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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