May 2015

Source: Philippine Daily Inquirer

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How vital is productivity in achieving prosperity?

This issue is of strategic concern to Philippine development. As of 2012, some 25.2 percent of Filipinos were poor. Farmers and fisherfolk are poorer at 39.2 percent and 38.3 percent, respectively. Urban residents have a poverty incidence of only 13 percent.

If the urban-rural residents are split halfway, the poverty incidence of the rural folks would be almost three times that of urban resident at 37.2 percent. Today, there are slightly over 100 million Filipinos. This means almost 18.6 million are rural poor, and 6.5 million urban poor. Or 74.4 percent of the poor are in the rural areas.

To achieve rising and shared prosperity, “productivity growth is necessary but not sufficient to support broad-based well-being, which also depends on quality of life, health, and environment,” according to Catherine L. Mann, chief economist at the Organization for Economic Co-operation and Development (OECD) in her article entitled “Designing policies that support growth”, which appeared in the McKinsey Global Institute in January 2015.

“Productivity growth both affects and is affected by the distribution and volatility of employment and income … and these feed into well-being, both within and across generations, ” added Mann.

Mann’s analysis reveals the relative importance of different avenues of improving productivity. “The diffusion of best practices across firms within a sector, and the uptake of productivity-enhancing lessons learned across sectors can increase productivity within an economy and allow it to catch up to the frontier.”

“Even in countries that are home to frontier firms, there is incomplete diffusion of known technologies within and, even more so, between sectors. Policies that support business and worker dynamism and the reallocation of resources promote this within-and between-sector diffusion and catch-up.

But diffusion and catch-up are not enough to ensure rising prosperity: Innovation that pushes out the technological frontier is also needed, and this depends on the extent and efficiency of resource reallocation, and the magic and confidence of ideas. ”

Transpose to Philippine agribusiness

Except for a few products, Philippine farm productivity is behind those of peer Asean countries—Indonesia, Malaysia, Thailand and Vietnam. These include rice, corn, coconut, sugarcane, coffee, cacao, oil palm, rubber and others. The exceptions are banana, pineapple, and a few others.

The typical farmers in Thailand can out-produce Filipino farmers in corn, sugarcane, rubber, cassava, dairy and hogs. Those from Indonesia, in oil palm, coffee and cacao. Those from Vietnam are more than three times more productive in coffee and rubber. They are ahead in cashew, pepper and rubber.

The irony is that there are great farmers across the so-called low productivity agriculture. They can out-produce the good farmers across Asean. However, they are few and far between.

The productivity differential is caused by what Mann discussed as the limited diffusion of best practices across firms within a sector, and innovation that pushes out the technological frontier is also needed.

First, the limited diffusion of best practices cuts across the small farm sectors. This is because of a weak extension system at the municipal local government units. This issue emerged after the passage of the 1991 Local Government Code. Scholars, like Cristina David and Eliseo Ponce, have long advocated a sound setup at the provincial level.

There will be subject matter experts and extension service will be under the control of a professional manager. It has been over 20 years, and the “light” is still in the woodworks.

Second, innovation that pushes out the technological frontier. The banana and pineapple industries have pushed their technological frontiers without government support. The farm yields are among the highest in the world. No wonder, they are export-competitive and key players in Asia and the world.

Asean peer Vietnam has pushed the technological frontier for coffee, and Thailand for sugar and cassava.

Third, there are already advances in the frontier, such as hybrid rice (SL Agritech), cacao (Kennemer Foods), and coffee (Nestle). There are companies in vannamei shrimp culture, too.

There are also tunnel-ventilated houses of swine, broiler chickens, and layers. Across Southeast Asia, notable advances have been made in rubber, oil palm seeds, cassava and giant napier.

So why is Philippine agriculture not as productive as Asean peers?

Richard Rumelt, strategy guru at the University of California Los Angeles, says: “Good strategy requires leaders who are willing and able to say no to a wide variety of actions and interests. Strategy is at least as much about what an organization does not do as it is about what it does.”

“Bad strategy tends to skip over pesky details such as problems. It ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests.”

Sounds familiar?- Rolando T. Dy

Source: Philippine Business for Social Progress

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President Benigno Aquino III found a formidable ally in Philippine Business for Social Progress (PBSP) which promotes its Inclusive Business Imperative (IBI) campaign to reinforce his inclusive growth agenda.

During PBSP’s Mindanao Membership Meeting (MaMM) and Inclusive Agribusiness Launch last September 8 at the SMX Convention Center in Davao, the President urged businessmen to invest more in Mindanao, citing the region’s great potential in agriculture.

Aquino lauded PBSP for being the pioneer organization to initiate corporate social responsibility in the country. He underscored the invaluable role of the private sector not only in income generation but also as a partner of the government in promoting development.

“PBSP worked on a very realistic premise—that the success of business could not be divorced from the development of the communities in which they operate,” said the President in his speech during the MaMM.

The affair turned out to be a homecoming of sorts for Aquino whose first job was as an assistant to the executive director at PBSP.

PBSP was founded in December 1970 by 50 Filipino businessmen who vowed to help in social development by devoting a percentage of their annual profits for use by the organization to implement projects that help the poor. Now, PBSP is promoting IBI as a bolder move in engaging businesses in socio-economic development.

“Instead of viewing communities as mere locations for factories or markets for their products, PBSP and its partners sought to develop those communities into partners towards development,” Aquino said.

Inclusive Business is a core business activity within a company’s business strategy that incorporates the poor within the company’s value chain as suppliers, consumers, and distributors or as employees, in such a way that it creates shared value. Inclusive businesses achieve commercial financial returns, while addressing systematic problems of poverty and inclusive growth.

BOOSTING GROWTH IN MINDANAO
PBSP’s Mindanao Regional Committee headed by its chair, Mr. Paul G. Dominguez, and Mindanao Development Authority (MinDA) chair, Secretary Luwalhati Antonino signed a Memorandum of Understanding and together launched the Mindanao Inclusive Agribusiness Program to continue the private-public sectors partnership in community development.

“We see this as an opportunity for promoting inclusive growth in the countryside, particularly in Mindanao,” said Dominguez.

The goal of the program is to increase production, generate income and increase job opportunities, focusing on the region’s high value crops like coffee, cacao, palm oil, rubber, corn and seaweeds.

Aquino is confident that the program will help Mindanao which had been left behind in terms of economic growth, to catch up.

“The Mindanao Inclusive Agribusiness Program comes at an opportune time, as we seek to transform Mindanao from the Land of Promise to the Land of Promises Fulfilled,” he said.

At present, some companies are taking the lead in adopting Inclusive Business in Mindanao, with the help of PBSP. Among them are Nestle Philippines, Bali Oil Palm Produce Corporation and Kennemer Foods International.

COFFEE FARMING
The NESCAFE Plan is a global initiative by Nestle that promotes coffee farming as a more profitable and sustainable livelihood for many coffee-dependent communities. It has two programs in the Philippines: The Agronomy program and the Farmer Connect.
The Agronomy program aims to equip local farmers with the best available technologies and techniques to help them increase their harvest. The Farmer Connect, on the other hand, is a direct-buying system that encourages small farmers and small-scale intermediaries to sell their product directly to Nestle.

“We’ve opened the buying stations throughout the country. We have nine at the moment, and we have plans to open more so the farmer can then bring their crops to the buying stations. They would get paid on the day and on the world market price for coffee,” explained John Martin Miller, chairman and CEO of Nestle Philippines

In the Philippines, Nestle is the biggest buyer of Robusta coffee, which is the main ingredient needed to produce Nescafe. Now, 30 percent of its Robusta coffee comes from the local farmers. Nestle hopes to increase it to 75 percent by 2020.

HIGHER REVENUE FOR PALM OIL FARMERS
Bali Oil Palm Produce Corporation invests on Palm oil production in Mindanao. It taps poor farmers as contract growers.

In the next five years, Bali Oil is aiming to develop contract growers in Region 10 with a minimum target collection of 45,000 hectares. In Bukidnon, it bats for a minimum target collection of 15,000 hectares while 30,000 hectares is expected in Misamis Oriental.

“To uplift the lives of poor farmers, we believe that we should have a holistic and integrated approach where all stakeholders participate in the program that promotes inclusive growth for farmers,” said Manuel G. Boniao, chairman of Bali Oil Palm Produce Corporation.

PROMISING FUTURE FOR CACAO
Kennemer Foods International Inc. (KFI) is a small-to-medium enterprise focused on the buying, processing and exporting of high quality cacao beans to global confectionaries such as Mars.

The company, which currently sources its fresh cacao beans from smallholder farmers, runs programs that provide support to farmers such as cacao seedlings, agri-technology and farming training, ongoing mentorship and supervision, post-harvest assistance, guaranteed sale and financing assistance programs.

“The benefits are significant for all partners. For us, it means that we can scale up our production, and if we continue on this pace, it means we can establish a cacao manufacturing plant,” said Simon Bakker, CEO and president, Kennemer Foods International.

President Aquino also emphasized in his speech the advantage of bringing the public and private sector together to create a positive output.
“If the public and private sectors remain committed to the same vision and if we maintain the synergy and trust that we have so far harnessed to bring about positive results, we can look forward to a Mindanao that will serve as a true convergence point of trade and opportunity, not only for the Philippines but also for our region,” said President Aquino.