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ANNEX IV: IMPACT OF INTERNATIONAL MARKET FORCES, TRADE POLICIES, AND SECTORAL LIBERALIZATION POLICIES ON THE PHILIPPINES HOGS AND POULTRY SECTOR

Cielito F. Habito [100]

May 2002

This paper was produced as part of Phase I of an IFPRI-FAO project entitled "Livestock Industrialization, Trade and Social-Health-Environment Impacts in Developing Countries", funded by the Department for International Development (DFID), U.K., through the Livestock, Environment and Development (LEAD) initiative at FAO. Correspondence may be addressed to the scientific coordinator for the project, Dr. Christopher Delgado, IFPRI, 2033 K St, N.W., Washington D.C. 20006, USA. Email: C.Delgado@cgiar.org

I. Introduction

The livestock industry, of which hogs and poultry account for more than four-fifths of output, was the bright spot in the Philippine agricultural sector in the 1990s, in the aftermath of the WTO ratification. Not even the Asian financial crisis and the El Niño-induced droughts of the mid-1990s hampered the sector from posting healthy growth. The sector as a whole grew at close to 5 percent per year in the past decade, as against an average annual growth of only 1.5 for the entire agricultural sector. And this was at a time when the country underwent a historic reversal from being a net exporter to a net importer of agricultural products.

What were the factors that influenced this impressive performance in the 1990s? What was the role of international market forces, of overall trade policies, and sectoral liberalization policies in determining these trends? What were the political forces that led to these policies? What structural changes have transpired in the hogs and poultry and related sectors in the course of these trends? What have been the implications for social, health and environmental outcomes in these sectors? What is the outlook for the domestic hogs and poultry industries, as influenced by impending international trends in the next ten years?

These are the specific questions that are the subject of this paper. We begin in Section 2 with an examination of trends in the international market for hogs and poultry products, especially in Asia. Section 3 describes the evolution of domestic trade policies that shaped the trends in the hogs and poultry sector, particularly through the 1990s. In Section 4, we relate these changes in the policy environment to political forces at play within the concerned sectors, and in the broader economic and political context. Section 5 characterizes the changing structure of the hogs and poultry sectors in the course of the above trends. Section 6 addresses the social, health and environmental outcomes that have accompanied (or resulted from) these various changes. The impacts on and by the other livestock sectors on hogs and poultry are examined in Section 7. Section 8 attempts to characterize the medium term outlook for the domestic hogs and poultry sectors, in the face of expected developments in the external and internal market environments. Finally, Section 9 concludes by summarizing our observations and drawing policy implications and recommendations towards maximizing the contribution of the hogs and poultry sector to uplifting the lives of Filipinos, both now and in the future.

II. Agriculture and Livestock Trade: The External Environment

Recent years have seen many developing countries shift from being net agricultural exporters into becoming net agricultural importers. On the other hand, industrialized countries in Europe and North America have been increasing their net agricultural exports to the developing world. Among the ASEAN-4 (i.e. Indonesia, Malaysia, Philippines and Thailand), the Philippines is unique in being the only country that experienced this reversal in the 1990s, with hogs and poultry products being among the agricultural commodities it has begun to import in much larger volumes than in the past.

2.1. The Changing Character of International Trade in Agriculture

In 1996, the Food and Agriculture Organization (FAO) noted that the overall agricultural trade surplus of the developing countries had sharply dropped from US $17.5 billion in 1969-1971 to US $5 billion in 1988-1989 (both in 1988-1990 prices). From this, FAO projected that developing countries would turn from being net agricultural exporters to being net agricultural importers in the foreseeable future (FAO 1996). Behind this scenario is the likely higher rate of growth of agricultural imports than of exports in the developing countries.

Developing countries are generally net importers of cereals, dairy products, meat, animal fats, hides and skins excluding leather products, wool, cotton, alcoholic beverages and pulses. On the other hand, they are net exporters of oilseeds, tropical beverages (coffee, tea, cocoa), rubber, fruits and vegetables, spices, tobacco and other products. FAO projects that the demand in the developing countries for their imported agricultural products would grow faster than developed country demand for developing country exports.

Indeed, if one looks solely at the trade balance in food commodities, developing countries, which enjoyed a marginal surplus during the 1970s, have already become net importers.[101] Similarly, the OECD Agricultural Outlook for 1999-2004 projects increases in the volume of net trade deficit of the non-OECD countries (i.e. developing countries excluding Korea and Mexico, which are OECD member countries) in cereals, meat and dairy products. This suggests that developing countries are becoming more dependent on developed countries for their food needs. A key feature of this transformation has been the trend towards increased consumption of meat and meat products in developing countries in Asia and other parts of the world.

2.2. Asia’s Growing Appetite for Meat

In East Asia, there has been an observed change in diet patterns towards a Western diet consisting of bread, dairy products and animal meat. Table 2-1 shows the decline in per capita consumption of rice and the rise in per capita consumption of wheat in a number of East Asian countries. Also, per capita consumption of beef, pork and poultry meat has increased tremendously in all the East Asian countries. Likewise, per capita consumption of feed grains (including corn or maize) increased significantly in the major livestock producing countries of East Asia. The result has been a corresponding change in the composition of food imports in East Asia. Specifically, imports of coarse grains have risen tremendously, being inputs to feeds for the fast growing livestock industries in the region. Imports of wheat and meat (especially beef) have also increased tremendously inasmuch as East Asia is a net importer of both.

In Southeast Asia, rapid growth in per capita incomes in the years prior to the Asian financial crisis in 1997 had translated into strong growth in demand for meat, particularly pork and chicken. Growth is strongest in Malaysia, which is expected to reach a 60 kilograms per capita meat consumption level by 2020. Thailand and the Philippines are expected to follow, at about half the levels projected for Malaysia (Rosegrant, 1999). Malaysia leads the region in per capita consumption of chicken, while the Philippines leads in per capita consumption of pork.

As a whole, meat consumption in Southeast Asia is projected to more than double from 7 million metric tons (MT) in 1993, to 15 million MT by 2020. For the Philippines, it is expected to quadruple from 1 million MT in 1993 to 4 million MT by 2020. As a result of these trends for meat, demand for feedgrains is projected to double from 15 milllion MT in 1993 to 30 million MT by 2020. The Philippines is expected to more than double its feedgrain consumption from 4 million to 9 million MT in the same period (Delgado et al., 2000).

The changing commodity composition of agricultural trade in East Asia reflects the interplay of comparative advantage and trade protection. Specifically, cereals production is land intensive while livestock production, particularly hogs and poultry, is not land intensive but more labor intensive. Thus, East Asia has comparative advantage in these livestock products compared to the production of coarse grains for feeds. In addition, a number of East Asian countries have high levels of protection for livestock production. The two major East Asian exporters of livestock products are China (in pig meat) and Thailand (in chicken meat) while the major net importers of livestock products are Japan, Korea, Hong Kong and Singapore. The net result of all these is rising importation of coarse grains in the region.

2.3. Philippine Trade in Hogs and Poultry Products and Corn

Tables 2-2a and 2-2b present data on imports and exports of hogs and poultry products in the form of food balance sheets. Import levels were insignificant for pork before 1995 and for chicken meat before 1997, due to the presence of quantitative restrictions. The commitment for minimum access volumes (MAVs) under the WTO agreement opened the way for significant importations in the latter 1990s. Still, actual imports were well short of the committed minimum access volumes. Chicken meat imports showed a surge in 1999 and especially in 2000 (not in Table), largely in the form of chicken leg quarters.

Corn imports had likewise been limited due to a traditional restriction that limited the importation of the commodity to government, through the National Food Authority. As shown in Table 2-3, the volume of corn imports had not been consistent through the years, and had largely depended on the domestic corn crop and the resulting deficits on total requirements. However, the MAVs under the WTO agreement also paved the way for significantly higher importations of the commodity from 1995 onwards.

2.4. Domestic Trade Policy Environment: The Protection Pendulum

Historically, Philippine trade policy had been characterized by a traditional bias against the agricultural sector in favor of the industrial sector. Not only had Philippine agriculture been less protected in the past; it was actually penalized implicitly through the combined effects of export taxes and high import tariffs and trade restrictions on its manufactured inputs. This was neither unique nor unexpected, as developing countries typically find their dominant agricultural sectors to be the largest potential revenue base for various forms of taxation.

As in other similar countries, the relative trade protection structure has changed in the Philippines as more recent trade policy has been directed at achieving long term international competitiveness through greater efficiency and productivity in its production sectors, especially in manufacturing.

III. Agriculture vs. Industry: And the Pendulum Swings

Protection for an industry is most appropriately assessed in the form of the effective rate of protection (ERP) for a particular economic sector. The advantage of using ERP, as against simply looking at the nominal protection provided by the import tariff rates on the sector’s output, is that the combined impact of tariffs on both inputs and outputs of an industry are accounted for. ERP measures protection on a sector’s value added, rather than on its gross value of output which includes the value of raw material inputs, including those that are traded or importable.[102]

Unlike in earlier periods, trade policy in the past decade has consciously aimed at improving the competitiveness of Philippine production sectors, especially the industrial sector, by reducing trade protection and fostering greater competition. In particular, the traditional tendency for stronger protection for industry relative to agriculture has changed, even as overall trade protection has been consciously reduced. The balance has in fact swung in favor of agriculture; recent years have seen a reversal in the relative rates of protection enjoyed by the agricultural and industrial sectors. The turning point occurred in 1995, when the ERP for agriculture exceeded that for industry for the first time.

Table 3-1 shows the evolution of the trade protection structure among the various Philippine economic sectors. The 1979 study on Philippine industrial promotion policies by Bautista, Power and Associates came up with the first widely published estimates of sectoral effective rates of protection in the country, for the year 1974. They estimated the ERP for agriculture and the primary resource sectors at an average of 9 percent, only about one-fifth of the estimated 44 percent protection enjoyed by manufacturing. Major agricultural commodities actually had significantly negative ERP’s, indicating a penalty rather than protection on the sector. These included rice milling (-49%), corn milling (-46%), coconut including copra (-6%), dessicated coconut products (-10%), bananas (-6%), pineapple (-3%), tobacco (-8%), and sugar milling and refining (-12%). In contrast, manufacturing subsectors enjoyed extremely high rates of protection in 1974, topped by cigarettes (18,758%), bakery products (3,371%), cocoa and chocolate products (1,750%), flour milling (1,148%), and household electrical appliances (204%), to name but a few.

By 1998, the ERP on manufacturing as a whole had declined to 20% based on the estimates by Manasan and Pineda (1999), with food processing (including rice, corn, coconut and sugar milling) being the most highly protected sub-sector at 37%, and non-metallic mineral products being the least protected at 4%. On the other hand, effective protection of the agriculture sector has risen to 25%. By 2000, agriculture was estimated to receive 24% effective protection, with that for manufacturing further declining to 15%.

3.1. Philippine Trade Policy: From Protectionism to Competitiveness

The changing structure of trade protection described above was effected through a succession of trade and tariff reforms mandated through various Executive Orders (EO). The history of the trade liberalization program of the Philippines actually found its beginnings long before 1990, but it was not until the 1990s that it was pursued with great vigor, particularly to keep abreast with the dynamic economies of the East Asian region. We briefly describe below the essential tariff reforms that took place in these two periods.[103]

3.1.1. Before the 1990s: The Early Years

There had been serious moves and motivations on the part of the government to reform its trade policies in the past. Major turning points in trade policy reforms in the Philippines before the 1990s took place in the following years:

3.1.2. Reforms in the 1990s: In Pursuit of Competitiveness

Table 3-2 lists down the various Executive Orders (EO) and Republic Acts (RA) on tariff reforms enacted during the 1990s. The government launched a major reform program in 1991 with the issuance of the Executive Order (EO) 413, subsequently reissued as EO 470 (also referred to as the TRP-II, an extension of the previous trade reform program). The general objective of this program was to realign tariff rates over a five-year period to achieve a four-tier structure: 3 percent for raw materials and capital equipment which are not available locally; 10 percent for raw materials and capital equipment that are available from local sources; 20 percent for intermediate goods; and 30 percent for finished goods.

The realignment involved the narrowing of the range of the tariff rate structure through a series of reductions in the number of commodity lines with high tariffs and an increase in the commodity lines with low tariffs. In particular, the program was aimed at clustering the commodities with tariffs within the range 10–30 percent by 1995. Despite the programmed narrowing of the tariff range, about 10 percent of the total number of commodity lines were still subjected to 0-5 percent and 50 percent tariff rates by the end of the program in 1995.

“Tariffication” of quantitative restrictions (QRs) started in 1992 with the implementation of EO 8, covering 153 commodities whose QRs were converted into equivalent tariff rates. Also under the same EO, tariff rates on 48 commodities were further re-aligned. EO 8 raised the tariff rates applicable to the relevant commodities by 100 percent of their pre-EO 8 levels. The result was that the tariff rates imposed were higher than the equivalent tariff rates in a number of cases, especially during the initial years of the conversion. However, EO 8 had a built-in program for a five-year phase-down of the “tariffied” rates.

Under the Import Liberalization Program, de-regulation continued on 286 items. By the end of 1992, only 164 commodities were covered under the QRs. However, the implementation of Memorandum Order (MO) 95 in 1993 represented a reversal of the de-regulation process by re-imposing QRs on 93 items, bringing up the number of regulated items subject to QRs to 257. This re-regulation came largely as the result of the Magna Carta for Small Farmers passed in 1991.

Major reforms were implemented under the TRP-III. The program was embodied in the following EOs: (i) EO 189 implemented in January 1, 1994 which provided reduced tariff rates on capital equipment and machinery; (ii) EO 204 in September 30, 1994 which mandated tariff reduction in textiles, garments, and chemical inputs; (iii) EO 264 in July 22, 1995 which reduced tariffs on 4,142 harmonized lines (HS) in the manufacturing sector; and (iv) EO 288 in January 1, 1996 which reduced tariffs on “non-sensitive” components of the agricultural sector. These EOs serve to reduce the number of tariff tiers and the maximum tariff rates, towards achieving the four-tier tariff structure originally defined in EO 470.

EO 313, issued March 29, 1996, and R.A. 8178 were direct offshoots of the country’s WTO commitments, whereby tariff rates on sensitive agricultural products were raised while the latter lifted QRs on these products. At the same time, minimum access volumes (MAVs) were defined for these products in accordance with the country’s WTO commitments, along with corresponding tariff rates for in-quota and out-quota importations of commodities subject to the MAVs.

The other major element in Philippine trade policy in the 1990s was the establishment of the ASEAN Free Trade Area (AFTA), and the Common Effective Preferential Tariff (CEPT) to implement it. The ASEAN member-countries agreed in 1992 to move towards the achievement of a free trade area among themselves by 2008, at which time most commodities traded among them would be subject to tariff rates of only 0-5 percent. The deadline was subsequently moved forward to 2004, and later further advanced to 2003.

Regardless of the AFTA, the Philippine government is intent on achieving a uniform 5% tariff rate by 2004 applicable to imports from all its trading partners. Most of the recently passed EOs revising tariff rates already provide for a phase down towards such levels in the years leading up to 2004. While debates continue on the phasing and timing of such tariff reductions towards a uniform level, there is general expectation that except for a limited number of sensitive products, this goal will be implemented. This is especially in light of the ongoing implementation of commitments embodied in the ASEAN Free Trade Area (AFTA)-Common Effective Preferential Tariff (CEPT) agreement, whereby tariff rates on most products traded among ASEAN member countries will be brought down to 0-5 percent by the end of 2002.

3.2. Trade Policy for Hogs and Poultry

The Philippine trade liberalization program implemented since the 1980s and culminating in WTO commitments ratified in 1995, has shaped the trade policy environment (i.e. trade protection structure) within which the hogs and poultry sectors have been operating in the Philippines. As seen above, trade policy has in general liberalized imports of various import commodities, especially of manufactures. Relative protection shifted in favor of agriculture in the mid-1990s, with average ERP for manufacturing estimated at 15% for industry and 24% for agriculture in 2000 (Manasan and Querubin, 1997).

3.2.1. Tariffs on Hogs and Pork

As originally enacted by Congress in 1957, the Tariff and Customs Code of the Philippines provided for tariff rates of 15 percent on meat other than poultry meat including pork, and zero tariff on live animals other than live poultry. Revisions to the Code in 1972 reduced the rates on non-poultry meat to 10%, but imposed 10% tariff rate on other (non-poultry) live animals and increased the tariff duty on processed meat to 100%. It is worth noting that the government undertook tax-free importations of corned beef between 1955 and 1972.

Another round of amendments to the tariff code in 1980 provided for a general reduction in tariff rates for pork (and beef) to 5%. In 1986, the tariff rate on pork was raised to 20 percent, and raised further to 30 percent in 1991 with EO 470. The tariff rate on live hogs was also raised to 30 percent in 1991, except for breeding animals which were levied a 3 percent tariff. The rates were further raised in 1993, with both live hogs (other than breeders) and pork meat going up to 50 percent, phasing down to 40 percent in 1994, and 30 percent in 1995 onwards. With the introduction of the MAV scheme in 1996, out-quota tariff rates (i.e. rates on importations beyond the committed MAV) were also set for hogs and pork meat at 40-60 (depending on weight) and 100 percent respectively, phasing down to 35-45 and 60 percent (see Tables 3-3a, 3-3b and 3-3c).

3.2.2. Tariffs on Poultry

The 1957 Tariff and Customs Code originally provided for tariff rates of 70 percent for poultry meat, 100 percent for eggs, and 60 percent for live poultry. The 1972 revisions brought the rates down to 50 percent for live poultry, and increased the tariff duty on processed meat to 100%. Rates were further reduced to 50 percent in 1981 for poultry meat and in 1982 for eggs. The tariff on live poultry and poultry meat were reduced again to 40 percent on 1985, but raised back to 50 percent for poultry meat in 1988. In 1993, the rates on live poultry were increased to 70 percent, except for breeders which were levied a rate of 3 percent. Poultry meat was raised to 80 percent, while eggs went down to 40 percent. The respective rates for live poultry, poultry meat and eggs in 1994 were 50, 60 and 35 percent, and all settling at 30 percent in 1995. (See Tables 3-3a and 3-3b)

Under EO 313 which set the tariff rates under the Minimum Access Volumes (MAVs) in 1996, the corresponding rates changed again to 40/80 percent (i.e. 40 percent in-quota and 80 percent out-quota) for live poultry, 50/100 percent (i.e. 50 percent in-quota and 100 percent out-quota) for poultry meat, and 30 percent for eggs. The respective rates for 1997 were 40/65, 45/80 and 30 percent, with the tariff for eggs dropping to 20 percent in 1998. The out-quota rates for live poultry and poultry meat were reduced further to 50 and 60 percent respectively in 1999 (Table 3-3c). Through a Department Administrative Order, the Department of Agriculture set the MAV levels for the committed products (Table 3-4).

In summary, tariff rates on hogs and poultry products have undergone several changes through the 1980s and 1990s, with tariff changes for the specific products not always moving in the same direction. Meanwhile, trade protection affecting inputs, which has remained high for maize and other feedgrains, has strongly impacted on production costs in the hogs and poultry sectors. With feeds accounting for up to 70% of the costs of production in poultry, higher feed costs impact heavily on the competitiveness of the sector (Philippine Livestock Sector, 2001). Thus, achievement of international competitiveness in hogs and poultry is inextricably linked to achieving international competitiveness in corn (maize). As seen below, this is a particularly difficult challenge for the Philippines.

3.3. Competitiveness in Corn: A Critical Link

Table 3-5 compares the average yield in corn (maize) in the Philippines with the yields in countries in the region and the rest of the world. The Philippines had the lowest average yield among all East Asian countries as of 2000. The Philippine yield was only about half of the average for all developing countries and only about one third of the world average. It was just half of Thailand’s and less than a third of China’s. The Philippine yield was even lower than India’s, Pakistan’s and Nepal’s and is just slightly higher than the average for all of Sub-Saharan Africa.

If the case of corn is any indication, a major reason for the agricultural trade deficit of the Philippines is the failure of the country to achieve dramatic increases in the yield of import substituting agricultural products, despite the high growth of domestic demand. This situation has necessitated large and growing levels of imports. Given the critical importance of corn as an input to the fast growing livestock industry, the extremely low yield in the Philippines compared to much of the world demands serious policy attention by the Philippine government.

Analysts have observed the extremely low government budget for research and development (R&D) and extension in corn in the past (see, for example, David 2000). Despite the R&D expenditures and support of the private sector in corn primarily linked to the propagation of hybrids, a large percentage of corn farms in the Philippines is planted to open-pollinated varieties where publicly-funded research and extension is important. The low yield of open-pollinated corn farms is a key reason for the very low average yield in the Philippines compared with much of East Asia. The policy attention in corn has inordinately focused on the issue of tariff protection, including on corn substitutes. However, the fundamental concern must be the very low yield of Philippine corn farms compared with much of the world.

It is clear nonetheless that the drive for sharp increases in corn yield should be undertaken in the context of an increasingly open agricultural sector. As indicated in the previous sections, the emerging international division of labor has land rich countries possessing comparative advantage in cereals (coarse grains) production while the more labor abundant East Asian developing countries have comparative advantage in the livestock industry. Thus, the long term scenario for the Philippines may follow the other East Asian countries such that despite relatively high corn yields, East Asian countries are ending up becoming net importers of cereals.

The policy option of focusing on dramatically raising corn yields in the Philippines is largely an imperative for the short and medium term. This is simply because of the substantial leeway the country has in significantly raising its corn yields, the need to address the burgeoning agricultural trade deficit, and the inevitability of moving towards more outward-oriented rather than inward-looking and protectionist policies for the corn and livestock industries.

IV. Mechanics and Dynamics in Trade Policy Setting for Hogs and Poultry

Trade policy setting for the livestock and grains sectors has always been a delicate balancing act in the Philippines. On one hand are the interests of grain farmers, most especially those growing rice and corn, who stand to benefit from trade protection on such grain crops. On the other hand, the livestock sector, for which the cost of feeds is a dominant component, is benefited by lower protection on feedgrains and grains in general (i.e. given the substitutability among the feedgrains in feeds formulation). Through the years, tariff policies for these products have generally reflected a bias in favor of the grain farmers. This suggests that performance of the livestock sectors could have been even better, had tariff policy on grains been tilted in their favor instead. In this section, we explore how tariff policies are set in the Philippine setting, and examine the various actors and forces within the policy environment that may have determined these outcomes.

4.1. The Tariff-Setting Mechanism

Tariff policy in the Philippines is embodied in the Tariff and Customs Code, originally enacted by the Philippine Congress in 1957 as Republic Act No. 1937, containing the detailed line-by-line definition of the various tradable commodities and their corresponding tariff rates. The power to set levels of taxation, including import and customs duties and tariffs, is vested by the Constitution in the Philippine Congress composed of the Senate and the House of Representatives. However, the law also provides the President the authority to amend the Tariff and Customs Code, upon recommendation of the Tariff and Related Matters Committee (TRM) of the National Economic and Development Authority (NEDA).

The TRM is an inter-agency body composed of key Cabinet members and officials, including the Secretary of Trade and Industry, Secretary of Socio-economic Planning, Secretary of Finance, Secretary of Budget and Management, Secretary of Agriculture, Secretary of Environment and Natural Resources, and the Governor of the Bangko Sentral ng Pilipinas (the Philippine central bank). Any move to amend tariffs by the Executive branch must first undergo hearings by the Tariff Commission, an agency under the administrative supervision of the NEDA.

From these hearings, the Tariff Commission makes a recommendation to the TRM, which in turn recommends the appropriate tariff modifications to the President. TRM is also the deliberative body which recommends other changes in trade policies to the President, which may be promulgated by an Executive Order (EO). Examples are abolition or establishment of quantitative trade restrictions (QRs), as in the implementation of the minimum access volumes (MAVs) committed to the World Trade Organization (WTO).

The President may then issue an Executive Order promulgating the tariff amendment, or choose to request Congress to enact the change. In the name of inter-branch courtesy (i.e. given the independence and separation of powers of the Executive, Legislative and Judicial branches of government), it had been common practice for the President to issue Executive Orders amending tariffs only when Congress was not in session.

Who initiates a move to amend tariff rates? At the Executive branch, such a move may originate in a petition by citizens, or sponsored by a concerned government agency. In the case of agricultural products, the Department of Agriculture (DA), which is a TRM member, may present a proposed tariff amendment to the TRM, through its Secretariat at NEDA. The petition or proposal is in turn endorsed to the Tariff Commission for the proper public hearings, on which basis a recommendation is made to the TRM. As would be expected, the DA, and to a certain extent the Department of Environment and Natural Resources (DENR), tend to take the cudgels for the farming sector in the positions it takes in tariff deliberations in the TRM. On the other hand, the Department of Trade and Industry (DTI) advocates for industry, especially the manufacturing sector. The other members of the TRM are expected to be largely neutral across industries in their policy positions.

4.2. Political Dynamics of Hogs and Poultry Tariffs

The key trade policy reforms in the 1990s that would have direct bearing on the hogs and poultry sectors include:

4.2.1. Tariff Simplification: EO 413/470

In 1990, the economic managers in the Cabinet moved to dramatically simplify the Philippine import tariff structure. From a tariff structure that had numerous levels of tariff rates ranging from 0 to as much as 100 percent (even 200 percent in exceptional cases), the Cabinet moved to simplify this to a four-tier structure: 3 percent for raw materials and capital equipment which are not available locally; 10 percent for raw materials and capital equipment that are available from local sources; 20 percent for intermediate goods; and 30 percent for finished goods. The proposed amendments were coursed through the prescribed process, with hearings undertaken by the Tariff Commission for each of the major economic sectors, including agricultural products covering crops and livestock. The TRM endorsed the move, and the amendments to the Tariff Code were promulgated through EO 413 signed by President Corazon Aquino in late 1990.

The sweeping amendments to the Tariff Code provoked hostile reaction from members of Congress, who argued that such drastic amendments could only be undertaken by Congress, and not by the Executive. Meanwhile, full-page advertisements began to come out in the newspapers strongly resisting the sweeping tariff reforms. The strong public reaction prompted President Aquino to recall EO 413, and refer it to Congress for legislative action. But after a year of highly charged hearings and deliberations, Congress gave its tacit consent for the EO to be reissued by President Aquino as EO 470, with the prescribed tariff rates largely unchanged, but phased in over a five-year period.

Among other things, EO 470 embodied a conscious effort on the part of the government to address the traditional bias of macroeconomic policies against agriculture while protecting industry and manufacturing, which had been a strong lament of academic economists since the 1980s. Hogs benefited from this policy redirection, whereby tariff rates were increased to the maximum provided by the new policy. Thus, EO 470 actually increased tariff rates on hogs and pork meat, from the previous 10 and 20 percent respectively, to 30 percent for both. Instrumental to this concession was the strong lobbying by the hog grower associations in the country. These organizations came out with full page newspaper advertisements during the deliberations on EO 413, warning that the executive order was going to “sound the death knell” of the domestic hog farming industry. They also lobbied Congress against the general direction of trade liberalization. These and other lobbies prompted the five-year phase-in that was eventually provided in EO 470.

On the other hand, because previous rates on poultry products exceeded the 30 percent maximum provided by the EO, tariff rates were to be phased down for poultry products from 40 for live poultry and 50 percent for poultry meat, both to 30 percent by 1995 (refer to Table 3-3b). Eggs, meanwhile, were imposed the maximum rate of 30 percent under EO 470.

Thus, through the strong representations of the DA and vigorous lobbying by farmers groups, agricultural products were given the maximum rate under the new tariff structure. Furthermore, quantitative restrictions previously in place for rice, corn and certain crops restricted by law (e.g. cabbage, onions, garlic, coffee) were maintained.

4.2.2. AFTA: Implications on Hogs and Poultry

The ASEAN Free Trade Area (AFTA) agreement provided for the definition of an Inclusion List, a Sensitive List, and an Exclusion List of commodities to be put under the scheme. The Inclusion List, i.e. those products subjected to the CEPT and whose tariffs would go down to 0-5 percent by 2003, would comprise the bulk of each member country’s tradable commodities. The Sensitive List contained commodities for which the member-country wishes to delay inclusion into the AFTA, while the Exclusion List contains products which the member-country wishes to exclude from the arrangement altogether. However, those products in the Exclusion List were to remain subject to the previously existing ASEAN Preferential Tariff Agreement (ASEAN-PTA) which provided for Margins of Preference (MOP) or progressively increasing tariff discounts on the tariff rates imposed on other ASEAN members.

The AFTA Agreement has had no direct impact on live hogs and poultry as well as fresh pork and poultry meat, inasmuch as these products along with feedgrains have been placed by the Philippines in the Sensitive List. Thus, the tariff reductions on these products will not take effect until 2009. In other words, the same trade policies that apply to all other trading partners for hogs and poultry products will apply to the Philippines’ ASEAN partners.

On the other hand, processed meat is part of the Inclusion List, which means that tariffs on these products will go down to 0-5 percent by 2003. So far, there is little indication of resistance to this from the domestic meat processing industry or from the hogs and poultry producers. This is in spite of the possibility that increased importation of canned meat products and other processed meat could result in weaker demand for domestically produced meat, once domestic processors find themselves losing market share to competing imports. However, one might expect some increase in aggregate demand for processed meat products once increased supplies due to cheaper imports lead to generally lower prices. This may offset, at least partially, the expected reduction in demand for domestically produced pork and poultry meat.

4.2.3. WTO Commitments: MAV “Technical Errors” for Pork and Poultry Meat

Accession to the WTO required that the country agree to minimum access volumes (MAVs), or a minimum level of importations, for certain previously restricted commodities, including pork and poultry meat, corn (maize), and other feedgrains (see Table 3-4). This was a departure from the previous system of quantitative restrictions imposed on meat products and other sensitive agricultural commodities.

The MAVs became a contentious issue in 1994 when the WTO Agreement was being deliberated for ratification by the Philippine Senate. Upon closer examination of the MAVs committed to the WTO, it was discovered that the volumes submitted to WTO for pork and poultry meat, along with sugar, were much higher than what would have been intended by the Department of Agriculture. In the case of pork and poultry meat, it was argued by the farmers’ associations, namely the Philippine Association of Broiler Integrators (PABI) and the National Federation of Hog Farmers, that the figures submitted to WTO were about twice what they should have been, given the levels of domestic production capacity and projected demand. The “error” was blamed on unreliable production statistics available at the time the original submissions were made to the WTO secretariat in 1991.[105]

Attempts by the Philippine government to make “technical corrections” on its submitted MAV levels for pork and poultry meat were unsuccessful, in contrast to sugar, for which the technical correction was accepted. Not a few attributed the difference in these outcomes to the fact that the United States had no commercial interest in, and therefore did not resist the correction for sugar. On the other hand, the US had a close interest in increased access to the Philippine market for US pork and poultry products, and thus resisted the technical corrections being proposed by the Philippine government for these products. Thus, in this view, it was the US position that ultimately mattered in the outcome of the negotiations.

A further indication of the close interest of the US in the Philippines’ WTO commitments for hogs and poultry was the US government’s strong reaction to the decision of the DA to award the MAV allocations to domestic hog and poultry producers, via another department administrative order. The move provoked a strong protest from the US government, which led to intense discussions and negotiations on the issue. That the US position has had a strong influence on Philippine policy is indicated by the DA’s subsequent move to “soften” the policy, by providing that the MAV allocation may be awarded to non-producers if the original holders of the allocation failed to avail of the quota. This move apparently helped diffuse the strong US reaction to the implementing guidelines on MAV originally issued by the DA.

Notwithstanding all this, the Philippines has consistently imported less pork and poultry meat than what the MAV stipulates, since its ratification of the WTO agreement. In other words, it has not been in full compliance with the MAV for pork and poultry meat.

4.3. The Political Economy of Hogs and Poultry Trade Policy: A Synthesis

In analyzing who are the gainers and losers from the trends and structural changes occurring in the hogs and poultry sectors in the Philippines, and therefore from the policies that have brought such trends and changes about, it is useful to start by identifying the relevant stakeholders. One can thus better understand and appreciate the political dynamics of policymaking for the sector.

4.3.1. Stakeholder Analysis

First among the stakeholders are the farmers themselves, of whom there are two types: the large-scale commercial growers, and the smallholder “backyard” producers. Their primary interest is to make their enterprises profitable and a stable source of adequate income. Thus, they would like to have stable and cheap access to their required inputs, like day-old-chicks, biomedics, capital, and labor. At the same time, they would like to see steady and growing demand for their products.

Rural workers without land or capital, who provide the labor for such enterprises, are another important stakeholder group. Their concern is to have stable and remunerative employment, and therefore income security.

The feed millers are another major group in the picture, and here again, there are two types: the large commercial (and usually organized) integrators and the smaller and usually independent feed millers. Again, their main interest is to make their enterprises profitable, and to do so, they are interested in ensuring adequate and stable supplies of their raw materials at the lowest cost, and adequate demand for their products.

Consumers, or the general community, of course make up the largest group, for whom the main concern is to obtain hogs and poultry products, mainly meat, at high quality and low prices. They are also concerned about ensuring that the industry operates in a way that is consistent with the overall goals of development, including sustained economic growth, employment generation, equitable improvement of general human welfare, and protection of the environment.

Government itself, in its various levels, is a stakeholder in the equation. Its overall concern in its collective actions is presumably to provide the greatest good for the greatest number of its citizens. This may translate into protecting domestic livelihoods, facilitating income generation, and similar objectives pertaining to citizens’ welfare. Motivations for individual action by government officials and employees may, however, deviate from this. For example, for elective officials and those officials planning to seek elective office in the future, their objective may be to gain popularity with voters. The two may not necessarily coincide.

Non-governmental organizations (NGOs) and people’s organizations (e.g. farmers’ groups, labor unions) are another important stakeholder group in the picture that must not be overlooked. They are normally presumed to espouse the interests of their constituents, and of the larger society. But like in government, individual members or leaders may have other things in mind, more in the nature of self interest rather than benevolence.

Finally, figuring prominently in the landscape are the country’s trading partners, who normally want to ensure easy access to the domestic market, in order to maximize their own citizens’ sales, and therefore incomes, obtained from the trading relationship. At the same time, they would prefer to restrict access to their own domestic markets by their foreign trading partners, for the sake of protecting the economic interests of their domestic citizens. While distant, these particular stakeholders can prove to be more powerful and influential than those who are within the country itself.

4.3.2. Determinants of Trade Policy on Hogs and Poultry

From the above discussions and accounts, it is apparent that the main forces that have shaped the nature of trade policy affecting the hogs and poultry sector had been in constant tension. On one side was the government, which acting as a whole clearly wished to pursue dramatic reforms that would hasten the “catching up” that many acknowledge the country had to do vis-à-vis its dynamic neighbors. Having earned the appellation “sick man of Asia” from years of economic stagnation and sluggish performance, most of the economic policymakers were determined to facilitate this “catching up” through bold reform of the trade and tariff system.

Within this context, in the case of hogs and poultry and the related sectors of feed milling and feed grains (especially corn) production, the direct short-term interests of the domestic producers had to be taken into consideration. Coupled with the populist motives of politicians in Congress, the end result was a moderation – and at times reversals – of the reform program, which in its pure form was seen to lead to much short term difficulties, especially for the small players in the economy, including farmers. This mode of thinking could be seen in the decision to stretch the phase down period for the tariff reduction and simplification originally provided for in EO 413, in the reissued EO 470. It was also evident in the way QRs on agricultural products were translated into tariff rates much higher than the equivalent tariff would provide (i.e. the “dirty tariffication” that marked the process of eliminating QRs not only in the Philippines but in other WTO member countries as well). EO 8, which embodied the higher tariff rates on commodities on which QRs were lifted at the end of 1992, and EO 313, which defined the in-quota and out-quota tariff rates under the MAV system, clearly illustrate the interplay of these contradictory stakeholder forces.

The Cory Aquino administration, upon assuming power in 1986, summed up its agricultural policy in the slogan “making small farmers profitable.” Thus, the avowed objective of economic policies in agriculture was to increase the incomes of the small farmers. This represented somewhat of a departure from the past orientation towards increased productivity, as it was pointed out that higher productivity may not necessarily translate into higher farm incomes, especially if institutional rigidities prevented small farmers from cashing in on improved productivity. It is not surprising, then, that trade policies in the hogs and livestock sector tended to favor the corn farmers, who were seen to be the larger group in greater need, especially since many studies in rural poverty identified corn farmers as among the poorest of the rural dwellers.

On the whole, the policy environment in the hogs and poultry sector remains – and is likely to remain for some time – tilted in favor of protecting grain farmers. While recognizing the delicate balance between rice and corn trade protection on one hand, and competitiveness of the livestock industry on the other, government has shown a bias towards feed grains protection. The rationale for this orientation is perhaps best exemplified in the half-joking – but also half serious – observation made by a senior Department of Agriculture official in the late 1980s: “Pigs don’t vote; corn farmers do.”

It appears, then, that achieving international export competitiveness in the Philippine hogs and poultry sector will have to wait.

V. Structural Changes in Supply and Demand

Domestic production of hogs and poultry grew consistently through the 1980s and 1990s, unfazed by crises and weather disturbances. For both swine and poultry, domestic production had tripled between 1980 and 2000. Concomitant with this was a corresponding growth in the feed milling industry, to service the needs of the livestock sector. In the course of the growth in these sectors, structural changes were occurring which hold implications for the welfare of the various players in the sectors. We examine those growth trends and accompanying structural changes in this section.

5.1. Hogs: Continuous Growth, Increasing Integration

Philippine hogs production had tripled in the two decades since 1980. Faster growth had occurred in the 1980s, with a doubling of production within that decade. Production grew by 50 percent in the 1990s, with the 1998 Asian financial crisis spurring a slowdown while maintaining the uptrend. Strong demand growth arising from a population increasing at a relatively rapid annual rate of about 2.3 percent was primarily responsible for the healthy growth of the sector. Pork has consistently dominated the meat industry in the Philippines, accounting for nearly 60 percent of total meat production since the 1960s. Backyard growers make up the bulk of production, accounting for around 80 percent of total number of live animals, a proportion that had remained virtually unchanged since the 1970s (Figure 5-1).

By standard definition, “backyard” operations are those which have (a) 20 or less heads of adult animals, or (b) 40 heads or less of young animals, or (c) less than 10 heads of adults and less than 20 heads of young animals. However, the nature of backyard operations has evolved from the traditional nature of being a non-commercial sideline activity, where the animals are fed a combination of rice bran and crop residues, and the small size of landholdings effectively limited livestock numbers.

In the past two decades, household level operations have become intensely commercially oriented and closely integrated with the modern mixed feed industry, and where the main limit to scale of operations is no longer land, but capitalization. It is no longer unusual to have a backyard herd size of 21-80 heads, with production technology essentially identical to the 20 heads and below operations (Costales, 2001). Hence, the observation that backyard operations continue to account for about 80 percent of swine inventory may be slightly misleading. Commercial scale farms were actually observed to grow at a faster rate of 7.1 percent per year than the backyard operations, which grew at an annual rate of 3.0 percent.

Thus, even with its predominantly smallholder structure, the hogs industry has been achieving significant improvements in overall productivity. Some growers are achieving this by uniting into cooperatives (see Box). There is anecdotal evidence that the liberalized trading environment, particularly for the inputs into the industry, has made improved breeds, better feed ingredients and biomedics more accessible to small growers, thereby allowing them to improve productivity and overall efficiency. This way, some backyard growers are able to attain feed conversion rates from 2.5 to 2.7, where the average for small operations is typically 3 to 3.5. (Anonymous, 2002)

A Success Story in Hogs: Entrepreneurship is the Key

“We are no longer competing against small backyard producers. We are competing against the big guys...,” beamed Rico Geron, general manager of the Soro-Soro Ibaba Development Cooperative, Inc. (SIDCI) based in Batangas City. The performance of the hogs subsector is best mirrored by the performance of this 1,700-strong cooperative which produces and sells 200 hogs per day to Manila-based wholesalers. According to Mr. Geron, globalization has so far benefited their cooperative in terms of the greater availability of inputs like biomedics and feed ingredients. “We are importing 50% of our feed ingredients that we mix with locally-sourced corn. So globalization may have its threats, but there are also opportunities.”

Organized in 1969, SIDCI has evolved through 30 years from a simple backyard contact growing (paiwi) operation, that now allows each member to raise a maximum of 65 heads of hog fatteners, 15 heads of hogs breeders, 800 heads of broilers (chicken), and 3 heads of cattle fatteners.

  • In 1987, they began to open meat stalls at various urban centers, to serve as marketing outlets for the coop’s meat products of the cooperative. In the same year, they invested in their own feedmill to provide their members stable access to quality feeds. Currently, the feedmill produces 4,000 bags of feeds daily and generates 65% of their net income.

  • In 1994, SIDCI launched the Expanded Credit Line (ECL) Project, serving credit needs of their members. In the same year (1994), the coop also decided to rent out their shuttle vans, demountable frames, monobloc chairs, food warmers, tables and water faucets to members and non-members. This allowed them to earn extra income from their fixed assets.

  • In 1995, SIDCI launched its savings mobilization program (SMP) to promote the value of thrift and financial discipline among its members. SIDCI now accepts Time and Regular Savings Deposits at attractive rates.

  • In 1996, they established a “minimart” to address the difficulties of going to the city market for their member’s daily needs, including groceries, toiletries, school supplies, over-the-counter medicines, electrical supplies, and agricultural inputs.

  • In 1998, SIDCI kicked off its artificial insemination project, aimed at providing members with high-quality piglets for their hog-raising and breeding activities through affordable artificial insemination from high-grade boars. In the same year, SIDCI modernized its feedmill facility by installing computerized pelletizing machines and other gadgets for the production of pelletized feeds.

So profitable are their operations that from 1995 to 1998, net income has grown at an annual average of 78%, and its total assets at an annual average of 42%. The secret, Geron says, lies in self-help values among members, effective management coupled with tight financial controls, access to the huge Metro Manila market, and of course, entrepreneurship: “We have chosen the right types of businesses to undertake and we have learned to integrate them with other profitable economic activities.”

Now bustling with activity, the coop has other projects in the pipeline, including a 1,400-sow level breeding farm in Taisan, Batangas; a supermarket; a meat processing plant; diagnostic laboratory to serve the local hogs industry; cable TV services; a gasoline station; and low-cost housing. Their success demonstrates the crucial role of entrepreneurship and risk-taking in the face of the challenge of globalization – and SIDCI has prevailed.

(Lifted from Habito et al., 2000)

The industry is also gradually becoming more vertically integrated, with some firms getting involved all the way into retail. Contract growing has also been on the rise since the 1970s, usually requiring a minimum herd size of about 500.

5.2. Poultry: Rapid Growth, Rapid Change

Like hogs, poultry output tripled between 1980 and 2000. In the case of poultry, more rapid growth occurred in the 1990s, with output doubling in that decade as against a 50 percent increase in the 1980s. In the 1990s, poultry output grew annually at an average of 11 percent. Unlike hogs where output was on a consistent uptrend, the broiler inventory experienced downturns in 1991, 1995 and 1999 (Figure 5-3). Both 1991 and 1995 were marked by El Niño-induced droughts that affected domestic grains output. The drop in 1999 was the result of a combination of a surge in imports particularly of chicken leg quarters in that and the following year, and a new round of exchange rate depreciation which raised the cost of imported or import-based inputs, including feedgrains and biomedics.

Chicken dominates the poultry sector, with ducks, turkey and other fowls accounting for marginal proportions of the sector’s output. Three production systems characterize the chicken sector: native chicken, broiler chicken, and eggs (layers). Native chicken is grown in backyard, non-commercial operations, and usually considered a sideline activity. On the other hand, the broiler and egg layer sectors are predominantly commercial in nature, and closely integrated with the modern mixed feed industry. Large commercial integrators are typically engaged in contract growing schemes, with sizes of individual contracts ranging from 10,000 to 100,000 birds.

The major broiler integrators account for the bulk of broiler production, while independent farms supply only about 15-25 percent of the market. The vertically integrated operations, spanning feed manufacturing to growing, slaughtering and rendering, and even retailing, now dominate the industry. Since the 1970s, contract growing has been a dominant mode of doing business in the industry. Since the typical enterprise does not require large areas of land, it has become an attractive way to make use of agricultural land, especially with the five-hectare limitation set by the Comprehensive Agrarian Reform Program (CARP).

The rapid growth in the poultry industry in the past two decades is commonly attributed to the higher prices of pork and beef in the Philippines, which has shifted demand towards the more inexpensive meat. Demand has also grown tremendously with the rapidly increasing population, rising per capita income and the growing importance of fastfood restaurants in the food consumption patterns of Filipinos.

It is worth noting that domestic prices of chicken were significantly higher than both pork and beef from the 1960s to the early 1970s. At that time, high levels of protection (averaging 68 percent from 1960 to 1983) for chicken, meant as infant-industry support, led to this relative price scenario. Through the years, beef and pork prices increased at an annual rate of 2 percent and 1.3 percent respectively, while prices of chicken showed a declining trend relative to the two other meat products (Cabanilla, 1985). This reflected the increased efficiency achieved by the industry especially through the 1970s and 1980s, as vertical integration became a common feature in the industry (Chupungco, 1991).

Substantial economies of scale in the industry have led to this strong trend towards vertical integration and large-scale commercial broiler and layer production. An independent grower in the 1980s conceded that the integrated operations and their contract growers had a substantial cost advantage due to direct access to inputs at much lower costs than was possible for an independent grower. Marketing cost is also another disadvantage of the independent growers relative to the integrators and contract growers, whose unit marketing costs are also lowered by economies of scale.[106]

A recent phenomenon that caused a furor in the domestic poultry industry had been the surge in importation of chicken leg quarters in 1999, and especially in 2000 (see Table 2-2b). The common perception is that the United States has been “dumping” frozen chicken legs in the country at prices significantly below the market piece for domestically grown chicken. Closer examination of the problem has revealed that the issue was primarily a smuggling problem, rather than one of dumping. Calculations indicate that given prevailing prices and with the appropriate tariff rates applied, the imported chicken quarters would sell at a price similar to that for domestic chicken. However, large quantities of these products were found to have entered the domestic market illegally through the tax-free importations of duty free shops in the special economic zones at Subic and Clark (allegedly by one particular duty free shop operator with close ties to the former President). That the issue has subsided with the effective curbing of that malpractice – in large part due to the change in the Presidency – lends support to the assertion that it may indeed have been primarily a smuggling issue.

5.3. Feed Milling: A Mixed Bag

As indicated earlier, the hogs and poultry sectors are intimately linked with the commercial mixed feed industry, particularly because (1) feeds make up the single largest portion of costs of production in the sectors, and (2) many firms in these sectors are vertically integrated into the feed milling side of the enterprise. While vertical integration has permitted major growers to reduce costs of feeds, relative competitiveness with other growers elsewhere still hinges on domestic economic policies affecting the domestic cost of feeds. Ultimately, the degree of protection provided to corn and other feedgrains will determine the international competitiveness of the hogs and poultry sector. That is, for as long as corn and feedgrains will continue to receive the high levels of protection that they do, the Philippine hogs and poultry industries are unlikely to be export competitive.

The structure of the feedmilling industry also has a bearing on the cost of feeds in the domestic market. Following are the industry’s salient features (Villacorte, nd):

Non-competitive elements in the feed milling sector, along with the high level of protection for the main feed ingredient, i.e. corn, will keep the cost of feeds, and in turn livestock production costs in the Philippines higher for years to come. Thus, and as already observed above, achieving export competitiveness for the hogs and poultry sector remains a distant prospect. In this situation, producers are led to seek cost reduction through scale economies and vertical integration, thus providing the impetus for larger scale operations and undermining the persistence of small and medium scale enterprises in the sector. This pressure is particularly stronger for poultry, where feeds occupy a more dominant proportion of costs especially for smaller scale growers. It is therefore no surprise that the trend towards large-scale operation has been much stronger in poultry, whereas smaller scale “backyard” operations are more successful in co-existing with large-scale commercial operations in swine production.

VI. Hogs, Poultry and Sustainability: Social, Health and Environmental Outcomes

What are the social, health and environmental implications of the trends and structural changes occurring in the livestock sector, particularly hogs and poultry? Here we examine in general terms the human welfare and ecological implications of the trends and structural changes discussed above.

6.1. Social Implications

The robust growth of hogs and poultry production in the past two decades clearly has benefited many Filipinos, ranging from consumers (who have benefited from wider availability, greater choice and lower prices than would have prevailed otherwise), to the rural workers (who benefited from greater employment opportunities made possible by the sector’s vibrant growth), and to producers (who attained higher and growing revenues and incomes through time). Have the benefits been equitably shared?

Between the small scale “backyard” farmers and the large scale commercial growers, whether in hogs or in poultry, the latter clearly benefited from economies of scale and allowed them to gain greater prominence through time over the small producers. This was more especially true in the case of chicken, where independent growers have become a vanishing breed, supplanted by contract growers and integrators themselves. This implied that the greater benefits of the expanding industry may have been accruing through time to an increasingly narrower base, i.e. fewer enterprises in increasingly larger operational units. In terms of the rural population, this implies that of the rural dwellers engaged in the industry, less and less are in the nature of independent entrepreneurs, and more and more being plain salaried farm workers in large commercial enterprises.

Mitigating this widening gap between large commercial hogs and poultry enterprises and small scale operations entails assisting the latter to attain the capability to compete, or at least co-exist with the former. As shown by the experience of SIDCI, uniting small growers under a well-run cooperative can provide them much of the benefits of scale economies that are inherent in the large commercial enterprises. Government can thus provide the support and assistance that will facilitate the organization of small growers horizontally into cooperatives, and/or vertically so that formal linkages with suppliers of farm inputs and marketing and processing units can be effected. However, the appropriate form of such support requires careful study, given the checkered history of cooperatives promotion in the country. The peculiar characteristics and circumstances of the hogs and poultry sectors need to be considered in combination with attributes of specific localities within which such assistance is to be provided.

6.2. Health Implications

Human health risks are associated with livestock production, whether in small scale operations, or in larger scale commercial enterprises. The main risks have to do with the possible spread of zoonotic diseases, or those shared between humans and animals. Possible means for such spreading are contamination of food and water systems with animal wastes, improper handling and processing of animal products, and spreading by vectors like mosquitoes and ticks (Delgado, 1999).

Characterizing the expansion of the hogs and poultry industry in the Philippines is the propensity for locating commercial scale production sites near population centers. This situation leads to greater public health risk from zoonotic and vector-borne diseases, in contrast to a set-up where the industry is characterized by more dispersed smallholder production enterprises.

Concerns have been raised, though yet to be scientifically established, about the adverse impacts on public health of biomedics commonly used in commercial scale poultry production, particularly those that are hormone-based. For example, casual observations about accelerated puberty in children (especially girls) are being attributed to consumption of meat from animals (especially broilers) treated with growth hormones contained in biomedics now routinely used in commercial livestock and poultry operations. For this reason, there is a resurgence in interest, and even a price premium, on “native” chicken grown under natural backyard conditions without the additives and special feed formulations that characterize commercial scale poultry.

6.3. Environmental Impacts

Livestock production impacts on the environment through possible effects on surface and ground water quality, gas emissions from animal wastes, and unpleasant odors arising from the enterprise. Manure management particularly in swine operations is of crucial importance in addressing all three concerns. The matter is less problematic in poultry enterprises, where manure management does not usually entail wet disposal as in piggery enterprises, and where the chicken dung is often routinely collected for conversion into organic fertilizer or fish feeds. Gases emitted in livestock enterprises include ammonia, carbon dioxide, methane and nitrous oxide. The latter three contribute to atmospheric changes that are leading to global warming (Delgado et al., 1999). Unpleasant odors emanating from a livestock enterprise are a function of the scale of operation and sound manure management.

It is likely that the increasing scale of operation in hogs and poultry enterprises in the past years has also intensified the adverse environmental impacts of the industry. The challenge is to constantly develop more efficient and effective technologies for managing animal wastes tailored to different scales of production, even as various means of converting such wastes to useful products (e.g. biogas, fertilizer) have been in use for many years.

The other negative environmental impact of the rapid expansion of the livestock and poultry meat industry arises from the widely increasing “fastfood culture” which has helped fuel the industry’s rapid growth. The widespread use of non-biodegradable packaging materials in fastfood establishments has led to enormous additional amounts of solid waste being generated daily in population centers of rapidly developing economies such as in Southeast Asia.

VII. Beyond Hogs and Poultry: Relationship with Other Livestock Sectors

While hogs and poultry together account for more than 80 percent of the total livestock output, it is useful to consider their interactions with the rest of the livestock sector, particularly beef, which accounts for the bulk of the rest.

The close substitutability among various kinds of meat inevitably links hogs and poultry closely to the cattle and beef industry. Estimated cross-price elasticities of demand provide indication of the degree of this linkage. Past estimates had established the strongest linkage to be between beef and pork, with cross price elasticities of 1.26/0.53 (San Juan, 1979). That is, a one percent increase in the price of beef leads to a 1.26 percent increase in the quantity of pork demanded in the market, while a one percent rise in the price of pork leads to a 0.53 percent rise in beef demand. The beef-chicken cross price elasticities are 0.67/0.61. The relationship is much weaker between chicken and pork (0.03/0.01), indicating much closer substitutability between beef and chicken than between pork and chicken.

There has been a traditional price premium on beef relative to pork, which had grown smaller through the 1990s (Table 7-1). The dramatic increase in beef supplies in the country partly explains this trend, with the tremendous growth of feeder cattle in the 1990s. These developments are also consistent with the slower increase in swine production in the 1990s as compared to the 1980s, an observation made in section 5.1 above.

Linkages with the other livestock products, e.g. goat, sheep, horses and fowls other than chicken are likely to be of minor significance. The possible exception is carabao, for which there is limited trading in carabeef and carabao’s milk. Carabeef is often passed off as cattle beef, and any significant increase in its supply is bound to affect the market for beef. And because of close substitutability between beef and pork indicated by the higher cross price elasticity described above, the market for hogs is bound to be affected by carabeef supply as well. Indeed, recent substantial importations of carabeef from India received much public attention, and brought up concerns on sanitary standards in the production of the commodity, as a possible reason to curb these import shipments. A mission from the Department of Agriculture was subsequently sent to India to inspect the facilities for carabeef production in that country, and reportedly found the sanitary standards to be satisfactory.

Meanwhile, commercial domestic production of carabao for meat and dairy has been an idea floating around for decades, with modest research funding going to breeding of the animal. The carabao’s traditional use as a farm draft animal had further complicated the policy environment affecting the viability of commercial carabao production. For example, an old law banned the inter-provincial transport of the animal, while another banned their slaughter within a certain minimum age – both of which made commercial production for meat and dairy uneconomical and unattractive. While both laws have long been repealed, the continuing inadequacies in breeding technology and facilities is a major constraint to the animal being the basis for commercial meat or dairy production in the country.

On the other hand, hogs and poultry have benefited from imported technological improvements through breeding, facilitating the rapid growth of these sectors in the past decades. Given the constraints continuously faced by the other livestock products, the pre-eminence of hogs and poultry in the Philippine livestock sector can be expected to persist for many years to come.

VIII. The Medium Term Outlook: Even More Growth

With rising per capita incomes and a continuing high rate of population growth in the Philippines, demand for livestock products can be expected to grow robustly in the medium term. Growth in per capita income is expected to accelerate from the current rate of about 1.5 percent per year. Meanwhile, the latest population census has indicated a renewed acceleration in the population growth rate to 2.3 percent, after having declined to 2.23 percent in the 1990s. Taken together, this implies that the demand for meat will grow even faster. Income elasticities of demand, i.e. sensitivity of demand to increases in income, are relatively high for both pork and poultry meat.

Estimates indicate that in urban areas, a one percent rise in income leads to a 1.2 to 1.4 percent increase in demand for pork. In rural areas, the effect is even stronger, with the corresponding figure ranging from 1.7 to 2.4 percent. For chicken meat, a one percent rise in income leads to a 1.4 to 2.1 percent increase in demand for urban areas, and from 1.9 to 2.8 percent increase in demand in rural areas.[107] Assuming an average income elasticity of 1.8 for pork, this implies that with the government’s targeted annual GDP growth rate in the medium term averaging 5 percent, the demand for pork would grow at about 9 percent annually. With an average income elasticity of 2.1 for chicken meat, the corresponding projected growth for chicken would be 10.5 percent annually. With the livestock industry having posted an average annual growth rate of about 5 percent in the last two decades, these projected growth rates in demand promise even stronger growth in the years ahead.

This phenomenon is not limited to the Philippines. Other Southeast Asian countries had posted similar acceleration in meat demand growth (see again Table 2-1), interrupted only by the Asian financial crisis, but now resuming its previous pace. Thus, the entire region’s own livestock production capabilities will have to be upscaled to meet these growing demands. If recent experience is an indication, production growth in the region should be able to cope with the anticipated acceleration in demand.

In the Philippines specifically, the ability of the hogs and poultry sectors to cope up with accelerating demand for livestock products will hinge on the growth in supplies of feed grains. Unless dramatic improvement in corn yield is achieved – and this is a critical imperative for Philippine agriculture – this can only translate to accelerated growth in coarse grain imports.

At the sectoral level, the question of policy interest is whether the observed structural change in the hogs and poultry industries towards large-scale commercialization will inevitably intensify. As discussed earlier, this structural change has been the outcome of both inherent economies of scale in the sector, and policy-induced circumstances that have favored scale economies as the primary means to reduce costs in the industry. To the extent that the large-scale commercialization of hogs and poultry may have intensified the adverse social, public health and environmental impacts of the sector, the impending market outlook calls for conscious measures to either (1) manage structural change in the industry, so that more dispersed small and medium scale growers may persist and co-exist with large commercial enterprises, and/or (2) mitigate the adverse impacts of a predominantly large scale commercialized industry on human welfare and the environment.

Managing structural change would, among other things, entail policy reforms in the general direction of liberalization of trade in feed grains, especially corn. But as emphasized earlier, determined efforts to jack up corn productivity in the country are of paramount importance. The challenge is to achieve the proper timing and phasing of liberalization cum productivity enhancing interventions, such that opening up does not ultimately result in elimination of the domestic corn industry altogether, and relegate the country to a mere massive importer of grains to feed its growing livestock industries.

In this regard, one age-old inadequacy that must be addressed squarely is the need to devote much more resources to research and development in corn productivity. As David (2000) and other anaylsts have perenially pointed out, the inordinate domination by rice of the agricultural R&D budget needs to change. It is quite likely that the marginal rate of transformation of research resources between rice and corn would be far greater than unity; that is, a peso of research resources reallocated from rice to corn would yield a substantial net benefit to Philippine society.

Managing structural change in the industry would also entail the necessary assistance to facilitate organization of cooperatives among small growers in the industry, in the mold of the successful growers’ cooperative SIDCI in Batangas. It is only by facilitating the formation of such organizations that small scale producers can co-exist with the large scale commercial enterprises now dominating the sector, and thereby arrest and prevent the total “industrialization” of livestock production in the country. Credit support mechanisms, marketing assistance, and improved access to modern inputs are among the specific means to provide the needed assistance.

On the other hand, mitigating the adverse human welfare and environmental impacts of large scale commercial livestock production would entail stricter enforcement of environmental standards and social programs (e.g. housing, skills training) within the industry. Policy tools of both a “carrot” and “stick” nature need to be employed to manage the social, health and environmental impacts of the industry. Market-based instruments have proven to be more effective than command and control measures in this regard; that is, management by prices is more effective than management by control. The peculiar requirements of the hogs and poultry sector call for more focused study on the appropriate policy instruments for ensuring that the large scale commercialization of livestock production does not translate to large scale diminution of human welfare and degradation of the natural environment.

8.1. Summary and Synthesis

Having posted impressive rates of growth in the last two decades, the Philippine hogs and poultry industry, by all indications, is headed for even more vigorous growth in the years ahead. The rapid growth in the 1980s and 1990s was the result of a combination of rapidly growing meat demand not only in the Philippines but in Asia in general, of technological development particularly in breeding, which have helped raise productivity in the enterprise, and of inherent economies of scale which has led to an increasing domination by large-scale commercial enterprises in the sector.

That impressive growth rates were achieved in spite of trade policies best characterized as cautious protectionism makes the performance of the sector all the more remarkable. The result has been lack of export competitiveness on the part of the industry. However, this has not been of serious consequence to the economy so far, inasmuch as the growth in domestic demand has been vigorous enough to support robust growth even in an inward-looking industry.

Trade policies that have so far leaned in favor of protecting corn farmers, even at the cost of more expensive feed grains, have been motivated by an agricultural policy whose avowed philosophy is to make small farmers profitable. Part of this is motivated by an egalitarian objective, in recognition that corn farmers are among the poorest members of the Philippine rural sector. Part of it is motivated by political considerations, i.e. the perception by politicians or would-be politicians that the corn farming sector is more vote-rich than the livestock sector. Under such circumstances where trade policy keeps prices of feed grains high, the recourse of the hogs and poultry producers has been to exploit scale economies in order to cut costs and increase profitability. The result has been the definite trend towards large-scale commercial enterprises, thereby supplanting small scale backyard production in the process.

At the same time, trade policies governing the hogs and poultry sectors have also had to mirror the protectionist stance towards corn farmers. This is manifested in a continuing restrictiveness on imports, such that minimum access commitments under the WTO have remained uncomplied with, and whereby high tariff rates are imposed on out-quota importations.

Nevertheless, imports of pork and poultry meat have been on a dramatic rise in most recent years. The situation has been complicated by apparent smuggling, particularly in the case of chicken parts. This trend highlights the need for the domestic industry to achieve greater efficiency and competitiveness, as the protective shields cannot be maintained indefinitely. The starting point must be achievement of dramatic improvement in productivity in corn production. With yields woefully below that of its neighbors, the Philippines simply must devote more resources to achievement of a more competitive corn farming sector – or else be relegated to the status of a massive importer of feed grains in the future. Only in the course of improved productivity in corn may the restrictiveness in hogs and poultry trade policy be further relaxed, thereby paving the way for improved competitiveness in those industries as well.

The effects of the large scale commercialization of hogs and poultry production on human welfare and the environment suggest that there is merit in helping preserve small scale production in the sector. This can be effected through assistance to the process of cooperatives development among small scale producers in the sector, in which a few success stories provide inspiration. Only through such collectivization and cooperativism can small growers stand up to the cost advantage enjoyed by the large integrators and the contract growers. Here, assistance may be in the form of credit support, market information, and access to modern inputs, among other things.

Even then, the negative effects of large scale commercialization of the hogs and poultry sectors need to be addressed. Environmental standards must be properly enforced, adverse public health impacts of the industry monitored and controlled, and measures undertaken to address other negative human welfare implications of increased large scale commercialization of the sector.

Finally, the outlook for hogs and poultry in the Philippines continues to appear bright, especially due to steadily rising demand. But it could be even brighter. Achievement of substantial improvements in productivity in corn farming could pave the way for eventual easing of the persistently restrictive trade policy in the industry. This in turn would facilitate even greater competitiveness in hogs and poultry. With fast growing meat demand not only at home but in neighboring countries as well, there are great opportunities that may be tapped in the export markets. But cashing in on these opportunities will entail much investment and determined efforts to address the age-old inefficiencies that prevent the industry from being export competitive. Thailand, on the other hand, with twice the productivity in corn production, has already become a significant exporter or broilers. There is no reason why the Philippines cannot achieve the same in due course.

References

Bautista, R.M., J.H. Power, and Associates. 1979. Industrial Promotion Policies in the Philippines. Makati: Philippine Institute for Development Studies.

Cabanilla, L.S. 1985. “The Effect of Government Policies on the Philippine Livestock and Feeds Industry.” Journal of Agricultural Economics and Development. Vol. 15, Nos. 1-2, Jan-July 1985.

Chupungco, A.R. 1991. “Agriculture Price Policy and Marketing: Some Policy Issues,” in Agricultural Policy in the Philippines: An Analysis of Issues in the Eighties. University of the Philippines at Los Baños, College, Laguna and the Philippine Council for Agriculture, Forestry and Natural Resources Research and Development, Los Baños, Laguna, Philippines. pp. 173-220.

Costales, A.C. 2001. “Sustainable Animal Production and World Food Supply to 2020: Implications to Southeast Asia, The Case of the Philippines.” Paper presented at Hannover, Germany.

Costales, A.C. 2000. “Pressing Issues for Smallholder Livestock Development in the Context of Overall National Livestock Sector Development in the Philippines.” Paper presented at the IFPRI-ILRI workshop on Scale Factors affecting Smallholder Livestock Production. 25-27 May 2000, Addis Ababa, Ethiopia.

Costales, A.C. 1996. “Food Security and Sustainable Development: Livestock and Feeds.” Paper presented at the PAEDA 40th Annual Convention: Philippine Agriculture for Food Security and Sustainable Agriculture, Philippine Agricultural Economics and Development Association (PAEDA) 24 January, Manila, Philippines.

David, C. 2000. “Agricultural Growth and Performance,” in Government of the Philippines and The World Bank, Rural Development & Natural Resource Management: Trends, Strategy Implementation, and Framework Performance Indicator System (Volume II: Annexes). World Bank.

Delgado, C.M., R.H. Steinfeld, S. Ehui, and C. Courbois. 1999. Livestock to 2020: The Next Food Revolution. Food, Agriculture and Environment Discussion Paper 28. IFPRI, Washington, D.C., FAO, Rome, and ILRI, Naorobi.

Food and Agriculture Organization. 1996. Technical Background Documents for the World Food Summit, November 1996, Vol 1 and Vol. 3. Rome: Food and Agriculture Organization.

Habito, C.F. et al. 2000. Farms, Food and Foreign Trade: The WTO and Philippine Agriculture. Study Commissioned by the Department of Agriculture to the Accelerated Growth, Invesment and Liberalization with Equity (AGILE) Program.

Manasan, R. and R.G. Querubin. 1997. An Assessment of the Tariff Reform in the 1990s. USAID Paper.

Manasan, R. and V.S. Pineda. 1999. Assessment of Philippine Tariff Reform: 1998 Update. AGILE Program Study Report.

Mellor, J.W. 1993. The Philippine Feed and Livestock Subsector: Leading Edge of Rural Development in the Next Decade. Paper presented at the Policy Impact Conference, Department of Agriculture, May 11-14, 1993.

Reithmuller, Paul. 2001. Philippine Livestock Sector. Draft Report to Food and Agriculture Organization of the United Nations.

Rosegrant, M.W., M.C. Agcoili-Sombilla, and N. Perez. 1999. Global Food Projections to 2020: Implications for Investment. International Food Policy Research Institute (IFPRI), Washington, D.C.

SAN JUAN, E.C. 1979. Consumer Demand in the Philippines: A Complete Model. Unpublished Graduate Thesis, University of the Philippines, Los Baños.

Villacorte, E.Z.V. no date. The Feedmilling Industry in the Philippines. Bureau of Animal Industry Paper.

List of tables

Table 2-1: Per Capita Consumption of Other Commodities - (Kg/Person)

COMMODITY

Philippines

Korea

Hong Kong

Thailand

Malaysia

Japan

1974-76

1984-86

1994-96

1974-76

1984-86

1994-96

1974-76

1984-86

1994-96

1974-76

1984-86

1994-96

1974-76

1984-86

1994-96

1974-76

1984-86

1994 96

Cereals

122

133

128

229

191

166

147

134

117

157

133

126

156

128

128

142

136

132

Starchy Roots

42

39

36

37

20

16

23

18

32

17

9

7

22

26

26

34

17

35

Sweeteners

22

24

30

8

21

34

22

29

34

13

15

28

31

35

52

28

33

32

Nuts and Oilseeds

3.8

4.2

5

10

10

12

8

8

9

16

21

18

18

17

18

10

10

11

Vegetables

63

63

66

136

174

184

85

78

52

41

35

31

18

22

33

111

112

108

Fruit

80

124

113

23

445

89

70

74

103

106

98

101

50

50

52

69

58

58

Meat & Offals

16

16

27

7

19

41

76

100

137

16

20

23

21

31

54

25

36

46

Fish & Seafood

36

34

23

40

47

51

49

46

60

21

20

26

33

46

54

69

69

71

Oils and Fats

5

13

7

4

8

15

16

20

28

2

4

6

12

19

15

11

14

14

Source: FAO Food Balance Sheets, 1994-96.

Table 2-2a: Imports, Exports and Food Balance Sheet of Pork (in metric tons) Philippines, 1990-1999

ITEM

YEAR

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Domestic supply

896,794

845,283

845,644

880,974

922,000

970,856

1,040,093

1,092,581

1,130,615

1,189,881


Production

896,000

845,189

845,256

880,945

921,761

969,862

1,035,808

1,085,544

1,123,748

1,171,759


Imports

1,177

462

417

39

239

1,017

4,285

7,037

6,867

18,122


Exports

383

368

29

10


23





Domestic utilization

896,794

845,283

845,644

880,974

922,000

970,856

1,040,093

1,092,581

1,130,615

1,189,881


Processed for food

179,359

169,057

169,129

176,195

184,400

194,171

208,019

218,516

226,123

237,976

Food

717,435

676,226

676,515

704,779

737,600

776,685

832,074

874,065

904,492

951,905

Source: National Statistical Coordination Board, June 2001.

Table 2-2b: Imports, Exports and Food Balance Sheet of Chicken, Philippines, 1990-1999

ITEM

YEAR

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Domestic supply

267,086

291,707

356,439

346,584

363,047

399,775

455,297

497,648

493,643

525,745


Production

266,960

291,680

356,398

346,600

362,970

399,551

455,097

496,686

491,226

496,429


Imports

185

34

41

112

183

224

200

962

2,417

29,316


Exports

59

7


128

106






Domestic utilization

267,086

291,707

356,439

346,584

363,047

399,775

455,297

497,648

493,643

525,745


Processed for food

53,417

58,341

71,288

69,317

72,609

79,955

91,059

99,530

98,729

105,149


Food

213,669

233,366

285,151

277,267

290,438

319,820

364,238

398,118

394,914

420,596

Source: National Statistical Coordination Board, June 2001

Table 2-3: Total Imports and Exports of Corn by Source, Philippines, 1994-1999

ITEM

YEAR

1994

1995

1996

1997

1998

1999

Corn







Imports








Unmilled

893

208,024

402,345

300,731

113,118

145,150



USA

(99)

(76)

(70)

(35)

(85)

(34)



Argentina


(24)

(20)



(24)



China




(65)

(14)

(41)


Seed

1



2,226


4,310



Thailand

(100)



(25)





India




(67)





USA






(46)



China






(24)


Sweet Corn

0








Australia

(100)







Dried, whole, cut, sliced, broken

17







in powder, not further prepared









Indonesia

(75)








Japan

(25)







Groats & Meal of Maize


286







France


(56)







USA


(44)






Corn Flour



74

160





USA



(99)

(64)





Netherlands




(13)





Spain




(12)



Source: Commodity Factsheet, BAS, 1994-1999.

Table 3-1: Effective Protection Rates, Philippines, 1974-2000

ITEM

YEAR

1974*

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

SECTORAL WEIGHTED AVERAGES

29

31

35

32

30

25

27

22

19

17

15

Agriculture, Fishery and Forestry

9

27

26

29

29

30

29

22

21

19

18

17


Agriculture

<0%

32

32

34

35

37

36

29

27

25

24

24


Fishery

116

17

17

24

21

19

16

10

11

6

6

5


Forestry

(10)

17

10

11

11

11

10

3

5

3

3

3

Mining

(13)

1

0

1

0

1

1

(1)

1

0

0

0

Manufacturing

44

32

35

39

35

32

25

31

24

20

17

15


Food Processing

>1000%

38

45

60

51

44

34

51

42

38

32

28


Beverages and Tobacco

>300%

52

47

49

48

48

48

26

28

16

14

8


Textile, Garments and Footwear

36

25

24

24

22

22

13

13

9

11

9

8


Wood and Wood Products

16

33

19

20

19

19

16

21

23

17

16

10


Furniture and Fixtures

-

21

27

23

19

15

13

14

16

14

11

12


Paper/Rub/Leather/Plast Prods

>200%

32

31

29

26

25

20

20

20

13

11

9


Chemicals and chemical products

35

28

23

22

21

21

15

12

10

7

7

6


Non-metallic mineral products

16

22

33

19

26

28

18

29

5

4

4

3


Basic Metals and metal products

27

23

20

20

19

18

15

13

14

9

8

7


Machinery

30

24

24

23

21

17

11

11

11

8

8

6


Miscellaneous Manufactures

91

20

19

18

17

14

10

10

10

6

5

4

* 1974 Estimates are from Bautista, Power and Associates (1979); some figures are rough averages 1990-2000 Estimates are from Manasan and Pineda (1999)

Table 3-2: List of Executive Orders and Legislation Amending the Tariff

Executive Order No. 470 (dated July 1991)

¨ increases number of commodity line with high tariffs

¨ reduces number of commodity line with low tariffs

Executive Order No. 478 (dated August 23, 1991)

¨ imposes special duties of P0.95 per liter of P151.05 per barrel on imported crude oil falling under Hdg. No. 27.09 and P1.00 per liter on imported oil products.

Executive Order No. 1 (dated June 30, 1992)

¨ reduces rates of import duty on electric generating sets to 0% until June 30, 1995.

¨ intended to provide partial remedy to the energy crisis.

Executive Order No. 2 (dated July 1, 1992)

¨ extends the affectivity of the zero rate of duty on cement and cement clinker up to June 30, 1995 (under e.o. No. 470, these articles will be subjected to rates of duty of 20% and 10%, respectively, beginning July 1, 1992)

¨ intended to stop possible shortage of localy supply if zero duty will be lifted

Executive Order No. 5 (dated July 14, 1992)

¨ shortens the operation of the zero rate of import duty on cement and cement clinker from June 30, 1995 (as provided in E.O. No. 2) to June 30, 1993.

Executive Order No. 8 (dated July 24, 1992)

¨ provided for interim increased tariff protection in lieu of import restrictions

¨ items covered include livestock, meat, fish, crustaceans, mollusks, sausages and other prepared meat, cane or beet sugar, maize, cereal grains, air or vacuum pumps, fans, aircon, refrigerators/freezers, centrifuges, washing machines, sewing machines, electric accumulators, thermionic/cold cathode, public transport type passenger motor vehicle and parts.

¨ import restrictions lifted on November 1, 1992.

Memorandum Order No. 60 (dated November 5, 1992)

¨ held in abeyance until February 28, 1993 the implementation of E.O. No. 8 with respect to maize

Executive Order No. 43 (dated December 29, 1992)

¨ modified the rate of import duty on certain imported articles to implement the 1991 and 1992 Phil program submitted to the Third ASEAN summit providing a minimum level of 25% margin of preference.

Executive Order No. 61 (dated February 27, 1993)

¨ modified the nomenclature and tariff rates on certain agricultural products; animals fresh chilled or frozen, corn and feedwheat

¨ in line with R.A. No. 7607 (The Magna Carta of Small Farmers)

Executive Order No. 94 (dated June 1, 1993)

¨ reduced the import duty on cement to 5% and cemnt clinker to 3% until June 30, 1994 (per E.O. No. 5, the zero duty on these items will only be effective until June 30, 1993 and therefore the rates of 20% on cement and 10% on cement clincker under E.O. No. 470 will be applied thereafter)

¨ implemented due to uncertainty in the power supply and therefore possible shortage in the local supply of cement

Executive Order No. 106 (dated July 16, 1993)

¨ lifted the suspension of the application of the tariff concessions granted by the Philippines in refractory bricks under the AFTA

Executive Order No. 115 (dated July 24, 1993)

¨ increased the special duty of P1.90 per kiter or P302.10 per barrel on imported crude oil and oil products under Hdg. No. 27.09 and P2.00 per liter on imported oil products falling under Hdg. No. 27.10 and 27.11

Executive Order No. 116 (dated July 29, 1993)

¨ amended E.O. No. 94 to conform with nomenclature

Executive Order No. 119 (dated July 29, 1993)

¨ lifted the suspension of the application of the tariff concessions granted by the Philippines on refractory bricks under the AFTA, amending E.O. 106 to reflect technical modifications

Executive Order No. 145 (dated August 9, 1993)

¨ modified rates of duty on certain imported articles under the CEPT-AFTA

Executive Order No. 146 (dated December 27, 1993)

¨ amended E.O. 43 and modified the margin of preference and the applicable ASEAN preferential tariffs

Executive Order No. 147 9dated December 27, 1993)

¨ modified the rate of import duty on certain imported articles to implement the agreement on the global system of trade preference among developing countries

Executive Order No. 148 (dated December 27, 1993)

¨ modified the rate of duty on certain imported articles

Executive Order No. 153 (dated January 25, 1994)

¨ modified the rate of duty on certain imported articles to implement the minimum 90% margin of prefence included in the NESTLE ASEAN Industiral Joint Ventures

Executive Order No. 160 (dated February 23, 1994)

¨ reduced the special duties on crude oil products from p1.90 to P0.95 under Hdg. No. 27.09 and from p2.00 to P1.00 on imported oil products falling under Hdg. No. 27.10 and 27.11

Executive Order No. 172 (dated April 24, 1994)

¨ increased the minimum tariff rate from 0% to 3%

Executive Order No. 189 (dated July 18, 1994)

¨ modifies the nomenclature and rates of duty on capital equipment from 10%-20% to 3%-10% (Note: major changes)

Executive Order No. 204 (dated September 30, 1994)

¨ modifies the nomenclature and rates of duty on textile and chemical input thereto (Note: major changes)

Executive Order No. 227 (dated March 4, 1995)

¨ reduced the import duty on Portland cement (3%), cement clinker 93%), and Pozzolan Cement (10%); this suspends the implementation of the 20% and 10% under E.O. 470

Executive Order No. 264 (dated July 22, 1995)

¨ modified the nomenclature and rates of duty on manufacturing industries in line with the Tariff Reform Program; involves 4142 HS lines (Note: major changes)

Executive Order No. 287 (dated January 1, 1996)

¨ modified the rate of duty on cetain imported articles to implement the 1996 Philippine schedule of tariff reductions under the new frame of the accelerated CEPT scheme for the AFTA

Executive Order No. 288 (dated December 12, 1995)

¨ modified the nomenclature and rates of import duty on certain imported articles, i.e., non-sensitive agricultural products; (Note: major changes)

Executive Order No. 313 (dated March 29, 1996)

¨ modified the nomenclature and rates of import duty on certain imported articles, i.e., sensitive agricultural products;

¨ implements tariffication after import restrictions were lifted under R.A. 8178

¨ IRR only issued on July 1 and effective July 10, 1996

¨ Note: major changes

Executive Order No. 328 (dated (April 23, 1996)

¨ modified the nomenclature and rates import duty on imported wheat for food

Executive Order No. 365 (dated (April 16, 1996)

¨ modified the rates of duty on crude oil (from 10% to 3%) and refined petroleum product from 20% to 7%).

Table 3-3a. Philippine Tariff Rates on Swine and Poultry, 1981-2000.

PERIOD

1981-1985

1988

1990-91
(E.O. 413/470)

1996
(E.O. 313)

1 January
2000

Live Animals







Swine

10

10

30 (3)

30

3


Poultry

50

40

30

40

3

Meat







Meat of swine

5

20

30

30

30


Meat of poultry

50

50

30

45

45


Eggs of poultry

70, 50

50

30

30

30

Note: Number in parenthesis is rate for breeding animals.

Source: Philippine Tariff Commission, 2000.

Table 3-3b. Tariff Rates (%) for Swine & Poultry Under EO 668, 470, and 172

Animal

Year

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

EO 668












Live Swine

10

10

10

10

10

10

10

10

10

10

10

Meat of Swine

5

5

5

5

5

20

20

20

20

20

20

Live Poultry

50

50

50

50

50

40

40

40

40

40

40

Meat of Poultry

50

50

50

50

50

40

40

50

50

50

50

Eggs

70

50

50

50

50

50

50

50

50

50

50



1991


1992


1993


1994


1995


EO 470












Live Swine


30(3)


30(3)


30(3)


30(3)


30(3)


Meat of Swine


30


30


30


30


30


Live Poultry


40(3)


35(3)


30(3)


30(3)


30(3)


Meat of Poultry


50


45


40


35


30


Eggs


50


50


50


50


50




1993


1994


1995


1996




EO 172












Live Swine


50(3)


40(3)


30(3)


30(3)




Meat of Swine


50


40


30






Live Poultry


70(3)


50(3)


30(3)


30(3)




Meat of Poultry


80


60


30


30




Eggs


40


35


30


30




Note: Numbers in parentheses are rates for breeding animals.

Source: Philippine Tariff and Customs Code 1991, 1994

Table 3-3c Tariff Rates (%) for Swine and Poultry Under EO 313, Philippines, 1996-2000

Animal

Year

1996

1997

1998

1999

2000

Live Swine






Weighing less than 50kg







In-Quota

30(3)

30(3)

30(3)

30(3)

30(3)


Out-Quota

60

50

50

45

45

Weighing 50kg or more







In-Quota

30

30

30

30

30


Out-Quota

40

40

40

35

35

Meat of Swine







In-Quota

30

30

30

30

30


Out-Quota

100

80

80

60

60

Live Poultry







In-Quota

40(3)

40(3)

40(3)

40(3)

40(3)


Out-Quota

80

65

65

50

50

Meat of Poultry







In-Quota

50

45

45

45

45


Out-Quota

100

80

80

60

60

Eggs

30

30

20

20

20

Note: Numbers in parentheses are rates for breeding animals

Source: Philippine Tariff and Customs Code, 1996

Table 3-4: Minimum Access Volumes Committed to WTO, 1995-2005

PRODUCT

UNIT

YEAR

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Live horse, asses, mules & hinnies

Head

29

57

57

57

57

57

57

57

57

57

29

Other live bovine animals

Head (000)

6.1

12.7

13.6

14.6

15.4

16.3

17.2

18.1

19

19.9

10.2

Live swine

Head (000)

1.3

2.6

2.6

2.6

2.6

2.6

2.6

2.6

2.6

2.6

1.3

Other live goats

Head (000)

24.7

51.2

54.9

58.5

62.2

65.8

69.5

73.1

76,803

80,461

41,075

Live poultry

Head (000)

2,569

5,634

6,342

6,765

7,188

7,611

8,034

8,456

8,879

9,302

5,328

Beef fresh/chilled

MT

2,000

4,087

4,261

4,436

4,611

4,785

4,959

5,134

5,308

5,483

2,786

Beef frozen

MT (000)

0

21.1

57.1

71.3

85.6

98.4

108.3

119.1

131

144.1

72

Pork fresh/chilled/frozen

MT (000)

16.3

33.7

36.1

38.5

41

43.4

45.8

48.2

50.6

53

27.1

Goat meat fresh/chilled/frozen

MT

335

695

745

795

845

895

945

995

1,045

1,095

560

Poultry fresh/chilled/frozen

MT (000)

7.3

15.2

16.2

16.7

17.7

18.8

19.8

20.9

21.9

23

10.4

Potatoes fresh/chilled

MT

465

965

1,035

1,102

1,171

1,240

1,309

1,378

1,447

1,516

772

Coffee, roasted/not, decaff/not; husks & skin...

MT

5

927

993

1,060

1,126

1,192

1,258

1,324

1,391

1,457

745

Maize, other than seed

MT (000)

65.1

135

144.6

154.3

164

173.6

183.2

192.8

202.5

212.1

108.5

Rice

MT (000)

29.9

61.5

65.1

97.1

112

119.5

134.4

164.3

194.1

224

142.2

Sugar

MT (000)

19.2

39.8

42.7

45.5

48.4

51.2

54.1

56.9

59.8

62.6

32

Soluble coffee

MT

0

20

21

23

25

26

28

30

32

35

37

Source: Annex 1, AO 1, 1998, MAV Management Committee, DA

Prepared by DA-AGILE; 30 June 99

Table 3-5: Average Yield for Corn, Various Countries, 2000

COUNTRY

YIELD (Kg/Ha)

World

4,255

Asia Developing

3,550

Bangladesh

1,044

Cambodia

1,059

China

4,670

India

1,769

Indonesia

2,695

Iran, Islamic Rep of

4,667

Korea, Dem People's Rep

2,099

Korea, Republic of

3,940

Laos

2,388

Malaysia

2,407

Myanmar

1,703

Nepal

1,701

Pakistan

1,512

Philippines

1,719

Sri Lanka

1,089

Syrian Arab Republic

3,913

Thailand

3,517

Turkey

3,692

Viet Nam

2,550

Australia

6,293

United States of America

8,603

Source: Food and Agriculture Organization (FAO) Website.

Table 7-1. Average Retail Prices of Major Meats, Philippines 1990-1999

Year

Pork

Beef

Chicken

Price Ratios

Beef/Pork

Beef/Chicken

Pork/Chicken

1990

58.23

98.28

51.50

1.69

1.91

1.13

1991

73.58

120.03

62.32

1.63

1.93

1.18

1992

79.96

135.98

68.73

1.70

1.98

1.16

1993

76.88

138.51

64.08

1.80

2.16

1.20

1994

86.41

135.79

70.12

1.57

1.94

1.23

1995

86.59

134.86

71.57

1.56

1.88

1.21

1996

96.76

133.53

69.50

1.38

1.92

1.39

1997

100.83

133.70

71.91

1.33

1.86

1.40

1998

103.89

138.41

82.12

1.33

1.69

1.27

1999

108.81

140.83

82.83

1.29

1.70

1.31

Source: Bureau of Agricultural Statistics

List of figures

Figure 5-1: Hog inventory, Philippines, 1980-99

Figure 5-2: Livestock and Poultry Production by Sector, Dressweight, 1990-1998.

Figure 5-3: Broiler Inventory, Philippines, 1988-1999


[100] Professor, Ateneo de Manila University and concurrently Professorial Lecturer, University of the Philippines at Los Baños, Philippines.
[101] FAO (1996), Vol. 1, p. 4.
[102] Thus, the greater the difference between tariff rates on the output and tariffs rates on inputs, the higher the EPR. A sector can still have negative protection if its inputs are levied higher tariff rates than those applied on its output, even if the output tariff rate may be very high. Export taxes, which were abolished during the Aquino administration, also penalize, or lead to negative protection, of the taxed sector.
[103] This section draws on Manasan and Pineda (1999).
[104] Because of the balance of payments crisis during the mid-1980s the Import Liberalization Program was postponed. In fact, some of the items which were deregulated earlier were re-regulated.
[105] In the case of sugar, the error was determined to be due to the inadvertent addition of an extra zero in the proposed MAV level, i.e. the figure submitted was ten times what was intended. The Philippine government managed to get the technical correction on the sugar MAV accepted by the WTO.
[106] Personal communication with Mr. Gil Antonio, formerly an independent broiler producer in the 1980s.
[107] Income elasticity estimates used are those cited in Costales (nd).

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