Dr. Rolando Dy, long-time Director of the Center for Food and Agribusiness (a leading think tank on agribusiness issues based at the University of Asia and the Pacific) passed away. Rolly was one of the most influential advisers of both private business enterprises, nongovernmental organizations and government officials on agribusiness issues, policies and programs.
As his long-time friend and professional colleague Dr. Fermin D. Adriano (former Vice-Chancellor of U.P. Los Banos) described him accurately, he was the Philippine equivalent of U.S. agribusiness guru Ray Goldberg (founder of the agribusiness program at Harvard) and famous management author Michael Porter. In my book, though, his greatest contribution to both economic policy and business strategy in the Philippines was his constant emphasis and analysis on the relationship between agribusiness development and the reduction of mass poverty.
In his book, Agribusiness: Pathways to Poverty, published in 2019, a whole chapter is devoted to the topic “Long-term Agri Productivity Gap: The Major Cause of Poverty.”
This issue is more than ever relevant today when we just have been informed that once again the entire agricultural sector suffered another decline in the third quarter of 2023.
Over the last four years or so, this has been a constant challenge to the entire economy. There is no question that food security needs the highest priority and we appreciate the decision of President BBM to get to be very familiar with this sector by occupying the position of Secretary of Agriculture for the first fourteen months of his Administration. It is also a cause for celebration that now there is a full time Secretary of Agriculture in the person of fishing magnate, Francis Tiu Laurel who is expected to use his entrepreneurial skills and experiences to address the seemingly intractable problem of low agricultural productivity. As I have written countless of times, it does not really matter whether or not a person has a college degree. What are important are the possession of specialized knowledge in one’s occupation, the relevant skills and experiences and most important of all, the desire to serve society.
In the chapter of Rolly’s book to which I referred, he posed the question: “Why is national poverty in the Philippines more than twice that of its ASEAN peers, i.e. Indonesia, Malaysia, Thailand and Vietnam?” Indeed, the latest poverty data show that the Philippines is still suffering from a poverty incidence of 13 to 15 percent. The average of our ASEAN neighbors is anywhere from zero to 5 percent. As Rolly wrote, “it is even magnified in the farmers’ and fishers’ poverty rate of 34 percent. In fact, in some rural areas of Mindanao, the rate can climb to as much at 50 to 60 percent. The answer given by Rolly is that the difference is due to broad-based low agricultural productivity and concentration on a few products.
Taking the cue from the author of Competitive Advantage of Nations, Michel Porter, Rolly provided empirical evidence (he was always data based and never just theorized without presenting facts) comparing the productivity of key crops over the previous 36 years as reported by the Food and Agricultural Organization (FAO). The crops he studied were: rice, corn, coconut, sugarcane, banana, coffee, pineapple, cassava, sweet potato, and rubber. The study showed that the Philippines trailed its neighbors in all crops except banana and pineapple. The excellent performance of these two exceptional crops can be attributed to the active role of the private business sector (both domestic and multinational) in attaining economies of scale and applying modern technology and long-term capital.
Going beyond the studies of FAO, Rolly demonstrated his familiarity with the microeconomics of agribusiness by getting into the following finer nuances:
(a) Rice: Vietnam yields are higher with the help of the all-year irrigation drawn from the Mekong River. About a third of Philippine rice harvested areas are rainfed. Irrigated rice yield was 4.3 tons per hectare in 2016. He was quick to point out, however, that those who may jump to the conclusion that it would be wise to irrigate the remaining irrigable area of 1.3 million hectares should pause to consider that water in an Archipelago is always a scarce commodity. The high cost of water and of labor in the Philippines (as compared to Vietnam, for example) make the per unit cost of producing rice in the Philippines +++= higher than in Thailand and Vietnam. The same competitive disadvantage in rice production applies to Malaysia. That is why when Rolly worked as a World Bank advisor to the Malaysian Government in the 1980s (before he returned to the Philippines to head our CFA), his advice to Malaysia was not to target 100 percent self-sufficiency in rice but to be content with less and import the deficit from more cost efficient producers like Thailand and Vietnam. If the Philippines had followed the same advice, we would have perfected the art and science of importing rice and would have diversified into many other alternative crops like coffee, cocoa, oil palm, mangoes, avocados, durians, etc. instead of using 70 percent of all our agricultural budget on rice.
(b) Corn. Philippine yellow corn yield at 4.2 tons/hectare in 2016 was not far from Indonesia’s. Thailand’s and Vietnam’s. Credit has to be attributed to local seeds companies. It is the low white corn yield (1.8 tons/hectare) that depresses the over-all yield. Given the competitiveness of some of the corn varieties, Filipinos consumers should be convinced to follow the example of their fellow citizens in the South (Visayas and Mindanao) of using a staple that combined rice and corn (without necessarily aspiring to be good boxers as Manny Pacquiao or excellent singers as Pilita Corrales!).
(c) Coffee. Already, when Rolly wrote this article in 2019, Vietnam was on the way to become the second largest exporter of coffee in the world, displacing Colombia and only second to Brazil. The key to the competitive advantage of Vietnam is mono-cropping at both the small and large=scale levels of farming. In the Philippines, coffee farms are multi-cropped vs. Vietnam’s monocrop culture. Vietnam’s coffee yield at 1.5 kilos per hectare is three times that of the Philippines.
(d) Banana. The yield is slightly lower than Thailand’s. It is the native varieties (i.e. lakatan and saba) that depress the overall yield. Cavendish yield is 2.5 times the national yield.
(e) Rubber. This product is always an underperformer because of uncertified seedlings and poor management.
The low productivity of Philippine agriculture not only explains the poverty that is prevalent in the rural areas but also severely affects the local agri manufacturing industry which suffers from low capacity utilization and limited new investments because of raw material constraints. These, in turn, have repercussions on job creation and processed food exports. A serious unintended consequence is the import of goods such as coffee, cocoa paste, cassava, palm oil and rubber.
The solutions that Rolly proposed are more investments in research and development, provincial extension hubs, farm credit, irrigation, market intelligence, land access, rural infrastructure, as well as private sector-driven commodity road maps. Most important of all is farm consolidation to achieve economies of scale, especially in coconut, coffee, cocoa, mangoes, avocados, oil palm, bamboos and other tree crops that are best grown in corporate farms rather than by small farmers (who will always play an important role in rice, corn, vegetables and aquaculture.) (To be continued.)