Agricultural Production and Government Policy

Agricultural Production and Government Policy

The percentage of the population living in rural areas declined from 68 percent in 1970 to 57 percent in 1990, and the share of the labor force engaged in agriculture, forestry, and fishing also decreased to less than 50 percent by the late 1980s. Roughly two-thirds of agricultural households farmed their own land or were tenants; the others were landless agricultural workers. Some 75 percent of agricultural value added came from crops and livestock. The remaining 25 percent came from forestry and fishing. Value added in agricultural crops grew rapidly in the early 1970s, averaging growth rates of 7.7 percent. In the 1980s, however, with the exception of corn, which was in growing demand as an animal feed, the growth rate of agricultural production declined and was sometimes negative for bananas and sugarcane. Low world prices combined with the high cost of inputs such as fertilizers were two of the most important reasons.

The government pursued sometimes contradictory goals of maintaining cheap food and raw material prices, high farm income, food security, and stable prices, at times through direct intervention in agricultural markets. In 1981 the National Food Authority was created. It was empowered to regulate the marketing of all food and given monopoly privileges to import grains, soybeans, and other feedstuffs. The ability of the National Food Authority and its predecessor organizations to stabilize prices and keep them within the established price bands, at either the farm gate or the retail market, has been quite limited because of insufficient funds to affect the market, strict purchasing requirements, and corrupt practices among authority personnel. In 1985 the role of the National Food Authority was reduced, and price ceilings on rice were lifted. Beginning in the 1950s, government efforts to stimulate industrial development, such as tariffs on manufactured goods, overvaluation of the currency, export taxes on agricultural commodities, and price controls had a deleterious effect on the agricultural sector, making it relatively unprofitable. On the other hand, irrigation water was distributed at below-cost prices, and fertilizer manufacturing was subsidized.

Beginning in the latter half of the 1970s, the Marcos regime gave increased attention to agriculture and the rural sector in general, including agribusiness development. The Aquino government continued that emphasis, although its policy evolved from a commodity-specific orientation to a general, cropdiversification approach that relied more on market signals to guide crop selection. The rice-price stabilization program remained in effect, and a program was implemented to increase small-farmer access to postharvest facilities such as warehouses, rice mills, driers, and threshers.

Providing credit to the agricultural sector, particularly to small-sized and medium-sized farmers had been a government policy since the early 1950s, one that met with mixed success at best. By the early 1980s, there were approximately 900 privately owned, rural banks, which were the principal implementors of government-sponsored, supervised credit schemes. The Masagana 99 program was initiated in the early 1970s to encourage adoption of new, high-yielding rice varieties. No-collateral, low-interest loans were made available to small farmers, mainly by privately owned, rural banks, with the government guaranteeing 85 percent of any losses suffered by the banks. In general, however, regulated interest rates made rural banks unattractive to depositors.

In 1975 more than 500,000 farmers participated in the Masagana 99 program. By 1985, however, the program had expired because of high arrearage and the tight monetary policy instituted as part of an agreement with the IMF. The program was revived in the Aquino administration's Medium-Term Development Plan, 1987-92. According to a government report, however, as of 1988 the program had not yet reached most of the intended beneficiaries. Government efforts were also underway to rehabilitate rural banks, the majority of which had experienced severe difficulties during the economic crisis of the early 1980s and the subsequent monetary squeeze.

Country Studies main page | Philippines Country Studies main page