YEARENDER : How rising food prices exposed the agri sector’s weakness

(Part 2)

Inefficiencies in vegetable supply chain

Whenever calamities hit north of Metro Manila, vegetable prices in the capital immediately rise. This is because the metro is highly dependent on the northern region for supply.

Highland vegetables such as those use for chopsuey like cabbage, carrots and potato are supplied by the Cordillera Administrative Region (CAR). Other regions, meanwhile, supply pinakbet vegetables such as eggplant, ampalaya, pechay and sitao.

Data from the CFA show that at the peak of inflation growth in September 2018, the per kilogram retail prices of several vegetables registered double-digit growth year-on-year. For example: carrot (50 percent), cabbage (14 percent), potato (17 percent), ampalaya (43 percent), eggplant (100 percent), pechay (43 percent) and sitao (25 percent).

UA&P’s Rolando Dy said prices are highly influenced by inefficiencies in the supply chain such as having low yield, high postharvest losses, high cost of consolidation of crops from small farmers, and high cost of logistics from farm to retail.

Weather disturbances also factor greatly in prices because if, for instance, there are typhoons, landslides can occur, leading to road closures. As such, traders would stop procuring as they cannot transport. Farmers would also opt not to incur additional cost for harvesting if they cannot bring these to the trading posts or if there are no traders to buy their produce.

This is reflected in the large difference between the per kilo price at farmgate versus prices at retail. For instance, in 2017, the farmgate price of cabbage was at P18.40, whereas retail price was at P61.49. For carrots, the farmgate price was at P31.50, whereas the retail price was as P78.85.

“We need to diversify production sources to minimize fluctuations in prices,” said Dy, noting that vegetable production could be further developed in Calabarzon and Mindoro where there are many idle land for sale or lease.

The recent wastage of tomatoes in Laguna also reflect the inferior state of market information and crop consolidation among farmers and traders. On the industrial side, this also shows the weak linkage of local farmers to food processors.

“It’s basically a lack of market information and coordination. They planted the same crop at the same time,” said CFA’s Senen Reyes.

Reyes noted that there may be a need for centralized buying and provision of market information like what is being done in Taiwan and Japan to protect supply and stabilize prices both for farmers and consumers.

The establishment of a futures market in the country can also guarantee fixed earnings for farmers, encouraging them to produce at an appropriate volume.

“We don’t have a futures market here. In other countries they have a futures market so you can lock down prices in the future,” said Chikiamco.

Ang said the municipal agricultural offices can also step in with regard to informing farmers of the proper planting schedule to ensure viability and availability of their produce.

Spillover effects

The persistent weakness in the agriculture sector has an immediate spillover effect to the manufacturing sector which also produces a lot of the country’s food needs.

Ang said the weak agro-industrial linkage in the country is causing more food manufacturers to import raw materials instead of sourcing from local farmers. This translates to higher food costs because of the weak peso.

“In the manufacturing sector, the biggest contributor is food manufacturing, 30 to 40 percent of local manufacturers. So if local sourcing is weak, manufacturers will import. Agriculture and manufacturing should be linked but that is not what is happening,” he said.

For Chikiamco, the surest way to link farms to processing is for conglomerates to invest in agriculture. But how when Philippine farms are too small and too fragmented and encumbered by restriction of agrarian reform?

“The most fundamental problem in the agriculture sector, of course, is the CARP (Comprehensive Agrarian Reform Program), which is supposed to have expired. Conglomerates are not investing in agriculture when we are 100 million Filipinos and there is a big demand for food,” he said.

At the very basic level, it’s impossible to attain economies of scale when the limit is placed at five hectares. Inheritance of lands from original beneficiaries also make these parcels more and more fragmented over the years, making them difficult to consolidate.

“So if you are a successful farmer, you can’t expand. So why would young people even try to make a living?” said Chikiamco.

“In order to increase productivity you need management, capital and technology. But given the present environment, nobody is investing. In fact you will see a lot of empty areas in Laguna because people are still afraid to produce something and be subjected to CARP although it’s supposed to have expired. So that discourages investments,” he added.

There is much to gain from strengthening the country’s food manufacturing base as many crops are seasonal and can be grown in stable supply under favorable conditions.

“When you have raw materials, it is a source of stable jobs with relatively good pay,” he said.

But spillover effects go beyond industry, Ang said, as deficiencies in nutrient-rich foodstuff that poorer people cannot afford to buy also gets in the way of the country’s poverty-eradicating measures and human development agenda.

“If you look at malnutrition data, the problem is access to fruits and vegetables. People cannot afford to buy. Some, so long as they have rice and soy sauce, it’s enough. They address immediate hunger but not their full nutritional needs,” he said.

“So that leads to stunting among the young, wastage. These are interconnected problems,” he added.

Moving forward

Economists say that while the non-tariff measures would serve as temporary stop-gap measures, the government must immediately take steps to reform the agriculture sector to prevent further strain on food prices.

“It’s not sustainable in the long-term. What if the exchange rate keeps weakening? Importation alone will not solve our problems. What we need is to increase production,” said Chikiamco.

“Especially now in the age of global warming when there will be shortfalls in production of a lot of food. So the government should be preparing our farmers for that,” he added.

With rice, Reyes said the government can have better timing and volume estimation of imports. For instance, there are still inconsistencies with government and industry data with regards to milling recovery rate.

The DA estimates rice milling recovery rate at 65 percent whereas the private sector estimates this at only 60 percent. This affects the computation for importation volume because there may be a five percentage point gap in the importation volume needs if the private sector estimate is more accurate.

While Chikiamco believes that CARP is a “gigantic failure,” the law stands and if it is to be kept, the law must be amended to at least allow landowners to expand so they can have economies of scale and to allow agrarian reform beneficiaries to borrow from financial institutions using their certificate of land ownership award (CLOAs) for the development of their lands.

Awarding of lands under CARP has also so far not reached its target of 10.3 million hectares even after its extension until 2014. Ang said the government must now have a firm position on whether to pursue it further or to have a free market for land from now on.

“I think we need an overall analysis of the agricultural sector, what we want to do with it,” said Ang. “We need to able to say with finality if we want to stop or continue with this (CARP).”

Reyes said Filipinos also need to be able to get out of the subsistence mindset in agriculture and rural development.

“Here we take things for granted. They say stick something in the ground and it will just grow. We are still on thinking in subsistence terms,” he said.