Agricultural development spells the difference

This is a re-posted opinion piece.

“It’s agriculture, stupid!” That’s what we have to tell our economic leaders. If Thailand, Indonesia and Vietnam have upstaged us in inclusive growth, the primary reason is the greater emphasis that their leaders in the past put on improving the lot of their small farmers by endowing them with adequate infrastructures such as farm to market roads, irrigation systems, post-harvest facilities and agricultural services. Pundits who are attributing the difference to population control are barking up the wrong tree.

Take the case of Indonesia. A most thorough study of the agricultural transformation in Java under Suharto, titled “Peasants and Policy Makers,” by Tobias Axelsson (Sweden: Holmsberg, 2008), attributes the economic success story of Indonesia, despite the corruption and mismanagement during the dictatorship of President Suharto, to a strong support given to the rural and agricultural sector in the 1970s and 1980s, the very same time our leaders were paying lip service to agricultural development while discombobulating the coconut and sugar sectors. According to Axelsson, President Suharto should be credited with having followed closely the Northeast Asian model of development: “Although Japan, Korea, and Taiwan differed in their development, there were three core characteristics. First, all three increased the productivity of both land and labour, which in turn led to increased income in agriculture. Both labour and capital could thus be transferred to other sectors of the economy. The third criterion, equity, is closely intertwined with the other two. This was achieved through a land reform which created a strong class of smallholders. Although the land reforms in the three countries were carried out primarily for political reasons, they had fundamental economical effects as agricultural policy became a much more effective tool for the prosperity of the masses.”

Thailand and Vietnam did exactly the same thing. They gave the highest priority to rural and agricultural development. Unlike the bogus agrarian reform program of the Philippines, these three countries that are now competing with the Philippines to attract foreign direct investments from all over the world followed through their land redistribution with the most thorough program of endowing their small farmers with the needed infrastructures, both hard and soft, so that they could make their land productive and earn higher incomes. This focus on agricultural development explains the much lower poverty incidence in these countries compared to that of the Philippines which has stayed almost fixed at the 30 percent level for the last 20 years. In the Global Competitiveness Report, 2009-2010, of the World Economic Forum, the Philippine road and transport infrastructure ranks poorly in comparison to its Asean colleagues. We scored the lowest among Asean countries in roads, railroads, percentage of paved roads and percentage of roads in good condition.

A leading agribusiness economist in the Philippines, Dr. Rolando Dy, presents another set of evidence about the backwardness of Philippine agriculture compared to Thailand, Indonesia and Vietnam. In an article that appeared in the Food and Agribusiness Monitor of the University of Asia and the Pacific (December 2010), he showed how meager are the agricultural exports of the Philippines in comparison to those of its Asean peers. While the Philippines exported only $4 billion in 2008, Indonesia exported $31.4 billion, Thailand $34.5 billion and Vietnam $11 billion. In terms of productivity, the Philippines does even more poorly. Its export per hectare is $340. Indonesia’s is $650, Thailand’s $1,760, and Vietnam’s $1,093.

In terms of agri-food trade balance (the difference between food imports and exports), the Philippines is the only one with a negative balance, using data from 2007. We imported more food than we exported to the tune of $1 billion. All our neighbors had positive food trade balances: Indonesia $12.9 billion; Thailand $16.6 billion and Vietnam $ 5.6 billion.

Dy, who worked at the World Bank in the 1980s, already reported then that “in Thailand there was no small farm that was not within one kilometer from a good road.” This explains how Thailand has brought down its poverty incidence to less than 2 percent today.

The economic success of Thailand, however, has come with high social costs. Because of an overly aggressive population control program that can be called the “condomization” of the whole country, it now has the unenviable reputation of being the first country in the world to grow old before becoming rich. Its per capita GDP of $4,000 in nominal terms (compared to Singapore’s $40,000) still ranks it among the less developed countries in the world. The percentage of Thais over 65 is already at 8.9 percent (compared to aging Singapore’s 8.2 percent). Because of its rapidly aging population, Thailand is no longer considered among the attractive emerging markets over the next 10 to 20 years.

Worse, it has the highest rate of HIV-AIDS sufferers per capita in the whole of East Asia, thanks to the sexual permissiveness unleashed by the condom campaign of the last century. That is why I would caution our leaders from listening to those who would attribute the economic success stories of our Asean neighbors to population control. As a recent World Bank report reminds us, “GDP growth originating in agriculture is two to three times as effective in increasing the consumption spending of the poor as GDP growth originating in the rest of the economy.”

I repeat, it’s agriculture, stupid!

Dr. Bernardo M. Villegas is senior vice president of the University of Asia and the Pacific.
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By: Dr. Bernardo M. Villegas – Business Matters
Source: Philippine Daily Inquirer, Aug 26, 2011
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