STATISTICS SAY that 70 percent of the poor in our country are in the rural areas, where agriculture and fisheries are the main sources of livelihood. But this is not because crops, livestock and fisheries are products that are inherently unprofitable. The rich in the countryside also mostly derive their immense wealth from these same products, but they are mainly the “middlemen,” composed of traders and processors. Indeed, one observes this inequity in farming areas throughout the country, where the most expensive houses belong to these people, often in stark contrast to the farmers’ and fishers’ humble abodes dotting the countryside.
The situation suggests that the primary producers of farm and fishery products are not getting their due share of the final value of their products paid by consumers. Instead, it is the middlemen who manage to obtain a disproportionately larger slice of the value for themselves.
Interestingly, there is clear indication that Filipino farmers are worse off relative to their counterparts in other Asian countries. One gets some proof of this from cross-country data on farm-gate and wholesale prices, readily available from the database of the Food and Agriculture Organization (FAO) of the United Nations. In rice, for example, the ratio of farm-gate price to wholesale price in the Philippines has been averaging 47 percent over the past 15 years.
That is, Filipino rice farmers ultimately receive less than half of the value of their product paid at wholesale. The same ratio for Thailand is 63 percent, while India has 62 percent and China, 94 percent. In short, Thai, Indian and Chinese farmers are able to obtain a far greater share of the final price of their products than Filipino farmers are able to get. Only Bangladesh and Indonesia have ratios similar to ours, suggesting that these countries have the same market inefficiencies that end up squeezing the incomes of their farmers.
Why do Filipino farmers obtain such low prices for the product of their hard work?
I can cite at least three reasons. One, poor rural infrastructure has made it harder to physically bring products from the farms to the markets. While we have time and again been hearing of the need for more farm-to-market roads, we have made little progress in making markets more physically accessible to farmers. The joke is that most of our farm-to-market road projects end up as “farm-to-pocket roads.” And because the small farmer finds the cost of bringing his own produce to the market too prohibitive, he is likely to accept any offer from a trader who comes along to buy his output right at the farm.
Worse, the farmer is probably already committed to sell his entire yield to a particular trader, from whom he has borrowed money beforehand. Lack of access to formal credit from banks has traditionally driven farmers to obtain financing from informal lenders, particularly traders, who naturally obtain the interest payment in the form of much lower prices paid for the farmers’ yield. And you can guess that the effective interest rate charged will invariably be far more than what it normally should be.
Unfortunately, little has changed in this credit-marketing interlinkage in Philippine agriculture through the decades, which has been instrumental in keeping small farmers poor and perennially in debt. Making credit widely accessible to farmers has been one of government’s most miserable failures, and it continues to be one of its greatest challenges whose solution promises to change rural lives dramatically.
A third factor that keeps farm-gate prices relatively low in the Philippines is the prevalence of a monopsony (single buyer) or oligopsony (few buyers) situation in our farm areas. Thus, buyers are able to offer lower prices for farmers’ produce than would be the case if only there were more competition. There are two reasons for this: First, cartels are prevalent in local trading of farm products, especially because there are very few players in the market. Second, there is usually just one large processor of the farm product (be it coconut, rice or sugar) in any particular locality. This processor can thus dictate the buying price for the commodity, in turn determining the prices traders up the ladder will offer to farmers.
Addressing rural poverty thus means addressing the above factors that keep our small farmers poor. And we’ve always known what needs to be done; we simply need to do them seriously and a lot better. We need to improve farmers’ access to markets by facilitating movement of farm products to the market. Apart from farm-to-market roads, the Department of Agriculture is now pursuing cheaper transport alternatives like tramlines (cable transport systems) and even horses for remote upland communities where roads are not economically feasible.
The DA is also working to provide accessible trading posts (bagsakan) for assembling the output of small farmers. More creativity is demanded in making formal credit accessible to small farmers, perhaps using the microfinance model that has been so successful in other contexts. And we need to foster greater competition for farmers’ output and widen their market options. To this end, small and medium-scale processors need to be fostered in the countryside to expand market outlets for our farmers.
Filipino farmers need not be poor. We just need to recognize that beyond targeting production, we should be making farming profitable for farmers. We owe it to those who are feeding all of us.
Source: Philippine Daily Inquirer
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