Aquino’s Rice Subsidies Keep Farmers Poor

Moving SLUSH FUNDs from NFA to DSWD. Here’s the situation – 70% of Philippine poor are subsistence farmers. Aquino government will not provide subsidized rice via NFA but through DSWD. Aquino government keeps prices of rice low, ergo rice farmers have low income and remain poor and will just have to take solace in DWSD subsidies.  If Aquino is really intent on reducing poverty of the Filipino poor (70% rural/subsistence farmers) – shouldn’t it make more sense to provide rice farmers with alternative income streams that generate more revenue instead of relying on government dole-outs?

No such thing as a free lunch

Remember that for every dole-out given by government – is a taxpayer – either an employee or a business whose income is being withheld and forcibly redirected to government coffers – there is no such thing as a free lunch people. 

I am all for being compassionate and caring for the least of our brethren. However I am from the school that would rather teach men how to fish rather than provide the fish.

Sure, I would love for the subsistence farmers to have increased prosperity – but not at the point of increasing my payroll tax, increasing road use tax, land property tax, sin tax, sales tax, VAT – so that President Aquino, Secretaries Abad, Soliman, and Mayor Pulbura and their gang of Tongsilors, tongressman, and SenaTong can play Robin Hood with my hard-earned money. It gets even better when the government secures a foreign loan and packages it with a fancy name and acronyms. They purchase a fleet of vehicles, have the government project name on it – if there’s a foreign agency involved it becomes more prestigious. But you see at the end of the day – if it is a loan, it has to be repaid. If it is a loan made in the name of the public – guess who will do the repaying – the public. Lemme remind you buster – public means, you, me, mom, dad, lolo, lola, pamangkin, kapitbahay – all of us paying for these loans one way or another – through more taxes. Where else do you think is the government going to get the money?

It just floors me to think about Mister Aquino, Mister Abad, and Miss Solimans’s propositions. Creating a permanent class of mendicants is wrong. The Filipino farmers deserve better than to allow themselves to be shackled by a self-defeating self-imposed xenophobic constitutional restriction – along with the rest of us fools.

Enabling a Culture of Patronage

MANILA, Philippines – The National Food Authority (NFA), the state-owned grains agency, will no longer provide subsidized rice to the poor as this role would now be transferred to the Department of Social Welfare and Development (DSWD).

The move is part of efforts to reform the NFA.

Budget and Management Secretary Florencio Abad said that the provision of subsidized rice to poor consumers has now been proposed to be transferred to the DSWD through its conditional cash transfer program.

Abad said the DSWD, with its National Household Targeting System, is better positioned to identify and directly reach indigent households.

Citing data from the World Bank, Abad said that through the NFA route, subsidized rice do not reach enough poor households.

Is this really the right solution? The DSWD is turning out to be one huge slush fund machine. And the Aquino government is wasting no time in beefing up its patronage machinery. While the hoi polloi are treated to a media fest of probes into the AFP slush fund – no one is left to keep score of how Congress, Senate, the Presidency, and the national government agencies are having an orgy of spending.

As the public gets enamored on the labyrinthine maze of paper trails within the AFP, the public remains clueless and oblivious of the bigger slush fund mess that’s going on before their very eyes. It was just a couple of months ago when the 2011 budget was passed – it was heavily laden with slush fund spending:

allies of President Benigno Simeon Aquino III in the House of Representatives who led the Lower House in passing the P 1.645 trillion national budget for 2011 gave the latter P 68 billion in total pork barrel representing lump sum and unprogrammed funds.

“P 68 billion of lump-sum, unprogrammed and hold your breath audit free presidential pork barrel for 2011. This is extremely disturbing, mind-boggling and corruption-prone budget for the Office of the President,” said Pamalakaya national chair Fernando Hicap in a press statement.

Citing a study made by independent think tank group Ibon Foundation Inc., the Pamalakaya leader said the P 68-B presidential pork barrel fund is 27 percent of the P 245-B highly questionable lump sum and unprogrammed funds and 15 percent of the P 1.645 trillion budget approved by Congress for next year.

“What is the political rationale of Congress of giving Aquino P 68 billion in pork barrel fund which is 200 percent bigger that the budget allocated for Department of Health and 300 percent bigger than the budget allocated for state colleges and universities? For what noble purpose this budget is intended to? For foreign trips abroad? For the political allies of Mr. Aquino? For what purpose and for whom?” asked Hicap.

Pamalakaya said the Philippine Senate should closely scrutinize the P 68 billion pork barrel fund alloted to the Office of the President. “The Senate leadership under Senate President Juan Ponce Enrile should not let their guards down and allow the approval of the P 68 billion pork barrel for Aquino and other lump-sum items which should not be allowed by Congress.

The militant group said aside from the P 68 billion pork barrel to President Aquino, the Senate should also scrutinize and scrap the following items which Pamalakaya said are times for grandslam crime of corruption:

1. PhP29.29-billion fund for the vastly expanded Pantawid Pamilyang Pilipino program (4Ps) and National Household Targeting System, despite the failure of the Department of Social Welfare and Development (DSWD) to properly establish its capacity to implement the huge increase in the program and budget.

2. PhP15-billion fund divided equally for “public-private partnership support projects” under the Department of Public Works and Highways (DPWH), Department of Transportation and Communication (DOTC) and Department of Agriculture (DA).

3. PhP2.34-billion fund to the military for “support to national development” which should be left to civilian agencies of the government.

4. PhP1.46 billion in intelligence funds, which is PhP403 million more compared to 2010 budget

5. PhP1.19 billion for “major information and communication technology projects”, which is a copy cat of the controversial NBN-ZTE deal.

6. The PhP24.82 billion for the Priority Development Assistance Fund (PDAF), which increased by more than 100 percent from PhP10.9 billion in 2010.

Earlier, Pamalakaya noted that the budget for the Department of National Defense (DND) increased by 81 percent or P 104.5 B out of the total proposed budget of P 1.645 trillion for 2011.

Funny how Filipinos can be “enraged” about the AFP mess, and yet still fall for Aquino’s yarn about slush funds and anti-corruption when the bloke himself is an epitome of everything he is supposedly against.

If anything, the Chief of Staff and the higher echelon officers of the AFP probably felt that only the Congressmen and the President were having fun with their slush funds – why complain, join ’em. Of course, the top brass became so efficient at it- next thing you know, Congressmen wanna know what’s going on – it’s a magnanakaw galit sa kapwa magnanakaw thing you know.

Give Fish to Farmers, Teach Farmers to Fish, Let the Government do the Fishing?

In his article “Do Farmers Have to Be Poor”, Cielito Habito, who served concurrently as the Director-General of the National Economic and Development Authority and Socio-Economic Planning Secretary during the Ramos administration, pointed out the following:

Do farmers have to be poor?

By Cielito Habito
Philippine Daily Inquirer
First Posted 03:53:00 02/01/2011

Filed Under: Food, Agriculture, Infrastructure, Poverty

STATISTICS SAY that 70 percent of the poor in our country are in the rural areas, where agriculture and fisheries are the main sources of livelihood. But this is not because crops, livestock and fisheries are products that are inherently unprofitable. The rich in the countryside also mostly derive their immense wealth from these same products, but they are mainly the “middlemen,” composed of traders and processors. Indeed, one observes this inequity in farming areas throughout the country, where the most expensive houses belong to these people, often in stark contrast to the farmers’ and fishers’ humble abodes dotting the countryside. The situation suggests that the primary producers of farm and fishery products are not getting their due share of the final value of their products paid by consumers. Instead, it is the middlemen who manage to obtain a disproportionately larger slice of the value for themselves.

Interestingly, there is clear indication that Filipino farmers are worse off relative to their counterparts in other Asian countries. One gets some proof of this from cross-country data on farm-gate and wholesale prices, readily available from the database of the Food and Agriculture Organization (FAO) of the United Nations. In rice, for example, the ratio of farm-gate price to wholesale price in the Philippines has been averaging 47 percent over the past 15 years. That is, Filipino rice farmers ultimately receive less than half of the value of their product paid at wholesale. The same ratio for Thailand is 63 percent, while India has 62 percent and China, 94 percent. In short, Thai, Indian and Chinese farmers are able to obtain a far greater share of the final price of their products than Filipino farmers are able to get. Only Bangladesh and Indonesia have ratios similar to ours, suggesting that these countries have the same market inefficiencies that end up squeezing the incomes of their farmers.

Why do Filipino farmers obtain such low prices for the product of their hard work?

I can cite at least three reasons. One, poor rural infrastructure has made it harder to physically bring products from the farms to the markets. While we have time and again been hearing of the need for more farm-to-market roads, we have made little progress in making markets more physically accessible to farmers. The joke is that most of our farm-to-market road projects end up as “farm-to-pocket roads.” And because the small farmer finds the cost of bringing his own produce to the market too prohibitive, he is likely to accept any offer from a trader who comes along to buy his output right at the farm.

Worse, the farmer is probably already committed to sell his entire yield to a particular trader, from whom he has borrowed money beforehand. Lack of access to formal credit from banks has traditionally driven farmers to obtain financing from informal lenders, particularly traders, who naturally obtain the interest payment in the form of much lower prices paid for the farmers’ yield. And you can guess that the effective interest rate charged will invariably be far more than what it normally should be.

Unfortunately, little has changed in this credit-marketing interlinkage in Philippine agriculture through the decades, which has been instrumental in keeping small farmers poor and perennially in debt. Making credit widely accessible to farmers has been one of government’s most miserable failures, and it continues to be one of its greatest challenges whose solution promises to change rural lives dramatically.

A third factor that keeps farm-gate prices relatively low in the Philippines is the prevalence of a monopsony (single buyer) or oligopsony (few buyers) situation in our farm areas. Thus, buyers are able to offer lower prices for farmers’ produce than would be the case if only there were more competition. There are two reasons for this: First, cartels are prevalent in local trading of farm products, especially because there are very few players in the market. Second, there is usually just one large processor of the farm product (be it coconut, rice or sugar) in any particular locality. This processor can thus dictate the buying price for the commodity, in turn determining the prices traders up the ladder will offer to farmers.

Addressing rural poverty thus means addressing the above factors that keep our small farmers poor. And we’ve always known what needs to be done; we simply need to do them seriously and a lot better. We need to improve farmers’ access to markets by facilitating movement of farm products to the market. Apart from farm-to-market roads, the Department of Agriculture is now pursuing cheaper transport alternatives like tramlines (cable transport systems) and even horses for remote upland communities where roads are not economically feasible. The DA is also working to provide accessible trading posts (bagsakan) for assembling the output of small farmers. More creativity is demanded in making formal credit accessible to small farmers, perhaps using the microfinance model that has been so successful in other contexts. And we need to foster greater competition for farmers’ output and widen their market options. To this end, small and medium-scale processors need to be fostered in the countryside to expand market outlets for our farmers.

Filipino farmers need not be poor. We just need to recognize that beyond targeting production, we should be making farming profitable for farmers. We owe it to those who are feeding all of us.

For short – the perennial problem of Filipino subsistence farmers (who make up 70% of the Philippine poor) are: 1 – lack of infrastructure that keeps cost of bringing goods to the market low; 2 – lack of access to working capital credit, and; 3 – a monopsony/oligopsony.  Mister Habito provided good options based on the current constitutional policy environment.

However, those are not enough and I propose we go for the gold standard – remove the flaws in our constitution which create the conditions for a monopsony/oligopsony not just in the market for agricultural products – but on the entire Philippine economy.

Don’t just give fish.Teach em how to fish, Improve, Innovate.

Upon removal of the 60/40 provisions and repealing the slew of protectionist discriminatory laws by opening the market – FDI can participate in:

  • a) infrastructure development
  • b) credit services
  • c) rice production and trading;
  • c-1) local rice distribution;
  • c-2) exports of premium local rice varieties ;
  • c-3) rice importation – depending on market conditions.

the bigger question, to me anyways – is that given the following:

  • a) an archipelago with a HUGE and GROWING population –
  • b) diminishing – land available for cultivation –
  • c) a shift towards residential real estate utilization that is fueled by OFW remittances – and a service and knowledge economy,
  • d) opportunities in high value crop production
  • e) opportunities to improve efficiency in rice production (i.e. Brazil, Vietnam, Thailand)

The subsidies are better spent on retraining the farmers for

  • a) high value crop production
  • b) entrepreneurship – financial literacy
  • c) technical upgrading
  • d) marketing and export financial and technical assistance

****

What Caesar giveth, Caesar can taketh.

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