Crisis of PH agriculture drives high inflation and economic slowdown

August 10, 2018

by IBON Foundation

Research group IBON said that the recently released second quarter 2018 growth figures confirm the fundamental reason for rising food prices: underdeveloped agriculture from government neglect.

While the Tax Reform for Acceleration and Inclusion (TRAIN) law is the most proximate driver of inflation within the Duterte administration’s control, the agricultural sector’s underdevelopment is the long-term reason for rising food prices. The sector is in deep crisis with slowing growth, massive job losses, and domestic food supply insufficient for the growing population, said IBON.

The PSA reported drastically slowing growth in agriculture to 0.2% in the second quarter of 2018 from 6.3% in the same period last year. First semester growth has correspondingly been dragged down to just 0.7% in 2018 from 5.6% in the first semester last year.

IBON noted that agricultural growth today falls far behind estimated population growth of 1.6% in 2018 and is well below the 7-decade historical average of 3.0% since 1948. The agricultural slowdown is also reflected in massive job losses in the sector. Agricultural employment collapsed by a huge 723,000 to just 9.8 million in April 2018 from 10.5 million in the same period in 2017, the group observed.

“The Duterte administration only gives lip service to improving agricultural productivity amid this severe crisis of agriculture in the countryside”, IBON executive director Sonny Africa said. He said that the 2019 budget for Department of Agriculture (DA), for instance, is even proposed to be cut by Php862.3 million or a 1.7% decline to Php49.8 billion from Php50.7 billion in 2018. These are comparable figures using the cash-based equivalent for 2018 with the cash-based budget for 2019.

“The administration also continues long-standing government neglect of the sector”, Africa added. “The combined agriculture and agrarian reform budget is only 3.7% of the total proposed cash-based budget for 2019. This is less than the 3.8% share under the obligation-based budget for 2018 and even lower than the historical range of about 4-6% since the mid-1980s.”

According to Africa, proposals to increase food imports may be necessary but should only be a short-term emergency measure used with restraint if it has been established that there is a shortage. It is possible for more food imports to lower prices but only if traders do not exploit tariff cuts just to increase their profits, he said.

“With importation, uncompetitive domestic producers not given enough support by the government will be displaced if trade protection for them is removed. Importation could also tend to worsen the trade deficit and add to pressures for the peso to depreciate,” Africa warned.