (USD 0.52) per kg in order to lower consumer prices. In addition to the unloading of NFA rice stocks, the DA has instructed the agency to increase the buying price of rice into buffer (intervention) stocks from PHP 17 to PHP 19 (USD 0.33 to USD 0.37) per kg of rice (dried and cleaned). The President also ordered the NFA to increase the country’s emergency buffer stock from 15 to 30 days by buying more rice from farmers and increase the turnover of the stocks. In reality, these stocks are playing more a role of an “intervention stock” rather than an “emergency buffer stock” with two functions: (i) supporting domestic prices through buying stocks at administered prices; and (ii) reducing consumer prices in the market by releasing from stocks at subsidised prices.
In order to offset the effect of the liberalisation of rice imports the government established A Rice Competitiveness Enhancement Fund (RCEF) with an annual PHP 10 billion (USD 192.3 million) appropriation through the next six years. In 2019, the expenditures were planned to be spent as follows: (i) PHP 5 billion for rice farm machinery and equipment; (ii) PHP 3 billion for rice seed development, propagation and promotion; (iii) PHP 1 billion for credit to farmers; and (iv) another PHP 1 billion for extension.
In addition, PHP 3 billion (USD 57.9 million) were provided in the form of an unconditional cash transfer to benefit 600 000 small rice farmers (less than 2 hectares planted for rice). Another PHP 2.5 billion (USD 48.2 million) went to finance the Expanded Survival and Recovery Assistance (SURE Aid) programme, which provides a PHP 15 000 zero-interest loan, payable in eight years to farmers tilling one hectare or less of rice.
Trade policy developments in 2019-20
Since joining the WTO in 1995, the Philippines has been applying quantitative restrictions (QRs) on rice imports, as it benefited from a special treatment clause (Article 5 of the Agreement on Agriculture) which allowed QRs on rice imports to be maintained until 2012, on the basis of food security. In 2012, the Philippines requested a new extension of its special treatment for rice through a waiver until 2017. In order to comply with its WTO obligations, the Philippines replaced the quantitative restrictions (QRs) on rice imports with a tariff system as of March 2019, under the “Rice Tariffication and Liberalisation Law” (RA 1120). For imports from ASEAN countries, no quota is applied only a single tariff of 35%. For imports from non-ASEAN countries, a tariff rate quota (TRQ) is established. Applied MFN in-quota and out-of-quota tariffs for rice are set at 40% and 180%, respectively. The Minimum Access Volume (MAV) for rice reverted from 800 000 tonnes to the 2012 level of 350 000 tonnes. The export restrictions for rice were eliminated.
On 13 June 2019, the government issued Executive Order No. 82, reverting tariff rates for Mechanically Deboned or Mechanically Separated Poultry from 40% to 5%, while those for frozen whole turkey were reduced from 40% to 20%. These rates are set to remain at the lower tariff until 31 December 2020. Executive Order No. 20, issued in 2017, prescribes the Most Favoured Nation (MFN) tariff schedule until 31 December 2020. A new MFN tariff schedule, is expected to be released before the end of 2020, setting tariff rates for all products.
References
[1] WTO (2018), “Trade policy review of the Philippines”, WT/TPR/S/368, World Trade Organization, https://www.wto.org/english/tratop_e/tpr_e/s368_e.pdf.
Note
← 1. Source of the information on policy responses relative to the COVID-19 outbreak: FAO (2020), Fapda - Food And Agriculture Policy Decision Analysis Tool.
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