The Real Growth Leader

The farm sector pulls off an outstanding year

While call centers and business process outsourcing stole the limelight and picked up all the press coverage, the real heroes behind 2004’s economic growth were the farmers. Farm production was up 4.8% in 2004 versus 3.7% in 2003.

To put that in perspective and get a better appreciation of just how big a feat this is, agriculture growth rates were running double their normal levels – usually around 2.5% a year – and were at a 15-year high. And although agriculture contributes less than 20% to Philippine GDP, it still accounts for almost a third of the workers. Thus, any boom in agriculture results in more money in the pockets of a lot of people in the countryside which, in turn, pushes rural spending and development. There are twice as many agricultural workers as there are industrial workers.

The secret behind the growth spurt appears to hinge on a fundamental shift in strategy from a trader-orientation to a grower-focus within the Department of Agriculture starting in 2003 coupled with a focus on supply-chain management. With the entry of Secretary Luis Lorenzo, Jr. from the Million Jobs portfolio to the Department of Agriculture – he has since left and gone back to the Million Jobs Program – agricultural crop boards have sprung up for virtually every major crop sector that needed attention. Today, there are national development boards or programs for rice, corn, eggs, swine, coffee, cattle, and other major crop sectors. Each board is composed of private sector representatives working hand-in-hand with DA counterparts to introduce better technology and a supply-chain management mentality to their respective sector.

The results have been strong growth years for crops like rice, corn, and coffee as well as others. The work involves more than a cosmetic change of inviting private sector representatives and boosting awareness levels. It also involves the introduction of new seed varieties, new planting technologies and farm techniques, and plenty of training. Introducing all these changes to traditional farming practice is harder than it sounds. It involves a fundamental mindshift plus plenty of credit – and subsidies – to help farmers get over perceived risks.

Nonetheless, challenges remain. The first one will be to sustain the thrust for more production, particularly using the hybrid seeds and new technologies. One possible obstacle is that subsidies were used to pave the way for the new technologies; it may prove difficult to wean farmers away from subsidies. The second challenge is to keep overall costs down. In 2004, one input which saw prices increase significantly was fertilizer, which nearly doubled over the year. To handle that challenge, new Agriculture Secretary Arthur Yap is pushing for the preparation and use of more organic fertilizer in farms. The third challenge is to curb smuggling. While most people are familiar with smuggling of manufactured products, agricultural goods are smuggled as well and compete with locally-produced farm products. In this case, the government itself is sometimes the problem because of its tendency to sell confiscated smuggled goods in the open market with the misguided notion that the food should not go to waste. Unfortunately, it ends up competing with farmers.

Finally, the Department of Agriculture will have to make up its mind and sharpen its focus on who it really represents – farmers or consumers – in the short-run. The propensity to call in imports for key commodities such as rice and corn at the first sign of a shortfall works as disincentives for farmers. Indeed, it makes little sense to plant only to compete with cheaper imports timed to come in just as you are ready to harvest. While one understands the need to keep prices for consumers low, importing to compete with local farmers hardly seems a way to break the vicious cycle of production shortfalls. Ultimately, DA may need to either keep farmers and investors engaged to increase production (and therefore stabilize prices) or simply go for an import policy, stop the guessing game for farmers who basically exit that crop sub-sector, and let the country take its chances with global commodity prices. These are tough choices in the long run.