January 31, 2022

by IBON Foundation

The Philippines and especially our agriculture sector is grossly unprepared for any further liberalization as under the Regional Comprehensive Economic Partnership (RCEP) Agreement.

The last four decades of globalization have been catastrophic for the economy. Industrial development is becoming ever more difficult to achieve. Manufacturing has fallen to its smallest share in gross domestic product (GDP) since the 1950s and is more foreign than Filipino, especially in low value-added export enclaves disconnected from the national economy but for hiring cheap labor.

But it is agriculture that is especially devastated. Agriculture has fallen to its smallest share of GDP in the country’s history. It fell to its smallest ever share of 9.2% of GDP in 2019 and is still at just 9.6% as of 2021.

The last five years of the Duterte administration which even reduced the already pitiful share of agriculture in the national budget has only made things worse. From just 3.72% (obligation-based) of the national budget in 2016 it has become even smaller to 3.39% (2017, obligation-based), 3.46% (2018, obligation-based), 3.64% (2019), momentarily larger to 4.17% (2020), but then down to 3.18% (2021) and barely 3% in 2022.

This is the biggest factor for agricultural growth averaging just 1.2% in the last five years (2017-2021), which is not even one-third of the historical average of 3.8% since the end of the Second World War.

Agriculture has become so neglected for so long and especially in the last five years that, for the first time in the country’s history, agriculture has even become smaller than the utilities subsector. Its 9.6% share in 2021 was smaller than the 9.7% of electricity, gas and water, transportation and storage, and communication combined. Yet the 11.2 million employed in agriculture is over three times the 3.5 million in utilities.

The pandemic and the excessive lockdowns have driven millions back into agriculture. Agricultural output has fallen though which means that the bloated rural workforce is dividing a smaller pie between them – which means growing rural poverty.

Between 2019 and 2021, agricultural output contracted by 0.5% (from Php1.784 trillion to Php1.776 trillion) but agricultural employment bloated by 15.1% (from 9.7 million to 11.2 million). This means that average agricultural output per employed in agriculture actually fell by a huge 13.5% over that period.

Other RCEP countries give much greater support to their agricultural sectors, historically until today. They were more protected and more subsidized for decades which has made them more competitive.

We also need to be wary of the false promises of computable general equilibrium (CGE) models. These only give pseudo-scientific justification for bad, failed and destructive neoliberal policies. They have always been methodologically suspect for unrealistic assumptions needed to make the models work.

They work by simultaneously determining prices and quantities in multiple inter-connected markets on an economy-wide scale. Yet large parts of the Philippine economy which are so informal, especially in agriculture, do not have functioning markets. The competitive markets the model assumes do not exist in the country (or indeed anywhere else); this is not really fixed even by attempts to allow for non-market clearing behavior, imperfect competition, non-price driven behavior, externalities, and other tweaks.

Trying to look at the impact of a specific measure like a free trade agreement also means an all-other-things-equal (ceteris paribus) assumption across so many economic factors. Although pretending to help us look at the full consequences of policy changes, it actually just investigates repercussions according to a very bounded model. The linkages between sectors and values generated are precise but this is an illusion of certainty because they only work within that closed model and not in the very messy real world.

All CGE models really do is isolate factors according to very specific parameters – they do not and cannot forecast and pretending that they do is intellectually dishonest. Too many users pretend that these see into the future but really all they do is give pseudo-scientific justification for bad policies.

But they are especially inappropriate and meaningless now because of vastly changed and disruptive pandemic conditions. Any models being cited cannot account for the crowding in of so many into agriculture, or for the huge collapse in rural households’ welfare, or the disruption and volatility in global supply chains.

All the presidential candidates talk of food security and supporting the agriculture sector and small farmers and fisherfolk. Many senatorial candidates and any re-electionists may say the same. But passing RCEP will make all these promises empty.

It’s long overdue to let go of the reckless abandonment of agriculture and the Philippine economy to market forces that the Philippines is ill-prepared to take advantage of. IBON calls on our senators to reject Philippine membership in RCEP. Agriculture, our farmers and fisherfolk, and indeed Filipino industry and workers have been neglected for so long – we’re sure that this Senate does not want to be known for having driven the last nail into the coffin of our economic backwardness.