Only if we fully understand the relationship between agriculture and food and that “AgriFood” means business, will we be able to find solutions to the agricultural sector and get Agripreneurs going.
As we all know too well, the Philippines has not fully exploited its comparative advantage in agriculture. Beginning with high input costs during production, agribusinesses in the Philippines must also contend with a supply chain that progressively erodes the sector’s competitiveness en route to consumer markets. Along this supply chain, a staggering 20 percent to 50 percent of fresh produce is estimated to be lost in transit from the farm to consumers or food manufacturing companies. By comparison, postharvest losses amount to an estimated 6 percent in Thailand (it’s high time to study this and learn from it; we have to understand why the food costs in Thailand are substantially lower than in the Philippines).
By the time agricultural products reach markets, transaction costs have escalated, rendering many agribusinesses susceptible to external shocks, at best, and uncompetitive, at worst. As evidenced by growing markups from farm gate to retail prices for key crops (such as rice, corn, bananas and mangoes), constraints with logistics and supply chain compound already challenging production issues of quality and efficiency. Eventually, consumers pay the price. In comparison to regional peers, the Philippines spends the highest share of total consumption on food. Formidable challenges and constraints along the supply chain continue to hamper the sector’s full potential, including:
- The high and variable cost of production inputs;
- Lack of mechanization to improve productivity;
- Limited access to finance to scale up operations;
- Inadequate provision of infrastructure, particularly in irrigation; and
- Inefficient logistics and limited connectivity exacerbating postharvest losses.
Compounding these issues, natural disasters continue to wreck havoc on this tenuous and vulnerable farm-to-market supply chain; flawed policies reinforce disincentives to invest in the sector; and weak/fragmented institutions limit the effectiveness of local extension services and agricultural support offices. As a result, agriculture exports (with few exceptions) remain broadly uncompetitive in the world market. Issues related to productivity, efficiency, quality and price all compound the agribusiness investment climate.
A multitude of complex challenges confront the agribusiness sector in the Philippines, with no easy solutions. The following recommendations, while not exhaustive, point to sensible ideas that merit public policy considerations in the coming decade.
Market access—New free-trade agreements (FTAs), including the Asean Economic Community, and other preferential trade privileges provide unprecedented market access, if Filipino agribusinesses can successfully compete in a more liberalized environment. Promising opportunities for agricultural exports are on the horizon, but Philippine food exports remain at modest levels. Their share in Asean has even declined, thus raising the need for clearer government policy/strategy to maximize FTA utilization.
Access to finance—The agribusiness sector boasts a small pool of bankable projects, mostly concentrated with the larger commercial farm owners in possession of traditional collateral, secure property rights and financial track records. Hampering investments, access to credit poses a daunting challenge for the sector. Many agribusinesses are small and financially weak, requiring business development support, collateral substitutes and other credit enhancements to improve their risk profile. In this context, a more comprehensive approach to crop insurance, which can help mitigate the numerous environmental risks (e.g., typhoons, droughts) that many smallholder farmers face on a perennial basis, is needed. Crop insurance, microinsurance and microfinance have to work together.
Freeing up the land market—In another significant area of market distortions, the property rights regime contains major deficiencies and greatly undermines the investment climate. The business of agricultural production relies heavily on exploiting and developing land for human needs. Indicative of inefficiencies in the land market, a staggering 11 million parcels of untitled properties litter a country of 24 million parcels. Land-use planning, zoning and overall management are weak, undermining property development and associated tax collection vital to public investments.
Infrastructure investments—Priorities include farm-to-market roads, postharvest processing facilities, irrigation, sanitary phytosanitary inspection facilities, food terminals, cold storage and food-processing factories. The lack of postharvest facilities cries out for more private-sector investment, as part of efforts to manage overall supply chains. Farm-to-market roads provide much needed linkages.
Rationalization of extension services—With low productivity, the business of agricultural production would benefit from adopting new and innovative technologies. Even with advances in research and development, the latest research and information on improved agricultural practices (including intercropping) have not reached farmers sufficiently.
In conclusion, bold measures are needed to open up markets, unleash capital, address land reforms, improve infrastructure and rationalize extension services.
Given my involvement in coffee farming/intercropping in Camarines Norte, I fully subscribe to the need for bold measures. are welcome; contact me at Schumacher@mca.com.ph
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