The economic response of many countries to the Covid-19 pandemic is to close their national borders. The idea is not only to prevent the spread of the virus but also to preserve their domestic markets, industries and jobs amid a global recession. In crisis times, countries become protectionist. This was amply illustrated during the 2008-2010 global financial crisis, when governments of developed countries set aside a large amount of their stimulus budgets to save industries deemed “too big to fail” or too valuable to be taken over by outside barbarians.
How about agriculture in Covid times? The Third World Network (TWN) of Penang, Malaysia reported on June 27, 2020 that the developed countries continue to pour “billions of dollars in farm support” to their domestic producers, “breaching their scheduled commitments” to the World Trade Organization. As a backgrounder, the refusal of the United States (under the US Farm Bill) and the EU (under the Common Agricultural Policy) to give up huge domestic farm subsidies while pushing the developing countries to liberalize agricultural markets is at the roots of the failure of the WTO to conclude a Ministerial Agreement on the so-called Doha Development Agenda, a comprehensive trade liberalization proposal launched in 2000 or two decades ago.
Per the TWN report, an unnamed trade ambassador summed up the trade talks in the WTO amid the pandemic as follows: “The stimulus packages being provided by the developed countries will have serious adverse effects on the productive capacities of developing countries” which “do not have the fiscal space to respond to these stimulus packages being offered by developed countries to their producers.” And yet, “at the same time, the developed countries are trying to push for less restrictions, new rules, new disciplines, including on export restrictions that can be used under specific conditions, to ensure that they have market access in developing countries.”
Examples of questionable subsidies during these Covid times were mentioned by TWN. The US has a food assistance program worth $19 billion, including $16 billion direct support to farmers and ranchers. Under this program, each producer can get as much as $250,000, per estimate by a Brazilian trade negotiator. Australia’s subsidy program comes in another form: “International Freight Assistance”, which means the airfreight costs of high-value agricultural and fishery products being exported by Australian producers is covered by their government. EU’s farm assistance program includes private storage aid and support to potato producers, on top of the usual EU subsidies.
Overall, instead of a coordinated global response to the Covid-19 crisis, member-countries of the WTO
continue to be divided on the offensive of agriculture-exporting countries to open up markets of developing countries while maintaining subsidies to their domestic producers. The plea of developing countries like South Africa and India for “policy space” such as the application of special safeguard measures during crisis periods to prevent an avalanche of imports has remained unheeded.
Now, what is the position of the Philippines today in the trade talks in the WTO and other trade forums? This is unclear and remains to be fleshed out under the new administration in the Department of Agriculture.
In the pre-Covid periods, the DA had officially aligned itself with Indonesia and other developing countries in the demand for more “policy space” and “trade flexibility,” for examples, use of special safeguard measures against unwanted imports and operationalization of the principle of “special and differential treatment” or SDT. The latter simply means recognition of the uneven development among countries and their differing capacities to nurture their agricultural sector; hence, a “one-size-fits-all” liberalization formula is one-sided and anti-development because the weaker members of the WTO cannot compete with the more developed members under so-called “equal” rules.
The problem is that there is a big disconnect between what the DA cites as the needed measures to protect Philippine agriculture and what the government actually does. For example, the former DA trade negotiators argued for more trade protection and flexibility; and yet, the national government, primarily through Neda, had been opening up the agricultural sector to global competition in a wholesale manner. Thus, when the Philippines joined the WTO in 1994-1995, its agricultural tariff commitments were way below those made by Thailand, a major agricultural exporting country in the world. This was so because earlier in the 1980s, the Philippines “unilaterally” reduced its industrial and agricultural tariffs under the “structural adjustment program” (SAP) imposed by the IMF-World Bank.
The neo-liberal argument for agricultural trade liberalization goes this way: market and competition help unleash agricultural productivity, paving the way for agricultural openness modernization. And yet, the reverse happened. Under the SAP’s agricultural deregulation and the country’s trade liberalization commitments to the WTO, the Philippines has become a major net agricultural importing country since 1994. We import virtually everything – fruits, milk, meat, legumes, vegetables, rice and numerous processed agricultural products. Our traditional export products (sugar, coco oil) and non-traditionals (pineapple, banana) cannot tilt the trade balance in our favor. This growing import dependence and the collapse of domestic agricultural production (mainly food crops and livestock) explain why the share of the agricultural sector in the GDP is a measly eight percent today.
With the Covid-19 crisis, there are renewed calls to revive, modernize and diversify the agricultural sector. This is critical since the health crisis has become a food crisis in the Philippines and in many countries around the world. And as each country tries to insure that their people have ample supply of food when needed, it becomes truly perilous for any country to be dependent on food imports. The decision of Asian rice exporters such as Myanmar and Vietnam to restrict or even stop rice exports during the pandemic is a signal that reliance on supplies coming from the global market, as favored by some neo-liberal economists, puts the country at great risk. National security dictates that a country must have the capacity to produce at home as much as possible the food requirements of its people.
Additionally, DA officials are correct in highlighting the strategic importance of agriculture as a source of economic growth in uncertain Covid times and as a job generator amid widespread joblessness in the urban areas. The question, however, is how can the Philippines fast-track the revival, modernization and diversification of the agricultural sector?
The country is never short of policy answers: strengthening the input-output supply chains, more support services to the farming population, free irrigation, completion of the land transfer program, agricultural credit, honesty and transparency in government procurement related to agriculture, better extension services, seed development, distribution of farm machinery, marketing assistance and so on and so forth. These are fine. However, we want to emphasize two major points: the importance of strategic re-visioning on agricultural development in Covid times and stronger and coherent policy coordination on trade and production issues. Let us illustrate these two points with regard to rice, the country’s staple food.
On strategic re-visioning, is it not timely to revisit and amend the Rice Tariffication Law? This was uniformly denounced by the farmers’ organizations when the law was proposed in 2018. As things turned out, the farmers’ organizations were correct. The RTL devastated the rice farming sector on the first year of RTL’s implementation. The big gainers were the big private rice importers-distributors who succeeded in restoring the country’s reputation as the world’s biggest rice importer. The big losers: palay farmers and small town rice traders, millers and viajeros.
Now that Covid-19 is here, the government realizes the vital importance of asserting its role as importer under government-to-government arrangement, as rice distributor and as facilitator in the rice supply chains. So why beat around the bush by asking the PITC to do the rice importation for government? Why not restore some of the functions of the National Food Authority? Why not amend the law in support of a more balanced program of rice modernization that is beneficial to domestic rice producers and consumers? Why not emulate what China, India, Indonesia and South Korea have been doing? These countries are all rice producers and yet resort to importation to maintain a buffer stock to meet domestic shortfalls. But they do rice importation under strict guidelines based on the framework that importation shall not subvert domestic producers, shall not sacrifice consumer interests and shall not create private monopolies in the rice business.
On trade-production policy coherence, DA, DTI, Neda and the Department of Finance should have a unified development approach. What we mean here is that if the policy is to promote rice self-sufficiency with allowance for limited rice importation, all these agencies should work as a team to make this happen. One agency cannot be focusing on enhancing domestic rice production, while another is allowing rice imports to flood the domestic market.
Thus, it is ironic that while Agriculture Secretary William Dar has been talking of “plant, plant, plant” and rice modernization, officials in the Bureau of Customs, which is under the DOF, have been very lax in monitoring and evaluating the volume and amount of imported rice entering Philippine ports. Raul Montemayor, National Manager of the Federation of Free Farmers, wrote (June 23) Secretary Carlos Dominguez regarding the Federation’s finding on the undervaluation of about 29 percent of rice imports in 2019 involving around 2.4 million tons of rice. The undervaluation happened because the FOB prices declared by the shippers-importers were used instead of the BOC reference rates. This undervaluation system, Montemayor explained, has continued to 2020.
Montemayor has identified other problems: the undervaluation of freight and insurance costs, application of the preferential Asean tariff rates on rice coming from non-Asean countries such as India and Pakistan, erroneous grade classification of rice imports, and poor establishment of standard reference rates. Because of the foregoing, Montemayor estimated that the government lost around P2.8 billion in tariff revenues from March 2019 to May 2020. This is a huge amount, which could have gone a long way in contributing to the program of agricultural modernization at home.
The point is that in agricultural development, a unified approach among government agencies is a must.