Executive Summary

Recognizing the pivotal role of the agriculture sector in our economy, the Philippine Development Plan 2023-2028 emphasizes the sector’s transformation through comprehensive strategies and reforms aimed at increasing productivity and farm incomes. While the government has increasingly provided more resources to support the sector in recent years, challenges persist. Addressing these challenges requires sustained efforts to progressively bridge infrastructure gaps, promote the adoption of modern technologies, improve market and financial access for local producers, and build resilience to climate change. However, realizing the benefits
of these interventions may take time. In the meantime, it is important to ensure that there is an adequate supply of necessary food items.

Our country has been facing agricultural supply challenges, which have worsened due to global disruptions and domestic policy coordination issues. These challenges have resulted in higher inflation, particularly for food. The Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO) of the Economic Development Group (EDG) aims to manage these risks to enable the government to meet its socioeconomic targets. Thus, as the IAC-IMO and the EDG recommended, President Ferdinand R. Marcos, Jr. issued Administrative Order (AO) No.20, s. 2024.

AO 20 seeks to enhance the country’s agricultural importation policy regime by streamlining administrative processes and removing non-tariff barriers, thereby facilitating the sufficiency and timeliness of imports, especially during periods where domestic supply is inadequate to meet demand at affordable prices.

Failing to augment local production during shortages exacerbates food insecurity and perpetuates poverty. The consequences of insufficient supply extend beyond economic strain, affecting overall price stability and the well-being of Filipino children. High food prices disproportionately affect the poor and contribute to hunger, malnutrition, and stunting, hindering the attainment of our development goals.

The National Economic and Development Authority (NEDA) recognizes the concerns of various sectors regarding AO 20, which aims to streamline administrative procedures and policies and eliminate non-tariff barriers to importing agricultural products.

We reassure the public that AO 20 is a strategic and necessary measure to ensure our people’s food security, particularly in terms of availability and affordability of food, and improve the overall welfare of Filipinos.

In conjunction with other initiatives and programs, AO 20 is deployed as a tool that considers the welfare of our farmers and fisherfolk and the vibrancy and potential of our agricultural sector as a growth driver of the economy. It contributes to the Marcos Administration’s efforts to shield and protect the poor, the vulnerable, and the youth from hunger, malnutrition, and stunting.

Finally, AO 20 supports the overall economic stability and long-term prospects of the Philippines as one of Asia’s rising and fastest-growing economies.

Is the government serious about strengthening local production? Are we neglecting the welfare of our farmers?

NEDA recognizes the critical role of agriculture in our economy. Our commitment to improving farmer welfare and raising agricultural productivity is unwavering.

The Philippine Development Plan 2023-2028, as the development blueprint of this administration, underscores the importance of transforming the agricultural sector. A whole chapter in the PDP outlines strategies and reforms to enhance the efficiency of the agricultural sector, expand access to markets and agribusiness, and improve the resilience of agricultural supply chains.

However, even as the entire government works hard to implement and invest in measures that will raise the yield of our farmers and increase their incomes, we acknowledge that the impact of these interventions takes time to materialize. The complex and multifaceted issues troubling our agricultural sector run deep. Only fundamental reforms, along with committed and strategic interventions sustained over many years, will enable us to progressively address the gaps that constrain the sector’s supporting infrastructure, the adoption of modern technologies and processes, as well as farmers’ and fisherfolk’s access to markets and finance.

We are working diligently to overcome these challenges. Indeed, we have witnessed a significant increase in support for our agricultural sector in recent years. The Marcos Administration and our colleagues in Congress have correctly recognized the sector’s importance. Figure 1 shows that the average budget of the Department of Agriculture increased by 69 percent from 2022 to 2024 compared to its average appropriation from 2017to 2021. These resources are expected to be translated into investments and interventions that will make the sector more competitive over time.

Is domestic supply sufficient to meet demand?

In 2022, the Philippine economy was steadily recovering from the deep contraction brought about by the policy response challenges during the COVID-19 pandemic. With the economy reopening, pent-up demand has spurred growth and contributed to faster inflation. At the same time, global supply chains and domestic production for key energy and food commodities and inputs were disrupted by several factors. These include geopolitical conflicts between Russia and Ukraine, the continued spread of African Swine Fever (ASF)and Avian Influenza, as well as typhoons and weather disturbances intensified by climate change.

These external developments, coupled with domestic constraints, led to higher headline inflation, which accelerated from 3.0 percent in January 2022 to reach a peak of 8.7 percent by January 2023 (see Figure 2).

Based on data from PSA, food inflation increased from 1.6 percent in January 2022 to 11.2 percent in January 2023. Meanwhile, as shown in Figure 3, rice started to become a main driver of inflation starting in August 2023. As of March 2024, it now accounts for more than half of the headline inflation, contributing 2.2 percentage points.

Onion

Onion prices in the Philippines reached a record high in January 2023 amid the non-issuance of sanitary and phytosanitary import clearances (SPSIC) for red and white onions since December 2021. Based on the Philippine Statistics Authority’s (PSA) data, the average retail price of red onions in January 2023 increased by 113 percent year-on-year, rising from PHP219 to PHP465 per kilogram. The price of white onions likewise went up by 215 percent year-on-year, increasing from PHP116.7 to PHP367.7 per kilogram (see Figures 4 and 5). For 2024, despite the expected 4.7 percent increase in local onion production, it will still fall short of demand by 10 percent.

Sugar

Moreover, relying mainly on the country’s production of refined sugar is insufficient to meet the domestic demand requirements. In 2022, sugarcane production contracted by 10.7 percent and the area harvested decreased by 4.5 percent. The reduction can be attributed to (a) low fertilizer usage due to high prices resulting in lower yields; and (b) weather disturbances (i.e., Typhoons Odette in December 2021 and Agaton in April 2022), which affected the standing crops, disrupted operations of milling and refining facilities, and damaged sugar stocks and warehouses. Note that prices for sugar in 2023 remained elevated and did not return to their levels in the years before 2022 (see Figure 6).

Rice

As of March 2024, rice accounted for 58 percent (2.2 percentage points) of the observed 3.7 percent headline inflation. Retail prices of regular milled rice (RMR) and well-milled rice (WMR) in March 2024 are also up by one percent month-on-month (see Figure 7).

Rice retail prices started to rise in September 2023 as international prices surged, primarily due to trade-restricting policies of major food exporters. As of March 2024, the prices of rice (5% broken) from Vietnam and Thailand eased month-on-month but were still 27 to 37 percent higher than prices a year ago (see Figure 8).

The landed cost of imported rice (5% broken) in 2024 remained stable at approximately PHP39 per kilo but is 27 to 29 percent higher than the previous year (see Figure 9). As landed cost includes tariffs and other fees (e.g., brokerage fee, arrastre charge, customs documentary stamp), carefully adjusting tariff rates temporarily, or while world prices are increasing, could help in stabilizing rice prices in the country.

Nonetheless, imports remain necessary. Despite the expected 0.7 percent increase in local rice production in 2024, domestic output will still fall 15 percent below demand.

Pork

African Swine Fever (ASF) continues to pose a threat to the country’s hog industry. Prior to the ASF outbreak, domestic pork production was sufficient to meet demand. From 2017 to 2019, local pork production (in carcass weight) averaged 1.61 million metric tons (MMT), exceeding the average demand of 1.52 MMT. The surplus during this period was estimated at 87.92 thousand metric tons (TMT).

However, local production has since fallen short of meeting domestic requirements amid the ASF outbreak. The deficit in pork production reached 61.43 TMT in 2020, and it further increased to an average of 389.77 TMT in 2021-2022. Imported pork has been critical in augmenting domestic production, with a sharp increase in imported pork arrivals since 2021 to help meet demand (see Figure 10).

While local hog production exhibited improvements in the past two years and is expected to increase by 2.8 percent in 2024, it will still fall 20 percent below pre-ASF levels (see Figure 11).

Higher prices and faster inflation indicate that domestic production is insufficient to meet the demand for key food commodities.

This was the main reason why President Ferdinand R. Marcos Jr. issued Executive Order No. 28, s. 2023, which created the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO). The IAC-IMO serves as an advisory body to the government’s Economic Development Group (EDG) composed of key economic agencies. The IAC-IMO monitors food and energy prices as well as trends in domestic production and importation and provides policy advice and recommendations to manage inflation in line with government targets.

Considering these emerging trends, the IAC-IMO and the EDG periodically met to assess the country’s supply and demand situation for food and energy and provided their recommendations to President Marcos and the Cabinet.

As highlighted in the Philippine Development Report 2023, headline inflation averaged 6.0 percent, while food inflation averaged 8.0 percent in 2023, breaching the target range of 2.5 to 4.5 percent last year. Even now, however, the government, as well as analysts from the private sector and multilateral institutions, observe that risks to inflation remain. The latest data show that for March 2024, headline inflation accelerated to 3.7 percent from 3.4 percent in February 2024, while food inflation rose to 5.7 percent from 4.8 percent.

The Department of Science and Technology-Philippine Atmospheric, Geophysical and Astronomical Services Administration has reported that the El Niño phenomenon continues to affect 37 to 44 provinces. Meanwhile, the US National Oceanic and Atmospheric Administration projects that the La Niña phenomenon may develop between June and August 2024, even as crop pests and animal diseases such as ASF persist. Geopolitical tensions will continue to simmer and disrupt supply chains, while major food-exporting countries restrict their trade policies.

The Bangko Sentral ng Pilipinas (BSP), in its latest Monetary Policy Report, released its risk adjusted inflation forecast of 3.9 percent for 2024, which is already close to the government’s upper-bound target of 4.0 percent for the year. Even though interest rate hikes—a monetary policy tool utilized by the BSP—can decelerate inflation by discouraging consumption and investment activities, it may also dampen demand and reduce economic opportunities made available to Filipino workers.

The IAC-IMO, in coordination with other relevant government agencies of the EDG, recommended the issuance of AO 20 as a supply-side response to help curb inflation by addressing its fundamental causes: shortages of food commodities due to inadequate and untimely importation.

Were our policies for agricultural importation responsive to our needs?

We recognize that sanitary and phytosanitary import clearances (SPSICs) and other import permits address important policy objectives such as ensuring food safety for consumers and preventing the spread of animal and plant diseases.

However, our recent experiences show that the inadequacy and untimely arrival of imported supplies, when clearances and permits are used as administrative, non-tariff barriers to importation, lead to price instability and faster inflation. Private-sector importers were unable to respond to market signals and bring in the right volume of imports at the right time to augment domestic food production and meet our demand for food. This had the unintended effects of: 1) hurting our farmers when mistimed imports flooded the market during periods of harvest; 2) raising prices faced by Filipino consumers; and 3) prompting

our monetary authorities to raise interest rates to rein in inflationary pressures.

As a policy aimed at promoting the ease of doing business toward ensuring food security, AO 20 seeks to enhance the transparency and predictability of the policy regime governing the importation of food commodities. It streamlines administrative processes by reducing importation requirements, minimizing processing time, and removing non-tariff barriers that raise the cost of imports and limit import supplies. Provided that importers comply with all the necessary administrative requirements, all SPSIC applications that are not processed within the specified period shall be considered approved.

Further, even as we continue to upgrade our logistics infrastructure, AO 20 strengthens the government’s ability to monitor, enforce, and ensure fair competition between players along our supply chains for food. The objective is to enable a more efficient movement of food commodities from our ports and storage facilities to retail markets and end consumers.

In the face of shortages in local production, where supply cannot immediately meet demand at affordable prices, AO 20 serves as a strategic policy tool responsive to the needs of our economy.

Is NEDA pro-importation?

It is crucial to emphasize that neither NEDA nor the government is biased toward importation. Rather, the government bears the responsibility of utilizing various instruments in its arsenal of policy tools to stabilize prices while performing a delicate balancing act. These evidence-based policy interventions carefully consider the welfare implications on various stakeholders in line with the country’s medium-term objectives and long-term vision as articulated in the PDP 2023-2028 and the AmBisyon Natin 2040. When formulating and recommending policies, NEDA’s commitment remains steadfast and our focus remains laser-sharp: to reduce poverty to a single-digit level, raise agricultural productivity, improve farmers’ incomes, and keep food prices and inflation at manageable levels to ensure the sustainability and inclusivity of economic growth.

When food affordability becomes a concern, we act judiciously to ensure that Filipino households, particularly the poor and vulnerable, have access to basic needs. By streamlining administrative procedures and removing non-tariff barriers, we aim to create a regulatory environment that enables—rather than hinders—the delivery of goods and services that our people need while safeguarding the welfare of our citizens. It would be irresponsible not to augment local supply during periods of acute shortages. Failing to do so would lead to highly elevated prices, adversely affecting everyone—even farmers who are also consumers of agricultural products and fall victim to higher food prices themselves.

What happens when food supply cannot meet demand?

The consequences extend beyond mere economic strain. Given its important mandate of promoting price stability, the BSP recognizes and forewarns that higher food prices can have a ripple effect on the prices of other goods and services. In response, the central bank may choose to raise interest rates further or keep them at a high level for a prolonged period to tame inflation. However, this approach can slow down the momentum of our rapidly expanding economy, and opportunities for business expansion and job creation are foregone. This undesirable trade-off runs counter to our development agenda and the Marcos Administration’s aggressive efforts to promote the country as a premier investment destination of choice.

Most importantly, amidst discussions on policy measures, we must not overlook the impact of high food prices on our children. With our country currently facing a learning crisis, stunting and malnutrition are serious issues that can be exacerbated by food insecurity. These issues have lasting implications on the development and well-being of our children, the future of the Filipino nation. It must be pointed out that high food prices disproportionately affect the poor, as food constitutes about 61 percent of the total expenditures of the bottom 10 percent of Filipino households.

In 2022, 52.4 percent of Filipino households were considered food insecure. During the same year, stunting in the country remained among the highest in Southeast Asia at 29 percent, with approximately 3.7 million Filipino children under five years old being stunted, indicating chronic undernourishment. In the Philippine Plan of Action for Nutrition 2023-2028, the National Nutrition Council reports that the prevalence of stunting among children aged 5-9 years old remained significant at 19.7 percent in 2021. Worse, stunting is found to be significantly higher among poor (23.2%) and the poorest households (32.7%).

Thus, failing to manage food prices seriously jeopardizes the welfare and long-term development of our children and undermines the Marcos Administration’s goal of significantly reducing poverty to single-digit levels by 2028.

Paving the way for inclusive growth

Overall, the Marcos Administration remains committed to ensuring food security and promoting economic growth while protecting the welfare of our farmers and consumers. Administrative Order No. 20 is not merely about importation; it is a strategic move to foster greater transparency and predictability in policies related to importation. This complements efforts to boost the domestic supply of key agricultural commodities (e.g., through productivity-enhancing interventions) and stabilize prices in the domestic market.

By creating an enabling and responsive policy environment, we pave the way for inclusive growth and durable poverty reduction.

Let us remain committed to our vision of a prosperous Bagong Pilipinas, where no Filipino is hungry or left behind.

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