November 24, 2017, 5:10 pm
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Agriculture and the inadequacy of financial inclusion

When we analyzed what ailed Philippine agriculture, then citing a problem thus far still unaddressed by our crop of unqualified and inexperienced agricultural authorities who fail to appreciate the multidimensional requisites needed by the sector, we focused on the dearth of economic development caused by inadequate risk facilities. 

We cited the criticality of crop insurance, a risk mitigating element impacting not simply on the value of agricultural products but more important, on the welfare of the agricultural worker.

That problem would have been easily addressed had the newly appointed Department of Agriculture officials gotten their priorities in order and crafted amendments to the charter of the state-run agency responsible for risk insurance.

Allow us to continue to analyze agriculture’s shortcomings from the perspective of economics, investments and finance -- areas unaddressed more today than under previous administrations.

It is a cliché that among our poorest, the extremely poor in terms of both compensation and productivity are those in the agricultural sector. We cited the relative productivity and employment statistics. Nothing has changed save for loquacious talk irrigated by a flood of saliva in media.

Let us review recent economic policies operant under this administration.

On the macroeconomy, two weeks ago we learned that the monetary authorities were set to reduce the reserve requirements of financial institutions to allow an increase in the amount of money in circulation. Because the value of money is subject to supply and demand, and because the peso still wallows way below the dollar and might continue doing so, an increase in the supply of money would force the value of the peso farther down.

The upside is that foreign buyers might find our agricultural products much cheaper and should thus purchase more following the demand frontiers and elasticities of their individual markets. Unfortunately, regardless of the lower prices, specific markets can only gobble up so much. Price elasticity kicks in. Imagine a fast-food outlet offering unlimited free rice and a patron with the appetite of a starving sailor. There are limits to the amount of rice he might pig on.

The downside of a devalued peso is in the exponential increase in the prices of agricultural inputs from fertilizers and pesticides to the fuel needed to transport these. For a sector already poorly compensated and whose productivity as a ratio of GDP (gross domestic productivity) is comparatively low, a diminished peso might simply aggravate existing poverty and continuing despondence.

In the area of investments, specifically foreign direct investments in agriculture, recent policies from the outfield impact directly on agricultural productivity where these shift opportunities away from agricultural development and instead fatten corporate profits. The imminent lifting of the Department of the Environment and Natural Resources’ (DENR) ban on open pit mining will see huge tracts of land carved out, poisoned with acid, cyanide and other toxins, creating a toxic chemistry of effluents flowing on to fishing waters, albeit fattening the purses of foreign Ferengis and domestic businessmen.

Even with media’s microphones constantly in the faces of our agricultural authorities, on these there’s hardly an audible peep.

Matters worsen when we discern developments in the area of critical financial inclusion.

Economic exclusion began with the imposition of prohibitive capitalization requirements imposed by the Basel accords on rural banks, the principal conduits for agricultural lending. Unable to recapitalize many either shut down, merged or sold out to pedigreed universal banks whose more risk-averse credit policies and documentation processes basically disenfranchise the agricultural sector, forcing farmers and fisher folk into high-risk informal lenders.

Exclusion increased when the government allowed foreign financial institutions into the rural banking industry where many of the latter, strangled by compliance and capitalization requisites, simply sell out.

To make matters worse, the inadequacy of financial inclusion is catalyzed by the lightest penalties imposed on the failure to extend requisite agricultural credit. 

Following the Agri-Agra Reform Credit Act of 2010, a credit quota requires banks to allocate at least 10 percent of total loanable funds to agrarian reform beneficiaries, and 15 percent to farmers and fisherfolk. Unfortunately the data shows only rural and cooperative banks met the required levels allotting to agrarian reform a mere P8.26 billion. The larger banks and the rest of the rural financial institutions would rather pay the light penalties than take on agricultural receivables.

All these remain essentially unaddressed -- a sad commentary on both our officials’ competence and their lost priorities.
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