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No Free Lunch

Redirecting our agriculture

/ 04:20 AM October 18, 2019

Over two decades ago, the Philippines slipped from being a net agricultural exporter to a net agricultural importer. That is, we now spend more for agricultural products that we import than what we earn from agricultural products that we export. The two products mainly responsible for this switch were rice and sugar. Ironically (but to economists, not surprisingly), these two farm products have traditionally been our most highly protected commodities, via import restrictions and high import tariffs.

By the turn of the century, we were already importing larger quantities of rice, especially as domestic production was getting more frequently hit by El Niño-induced droughts, and productivity was generally falling. The latter, to a large extent, was traceable to how our total effectively irrigated agricultural land area had been declining rather than rising, owing to our failure to properly maintain our irrigation systems. It’s often said that we Filipinos are good at building new things, but not in maintaining them (just look at what’s happening to our mass transit rail lines in Metro Manila). For irrigation, this is made worse by the fact that we cannot collect irrigation service fees—traditionally the main source of funds for maintaining the systems. It’s a classic case of the economists’ maxim that there’s no such thing as a free lunch (which inspired the name
of this column!).

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A second major reason for our declining irrigation service area is degradation of our watersheds due to deforestation. Diminishing groundwater also makes individual tube-well pump irrigation systems unable to provide the needed water. A third reason has been tighter competition for freshwater resources between commercial and household use, on one hand, and irrigation, on the other. Population pressure and rising industrialization lead to this inevitable result, especially if we fail to provide adequate infrastructure to make effective use of our freshwater resources.

The Casecnan multipurpose project, for example, was meant to rechannel fresh water that would otherwise spill into the Pacific Ocean, and bring it instead to the Pantabangan Dam and put the water to good use for irrigation, water supply and hydroelectric power generation. This, along with the Angat-Umiray Transbasin, a similar concept, the San Roque Dam and the Laiban Dam, have proved to be inadequate responses to a water supply problem that is getting more acute every passing year.

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Sugar, meanwhile, has been humbled from what used to be among the country’s top export earners, to a product we now import in large quantities. The industry sank deeper and deeper into uncompetitiveness under years of very high trade protection—yet our approach to the industry continued to be to perpetuate, and even increase, such protection. Rather than shape up and face the realities of international competition, the politically influential industry managed to convince government after government to keep the very high trade protection extended to the sector. It should therefore be no surprise that this industry has sunk into what some now fear to be a sunset industry.

Thus, the Philippines, along with many other developing countries, finds itself importing more and more farm products from the rich countries. Industrialized developed countries have in fact become even stronger net exporters of farm products, primarily cereals, meat and milk products, to the developing countries through time. While their substantial subsidies for these products partly explains this, these countries also have higher land-labor ratios than highly populated developing countries, and hence could enjoy comparative advantage in these particular farm products.

Interestingly, and of crucial significance for us, these same rich countries have seen rapid increases in imports of horticultural products—fruits, vegetables, nuts and beverages—in fresh and processed form. The future of our farm export sector, then, must hinge on these products. Now is the time to shift from having a de facto “Department of Rice,” as I’ve heard some pundits joke, to having a true Department of Agriculture.

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TAGS: agriculture, droughts, El Niño, irrigation service
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