1. Economic Policy and the Rural Setting
According to the Population Census of 1980 the population of the Philippines was about 48 million, of whom about two-thirds resided in the rural areas (Table 7.1). Since the proportion of population in rural areas is gradually declining, one could safely say that there are now about 33 million rural people out of the 1983 population of 52 million.1 The rural areas have not only a larger number of people but also a larger proportional incidence of poverty than do the urban areas.2 Counting the number of poor people, however, is rather more controversial than counting the number of all people. Section 2 of this paper concentrates on this specific issue.
The relative scarcity of data on rural poverty is not too surprising since most economic policies which affect, directly or indirectly, the rural sector are apparently decided more on considerations of productivity than of equity. Land reform, which is the most important exception to this, is taken up in detail in Section 3.
Table 7.1 Distribution of the Population of the Philippines by Region, 1980
Recently, there was a fairly comprehensive review, by a research team headed by Cristina David,1 of economic policies affecting agriculture. This review categorized the government policies into price intervention policies, financial policies and public expenditure policies. It found that the price intervention policies, or those that affect relative prices of agricultural outputs and inputs vis-a-vis non-agriculture and the rest of the world, have created an incentive structure that is biased against agriculture. The most important source of the bias is the industrial protection system, including high tariff protection and an undervalued foreign exchange, both of which have tended to raise the prices of industrial goods needed by agriculture. Although there is a very small explicit tax on agriculture (estimated at 6-7 per cent), there is an implicit tax which represents more than 20 per cent of agricultural value added. Such implicit taxation originates from policies which artificially lower prices of commodities which agriculture or the rural sector sells while raising the prices of commodities which it buys, including the prices of manufactured consumer goods. Many agricultural sector or rural sector specific policies such as export taxes, export bans, price controls and government marketing monopolies have had generally adverse effects on price incentives to farmers, and in particular have depressed farm gate prices in the major agricultural export commodities such as sugar and coconuts.
The financial policies are considered by David as having regressive effects, or benefitting the lower-income groups less, in proportion to their income, than the upper income groups. This is especially so in the case of low-cost credit for agricultural machinery, which shifts the incentive system against labour without attaining substantial improvements in output per hectare. In the specific instance of the World Bank Mechanization Programme, less than 15 per cent of the value of loans was used for small power tillers; the bulk was used by sugar farmers with 50 or more hectares, constituting less than 10 per cent of the total number of farmers, to purchase four-wheeled tractors and other large farm equipment.
Although the David study also considered supervised agricultural credit programmes to be regressive, I would not rate these programmes as harshly. It is true that the landless1 are disallowed from participating in such programmes, and that larger farms are entitled to borrow more because the loan limits are set on a per hectare basis. However, as long as the farm size limit is low - and I would regard 5 hectares as low, relative to the distribution of all forms of material wealth among the entire population - then the beneficiaries are still poor people, though to be sure not the poorest of the people. To be critical about benefits going to the second rung of a 20-rung socio-economic ladder on the ground that the first rung has been bypassed is, to me, to cut too fine a point on social justice. More will be said on this in the discussion of land reform.
Thus I would tend to assess the Masagana 99 credit programme positively in terms of equity. It did benefit the poor; the rub, however, is that it did so most inefficiently. It has been estimated that only one-third of the subsidy flow from this programme reached the farmer-borrowers themselves, with the other two-thirds being absorbed by the participating financial institutions which retailed the credit. Furthermore, most of the borrowers’ benefit is attributed to the non-repayment of their debt. To give subsidies to farmers through condoning their debt default simply transforms the programme into a costly vehicle for effecting income transfers.
According to the review by David,1 it is only in the area of fiscal policy that the government has tended to protect agriculture. It has done so through low explicit taxation of agriculture and through public expenditure allocations for agricultural extension, research, irrigation and construction of other infrastructure.
In general, however, David2 feels that while the government’s objectives of attaining self-sufficiency in food, promoting industrialization, and minimizing price instability are well-motivated and commendable, the set of policy instruments it has used has had adverse or negative effects on the agricultural sector, to which the majority of the poor belong. The government has relied too much on price and marketing policies which have at the same time depressed agricultural incentives and thus passed the burden of subsidizing the consumption of urban people and the profits of the manufacturing sector to the agricultural sector and indirectly to the rural poor.
[Ukrainian] [English] [Russian]