Food for thought

Food manufacturing makes up exactly one-third of our economy’s manufacturing output, the single largest segment of our manufacturing sector. It’s an industry that everyone patronizes, hence easily reaching the widest and most varied market among all economic production activities. With its prominence, the slowdown in its growth to 4.1 percent last year, from 4.9 percent in 2017, was both cause and consequence of the moderate slowdown in the overall economy in 2018 (from 6.7 percent to 6.2 percent GDP growth). There is no doubt that the sector is critical to the Philippine economy’s performance.

Food processing/manufacturing, by its direct linkage to agriculture as source of raw material, could well be the most important sectoral driver of inclusive economic growth. That is, if we would like large numbers of Filipinos to be participants in and beneficiaries of our economy’s growth, promoting growth and development in the food processing and manufacturing sector must be a key strategy. For an agriculturally endowed country like the Philippines, it would be a strategic way to pursue greater industrialization in symbiosis with agricultural and rural development.

One particular advantage of the industry is that the demand for food products tends to be stable even in the face of economic slowdown. Food, after all, is highest in the hierarchy of priority expenditures of the average family, accounting for nearly half of total family expenditures, the single largest share of any commodity group. This makes the sector largely immune to economic crises, with growth in the industry having remained positive even in periods when other industries had contracted.

At the same time, consumer demand for processed food (as against food in general) is likely to grow further with rising incomes, as people shift from food in primary form to more expensive food products that are more highly processed and packaged. Thus, while demand for food in general tends to be income-inelastic (i.e., rises less than proportionately with rises in income), food manufactures would generally benefit from rising income levels. With the growing average income of Filipinos projected to be sustained in the years ahead, domestic demand alone for food manufactures could be expected to grow continuously.

Meanwhile, there has also been a sustained rise in per capita consumption of fruits, vegetables, fish, milk, alcoholic beverages, and nuts and oilseeds in Asian countries. Coffee demand alone has zoomed in Asia and worldwide over the past 15 years. Developed countries have shown similar strengthened demand for horticultural crops (fruits, vegetables and beverages) and processed agricultural products. Although the developed countries are net exporters of cereals and dairy products, they are net importers of fresh fruits and nuts, processed fruits, fresh and processed vegetables, as well as meat and meat preparations.

These trends point to wide scope for growth in the food-processing sector. With ever-growing markets for processed fruits, vegetables and nuts both in our surrounding countries and in developed countries farther out, our ability to sell these products will only be constrained by our ability to produce them, and by our competitiveness vis-à-vis our neighbors who produce similar products.

Herein lies the important challenge for us. Our competitiveness in food manufacturing has traditionally been hampered by high domestic costs due, among other things, to trade protection on vital inputs, especially sugar. We have also neglected giving adequate research and development support even to our long-standing traditional export crop, coconut; what more for others like mango, coffee, cacao, rubber and exportable tropical fruits abundant in Mindanao. I attribute this relative neglect to the inordinate attention and budget traditionally focused on rice, and achieving self-sufficiency therein at whatever cost.

Finally, there also has to be much closer active partnership—not just coordination—between the Department of Agriculture and the Department of Trade and Industry. Food manufacturing, after all, represents the marriage of the work of both departments.

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