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An intellectual giant on Philippine agribusiness: Reducing poverty


(Part 2)

To demonstrate the fact that mass poverty in the Philippines is mainly due to the neglect of agricultural development, which in turn is behind the low productivity of the agricultural sector, the late Dr. Rolando “Rolly” Dy devoted some time in his Magisterial Lecture in 2013 to the concept of poverty and its widespread presence in the Philippines which stands out like a sore thumb in the East Asian region.

In his Magisterial Lecture, he made sure that the elusive concept of “poverty” was very well defined. According to him, poverty is multi-dimensional. In simple terms, it is the lack of household income (or consumption). The World Bank measures income poverty by using a so-called “poverty line” of $1.25 per day at 2005 US$ purchasing-power adjusted terms. More generally, poverty means the inability to meet basic needs, including food, shelter, clothing, water and sanitation, education, and healthcare.

True to his empirical bent, Rolly presented copious data on poverty incidence in the ASEAN region. He showed that inter-country comparison in Southeast Asia reveals that the Philippines has a poor record in poverty reduction. The poverty rate hardly changed from about 31% in 1981 to 18.4% in 2009. In contrast, Indonesia cut its poverty rate by two-thirds, from nearly 69% to 20%, during the same period. Vietnam sliced its rate dramatically, from 90% to 17%, also in the same period.

Using national poverty standards, the Philippine poverty rate remained high relative to its neighbors at that time Rolly delivered his Magisterial Lecture in 2013. The poverty rate in the Philippines grew from about 25% to 28% over the preceding 12 years. In contrast, Indonesia and Thailand registered rates below 20%, with Vietnam not far behind.

As regards, equity in the distribution of income, the Philippines also fared poorly in comparison to its ASEAN peers. Using the GINI co-efficient (0 is perfect equality and 1.0 is perfect inequality), the Philippines showed the worst income inequality at 0.43 compared to Indonesia and Vietnam at less than 0.36, Thailand at 0.40, and China at 0.42.

Ten years have passed and today, while the poverty incidence of the Philippines remains stuck at 13%, all of its East Asian peers (both north and south) have figures at single-digit levels of anywhere from zero to 5%.

There is a very high correlation between the rate of poverty and the very low productivity of the agricultural sector. Philippine agriculture accounts for less than 10% of GDP while accounting for about a fourth of the total Philippine labor force, immediately exposing the low productivity of the sector. While highly urbanized areas in the country like Metro Manila have a poverty incidence of 4%, rural areas that depend almost exclusively on agricultural production — like those in the Mindanao regions — can suffer poverty incidences of 50% to 60%. Clearly, addressing the challenge of improving agricultural productivity is the most direct way of attacking mass poverty.

When Rolly delivered his Magisterial Lecture, he presented the data contained in the 2008 World Development Report called “Agriculture for Development,” which highlighted the importance of agriculture and rural development activities for reducing rural poverty. Agriculture plays an important role in rural development. In addition to attaining growth, rural development is vital for the sustainable use of natural resources. To stimulate growth, reduce rural poverty, and promote the sustainable use of natural resources, rural development must focus on providing higher paying jobs in the agricultural sector (by raising the competitiveness of the sector and better integrating the farmers into value chains) as well as in the rural non-farm economy. Improving subsistence farming, increasing land tenure security, and promoting broader spatial development are similarly important.

Rural development initiatives should also help create institutional frameworks that will benefit from empowering poor and marginalized groups to actively participate in designing and implementing rural policies and programs. The World Bank’s East Asia and Pacific Region had developed four strategic objectives to address these issues: reducing rural poverty, stimulating agricultural growth, providing food security, and supporting natural resource management.

Rolly’s focus on agriculture is justified by historical evidence, both over the long term and in the immediate past. The so-called Industrial Revolution that happened first in England during the last quarter of the 18th Century would have not been possible without a previous “Green Revolution” that significantly increased the supply of both food for human beings and feed for livestock. Certain simple innovations like the drainage of swamp land, the discovery of nitrogen-fixing plants, and the planting of root crops during the winter all contributed to food security that was a pre-requisite to shifting labor from farm to factory. In more recent times, the same role of agriculture has been identified. As Rolly pointed out in his Magisterial Lecture, the 2008 World Development Report focused on agriculture as an effective means of fighting poverty.

The Report was actually a “sequel” to another Report that was issued 25 years earlier. The Report notes: “…. GDP growth originating from agriculture is about four times more effective in raising incomes of extremely poor people than GDP growth originating from outside the sector.” Recent experiences in neighboring countries like Thailand, Malaysia, and Vietnam indicate that a more diversified and growing rural economy is vital to sustained poverty reduction (Malaysia was able to attain zero poverty incidence sometime in the first decade of this century). Of the utmost importance is increasing agricultural productivity, particularly for labor-intensive, small-scale agriculture with strong links to growth in other areas.

In the Philippines, small-scale agriculture is still prevalent in the main crops of rice, corn, coconut, and vegetables and fruits, as well as in fisheries. Even the imperatives of land consolidation (especially in the coconut industry) will not substantially change this existing structure. Rolly observed that no poor country has successfully reduced poverty through agriculture alone, but most have achieved it first by first increasing agricultural productivity. This is truer more than ever under the present Administration of President Ferdinand Marcos, Jr. It is good news that he has finally appointed a full-time Secretary of Agriculture in the person of Francis Tiu Laurel who is a very experienced entrepreneur in the fisheries sector.

As regards the role of agricultural productivity in reducing poverty, Thirtle et al (2001) concluded from cross-country regression analysis that, on average, every 1% increase in labor productivity in agriculture reduced the number of people living on less than a US dollar a day by between 0.6% to 1.2%. No other sector of the economy shows such a strong correlation between productivity gains and poverty reduction. This correlation couldn’t be more applicable than to the Philippines. As mentioned earlier, low productivity is a bane of Philippine agriculture.

Presenting data on the growth of agriculture value added per year in the ASEAN region, Rolly concluded that the Philippines is the lowest performer mainly because of low farm productivity, the lack of diversification (we are too obsessed with rice production), and limited value-adding (we have mostly raw materials exports). From the data presented, an average of 3% to 4% annual growth of the agricultural sector in the Philippines would be needed in the next decade or so for the Philippines to catch up with its ASEAN neighbors. Hopefully, President Marcos Jr. — now aided by Agriculture Secretary Tiu Laurel — will be able to improve agricultural productivity under his watch so that we can attain growth in the agricultural sector of at least 3% to 4% annually. That accomplishment will contribute significantly to reducing the poverty incidence to single-digit levels by 2028.

(To be continued.)

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.


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