Name of Presenter

Position
Department/College
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Agro Industrial Interphase
in Rural Development

Jerome M. Arteza


Brief History
Since the early 1050s, the popular development strategy
in the Philippines can be characterized as an essentially industry
led, capital intensive import substitution strategy. The view
is that capital intensive import substitution would lead to
faster industrialization and therefore would need to be pushed
by protective government policies. This view has been held
particularly by traditional politicians, local business elite, so
called nationalists, and even development economist.
Export promotions was launched by the Marcos government
in the 1970s but the highly protective and distortive tariff
system, including substantial increases in the governments
regulation of the various sectors of the economy, still
constituted a major impediment to exporting and agricultural
production. The Aquino government, after assuming power in
February 1986, moved quickly to further reduce price
distortions and institutional constraints unfavorable to
agriculture.
Major reforms included (1) the resumption of the import
liberalization program begun in 1981, (2) the abolition of
government supported monopolistic structures in the
sugar and coconut industries, and (3) further reduction of
National Food Authority intervention to rice and corn with
its withdrawal from trading in wheat, flour, and feed
ingredients.
0
5
10
15
20
25
1979
1985
1988
Average tariff rates by sector 1979 - 1988
Trade weighted using 1983 import value
It needs emphasizing that, because of the high degree of
tradability of agriculture, the sector suffers more from currency
overvaluation than the no-agricultural sector. Between the mid-
1970s and early 80s, the overvaluation of the domestic currency has
effectively lowered the domestic prices of agricultural products by
about 20 percent relative to home goods and by 25 percent relative
to non-agricultural products

But now, after about three decades of industry-led, import-
substitution strategy the records are clear: not only has
industrialization been restarted but unemployment and the
incidence of poverty have also been historically high. The
unemployment rate has risen from about 7 percent in the late 1950s
to about 11 percent in the mid-1980s
Agricultural Growth and Rural Led
Industrialization
Recently, an agriculture and employment-led development
strategy or, more aptly, a rural-led development strategy (RDS)
has been proposed as an alternative to an industry-led import-
substitution strategy. Deemed a superior development strategy
that addresses directly the problem of chronic poverty and high
unemployment and underemployment, the strategy calls
agricultural development as the road to industrialization. In
contrast to the strategy which this country has essentially
followed over the last three decades, RDs gives agriculture and
rural development a central place.
Two major elements surround the success of RDS
Acceleration of agricultural production
Increases in the domestic demand for agricultural
Linkages of Agricultural Productivity
In the Philippines, the productivity of agricultural land (that is,
output per hectare) in the 1970s, which presumably increased
only slightly in the 1980s, was comparable to that prevailing in
other Asian countries at the early stage of its agricultural
modernization. Combined with the countrys high population
growth rate and the insufficient labor absorption by the non-
agricultural sector, this translates to low agricultural labor
productivity.

The slow growth of agricultural productivity in the
Philippines is largely due to the low priority afforded by the
government to agriculture.
There are at least 4 ways in which increases in agricultural
productivity can facilitate industrialization.

Higher rural incomes
Higher farm incomes
Rising productivity
Rising agricultural productivity
Multiplier Effects of Rural Growth
The growth of agricultural productivity and farm income will
facilitate the growth of employment. As the total household income
rises, the share of food in household expenditures falls, but the
share of manufactured goods and services rises. The supply of these
goods and services generates employment which, at the early stage
of economic development, tends to be predominantly concentrated
in rural areas.

The key to increase in per capita income is the size of the
direct and indirect employment multipliers that results expanding
agriculture.
Agricultural Growth and the Decreasing Importance of
Agriculture in Development: A Contradiction?

Critics of agriculture-led development strategy also
argue that the need for rapid agricultural growth is in
contradiction with the historical record which shows
agriculture declining in relative importance as per capita
incomes increase. They contend that agriculture is
unimportant that it does not require resources or a
favorable policy environment, because its relative share in
the countrys labor force and total output declines, as
shown uniformly and pervasively by both time-series and
cross section samples of countries.
Recommendations

Sustained agricultural and rural development in the
Philippines demand an institution of inter-related policy reforms
and programs

The bias of economic policies, notably trade and exchange rate
policies, against agriculture must be removed.

Public sector spending on agriculture, particularly investments in
rural infrastructure, must be increased to levels commensurate
with the sectors contribution to national income and
employment

Rural development requires the intensification of research
and development aimed at increasing agricultural productivity
and rural incomes.

The pace of land reform and the delivery of support services
to farmers and rural workers need to be accelerated.

The provision of social services, including education, health,
and nutrition services aimed at promoting rural welfare and
human capital development, must be increased.