How to sustainably increase agricultural growth by at least 1%?

STAR PHILIPPINE / MICHAEL VARCAS

TThe Philippine economy is expected to grow this year perhaps between 4% and 5%, coming out of a deep contraction last year largely due to economic lockdowns here and the global economic recession, all due to COVID-19 . If agriculture is to make a significant contribution to economic recovery, it should return to its growth performance of several years ago.

Recent data is not encouraging. Agricultural growth has not contributed to the higher growth of the economy over the past decade. When the economy grew faster to become the second best performer in East Asia after China, the growth disparity between GDP (gross domestic product; the monetary measure of the market value of all the final goods and services produced in a given period) and the GVA (gross value added; the measure of the value of goods and services produced in an area, industry or sector) of the growth of the sector had enlarged. Agriculture has been left behind.

It’s no surprise that as the economy recovers this year and maintains higher growth in 2022, the sector will, as in the past, be left behind.

To reverse this trend, the authorities may wish to focus on realizing the comparative advantage of the agriculture and fisheries sector. In the 1960s, the share of agriculture in total exports was 64%. Its contribution to the GVA was 33%. In 2019, these figures fell to 8% and 1.6% respectively.

Considering both exports and imports, the marketability of the sector fell from 38% in the 1960s to just 3.5% in 2019.

If the sector can increase its share in the overall growth of the economy, the sector only needs to increase its exports and imports. It must become more open to the global economy. Economic performance is strongly correlated with export performance, and robust export performance is in turn correlated with more imports.

We had focused our attention on increasing productivity, investing large sums of public money to increase the yield of our rice farmers. The problem is that we have focused too much on the rice sector alone to the detriment of other commodities with great potential for increasing the sector’s exports. Rice, it’s true, had been our export success in the 1970s. But that was only for a few years, and in their heyday it wasn’t that important.

Our apparent mantra of reliving our golden age of rice came at the expense of declining export performance. We were proud of our coconut exports in the 1970s, but we lost that advantage to palm oil exports. It is concerning to note that agricultural exports accounted for only 7% of total merchandise exports in 2018, 9% if we include processed food and beverages.

I tried to estimate the value of discontinued exports of the top 20 agricultural exports to the top 20 market destinations. We may have lost $ 230 million by not taking advantage of the strong growth in imports from our trading partners like the United States of products that we can supply. In fact, 65% of these potential abandoned exports are attributable to our agricultural exports to the United States.

It is high time that, while continuing to increase the productivity of our farmers and fishermen, we put more weight on expanding our exports, realizing the sector’s comparative advantage in world markets.

FOOD SAFETY STANDARDS
There are many constraints to exports, but I want to focus on our inability to meet international food safety standards. The top 20 Philippine exports over the period 2014-2018 were compared to food safety measures applied by the country’s main export markets. Over the five-year period, the average share of the top 20 commodities was almost 3/4 of all these exports. Trading partners in turn, which include East Asian countries, the EU, Australia and the United States, account for 91% of all the country’s export markets for these products.

Food safety measures constitute the bulk of all non-tariff measures on traded goods. Member countries of the World Trade Organization (WTO) retain their right to develop and adopt their own food safety regulations that provide their respective appropriate levels of protection. While different countries have different SPS standards, the Sanitary and Phytosanitary Agreement (SPS) strongly endorses international standards set by international standard-setting bodies.

International benchmarking of agricultural exports is essential to understand the overall export performance of these products. Cases of failure or refusal at the border of the country’s exports testify to a weak capacity to comply with international standards. I have examined the reasons for rejecting our agricultural exports to three markets, Australia, the EU and the United States.

In Australia, export refusals are attributed to those products that do not meet the maximum residue limits (MRLs) for non-microbiological substances; prohibited substances used in the processing of food products; and the incidence of aflatoxins. Two SPS standards are involved: MRLs and banned or regulated substances. For the MRL, the SPS capacity in question relates to the production and post-production processes leading to the final products (dried fish and jute leaves). Capacity building in this area may involve improving production processes and post-harvest / production management, or greater access to testing laboratories for food products for export.

For banned or restricted substances, food exports are required to comply with Australia’s negative list of substances. Most of the relevant incidents identify processed foods to which micronutrients (vitamins) have been added. Although micronutrients are not necessarily harmful to health, the Australian standard does not allow the indicated product-micronutrient combinations. Unless the scientific legitimacy of the banning of the substances in question has been contested by the Philippines, then the SPS issue becomes an issue of awareness. Providing relevant information in advance to food exporters on this Australian standard avoids incidents of failed food export inspections and allows exporters time to adjust the composition of the product.

In the case of our exports to the European Union, 13 different product categories were reported in 83 cases of food safety alerts. The most affected export products are prepared meals and snacks, accounting for almost 23% of all cases. These processed foods have been reported as a health risk primarily due to their use of color additives and other prohibited substances. For soups, broths, sauces and condiments, most of the problems relate to excessive levels of color additives and a carcinogenic chemical food contaminant.

The health risks associated with nuts, nut products and seeds are mainly due to high levels of aflatoxin. The secondary reason is the undeclared use of color additives, not all of which are permitted.

The notifications of risks to fish and fishery products were mainly due to damaged or defective packaging and inadequate temperature control during transport or storage.

In the case of the US market, import refusal fees can be categorized into three general categories: forgery, trademark error, and all others. Seven of the ten refusal to import charges were due to forgery. Adulteration due to biological contaminants (pathogen or toxin) accounted for 14%. Chemical adulteration accounted for 17% of all charges, and two-thirds of these involved the use of color additives deemed to be dangerous.

Adulteration due to all other factors other than biological and chemical is the main reason for all refusals to import, and the charge reads: “the article appears to consist of a dirty, putrid or decomposed substance”. This represents almost 40% of all refusal charges and almost 41% of all forgery charges.

Along with adulteration, there are labeling fees that cover both SPS and technical reasons. Of 1,090 import refusal charges, 235 were due to the above labeling grounds. The most frequent case of labeling is the non-declaration of the use of artificial colors.

Other denial charges outside of adulteration and mislabelling refer only to “no new drug requests”. This applies to products that claim health benefits and other therapeutic benefits.

The weaknesses or constraints of our country’s exports can be reversed by educating and helping producers and exporters to comply with the market standards of trading partners. International benchmarking of products and world market standards would be an important aid to exporters in increasing their income and diversifying markets for the country’s main food and agricultural products.

If we want the sector to increase growth by at least 1%, the authorities may be able to focus their assistance on helping our agricultural and fish exporters meet international food safety standards.

Romeo L. Bernardo was Undersecretary of Finance under the Cory Aquino and Fidel Ramos administrations.

romeo.lopez.bernardo@ gmail.com

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