Agricultural Policy Monitoring and Evaluation 2018

Chapter 19. Philippines

Support to agriculture

The level of support to farmers in the Philippines – as measured by the share of policy-driven transfers from consumers and taxpayers in gross farm revenues (%PSE) – averaged 26% in 2015-17. This is higher than the OECD average of 18% and one of the highest among all Emerging Economies covered by this report.

Market price support (MPS) is the dominant form of support to Philippine producers. It is strongly focused on rice producers. The MPS for rice accounted for 42% of the total value of MPS and 41% of the total value of Producer Support Estimate in 2017. In addition to rice, substantial levels of support are provided to sugarcane and animal products, in particular through high import tariffs. The high level of MPS comes with an implicit taxation of consumers and the food processing industry, averaging 26% of the value of consumption in 2015-17 (%CSE).

Expenditures on general services as a ratio of agricultural value added have increased in recent years. These mainly focus on the development of infrastructure, in particular for irrigation systems and – increasingly – for extension programmes.

The overall cost of support, through market price support and budgetary transfers, to the Philippine agricultural sector was high at 3.2% of GDP in 2015-16. It was nearly five times the OECD average during the same period and one of the highest across all countries measured.

Main policy changes

Crop insurance has expanded significantly in recent years. Approximately 15% of farmers received subsidised insurance in 2017 and the government plans to increase coverage to 20% in 2018.

To increase support for rice producers, the government abolished the Irrigation Service Fee paid by farmers to cover operational and maintenance costs of the irrigations systems as from 2017.

According to an agreement with the WTO in 2012, the Philippines had committed to discontinue quantitative restrictions (QR) on rice imports in June 2017. However, in May 2017, the Philippines issued an executive order extending tariff concessions in exchange for continuing QRs until end-2020 or until Congress amends the existing local law, the Agricultural Tariffication Act of 1996.

Assessment and recommendations

• The Philippines’ key agricultural policy objectives focus on food security and poverty alleviation through guaranteeing a stable supply of staple food at affordable prices. The goal of self-sufficiency in rice has driven a range of policy measures supporting rice producers – in contrast to diversification towards higher value commodities typical of other countries in the region – while contributing to the undernourishment of poor households that are net rice consumers. The Philippines could improve the country’s food security through policies such as: diversification of production, consumption and income by removing commodity-specific incentives; gradual removal of restrictions on rice imports; and transformation of the National Food Authority’s (NFA) into a market-neutral agency managing emergency stocks.

• In view of the Philippines’ high susceptibility to typhoons, tropical storms and flooding, the government should adopt a holistic approach to risk management and mainstream adaptation policy objectives across programmes and institutions. Moreover, the effectiveness of current risk management tools should be assessed – in particular, the extent to which insurance and cash-transfer schemes encourage resilient decision-making on the farm. Lastly, farmer awareness should be increased by sharing information about local conditions, future projections and adaptive solutions.

• The Philippines’ agricultural sector’s total factor productivity growth is slower than the world average and slower than in most countries in the region. This is the result of decades of underinvestment (or, in some cases, mis-directed investment), policy distortions, uncertainties linked with the implementation of agrarian reform and periodic extreme weather conditions. In 2017, the Philippines reallocated some funding from variable input subsidies to investment in infrastructure and through the re-orientation of agricultural knowledge systems. Continuing such efforts to refocus budgetary support on long-term structural reform is key to promoting total factor productivity growth.

• • Agricultural policies in the Philippines are designed and implemented by a complex system of institutions. The government could strengthen institutional co-ordination between the Department of Agriculture and other relevant departments and institutions that implement programmes supporting agriculture; strengthen transparency and accountability of publicly-funded programmes; accelerate efforts to build a solid policy-relevant statistical system; and integrate monitoring and evaluation mechanisms into the policy process.

Figure 19.1. Philippines: Development of support to agriculture

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to farmers (%PSE) was 26% in 2015-17, indicating that more than one-fourth of gross farm revenues were generated by policies. Compared to 2000-02, the level of support has grown (Figure 19.1); however, a slight decline can be noted from 2016 to 2017 due to a smaller price gap between domestic prices and world prices (Figure 19.2). A dominant part of support is provided through market price support, with a strong focus on rice. Market price support and input subsidies without input constraints, both considered as potentially most distorting forms of support, explain almost the total value of support to producers. On average, prices received by farmers were 36% higher than world prices in 2015-17 (compared to 31% in 2000-02). MPS is also the main component of Single Commodity Transfers (SCT): rice and sugar had the highest share of SCT in commodity gross farm receipts in 2015-17 (Figure 19.3). Expenditures for general services (GSSE) relative to agricultural value added more than doubled from 2000-02 to 2015-17 (Figure 19.1). A dominant share of these expenditures is allocated to infrastructure, in particular on investment in irrigation systems. Total support to agriculture as a share of GDP was 3.2% in 2015-17 – one of the highest across all countries covered by the OECD support indicators.

Figure 19.2. Philippines: Decomposition of change in PSE, 2016 to 2017

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 19.3. Philippines: Transfer to specific commodities (SCT), 2015-17

Source: OECD (2018), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 19.1. Philippines: Estimates of support to agriculture

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Contextual information

The Philippines is a mid-size country in terms of land area, but its population of 103 million makes it the world’s 12th most populous country. At USD 7 819 in PPPs, GDP per capita in the Philippines is approximately one-third the average GDP per capita of all countries analysed in this report (Table 19.2). In recent years, the Philippines has achieved relatively weak annual GDP growth of 3.9% annually over 2012-15 despite rebounding from the global economic crisis of 2008-09 (Figure 19.4) – a growth rate below other Emerging Economies globally and below other Asian and ASEAN peers. Overall, the Philippine economy, including its agro-food sector, is relatively integrated in international markets – as measured by the ratio of trade to GDP at 23% in 2016.

Table 19.2. Philippines: Contextual indicators

	Philippines		International comparison
	1995	2016*	1995	2016*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	202	808	0.7%	0.9%
Population (million)	70	103	2.4%	3.0%
Land area (thousand km2)	298	298	0.4%	0.4%
Agricultural area (AA) (thousand ha)	11 015	12 440	0.4%	0.5%
			All countries analysed1
Population density (inhabitants/km2)	234	341	38	45
GDP per capita (USD in PPPs)	2 887	7 819	9 650	24 866
Trade as % of GDP	33	23	10.2	14.3
Agriculture in the economy			All countries analysed1
Agriculture in GDP (%)	21.6	9.7	3.0	3.1
Agriculture share in employment (%)	44.1	29.1	-	-
Agro-food exports (% of total exports)	8.5	7.5	7.7	7.3
Agro-food imports (% of total imports)	8.6	11.8	7.8	6.7
Characteristics of the agricultural sector			All countries analysed1
Crop in total agricultural production (%)	63	63	-	-
Livestock in total agricultural production (%)	37	37	-	-
Share of arable land in AA (%)	48	45	30	30

Note: *or latest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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Agriculture is a key sector for the Philippines, accounting for almost three-tenths of total employment and one-tenth of GDP (Table 19.2). Farms tend to be small-sized with the average landholding at just 1.3 ha – a figure that has been falling in recent years.

With limited land and a large population, the Philippines is a growing net importer of agro-food products. Of these imports, three-quarters are processed goods that are used directly for (final) consumption or as intermediate inputs by the processing industry. On the export side, around half of all agro-food exports are sold to firms for use as inputs in overseas markets, with another half targeting foreign consumers (Figure 19.5).

Figure 19.4. Philippines: Main economic indicators, 1995 to 2017

Note: Change in the ILO definition of employment in 2005.

Source: OECD statistical databases.

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Figure 19.5. Philippines: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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While agricultural total factor productivity growth has increased over the past ten years, growth has remained relatively weak and has averaged 1.2% per year, well below the world average (Figure 19.6) and is one of the lowest growth rates in Southeast Asia (OECD, 2017a). In particular, labour productivity in agriculture is only one-sixth of that seen in industrial sectors, dragging down the overall average across the economy. Agricultural land resources are under strain from frequent natural disasters, population growth and urbanisation. The Philippines has abundant water resources, of which the agriculture sector is the main user – accounting for 82% of total freshwater withdrawals (Table 19.3). Nonetheless, shortages can occur during the dry season in some regions.

Figure 19.6. Philippines: Composition of agricultural output growth, 2005-14

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database. Available at: www.ers.usda.gov/data-products/international-agricultural-productivity/documentation-and-methods.aspx#excel.

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Table 19.3. Philippines: Productivity and environmental indicators

	Philippines		International comparison
	1991-2000	2005-2014	1991-2000	2005-2014
			World
TFP annual growth rate (%)	0.26%	1.22%	1.60%	1.63%
			OECD average
Environmental indicators	1995	2016*	1995	2016*
Nitrogen balance, kg/ha	..	..	33	30
Phosphorus balance, kg/ha	..	..	3.7	2.4
Agriculture share of total energy use (%)	0.3	0.7	1.8	1.9
Agriculture share of GHG emissions (%)	33	..	8.5	8.5
Share of irrigated land in AA (%)	..	..	-	-
Share of agriculture in water abstractions (%)	..	82	45	43
Water stress indicator	..	..	10	10

Note: * or latest available year. EU treated as one.

Source: USDA Economic Research Service. OECD statistical databases, UN Comtrade, World Development Indicators and national data.

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Description of policy developments

Main policy instruments

Market price support is the dominant form of support to Philippine producers. Price support policy is focused on rice and sugar. The rice price support policy is implemented by the National Food Authority (NFA) through price support for producers, a subsidised release price for consumers, government procurement, and import restrictions. The NFA also accumulates buffer stocks of rice to stabilise consumer price levels and ensure adequate and continuous supply. Price support and market regulation of sugar is implemented through sugar production quotas and regulation of foreign trade.

Tariff protection remains the Philippines’ main trade policy tool. Trade liberalisation has primarily occurred within regional trade agreements, particularly the ASEAN Free Trade Area. The simple average applied Most Favoured Nation tariff on agricultural products was 9.8% in 2016. All tariff lines applied are ad valorem and range from 0-65%.

Tariff rate quotas are applied for 14 agricultural products, with in-quota tariffs ranging from 30% to 50% and out-quota from 35% to 65%. Import licensing is intended to safeguard public health, national security and welfare and to meet international treaty obligations.

Imports of agricultural products, live animals, plants, their products and by-products must be accompanied by a sanitary, phytosanitary or health certificate from their country of origin and are subject to inspection upon arrival. Generally, only sanitary and phytosanitary considerations are taken into account when issuing certificates; however, in some cases, the level of domestic supply is also considered (WTO, 2012).

Several agricultural commodities are subject to export controls and may require permits in addition to agency approval, namely rice, grains and grain products, and sugar. Exports of rice and maize remain restricted and, in principle, controlled by the NFA.

Budgetary support to agricultural producers, both through payments provided to farmers individually and to the agricultural sector as a whole (general services), is low compared to the value of transfers created by market price support and when compared to the OECD average. During the 2000s, budgetary support to producers was mainly allocated to subsidise use of variable inputs. However, payments to producers for fixed capital formation have increased in recent years.

Crop insurance has expanded significantly in recent years. Approximately 15% of farmers received subsidised insurance in 2017 and the government plans to increase coverage to 20% in 2018 (PCIC, 2018). The system is fully dependent on the Philippines Crop Insurance Corporation, a government corporation under the Department of Agriculture.

Expenditures on general services have increased significantly since the end of the 2000s. The most important item is the development and maintenance of infrastructure, of which a major share is devoted to investments in irrigation systems.

In 1988, the Philippines undertook an ambitious agrarian reform that covered close to three quarters of the country’s total agricultural land. By end-2015, the redistribution of land was almost complete, but property rights remain to be settled, with almost half of the reform beneficiaries still covered by collective ownership certificates. Various restrictions on land-market transactions and insecure property rights limit on-farm investment and weakened the economic benefits of the reform.

Domestic policy developments in 2017-18

The Irrigation Service Fee (ISF) was abolished for rice producers in 2017. Before that, the ISF was paid by farmers to cover operational and maintenance (O&M) costs of the irrigations systems. It was paid in terms of 2-3 cavans (100-150 kg) of paddy rice per hectare or in its cash equivalent to the National Irrigation Administration (NIA) (OECD, 2017b). The government approved a fund of PHP 2.3 billion (USD 48 million) to enable the NIA to cover the O&M costs in 2017 (FAO, 2016).

Total budgetary allocations to agriculture remained relatively stable at USD 1.8 billion in 2017, though their structure changed. Payments based on input use declined – in particular, due to a decline in funding for post-harvest facilities (such as dryers, warehouses and seed storage). At the same time, funding for general services support increased – most notably, due to a rise in the budget for the development and maintenance of irrigation systems (in line with the national priority to increase infrastructure spending, GAIN, 2017a) as well as additional funding for extension programmes.

The Philippines ratified the Paris Agreement on Climate Change in March 2017, committing to cut emissions by 70% by 2030 and strengthen adaptation efforts. While a laudable emissions target, no specific plans to reduce emissions have been released and the 2015 INDC notes that reaching this target is conditional on the availability of sufficient financial resources (UNFCCC, 2015; Climate Action Tracker, 2017). Agriculture is not among the priority sectors for emission reductions (energy, transport, waste, forestry and industry); however, it is identified as a priority sector for adaptation and resilience.

Trade policy developments in 2017-18

The Philippines had previously committed in the WTO to discontinue a quantitative restriction (QR) on rice imports in mid-2017; however, an executive order (No. 23) was issued in May 2017 which has unilaterally extended tariff concessions and the QRs. The QRs will now be maintained until December 2020 or until Congress amends the Agricultural Tariffication Act of 1996 (which currently exempts rice from tariffication). These restrictions were first established when joining the WTO in 1995: the Philippines benefited from a special treatment clause (Article 5 of the Agreement on Agriculture) which allowed it to maintain QRs on rice imports on the basis of food security until 2012. In return, the Philippines had to guarantee minimum market access in the form of a progressively increasing import quota (minimum access volume, MAV). In 2012, the Philippines requested a new extension of its special treatment for rice through a waiver until 2017. The waiver was granted in July 2014 on the condition that the Philippines increased the MAV to 805 200 tonnes, lowered the in-quota tariff to 35% and that, after 30 June 2017, its importation of rice would be subject to ordinary customs duties established on the basis of a tariff equivalent to be calculated in accordance with the guidelines defined in the WTO Agreement on Agriculture (WTO, 2014). Executive Order No. 23 has now extended the QR on rice imports beyond the WTO commitment. A bill to amend the Agricultural Tariffication Act’s exemption of rice from tariffs is under development; however, the timeline for its completion is unknown (GAIN, 2017b).

In April 2016, the Philippines signed a Free Trade Agreement (FTA) with the member states of the European Free Trade Association (EFTA). This broad-based agreement covers trade in goods (industrial and agricultural goods, fish and other marine products), rules of origin, trade facilitation, trade in services, investment, competition, protection of intellectual property rights, government procurement and sustainable development (GAIN, 2016). In March 2018, the Philippines Senate voted to ratify the agreement, an important step towards the agreement taking effect.

The Philippines and the European Union continue to negotiate an EU-Philippines FTA. The current relationship between the two parties is based on the Partnership and Cooperation Agreement signed in 2012. The aim of the negotiations is to conclude an agreement that covers a wide range of areas including tariffs, non-tariff barriers to trade, trade in services and investment, as well as trade aspects of public procurement, intellectual property, competition and sustainable development (EU, 2017).

References

Climate Action Tracker (2017), “Philippines”, http://climateactiontracker.org/countries/philippines.html.

EU (2017), “Countries and regions: The Philippines”, http://ec.europa.eu/trade/policy/countries-and-regions/countries/philippines/.

FAO (2016), FAO policy developments website: www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/.

GAIN (2017a), “Philippine Oilseeds and Products Situation and Outlook”, 30 March.

GAIN (2017b), “Grain and Feed Situation and Outlook”, 15 December.

GAIN (2016), “Philippines: EFTA-Philippines Free Trade Agreement Signed”, 19 May.

OECD (2017a), Building Food Security and Managing Risk in Southeast Asia, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264272392-en.

OECD (2017b), Agricultural Policies in the Philippines, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264269088-en.

PCIC (2018), “2 million farmers to get free crop insurance”, http://pcic.gov.ph/news/pcic-in-the-news/2-million-farmers-to-get-free-crop-insurance/.

UNFCCC (2015), “Republic of the Philippines, Intended Nationally Determined Contributions”, October 2015, Republic of the Philippines.

WTO (2014), Decision on Waiver relating to Special Treatment for Rice of the Philippines, WT/L/932, https://docs.wto.org/dol2fe/Pages/FE_Search/DDFDocuments/126136/q/WT/L/932.pdf.