Ren de los Santos, Research Manager of the Stratbase Group and Resident Fellow for Global Politics of the Stratbase ADR Institute
Agriculture has long been the backbone of civilizations, nations, and communes. Empires are built on the foundations of food security and access to livestock, poultry, and grains. Modern society would interpret this as the common foundation of developing nations whose industries rose from the shadows of farmers cultivating crops and livestock by developing the necessary value chains that fuel communities. From the Indus Valley to the Mekong Delta, the world would not have progressed the way it did if it weren’t for agriculture.
Challenges today are far different from what they were thousands of years ago and the threat against communities are no longer just about the scarcity of produce but rather, in some occasions, actually the inverse. The complexity of how our markets work presents a tricky puzzle to solve. Even if we consider economics to be governed by the laws of supply and demand, the ramifications of slight movements to these variables, in turn, can drastically change the overall dynamic of our socio-economic balance. To put it simply, if one of these factors change, thousands of other variables are affected and causes a domino effect on the overall stability of communes, nation-states, and regions.
A two-pronged approach is necessary to balance the seemingly complex interaction of factors via policy intervention; namely through the use of targeted “Smart Regulations” and “Strategic Liberalization” to streamline industries.
THE CASE OF THE PHILIPPINES: A “CORNY” EXAMPLE
The Philippines, given its rich land, water resources, and “goldilocks” conditions for agricultural cultivation has lagged behind its neighbors in the region. This has been the norm for the last few decades despite the gold standard conditions. There is an need to answer this lingering conundrum to unlock the full potential for the country to become an agricultural power.
Using corn, one of the staple crops, as an example, we can illustrate one glaring thing that is often overlooked: the over-all market supply and value chain of industries and how policy can aid in restructuring the industry.
The main problem today is the tendency to compartmentalize different produce, considering them as a singular and monolithic entity detached from other commodities. Policy-makers and experts often misconstrue the data thanks to tunnel-vision, missing the interrelated links and causalities that may happen with one variable change, and which in turn may cause an unwanted domino effect throughout the supply or value chain.
According to the Philippine Statistics Authority, corn production in the Philippines is composed of 72.4% yellow corn and 27.6% white corn with two cropping schedules per year. Our corn produce goes mainly to six common uses; 75.77% feeds, 14.26% staple, 0.41% syrup, 0.39% starch, 0.09% oil, and 0.03% flour. While corn production has been steadily increasing, demand, on the other hand, outstrips supply — specifically for yellow corn intended as feeds with a sufficiency level of only 68.19%.
This therefore, increases the farm gate cost of corn locally, thus affecting local growers and raisers. This is made worse by the unregulated pricing of traders and the lack of post-harvest assistance that can drastically affect the quality of local produce.
This instance directly affects the price of poultry and animal products that rely on corn as the main source of sustenance. Chicken is one such commodity in the supply chain and is also experiencing various challenges due to the oversupply brought upon by importation. If we consider both parameters together, the ones suffering from these twin inefficiencies are the local farmers and small to medium industries that are burdened by the higher cost of growing poultry due to higher prices of feeds and also losses due to stiffer competition from cheaper imports. All these drastically alter the value chain and stifles the agricultural industry.
For our government to solve this, it needs to use smart regulations and strategic liberalization in policy planning. In addressing this case, government institutions should use their powers to lower the price of essential raw materials by lowering its cost through possibly raising imports or by institutionalizing market controls for price and quality, while at the same time carefully monitoring the effects of oversupply and price fluctuations on the local market.
Moreover, support for industries will be essential in this by equipping farmers with the necessary technology and knowledge transfer, and access to capital to elevate the industry’s competitiveness. The right balance will be beneficial for all stakeholders and complementary industries by ensuring the sustainability of the industries and protecting the interest of consumers by keeping the supply and value chain in check.
The fact of the matter is that government intervention is needed to right the ship of the agricultural industry that experts say is now capsizing slowly — all due to the inefficiencies plaguing the system.
This article was originally published in BusinessWorld.