With the agriculture sector having only grown at a rate of 0.8% in 2018, the Duterte administration’s economic managers, including Budget and Management Secretary Benjamin E. Diokno, are exploring measures to enhance farm productivity.
“Had the agriculture sector grown at its potential of 4% in 2018, full-year economic growth would have reached 6.5%, equal to the low-end of our revised growth target last year,” said the Budget Secretary. “Looking at 2018 Gross Domestic Product (GDP) growth by industrial origin, the agriculture sector contributed a measly 0.1 percentage point to the full-year growth rate of 6.2%. Simply put, the farm sector had virtually zero contribution to economic growth last year,” Diokno added.
“It’s for these reasons that the Duterte administration is prioritizing the agriculture sector. For our farmers and fisherfolk in the rural areas, higher productivity will mean higher incomes. At the same time, for consumers, this means lower prices for staple food items like rice, vegetables, fish, and meat,” Diokno elaborated.
Table 1:2018 GDP Growth, Contribution by Industrial Origin (in ppts)
Agriculture Sector: Historically Low and Erratic Growth
Historically speaking, the performance of the agriculture, forestry, and fisheries (AFF) sector has been erratic and subpar relative to the Philippine economy. The farm sector has posted low and inconsistent growth rates, frequently below annual GDP growth, across administrations.
Agriculture sector expansion was the highest under President Estrada, averaging 6.5%.
President Estrada is followed by President Arroyo with an average of 2.9% growth for the agriculture sector. Then, President Duterte hit 2.4% in his first two years, followed by 1.8% under President Corazon Aquino, 1.2% under President Benigno Aquino, and 0.8% under President Ramos.
Chart 1: Agriculture Sector Gross Value Added Growth (in percent; at constant 2000 prices) and Agriculture Spending as Percent of GDP (light red line)
*Occurence of El Nino in at least 1 quarter
~ Occurence of La Nina in at least 1 quarter
As shown in the graph, weather disturbances such as El Nino and/or La Nina seriously affect the performance of the agriculture sector. It is not a coincidence that in the years where both El Nino and La Nina were observed (1998, 2009, 2010), agriculture contracted. However, more robust methods will be required to estimate the magnitude of the effect of different weather disturbances to agricultural output and to claim this conclusively.
Table 2: Occurrences of El Nino and La Nina since 1987
Employment and Contribution to Growth of Agriculture
“The economic managers are working hand-in-hand with officials in the agriculture and agrarian reform sectors to put it in a more sustainable and less volatile growth trajectory,” said Secretary Diokno. The historical data on the employment share and contribution to GDP of the agriculture sector speak volumes that it is the “laggard industry” of the Philippine economy.
As of end-2018, the agriculture sector accounted for 1/4th of total employment in the Philippine economy. However, its share to total GDP is disproportionately low at less than 1/10th, specifically 8.1% (at constant 2000 prices). In historical terms, this is not much better as in 1992 the agriculture sector accounted for as much as 45% of total employment while only accounting for 16% of total output. This employment-output mismatch is common for developing countries with less productive agriculture sectors.
“Agriculture has really been a weak link, and this structural issue has been pointed out by many economists. It has consistently grown at rates lower than overall economic growth, and has failed to reach its potential economic contribution despite the great number of people the agriculture sector employs,” said Diokno. “This is bad news because the poor are concentrated in rural areas where agriculture is the primary livelihood. Clearly, inadequate policies, vulnerability to natural hazards, and bureaucratic mismanagement all had a hand in the sluggish performance of the agriculture sector throughout the years,” he added.
In more advanced economies with more productive agriculture methods, the employment share and economic contribution of the said sector are tied closer. For instance, in 2017 the farm sector of Malaysia accounted for 11.0% of total employment while contributing 8.8% to GDP. The same can be said about South Korea which employs 4.9% of workers in agriculture with the said sector accounting for 2.0% of GDP.
This means that as countries enhance agricultural productivity, they are able to maintain a lean yet productive farm sector while also enabling most workers to shift to high-value employment in the industrial and services sectors.
Chart 3: Philippines’ GDP distribution by Industrial Origin
Duterte Administration Action Steps for the Agriculture Sector
“In our last Cabinet meeting, we discussed some measures to help farmers and fisherfolk,” said the Budget Chief. “The LandBank discussed ways to allow small farmers access to credit and loan facilities. That’s one step in ensuring more resources are channeled to the agriculture sector,” he added.
Weak agriculture growth and last year’s inflation spike exposed the vulnerabilities of the farm sector. The DBM is currently reviewing studies by agriculture experts in an effort to find ways in enhancing resource allocation in the farm sector. One recommendation by the Organisation for Economic Cooperation and Development (OECD), for instance, is to direct more resources in improving supply-chain connectivity (e.g. farm-to-market roads and other infrastructure) and focusing on agricultural research and extension services. This leads to long-term productivity gains as opposed to emphasizing input subsidies (e.g. fertilizers, seeds).
“We will coordinate with the concerned agencies, especially the Department of Agriculture (DA) and the National Economic and Development Authority (NEDA). Once ready, we will share our findings in hopes of reversing the poor performance of agriculture. This will take a holistic approach, both in policy formulation and program implementation. Rest assured that the DBM will continue to play its part in ensuring that resources are allocated to most beneficial and most efficient purposes,” Secretary Diokno concluded.