Apart from the “land fetish” I discussed in the previous column, there are other irrational orthodoxies plaguing our economic policy architecture – and causing us to fall behind our neighbors.
For some reason, we have a deep distrust both for foreign investments and trade-driven development. This has led us down the path towards autarky – and therefore inefficiency.
The distrust is probably hangover from our colonial trauma. But it is also fostered by a strong millenarian trend on our social movements that glorified some imagined pristine past poisoned by colonial influence.
The inclination of our economic policy towards autarky skewed our own development. We frown on large plantations and romanticize small farms. The former is efficient and the latter in inefficient.
Consequently, we are a nation without orchards to speak of. Orchards require long investments waiting for trees to be fully productive. The subsistence mode that entraps most of our basic agriculture militates against long investment cycles in land production.
Last year, when the administration celebrated a deal that opened the China market to our durian exports, few mentioned that we do not have much durian to speak of. There are no large durian orchards comparable to our banana plantations that somehow squirmed around the land reform orthodoxy to do contract farming with small landholders.
As a general rule, we prohibit foreign investments. That is an orthodoxy enshrined in the overwritten 1987 Constitution.
For years since 1987, we have been trying to work around the self-destructive nationalist prohibitions in that Constitution framed by a cabal of activists appointed by Corazon Aquino. They smuggled obsolete economies orthodoxies into the basic law of the land.
Over the years, our policymakers have been trying very hard to limit the damage brought about by a nationalist Constitution. We tried to find justification in trimming down the negative investment list and pass laws like the recent Public Service Act to open more areas for investments to flow into our economy. Notwithstanding, we remain last among our regional peers in the investments we attract.
There is a proposal from, among others, the Foundation for Economic Freedom to increase the land retention limits of our land reform program. The proposal is to increase land retention limits to 24 hectares. This will allow farms to be large enough to capitalize our processes. But that will likely meet stiff resistance from groups on the Left who, against all economic reason, prefer our farms to be too small to be efficient.
Increasing retention limits to 24 hectares is not large but it will allow for our farms to be corporatized. Like the rest of our economy, our agriculture is investments-starved. That is the reason it is inefficient and unproductive – and why our farmers are caught in a poverty trap.
At that retention level, we might even imagine the proliferation of agro-industry that will retain much more value for the farming community. We might even imagine a renaissance of farms producing high-value crops with extended froward linkages to processing plants.
When we speak of “agricultural modernization,” it should be more than distributing hand-held tractors out of the money made from rice tariffs. We should be imagining highly integrated farm systems using the most advanced technologies available.
In the large poultry farms San Miguel is investing in, what exits the facility are blast frozen chicken parts packaged for the international market. This is what we ought to achieve across the board, in all our farms. We have to achieve levels of efficiency and value-retention that our present subsistence farms can never be capable of.
Our politicians seem too timid to imagine the possibilities. They would rather try to capture media space through media engineered events such as raiding the warehouses of “smugglers.”
And why has the smuggling of agricultural products – meats and vegetables – become so profitable lately? The reason is our cost of production is too high. It grew to that condition because of protectionism where inefficiency in farm production is simply passed on to our hapless consumers. This inefficiency depressed farm incomes and produced a food price regime too high for our people to afford.
In addition to welcoming international investments into our farms, we need to welcome them to modernizing our logistics system.
For generations, our shipping oligarchs were able to keep foreign competitors out of domestic shipping. This is the reason why it is cheaper to ship food from Thailand than from Mindanao. The unnecessarily higher cost is borne by our consumers.
We need to attract investment flows into our flagging industrial core. But large industrial investments are dissuaded by the prohibition on land ownership. They are not about to install capital-intensive plants on land they could not own.
The political Left, in particular, disdains anything large and prefers everything small – from small farms to small miners to take out our vast mineral wealth. But small farms are inefficient and small miners are the most destructive part of the industry because they do not have the capital and technology to do mining properly.
If we want to catch up with our neighbors, we need to think bigger. It is time to shed the ideological baggage that weighs down our economic policies, keeping us from being fully competitive for investments and for our exports.
Our trade strategy should not be hinged on exporting durian to China. We need a monumental effort to bring down our cost of production and compete in open international markets.