Chapter 1. The agricultural policy context in the Philippines
This chapter examines the key issues that have shaped the development of the agricultural sector of the Philippines over the last two decades. It provides a brief overview of political, demographic, macroeconomic and social characteristics of the country. It evaluates the performance of agriculture in terms of production, productivity and trade; discusses its social impacts in terms of employment, poverty and food consumption; outlines its environmental consequences; and finally analyses structural changes in the agro-food sector, including in upstream and downstream sectors.
1.1. Introduction
Philippine agriculture has benefited both from the institutional reforms of the last six years and from a sound macroeconomic environment. However, agricultural productivity growth lags behind that of other Southeast Asian countries and remains a challenge. This is the result of decades of underinvestment in infrastructure, policy distortions, uncertainties linked with the implementation of agrarian reform and periodic extreme weather conditions. In contrast to its Asian neighbours, the Philippines is not taking advantage of a shift from low-value agricultural commodities to higher-value, more profitable and more land-efficient ones. This is largely due to distortive policies privileging low value commodities, in particular rice.
Agriculture appears to have started shedding labour in absolute terms, which may indicate that it is entering a new stage of development characterised by higher farm labour costs. Such an evolution is likely to accelerate internal restructuring of the farming sector, enhance adoption of productive new technologies, encourage larger farms and bring higher productivity and higher incomes. However, any such development would need to be supported by appropriate supporting policies, including to enable more flexible reallocation of land resources across farms and crops.
1.2. General characteristics of the Philippines
This section provides a short overview of the geographical, political, social, natural and economic landscapes which shape the environment for the agricultural sector in the Philippines. It then assesses the performance of the Philippines against various components of the Agricultural Growth Enabling Index, which allows for comparisons across 32 emerging economies.
Geography
The Philippines is an archipelago consisting of 7 107 islands in the Pacific Ocean. It is situated among four seas: the South China Sea to the west, the Sulu and Celebes Sea in the south, and the Philippine Sea in the east. The Luzon Strait – an important passageway to East Asian ports – is located in the north. The country covers a total area of 300 000 km2: 298 170 km2 of land and 1 830 km2 of water. While its land territory is 71st largest in the world (WB, WDI, 2016), its marine water area (including its Exclusive Economic Zone) of 2.2 million km2 (FAO, 2014a) is about the 20th largest in the world.
The Philippine islands are divided into three groups: Luzon in the north, Mindanao in the south and the Visayas, situated between them (Figure 1.1). Luzon represents 47% of the overall land area (142 000 km2), Mindanao 34% (102 000 km2) and the Visayas 19% (56 000 km2). Of the numerous islands, less than 1 000 are populated. The majority of islands have a land mass of less than 2.5 km2 and eleven islands alone make up 94% of the Philippines’ landmass (Dolan, 1991).
The Philippines has varied topography but is predominantly mountainous. It has 36 289 km of coastline – one of the longest in the world. Most of its population is concentrated near narrow coastal lowlands.
Administratively, the country is divided into 18 regions and 81 provinces that are further divided into 144 cities, 1 490 municipalities and 42 029 barangays, the smallest administrative units (PSA, 2015a). The Autonomous Region of Muslim Mindanao (ARMM) alone has its own elected Regional Legislative Assembly and its own government. Independent cities, although located within provinces, are not under the provincial government’s jurisdiction.
Source: http://d-maps.com/pays.php?num_pay=104&lang=en edited by authors.
Basic political characteristics
The political landscape of the Philippines changed in 1986 when the People Power Revolution ousted long-term President Ferdinand Marcos. Under his successor, Corazon Aquino, a Constitutional Commission was convened to ratify a new charter and, following a national plebiscite, the current constitution came into effect on 11 February 1987. The constitution established a democratic republic with three independent branches of government: executive, legislative, and judicial. It echoes the US Constitution in incorporating a Bill of Rights and in relying on a system of checks and balances to avoid absolute power and to secure equilibrium across the three branches of government.
In the executive branch, the president and vice president serve six-year terms, are elected separately by popular vote and need not be from the same political party. Pursuant to the 1987 constitution, the president can serve just one term, without the possibility of re-election, and the vice president can run for two consecutive terms. The president serves as commander in chief of the armed forces, head of state, and head of the government.
The Philippines has a bicameral congress (Kongreso) consisting of a Senate (Senado) and a House of Representatives (Kapulungan Ng Mga Kinatawan). The legal system of the Philippines reflects the different communities within the country and comprises civil, common, Islamic and customary law. The Supreme Court of the Philippines is the highest tier in the legal system.
Climatic conditions and natural resources
According to the 2014 World Risk Index, the Philippines has the second highest risk of natural disaster worldwide which makes its agricultural sector one of the most vulnerable globally (UNU-EHS, 2014; Chapter 3). The country is located along the Pacific Ring of Fire, a seismically active belt of volcanoes and tectonic plate boundaries. As it is also located on a typhoon belt, the Philippines experiences a high frequency of natural disasters each year, placing a strain on capital stock, food security and social development (Chapter 3).
The Philippines has a tropical climate with both a wet and dry season. The country is divided into four climatic types based on rain distribution. Type I, predominately on the western side of the archipelago, experiences a dry season from November to April and wet season for the rest of the year. Type II areas, spread throughout the eastern side of the Visayas and Mindanao, experience no dry season and have pronounced rainfall from November to April. Type III areas’ wet and dry seasons are not very pronounced: it is relatively dry from November to April and wet for the remainder of the year. Type IV experiences evenly distributed rainfall throughout the year. Type I, II and III are present in Luzon – all four climactic types are present in the Visayas and Type II, III and IV are present in Mindanao (Lantican, 2001).
The country has abundant water resources, but shortages and even drought can occur during the dry season in some regions, which can be further exacerbated by climatic events. An El Niño Southern Oscillation cycle can have drastic effects as it decreases the amount of rainfall over river basins, curtailing water flows into major water reservoirs that supply domestic use and irrigation systems (De La Cruz, 2014). Land use and yields are especially affected by El Niño cycles which are hard to predict and typically last between 14-22 months. La Niña cycles have the opposite effect: conditions are wetter than normal, intensifying monsoon rains and increasing the risk of flooding and mudslides (De la Cruz, 2014 and NDMC, 2015).
Approximately 14.2 million hectares (ha) (47.3%) of the Philippine territory consists of so-called alienable and disposable land (Section 1.8), used mostly for agricultural production, and the other 15.8 million ha (52.7%) is classified as forestland (PSA, 2015a), with the actual forest cover estimated at 7.6 million ha (FAOSTAT, 2016). Total forest cover has decreased almost 70% since the turn of the 19th century (Lasco et al., 2001). Deforestation has predominantly been driven by large-scale logging, followed by agricultural land expansion in the period 1970-90. To replenish forestland and provide time for proper regrowth, reforestation efforts began in 2011 with a National Greening Program (NGP) (Section 1.7).
Demographic factors
With a population of 100.7 million in 2015, the Philippines is the 12th most populous country in the world. Its population density is high, and grew from 233 persons/km2 in 1995 to 332 persons/km2 in 2014, a density above that of Viet Nam and slightly below that of Japan (WB WDI, 2016).
The Filipinos are a unique blend of Malay, Chinese, Spanish, Negrito and American lineage, arising from centuries of intermarriage. Major ethnic groups are the Tagalog and Cebuano, respectively accounting for 24% and 10% of the total population. The Philippines has two official languages: the national language, Filipino, and English. Uniquely for Asia, the majority of the population (81%) identify themselves as Roman-Catholic (PSA, 2015a).
The Philippines has the second highest population growth rate among Southeast Asian countries: 1.6% in 2014, down from 2.1% in the early 2000s (WB WDI, 2016). Although the number of live births per woman has declined from 4.0 in 1990 to 2.9 in 2015, the Philippines still has the highest birth-rate per woman among all members of the Association of Southeast Asian Nations (ASEAN) (WB WDI, 2016). Both men and women are also living longer, which further contributes to population growth: life expectancy has increased from 68 years in 1990 to 72 years in 2013 for women and from 63 years to 65 years for men. The population is young overall, with around 32% below the age of 14 (WB WDI, 2016).
The Philippines is a major source of migrant workers. The total number of workers abroad, including permanent, temporary (called Overseas Filipino Workers, OFW) and irregular, is estimated at about 10 million, equivalent to approximately one tenth of the population.
With about half of Filipinos living in urban areas, the rate of urbanisation is just below the Southeast Asian average. This ratio compares with less than one-third in 1960 (Basingan and Ilagan, 2012). However, international statistics would suggest that the urbanisation rate actually fell from its peak at 49% in 1989 to 44% in 2014 (UN, 2014). This would mean that the natural increase in rural population has been faster than that in the urban population and that it has not been counterbalanced by migration from rural to urban areas. This would be unique among emerging and developing countries; however, it might also simply indicate some weaknesses of demographic statistics in the Philippines.
A fast-growing population combined with scarce agricultural land resources and ongoing land reform contribute to a highly fragmented land tenure system, with an average farm size of just 1.3 ha in 2012 (Section 1.8).
General features of the Philippine economy
Changing structure
The Philippines’s Gross Domestic Product (GDP) was USD 284.8 billion in 2014, which translates into USD 2 873 in per capita terms at the 2014 annual average exchange rate. Its Gross National Income (GNI) per capita of USD 3 500, using the World Bank Atlas conversion method, places the Philippines in the World Bank category of lower middle-income countries (WB WDI, 2016). Higher GNI than GDP in per capita terms is partly driven by the significant volume of remittances from overseas workers (see below).
The Philippines is currently transitioning from a factor-driven to an efficiency-driven economy, according to the World Economic Forum’s (WEF) classification (Table 1.1). Thus, the Philippines still needs to address four basic pillars for growth selected as key reform areas for factor-driven economies by improving institutions, infrastructure, the macroeconomic environment, and health and primary education. In addition, the Philippines increasingly needs to focus on efficiency enhancers of growth such as higher education; the operation of markets for goods and labour, and financial markets; and technological readiness (WEF, 2014a).
A constant feature of the process of structural change in all countries is that agriculture’s share in employment and in GDP decline. This occurs as the percentage of income spent on food declines as incomes increase. Thus, policies to stimulate agricultural growth need to be careful not to distort the overall process of structural change.
In the Philippines, the share of agriculture in GDP halved from 22% in 1990 to 11% in 2014, and its share in employment fell by one-third from 45% to 30% over the same period (Figure 1.2). While this structural shift out of low-productivity agriculture to higher-productivity sectors is important, it is less prominent compared with most other countries of the region, in particular the People’s Republic of China (henceforth “China”) and Viet Nam (Figure 1.2).
Virtually all of the shift from agriculture in terms of value-added and employment has been to the services sector, the share of which in GDP increased from 44% to 57% and in employment from 40% to 54% in the period 1990-2014. Over the same period, manufacturing’s share remained almost unchanged, at around one-third for GDP and at around 16% of employment (WDI, 2016). The Philippines is becoming a service-based economy, with the second-highest share of services in GDP among the ASEAN countries, next to Singapore (WDI, 2016). While the Business Processing Outsourcing leg of the services sector has grown exponentially and employs over a million high-skilled and well-paid workers, the overall services sector is still mainly comprised of low-skilled and informal workers (OECD, 2016).
Note: The share of agriculture in total employment is 1994 instead of 1990 for India, 1996 instead of 1990 for Viet Nam, and 2013 instead of 2014 for India, Thailand and Viet Nam.
Source: WB (2016), World Development Indicators.
Macroeconomic performance
The Philippine economy has proven to be resilient under many pressures – financial crises, climatic upheavals and fluctuations in commodity prices. The country experienced unprecedented economic decline and political uncertainty under Ferdinand Marcos in the 1980s, nearing economic collapse in 1984-85. The economy changed course after Corazon Aquino was elected in 1986, but experienced hardship in 1990-91 and again in 1998 during the Asian Financial Crisis (Lim, 2006). The Philippines achieved robust rates of growth in 2003-07, but of just 1.1% in 2009 in the wake of the global economic crisis of 2008-09 (Figure 1.3). The economy subsequently rebounded strongly in 2010 and, unlike many neighbouring ASEAN countries, sustained the rebound in consequent years, growing at 6.5% annually in 2012-15. Growth is expected to slow somewhat to 5.3% on average in 2016-20 (EIU, 2016).
In the past, the inflation rate (measured by GDP deflator) was stubbornly high, at above 5% or even 10% in some years. However, since 2002, it has moderated, with the exception of 2008 when skyrocketing commodity prices on international markets pushed inflation up to 7.5% (Figure 1.3). In recent years, monetary policy has been tightened to keep inflation within a target range of 3-5% (OECD, 2015a). Declines in the overall budget deficit to just 0.9% of GDP and in public debt to 44.7% of GDP in 2015 are other indicators of the considerable progress made in macro stabilisation (Figure 1.3 and EIU, 2016). External debt has also been reduced from 70.2% of GNI in 1990 to 22.7% in 2014 (WB, WDI 2016; Figure 1.3). Official international reserves stood at USD 79.5 billion in 2014, equivalent to 124% of total annual imports of goods (EIU, 2016) – a healthy buffer against external shocks.
The unemployment rate at 7.1% in 2013 is the highest among all ASEAN countries, China and India, and has remained steady at 7-8% for the past decade - albeit an improvement over the previous decade when it averaged around 10% (Figure 1.3). The International Labour Organisation (ILO) projects that between 2015 and 2030 nearly one million new jobs will need to be added each year to keep pace with the increase in the labour force and to maintain current unemployment rates (ILO, 2015). However, such job creation might not be sufficient to stimulate the shift of labour from agriculture to other sectors of the economy (Section 1.4).
Source: ADB (2016), Key Indicators for Asia and the Pacific 2016; WB WDI (2016).
The Philippines is the world’s third-largest recipient of personal remittances in absolute terms (USD 28.4 billion in 2014) after India and China, and is the leader in per capita terms (WB WDI, 2016). In GDP terms, personal remittances climbed from 3.2% in 1990, peaked at 13.3% in 2005, and have accounted for around 10% of GDP since 2011 (Figure 1.4). Remittances drive consumption growth and are integral to the economy’s stability; however, they may also create a culture of dependence and thereby provide a disincentive for productivity growth in the local economy (Nicolas, 2013).
Source: WB (2016), World Development Indicators.
The inflow of remittances is a major contributor to the current account surplus, which stood at USD 10.9 billion in 2014, or 3.8% of GDP (WB WDI, 2016); it is also one of the drivers for the ongoing real appreciation of the peso, in particular since late 2004 (Figure 1.4). The Philippines applies a floating exchange rate regime, allowing the Philippine Peso’s (PHP) value against other currencies to adjust to changing market conditions. While in nominal terms PHP appreciated from about PHP 55-58 per USD in late 2005 to about PHP 47 per USD in mid-2016, its real value increased much more, taking into account a higher inflation rate in the Philippines than in the United States.
The appreciating peso has multiple consequences, including for the agricultural sector. Holders of pesos have to pay less for imported commodities, resulting in declining price competitiveness of domestically-produced goods. This enhances imports and exerts pressure on export-oriented sectors, thus contributing to a negative balance of trade, including in the agro-food sector (Section 1.6).
Competitiveness and openness
A sound macroeconomic environment, strategic location, large market, skilled human capital and young population all work to the advantage of the Philippines. The country ranks 47th out of 140 countries on the World Economic Forum’s (WEF) 2015-2016 Global Competitiveness Index (GCI), behind regional neighbours Singapore, Malaysia, Thailand and Indonesia, but ahead of Viet Nam, Laos, Cambodia and Myanmar (WEF, 2015). The Philippines gained 38 places between 2010 and 2015 – one of the largest gains for all countries included in the Index over that time period – thanks in particular to institutional reforms which tackled corruption and promoted greater ethics, government efficiency and protection of property rights. Despite such progress, inefficient government bureaucracy and corruption remain among the most problematic factors for doing business. The Philippines also ranks poorly in terms of infrastructure (Section 1.9) and has made very little progress in labour market efficiency since 2010. The large number of procedures and days required to start a business also weigh on the Philippines’ ranking, as does low trade openness (WEF, 2015).
Until the early 2010s, the Philippines’ highly restrictive and complex investment regulatory regime deterred foreign direct investment (FDI), flows of which were two to three times higher in countries such as Viet Nam, Indonesia, Malaysia and Thailand (OECD, 2016). While the investment framework still needs to be improved, the Philippines’ good macroeconomic performance has started to attract foreign investors, as indicated by a growing ratio of net FDI inflows to GDP from just 0.5% in 2010 to 2.2% in 2014 (WB WDI, 2016).
The Philippines’ trade openness, measured as a ratio of traded goods and services (imports plus exports) to GDP, has slipped over the years. In 2005, trade openness stood at 98%, but by 2014 it had fallen to 61%, comparing unfavourably with the majority of countries in the region for which the rate ranged from 90% for Laos to 170% for Viet Nam. Only countries with even larger domestic markets had lower rates: 42% for China, 48% for Indonesia and 50% for India (WB WDI, 2016). Another measure of openness is the applied tariff across all imports. In compliance with WTO commitments, the weighted tariff was reduced from 14.7% in 1995 to 4.4% in 2010 (WB WDI, 2016). Tariff rates tend to be higher on agricultural products, with a simple average applied rate of 10.2% compared to 5.8% for non-agricultural products in 2011 (WTO, 2012; see also Chapter 2).
Social situation
The Philippines ranks 115th out of 188 countries on the Human Development Index (HDI), a summary measure of health, education and living standards (UNDP, 2015). This ranking places the country in the medium human development category, below Malaysia, Thailand, China and Indonesia but above Viet Nam, India, Cambodia and Lao PDR.
Economic growth, even if weaker over the last two decades when compared with the best-performing Southeast Asian economies, helped diminish the poverty incidence from 27% in 1991 to 13% in 2012, as measured by the World Bank definition of absolute poverty of USD 1.90 at PPP/day/person (WB WDI, 2016). If a broader definition of poverty – USD 3.10 at PPP/person/day – is applied, poverty rates declined from 53% in 1991 to 38% in 2012. These rates show that even if progress in poverty reduction has been significant, one-fourth of the total population, currently above the absolute poverty line, remains vulnerable to falling back into absolute poverty if natural disasters occur or economic conditions deteriorate. Moreover, in absolute terms, the number of poor living at or below USD 3.10/day has remained stubbornly high, at about 34-38 million people, over the last two decades (WB WDI, 2016).
As in most countries, poverty incidence is much higher in rural than in urban areas. At the national poverty threshold, defined as the minimum income/expenditure required for a family or individual to meet basic food and non-food requirements, the national poverty incidence in 2012 was 25%: 38% for farmers and 13% for the urban population (PSA, 2014).
For all years for which data is available, income inequality as measured by the Gini coefficient has remained high, ranging from 42.9 in 1994 to 46.1 in 2000. The Gini fell to 43 in 2012, but remained second highest in the region, next only to Malaysia, and higher than in China and India (WB WDI, 2016).
The Philippines has made very impressive progress toward gender equality. The country ranks 9th in the world out of 142 countries in the World Economic Forum’s Global Gender Gap report, which measures women’s economic participation and opportunity, educational attainment, political empowerment, and health and survival (WEF, 2014b).
Enabling environment for agriculture
The Agricultural Growth Enabling Index (Box 1.1) quantifies the performance of various components of the enabling environment for agriculture and synthesises them into a single index. The Index has been applied to 32 countries, classified as factor-driven economies and efficiency-driven economies (as defined within the WEF’s Global Competitiveness Index), including all major ASEAN countries. The Philippines appears in the middle of the index, slightly above the average. While it performs relatively well in the area of governance, driven largely by good macroeconomic performance, the Philippines’ capital and agriculture/sustainability indices are slightly below average. Areas of particular concern are poor infrastructure, a poorly functioning labour market, low capital intensity and low land availability.
To assess agriculture’s enabling environment in a given country and to compare it with other countries, Diaz-Bonilla et al. (2014) constructed a preliminary Agricultural Growth Enabling Index (AGEI). The Index has been further developed by the OECD Secretariat to include sustainability components and to cover a wider range of countries. The Index structures a wide array of information to provide cross-country comparisons or single-country evaluations. It has been applied to 32 developing and emerging economies, including the Philippines. Relative scores on the AGEI overall are shown in Figure 1.5. The overall AGEI score for the Philippines is slightly positive (above average), ranking 15 out of 32 countries covered.
Further decomposition can be made both across and within the four key blocks of the AGEI (governance, capital, markets, and agriculture/sustainability). The Philippines performs relatively well on governance and markets, but below average on capital and agriculture/sustainability. Within governance, the Philippines performs well on macro stabilisation, somewhat worse but still above average on institutions, and below average on political stability. For capital, the Philippines performs slightly above average on human capital, as captured by health/education indicators, but poorly on infrastructure. For markets, the Philippines scores slightly above average on financial and goods markets as well as on the trade facilitation indicator, but poorly on labour markets. For agricultural/sustainability, the Philippines scores slightly below average, but results differ quite strongly between various sub-components: it scores particularly low on capital intensification, measured by the capital stock per person employed in agriculture, and on land availability per person employed in agriculture.
Note: The index is comprised of four blocks with 40% of the weight on agriculture/sustainability factors and 20% each on broader economy-wide governance, capital and market operation. The indicators selected measure circumstances within each country in the early 2010s. To account for the differences in averages of scores of the 32 countries and the variances of these scores across the index and its blocks, this figure shows the normalised score of each country on the AGEI index and on each component. Specifically, for the AGEI and each of its four blocks the average for the 32 countries has been subtracted from each country value and the resulting country value divided by the standard deviation for the series, to create series with zero mean and unit standard error. For example, a value of 2 means that the observation for a given country is 2 standard deviations above the average (which is zero) for the 32 countries.
Source: Diaz-Bonilla et al. (2014) and the OECD Secretariat.
1.3. Agricultural situation
This section examines the importance of the agricultural sector, including the agro-food industries, to the economy, and assesses agriculture’s performance in terms of output and structure.
Agriculture and the food sector within the economy
Despite the country’s recent overall economic success, the agricultural sector remains a challenge, lagging behind that of other Southeast Asian countries in terms of production and productivity growth. Low productivity within the sector has been the result of decades of underinvestment, policy distortions (Chapter 2), uncertainties linked with the implementation of agrarian reform (Section 1.8) and periodic extreme weather conditions (Chapter 3; WB, 2015).
The non-agricultural economy has grown substantially faster than the agricultural sector, pushing down agriculture’s share in GDP from 22% in 1990 to 11% in 2014. Agriculture’s share in total employment declined from 45% to 30% over the same period (Figure 1.6). The agriculture sector’s share in employment is almost three times its share in GDP, indicating relatively low labour productivity – one of the reasons for the low incomes of households dependent on farming (Section 1.5). The relative importance of agriculture varies strongly across regions, from zero in the National Capital Region’s GDP to 63% of regional GDP in the Autonomous Region, Muslim Mindanao (ARMM) in 2014 (PSA, 2015a).
With the exception of a few commodities, the Philippines is not a major player in world agro-food markets and is a net-importer of agro-food products (Section 1.6). The share of agro-food exports (including fisheries) in total exports has varied between 5% and 10%, but has slowly grown since the late 2000s and exceeded 10% in 2013-14. The shares of agro-food imports in total imports have usually been a few percentage points above those for exports, but in recent years both shares have almost been equal, partly due to stronger agro-food export performance (Figure 1.6).
Source: WB (2016), World Development Indicators; UN (2016), UN Comtrade Database.
Food and beverage processing accounts for over 50% of the Philippines total manufactured output. The value of food and beverage output quadrupled in 2009-13, thus becoming the main driver of overall manufacturing growth (Singian, 2014). The sector is highly dependent on imported ingredients, which indicates relatively weak linkages between local producers and the downstream sector, including processing.
Farm output
In terms of gross agricultural output (GAO) growth over the last two decades, the Philippines has underperformed compared to all its major partners in Asia. Between 1990 and 2013 the volume of agricultural output in the Philippines increased by 73% – less than in Viet Nam, China, Indonesia, Malaysia, Thailand and India (Figure 1.7). Crop output increased by 55%, but animal output performed much better, increasing by 163% over the same period (Figure 1.8).
Agricultural output experienced setbacks in selected years, in particular in 1998 (-6.8%), when El Niño caused severe drought, reducing crop output in 18 provinces, and in 2009-10 (-0.4%), when a series of typhoons resulted in thousands of human casualties, as well as significant agricultural losses and damage to infrastructure (UNOCHA, 2014). The Philippines’ greater susceptibility to tropical cyclones partially accounts for its poor agricultural growth performance compared to its regional neighbours. The severity and intensity of these cyclones have increased in recent years. The annual damage to agriculture from typhoons, droughts and floods is estimated to have reached an equivalent of 3% of total agricultural output in the late 2000s (WB, 2013a; Chapter 3).
Note: The FAO indices of agricultural production show the relative level of the aggregate volume of agricultural production for each year against the base period 2004-06. The indices are based on the sum of price-weighted quantities of different agricultural commodities produced after deductions of quantities used as seed and feed weighted in a similar manner. In this figure, indices based on the 2004-06 period have been recalculated taking indices for 1990 as 100.
Source: FAOSTAT (2016).
Source: FAOSTAT (2016); WB (2016), World Development Indicators
Throughout developing Asia, a change in the composition of agricultural output has been driven by a growing demand for animal products and high-value crops (Briones and Felipe, 2013). A shift from low value commodities to those that can attract higher returns or occupy less land area can improve production and farmer income. This trend is apparent in developing Asian countries across a diversity of crops, but not in the Philippines, largely due to a set of distortive policies which favour low value commodities, in particular rice (Chapter 2).
Most notably, the share of rice in total value of agricultural production in the Philippines increased from 16% in 1991 to 22% in 2013 (Table 1.2). Other Asian countries have diversified and increased production of higher value crops, bringing the overall share of rice down over time.1 Rice is by far the most important commodity for the Philippines and for developing Asian nations in general, but it does not earn as much per hectare as other crops. For example, in 2014, after all costs have been considered, one hectare of pineapples could earn over ten times more than a hectare of rice in the Philippines. Similarly, net returns per hectare from mango, onion and tomato production were all much higher than those for rice (PSA, 2015c).
Trends for other products have been mixed. The shares in total value of production of pig meat, chicken meat and chicken eggs have increased, while the shares of high value crops have declined (mangoes, tropical fruit, fresh vegetables, pineapples, coffee, sugar cane), grown little (onion, rubber) or remained stagnant (cassava). Among fruit and vegetables, only the share of bananas has increased (Table 1.2).
Figures 1.9 and 1.10 depict the relative production performance of major commodities in the period 1990-2013. Figure 1.9 shows that among crops, bananas were the best performers, with production increasing by 144%. Production of rice, mangoes and pineapples increased by 87%, 83% and 73% respectively, while sugarcane, coconuts and cassava showed the least growth.
Source: FAOSTAT (2016).
In volume terms, the Philippines ranked first in the world for coconut oil production, second for coconut production, third for bananas and fourth for pineapples in 2011-13 (FAOSTAT, 2016). In particular, coconut production and its derived products have been one of the trademarks of Philippine agriculture (Box 1.2). Rice production averaged 17.7 million tonnes in 2011-13, equivalent to 2.4% of global production in this period, making the country the 8th largest rice producer in the world (FAOSTAT, 2016).
Notes: Compared to FAOSTAT data, the Philippine Statistics Authority (PSA) reports higher volumes produced in the early periods covered by this figure, in particular for chicken meat (for 1990-94), cattle meat (for 1990-98) and pigmeat (for 1990). For eggs and for other years, data from both sources are the same or almost the same. Since the increases up to 2013 are calculated using 1990 as the base year, the reported increases based on FAOSTAT data are higher than those based on the PSA data. However, for the sake of consistency with Figure 1.8 and Table 1.2, FAOSTAT data are applied.
Source: FAOSTAT (2016).
The coconut industry in the Philippines began as a colonial enterprise under Spanish rule in the 17th century. Small-scale regional trade of coconut products ensued in the 19th century, expanding to Europe by 1898 and later to the United States. The preferential export status granted to the Philippine coconut industry by Europe and the United States encouraged improvement and enlargement up to WWII.
Currently, coconut ranks among the major crops of the Philippines and since the 1960s has been second only to rice in terms of gross value added (Briones and Israel, 2014). Coconut accounts for a quarter of all agricultural land, over a fifth of all agro-food exports, and is produced in 69 of the 81 provinces of the Philippines (FAOSTAT, 2016 and PSA, 2015a). In 2013 the Philippines accounted for 25% of global production of coconuts, second only to Indonesia at 29%, for 24% of global exports of coconuts and for 46% of global export of coconut oil. However, the Philippines’ average yield is 4.3 tonnes/ha, much lower than its regional competitors: yields in Indonesia, Thailand and Viet Nam averaged 6.1 tonnes/ha, 4.8 tonnes/ha and 9.6 tonne/ha respectively in 2013 (FAOSTAT, 2016 and UN, 2016).
The Philippine Coconut Authority (PCA) is responsible for the development of the coconut and palm oil industries. The PCA was an attached agency to the Department of Agriculture (DA) from 1987 to May 2014, when authority was transferred to the Office of the President (Chapter 2). The PCA plays a regulatory role, including implementation of quality standards for coconut products. As part of its mandate, any export of coconut products requires export commodity clearance from the PCA, which entails payment of regulatory and laboratory analysis fees.
Every part of the coconut palm can be used to produce hundreds of products for various uses such as food, cosmetics, pharmaceuticals, emulsifiers, propellants, paints, insecticides and fuel. Along with sugarcane, coconut oil is a preferred feedstock for biofuel production, with coconuts used to meet biodiesel mandates and sugar for the mandatory ethanol content. The PCA successfully lobbied for a 5% biodiesel blend that went into effect in 2015. Eleven biodiesel refineries with an aggregate capacity of 585 million litres were operational in 2014, with a marked 48% increase in total capacity registered over 2013-14. Total capacity will need to expand further to meet increased biodiesel blend targets of 10% by 2020 and 20% by 2030 (Corpuz, 2015).
However, a number of factors affect the performance of the coconut industry. Poor management of pests and disease, ageing stocks, low fertiliser application, low technology utilisation, limited access to credit and the high cost of processing contribute to low yields, low product quality and low incomes for producers (Briones and Israel, 2014). The average coconut farm size shrank from 3.6 ha in 1991 to 2.4 ha in 2002, partly due the Comprehensive Agrarian Reform Program (CARP; Section 1.8). The majority of coconut producers are poor: the poverty incidence among coconut farmers was 56% at the beginning of the 2000s, compared to 48% for all agricultural households (Briones and Israel, 2014).
Land under coconut trees is underutilised, with only 30% of land used for intercropping, which could provide alternative income. Fragmented land holdings and small farms combined with poor transport infrastructure increase marketing transaction costs (Briones and Israel, 2014). Slow implementation of CARP has dissuaded investment in tree crops, such as coconuts, that have a long gestation period. Climate change can also disrupt the regularity of production cycles. In 2013, coconut farmers suffered devastating losses in the aftermath of Typhoon Haiyan, which resulted in loss or damage to 33 million trees in Eastern Visayas alone (FAO, 2014b).
The coconut industry has a high potential for growth and can be used as a tool for poverty reduction. Sometimes referred to as the “orphan child” of Philippine agriculture, the industry is a victim of the government’s focus on rice self-sufficiency (Lopez, 2015). Coconut replanting, for instance, is much less expensive than the irrigation projects supported for rice production. Investment in diversification of products, replanting, productivity and marketing enhancements, as well as forming co-operatives to take advantage of economies of scale, can add value and increase incomes of farmers.
The industry may also benefit from the Coco Levy Fund, accumulated through a forced stabilisation levy collected from coconut farmers from the 1970s to 1982 during the Marcos administration. Its value is now estimated to reach PHP 71 billion (USD 1.7 billion), held in a trust (Lopez, 2015). In a series of high-profile court cases over the past four decades, coconut farmers have been seeking to recover the levies. If successfully recovered, the levy would be a substantial resource pool to fund development of the Philippine coconut industry and to improve the well-being of Filipino coconut farmers.
Among animal products, chicken meat production has been the real contributor to livestock growth, increasing almost five-fold in 1990-2013, followed by egg production, which increased by 169% over the same period. Both chicken meat and egg production have grown from backyard enterprises to commercial operations to satisfy growing domestic demand. Cattle meat and pig meat production have also increased strongly, by 141% and 136%, respectively. Almost all animal production is destined for domestic consumers, with only marginal quantities exported. Production of cow’s milk began to grow slowly at the end of the 1990s, but remains very low (Figure 1.10).
1.4. Factors of production and productivity
This section assesses the use of key factors of production and compares the evolution in land, labour and total factor productivity in the Philippines with that in selected Asian countries: China, India, Indonesia, Malaysia, Thailand and Viet Nam.
Farm input use
Mechanisation differs depending on the crop, operation type and farm size, but the overall level of mechanisation in terms of available mechanical power per unit of land or labour is low, mostly due to the relative abundance of farm labour, its low cost and the predominance of small-scale farming (Amongo et al., 2011).2 Agriculture is thus largely labour-intensive, but mechanisation has progressively been introduced for selected operations. For example, while rice planting, transplanting, harvesting and drying are still mostly done manually, mechanical power has been applied for land preparation, threshing, shelling, husking and milling. Also most operations in the large-scale production of sugarcane, pineapple and banana have been mechanised (Amongo et al., 2011). The level of mechanisation in rice and corn farming has increased from 0.52 hp/ha in 1990 to 2.31 hp/ha in 2011 (Caliguiran, 2014).
The Philippines has historically used relatively less fertiliser than its Asian neighbours. At 56 kg/ha per year in 2011-13, its fertiliser consumption was the lowest compared to other countries and increased the least over the last two decades, with the exception of Korea and Japan, for which the rates fell from very high levels (Figure 1.11). While an overuse of fertilisers has been a growing issue in China and in some other Asian countries, studies have shown that, on average, Philippine farmers are under-applying fertilisers, thus driving down yields (Briones, 2014).
In volume terms, about a third of fertilisers are used for rice production, followed by maize (21%), fruits and vegetables (19%), sugarcane (7%) and other crops (15%) (Briones, 2014). While in the past fertiliser use was subsidised, the government retreated from subsidies in the early 2010s, with the exception of free distribution of selected inputs for populations affected by calamities (Chapter 2). However, prices paid for fertiliser differ widely across regions, most likely due to differences in distribution and marketing channels (Briones, 2014).
In the 1990s, about half of fertiliser demand was met by domestic production, but in the 2000s this ratio began to reverse in favour of imported fertilisers; now demand is predominately met by imports, mostly provided by China (PSA, 2015c). In 2014, total supply of fertilisers was 2.7 million tonnes, of which 2.3 million tonnes was imported and the remaining 0.4 million tonnes supplied by domestic producers (PSA, 2015b).
Source: FAOSTAT (2016).
The use of modern varieties of seeds varies across crops. Estimates for rice show that the percentage of harvested rice area planted with modern varieties was 97% in 2012. The vast majority of these varieties are inbred lines and just 5% of the total area is occupied by hybrids. While most farmers are using modern varieties, own-saved seeds accounted for 52% of the harvested rice area in 2012, partly due to the higher cost of purchased seeds and to inefficiencies in infrastructure and distribution systems (Figure 1.12). To improve the adoption of modern rice seeds, in 2002 the government instituted a floor price for high-quality varieties and introduced price subsidies. The programme was discontinued in 2010, but publicly produced varieties, including hybrids, are still sold at costs set by the government and below the private sector competitive price (Sombilla and Quilloy, 2014; Chapter 2).
For vegetables, the share of own-saved seeds is also high, varying from 41% for okra to 95% for snap beans in 2005. Almost all (99%) of marketed vegetable seeds are supplied by private companies. The majority are produced locally either on-station or by contracted farmers, but for some crops a large share of seeds is imported, e.g. for tomatoes (Maghirang, 2010).
Source: Sombilla and Quilloy (2014).
Land use and allocation
At just 0.13 ha per capita, agricultural land is very scarce in the Philippines. Mostly due to deforestation, agricultural land has increased by 11% since 1990 and in 2013 it covered 12.4 million ha, representing 42% of overall land area (Figure 1.13). Mindanao accounts for 43% of agricultural land, followed by Luzon at 37% and the Visayas at 20%. While the overall size of arable land is the same as in 1990, land dedicated to perennial crops increased by 1 million ha (23%) and that allocated to permanent pastures and meadows increased by 0.2 million ha (15%) (Figure 1.13).
As agricultural land is scarce and unlikely to expand any further, future growth in crop production will depend entirely on higher yields per ha, including through the development and wider use of high yield seed varieties and promotion of multi-cropping. Moreover, agricultural land is under pressure from urban development. Currently, any conversion of agricultural land for non-agricultural purposes has to be approved by the Department of Agrarian Reform (DAR). The National Land Use Act (NLUA) declares all agricultural lands as protected: this is to prevent local governments granting developers the permission to purchase land that is deemed to be of use for agricultural purposes. It was submitted to Congress in 2011 but is still to be passed.
Source: FAOSTAT (2016).
The allocation of harvested area by crops shows that cereals dominate, but the relative shares of various cereals are shifting. While the share of rice has increased from one-fourth of the total in 1990 to one-third in 2013, the share of maize fell from almost one-third to less than one-fifth over the same period. This might be an indication of strong support provided to rice production, as discussed in Chapter 2. Coconuts, benefiting from a strong export position, preserved their share at about one-fourth of the total. Sugarcane and bananas account for 3% of harvested area each and the rest is devoted to vegetables, fruit and a range of other crops such as tobacco, abaca, coffee and rubber (Figure 1.14).
Source: FAOSTAT (2016).
Farm employment
Agriculture’s share in total employment has fallen over the last few decades to 30% in 2014, and most recently the sector seems to have started shedding labour in absolute terms. Available data suggest that employment in agriculture (including forestry) trended up to 12.3 million in 2011, but then fell each year to reach 11.2 million in 2014 (PSA, 2015c). If this new phenomenon is confirmed, it might mean that the agricultural sector entering a new stage of development characterised by higher farm labour costs. This would enhance mechanisation, farm labour productivity and incomes.
Demographically, active farmers are ageing, with the average farmer age at 57 years (Amongo et al., 2011). About 60% of workers employed in the agricultural sector are considered to be engaged in vulnerable employment (own-account workers and unpaid family workers), as opposed to 32% of those in the services sector and 13% of workers in the industrial sector (ILO, 2015).
Productivity
Land
Land productivity in the Philippines increased by 61% in 1990-2012, slightly more than in Thailand (56%), but less than in China (114%), Viet Nam (86%), Malaysia (77%), India (73%) and Indonesia (63%) (Figure 1.15). In terms of the value of agricultural production per unit of land, the Philippines still performs well, at USD 1 529/ha in 2012, better than Indonesia, Thailand and India. However, its relative position has been declining over the last three decades: currently, China (USD 1 863/ha), Malaysia and Viet Nam all outperform it (Fuglie and Rada, 2015).
Note: Land productivity is measured as total agricultural output (constant global-average prices from 2004-06 at constant 2005 USD) divided by the total agricultural land in hectares of “rainfed cropland equivalents”.
Source: Own tabulation based on Fuglie and Rada (2015), International Productivity Dataset, ERS, USDA.
Labour
Labour productivity in agriculture is only one-sixth of that in industry, weighing down the country’s overall average (ILO, 2015). Progress made by the Philippines in farm labour productivity is the slowest among major Asian peers (Figure 1.16). In terms of the actual level of productivity per farm worker, the Philippines ranked second just after Malaysia in 1990, but had been overtaken by China and Thailand by 2012 (Figure 1.17). In 2012, Malaysia’s labour productivity was 6.2 times that of the Philippines and China’s was 1.4 times higher – an indication of differing levels of infrastructure, technology, mechanisation and investment in workforce skills and training (Figure 1.17). However, as agriculture in the Philippines has started to shed labour in absolute terms, this may accelerate internal restructuring of the farming sector and thus enhance productivity growth, in particular if further supported by policies allowing more flexible reallocation of land resources across farms and crops.
Note: Labour productivity is measured as gross agricultural output (constant global-average prices from 2004-06 at constant 2005 USD) divided by the total number of economically active persons in the sector in a given year.
Source: Own tabulation based on Fuglie and Rada (2015), International Productivity Dataset, ERS, USDA.
Note: Labour productivity is measured as gross agricultural output (constant global-average prices from 2004-06 at constant 2005 USD) divided by the total number of economically active persons in the sector in a given year.
Source: Own tabulation based on Fuglie and Rada (2015), International Productivity Dataset, ERS, USDA.
Total Factor Productivity
Reflecting slow progress in land and farm labour productivity, performance in agriculture’s total factor productivity (TFP) has been weak. TFP increased by 39% in 1990-2012, averaging 1.5% per year (Figure 1.18), placing the Philippines just below India and well behind China, where TFP more than doubled in this period. However, some progress can be noticed in the last decade in the annual rate of growth, calculated as the difference between output and input growth rates. While the rate was particularly slow in the 1980s and the 1990s, at just 0.15% and 0.46% respectively, it accelerated to 1.98% in 2001-12 (Fuglie and Rada, 2015).
Source: Own tabulation based on Fuglie and Rada (2015), International Productivity Dataset, ERS, USDA.
1.5. Farm incomes, poverty and food consumption
This section examines progress made in terms of farm incomes, poverty alleviation and combatting undernourishment and malnutrition.
Farm incomes
The 2012 Family Income and Expenditure Survey (FIES) showed that 68% of Philippine households derive some income from agriculture. However, only 20% of all households derive more than half of their income from it, and 10% derive more than three-quarters (FIES, 2012).
Despite recent strong economic growth, annual incomes of farm households (including agriculture, forestry and fishing) are still low, at about 60% of the national average and at just 48% of the average income earned by all non-farming households (Figure 1.19).
Poverty
Low farm incomes lead to high poverty rates among farmers. According to the national definition of the poverty line3 , the poverty incidence for farm households is high, 38% in 2012, compared to the nationwide average for the urban population of 13% (Figure 1.20). Moreover, farm households are almost five times more likely to be food-poor (subsistence poor) than non-agricultural households. In 2009, of 9.4 million households defined as food-poor, 59% were from agricultural households (Reyes et al., 2012).
Source: Family Income and Expenditure Survey (FIES), (2012).
Source: PSA (2014a), 2014 Philippine Statistical Yearbook.
Table 1.3 shows that rural poverty incidence is much higher than in urban areas across all regions and that, on average, rural poverty rates remain stubbornly high at about 38-40%. There are large differences in rural poverty incidence across regions, varying from above 50% (Bicol, Central Visayas, Zamboanga, Northern Mindanao and Caraga) to 20-25% (Cagayan Valley and Central Luzon). These rates have not changed much over time, with the exception of the Autonomous Region in Muslim Mindanao, where the rate increased from 35% in 2003 to 49% in 2009 (Table 1.3). Moreover, though income inequality has been decreasing in urban areas, the opposite is occurring in rural areas. The Gini coefficient for rural areas increased from 0.39 in 1991 to 0.43 in 2009 (Reyes et al., 2012).
Poverty incidence and food-poor incidence varies across agricultural activities (including forestry and fisheries). The highest rate of poverty incidence, at 68% in 2009, is among those working in forestry, followed by corn, coconut, sugarcane, and cacao growers, who all experience a poverty incidence exceeding 50% (Reyes, et al., 2012). Rice producers represent the largest share of total poor and of food poor among those engaged in agricultural production, even though the poverty incidence for rice growers, at 42% in 2009, and their food poverty incidence, at 20% in 2009, are both below the related averages. By contrast, those engaged in animal farming/raising had both the lowest poverty incidence and the lowest food-poor incidence, at 19% and 9% respectively in 2009 (Reyes et al., 2012).
Food consumption
The Southeast Asia region has advanced the most in combatting undernourishment in comparison to all other parts of the world, reducing the percentage of those undernourished from 30.6% on average in 1990-92 to less than 10% in 2014-16 (FAO, 2015). The Philippines was one of the 13 countries honoured in 2014 by the FAO for their outstanding progress in reducing hunger and meeting the Millennium Development Goals (MDG) hunger targets, having halved the proportion of undernourished from 26.3% in 1990-92 to 11.5% in 2012-14 (FAO, 2014c); however, the most recent assessment would suggest that the rate increased again to 13.5% in 2014-16 (FAO, 2015). The Philippines has yet to reach the 1996 World Food Summit’s (WFS) more ambitious target of halving the absolute number of hungry people by 2015: 13.7 million Filipinos still suffered from undernourishment in 2014-16 compared to 16.7 million in 1990-92, a fall of just 18% (FAO, 2015).
Despite overall progress in combatting undernourishment, the incidence of various forms of malnutrition remains very high. In particular, stunting still affects about 30% of children, both among 0-5 year olds and 5-10 year olds. In regions with a dominant share of population in rural areas, such as Bicol or Caraga, stunting affects almost 40% of 0-5 year olds. For the country as a whole, the prevalence of those underweight is also high, at about 20% for 0-5 year olds and almost 30% for 5-10 year olds. The prevalence of underweight children and stunting has marginally declined, but the prevalence of those overweight-for-height is increasing, affecting almost 9% of 5-10 year-old children in 2013 (PSA, 2015a).
Among adults, concomitant problems of both under-nutrition and over-consumption coexist. The proportion of adults with chronic energy deficiency has been declining and was 10% in 2013, but the share of those who are overweight and obese has been rapidly growing and reached almost one-third of population in 2013 (FNRI, 2015).
Daily per capita energy availability has increased by 15%, from 2 239 kcal per day in 1990-92 to 2 575 kcal per day in 2011-13. Consumption of animal products is increasing, but that of fruit and vegetables is stagnant and cereals still constitute the bulk of the Filipino diet, consistently accounting for 53-56% of daily intake (Figure 1.21). The dominance of cereals in the diet and very slow diversification of food consumption are further reflections of the policy bias towards rice and corn to attain self-sufficiency in these staples (FNRI, 2015).
Supply Utilisation Accounts (SUA) show that per capita rice availability, used as a proxy for food consumption, even increased from 103.2 kg in 2000 to 128.1 kg in 2008, before tapering off to 114-119 kg in 2010-13 (PSA, 2015d). In predominantly rural areas, such as Eastern Visayas and the Cordillera Administrative Region, rice consumption is above 120 kg/capita, compared to predominantly urban areas, such as National Capital Region, where it is below 90 kg/capita. This is due to higher incomes in urban areas, relatively low income elasticity for rice for high-income groups, and stronger diversification of food baskets due to both higher purchasing power and to a wider range of alternative foods in urban markets (CPBRD, 2014).
Note: Animal products include fish and fish products.
Source: FAOSTAT (2016).
The share of expenditures on food in total household consumption expenditures, known as the Engel coefficient, provides an indication of food security: the lower the share, the greater the food security. Aggregate data show very little change from 43.6% in 2000 to 42.8% in 2012 (PSA, 2015a). In 2008-09, half of the average household’s food budget was spent on rice (49.9%) and the rest was spent on pork (16.9%), chicken (11.4%), milkfish (4.6%), bananas (4%), tilapia (3.7%) and other (9.5%). Thus Philippine households, in particular those in low income brackets, are highly vulnerable to changes in rice prices (CPBRD, 2014).
1.6. Agro-food trade flows
This section evaluates the Philippine agro-food sector’s integration with international markets and assesses its export and import performance. Annex 1.A1 provides agro-food trade projections for the Philippines resulting from projected trends in production and consumption of major agricultural commodities by 2025.
Integration with agro-food markets
The Philippines remained a net importer of agro-food products during 1996-2014. The total value of agro-food imports increased to almost USD 7 billion in 2008, largely due to skyrocketing agricultural commodity prices, but then stabilised at this level up to 2013 before increasing to almost USD 9 billion in 2014 due to increased volume of imports. Agro-food exports declined in 2009, but since then have more than doubled to about USD 7 billion in 2014, thus diminishing the negative overall balance of trade in agro-food products and increasing the coverage of imports by exports to 80-85% in 2013-14 (Figure 1.22 and Table 1.4). The Philippines currently (2014) has a negative agro-food trade balance with Australia, the United States, ASEAN nations and the European Union, but a positive balance with Japan (PSA, 2015c).
The share of agro-food in total trade has almost doubled since the lows of the mid-2000s, but the agro-food sector remains relatively weakly integrated with international markets. In 2012-14, the average ratio of agro-food exports to agricultural GDP was 19%, while that of agro-food imports to agricultural GDP was 25% (Table 1.4). Both ratios are on par with averages for the whole economy, which suggests that this relatively weak openness is not sector-specific, but rather an overall feature of the Philippine economy (Section 1.2 above).
Note: Agro-food trade includes fish and fish products.
Source: UN (2016), UN Comtrade Database.
Agro-food exports
Although the overall integration of the Philippine agro-food sector with the world market is weak, the country is a major exporter of selected products. For example, the Philippines accounted for 67% of global exports of oil cake from coconuts, 43% of coconut oil, 18% of prepared pineapple, 15% of pineapple juice, 10% of bananas, and 10% of pineapples in 2012-14 (Figure 1.23). Coconut oil is the key agro-food product exported by the Philippines (Figure 1.24). Philippine exports have doubled since the mid-2000s, but global exports have increased even more, largely driven by growing exports from Indonesia. As a result, the Philippines’ share of global exports has declined (Figure 1.23).
Source: UN (2016), UN Comtrade Database.
Coconut oil, bananas and fisheries have always featured strongly in the total value of agro-food exports, but their relative importance has evolved over time (Figure 1.24). While coconut oil remains the most important product, accounting for 18% of total agro-food exports in 2012-14, its share has declined by one-third since 1996-98. Over the same period, the share of bananas in total agro-food exports increased to about 15%.4 The share of fisheries and fish preparations declined slightly, but still represents about 17% of the total (Figure 1.24 and Box 1.3). Although tobacco makes up only a small portion of agro-food exports by value, its share has almost tripled since the second half of the 1990s. This change, along with increases in the relative importance of other agro-food products, including fruit other than bananas and coconuts, reflect growing differentiation among agro-food exports (Figure 1.24).
Source: UN (2016), UN Comtrade Database.
The Philippines is a major fishing nation, with a vast marine water area of 2.2 million km2 (FAO, 2014a). In 2014, the Philippines recorded 3.1 million tonnes of fisheries production, 25% of which came from aquaculture, making it the 12th largest marine fishing nation and 11th largest in aquaculture.
Major species in marine capture fisheries are tuna, followed by sardine, mackerel, and anchovies. Tilapia and carp are the major finfish species in inland fisheries. The Philippines is the world’s third largest producer of farmed seaweeds, after China and Indonesia, with a production of 1.8 million tonnes in 2012 (FAO, 2014d).
After a long period of stagnation, the value of Philippine exports of fish and fishery products has been growing rapidly since the mid-2000s (Figure 1.25). In 2013, the total value reached USD 1.1 billion, having tripled since 2005, but then fell by 10% in 2014. Tuna, shrimp and seaweed are the most important export products. Major export destinations are Japan, the United States and China.
Fisheries products are an important source of protein for Filipinos. The consumption of fish is very high, at 32.7 kg per capita in 2011, providing 38.7% of all animal protein consumed. It is estimated that around 1.6 million fishers operate in waters extending up to 15 km offshore, while 16 500 fishermen are involved in commercial fishing operations in waters beyond 15 km. There are also 226 000 farmers engaged in producing fish, molluscs, seaweeds, and other aquaculture products (FAO, 2014a). The fisheries industry accounted for 1.6% of GDP in 2014 (PSA, 2015a).
Source: FAOSTAT (2016); UN (2016), UN Comtrade Database.
Sustainability is one of the most urgent challenges facing fisheries in the Philippines. There are signs of overfishing and a resulting change in the composition of species in the marine ecosystem. In response, Philippine companies have moved to distant-water fishing in the Pacific. Stocks of demersal fish (such as cod, eel, flatfish, pollock and ray) have decreased during the past five decades and the need to improve fisheries management was recognised as early as the 1960s. However, early juveniles of certain fish species are considered a local delicacy, leading to the acceleration of resource depletion. Tropical coral reef diversity is also under threat.
Due to these sustainability concerns, Philippine fisheries exporters sometimes have difficulty accessing international markets such as the EU or the United States which have established criteria for sustainability of imports and for exporter actions to combat illegal, unreported or unregulated (IUU) fishing. The Philippines received a yellow card warning by the EU in June 2014, which could have been transferred into a (red card) trade ban for insufficient action against IUU fishing. This warning was lifted in April in 2015 after Philippine legal systems were amended and traceability and catch certification schemes were improved.
In aquaculture, challenges include disease control, water quality conservation, quality of feed and seed and environmental impact management. Aquaculture can also be affected by typhoon, landslides, volcanoes, destructive earthquakes and tsunamis.
Partly due to these challenges, projected fish production growth is likely to be slower than consumption growth, thus switching the Philippine net trade position in volume terms to that of a net importer of fish by 2025 (Annex 1.A1).
The United States and Japan are the key export destinations for Philippine agro-food products accounting for 23% and 16%, respectively, of the total agro-food exports in 2012-14 (Figure 1.26). In 2014, 45% of overall coconut oil exports and 39% of pineapples were sent to the United States (PSA, 2015c). Main commodities exported to Japan include sugar, bananas, pineapple products, tuna, and shrimps and prawns. China is the third most important export market, accounting for 7% of the total and an important buyer of bananas, copra oil cake, shrimps and prawns, coconut oil and pineapple products. Korea is a large buyer of copra oil cake, sugar, tropical fruits and seaweed. Overall, exports to the Southeast Asian region mainly consist of tobacco, sugar, copra oil cake and coconut oil. Increases in agro-food exports to Japan, China, Korea and to ASEAN countries in the past few years have been facilitated by bilateral and regional foreign trade and economic co-operation agreements that went into effect in 2005-08 (Chapter 2).
Source: UN (2016), UN Comtrade Database.
Agro-food imports
The Philippines’ agro-food imports consist of two major groups: feed for animal production (in particular oil cake, the key part of the category classified as “residues and waste from the food industry”) and products to meet food demand from domestic consumers (wheat, dairy products, beef) and for further processing (Figure 1.27). A large portion of imports goes through the domestic food and beverages processing industry. About 90% of the industry’s output is consumed domestically (Singian, 2014).
Cereal imports are predominately made up of wheat products, followed by rice, maize and soya beans. They still account for almost one-fifth of total agro-food imports, but their share has declined by about one-third since 1996-98. Imports of wheat and soya beans are increasing and those of rice fluctuate at low levels, being subject to strict domestic and trade policy regulations (Chapter 2).
The Philippines’ dependence on imports is particularly high for wheat, milk and soya beans. In each case, imports satisfy around 100% of domestic use. Wheat is not produced in the Philippines and production of milk and soya beans is still very small. Large annual variations in the ratio of wheat imports to total domestic use are caused by changes in domestic stocks, but may also be influenced by re-exports in the form of cereal preparations. Import penetration for beef is also relatively high – about 30% of the market – driven by demand for prime cuts from supermarkets, deluxe hotels and first-class restaurants and for manufacturing grade meat from fast-food chains and processing companies. The shares for rice and maize fluctuate and are relatively small, below 10% for maize and usually 5-20% for rice (Figure 1.28).
Source: UN (2016), UN Comtrade Database.
The United States is the most important supplier of agro-food products, accounting for almost one-fourth of the total in 2012-14 (Figure 1.29). The Philippines is a top-ten market destination for US agro-food exports, with record sales of USD 2.1 billion in 2014. Imports from the US have nearly tripled since 2005, accounting for 64% of total imports of wheat, 50% of soybean oil/cake meal and 30% of dairy products in 2014, in addition to meat, poultry, maize and other agro-food products (PSA, 2015c). An estimated 65% of agro-food imports from the US flow through the food and beverage processing industry (Singian, 2014).
China, Australia, and a few Southeast Asian nations are other major suppliers (Figure 1.29). China and Australia supply about 6-8% each of agro-food imports, while Malaysia, Thailand, Indonesia and Viet Nam supply 24% of agro-food imports collectively. China is a major supplier of tobacco, but also of agricultural inputs, in particular fertilisers (not included in the total). Australia’s main agro-food exports to the Philippines consist of bovine meat, wheat and dairy products. New Zealand supplies 31% of overall dairy imports (2014) and 10% of bovine meat. Rice is predominately imported from Viet Nam and Thailand. Other notable agro-food products imported from Southeast Asian neighbours include coffee (Indonesia and Viet Nam) and maize (Thailand) (PSA, 2015c).
Source: FAOSTAT (2016).
Source: UN (2016), UN Comtrade Database.
1.7. Agro-environmental situation
Rapid economic growth combined with a burgeoning population is placing massive pressure on the environment. This section provides an overview of key agro-environmental issues, including soil degradation, deforestation, water pollution, carbon emissions from agriculture, threats to biodiversity and implications of climate change.
Land and soil
Soil is important not only for crop yields, but also for its carbon sequestration and water storage capacities. Soil degradation is a major problem in the Philippines, mainly due to soil erosion and nutrient depletion. Both have become problematic due to deforestation and unsustainable agricultural practices, including driven by policy measures. The Philippines loses an estimated 457 million metric tonnes of soil per year to erosion (BSWM, 2015).
Soil types in the Philippines can loosely be classified into lowland, upland and hill/mountain soil. Lowland soil is located in flat areas between the sea and surrounding uplands, hills and mountains less than 100 metres above sea level. Lowland soils are chiefly fluvial and the most fertile for agriculture. Rivers overflow during the monsoon season and the subsequent flooding regularly replenishes lowland soil with silt (Carating, 2014).
Conversion of lowland agricultural land for residential, commercial and industrial activities has become a contentious issue. With 60% of the population living along coastal low-land areas, urbanisation has become a threat to agricultural land. Such land conversion displaces farmers into upland areas, where they engage in practices such as slash-and-burn farming, leading to deforestation and soil degradation (NSCB, 1998 and Suarez and Sajise, 2010).
Upland soils are found between 100 to 500 metres above sea level on an 8-18% slope. They mainly consist of alluvial soils formed by runoff siltation of river deltas. They are used to grow upland crops, tree crops and agro-forest trees (Carating, 2014).
Hill and mountain soils can be found 300 metres above sea level with a slope of 18% and above. Springs are abundant at these levels, thus areas planted for rice, corn, sugarcane, fruit trees and vegetables can be found, though the soil tends to be acidic and low in fertility (Carating et al., 2014).
Forests
Although 15.8 million ha is defined as forest land, only 7.6 million ha is actually forested, accounting for 25% of the country’s area.5 Less than 0.9 million ha is primary forest (Table 1.5). Forest cover is predominately found in Palawan, Mindanao and in the upland highlands of Northern Luzon.
The Philippines has the lowest percentage of forest cover of all Southeast Asian countries, except Singapore (FAOSTAT, 2016). Historical documents show that around 90% of the Philippines was covered in forest when the Spanish first colonised the country in the 16th century. The share had declined to around 50% by 1950. Much of the deforestation during the post-war period occurred because of inadequate and corrupt regulation of logging (Suarez and Sajise, 2010). Other reasons include growing population density and expansion of urbanised areas. Uncertain land user rights and land conversion to non-agricultural uses also led to farmer migration and expansion of agricultural land in the space of secondary forests left by loggers. Over 1990-2000, the average annual loss of forest was 89 000 ha (FAO, 2005).
There has been some action to reverse this trend. According to official statistics, forest disturbance (due to shifting cultivation, fire, illegal cutting, infestation, typhoon etc.) significantly decreased after 2000, with an average 3 000 ha disturbed per year from 2001 to 2012 (PSA, 2015a). Likewise, the percentage of forest cover has gradually increased from 22% in 1990 to 25% in 2013 (Table 1.5). New policy measures have also been enacted to regrow forestland and to cut the number of timber licence agreements issued and the overall land area available for cutting. In 1990, 75 timber license agreements existed, with access granted to 2.8 million ha of forest land. By 2014, only two timber license agreements existed, with access to an area of 120 000 ha (PSA, 2015a).
The National Greening Program (NGP) of 2011, the Philippines’ largest-ever reforestation program, seeks to cover 1.5 million ha with trees over 2011-16. About two-thirds of that goal was met by 2011-14, with 1 million ha of land area reforested (PSA, 2015a).
Water
On average, water is abundant in the Philippines. Total actual renewable water resources per inhabitant has been falling, but at 4 800 m3 in 2014 (Table 1.6) was still second highest among all countries in Southeast Asia. The Philippines receives 2 348 mm/year of precipitation on average, with zero dependency on outside sources for freshwater (FAO AQUASTAT, 2011). Despite the country’s abundance of water and rainfall, distribution varies widely in time and place. The Department of Environment and Natural Resources (DENR) reported that 19 million Filipinos do not have access to water, due in part to declining health of watersheds caused by deforestation and to poor infrastructure for water storage and distribution (Orejas, 2013).
Agriculture is the main user of freshwater. In 2009, the sector accounted for 82% of total freshwater withdrawals (Table 1.6), almost entirely for irrigation and animal production (FAO AQUASTAT, 2011). About 8% of freshwater was used by the industrial sector and around 6% for domestic use (Table 1.6). Of the 81.6 km3 of water withdrawal, 96% was drawn from surface water and the remainder from groundwater (FAO AQUASTAT, 2011).
Of the total estimated irrigable area at about 3 million ha, 57% had been developed by December 2015. The regions with the largest irrigated areas are Central Luzon, Cagayan Valley and Ilocos Region, all located on Luzon island (NIA, 2016). Almost 90% of harvested irrigated crop area is used to grow rice, followed by maize (4%), sugarcane (2%) and vegetables (1%) (FAO AQUASTAT, 2011).
Pollution of the freshwater supply and lack of wastewater treatment is a major issue, with 31% of all illnesses in the Philippines attributable to polluted water (EMB, 2015). While industry and agriculture contribute to water pollution, the principal source is domestic wastewater/sewage (48%) (NEDA, 2011). Improved sewage treatment and wastewater management could mitigate a good deal of water pollution, but the current infrastructure remains inadequate and resources allocated to improve it are limited (EMB, 2015).
Air
Greenhouse (GHG) emissions from agricultural production in the Philippines have grown over time, with rice cultivation accounting for about 60% of CO2 emissions from agricultural activities which compares with the 20-22% share of rice in total value of agricultural production. In terms of growth rates, the agricultural activities whose emission impacts are growing the fastest are synthetic fertilisers and crop residues (Table 1.7).
Biodiversity
The Philippines is one of 18 megadiverse countries in the world: a total of 52 177 species of flora and fauna (67% endemic) and 15 000 plant species (40% endemic) have been identified (Altoveros and Borromeo, 2007). New discoveries of species are made yearly. In 2013, 733 species, mostly consisting of flora and birds, were considered threatened or endangered (CBD, 2014). Regarding crops, the Philippines has over 5 500 traditional rice varieties and 90 varieties of bananas, as well as many varieties of fruits and vegetables, both endemic and indigenous (Altoveros and Borromeo, 2007).
There are several initiatives to protect biodiversity and plant genome, both in and out of the natural habitat (in-situ and ex-situ practices). The Philippines has 45 government and non-government organisations that hold ex situ germplasm collections (Altoveros and Borromeo, 2007). A National Biodiversity Strategy and Action Plan (2014-25) established a comprehensive plan to protect and conserve Philippine biodiversity. Key biodiversity areas have been identified and 14.2% (5.45 million ha) of total land is deemed protected area. A legal instrument, the Writ of Kaliksan (Rules of Procedure for Environmental Cases, 2010), can be used by the public to put a stop to practices deemed to be environmentally destructive and harmful to biodiversity (CBD, 2014). The major threats to Philippine biodiversity include habitat loss and degradation, over-exploitation and unsustainable use of natural resources, invasive alien species, pollution and climate change (e.g. natural disasters and abiotic stresses) (CBD, 2014).
Climate change
The Global Climate Risk Index (CRI) listed the Philippines, Cambodia and India as the countries most affected by climate change in 2013. In its 20-year historical view (1993-2012), the Philippines featured as one of six countries most at risk and affected by climate change: the country registered an annual average death toll of 934 and annual average economic losses of USD 2.8 billion (PPP) (Kreft et al., 2015). Climate change scenarios developed by the Philippine government predict amplified weather events where wet seasons will become wetter and dry seasons will become drier. Projections suggest an increased frequency of heavy rainfall and hot days (>35°C), a rise in sea level, and a rise in temperature (between 0.9-1.1°C) (DA, 2015a).
The rise of sea level threatens mangroves and can affect cultivation areas near river deltas, which are likely to be affected by salt water intrusion. An increase in sea surface temperature affects cyclones and typhoons, which the government predicts will become more frequent and intense (by 10-20%). A combination of biotic and abiotic stress on crops6 , increased by extreme weather events, has already begun and will likely have an increasing effect on crop yields (Chapter 3). A wide range of mitigation and adaptation measures are currently underway. The Adaptation and Mitigation Initiative in Agriculture (AMIA) has adopted seven system-wide programmes to be mainstreamed and implemented throughout the Department of Agriculture’s programmes, plans and budget (DA, 2015a and Chapter 3).
1.8. Agricultural land tenure and land management system
Secure, transferable rights to land are an important precondition for a healthy investment environment for agriculture. As stated by the OECD Investment Policy Reviews: Philippines 2016: “Reliable land titling and property registrars help individuals and businesses to seek legal redress in case of violation of property rights and offers a form of collateral that investors can use to improve access to credit, which is one of the main obstacles to new investment (. . .). Investors need to be confident that their land rights are properly recognised and protected and that they are protected against forced evictions without compensation (. . .). Simple land use rights, such as lease rights, can provide tenure security if they are clear and of specific duration and if the contract cannot be unilaterally broken” (OECD, 2016).
This section provides an overview of basic legal framework shaping land tenure system in the Philippines, assesses the agrarian reform programme and analyses emerging farm structures.
Legal framework
The 1987 Constitution provides a broad framework and principles on the governance of the territory of the Philippines. Within this framework, the land tenure system is divided into three basic domains covered by separate laws: ancestral domain (covered by the Indigenous Peoples Rights Act – IPRA), public domain (regulated by the Commonwealth Act No. 141, known as the Public Land Act, PLA) and private ownership (regulated by the Civil Code). Public domain land is further divided into “alienable and disposable” (A&D) land (eligible for private ownership) and “non-disposable” land (remaining with the State) (Figure 1.30).
Source: Quizon and Pagsanghan (2014), adapted from a 2001 DENR Study “Land Laws and Regulations Policy Study: Final Report, Volume 1” under Land Administration and Management Project (LAMP).
Under the 1987 Constitution, all lands in the public domain and natural resources belong to and are administered by the State.7 Agricultural land, being part of land classified as A&D, is considered as suitable for private ownership. Forested land, mineral lands and national parks are reserved for the public domain and can only be leased under certain conditions. The PLA determines how and to what extent agricultural lands in the public domain may be alienated and may pass into private or non-State hands. It governs the survey, classification, lease, sale, or any form of concession, the disposition, and management of A&D lands in the public domain. The Land Management Bureau (LMB) under DENR is the agency responsible for the implementation of the PLA.
Overall, the Philippine system for governing land tenure, both in terms of legislation and organisational framework, is very complex. Nineteen government agencies are involved in land administration and management (USAID, 2011). In addition to the Constitution, PLA and IPRA, the 1992 Urban Development and Housing Act, the 1989 Organic Act for ARMM (granting self-governance), various land titling and registration laws, and laws under the Civil Code and Family Code complicate land administration and management.8 The various sector-based land use policies (e.g. related to housing, agriculture and environment) enshrined in separate laws do not address cross-cutting issues for land use (SEPO, 2013). There are overlapping mandates and laws, as well as a functional overlap of agencies (Quizon and Pagsanghan, 2014). These factors create delays, high transaction costs, and problems of fake titles and corruption, thus diminishing investment in land and lowering productivity growth (Pacis, 2008).
Agrarian reform programme
The Philippines inherited a feudal land structure with huge landholdings and a landless rural population of millions from the Spanish colonisation period. The first codified agrarian land reform ideals were embodied in the 1899 constitution, which initiated a “land-to-the-landless policy”. The same ideal has pervaded all constitutions since, with various agrarian reform measures attempting to referee tenant-landlord relationships and expropriate and equitably distribute agricultural lands. All agrarian reform measures have been rooted in a sense of social justice, but up to the second half of the 1980s their implementation was hampered by political economy and funding constraints.
Central to the Philippine land tenure system for the better part of the last three decades has been the 1988 Comprehensive Agrarian Reform Program (CARP, RA 6657). The mandate of CARP is much broader than previous agrarian reform policies, which focused on specific crops (e.g. rice and corn) and on establishing a crop-sharing agreement between landowner and tenant. The CARP defines agrarian reform as the “redistribution of lands, regardless of crops or fruits produced, to farmers and regular farmworkers who are landless, irrespective of tenurial arrangement”. The programme covers all public and private agricultural land, as well as any other land within the public domain suitable for agricultural purposes. The scope of “CARPable” land evolved over time, but ultimately an estimated 7.9 million ha of agricultural land were marked for redistribution in 2013, i.e. about three-fourths of total agricultural land and more than a quarter of the entire land area of the Philippines. Box 1.4 presents CARP’s basic implementation rules.
The Department of Agrarian Reform (DAR) and the Department of Environment and Natural Resources (DENR) are the lead agencies for agrarian reform and responsible for the acquisition and redistribution of all agricultural lands in co-ordination with the Presidential Agrarian Reform Council. While the majority of land to be distributed by DAR is private, DENR is responsible for the distribution of public agricultural and Integrated Social Forestry/Community Based Forest Management lands. The Land Bank of the Philippines (LBP) is responsible for the processing, valuation, and approval of land transfer claims, providing credit assistance to “agrarian reform beneficiaries” (ARBs), and handling compensation for landowners for expropriated land. In the case of “voluntary land transfers” under which landowners and the qualified ARBs agree on the direct transfer of the ownership of land, the LBP is not involved in the compensation process.
CARP sets a ceiling of 3 ha that can be distributed to an agrarian reform beneficiary and 5 ha that can be retained by landowners. Landowners receive a Notice of Coverage informing them that their land is covered by CARP and subject to acquisition and distribution to beneficiaries. In addition to the right to retain 5 ha, landowners are eligible for “just compensation” based on a formula. Payments are subject to a cash limit; any remaining compensation is paid through a range of government financial instruments.
Beneficiaries (ARBs) are ranked by priority: agricultural lessees and share tenants first, followed by permanent farm workers, seasonal farmworkers, other farmworkers, actual tillers or occupants of land, collectives or co-operatives of the aforementioned, and others directly working on the land. Basic criteria for an ARB is that s/he is at least 15 years of age, a resident of the barangay (the smallest administrative unit) or at minimum of the municipality in which the land holding to be distributed is located, and that s/he owns no more than 3 ha of land. The beneficiaries have to pay the LBP thirty annual amortisations at 6% interest rate per year for the awarded land. The awarded land can be forfeited and awarded to another qualified beneficiary if the ARB is not able to pay three annual amortisations to the LBP. Beneficiaries also have an obligation to cultivate the land they are allocated and cannot transfer it for a period of ten years, except through hereditary succession, or to the government.
In addition to equitable distribution of land, CARP seeks to empower ARBs to effectively manage and improve agricultural production through government support services. These services are focused on Agrarian Reform Communities where clusters of barangays with a high density of ARBs had been identified. These services include land surveys and titling, preferential loans, extension services, marketing and management assistance, support to co-operatives and farmers’ organisations, and research and infrastructure facilities.
The Land Registration Authority, an agency of the Department of Justice, issues decrees of registration and certificates of title for land and is the central repository of all land records for registered and titled land. CARP beneficiaries receive Emancipation Patents and Certificates of Land Ownership Awards (CLOAs) free of charge. CLOAs operate under the Torrens system and become full titles upon the completion of amortisation (Quizon and Pagsanghan, 2014).
The schedule of implementation for CARP was initially set for ten years, but the deadline for completion has been extended twice and is up for renewal a third time. Originally scheduled for completion in 1998, Congress initially extended the completion deadline to 2008. In 2009, CARP was again extended under the auspices of CARP Extension with Reform (CARPER, RA 9700) for five years with completion set for mid-2014 (OG, 2014). CARPER has since lapsed and it is up to the Congress to decide whether or not another extension will be granted and for how long. By December 2015, the government had acquired and distributed almost 7.3 million ha of land, amounting to 92% of the total agricultural land subject to CARP. While DENR had completed its task, DAR still needed to acquire 621 085 ha of land for redistribution, or about 12% of CARPable land under its responsibility (DAR, 2016).9 About one-third of this balance is a combination of marginal land, exempted land, land already subdivided among heirs and land legally retained by landowners, and thus not in reality available for distribution under CARP, but about two-thirds still does need to be titled and distributed. In the vast majority of regions the accomplishment rate (that is, the share of land eligible for distribution under CARP by DAR that has already been distributed) varies between 90% and 99%, but in three regions the rates were much lower: 66% in Autonomous Region in Muslim Mindanao, 72% in Western Visayas and 77% in Bicol Region (as at the end of 2014) (PSA, 2015a).
While the redistribution of land within CARP/ER can be considered “fairly successful” (Adamopoulos and Restuccia, 2011), the economic and social effects of the reform are mixed. Evaluations vary depending on the criteria considered and the assessment method applied, including the selection of households for the sample and those considered as a reference. A comprehensive review by the World Bank concluded that “CARP had a positive impact on poverty and growth. However, the available empirical evidence shows that the impact on poverty has been quite modest” (WB, 2009). This conclusion is largely in line with an earlier evaluation undertaken by the Asia-Pacific Policy Center (APPC, 2007). Some studies suggest that positive changes in the economic characteristics of the respondents were not necessarily attributable to CARP (Gordoncillo, 2012). Independently from the overall assessment of the reform, a number of reviews have found that the various accompanying restrictions on land market transactions and insecure property rights have limited on-farm investment and led to some undesirable economic effects in the agriculture sector:
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Imposing a 5 ha ceiling produced a reduction in average farm size by 7%, a reduction in agricultural labour productivity by 7%, an increase in the share of employment in agriculture by over 3 percentage points, and a reduction in aggregate labour productivity by 5.8% (Adamopoulos and Restuccia, 2011).
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Since formal sale or conveyance of awarded land is prohibited for a period of 10 years and the payment of the amortisation (whichever comes later), banks, other than the LBP, do not accept land certificates (CLOA, Box 1.4) as collateral. This in effect prevents reform beneficiaries from having access to formal lending (APPC, 2007). As a result, rural rental markets operate informally, with extremely high borrowing costs and contract enforcement “by private muscle” (Fabella, 2014).
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Notwithstanding the fact that the vast majority of land has been distributed, property rights of beneficiaries remain uncertain. Although under CARPER individual certificates of land ownership should have been provided within 3 years (i.e., by 2012), in practice by December 2015 almost half (46%) of beneficiaries remained covered only by collective certificates (collective CLOAs), with rights not distributed to individuals (DAR, 2016). This lack of certainty further reduces beneficiaries’ access to formal credit and undermines long-term investment.
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CARP permits conversion of awarded agricultural land to non-agricultural uses after 5 years, provided i) the land ceases to be economically sound for agricultural purposes, ii) the beneficiary has fully paid his/her obligations and iii) DAR provides permission. These restrictive rules have encouraged some owners to leave agricultural land idle to show that land is not economically sound and, thus, to accelerate conversion (Fabella, 2014).
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Moreover, policy mandates to produce rice and other subsistence crops, including on lands covered by CARP, limit farmers’ incentives to grow higher-value crops (Chapters 2 and 3).
Conflict and dispute settlement
Conflicts frequently arise between previous landowners and ARBs, between landowners and leaseholders, and between potential ARBs over competing claims for land. Within CARP/ER, DAR has been granted quasi-judicial power and primary jurisdiction to adjudicate all agrarian reform cases, but problems occur due to overlapping land laws and agency mandates. Other than Judicial courts, the Joint Administrative Order No. 1 (2012) seeks to resolve jurisdiction issues on issuance of land titles and conflict of claims among agencies, in relation to the Public Land Act, CARP and IPRA. Additionally, Technical Working Groups and the National Convergence Initiative seek to improve inter-agency synchronisation and the delivery of agrarian justice. However, these efforts have not necessarily led to the co-ordination of policy (Quizon and Pagsanghan, 2014).
Although IPRA is considered to be one of the strongest legal frameworks in terms of recognition of the rights of indigenous peoples, its implementation has been “hindered by contradictory legislations, conflicting boundaries and overlapping agency mandates” (Quizon and Pagsanghan, 2014). A key disagreement has been on jurisdiction over forest lands, as the revised Forestry Code of 1975 requires that “all lands above 18 degrees slope automatically belong to the state and are classified as forest lands”. Furthermore, many ancestral domains have overlapping limitations with national parks and protected areas, land concessions, and agrarian reform areas covered by land titles and stewardship agreements. Nowadays, mining is the main large-scale incursion into ancestral domain lands. Studies show that about two-thirds of indigenous peoples’ lands are affected by mining concessions (Quizon and Pagsanghan, 2014).
Given the limited supply of land and strong population growth, urbanisation has resulted in increasing cases of land disputes over conversion of agricultural land for commercial and residential use. A growing issue is the increase in slums, homelessness and informal settlements. In some regions, in particular those affected by disasters, almost one-third of the population consists of informal settlers (Oxfam, 2014). Uncertainties surrounding land use have caused prices for land demarcated for non-agricultural use to spiral upwards.
Various efforts to close the gaps in land tenure governance have been made in the governmental and non-governmental sector. The World Bank initiated the Land Administration and Management Project (LAMP) designed to create a sound market and increase land tenure security by developing a consistent set of land administration policies and laws; systematic titling; cadastral index mapping; developing an effective valuation system consistent with internationally accepted standards; and implementing a one-stop-shop for land administration and management with an integrated information system (Pacis, 2008).
A Cadastral Survey Program was launched as early as 1913 under Commonwealth Act 2259, but failed to take off due to lack of resources. In 1992, RA 7160 was passed to conduct a cadastral and lot survey, the conduct of which had been under the purview of the DENR but was devolved to local government units (LGUs). By 2012, not a single municipality had carried out the surveys due to financial and human resource constraints. This prompted the DENR to repatriate the delegated functions for executing land surveys from the LGUs (DENR, 2015). The DENR Land Management Bureau (LMB) was made directly responsible and by early 2015 DENR announced that 28.8 million ha had been surveyed, or 87% of total land to be covered (Villanueva, 2015). This should be a significant step toward defining administrative boundaries and making the process of land titling more transparent and efficient.
Three proposed Congressional Bills also seek to address inadequacies in land tenure governance: the National Land Use Act (NLUA), the Freedom of Information (FOI) Act, and the Land Administration Reform Act (LARA) (Quizon and Pagsanghan, 2014). Among many other objectives, the new NLUA seeks to harmonise conflicting land laws and to regulate spatial planning, including with a view to disaster preparedness and prevention. The proposed FOI aims to mandate the disclosure of public documents. If approved, it could improve the overall governance of tenure and impact on the delivery of tenure services (Quizon and Pagsanghan, 2014). The proposed LARA attempts to consolidate and streamline within a single government agency land administration powers and functions currently dispersed across various institutions and levels of administration. In July 2016, President Duterte signed the FOI, but as at early December 2016 the two remaining pieces of legislation remained pending due to the highly politicised nature of agrarian reform and land tenure issues.
Farm structures
Partly due to the agrarian reforms discussed above, between 1980 and 2012, the total number of farms increased by almost two-thirds and the average farm size fell from 2.8 ha to 1.3 ha. Moreover, while the total number of farms under 1 ha increased more than fourfold, the number of farms greater than 10 ha more than halved (PSA, 2015e and DA, 2015b).
According to the 2012 Census on Agriculture and Fisheries (CAF), there were 5.6 million farms, including 3.2 million farms under 1 ha and 55 thousand farms of 10 ha or more. The former accounted for 57% of the total number of farms and 12% of agricultural area, the latter for just 1% of the total number of farms and for 17% of agricultural area (Figure 1.31). Despite the ongoing distribution process, in 2012 there were still 1 600 farms of 50 ha or more, with an average size of 283 ha (PSA, 2015e).
While the legislation supporting agrarian reforms in the Philippines does not allow post-reform consolidation of ownership, the government has devised a national project to encourage cluster farming in order to take advantage of economies of scale and create field shapes and sizes conducive to the use of agricultural machinery. Accordingly, the 2013 Agricultural and Fisheries Mechanization Law (AFMech, RA 1060) empowers the Department of Agriculture (DA) together with DAR to carry out contiguous farming projects promoting farm land clustering (minimum size of 50 ha), farm development planning, and the promotion or strengthening of farming co-operatives. The 2015 Sugarcane Industry Development Act (RA 10659) introduces a “block farm programme” to consolidate small farms to form larger farms with a minimum area of 30 ha to take advantage of economies of scale.
Some development of on-farm businesses is taking place. The 2012 Census of Business and Industry indicated that there were 2 641 establishments engaged in agriculture, forestry and fishery activities in the formal sector, up from 1 546 establishments in 2010. These are relatively large-scale enterprises, using hired labour and around half employing at least 20 workers. Hog farming (16%), sugarcane cultivation (13%) and chicken broiler production (11%) lead this sub-sector by number of farms, but in terms of the value of output, Cavendish banana cultivation is by far the most important (41%), followed by hog farming (14%) (PSA, 2015f).
Note: According to the definition applied by the CAF, a farm/holding is any piece of land used wholly or partly for crop or animal production under single management, and operated as one technical unit by one person alone or with others, regardless of title, legal form, size or location.
Source: PSA (2015e), Special Report – Highlights of the 2012 Census of Agriculture (2012 CA).
Some ARB farmers are also entering into Agribusiness Venture Arrangements (AVA) – contracts with agribusiness firms based most often on land lease and contract growing. Their creation and functioning are strictly regulated. Changes introduced by DAR in June 2016 impose additional regulations to protect ARBs, including automatic and yearly increase of the land lease rates based on core inflation, prohibition of non-payment on the grounds of crop failure due to natural calamities or force majeure and prohibition of unilateral renewals of lease arrangements.10 While the new regulations attempt to create more equitable relations between ARBs and investors, there is a risk that more restrictive rules will again diminish the incentive for private investors to transact with ARBs, thus denying ARBs access to private sector expertise, marketing channels and to resources that the government is not able to provide.
1.9. Competition and structural change beyond the farm gate
This section identifies strengths and weaknesses in the agro-food supply chain and analyses changes in agriculture’s upstream and downstream sectors.
Supply chain connectivity
Agro-food supply chains in the Philippines are disrupted by infrastructure gaps, which remain widespread, in particular in road and rail connectivity, and logistics and energy (OECD, 2016). As major agricultural production areas are spread across the archipelago, their connection with food consumption centres is crucial for the creation of coherent domestic market.
Government expenditure on physical infrastructure in the Philippines has long been low. In 2008-12 it ranged between 1.4% and 2.1% of GDP, below that in most other ASEAN countries (Navarro and Llanto, 2014). To improve the situation, the Philippine Development Plan 2011-16 (PDP) set out strategies and major programmes to be supported by increased public spending on infrastructure (NEDA, 2011). Consequently, spending rose to 2.7% of GDP in 2013 and 3.2% in 2014, with 5% budgeted for 2015 (Singson, 2014).
In addition to increased public spending and improvements in the regulatory environment, the government is pursuing public-private partnerships (PPP) to fund infrastructure and value-chain development. Although these changes will encourage private participation in infrastructure, gaps persist in terms of policy implementation, infrastructure regulation and the attraction of effective investment to key sectors (OECD, 2016).
Gaps in infrastructure are particularly disruptive for agro-food supply chains dealing with perishable products and connecting predominantly small-scale producers with consumers. These gaps drive up transaction costs and result in higher prices for inputs and higher wholesale and retail prices for food. Limited connectivity increases post-harvest losses, lowers farmers’ income and decreases farmers’ incentive to produce.
According to PDP, the ineffective logistic services associated with inappropriate postharvest handling lead to significant post-harvest losses: around 15% for rice, 7% for corn, 16-40% for vegetables and 5-48% for fruits. Logistics account for 30-40% of total marketing costs and distribution and processing costs are 20-30% higher in the Philippines than in developed countries (NEDA, 2011).
Inadequate and poor quality farm to market roads (FMR) remains an important issue. While the length of FMR roads has been increasing, the majority are still gravel or red dirt roads, susceptible to damage from flooding and extreme weather events, and often impassable during the wet season (ADB, 2012). The DA in partnership with the Department of Public Works and Highways and LGUs is aiming address this issue through growing expenditure on FMRs and concrete, rather than “all-weather” gravel roads (DA, 2015c).
The importance of paved roads on agricultural labour productivity has been demonstrated by numerous studies. For example, Llanto has shown that a one percentage point increase in the length of paved roads as a ratio to total length of roads is associated with an increase in agricultural labour productivity of PHP 285 000 (USD 5 700) per worker. This contrasts with results for irrigation expansion, which has shown a positive but insignificant relationship with agricultural labour productivity (Llanto, 2013).
In addition, inter-island shipping costs are high due to existing physical constraints in port infrastructure, but also to cabotage restrictions which allow just a few domestic firms to control most of the primary shipping routes. This contributes to large-scale inefficiencies and higher prices for many goods, in particular food (WB, 2013b). The recent amendment to the Cabotage Law adopted in July 2015 has partly removed these restrictions and allowed more efficient foreign ships to service domestic routes. This move is expected to lead to greater efficiency, lower operating costs and lower freight rates (OECD, 2016).
Input supplies
The Philippines Development Plan 2011-2016 identified the high cost of production inputs as a key constraint to agriculture (NEDA, 2011). Increased expenditure on R&D and rural infrastructure are stipulated in the 1997 Agriculture and Fisheries Modernization Act (AFMA, RA 8435) with the aim of making the agriculture sector more profitable and better prepared for global competition. The Act established the Agro-Industry Modernization Credit and Financing Program (AMCFP), mandated with the packaging and delivery of various credit assistance programmes aimed at, among other things, easing farmers’ access to inputs: fertilisers, seeds, farm machinery, work animals, water pumps, feeds etc. Exemptions on tariffs and duties for the importation of agricultural and fisheries inputs (e.g. farm equipment, machinery, fertiliser, seeds, renewable energy systems etc.) were renewed in 2003 until 2015. Further laws that impact agricultural mechanisation and capital inputs are the Agricultural Engineering Law (1998) and the 2013 AFMech (see above).
Fertilisers
Prior to 1986, the Fertilizer and Pesticide Authority practiced a price-setting policy and quantitative restrictions were placed on imports. In the second half of the 1980s these practices were abandoned and fertiliser policy became more market-oriented. Currently, tariff rates range from 1% to 3% depending on the product, but AFMA (1997) provides for duty-free importation of fertilisers and pesticides (Briones, 2014). Liberalisation of the sector has opened the door for numerous private sector players to take over the distribution of fertilisers; it has also allowed competition from imports, reducing prices.
Though domestic demand is now predominately met by imports from China and other trading partners (Section 1.4), some domestic manufacturers managed to weather the increased competition following liberalisation. Presently, there are five fertiliser producers in the Philippines, with a combined capacity of 2.47 million metric tonnes per year (Briones, 2014). PHILPHOS, formally a Government-Owned and Controlled Corporation (GOCC), was privatised in 2000 and is by far the largest producer, accounting for 47% of production capacity (Briones, 2014).
Importers/manufacturers, distributors/wholesalers and dealers/retailers are the major players in the industry. Some larger plantations and farmer co-operatives have the capacity to import fertilisers directly, but most pass through distributors who sell fertilisers to dealers who then resell to end users. In some cases distributors can also sell directly to end users if they have a dealer’s licence. Entry into fertiliser marketing is relatively simple, which contributes to healthy competition. In 2012 there were 483 licensed handlers (Briones, 2014).
The large number of participants in the market has deterred distributors and dealers from increasing the mark-up for fear of losing buyers, thus the mark-up along the supply chain has been minimal (Briones, 2014). Based on anecdotal evidence, importers normally sell fertilisers to distributors, dealers or end users at a 3% mark-up which, due to competition, seldom deviates (Briones, 2014).
A high correlation between world and domestic prices indicates that the Philippine fertiliser market is well integrated with the world market. However, price disparities exist across regions. They can be explained by deficiencies in transport infrastructure, high logistics cost and differences in distances to shipping ports. The cheapest fertilisers can be found in Illocos, Cagayan Valley, Western Visayas and in Davao, while the most expensive are in ARMM and Eastern Visayas (Briones, 2014). Despite some inefficiency along the supply chain, in general, farmers have access to fertilisers at competitive prices.
Seeds
Both the public and private sector play a role in the seed industry. The public sector develops improved varieties and regulates quality control while the private sector produces and distributes seeds to farmers (Norton and Francisco, 2006). The Bureau of Plant Industry (BPI) of the DA is the main governing arm for the country’s seed system. Under the BPI, there is the National Seed Industry Council (NSIC), which, among other responsibilities, prioritises plant breeding activities and promotes the establishment of infrastructure for further development of the seed industry (Sombilla and Quilloy, 2014).
The Seed Industry Development Act of 1992 aimed at strengthening the local seed industry. It restricted the importation of commercial quantities of seeds that were grown locally, unless not enough local seeds could be produced to meet domestic demand; this provision was repealed by the Agricultural Tariffication Act of 1995. Currently, Administrative Order (AO) No. 4 (2009) permits seeds that have passed the national co-operative trial and that are approved by the NSIC to be imported on a commercial scale (Sombilla and Quilloy, 2014).
A number of agencies are involved in the research and development (R&D) of plant breeding and seed production, including the International Rice Research Institute (IRRI) (rice), the Institute of Plant Breeding of the University of the Philippines Los Baños (corn, legumes, root crops, vegetables, and fruit crops) and the Philippine Rice Research Institute (PhilRice) (rice). In order for a new variety of seed to be recognised, it must undergo multi-location yield testing, a process that typically takes several years. New varieties are certified by the National Seed Quality Control and Services (NSQSC), also under the BPI. Once a new variety is approved, it goes through the process of multiplication. In the case of rice, the process takes one to two years (Norton and Francisco, 2006).
The government strongly promotes the adoption of hybrid seeds. Prior to 2010, seed subsidies, cash incentives, discounts, guaranteed prices and plant-now-pay-later schemes were the norm (Chapter 2). Seed subsidies were removed in 2011, but the government mandated a fixed price for publicly bred seeds, below the private sector competitive price; this measure discourages seed growers from selling their seeds through formal channels (Sombilla and Quilloy, 2014).
Though most farmers use modern seed varieties developed in the last two decades, a large percentage use own-saved seeds (Section 1.4). The reasons vary across crops, but insufficient availability of commercial seeds, inadequate seed distribution systems, long distances to seed suppliers, and high hybrid seed prices relative to farm gate prices are among the most often cited (Sombilla and Quilloy, 2014).
Machinery
Small-scale farming and on-going farm fragmentation (Section 1.8) are not conducive to mechanisation. Other constraints include very limited access to formal credit and inadequate extension services poorly transmitting information on technological innovations (Amongo et al., 2011). However, a fall in the total number of employed in agriculture (Section 1.4) combined with higher farm labour cost will enhance a wider use of various types of machinery.
The Agricultural and Fisheries Mechanization Law (AFMech) enacted in 2013 seeks to create synergies between Philippine government agencies, the R&D arms of academic institutions, farmer organisations and private entities to sustainably promote the development and adoption of agricultural machinery and technologies. Key aspects of the legislation are to build linkages between stakeholders, increase R&D, provide training and extension services to farmers, create policy supporting mechanisation, establish custom hiring services for machinery and encourage machinery pooling. The Philippine Center for Postharvest Development and Mechanization (PhilMech) is mandated to take the lead role in implementing different governmental programmes and plans for mechanising the agricultural sector (Amongo et al., 2011).
Both AFMech and the mandate given to the PhilMech to integrate mechanisation efforts are steps into the right direction, but co-ordination remains an issue, including in agricultural mechanisation R&D activities. There are various government and private institutions conducting separate R&D activities, which leads to duplication and waste of resources (Amongo et al., 2011).
Marketing channels for selected commodities
Rice
In the Philippines, much of the rice output is consumed where it is produced (Sombilla et al., 2006). However, there are major net surplus regions such as northern and central parts of Luzon (Illocos, Cagayan Valley and Central Luzon) and major net deficit regions, in particular the southern part of Luzon (NCR and Calabarzon) and Central Visayas (DA, 2015b). Demand in net deficit regions is met by supplies from surplus regions and, partly, by imports.
The marketing system for rice has been shaped by government intervention policies and by the involvement of government agencies in the commodity flow from producers to consumers. The government intervenes by controlling imports and exports of rice, buying from producers, stocking, selling to wholesalers and providing price support to growers (Chapter 2; WTO, 2012). The National Food Authority (NFA) plays a central role in these activities. It buys rice from growers at a support price set by the Inter Agency Committee on Rice and then sells to dealers at fixed prices. These government interventions are aimed at enhancing the income of small farmers through a price floor policy while protecting consumers through a paddy price ceiling (Chapter 2).
Despite government involvement in the rice market, considerable competition exists for the available surplus of paddy. Typically, farmers sell paddy to local assembly traders or collectors. The latter gather surplus rice and arrange for it to be delivered to mills or traders (Alavi, 2012). Rice millers are present in all major production areas (Sombilla et al., 2006). The industry is fragmented with around 8 250 millers operating in the country in 2015 (NFA, 2016). Equipment used is typically antiquated and quality issues are prevalent. The moisture of rice is determined by the eye and rarely by moisture metres because of their high cost. As a result, laboratory analysis has shown that 80% of retail rice fails to comply with grading standards (Alavi, 2012).
Wholesalers and wholesale-retailers are most often found in regions with rice surpluses. Retailers are concentrated in rice-deficit areas, primarily in the NCR and Calabarzon. Some market concentration can be found at each stage of the marketing channel. At the retail level, supermarkets and the modern retailing sector account for a growing share of rice sales (Alavi, 2012).
The poor state of infrastructure makes shipments of rice from other countries and from surplus regions difficult and costly. Typically, roads pass through urban areas rather than around them, making the use of large, cost-efficient trucks impractical (Alavi, 2012). Marketing costs are also high, partly due to disjointed agents. A recent World Bank study reveals that it takes about 18 marketing agents (e.g. assemblers, traders and millers) to process 90 000 tonnes of dry rice a year, while in Thailand the same can be done by just one miller (WB, 2015).
Within the Philippines, the government’s market interventions have been criticised on the grounds of allocative inefficiency, poor targeting, and high public budgetary cost (Mariano and Giesecke, 2014). As discussed in Chapter 2, the NFA’s price stabilisation efforts have led to high domestic prices for consumers, well above that on international markets. This runs counter to the government’s poverty reduction aims, as food cost accounts for a large portion of household expenditures (WB, 2015).
While high import tariffs and price support protect rice growers and insulate them from price shocks, this kind of protection is high-cost and does not incentivise farmers to produce higher-value crops or to migrate to higher productivity non-agricultural sectors (Chapters 2 and 3 and WB, 2015). Moreover, high domestic rice prices compared to those on international markets, combined with strict regulations applied on formal rice imports, encourage rice smuggling. Media reports suggest numerous such cases, but the actual scale is difficult to assess.
Sugar
The Philippines is the 8th largest sugarcane producer in the world, but is not a major player on the international sugar market due to high production costs (Corpuz, 2014). The island of Negros in the Visayas accounts for 57% of total Philippine sugar production, followed by Mindanao with 19% and Luzon with 14%. About 90% of the total originates from four sugar-planter federations and three miller associations. There are 27 sugar mills (running at about 60% capacity) and 13 sugar refiners (running at 73% capacity) (Ang, 2015).
According to the Sugar Regulatory Administration (SRA), there are about 65 000 sugarcane farmers in the country. About 80% have farms of less than five hectares (due to the CARP) and less than one per cent have farms greater than 100 ha. Farms of more than 100 ha are much more productive with an average of 7.34 tonnes/ha compared to those of less than 5 ha with an average of 5.03 tonnes/ha (Ang, 2015).
The sugar industry is the second most highly protected sector in the Philippines after rice, with domestic sugar prices well in excess of those on international markets (Chapter 2). The SRA manages sugar production and supply through a system established in 1952 under the Sugar Sharing Act (RA809, 1952). Under this system, the sugarcane producer allocates 30% of cane harvest to the mill in payment for the processing of the cane. As soon as the sugar is processed, the mill issues a warehouse receipt, quedan, to the farmer, equivalent to his/her 70% share of the sugar, which the farmer then immediately sells to local traders, who in turn sell them to larger traders. The latter sell the quedans in large volumes to wholesalers, distributors, or processors who withdraw sugar from the mills (Ang, 2015). The quedan system is argued to discourage millers from upgrading their operations, as 70% of the returns for any investment will go to farmers rather than to them (Cahiles-Magkilat, 2013).
The SRA determines the proportion of sugar designated for export, domestic use and reserve and approves releases from warehouses or customs (Chapter 2). Traders registered with the SRA can import and export sugar, but exports are only authorised by the SRA once domestic demand has been met (WTO, 2012). The SRA has also the power to grant conversion rights to producers across various designations, depending on the market situation.
Under the ASEAN Free Trade Agreement (AFTA) the Philippines agreed to lower the common preferential tariff on sugar from 38% in 2010 to 10% in 2014 and to 5% in 2015 (Chapter 2). To make the sugar industry competitive under the lower tariff regime, the Sugarcane Industry Roadmap (2011-2016) promotes block-farming, an increase in bioethanol distilleries (supplying the 10% bioethanol mandate), selling electricity from power co-generation of processing sugar, constructing roads between mills and farms, and pursuing production of bioplastics, biowater, biofertilisers and other by-products of sugarcane.
Coconuts
Philippine production of coconuts is year-round. Postharvest, farmers typically extract coconut meat for drying into copra and sell mature or husked coconuts to village agents who then sell to traders. No written contract is required (Briones and Israel, 2014). Any volume, size or quality is accepted and farmers are paid immediately in cash. Though hundreds of products can be made from coconuts, copra is the chief traded product. Traders sell copra or husked coconuts to mills for processing, which is predominantly done in coconut-growing areas. There are 63 coconut oil mills, 38 oil refineries, 10 desiccated coconut plants, 10 oleo chemical plants, 8 activated charcoal plants, 9 shell charcoal plants, and 12 biodiesel plants throughout the country (Briones and Israel, 2013). Most copra is processed into crude coconut oil, which is exported or used domestically. It can be further refined for edible cooking oil or into oleochemicals for biodiesel or other manufactured goods.
The arrangement between farmers, village agents and traders allows farmers to avoid the transaction costs of transporting their goods to local markets or larger cities, but it also means that traders control farm gate prices. This allows traders and millers to benefit from high marketing margins. Coconut farmers could benefit from economies of scale by forming co-operatives, an initiative recognised by the Philippine Coconut Authority (PCA). In 2014, the PCA signed a memorandum of agreement with the Cooperative Development Authority (CDA) to strengthen the development of coconut farmer co-operatives (PCA, 2014).
Supermarkets
The food retail sector is growing and spreading across the country, with rising per capita incomes motivating supermarket growth (WB, 2008). Modern retail outlets have been built in both urban and rural areas. These are dominated by national chains as laws restrict retail FDI in the Philippines, despite partial liberalisation in 2000 which allowed entry of foreign investment in selected areas of retail trade (Reardon et al., 2012 and OECD, 2016).
Around 70% of retail food sales can still be attributed to wet markets and “mom & pop” shops (sari-sari stores), but the market share of hypermarkets, supermarkets and convenience stores is increasing (Claridades, 2014). Consumers are attracted to their cleanliness, longer operating hours, and the variety of both perishable and non-perishable goods offered. That said, wet markets are still more popular for fresh products. Sari-sari stores remain the primary source of food sales due to proximity and payment flexibility, including short-term credit extended to regular customers. Overall, sari-sari stores serve lower and middle-income consumers, while supermarkets serve middle to high-income consumers (Claridades, 2014).
Typically, large-scale retail stores have many suppliers, which include local food processing enterprises or their distributors, trading firms or importers/distributors. While a few large retailers have the capacity to import directly, the most common and preferred practice is to source products from importers/distributors. Despite increased importation of food items by supermarkets, domestically produced items account for 80% of the total food supply (Claridades, 2014).
Agricultural trading enterprises
The NFA is identified as the only state-trading enterprise in the Philippines (WTO, 2012). It essentially has a monopoly on rice imports. While, since July 2001, private sector imports have been permitted, they have to be organised through tenders to NFA and are subject to quantity limits set by the government. Moreover, dominant government-to-government agreements on rice trade as well as preferential treatment accorded to the NFA (e.g. waived import duties) essentially push out the private sector from trade transactions in rice (Alavi, 2012; Chapter 2).
1.10. Summary
At just 0.13 ha per capita, agricultural land is very scarce in the Philippines. Water is relatively abundant but shortages – even drought – can occur during the dry season, which can be further exacerbated by climatic events in some regions.
The sound macroeconomic environment and institutional reforms undertaken in the 2010s improved the competitiveness of the Philippine economy, thus improving the enabling environment for agriculture. The Philippines ranks in the middle of 32 emerging countries covered by the Agricultural Growth Enhancing Index, performing relatively well on governance, driven largely by good macroeconomic performance, but below average on capital and agriculture/sustainability. Areas of particular concern are poor infrastructure, a poorly functioning labour market, low capital input per unit of farm labour and low land availability.
The role of agriculture in GDP-creation halved from 22% in 1990 to 11% in 2014 and its share in employment fell by one-third from 45% to 30% over the same period. While this structural shift out of low-productivity agriculture to higher-productivity sectors is important, it is less prominent compared with most other countries in the region, in particular China and Viet Nam.
Agricultural productivity growth remains a challenge and lags behind other Southeast Asian countries as a result of decades of underinvestment, policy distortions, uncertainties linked with the implementation of agrarian reform and periodic extreme weather conditions. In contrast to its Asian peers, the Philippines is not making the shift from low value agricultural commodities to products that can attract higher returns, occupy less land area and improve farmer incomes. This is largely due to a set of distortive policies privileging low value commodities, in particular rice. Alone amongst Asian countries, the share of rice in the total value of agricultural production in the Philippines actually increased from 16% in 1991 to 22% in 2013.
Agriculture seems to have started shedding labour in absolute terms. This could indicate that the sector is entering a new stage of development characterised by higher farm labour costs. If so, this will accelerate internal restructuring of the farming sector and enhance mechanisation, leading to higher productivity and higher incomes, in particular if supported by policies allowing more flexible reallocation of land resources across farms and crops.
Annual incomes of farm households are low, at about 60% of the national average and just 48% of the average income earned by all non-farming households. Low farm incomes have led to high poverty rates among farmers: 38% in 2012, compared to the 13% nationwide average for urban populations. The Philippines almost halved the proportion of undernourished from 26% in 1990-92 to 13.5% in 2014-16. However, the incidence of various forms of malnutrition remains high; in particular, stunting still affects about 30% of children.
The Philippines is a net importer of agro-food products. Its agro-food sector remains relatively weakly integrated with international markets, as indicated by low ratios of agro-food exports and imports to agricultural GDP. This weak openness is not sector-specific, but rather an overall feature of the Philippine economy.
Philippine land tenure governance is very complex, both in terms of legislation and organisational framework. Nineteen government agencies are involved in land administration and management. While the redistribution of land within the Comprehensive Agrarian Reform Program can be considered “fairly successful”, economic and social effects of the reform are mixed. Various restrictions on land market transactions and insecure property rights limit on-farm investment and have led to a range of undesirable economic effects in the agriculture sector. Largely due to agrarian reforms and to demographic pressures, between 1980 and 2012, the total number of farms increased by almost two-thirds and the average farm size fell from 2.8 ha to 1.3 ha.
Gaps in infrastructure and logistics disrupt agro-food supply chains dealing with perishable products and connecting dominantly small-scale producers with consumers. These gaps drive up transaction costs and result in higher prices for inputs and higher wholesale and retail prices for food. Limited connectivity increases post-harvest losses, lowers farmers’ income and decreases farmers’ incentive to produce.
High cost of production inputs is considered as one of key constraints to agriculture. Though most farmers use modern seed varieties developed in the last two decades, a large percentage use own-saved seeds mostly due to insufficient availability of commercial seeds, inadequate seed distribution systems, long distances to seed suppliers and high hybrid seed prices relative to farm gate prices. Despite some inefficiency along the supply chain of fertilisers, in general, farmers have access to fertilisers at competitive prices. However, price disparities exist across regions. They can be explained by deficiencies in transport infrastructure, high logistics cost and differences in distances to shipping ports. Small-scale farming and on-going farm fragmentation are not conducive to mechanisation. Other constraints include very limited access to formal credit and inadequate extension services poorly transmitting information on technological innovations.
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This annex presents the main projections for the major agricultural commodities produced, consumed and traded by the Philippines during the next ten years as embedded in the OECD-FAO Agricultural Outlook 2016-2025 report. The main purpose of the report is to build consensus on global prospects for the period 2016-25, for the agriculture, fisheries and food sectors, and on emerging issues affecting these sectors. A jointly developed modelling system, based on the OECD’s Aglink and FAO’s Cosimo models, facilitates consistency and analysis of the projections. Box 1.A1.1 provides a short description of the methodology. The fully documented outlook database, including historical data and projections, is available through the OECD-FAO joint Internet site www.agri-outlook.org.
Aglink-Cosimo is an economic model that analyses supply and demand of world agriculture. It is managed by the Secretariats of the OECD and Food and Agriculture Organization of the United Nations (FAO), and used to generate the OECD-FAO Agricultural Outlook and policy scenario analysis.
Aglink-Cosimo is a recursive-dynamic, partial equilibrium model used to simulate developments of annual market balances and prices for the main agricultural commodities produced, consumed and traded worldwide. The Aglink-Cosimo country and regional modules covering the whole world, and projections are developed and maintained by the OECD and FAO Secretariats in conjunction with country experts and national administrations. Several key factors or assumptions are as follows:
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World markets for agricultural commodities are competitive, with buyers and sellers acting as price takers. Market prices are determined through a global or regional equilibrium in supply and demand.
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Domestically produced and traded commodities are viewed to be homogeneous and thus perfect substitutes by buyers and sellers. In particular, importers do not distinguish commodities by country of origin as Aglink-Cosimo is not a spatial model. Imports and exports are nevertheless determined separately. This assumption will affect the results of analysis in which trade is a major driver.
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Aglink-Cosimo is a “partial equilibrium” model for the main agricultural commodities. Non-agricultural markets are not modelled and are treated exogenously to the model. As non-agricultural markets are exogenous, hypotheses concerning the paths of key macroeconomic variables are predetermined with no accounting of feedback from developments in agricultural markets to the economy as a whole.
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Aglink-Cosimo is recursive-dynamic. Thus, each year is modelled over the projection period and depends on the outcome of previous years. Aglink-Cosimo models ten years into the future.
The Philippines: The main macroeconomic and policy assumptions underlying the baseline projections
The Outlook is presented as a baseline scenario considered plausible given a range of conditioning assumptions. These assumptions reflect a specific macroeconomic and demographic environment which shapes the evolution of demand and supply for agricultural and fish products. These general factors for the Philippines are as follows:
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Population is assumed to increase from 101 million in 2015 to 116 million in 2025.
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Inflation is expected to average around 4% in the next ten years.
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The Philippine Peso is expected to appreciate in nominal terms relative to USD from PHP/USD 45.2 in 2015 to PHP/USD 40.8 in 2025.
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GDP is expected to grow at 6.8% per year.
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The policy framework, including the level of tariffs, is assumed to remain as defined within the Philippines’ WTO commitments until 2025.
Main findings
Position of the Philippines on selected world markets
The Philippines is not a major player on global agro-food markets for key agricultural commodities and its position is expected to remain low over the coming decade. Rice represents the most important product in the Philippines, projected to account for 2.4% of the world production in 2025 at 14 million tonnes (Figure 1.A1.1).
Source: OECD-FAO (2016), Agricultural Outlook 2016-2025.
Main trends for selected commodities
Philippine consumption is expected to increase by relatively more than global rates for almost all commodities in the next ten years, and the country is projected to remain a net importer for all commodities covered by the OECD-FAO projections. Net imports of cereals, poultry meat, dairy products and protein meals are projected to increase (Figure 1.A1.2).
The Philippines, a net exporter of fish and vegetables oils in 2013-15, should become a net importer of these products by 2025, reflecting the relatively low production growth rates for these commodities compared to world rates and strong projected growth in national consumption of these products. Vegetable oil production (mainly copra oil) is expected to increase by 23% over the next ten years, compared to the projected world production increase of 26% and to a national consumption increase of 43%. Fish production in the Philippines, accounting for 1.8% of world production, is expected to increase by 9% over the coming decade, compared to growth of 17% for world fish production and increased national consumption of 20% over the same period.
Philippine production growth rates are projected to be much higher than world rates for eggs and somewhat higher for coarse grains, pigmeat and poultry meat. By contrast, Philippine production growth rates for rice, sugar, protein meals, vegetable oils, beef and veal, and fish are projected to be lower than world rates. Production and consumption of eggs are expected to increase the most, by 44% each by 2025. Production of protein meals, vegetable oils, poultry meat and pigmeat should also increase by 24%, 23%, 20% and 13% respectively during the next decade, whereas beef and veal production is expected to decrease by 24% during the same period despite an expected increase in consumption of 14%.
Source: OECD-FAO (2015), Agricultural Outlook 2016-2025.
Caloric and protein intake in the Philippines
Total caloric intake in the Philippines is expected to rise by 6% to 2 966 kcal per day per person by 2025, below the OECD average level at almost 3 500 kcal (Figure 1.A1.3).
Cereals are still the main staple component of the daily diet and the single most important source of dietary energy, but calories obtained from cereals are gradually being replaced by ready-made food, resulting in higher demand for sugar and in particular vegetable oils (Figure 1.A1.3). Over the next decade, the share of cereals in total caloric intake should decrease from 52.1% to 49.9%, while the share of vegetable oils is expected to increase from 12.9% to 14.6%. The share of meat in total caloric intake is expected to remain unchanged.
Protein intake on a per capita basis is projected to increase to 64.9 g/day/person by 2025, but will remain very low compared to OECD countries (Figure 1.A1.4). The share of cereals in total protein intake per capita is expected to decrease during the next decade from 44.7% to 43.2%. In turn, fish should represent a slightly more important source of protein in the Philippines in 2025, whereas the shares of meat and dairy are projected to remain almost unchanged.
Source: OECD-FAO (2015), Agricultural Outlook 2016-2025.
Source: OECD-FAO (2016), Agricultural Outlook 2016-2025.
Notes
← 1. By comparison, the share of rice in Viet Nam’s value of agricultural production increased from 40% in 1991 to 46% in 2000, but fell to 35% in 2012, with the share of more lucrative products such as coffee increasing six-fold, rubber four-fold, and pepper three-fold over 1991-2012 (OECD, 2015b). Even in Indonesia, with its strong focus on self-sufficiency in rice production, the share of rice in the value of agricultural production declined from 32% in 1991 to 19% in 2009, as the country increased the production of palm oil, cassava, cocoa beans, and poultry meat (OECD, 2012).
← 2. Lack of water control and efficient irrigation and drainage systems at the field level, combined with inadequate roads for delivery of farm equipment, also curtail mechanisation (Amongo and Larona, 2014).
← 3. In the Philippines, the poverty line (threshold) is defined as the minimum income/expenditure required for a family/individual to meet the basic food and non-food requirements. Basic food requirements are based on 100% adequacy for the Recommended Energy and Nutrient Intake (RENI) for protein and energy equivalent to an average of 2 000 kilocalories per capita, and 80% adequacy for other nutrients. Those below this threshold are defined as food-poor. Basic non-food requirements, indirectly estimated by obtaining the ratio of food to total basic expenditures from a reference group of families, cover expenditure on: clothing and footwear; housing; fuel, light, water; maintenance and minor repairs; rental of occupied dwelling units; medical care; education; and transportation and communication. Thresholds are revised every three years and differ across regions.
← 4. The strong performance of the banana industry was facilitated by President Arroyo’s Executive Order No. 807 issued in 2009 allowing expansion of the area dedicated to banana plantations. This voided the long-standing Letter of Instruction No. 58 issued in 1973 by former President Ferdinand Marcos which had set the allowable area for commercial banana plantation at 21 000 ha, later (in 1979) expanded to 26 750 ha.
← 5. Although the Philippines applies the FAO’s definition of “forest”, there is a discrepancy between national and FAO data on total forest cover. The FAO quotes 7.6 million ha and the Philippines’ Forestry Management Bureau quotes 6.8 million ha. This report uses the FAO data.
← 6. Biotic stress is caused by other living organisms, such as bacteria, viruses, fungi, parasites, beneficial and harmful insects, weeds, and cultivated or native plants. Abiotic stress is due to a negative impact of non-living factors such as strong winds, extreme temperature, drought, flood, salinity.
← 7. State ownership of land is analogous to the Regalian Doctrine employed by the Spanish Crown during colonisation to claim exclusive power over all land. Under the Doctrine, the crown maintained sovereignty and private ownership of land could only be granted by royal decree – parallel the State’s power today.
← 8. A recent study prepared on behalf of the Asian NGO Coalition for Agrarian Reform and Rural Development recognises that, unlike some other Asian countries that have a comprehensive and consolidated Land Law or a Land Code, land tenure in the Philippines is based on numerous pieces of legislation reflecting sectoral approaches to land and resource policy, tenure reforms and administration. Moreover, while new laws or amendments are constantly being passed by Congress, the old laws are often not repealed. Various sections of old laws are simply superseded, replaced or amended, thus old laws retain their residual validity in totality or in part (Quizon and Pagsanghan, 2014).
← 9. Regardless of whether or not CARPER is extended, DAR is mandated to continue distribution of land to beneficiaries until completion, as long as a Notice of Coverage informing a landowner that his/her land is covered by CARPER was issued before or on 30 June 2014, per RA No. 9700 (CARPER) (OG, 2014).
← 10. DAR Administrative Order No. 04-16, Subject: “Rules on Agri-Business Venture Agreements”, 7 June 2016.