Agro Industrial

5/25/2018 Agro Industrial

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Name of Presenter

Position

Department/College(clickView>>Master>>Slide Master to edit)

Agro

Industrial Interphasein Rural Development

Jerome M. Arteza


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Brief History

Since the early 1050s,the popular development strategy

in the Philippines can be characterized as an essentially industryled, capital intensive import substitution strategy. The viewis that capital intensive import substitution would lead tofaster industrialization and therefore would need to be pushedby protective government policies. This view has been heldparticularly by traditional politicians, local business elite, so called nationalists,and even development economist.


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Export promotions was launched by the Marcos governmentin the 1970s but the highly protective and distortive tariff

system, including substantial increases in the governmentsregulation of the various sectors of the economy, stillconstituted a major impediment to exporting and agriculturalproduction. The Aquino government, after assuming power inFebruary 1986, moved quickly to further reduce pricedistortions and institutional constraints unfavorable toagriculture.


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Major reforms included (1) the resumption of the importliberalization program begun in 1981, (2) the abolition ofgovernment supported monopolistic structures in the

sugar and coconut industries, and (3) further reduction ofNational Food Authority intervention to rice and corn withits withdrawal from trading in wheat, flour, and feedingredients.


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0

5

10

15

20

25

1979

1985

1988

Average tariff rates by sector 1979 - 1988

Trade weighted using 1983 import value


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It needs emphasizing that, because of the high degree of

tradability of agriculture, the sector suffers more from currency

overvaluation than the no-agricultural sector. Between the mid-

1970s and early 80s, the overvaluation of the domestic currency haseffectively lowered the domestic prices of agricultural products by

about 20 percent relative to home goods and by 25 percent relative

to non-agricultural products

But now, after about three decades of industry-led, import-

substitution strategy the records are clear: not only has

industrialization been restarted but unemployment and the

incidence of poverty have also been historically high. The

unemployment rate has risen from about 7 percent in the late 1950s

to about 11 percent in the mid-1980s


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Agricultural Growth and Rural Led

Industrialization

Recently, an agriculture and employment-led developmentstrategy or, more aptly, a rural-leddevelopment strategy (RDS)has been proposed as an alternative to an industry-led import-substitution strategy. Deemed a superior development strategythat addresses directly the problem of chronic poverty and highunemployment and underemployment, the strategy callsagricultural development as the road to industrialization. Incontrast to the strategy which this country has essentiallyfollowed over the last three decades, RDs gives agriculture and

rural development a central place.


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Two major elements surround the success of RDS

Acceleration of agricultural production

Increases in the domestic demand for agricultural


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Linkages of Agricultural Productivity

In the Philippines, the productivity of agricultural land (that is,output per hectare) in the 1970s, which presumably increasedonly slightly in the 1980s, was comparable to that prevailing inother Asian countries at the early stage of its agriculturalmodernization. Combined with the countrys high populationgrowth rate and the insufficient labor absorption by the non-

agricultural sector, this translates to low agricultural laborproductivity.

The slow growth of agricultural productivity in the

Philippines is largely due to the low priority afforded by thegovernment to agriculture.


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There are at least 4 ways in which increases in agricultural

productivity can facilitate industrialization.

Higher rural incomes Higher farm incomes Rising productivity Rising agricultural productivity


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Multiplier Effects of Rural Growth

The growth of agricultural productivity and farm income will

facilitate the growth of employment. As the total household incomerises, the share of food in household expenditures falls, but the

share of manufactured goods and services rises. The supply of these

goods and services generates employment which, at the early stage

of economic development, tends to be predominantly concentrated

in rural areas.

The key to increase in per capita income is the size of the

direct and indirect employment multipliers that results expanding

agriculture.


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Agricultural Growth and the Decreasing Importance of

Agriculture in Development: A Contradiction?

Critics of agriculture-led development strategy alsoargue that the need for rapid agricultural growth is incontradiction with the historical record which showsagriculture declining in relative importance as per capita

incomes increase. They contend that agriculture isunimportant that it does not require resources or afavorable policy environment, because its relative share inthe countrys labor force and total output declines, asshown uniformly and pervasively by both time-series and

cross section samples of countries.


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Recommendations

Sustained agricultural and rural development in the

Philippines demand an institution of inter-related policy reformsand programs

The bias of economic policies, notably trade and exchange rate

policies, against agriculture must be removed.

Public sector spending on agriculture, particularly investments in

rural infrastructure, must be increased to levels commensurate

with the sectors contribution to national income and

employment


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Rural development requires the intensification of research

and development aimed at increasing agricultural productivity

and rural incomes.

The pace of land reform and the delivery of support services

to farmers and rural workers need to be accelerated.

The provision of social services, including education, health,

and nutrition services aimed at promoting rural welfare and

human capital development, must be increased.

Agro Industrial

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