SOCIAL ANALYSISRe 224.2, MBA-APEX

March 3, 2012

The cycle of poverty among small farmers in rural areas.

GROUP 4Anna May del Campo

Teresita JavellanaNoel Silvosa

Dan Michael Dela SernaLouie Basas

Guide

1. Identify the situation (Describe it to yourself and to others so that it is clear what the social reality is that you are trying to analyze)

2. Collect information (Collect as much info as you can about the situation or problem; Your resources should include more than one author's opinion, as well as a variety of different perspectives)

3. Reflection (What caused you to become concerned? Why do you think there is a problem? Does the situation affect you or a loved one personally, or someone else? Why is someone else's problem important to you? What do you value in life that this situation is disturbing?)

4. Ask questions (Find out about the history of the situation. How did it come to be? How long has it been going on? When did it begin? What important decisions were made over time? Why were decisions made? Who was involved? What are the laws and policies concerning this situation? Who made the laws and policies? What is the political climate? What role does the government play, as well as the churches, civic organizations, business and industry, and any other related group? What are the relationships between the various groups and persons involved? What are the traditions involved? What are the other value systems and beliefs involved?

5. Understanding the situation (Essentially, the goal is to ask as many significant questions as possible, so as to arrive at as complete a picture as possible of the situation of concern)

6. Strategize and plan for possible means for resolving the problem (Understanding the situation, however, is not the same thing as finding a solution to the problem. The next step is to strategize and plan for possible means for resolving the problem, using as a foundation our newly acquired understanding of the situation

Order of Presentation

I. Introduction Philippine Economy Poverty Statistics Poverty in Mindanao Vicious Cycle of Poverty Vulnerability of Small Farmers

Productivity, Market Access, Infra Access, PH Handling, Value Chain Participation

II. Assessment of the Situation Philippine Agriculture Review of Agri Sector Bottlenecks in Agri Sector Vision for Agriculture

III. Factors preventing farmers from harnessing their potentials Distorted and Inefficient Market Inadequate Investments Institutional Bottlenecks

IV. Ongoing and Planned Interventions 2004-2010 MTDP 2011-2016 MTDP Other Support

V. Key IssuesVI. RecommendationsVII. Conclusion

INTRODUCTION

Agriculture in Developing Countries Farmers are

considered the backbone of economy.

In many

developing agricultural countries, almost 1/3 of the world’s population depend on smallholder farming.

As such, smallholder farming is important in terms of agriculture and food security.

In the Philippines Poverty in the Philippines is

essentially a rural phenomenon.

Magnitude of poverty is highest in the rural areas in terms of both level & incidence

Accounts for 20% of GNP, or 1/5 of the economy

One-third of the population is employed in agriculture or agri-related industries

Agriculture plays a major role in the generation of incomes and employment

The development of the sector is essential to any antipoverty program

Latest Poverty Statistics: Philippines

Indicator 2006 2009

Poverty Threshold and Poverty Incidence

Annual Per Capita Poverty Threshold (in Pesos)

13,348 16,841

Poverty Incidence of Families (%)

21.1 20.9

Poverty Incidence of Population (%)

26.4 26.5

Food Threshold and Subsistence Incidence

Annual Per Capita Food Threshold (in Pesos)

9,257 11,686

Subsistence Incidence of Families (%)

8.7 7.9

Subsistence Incidence of Population (%)

11.7 10.8

Poverty in Mindanao Root causes of high poverty are conflict,

historic dispossession of land, & internal displacement.

62% poverty rates are in provinces such as

Maguindanao while only 29% nationwide. 6 of the 10 poorest provinces in the

Philippines were located in Mindanao (in 2006)

Child stunting is 34% compared with 28%

nationally Acute malnutrition rate is 4.8% nationwide,

but 7.1% in Maguindanao, 8.3% in North Cotabato, & 8.2% in Sultan Kudarat.

Poverty is partially attributable to decades-long stagnation in smallholder agriculture.

Vicious Cycle of Poverty

Many cycles overlap or perpetuate new cycles and therefore any attempt to depict the cycle of poverty will be far more simplistic than realistic

Vulnerability of Small Farmers

Exposed to an environment where they are vulnerable to exploitations: By traders, informal lenders By manufacturers By politicians

Total no. of farmers is at 5M, 2.1M are rice & corn farmers.

Causes of vulnerability:

Lack of info & training to interpret movements of trade in the market,

Lack of capital,

Lack of post-harvest facility logistics to augment & improve their economic livelihood.

Small Farmers & Productivity Land holdings of poor farm

family range from 0-3 has.

Limited access to irrigation; Cultivate on remote, sloping hills, which provide for low productivity

Tend to produce staple crops (corn, rice) w/c they can consume & market locally, but for low prices.

Lack technical capacity to increase production, or employ NRM to be resilient to calamities

Access to MarketsLimited access to markets

There is strong market demand & strong private sector for delivering produce to market.

However, lack the scale required by institutional buyers, access to credit, & info about market requirements.

At planting, small farmers go to local traders to secure high-interest loans.

At harvest, return to the same local traders to repay loans & sell crops at prices far below the formal market.

The cycle continues.

Access to Infra & Postharvest Handling

Incur significant losses due to poor post-harvest handling.

Post-harvest losses can reach up to 50% as a result of spoilage & waste at the farm level, poor drying & storage, pest infestation, & poorly maintained or outdated rice mills (studies from IRRI).

Typically dry their produce using rudimentary methods, such as drying on tarmac roads & roofs.

Only 80% of domestic rice demand is met by domestic production.

Participation in the Value Chain

Small farmers have few key linkages to diverse stakeholders: Unfamiliar &/or unknowledgeable about financing options beyond local

usurious creditors; Do not know about government resources; Lack infrastructure (such as irrigation canals, roads, dryers, warehouses,

or other); Not linked to agricultural research; Lack the knowledge to diversity towards formal markets.,

They tend to have low yields of low quality, and sell to local traders for rock-bottom prices.

ASSESSMENT OF THE SITUATION

Agriculture and Fisheries Sector an important contributor to the economy: Contribution of 18.1% to GDP Employed 34.3% of the labor

force (in 2009).

Grew 3.2% on ave. over the last 5 years, but below the target of 4.3-5.3%.

Gains in agricultural labor productivity, with annual ave. gains of 1.6% in the last 5 years.

Major drivers of growth are banana, corn, fisheries, agricultural services and palay

Assessment of Agriculture in the

Country

In comparison with selected SEA countries, land productivity and cost competitiveness of traditional crops, (e.g., rice, corn and sugarcane) ranked low, but rated higher with HVCs like banana.

Export value at its lowest in 2009, as we continued to be a net importer with a trade deficit of $2.4 B

Positive trade balance for HVCs (e.g., vegetable and fruits) & fisheries.

The sector’s growth had low impact on the welfare of the rural sector, still accounting for 70% of the poor population,

Exhibiting declines in per capita income (-1.4% from 2000 to 2006), amidst rising prices of food commodities

Agriculture in the

Country

More than 70% of the country’s population is dependent on agriculture.

Provides income &

livelihood to the million of farmers & their dependents.

Attaches the high priority of transforming agriculture into a modern, dynamic & competitive sector.

A sustained expansion of the national economy requires sustained growth in the agricultural sector.

Review of the Agricultural Sector

Over the past 6 decades, confronted by internal & external bottlenecks that constrained its performance & growth.

Reforms to increase productivity, efficiency, competitiveness, market adaptability, & sustainability of agri-based industries, were hampered by:

Inadequate resources,

Limited implementing capabilities of national and local government units (LGUs), and

Weak coordination among implementing agencies.

Occurrences of natural disasters, international market crisis exacerbated the real growth of the sector,

resulting to contraction in output.

Bottlenecks in Agri Sector

Vision for Agriculture

The Philippine government’s vision is the transformation of farmers into business entrepreneurs.

Recognizes the need for farmers to move from their present state of subsistence to where they are driven to produce more efficiently making farming more profitable.

The successful development of this sector would depend on a well-

functioning marketing system which would allow farmers to reap their returns for their produce.

If this will be attained, more investments are expected to come in, thereby generating more employment & income in the farm sector.

FACTORS PREVENTING

FARMERS FROM

HARNESSING THEIR

POTENTIALS

Factors at the micro & macro levels:

Distorted and Inefficient Market Lack of Market Information and Ability to

Analyze Same Poor Transport Facilities Inadequate Post-Harvest Facilities Excessive Government

Intervention/Regulation Lack of definite product quality standards

Inadequate Investments Lack of Financing and Credit Facilities Provision of Low-Cost Financing Uneven Tariff Protection Inadequate Government Spending Uncertainties about the Comprehensive

Agrarian Reform Program (CARP)

Institutional Bottlenecks Lack of Organized Farmers Weak Linkages Lack of Entrepreneurial Skills Among

Farmers

Distorted and Inefficient Markets

Lack of knowledge makes farmers price-takers, leaving them at the mercy of traders.

The lack of info opportunities & capability to analyze limits their ability to plan their activities for longer periods of time.

Lack of Market Information and Ability to Analyze

Rural infrastructure is in a deplorable condition.

Increasing percentage of farm do not have access to FMRs.

The poor state of transport infrastructure has prevented efficient movement of agri goods & raised their prices in the market.

Distorted and Inefficient Markets

Poor Transport Facilities

The inadequacy of post-harvest equipment & facilities limited farmers’ option in marketing their produce.

Added post-harvest losses

Constrained farmers from producing more due to the lack of facilities

Prevented farmers from adding more value to their produce

Distorted and Inefficient Markets

Inadequate Post-Harvest Facilities

Price controls, government monopolies, subsidies & other forms of interventions have distorted agricultural markets, constraining production growth, increasing imports, & weakening the country’s food security situation.

Made farmers vulnerable to political exploitation

Distorted and Inefficient Markets

Excessive Government Intervention/Regulation

Absence of a definite product quality standard does not allow producers to command a better price for their produce.

Without the guidance on

the appropriate variety & quality of products that the market requires, local producers find it difficult to directly penetrate both the domestic or export market

Distorted and Inefficient Markets

Lack of definite product quality standards

Most agricultural producers are small farmers with inadequate financing.

Their financial requirements are usually provided by traders at high interest rates.

Small farmers borrow money

from informal sources because these are accessible, require no collateral and voluminous documents like those required by formal lending institutions.

Inadequate InvestmentsLack of Financing and Credit Facilities

The low tariff protection received by the agriculture sector compared to the non-agriculture sector is one of the factors which have contributed to the unattractiveness of agriculture to investments

Inadequate InvestmentsUneven Tariff Protection

Government expenditures for roads, bridges, ports & irrigation systems as well as for R&D of productivity-enhancing technologies in support of the agricultural & rural sectors have been inadequate & less proportionate to the sectors’ share in the GDP.

This neglect for the sector has kept investments away from agriculture

Inadequate InvestmentsInadequate Government Spending

Risks & uncertainties emanate from the set of rules which govern the CARP’s implementation.

Many areas remain undefined for prospective businessmen & local agribusiness firms are unfamiliar with the new organizational & institutional arrangements under CARP.

Ambiguities & uncertainties about CARP have aggravated the unattractiveness of agriculture to investments

Inadequate InvestmentsUncertainties about the Comprehensive Agrarian

Reform Program (CARP)

Many farmers are unorganized & this limits their ability to market their produce more effectively.

Left to the mercy of traders who

can dictate farmgate prices.

Being organized into coops or producers’ associations allows them to buy inputs & sell produce collectively, transport it in bulk, for more efficient operations

Gives them stronger bargaining power to command better prices for their produce

Institutional BottlenecksLack of Organized Farmers

Farmers fail to realize maximum return because linkages between them are weak.

Thus, are deprived of access to

stable markets and therefore, stable prices.

Deprived of access to a steady

and stable supply of raw materials.

Impede the formation of greater

and stronger forward & backward linkages in the sector

Institutional BottlenecksWeak Linkages

The farmers’ lack of entrepreneurial skills has prevented them from properly utilizing marketing investment info for longer-term production & marketing planning, & from taking advantage of economic opportunities.

The possession of these skills would make their operations more efficient and profitable, thereby enabling them to earn more

Institutional BottlenecksLack of Entrepreneurial Skills Among Farmers

ONGOING AND PLANNED

INTERVENTIONS

2004-2010 MTDP

Goal 1: Develop at least 2M has. of new agribusiness lands in order to create at least 2M jobs, or 1 job per hectare; and

Goal 2: Make food plentiful at competitive prices where the cost of priority “wage goods” such as rice, sugar, vegetables, poultry, pork and fish, & other important non-wage goods like corn must be reduced

Goal 1 – Improve & expand 2M has. agribusiness land

Expanding effective production areas: Increasing intensity &

diversification Cost-effectively cultivating

idle & marginal lands

Expanding the product mix: Adopting new/improved

agricultural production systems

Large-scale program of non-traditional HVCs

Value-adding

Goal 2 - Plentiful food at competitive prices

Production support Addressing the constraints to high yields &

low production costs

Logistical support Postproduction handling, marketing, &

distribution problems that lead to high agricultural input & food retail costs

Governance and institutional support Addresses policy & regulatory bottlenecks to

efficient agricultural production & distribution as well as competitive food prices

Ensure that the reduction in production and distribution costs due to the productivity and

logistics measures will result in higher farm incomes & lower food prices.

Assessment of 2004-2010 MTDP

Agriculture sector has exceeded production targets

But remains uncompetitive due to:

High cost of inputs (fertilizer, chemicals, seeds),

Large post-harvest losses and the

Disruption of extension services due to devolution.

2011-2016 MTDPGoals/Objectives:

1. Raised and sustained productivity & incomes of agriculture & fishery-based households & enterprises;

2. Increased investments & employment across an efficient supply chain;

3. Transformed agrarian reform beneficiaries into profitable entrepreneurs;

4. Reduced risks , including climate change impacts, inherent to the sector;

5. Ensured food security at all levels; &

6. Strengthened/enhanced policy environment & good governance.

Goal 1 - Raised & sustained productivity & incomes

Diversification: facilitate and promote diversification of production base and livelihood options

Rural infrastructure: establish climate-resilient agriculture infra

Market development: provide effective market assistance

RD&E: Update reliable databases and information systems

Credit: improve credit access through stronger partnership between government and private financial institutions;

Goal 2 - Increased investments & employment

Create jobs - through private investment

Localize agricultural promotion & development - regional strategies must take precedent in promoting sector competitiveness

Promote value-adding of products and develop capacities for value chain management

Promote vertical & horizontal integration of input, production, and marketing

Strengthen the country’s agricultural exports through better resource allocation focusing on the country’s existing competitive advantage

Create more job opportunities by expanding existing markets & aggressively exploring new markets

Goal 3 - Transformed ARBs into profitable entrepreneurs

Achieve land tenure stability of the ARBs

Strengthen organizational capacity of ARBs & ARB organizations to manage & develop agri-enterprises;

Transform microenterprises into formal & viable SMEs through clustering of ARCs & establishing networks of enterprises;

Facilitate access to credit

Establish rural physical infrastructures

Goal 4 - Reduced risks , including climate change impacts

Reduced risks inherent to the sector, including climate change impacts.

Damage and loss of crops, livestock and fishing grounds; water allocation and prioritization of water supply for irrigation, domestic water, and energy are just a few emerging problems that should be dealt with as early as possible.

Proper scientific guidance is needed

Legislative Agenda

– Enhanced food security & Strengthened policy environment

National Land Use Policy & Protection of Prime Agricultural Lands. Expected to provide the legal & other mechanisms for not only land

reform areas, but also zoned areas for water and water uses, especially for agriculture.

NFA Reforms to seek further rationalized grains sector trading. To restructure the NFA to separate its regulatory & proprietary

functions.

Agricultural Bureaucracy Rationalization. To rationalize the agriculture bureaucracy through the efficient and

effective convergence and complementation of the agriculture, agrarian reform and natural resources (AARNR) service agencies & related offices to address institutional overlaps.

Accelerated Irrigation Development. NIA shall undertake a six-year accelerated irrigation

program for the construction of irrigation projects in the remaining unproductive, unirrigated lands nationwide.

Food Safety.

Aims to put in place a coordinated food safety system

Amendment of the Tariff & Customs Code (strengthening the anti-smuggling mechanism of agricultural products). Should further strengthen the anti-smuggling

mechanism

Legislative Agenda

– Enhanced food security & Strengthened policy environment

Various Projects from International and Local NGOs, Private

Organizations, Social Entrepreneurs, Church, Academe, Corporate Markets,

Financing Institutions, others

Address several areas of weaknesses for the government:

Limited technical capacity, Unclear communication lines and coordination, Infrastructure support, among others…

KEY ISSUES

Key Issues

The government has excellent strategies. But weaknesses appear in implementation.

Which can be reinforced by complementary programs through NGOs and the private sector.

The expansion of the production base involves breaking out from subsistence agriculture by increasing and diversifying the marketable surplus of the farm.

However, raising agricultural & fishery production & competitiveness have not automatically & consistently led to increased farm incomes.

Key Issues

Often, more production meant surpluses that depress farm gate prices.

Meanwhile, lower farm gate prices also do not automatically lead to lower food retail prices.

It appears that an inordinate share of the benefits from higher production goes to middlemen.

RECOMMENDATIONS

What is needed, therefore, is a more holistic approach in reducing rural poverty that will not only address the production bottlenecks in agriculture but also its inherent vulnerabilities.

This approach calls for the promotion of agribusiness.

This will not only address agricultural production constraints but also post-production handling, value-adding, and distribution concerns, all of which are the major and inter-connected determinants of job creation and income stability in the countryside.

Recommendations

Expand substantially the production base Raise production and distribution efficiency Promote equitable distribution of production &

productivity gains.

Recommendations

Thus, production and productivity improvements will have to go hand-in-hand with governance and institutional reforms to ensure that, among others, production and efficiency gains will indeed result in

commensurate farmer and consumer welfare gains.

Address the inefficiencies along the agricultural value chains

Engagement of public and private organizations to improve the participation of small farmers in the agricultural value

chains

+FARMERS

MARKETS

CONCLUSION

Conclusion:The Vicious Cycle of Poverty

A phenomenon where poor families become trapped in poverty for generations.

They have no or

limited access to critical resources, such as education and financial services, subsequent generations are also impoverished.

Low income,

Low assets,

Low education

Lack of capital,

Lack of in demand

skills

Lower capacity to generate income

Low security

cover from economic & health

risks

Debt & further loss of income

Breaking the Poverty Cycle among Small Farmers

Macro

Meso

Micro

• Regulatory environment

• Macroeconomic condition

• Efficiency• Effectiveness

• Access• Impact

Improve the

participation of small farmers in the agricultural value chains through increased and better engagement of the key stakeholders along the chain.

Working in Solidarity in promoting Peace & Justice.

Small Farmers

We are all part of one human family — whatever our national, racial, religious, economic or

ideological differences — and in an increasingly interconnected world, loving our neighbor has global dimensions.

Government, Institutional Markets, Financial Institutions

Academe, Church, Research

InstitutionsLGUs, NGOs, Bus. Service Providers

Farmer Leaders, POs

The long-term goal

Strengthen the capacity of local communities to take control of their own development

Thank you.