Archive for June, 2009

Phillipines makes further moves towards agricultural stability

philippines flagDevelopment of the Filipino agricultural sector is key to the economic and social progression of the country, especially considering the potential impact the industry can have on poverty and unemployment. In 2007 agriculture activity already employed nearly 12m people, equating approximately to one-third of the country’s entire labour force, while also accounting for nearly one-fifth of GDP at 18%. The government’s primary focus is on food security for the country’s growing population. In order to accomplish this goal the Department of Agriculture has set its eyes on maintaining at least 5% annual growth in the sector over the long term.

Underlining the importance of agriculture in the Philippines is the fact that the country’s population growth rate has hovered over 2% for the last two decades – during which time the population has jumped from 60.7m in 1990 to over 90m today. The agricultural sector – unable to provide food for the country’s swelling population – has been forced to import rice and other staple foods from neighbouring countries such as Vietnam and posted a $1.75bn agricultural trade deficit in 2007. Moreover, agricultural production, in particular the growing of rice, provides a considerable number of jobs due to its labour-intensive requirements and will likely play a large role in stemming growing unemployment.

Arthur Yap, the secretary of agriculture, highlighted the government’s strategy in a recent interview, stating that, “In the short term, the Department of Agriculture’s primary goal, as set by President Gloria Magapacal Arroyo, will be to achieve food security. We are aiming to increase production and lower costs as a hedge against rising international prices.”

The year 2008 saw the Philippine’s agricultural production grow by 3.92% in the face of the global financial turmoil. Though the industry failed to achieve its targeted 5% growth, last year’s performance seems to have maintain the industry’s forward momentum. However, agriculture slowed even further in 2009 – to 2.02% in the first quarter.

The crop sub-sector, which expanded by 4.05% in 2008, fell sharply in the first quarter of 2009, posting near-flat growth of 0.61%. While the country’s production of one of its largest crops, rice, increased by 5.13%, production of its other primary crop, corn, fell by 3.39% – partially offsetting gains in other areas. The news of near-flat growth in the beginning of the year is particularly worrying as crop production represents 49% of total agricultural production.

Meanwhile, the livestock segment, which represents 12% of total agricultural production, has turned around last year’s 1.06% contraction by posting a first-quarter increase of 2.37%. A decrease in hog production was blamed for last year’s decline, an area that appears to have been restored. The final sub-sector, fisheries, fell slightly from last year’s 5.78% expansion to register 3.49% growth in the first quarter of 2009. Currently, the fisheries sub-sector contributes 24% to total agricultural production, primarily due to aquaculture and commercial fishing.

Several factors could determine agricultural growth, with the government clearly playing an important role through its FIELDS (Fertilisers, Irrigation, Education, Loans, Dryers and Seeds) programme. However, budgetary restraints dictate that government assistance will not be enough to sustain the kind of strong growth that is required to attain the adequate domestic food production. Organisation and cooperation among farmers has been ongoing for years and will continue to play a vital role in the industry’s development.

Cooperative groups have existed in the Philippines for decades and often provide the necessary platform for farmers to ensure maximum utilisation of lending, borrowing, production and distribution. Probably the most important function of the cooperative lies in its ability to access loans that would have been otherwise unattainable to its individual members.

Rural banks and some larger financial institutions, such as the Land Bank of the Philippines, specialise in providing liquidity to the rural marketplace. Land Bank currently operates a P185bn ($3.86bn) loan portfolio, of which at least 65% goes to small-scale farmers, fisherman and other rural enterprises.

According to Gilda Pico, the president & CEO of the Land Bank of the Philippines, “Cooperatives have organised and galvanised small and medium-sized rural farmers to the extent that lending from the financial sector is becoming more and more viable. This increase in liquidity in rural areas is vital from an investment standpoint and we hope to continue this trend in the coming years.” She later added, “Infrastructure development is a key driver of agricultural growth and we will continue to provide the necessary funds to build and upgrade roads, irrigation channels and other required infrastructure for the sector.”

Regardless of the success cooperatives have had in organising agricultural producers, it is essential that the sector strengthens these associations moving forward. Not only are cooperatives a vital vehicle for attracting loans and investments, they are a critical platform for farmers to discuss key issues concerning production and distribution – thereby making agricultural production more efficient.

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China : first to bottom – first to bounce

renminbiThe global financial crisis has forced Canada to rethink the received wisdom about fiscal management. It should also force a rethink of the international economic order and how we must position ourselves for a post-crisis world. Can we count on our traditional ties with the U.S. to sustain long-term development? If the crisis marks a shift in economic power toward emerging countries, especially China, what are the implications for international policy?

The current crisis has blunted the more extravagant claims of emerging market ascendancy: China, India and Brazil are facing the same challenges as the rest of the world. The notion of “decoupling” – that emerging markets are no longer subject to Western business cycles – has been debunked. In the case of China, a precipitous fall in exports has led to the closure of thousands of factories and added millions to the ranks of the unemployed.

To put it crudely, the U.S. is suffering from excessive debt and China is suffering from excessive savings. But there is a world of difference between a downturn precipitated by bad debt and one due to domestic under-consumption. When the toxic assets have been finally excised from U.S. balance sheets, Americans will be saddled with a massive debt. This will mean higher interest rates and below-potential growth for the foreseeable future.

China is also feeling the pain of a downturn, but the similarity ends there. Unlike the U.S., Beijing can afford a massive stimulus package. Relative to national income, the $600-billion (U.S.) spending boost announced by the Chinese last year is the largest of any major country. In terms of contributing to global reflation, China has done its share and more.

The critical question is whether the Chinese response represents a change in the country’s economic model. Skeptics say China is merely buying time for its exporters and will continue to pursue mercantilist policies (such as a weak currency) in a bid to gain global market share.

But the early signs point in the opposite direction: Beijing has recently expanded social programs and transfer payments for the needy, and introduced reforms to health insurance that increase coverage for an additional 400 million citizens. The expansion of social safety nets will reduce the need for precautionary savings at the household level, and result in increased discretionary spending. Given the low levels of debt in China and the huge pent-up demand for consumer goods, private consumption is destined to play a much larger role in Chinese growth. This will be good for China, and good for the world.

For these and other reasons, there is a growing consensus among experts that China will be the first to find the bottom of the economic crisis, and the first to come out of it.

It is surprising, therefore, that there is so little awareness in Canada about the impact of the global recession on China’s economic rise. The federal stimulus package did not give any hint that Canada has to build stronger economic ties with China. Bay Street, for its part, is looking to Washington for salvation, in the form of trickle-down from the U.S. rescue packages.

Paradoxically, the global crisis has emboldened China skeptics, who point to the fallacy of decoupling as proof of fatal flaws in China’s economy. This argument is sometimes conflated with the view that Beijing should be blamed for the crisis and that protection against Chinese imports must be part of a recovery strategy.

A more insidious argument is that the crisis exposes the fundamental weaknesses of Chinese authoritarianism, and will lead to the collapse of the Chinese Communist Party. Setting aside the obvious objections to this notion of “performance legitimacy,” the proposition that China is facing a crucial test of leadership may be instructive in thinking about China’s role in a changing world order.

If Beijing is able to keep domestic peace and China emerges from the crisis as a stronger player in the world economy, will we have any excuses left to not take seriously the rise of this new global power?

Yuen Pau Woo is President and CEO of the Asia Pacific Foundation of Canada

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