Tuesday, April 10, 2007

Rising food import bill need not be a problem

ON Monday, Genuine Opposition senatorial candidate Aquilino Pimentel III deplored the country’s rising import bills, stressing that the statistics signal agricultural production woes, and called for a review of the country’s tariff liberalization program.

“Clearly, we must reexamine our tariff policy on agricultural products,” he said. “We must provide our farmers with the same protection that the US, Europe and Japan provide their own farmers. We should prioritize local food production so that we will be less dependent on imports.”

First, Pimentel must be commended for bringing up the matter for public discussion. So far he is the only one who has broached such a very important issue in the campaign.

This is important because, on the same day he spoke, the Food and Agricultural Organization (FAO) released a report putting the Philippines on a list of 33 countries supposedly needing “external assistance.” FAO has put the Philippines on the same list as Iraq—of countries that supposedly run the risk of facing “an exceptional shortfall in the aggregate food production/supplies as a result of crop failure, natural disasters, interruption of imports, disruption of distribution, excessive postharvest losses, and other supply bottlenecks.”

For all its good intentions, the report is phrased in a way that the Philippines ends up looking like part of a dark continent that is regularly plagued by perpetual warfare and drought, and not in the Asia-Pacific, a region enjoying relative stability and frenetic economic growth.

Nevertheless, Pimentel’s concern about the rising import bill is a valid concern that needs to be examined, especially in light of the continuing government failure to invest in rural infrastructure.

The relevant questions here are the following: First, is the rising food import bill necessarily bad? Second, is raising tariff protection for agricultural products the key to food security? Third, are we actually capable of producing all our food requirements within the country’s borders? And fourth, given the reality in the countryside, what are the best ways to ensure food security?

On the first, a rising food import bill is not necessarily bad. Rising imports of certain food items like cereals, meat, fruits and dairy products could actually suggest welfare gains for ordinary people. It means that increasingly, people have access to a variety of cheaper—but quality—food choices that could be good for their health. It used to be that only the rich could afford grapes, oranges and apples. And we eat them on top of our usual fare of mango, bananas and pineapples. Now, most everyone can afford them.

Given the fact that more than half of ordinary people’s expenditures are on food and beverage products, those food-import numbers may suggest that cheaper food items act as a brake on the erosion of people’s purchasing power, thus giving them extra cash for other needs like medicine, recreation and education-related expenditures. And mind you, the country’s food import bill actually accounts for only 5 percent of the country’s total imports.

Is tariff protection the key to food security? The answer to this would depend on our own policy objectives. If we would like to produce all, if not most, of our food items within the country’s borders at all cost, then tariff protection is probably important.

But that means that we have to bear with very expensive food items, probably double the price in the international market. Given the fact that 60 percent of the country’s population is in urban towns and cities, a policy environment that encourages high food prices could trigger social unrest. Besides, once local prices go up significantly higher than world market prices, high tariff protection could easily trigger massive smuggling of the same products enjoying high tariff protection. If there’s one “sector” that’s going to benefit, that would be the smugglers and corrupt bureaucrats at the Bureau of Customs.

Supposing we decide to stop food imports, can we actually produce all our food items, especially rice? No. One major constraint is geography and climate.

Compared to neighbors like Vietnam and Thailand, rainfall patterns and distribution here do not allow for a massive expansion of irrigated areas for rice. Compared to Vietnam and Thailand, the Philippines does not have great river systems from which to draw water for massive irrigation networks.

Given this limitation, we are bound to producing the bulk of our food requirements while importing some of them. That is happening right now and the absolute figures are rising because of several factors like population growth and changes in lifestyle and tastes among Filipinos.

What we are saying here is that the Philippines’s optimal crop mix is probably different from those of our neighbors. While we are going to continue producing cereals like rice and corn in strategic areas that are highly competitive against imports, much of our export competitiveness probably lies in the production and export of high-value crops (e.g. asparagus, bananas, pineapple, ornamentals, cutflowers, mango, durian, papaya, fruits, among others), cattle fattening, and other niche products that do not require massive networks of irrigation systems.

We could produce them in greater quantities either for local consumption and export using water-efficient systems including drip irrigation. Under a liberalized trading environment, exporting these products to China and the rest of the Asia-Pacific region should be a lot easier.

The point here is that it doesn’t matter whether or not you have a $2-billion food import bill for as long as you have an equally robust revenue stream from selling these high-value crops to the rest of the world. If we achieve that, purchasing the foodstuff that the country needs is not much of a problem. That’s the best way we could ensure our own “food security.”

Here lies the real problem because despite the growing opportunities for agricultural exports under a liberalized trading environment, the Philippines remains a net food importer. The problem is not in trade liberalization per se, but in the continuing failure of the government to invest in rural infrastructure, research and development, and farm support services.

Following the formation of the World Trade Organization, Congress drafted the Agriculture and Fisheries Modernization Act as a way to deal with a liberalized trading environment. Nothing has been heard about it since the last five years. The irony is that whatever money we had in the past for “agricultural modernization” was lost in scams, the most notorious being the unresolved fertilizer scam.

Having clarified the issues, we think Pimentel should continue his advocacy for the betterment of the agricultural sector. It would be more productive if he could zero in on the government’s continuing failure to provide the promised “competitiveness-enhancement measures,” as well as the continuing inefficiencies in the interisland shipping sector brought about by stupid government policies (e.g., one-port, one-operator rule). If he or his party could really push this matter into the forefront of the debate in the midterm elections, he will be doing the country a great service.
(Originally prepared as editorial for the BusinessMirror, April 11, 2007).

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