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PRESS RELEASE

July 1, 2014

Solving Underemployment in Agriculture: The Key to Inclusive Growth By Director Nikkin Beronilla Policy Monitoring & Social Technology Services Unit Unemployment has always raised public concern because it is logical to assume that the poor are poor because they are unemployed. But in truth, majority of the poor are employed. Their problem, however, is that many of them are underemployed, that is, they actively look for additional work or sources of income to supplement their meager earnings. Poverty is less associated with unemployment. It is however, underemployment that we need to look into. The figure on the right shows that unemployment increases among those with higher income. (Note the red arrow.) But, note the blue arrow, which stands for underemployment. High under-employment, at around 30% to 35%, is a phenomenon of the poor. (See the colored box.) Underemployment decreases as income increases as shown by the blue arrow that points downward from 35% to 10% of the labor force. Thus, we see that unemployment is a matter of choice for the non-poor who can survive even without a job. Why? For varied reasons, some of which can be because they have savings that can last until they can find a better job or employment; they may have “outside” support, perhaps an OFW family member who sends financial support, or they have property or assets that they can sell to tide them over. But the poor must always find sources of income every day, no matter how low the pay may be or the type of work because they have to survive the day. For the rural folk, a copra farmer will fish near the shore for a family’s meal or get hired for a couple of hours to pasture goats or cows for a high earning of P12.50 for an hour to buy rice and dried fish. The city’s poor scavenge for garbage or get hired for the day in a talyer shop. The poor is always employed but must constantly look for additional sources of income.

AGRICULTURE SECTOR AND UNDEREMPLOYMENT More than half of poor households belong to the agriculture sector. Underemployment is also highest in this sector where three (3) out of four (4) persons are underemployed. Underemployment in the agriculture sector is widespread because tending the farm does not require a full eight-hour work a day and is generally seasonal. For example, harvesting coconut for copra comes only once every three months. If a household member can find job outside the farm, it is usually another seasonal job like additional labor for land preparation and harvesting in other farms. The strong economic growth in the last few years may be the hope in bringing relief to the underemployed. But this growth occurs in the services sector, for example in hotels or restaurants, where opportunities are available. In theory, the poor in the agriculture sector can shift to the services sector but these employment opportunities require higher educational attainment. Most of the poor have only finished the elementary grade level. Hotels and restaurants, for example, require high school graduates. This is why inclusive growth is not happening. ADDRESSING UNDEREMPLOYMENT To achieve inclusive growth, the new Philippine Development Plan addresses underemployment through three strategies: 1) investment in public infrastructure, 2) programs/projects for emergency unemployment, and 3) attracting private investment. Jobs for the first two strategies cannot be permanent, but at least, offer seasonal employment to the poor. Jobs associated with private investment offer potentials to generate permanent employment to the poor in the agriculture sector if government can encourage private investment from agro-industrial processors or from aggregators that supply the global market. (These agro-industry processors or aggregators will be loosely referred in this article as lead firm.) There are two mechanisms by which lead firms can reduce underemployment among the rural poor, thus, achieving inclusive growth. A lead firm can provide permanent employment in a processing plant or a packaging plant (for aggregators). Second, a lead firm can eliminate underemployment by making use of a farmer’s extra time to produce inputs, for example, cacao beans that a lead firm needs. Coconut farmers who work every three months may now be fully employed if they grow cacao to intercrop with coconuts to supply the lead firm (aggregator) with cacao beans. This is important since not all farmers can be directly employed by the lead firm.

In addition, the presence of a lead firm is critical in providing stable prices that can make crop production profitable at any given time. Take for example during the 1980s in Caraga when cacao was planted extensively as an intercrop to coconut but without the presence of a lead firm. The farm- gate price of cacao beans fluctuated with the increase in supply to such a point that farmers ended up cutting down the cacao trees because the price of cacao beans dropped to an extreme low. The cacao beans no longer brought in additional source of income to the farmers. Government must put in special attention to attract lead firms. But, the process of attracting lead firms is different from that of non-agriculture manufacturing lead firms. The main problem of lead firms in agriculture is supplying the minimum input volume required to keep the plant running or to meet the demand of the aggregator. To meet the volume requirement, a lead firm should either produce all the inputs on its own, buy from contract growers, or a use a combination of producing the inputs and buying from contract growers. Producing all the inputs is the least costly for a lead firm but this option is no longer possible because acquiring huge tracts of land is difficult. In the past, this was not a problem. Del Monte in Bukidnon, one of the early entrants, produces all its pineapples in the 23,000 hectares of land it acquired decades ago. Late entrant lead firms now resort to producing some of the inputs on their own farm as well as buy the produce from contract growers. An example is Agumil that acquired 8,000 hectares in Agusan del Sur to ensure a minimum supply of palm fruit for its plant, and at the same time encouraged small farmers to venture into contract growing to supplement its own input production. Companies that export bananas also have corporate farms in order to meet the minimum volume required by its counter party (aggregator) and buy bananas from contract growers. But dealing with contract growers has some associated costs. Agumil had to organize land owners or farmers willing to plant palm oil. The firm must also coordinate the delivery of farm products of the contract farmers to avoid a concentration of deliveries all in a single day. Otherwise, the plant will become idle on days when there are no deliveries. A plant must operate every day. Still another problem is that most contract growers are poor farmers who lack capital. The lead firm then tries to facilitate loans for the farmers through a banking institution. All these entail coordination costs that necessarily should be recovered from future earnings. That is why attracting lead firms is only possible for high profit margin crops like cacao, coffee, and palm oil; not for low value crops like copra. The associated costs of relying on cooperatives can also be too high and too risky for the cooperatives. Hence, government must help in solving these challenges to attract lead firms to invest in other poor regions, say, by subsidizing some costs in organizing farmers’ cooperatives and in assisting cooperatives to function as a social enterprise. In the end, attracting lead firms to poor regions is crucial to achieve inclusive growth because it addresses underemployment in the long-run and provides stable pricing that is high enough for contract farmers to make a profit from their produce.

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Mr. Bryan G. Villasana, NAPC Communications Officer +639272862812 www.napc.gov.ph