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3. POLICIES FOR DEVELOPMENT

3.1 Some sectoral and macro-economic policies

The government of the Philippines, like most governments of market-oriented developing countries, intervenes in the freshwater aquaculture sub-sector through various specific policies on feed, fertilizer, trade, investment and research. These policies play crucial roles in sustaining the growth and development of aquaculture in the country.

Feeds play a pivotal role in determining the economic success or failure of government efforts to promote the development of programmes in aquaculture. Cost of feeds accounts for most of the cash requirements of semi-intensive and intensive aquaculture operations. The government has been following an import substitution policy encouraging the use of local ingredients to reduce the cost of feeds. Since foreign ingredients are still used in locally formulated feeds, the cost of feed still comprises about 70% of production cost. As a means of improving the competitiveness of the country's aquatic products in export markets, tariffs on feeds and feed ingredients were lowered from highs of 30% and 10% to 10% and 3% respectively, reducing the prices of both local and imported feeds. Feed imports are not subject to quantitative restrictions. The government has not completely eliminated such tariffs, because local feed millers need protection from adverse price movements in order to continue with their operations.

Since the early 1970s, the Government has been in control of the fertilizer sector and continues to provide incentives for increased agricultural production through subsidies. The following measures were implemented:

Since the late 1970s, the government has been taking steps to reduce its involvement in the fertilizer sector, acknowledging the increasingly high cost of such programmes. Although substantial progress has been made, some regulations still distort the free interplay of market forces, such as fertilizer prices set by the government, supply of subsidized raw materials to factories, companies permitted to participate in foreign trade, etc. These kinds of interventions are still common in the country and responsible for localized shortages of fertilizer and fluctuations in prices at critical times of fertilizer-demand (Dey and Bimbao, 1995).

Trade policies for aquaculture focus mainly on promotion and protection of tradable export commodities, such as seaweed and shrimps. The country is a net exporter of fishery products and trade policies are considered outward-looking, that is, improving foreign exchange earnings has a higher priority than making products available for domestic consumption. Moreover, the Philippines has open trade policies with no quantitative restrictions for those willing to engage in export, import and local trade of aquatic commodities. Entry is also non-restrictive, as long as legal requirements are met. In the process of trading, taxes and duties are imposed on every business transaction. However, favourable incentives are given to exporters, whereas importers are penalized by high tariffs. Licensed exporters pay a low tax of 0.5% of f.o.b. values on commodities exported and a relatively minimal amount (not more than US$ 5) to cover permit application and fees. A “one-stop-shop” for exporters processes all required formalities, thus facilitating transactions and reducing costs. An importer, however, must pay a tariff of at least 30% for an imported aquatic commodity. Recently, the government has switched from the current Home Consumption Value (HCV) programme to a transaction value (TV) or export programme with the purpose of protecting the interest of local producers. In the HCV scheme, import value is computed based on a product's domestic wholesale price in the country of origin, whereas the TV scheme valuation is based on actual export price of the product brought into the country.

The country has open-entry investment policies to encourage local and foreign investors to engage in a wide range of aquaculture activities to sustain and to enlarge the sector's contribution to national economies. These policies are embodied in government programmes, projects and incentives for prospective investors to track the development of the aquaculture sector. The Board of Investment (BOI) of the Department of Trade and Industry (DTI) is the government agency that promulgates and administers incentives not only for the aquaculture sector but also for other sectors of the economy. The Bureau of Export and Trade Promotion of the DTI is responsible for promoting export, together with various overseas commercial offices. In addition, the Central Bank, Securities and Exchange Commission and the Department of Tourism extend assistance in the promotion of investment in aquaculture. Under Book 1 of the Omnibus Investment Code, an investor may enjoy certain benefits and incentives, provided that the investment is in preferred areas detailed in the Investment Priorities Plan (IPP). An enterprise not listed in the IPP may still be entitled to incentives, if it is a Filipino-owned venture, in which at least 50% of the production is earmarked for export. This regulation also applies to enterprises with more than 40% foreign equity invested and with at least 70% of its production going to export. Hence, the government is giving attractive incentives to entrepreneurs investing in activities in aquaculture, who can generate foreign exchange earnings. Areas for investment of prime importance for the Philippines are:

Aquaculture has made a tremendous contribution to employment, production and the national economy. However, to further develop the potential of the sector, resources need to be managed well, and research and development efforts must be promoted vigorously to improve the sector's productivity. Research and development in crop sectors have made significant contributions to national economies in Asia (Evenson and Pray, 1990). The aquaculture sector is no different. A traditional measure of government support for research in aquaculture is the aquacultural research-intensity ratio that expresses levels of public spending on research as a percentage of the value of the aquatic product. Investment in research in aquaculture increased during the 1980s, but it is still only around 0.3% of the sectoral value of production in the Philippines (Dey and Bimbao, 1995). A variety of operational guidelines concerning “desirable” levels of investment in research are available, although no specific recommendation exists for “optimal” levels of investment. The 1974 UN World Food Conference set a 1985 research investment target of 0.5% of AgGDP (UN, 1974), while the World Bank (WB) set a target for 1990 of 2% (WB, 1981). In the past, aquaculture research programmes were restricted almost entirely to the biological and technical dimensions of the sector. Only recently has the government been addressing the sector's equally, if not more important issues, which are economic, sociological and environmental in nature. These research programmes generally do not reflect the need for adjustments in the distribution of research disciplines to keep up with changing priorities. Likewise, researchers' salaries and benefits are low, often lower than those of comparable administrative positions in other government agencies. Low wages make it difficult to retain staff or to recruit specialists (e.g. economists, computer programmers), who are in high demand in the private sector or in other non-fishery public sectors.

Incentives or disincentives for the development of aquaculture are influenced not only directly by commodity-specific policies but also indirectly, by economy-wide policies that under (over) value the exchange rate and distort the relative price of non-aquatic goods. Available data reveal that the macro-economic policies of developing countries implicitly tax their agricultural sector by 25% to 30% on average (Krueger et al., 1988). The aquaculture sector in the Philippines consists mainly of exportable, importable and potentially tradable commodities. Thus, foreign exchange rates are crucial factors affecting the prices farmers receive. An under (or over) valuation of the real exchange rate will increase (or decrease) the relative incentives for tradable or non-tradable sectors. During the 1980s, virtually no depreciation of the real exchange rates occurred in the Philippines. The substantial depreciation of the Peso in nominal terms was caused by domestic inflation (relative to the rate of inflation in the US). Since 1990, the real exchange rate in the Philippines has, in fact, appreciated considerably, thus eroding the competitiveness of Philippine exports from aquaculture (Dey and Bimbao, 1995). This situation suggests that economy-wide policies have not provided incentives to the aquaculture sector, particularly not to export of shrimp and other aquatic items, but rather have penalized the tradable aquaculture sector in the Philippines.

Recently, the Congress of the Philippines (1998) enacted an important law, the Philippine Fisheries Code of 1998 (R.A. 8550) to develop, manage and conserve the fisheries and aquatic resources of the country. Earlier, another law, the Agricultural and Fisheries Modernization Act (R.A. 8435) or AFMA, was passed to revive, modernize and develop the agriculture and fisheries sectors (Congress of the Philippines 1997). These two laws are significant to development, because they explicitly recognize the conservation, protection and sustained management of resources as a major objective in the fisheries sector (Israel and Roque, 1999).

3.2 Priority policy action

Government aquaculture policies should aim at ensuring incentives that reflect the true costs of resources and products. While a freely operating market economy would tend to generate that incentive structure, government interventions are necessary to “get the prices right” in case the market fails to do so (Dey and Bimbao, 1995). The market for aquaculture is unsuccessful in allocating resources efficiently in the presence of externalities (pollution in aquatic environment), provision of public goods (e.g. research infrastructure) and in cases of lack of access to information and inputs (e.g. credit). There are sectoral and macro-economic policies that would foster sustainable growth and development of the aquaculture sector. These policies relate to the use and management of natural resources, research, input and output pricing and marketing, credit, trade, investment and the exchange rate.

The country is endowed with natural resources conducive for aquaculture. But, what kinds of aquaculture make sense, particularly for developing countries in Asia like the Philippines? Robust aquaculture must be socially equitable, environmentally compatible and have sufficient diversity and scope for change to adapt to changing circumstances (Pullin, 1993). Intensive aquaculture is known to pose greater threats to the environment than does extensive or semi-intensive aquaculture. The rapid expansion of shrimp farming has caused serious environmental problems (FAO/NACA, 1995) such as destruction of coastal mangroves, pollution of the aquatic environment and serious outbreaks of diseases. However, even some less intensive systems of aquaculture are non-sustainable (Pullin, 1993), because they are destructive to the environment.

Small-scale hatchery and grow-out operations are socially and environmentally desirable. Nevertheless, without improved productivity, aquaculture on a small scale will not be able to improve the overall supply of fish for food at a rate required to meet growing demand (Pullin, 1993). Affordable products will have to be available to meet the food requirements and ensure the nutritional health of the majority of consumers.

The challenge lies in devising policies that will regulate present and future use and management of natural resources for aquaculture production that are consistent with the country's goals for development, which are mainly food security, poverty alleviation and more employment. Policies should, therefore, promote the adoption of productivity- and sustainability-enhancing technologies by farmers. Culture of omnivores and herbivores (e.g. carps, barbs and tilapias) with short production cycles under semi-intensive systems, and adoption of integrated aquaculture-agriculture systems should be encouraged (Williams, 1995). Policy measures should also be undertaken to ensure equitable access to land and water resources by various farmer groups.

The primary focus in the development of aquaculture must be directed towards expansion of production in aquaculture to meet the demand of the growing population. Thus, research should focus on increasing productivity that is sustainable over the long run. Researchers need to identify potential constraints on future growth in the sector and the rate of change of these constraints, ex ante. Aquaculture research must be anticipatory, across a wide array of ecosystems and identify sources of constraints upon them. Linked to other systems and sectors, aquaculture research should be targeted at improving and sustaining productivity not only of the aquaculture sector, but also of integrated production systems (e.g. aquaculture-agriculture systems). Given the current limited capacities of national, highly decentralized institutions to conduct the necessary research, networking appears to be appropriate. Policies to foster collaboration among various stakeholders must be formulated and nurtured. Collaboration between local and international research centres, universities, non-governmental organizations and the private sector must also be strengthened.

Aquaculture research has no reliable data on what the private sector will and will not do. Government must formulate policy guidelines that encourage the private sector to participate in research. Activities need to be identified that require public support and those that need to be left to the private sector. A number of research areas exist at present that are attractive to the private sector, such as fish processing and marketing and technology for high-value products from aquaculture. If farmers are to engage in aquaculture-agriculture, they must see adequate returns. Thus, research policies for aquaculture must reflect present and future incentives for farmers, and incorporate links to other policies regarding taxes, subsidies, land tenure, pollution, etc.

Programmes for research in aquaculture integrate research from different disciplines. Research to develop aquaculture or aquaculture-agriculture will be effective, if its content and direction are in line with farmers' needs. This implies a call for on-site research that takes into account the adoption process and on-farm research that is more participatory than what is currently the norm. Sensitivity to adoption implies, in turn, that more social-science information is needed at the stages of planning and designing research. Adequate financial and human resources have to be allocated appropriately among alternative research activities.

Development of a competitive market system for both input and output, and the elimination of taxes levied through sectoral and other macro-economic policies, will result in decreased input costs and increased input use. As discussed earlier, the country has reduced, but not completely eliminated, tariffs on feeds and feed ingredients, as a way of protecting its local feed millers. Elimination of tariffs is a matter of timing. The removal of tariffs on feeds and feed ingredients could drastically reduce the cost of producing shrimps and could substantially improve the country's competitiveness in the world market. Efficient use of feed, fertilizer and other inputs can best be achieved by improving product and input markets, infrastructure and institutions.

Trade taxes (for export and import) undermine relative production incentives. High tariffs for imports of aquatic products restrict the flow of commodities, trigger prices to rise to the disadvantage of consumers, and allow inefficiencies in production to continue. Low export taxes, on the other hand, provide high incentives for export rather than for domestic trade, and hence, products are priced beyond what consumers can afford. Removing tariffs and non-tariff barriers may result in a new, more sustainable use of resources, because only those aquaculture systems would survive that are productive and efficient. The price of a product for either export or domestic markets, is determined largely by production and marketing costs. Improving existing policies and instituting new ones to reduce these costs would improve the environment for sustaining the development of aquaculture. A possible policy could be the removal of trade barriers to fish imports, as this would force producers to become more competitive.

Opportunities exist for introducing new value-added aquatic products that cater to specific market segments. Marketing and processing opportunities also exist for improved use of under-utilized species and for optimizing allocations of raw materials and supplies (Tietze, 1995). The latter entails taking advantage of external supplies. Hence, special support measures are needed in the short and medium term to protect employment, particularly employment for women, in the traditional fish marketing and processing industries that cater to poorer segments of rural and urban populations with limited purchasing power.

Other sectoral policies regarding credit and investments continue to play significant roles in the expansion of aquaculture in the country. Credit is still needed to finance different aquaculture activities, including production, processing, storage, transport, marketing, consumption, import and export. An appropriate credit programme needs to be devised to serve all these functions. Private investment is a major engine for economic growth in the country. While private investment should be encouraged, considerable public investment in infrastructure, capability building and institutional strengthening is needed to sustain the growth and development of the aquaculture sector. Policies regulating investments in aquaculture need adjusting to reflect true social costs and profitability, as well as new opportunities. Bureaucratic red tape remains a major problem that delays investment in aquaculture. A good example of minimized red tape is the establishment of a One-Stop-Action-Center for foreign and local investors. It is vested with the authority to act on all matters concerned with setting up projects or inflow of investments. In addition, a competitive exchange rate is crucial in sustaining the growth and expansion of the aquaculture sector. However, it is difficult to determine the magnitude of devaluation or depreciation needed to maintain competitiveness in export markets. Thus, in-depth studies are needed to ascertain effects and repercussions of devaluation or depreciation measures, not only for the aquaculture sector, but also for the entire economy.

The Fisheries Code and AFMA have made substantial contributions to the goal of sustainable development of the fisheries sector, and the setting of correct prices not only for commercial fisheries but also for the aquaculture sector (Israel and Roque, 1999). Successful application of these laws, however, depends on the implementing agencies and the acceptance and support of the constituency they aim to govern.


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