While deemed as one of the Philippines’ economic drivers during the COVID-19 pandemic, the agriculture sector is also at risk of having its national budget allocation reduced due to fiscal adjustments post COVID.
A recent report by Oxford Economics showed that the agriculture sector is “a significant driver of the country’s post-COVID-19 economic recovery, but supply and demand risks, fiscal measures, and a drawn-out pandemic could disrupt the recovery.”
Oxford Economics is one of the world’s foremost independent global advisory firms, providing reports, forecasts and analytical tools on 200 countries, 100 industrial sectors and over 3,000 cities.
Its report “The Economic Impact of the Agri-Food Sector in South East Asia”, which was commissioned by Food Industry Asia (FIA) to better understand the challenges and economic impact of the region’s agri-food sector faced in 2020, showed the agri-food sector in the Philippines made a gross domestic product (GDP) contribution of P6.1 trillion in 2019, which marked a 16 percent increase from 2015.
The sector is also responsible for 42.7 percent of the entire workforce with 18 million jobs, making it the single most critical source of employment in the economy.
In terms of tax revenues, the sector also contributed a total of P829.5 billion in tariff.
However, the report’s Fiscal Risk Assessment Framework also found that the Philippines is amongst the most at risk in Asia from post-COVID-19 fiscal adjustments, scoring higher than China, India, and other higher-income Asia economies.
This can potentially harm the agri-food sector’s recovery, impacting food security, income and employment, and economic opportunities as a whole, the report stated.
James Lambert, Director of Economic Consulting Asia at Oxford Economics, said that fiscal adjustments can include reducing public expenditure or raising tax revenues.
“It is important that policymakers provide the most conducive conditions for the agri-food industry to successfully rebuild itself, and that any fiscal policy implemented is carefully planned, designed, and communicated. That will allow the industry to continue to provide the economic benefits it has delivered over recent decades,” Lambert said.
The report recommends that for governments to develop successful fiscal responses that do not inhibit the recovery of the agri-food industry, three conditions need to be met: using education to influence behavior; favoring regulatory standards over taxes; and maintaining a constant conversation with the industry.
Just last month, the Philippine Chamber of Agriculture and Food Inc. (PCAFI) President Danilo V. Fausto expressed concerns about the forthcoming increase in the internal revenue allotment (IRA) of local government units (LGUs), which may result in lower national budget allotted for the agriculture sector.
Fausto was particularly referring to the implementation of a Supreme Court ruling – which was reaffirmed in 2019 and to be implemented in 2022 – that will result in higher IRA for LGUs starting 2022.
To be specific, the high court decision favors Batangas Governor Hermilando Mandanas and former Bataan Governor Enrique Garcia Jr. on their petitions to compute LGUs’ IRA based on 40 percent of the collection of all national taxes.
Government estimates showed that instead of more than P800 billion, LGUs, with higher IRA, may actually take up nearly P2 trillion of the P5 trillion proposed national budget for next year.
To prepare for this, an Executive Order (EO) was drafted to transfer some functions of the national government to LGUs. The EO now awaits the signature of President Rodrigo Duterte.
Fausto then asked the Senate to draft a mandate requiring LGU to set aside 10 percent of their annual budget to the agriculture sector once they start receiving their higher IRA.
“This is just proper since agriculture accounts for 10 percent of the GDP [gross domestic product]. Budget for agriculture should increase, rather than decrease,” said Fausto.