Ever since January 1995, when the country entered the World Trade Organization, the government fully opened the economy and liberalized trade (tearing down tariff barriers), which began the import mode for food sufficiency.
Yet 27 years later, this has led to unfair competition for local farmers against the imported food products and the gradual death of Philippine agriculture.
The Philippines was one of the founding members of the WTO regime that was supposed to foster better trade, but not fair trade for the member-countries. It turned out that countries that benefitted more from WTO are the same advanced countries, who can afford to dump their agricultural produce in developing countries’ markets.
‘Inappropriate import-heavy’ food sufficiency model
Elias Jose M. Inciong, president of the United Broilers Association, told Philippine Star recently that the economic managers, with the cooperation of the Department of Agriculture, adopted an inappropriate import-heavy model for achieving food sufficiency, which is now being disrupted by the fallout from the Russia-Ukraine war.
Add to that the unstoppable fuel price increases, the pandemic which forced economies to close, supply chain problems and the war in Ukraine, the sector suffer from neglect. The promised free trade became a one-way street with countries like ours buying instead of selling as vaunted by the WTO regime.
“Our economic managers and the Department of Agriculture (DA) believe that the template for us is Singapore, which is 90 percent dependent on food imports and yet is food-secure,” Inciong said.
The economic managers assumed that “we can depend on imports for food security. That’s why the agri-fisheries sector has been neglected since we got into the World Trade Organization. In short, the template is to depend on imports. Now, we are vulnerable and at risk. We are being made to pay for that policy in the coming months and years,” he added.
Food prices soar
The Philippine Statistics Authority reported this week that the price of food and non-alcoholic beverages rose by 4.9 percent year on year in May, fueled by a 15.2 percent increase in vegetables and tubers and a 6.2 percent jump in fish and seafood.
Inciong said that the incoming administration can forestall a supply crisis by supporting domestic production.
“Our advantage is since we still have the resources to produce, if the incoming administration will focus on production and support income-generating projects, we can minimize our risk of a really major food crisis,” he said.
“Producers are being made to compete with subsidized products; since imports have become more expensive, everyone is at risk now. Best way to solve this is for the government to support production in more creative ways,” he added.
The food crisis triggered by the war between Ukraine and Russia has led governments to restrict the export of food commodities to secure their domestic supply. Ukraine is a major producer of grain and edible oils, while Russia is also a major grain and fertilizer producer, apart from being a leading energy exporter. The war has turned the Black Sea into a conflict zone, restricting both countries’ exports through that body of water.
According to Moody’s Analytics, protectionism is surfacing throughout the Asia-Pacific in response to the food crisis.
“Protectionist policies tend to be short-lived and isolated. But in 2022, we are seeing an unusual convergence of protectionist policies on multiple food staples. This comes against the backdrop of disrupted supply chains and geopolitical uncertainties related to Russia’s invasion of Ukraine, which pose a longer-term threat to global food security,” it said in a report.
Moody’s Analytics said that the food crisis will continue over the next two to three years if substitutes cannot be found.
“For example, the variants of wheat grown in Ukraine are winter wheats, which are harvested in late June to July. Today, much of the country is in turmoil, there is limited capacity to move what little harvestable crops are left, and many silos to store the harvest have been destroyed,” it said.
The report projected a significant food shortage in 2023, with underdeveloped economies most exposed.
“And if the invasion drags on till September or November, there will not be enough time for planting wheat in Ukraine for the following year. Making matters worse, Russia is the largest exporter of fertilizer, which are necessary for reliable harvests,” it said.
“The longer Russia’s invasion of Ukraine continues, the higher food prices will go and the greater the risk of food shortages. Geopolitical forces are coming to bear on global food security. Whether it is palm oil from Indonesia, wheat and sugar from India, or chicken from Malaysia, major food producers are tightening export policies to tame inflation and shore up domestic supplies,” it added.
WTO review of Phl in September 1999
The trade policy review of WTO secretariat in a September 1999 press release showed the policy reforms pursued by the Philippines over an extended period have resulted in a more open, competitive economy which was able to withstand relatively unscathed the Asian financial crisis.
A new WTO report on the trade policies of the Philippines concludes that this provides a generally good example of the advantages of structural reform in overcoming macroeconomic shocks. The report also suggests that the Philippines could derive further benefits, including for its consumers, from more outward oriented, as opposed to an export-oriented trade and investment regimes.
It noted that the Philippines has removed most of its non-tariff barriers with the notable exception of rice, which remains traded exclusively by a State agency. (Things are different now. National Food Authority is a shell agency with limited functions and rice tariffs had been liberalized to the max, proving detrimental both to producers and consumers).
However, the report also states that remnants of the earlier import-substitution policies persist, pushing up exporters' costs through competition from protected import-competing sectors. In part to offset this bias against exports, the Philippines has introduced measures in support of export-oriented activities, including various tax exemptions on imported and locally supplied inputs.
Although several activities are yet to be fully open to foreign investment, more liberal investment policies and a privatization program have widened the choice of sector for domestic and foreign private investors and thus contributed to export growth. Foreign investment has also been attracted by sound macroeconomic policies, a stable business environment, skilled labor force and a comprehensive system of fiscal incentives. The report notes, however, that these incentives have become complex and burdensome to administer, that they may be fiscally expensive, and may divert investment from efficient uses.
The report notes that progress in the privatization of state corporations has reduced the degree of state intervention in the economy. In the services sector, for example, privatization and liberalization have made significant headway in raising the competitiveness of domestic producers. However, the Philippine economy is still characterized by a high degree of market concentration, with significant state involvement in some sectors, such as banking and air transport. There is no comprehensive law, nor central government agency overseeing the implementation of competition policy, and the report suggests that a comprehensive competition law would help ensure that limited market competition does not dampen the full benefits of investment liberalization and privatization.
The report states that current Philippine policies tend to favor agriculture and related processing industries over most other activities. Support for agriculture relies predominantly on border protection, relying on very high out-of-quota duties administered through a complex system to protect sensitive products like rice or corn. The report also notes that though legal provisions were introduced in 1997 to enhance food production and lower prices, the domestic price of some agricultural commodities exceeds world prices by a wide margin. This is now a myth.
While acquiescing to foreign trade agreements, the Philippine government forgot, willfully or not, to institute safeguards to protect local food producers. And this has led to the impending demise of the farming sector.
We may look good before the eyes of countries abroad for abiding and taking seriously our commitments to them. But government certainly has abandoned the very sectors that would bring the country to the growth path and its sustainability as a nation.