LA SOLIDARIDAD: Will More Government Spending Lead to Higher Levels of Agricultural Productivity?

The Aquino administration is distorting agricultural markets under the banner of “self-sufficiency”. In the process, agricultural productivity levels are reduced.

Such policy has a counterpart in North Korea – juche. It was also implemented by the Soviet dictator Nikita Kruschev in 1950 – with disastrous consequences for the Russian population.

It seems the Yellow administration is turning redder by the day.

Image courtesy of Jeremy Ham / FreeDigitalPhotos.net

Juche is the “Korean translation for the philosophical and Marxist term “subject”[2], also meaning “main body” or “mainstream”, and is sometimes translated in North Korean sources as “independent stand” or “spirit of self-reliance”. It has also been interpreted as “always putting Korean things first.” – according to Wikipedia.

Now listen to Butch Abad, speak about “food self-sufficiency”.

Budget Secretary Florencio Abad said the Aquino administration is proposing to Congress a budget of P73.6 billion ($1.75 billion) for the Department of Agriculture in 2013. This is 20 percent higher than its 2012 allocation.

“We’re planting the seeds of food self-sufficiency so that we won’t have to rely on imports by the end of 2013. The budget increases for DA should help the agency meet the targets set for it next year, as well as enable the (Aquino) administration to combat hunger and poverty in the long-term,” said Abad.

Aside from increasing food production, he said the additional money will also to go fixing the country’s irrigation systems, construct farm-to-market roads and provide credit to farmers.

Butch Abad should check how North Korea’s exercise in “food self-sufficiency” turned out – the country was beset by famine. Same thing happened in Kruschev’s Soviet worker’s paradise in 1950.

Pump-Priming the Supply Side of the Agricultural Market: Is the Strategy Working?

To increase supply, the Aquino administration intends to spend more tax money on:

Irrigation Systems – Where is the spending directed? To small farmers or big corporate Filipino-owned farms? Who will be supplying the irrigation systems? How much will go to “grease money” aka S.O.P . – Standard Operating Procedure – pay before you are allowed to join in the bidding?

Farm-to-market roads – same deal – Where is the spending directed? To small farmers or big corporate Filipino-owned farms? Who will be building the roads? How much will go to “grease money” aka S.O.P . – Standard Operating Procedure – pay before you are allowed to join in the bidding?

Credit to Farmers – Where is the spending directed? To small farmers or big corporate Filipino-owned farms? Who will be availing of the credit? How much will go to “grease money” aka S.O.P . – Standard Operating Procedure – pay before your loan is processed?

And we expect more government spending to increase agricultural levels of productivity? Good luck with that.

Volatility and Central Economic Planning: A Good Fit?

The country is hit by typhoons regularly and crops can be drastically reduced.

Under open markets – this wouldn’t be a problem because importation will augment the local shortfall. Farmers themselves – can do the importation – and trade or produce or a mix thereof as they fit depending on consumer demand and revenue.

The Aquino regime is pursuing a socialistic policy in agriculture – at consumers and taxpayer’s expense.

The low levels of agricultural productivity is a CLASSIC outcome of severe government intervention in markets.

Dept of Agriculture: Major Source of Distortions in Agricultural Markets

The thing is – if the PHL government is unable to meet supply – PHL asks consumers to sacrifice in behalf of the poor rice farmer. What a big farce!

Wasteful Procurement Practices

The PHL has a buffer of rice stored in NFA warehouses – which more often than not – wind up rotting in these warehouses. The preferred Filipino rice trader already made the money – but the end-beneficiaries do not get to have their rice.

Tariffs

The PHL government also imposes tariffs on imported agricultural products -

Article 5 of the Agreement on Agriculture provides for special safeguards (SSG) action in the form of an additional duty that may be imposed on a temporary basis on top of the existing tariffs in cases (a) where the actual import volume exceeds a base trigger level, or (b) where the import price falls below a base trigger price.

The level of additional duty to be levied shall not exceed 33% of the level of the ordinary customs duty applied on imports of the product in question at the time of importation.

The SSG inscriptions of the Philippines cover tariffied agricultural products as shown in Section I-A Tariffs of Schedule LXXV.

The cost of the tariff is passed on to the consumer. The money collected from the tariffs goes to porky pig, mickey mouse, and daisy duck – and small farmers are still crowded out by the big Filipino agribusinesses.

Subsidies

Someone is gonna make a shit load of money with these subsidies – or transfer payments – redistributing the income of fixed wage earners to rice traders

Take for instance the:

“P6-billion farm mechanization program (FMP) to further increase the productivity and incomes of small farmers. The amount is used to purchase various production and postharvest machinery and equipment, which the DA provides to qualified farmers groups and cooperatives, irrigators’ associations (IAs), and local government units (LGUs) under a counterparting agreement.”

Since the Filipino big businesses are protected from competition, subsidized by government – - the big remain big – and the small, remain small. The small farmers are perpetually small. Quite a nice source of recruits for populist left-wing groups. Thus – the PHL has a chronic group of discontented farmers on one end – and agricultural Filipino conglomerates on the other – inefficient but revenue-generating. What’s more disturbing is that by controlling importation, government and it’s preferred rice traders reduce the supply AND increase the price of rice to consumers.

Pumping more money only increases the revenue of the inefficient Filipino big agribusinesses – without increasing agricultural productivity at all.

Self-Sufficiency versus Access to Markets

If China pursued “self-sufficiency” instead of “access to markets” – China will be a bigger North Korea – and possibly more aggressive in its dealings with the Spratleys.

But why spend some more if agricultural productivity levels will not increase? If Singaporeans relied on agricultural self-sufficiency they wouldn’t be the economic dynamo they are today.

More government spending and intervention in agriculture creates bubbles – and distorts market signals which impact agricultural productivity. The Soviet style economic planning of Nikita Kruschev should remind the Manchurian bureaucrats of the DA and the DBM that nothing beats the free and open markets.

In 1959, Khrushchev announced a goal of overtaking the United States in production of milk, meat, and butter. Local officials, with Khrushchev’s encouragement, made unrealistic pledges of production. These goals were met by forcing farmers to slaughter their breeding herds and by purchasing meat at state stores, then reselling it back to the government, artificially increasing recorded production.[163]

In June 1962, food prices were raised, particularly on meat and butter (by 25–30%). This caused public discontent. In the southern Russian city of Novocherkassk (Rostov Region) this discontent escalated to a strike and a revolt against the authorities. The revolt was put down by the military. According to Soviet official accounts, 22 people were killed and 87 wounded. In addition, 116 demonstrators were convicted of involvement and seven of them executed. Information about the revolt was completely suppressed in the USSR, but spread through Samizdat and damaged Khrushchev’s reputation in the West.[164]

Drought struck the Soviet Union in 1963; the harvest of 107,500,000 short tons (97,500,000 t) of grain was down from a peak of 134,700,000 short tons (122,200,000 t) in 1958.[165] The shortages resulted in bread lines, a fact at first kept from Khrushchev.[165] Reluctant to purchase food in the West,[165] but faced with the alternative of widespread hunger, Khrushchev exhausted the nation’s hard currency reserves and expended part of its gold stockpile in the purchase of grain and other foodstuffs.

Noynoy Aquino and Butch Abad are putting the food security of the Filipinos at great risk by pursuing a flawed agricultural policy.

Free and open markets will spur higher levels of agricultural productivity – or it can reduce reliance on agriculture resource extraction and move Filipino farmers towards value added agricultural products traded in the global village – instead of the local protected Filipino agricultural traders.

But Filipinos are already stuck in the electoral circus – with the same plundering actors and actresses.

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It’s all about the money! YOUR money – the government and its cronies want YOUR money – and YOU allowed them to – do not blame anyone else, but you.

But hey, fine – you messed up the first time around – try shaking things up a bit the second time around.

In the coming elections – when you hear any politician seek your vote – ask their view on public spending. When they talk about projects – ask them how will they fund the project? Where is the money going to come from? If it’s from your taxes, beware, run away – it’s not worth your time – or your vote for that matter.