REDUCING public expenditures and raising tax revenues to improve credit worthiness may threaten agriculture investments after the pandemic, according to think tanks.
In a report titled, “The economic impact of the agri-food sector in Southeast Asia” commissioned by Food Industry Asia (FIA) and produced by Oxford Economics, the Philippines was listed as one of the countries at risk of seeing reduced subsidies and investments in the farm sector post-Covid-19.
FIA and Oxford Economics also warned that poorly crafted fiscal responses can harm the agri-food sector’s recovery, impacting food security, income and employment, and economic opportunities as a whole.
“Poor sovereign credit ratings in Vietnam, Indonesia, and the Philippines will intensify the pressure on finance ministries to balance their books quickly,” the report stated.
“In the Philippines and Indonesia, high prevailing agricultural subsidies raise the prospect of a cut in funding for the agri-food sector,” it added.
The report said an abrupt reduction in subsidies could harm agricultural producers and the agro-food value chain. It noted that half of the inputs of the farm sector feeds into the food manufacturing sector.
Further, the report said Covid-19 has had a significant adverse impact on the sector. It is estimated that the Philippine agri-food sector experienced a 4- percent contraction in 2020, equivalent to a $5.4-billion reduction, from 2019 levels, in real terms.
This is estimated to have led to a loss of 390,000 jobs or a 2-percent drop in employment sustained by the sector in 2020. Tax revenues are forecast to fall by $679 million, on a year-on-year basis.
“As the Philippines looks to emerge from the pandemic stronger, 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,” James Lambert, Director of Economic Consulting Asia, for Oxford Economics, said.
Based on the report’s Fiscal Risk Assessment Framework the Philippines is among the most at risk in Asia from post-Covid-19 fiscal adjustments, scoring higher than China, India, and other higher-income Asia economies.
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 behaviour; favouring regulatory standards over taxes; and maintaining a constant conversation with the industry.
FIA Executive Director Matt Kovac said there is also a need to understand the current and future risk landscape before implementing measures to revive the economy post-Covid-19.
“The report has highlighted a range of substantial short-term and long-term challenges facing the agri-food sector in the Philippines, and it is crucial for policy-makers to recognize and work around these risks,” Kovac said.
“FIA will be utilizing the report’s insights to actively engage industry stakeholders, regulators, and policy-makers to facilitate constructive and collaborative discussions that would support the agri-food sector’s contribution towards the Philippines’s recovery road map, ensuring that gains made in the industry are not lost during these challenging times,” he added.
In the Philippines and Indonesia, the report said around 3 percent of GDP annually is spent by the government to support the farm sector. This is higher than the US and European Union at 0.5 percent and 0.6 percent, respectively.
In the Philippines, the report estimated that the agri-food sector contributed $126.7 billion to the Philippine economy in 2019 using 2020 prices or 29.8 percent of GDP.
The sector sustained 18 million jobs in 2019, which is 42.7 percent of the national total, making it the single most critical source of employment in the economy.
Further, the report stated that the agri-food sector generated an estimated $17.1 billion in taxes in 2019, using 2020 dollar prices.
“With the agri-food industry being instrumental to the national economy, it is critical that both the industry and the public sector come together to sustain and uplift the agri-food sector as we move forward into the rest of this year. The sector holds the key to over 18 million jobs and P6.1 trillion in GDP contribution and as such, is undeniably an economic powerhouse and an important driver of local employment opportunities,” said Philippine Chamber of Food Manufacturers Inc. Chairman and President Elizabeth M. de. Leon-Lim.
Singapore-based FIA provides an important hub for advocacy and debate. They bring together the food industry’s most senior business leaders to champion initiatives that promote sustainable growth and support regional policies that deliver harmonized results.
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.
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