Vegetable Farmers Reap Bitter Pills of Trade Liberalization

Continuing trade policies of the Macapagal-Arroyo government threaten to wipe out local vegetable production. Trade liberalization has been lethal to Philippine agriculture, especially vegetable farming. It has aggravated the backward state of vegetable production making millions of its producers poorer.

By Roy B. Morilla
Contributed to Bulatlat.com

Year by year, prospects are increasing that the vegetables on the plates of Filipinos are no longer locally produced, but imported.  Continuing trade policies of the Macapagal-Arroyo government threaten to wipe out local vegetable production.  These are deadly times for Philippine vegetable farmers. 

Since 1990 and even before that, trade liberalization has been lethal to Philippine agriculture, especially vegetable farming.  It has scaled down local production in almost all of the country’s major vegetable farms.  It has also reversed the relatively favorable income balance of farmers during the pre-World Trade Organization (WTO) era toward severe farmer indebtedness in the WTO regime.  In short, trade liberalization has aggravated the already backward state of vegetable-growing productive forces and depressed the economic welfare of the country’s vegetable producers.

Vegetable production

The Philippines is primarily an agricultural economy.  Despite figures showing that agriculture only contributes almost a quarter of the gross domestic product and more than 40 percent of product sales, the actual share of agriculture in the country's income is larger, since local farm produce is generally underpriced.  Vegetable production revenues reach almost P30 billion every year, making up 9 to 10 percent of the country's total crop sales.

The Philippines roughly produces 717,000 metric tons of vegetables every year.  The Cordillera region north of the country brings in almost a quarter of the total vegetable production, while Ilocos which is in the same region contributes 23 percent and Central Luzon north of Manila, 15 percent. Thus, the first two regions make up nearly half of the local vegetable production.  These vegetables are cultivated in about 130,000 hectares, a figure that varies erratically depending on current trends.  On these lands, not less than 900,000 farmers grow vegetables, create income and make a living.

The vegetable crop with the highest production level is eggplant reaching at least 166,000 MT yearly or 18 percent of the total vegetable production.  This is followed by tomato with a 17 percent share, squash (12 percent), cabbage (11 percent), onion (10 percent), potato (9 percent) and chayote accounting for  5 percent of total vegetable harvests.  However, the crop with the widest area of cultivation is mongo, planted in 37,000 hectares or 27 percent of the total area harvested for vegetables.  Second is eggplant with 13 percent share and third, tomato planted in 12 percent of the total vegetable hectarage.

Different during pre-WTO

The pre-WTO periods were not as disastrous for the country’s vegetable industry.  Local vegetable production reached an average of 0.96 million metric tons from 1990 to 1994 and even exceeded the 1 million level in 1994.  Production grew, posting an average yearly rate of increase of 2 percent or more than 26,000 MT.  Growth took place in almost 60 percent of total vegetable production, which rose at the average rate of 36,000 MT yearly.

The prime area of growth in vegetable production was in potato farming, which contributed close to half of the total vegetable production growth, followed by eggplant at 19 percent.  Chayote and onion farming each contributed 7 percent to total growth in vegetable harvests.

The entry of the Philippines to the WTO in 1995, and with it, the liberalization of the vegetable business, has reversed this upward trend in local production.  From that year to 2000, production fell to an annual average of 880,000 metric tons--77,000 MT or 8 percent lower than the 1990-1994 level.  In 2000, production dropped to as low as 717,000 MT.  The earlier positive growth turned into a 40,000 MT decline every year.  More than half of the vegetable production experienced a decline during that period.

Highlighting the contrast was the fact the fastest growing crop of the previous period -- potato -- was the major casualty of the WTO era in terms of vegetable harvests.  Potato production dropped by more than 40 percent from a yearly average of 130,000 MT to as low as 75,000 MT.  Accounting for the drop in potato harvests was the contraction of potato-harvested lands by 35 percent.   The second major casualty was cabbage, which suffered a decline of 35% or 52,000 MT from the earlier annual average.

Likewise in the pre-WTO period, some onion and garlic farmers earned P40,000 to as high as P100,000 per hectare.  Though onion and garlic production did not decline with the Philippines joining WTO, earnings of onion and garlic farmers fell drastically by about 60 percent and 80 percent, respectively.  Thousand-peso net incomes became P13,000 to P25,000 negative balances. 

Drowned by cheap imports

One concrete cause of the crisis of local vegetable production is the massive entry of vegetable imports, since the Philippine government's membership in WTO.  Since then, the Philippine government has dismantled such barriers to vegetable importation as quotas, higher tariffs and outright bans on imports.

The liberalization of the vegetable industry enabled imports to break into the local market.  Although it is popularly believed vegetable imports end up directly in the local supermarkets, public wet and dry markets, hotels and restaurants, or simply for direct human consumption, only 20 percent of these imported vegetables are considered to be suitable for direct consumption, such as the fresh and chilled.  The remaining 80 percent, such as the cooked and uncooked, dried, boiled, in powder form, or in any other form, are marketed to local food processing units as raw materials.  As a result, government data only accounts for a relatively small fraction of the actual volume that penetrates the local market.

The massive importation of vegetables has drastically changed the nature of local market to the detriment of local producers and farmers.  In 1994, imports accounted for a little more than 5 percent of the local vegetable supply.  The recorded volume of imports then was only 55,000 MT, compared to a million metric tons of local produce.   Moreover, imported fresh and chilled vegetables amounted to only 700 MT.  The 1991-1994 period registered an annual average of 40,000 MT of imported vegetables.

Since the Philippines joined the WTO, total vegetable imports in all forms rose to an average of over 94,000 MT during 1995-2000 (150 percent more than the pre-WTO levels) and 100,000 MT during 1995-2001, reaching close to 150,000 metric tons in 2001.

From a previously manageable level, vegetable imports at 109,000 MT jumped to more than 13 percent of the local supply in 2000.  In 1995-2000, vegetable imports already made up 10 percent  of the total local supply of vegetables and were equivalent to 11 percent of the local production.

These WTO-period import levels are sky-high compared to their pre-WTO levels.  Onion imports climbed sharply from only 50 metric tons in 1995 to as high as 8,200 MT in 2001.  Likewise, garlic imports skyrocketed from almost none in 1991 to 1994 to 7,600 MT, while potato imports shot up from 6 MT to 380 MT.

Of the vegetable imports in 1995-2001, over 28,000 MT of these, fresh and chilled.  Of the fresh imports, onions composed more than 60 percent, while garlic accounted for 27 percent and potatoes at 1,500 MT for 5 percent.

Distorting local market

Both fast-rising capitalist productivity of Taiwanese and mainland Chinese farming and government farm support have allowed their farm products to be exported cheaply and dumped (sold below local production costs) in the Philippines.  Through the years, as these imports flood the country more and more, they have become even cheaper than before.  In 1994, the base prices of imported onion, potatoes and tomatoes ranged from P200 to P300 per kilo.  These prices fell to only P7 to P20 in 2001.

Although marginal in numbers, the country’s present market structure allowed imports to put pressure greatly on the prices of local vegetables.  Because Manila continues to be the only vital trading center in our country, the Northern Luzon and Ilocos regions continue to rely on Manila as major market for their local vegetable produce.  These produce used to dominate local outlets, such as big supermarkets, public markets, hotels and restaurants.  But cheap imports have since seized these markets away from local production.

The pricing system in Manila also serves as benchmark to farmgate pricing of vergetables.  With Manila as the new major market of cheap imports and with regional market structures dominated by monopoly traders, prices of cheap imports are used as leverage to further depress farmgate prices.  As vegetable imports rise in volume and fall in price, they help local merchants put a lid on the already extremely and exploitatively low farmgate prices and incomes of vegetable farmers while raising the level of local farmer indebtedness.

During the 1990s, vegetable farmgate prices stagnated. In the two 4-year periods of 1991-1994 and 1995-1998, farmgate prices of potato and tomatoes only increased by a negligible P2 to P4 per kilo, those onion and garlic prices a mere P10 to P20 per kilo.   The mid-1990s also saw erratic farmgate price changes, with garlic prices shooting up by P33 per kilo in 1995 but plunging by P44 per kilo in 1997.  Even when farmgate prices rose, they were  negligible compared to the mounting costs of production, triggered by the 30 percent retail price hikes of seeds, pesticides and fertilizers.

Government-led liberalization

The Macapagal-Arroyo government has adopted the preposterous and hypocritical posture of dissent over imported vegetables, while serving as the principal local promoter of agricultural liberalization.  It is misleading the Filipino farmers and people by pointing to only smuggling as the main culprit of farmers’ misfortunes, while ignoring the problem of zero-tariff imports or liberalization in general itself.  The government's Janus-faced stance is an exercise in public deception that serves to veil its continuing import liberalization drive that continues to devastate local agriculture.

After binding the Philippines to the WTO, the Ramos administration repealed Republic Act 1296, the law prohibiting the importation of onion, garlic, potato and cabbage, and enacted RA 8178 or the Agricultural Tariffication Act in 1996, converting farm import quotas into tariffs.  Through tariffication, the government provided for planned duty reductions in the succeeding years.

The Philippine tariff commitments in 1995 slashed almost 50 percent of the duty rates on agricultural imports.  Thus, most products were imposed by 40 percent duties on in-quota (for imports below a minimum access volume) and 100 percent on out-quota (for imports beyond this minimum access volume).  Successive executive orders of the Ramos and Estrada administrations cut down duty rates even further and scheduled even further reductions. 

This trend of tariff reduction has been upheld by the Macapagal-Arroyo administration. The president’s EO 197, increasing some duty rates of those non-major vegetable products is mere tokenism, providing negligible protectionist support to the local vegetable economy and meant only to win votes for her 2004 presidential bid.  Tariff reductions on major vegetables such as onion, garlic, potatoes and tomatoes are still in effect and on schedule.  At present, uniform 5 percent tariff rates -- that are so low that they effectively amount to free trade already -- are applied on vegetable imports coming from ASEAN countries.  APEC countries such as China and Taiwan already enjoy low duty rates ranging from 5 percent to 35 percent.

President Macapagl-Arroyo and Agriculture Secretary Luis Lorenzo continue to go through the motions of seeking to plug up smuggling of imported vegetables while clearly enabling vegetable imports to flood the local economy as a result of steep tariff reductions.  Although local merchants continue to exploit Philippine vegetable farmers, it is the Arroyo government with its runaway agricultural trade liberalization that is the major local reason for the farmers' growing poverty and misery. Bulatlat.com

Roy Morilla is the Program Director of the Peasant Education and Studies Center (PESC), an institution engaged in participatory research and education with the Kilusang Magbubukid ng Pilipinas (Peasant Movement in the Philippines) and its regional affiliates. PESC is at 18-A Matiwasay Street, U.P. Village, Diliman, Quezon City with contact number 435-0338.

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