xxiv Glossary
2.2 Philippine rice sector
The Republic of the Philippines is the world’s eighth-largest rice producer (GRiSP 2013). However, the country’s harvested rice area is small compared to other major rice-producing countries in Asia. In the Philippines, rice is mostly grown on small family-based farms with an average size varying from less than 0.5 to 4.0 ha (PSA 2015). The possibility of increasing this harvested area is nearly ex-hausted and yield increases have begun to slow down (Dawe, Moya, Casiwan 2007). With approximately 4.2 million ha of rice farming land and a production of about 11.2 million metric tons of milled rice, rice produced in the Philippines can only satisfy 90% of the domestic demand (PSA 2015)
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Added to that, the con-stantly growing population has rendered domestic rice production gains insuffi-cient and made the Philippines the biggest rice importer in the world (Dawe, Mo-ya, Casiwan 2007). Thus, 10% of the annual rice consumption requirements are covered by low-priced, imported rice mostly from Thailand and Vietnam (GRiSP 2013). In order to compete with the low-priced imports, the domestic rice price is constantly decreasing, thus putting further pressure on production costs. Low lev-els of mechanization and the dependency on labor input are among the reasons why palay4 production costs are higher in the Philippines than in other ASEAN5 rice-producing countries. While rice growers in the Philippines spend an average of 10 Philippine Pesos (PHP) to produce one kilogram of palay, their counterparts
4 Unhusked rice.
5 Abbreviation for Association of Southeast-Asian Nations
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in Vietnam and Thailand only need to invest 5 PHP and 8 PHP respectively, to yield the same volume (GRiSP 2013). These productivity constraints have effects on the agricultural sector itself. Profound changes have to take place concerning the adoption of technology, marketing practices and value chain finance, which all affect the overall structure, in order to compete with other ASEAN rice producers (Reardon et al. 2014).
As a consequence, rice prices for consumers and farm-gate prices for farmers are some of the highest in developing Asia (GRiSP 2013). The high consumer pric-es are enforced through an import control carried out by the National Food Au-thority (NFA), a government agency, which also procures 4 to 6% of the domestic palay at fixed government support prices. The NFA also engages in rice distribu-tion by selling milled rice to consumers at subsidized prices through accredited retailers/wholesalers (Intal, Garcia 2008).
Rice: a political crop
The Philippine rice sector has always been at the center of the government’s agricultural policies, since it accounts for 17.4% of the Gross Value Added (GVA) in agriculture, and 3.5% of the total GDP. It provides a source of income to the value chain actors on the demand and supply side, representing more than three million rice farmers and their families, thousands of traders, millers, retailers, and their families, and numerous individuals employed in the processing, distribution, and sale of its related products (Intal, Garcia 2008). As rice is the main staple food in the Philippines it is crucial for the nation’s economy and hence an important inter-vention point to promote agricultural development and poverty alleviation. Thus, rice is a highly political and socially sensitive commodity in the Philippines.
Government programs in the rice sector
The government’s most important political goals in the rice sector consist of achieving self-sufficiency and fair income levels for rice farmers, while making sure that consumer prices remain stable (Mariano, Giesecke 2014). The strategic framework for programs undertaken by the government and its implementing agencies is set by the Philippine Development Plan for 2011-2016 (PDP). In line with the PDP, the Department of Agriculture (DA) has launched its overall strate-gic framework for 2011-2016: the Agrikulturang Pilipino (Pinoy). Under Agri-Pinoy, the DA has implemented the Food Staples Sufficiency Program (FSSP) with a key focus on self-sufficiency in rice. Within the FSSP, the Agri-Pinoy Rice Pro-gram is of central importance. The proPro-gram’s support covers several issues: “re-search and development, rice production; irrigation; post-harvest and other
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Contextstructure facilities; market development services; extension, education and train-ing services” (DA 2015).
Mechanization is considered to be a key intervention area by the government and its implementing agencies are looking to improve the overall productivity of the agricultural sector and thus make it globally competitive. To support and ad-dress the national government program to increase farm and labour productivity, the DA is currently implementing the Rice Mechanization Program, which grants combined harvesters, threshers, dryers and warehouses to eligible FOs via an 85:15 cost sharing scheme, wherein the DA bears 85% of the total costs. Under the program, the Agribusiness and Marketing Assistance Division (DA-AMAD) im-plements the provision of Rice Processing Centers (RPC) to cooperatives.
Alongside the DA’s objective to strengthen rice production through mechani-zation, investments are on one hand allocated to organic farming and on the oth-er, to the promotion of high-yielding hybrid seed varieties. Thus, a coherent and systematic strengthening of the agricultural sector remains a key challenge.
Among the three main sectors of the Philippine economy, agriculture is the most neglected in terms of investments and development. It has not received adequate resources for the funding of critical programs or projects, such as the construction of irrigation systems. Efficient government support of the agricultural sector is slowed down by the DA’s decentralized structure. In particular, coordination be-tween the DA’s implementing agencies at national and regional levels on one hand and provincial and municipal levels on the other, continues to be rather weak, resulting in an inefficient delivery of financial and extension services (Magno 2001; Intal, Garcia 2008).
Agricultural support services
Governmental delivery of extension services has been greatly influenced by the decentralization reform, as it has led to a shift in responsibility regarding agri-cultural extension from the central government to the provincial, city and munici-pal level (World Bank, 2000). Since then, about 77% of extension staff and 65% of the budget are controlled by LGUs (Tenorio, Aganon 2006). LGUs are the frontline agencies in agriculture support services. They deliver extension and on-site re-search services to farmers. LGUs are in charge of planning and implementing lo-cally initiated programs and projects related to agricultural development. Agricul-tural Extension Workers (AEW) are employed by LGUs to organize educational activities and provide advisory services to individual farmers. Provincial agricultur-ists are in charge of coordinating and supervising extension plans and programs in each locality (Magno 2001). The Agricultural Training Institute (ATI), the extension
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and training arm of the DA, has the mandate to train the DA’s agriculture staff and LGUs’ extension staff. However, the delivery of local extension services is imped-ed by several factors such as problems concerning limitimped-ed capacities and re-sources, partisan local politics and uncertain lines of financial accountability be-tween central government agencies and the LGUs (World Bank 2000).
Alongside the governments’ engagement to strengthen agricultural support, various service providers such as academic institutions, non-governmental organi-zations (NGOs) and private agri-business companies are involved in the provision of agricultural support services in the Philippines. Whereas the scope and cover-age of NGOs is very limited, private agri-business companies organize demonstra-tion plots, provide informademonstra-tion on their products and advisory services to custom-ers (Tenorio, Aganon 2006).
Furthermore, the government encourages FOs to become a key stakeholder in agricultural extension services. A growing number of FOs are involved in commu-nity organizing, skill-based trainings, distributing training materials and promot-ing agricultural technologies (Tenorio, Aganon 2006).
Agricultural credit and rural finance
The provision of agricultural credit and rural finance is important to strengthen the agricultural sector. During the last two decades, the rural financial market in the Philippines has gone through various stages of development in order to increase the flow of credit towards the agricultural sector. In 1998, market-oriented reforms led to government-subsidized loans that have been implemented under the Agro-Industry Modernization Credit and Financing Program (AMCFP), created by virtue of the Agriculture & Fisheries Modernization Act (AFMA) [Republic Act 8435]. Cur-rently, there are four credit facilitation programs: i) Cooperative Banks Agri-Lending Program (CBAP), ii) Sikat Saka Program (SSP), iii) Agri-Microfinance Pro-gram (AMP) and iv) Agricultural and Fisheries Financing ProPro-gram (AFFP).All credit programs adhere to market-based principles that ensure funds to private finance institutions, NGOs, peoples’ organizations and individuals (Geron, Casuga 2012).
Although the financial and credit policy reforms led to a proliferation of finan-cial institutions, an improvement in bank density, and the provision of new prod-ucts to bank customers (Llanto 2004), the expected increase in credit flows to small farmers and other small-scale borrowers did not occur. Rural areas still suf-fer from limited access to financial services provided by formal banks. According to finance experts, rural credit delivery is constrained by weak institutions, a lack of coordination and collaboration of the rural finance sector and inadequate mechanisms to enforce credit constraints (Gualberto 2007).
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ContextAs formal institutions do not serve the credit demand for a significant segment of the borrowing population in rural areas, informal credit markets prevail. As-pects such as easy accessibility and the limited requirements of informal loans prevail over the low interest rates offered by formal financial institutions. After an overview of agriculture and more specifically rice production in the Philippines, the next section presents the study region.