Agriculture matters

The Makati Business Club has been focusing on the agriculture sector, holding its first-ever agriculture summit last year. By agriculture sector, we mean specifically the small-scale farmer and fisherfolk sector. Large-scale agribusiness, especially the exporters of pineapples, bananas, and growers of tobacco and other cash crops, seem to be doing good business.

Agriculture is the fundamental basis of almost all economies and the principal challenge of development. If you don’t have a robust agricultural sector, you won’t have a healthy domestic market for local industry. Our agriculture sector should be middle-class, but instead, it is ground zero of poverty in the country.

Here are the problems:

Small-scale agriculture is simply unprofitable. Around 27 percent of the Philippine labor force is in this sector and a large proportion of them are below the poverty line, in monetary terms. They are only farmers because they have no other choice.

The average age of a small-scale Filipino farmer is now 55 to 59 years old. They are literally a dying breed. Their children have chosen to do anything but farming. They work in service industries or go abroad as migrant workers because farming dooms them to poverty. Our consumption-driven economy is largely powered by overseas Filipino workers and service sectors.

We have no food security and have not had it for decades. We are currently importing 60 to 70 percent of all the food we consume. The industrialized agriculture of neighboring countries, particularly Taiwan, produces the same goods and commodities at much lower prices than our small farmers. In addition, smuggling is rampant and local cartels are easily able to bypass tariff barriers.

Small-scale Filipino farmers face much higher costs because they have no access to credit, can’t afford post-harvest processing and storage, have no way to manage risk (e.g., crop insurance) and are thus exploited by middlemen.

Logistics is expensive because the government has failed to provide farm-to-market roads and farmers, in any case, usually can’t afford vehicles to deliver their crops to mills or markets.

Banks that are required by the agri-agra law to lend a percentage of their portfolios to the agricultural sector face high friction costs that they find it cheaper to pay fines, in the billions, every year for noncompliance.

Even in cash crops, we are defeated by our neighbors. For example, Filipino coffee farmers can only produce about 20 percent of the local demand. We import the rest. Currently, around 40 percent of the domestic market is held by Kopiko, an Indonesian brand. Yet, in the late 19th century, the Philippines was briefly the world’s largest coffee exporter when a coffee blight wiped out the Brazilian crop.

There are specific problems for different crop sectors in the Philippines. The most important example is rice, where we have failed to achieve self-sufficiency despite having an enormous market. Our rice is much more expensive to produce and less profitable for rice farmers. It cannot compete with cheap imports from Thailand, Vietnam, and others. This is despite extensive government support, such as the National Food Authority, which buys rice at a predictable set price and provides logistics and storage.

Beef, pork, and chicken are also uncompetitive, to the point where imports, especially smuggled ones, have eaten into the local market. A lot of this is due to the high cost of feed, such as corn. In the case of chicken, we saw one study where 40 percent of the cost of chicken was electricity because of our high electricity prices.

Sugar, once our most profitable export crop throughout much of the 20th century, has shriveled to the point where we are now, incredibly, importing sugar. Some people blame land reform, but others blame the senior Marcos-era consolidation of the industry into a monopoly under the control of crony Roberto Benedicto.

The Makati Business Club (MBC) has been working on ways for the private sector to address these many problems. Our agriculture summit proposed an initiative for private corporations to “adopt” cooperatives to achieve scale. The private corporation will first upskill the cooperative by providing training in basic business operations as well as technology to improve the quality and productivity of the specific crop. It will then leverage its connections to help the cooperative finance its working capital requirements, processing equipment, logistics, and other assets.

There will be a drive to help the cooperative capture the value chain beyond production all the way to post-harvest, processing, packaging, marketing, distribution, and even branding and retail.

We have started a pilot project, wherein an MBC member will adopt a coffee cooperative based in Bukidnon. We will take this step-by-step, learn from the experience, and refine the process. Once we have achieved positive results, we will then try to spread the learning to other projects.

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Rafael ”Apa” Ongpin is the executive director of the Makati Business Club.

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Business Matters is a project of the Makati Business Club (makatibusinessclub@mbc.com.ph).