The Philippines’ agri-food sector is a key pillar in the national economy, contributing to almost a third of the country’s total GDP in 2019. A new report by Oxford Economics identifies that this industry leads a third of the national economy, contributing PHP 6.1 trillion (US$126 billion) to its GDP, which marked a 16 percent increase from 2015. 

The sector remains an economic powerhouse for the country’s post-COVID-19 recovery. However, supply and demand risks, fiscal measures and a drawn-out pandemic could disrupt the recovery, notes the report. 

“With the agri-food industry being instrumental to the national economy, it is critical that both the industry and the public sector come together to sustain and uplift the agri-food sector as we move forward into the rest of this year,” says Elizabeth de Leon-Lim, chairman and president of the Philippine Chamber of Food Manufacturers.

A key driver for the Philippines’ agri-food sector is F&B manufacturing. In contrast to many other Southeast Asian economies, this sector outweighs the size of agricultural production by making up 46 percent of the total agri-food sector’s contribution to the nation’s GDP.

“As the Philippines looks to emerge from the pandemic stronger, it is important that policymakers provide the most conducive conditions for the agri-food industry to successfully rebuild itself, and that any fiscal policy implemented is carefully planned, designed, and communicated,” urges James Lambert, director of economic consulting Asia, for Oxford Economics.

“That will allow the industry to continue to provide the economic benefits it has delivered over recent decades.” 

Pandemic impact marks US$5.4B loss
The report was commissioned by Food Industry Asia (FIA), a consortium of Asian F&B companies. It aims to better inform industry stakeholders about the challenges and economic impact the agri-food sector faced in 2020.

Entitled The Economic Impact of the Agri-Food Sector in South East Asia, the analysis highlights that the agri-food sector’s role in driving the Philippines’ economic recovery is pivotal, creating employment, and putting food on the table at stable prices.

In 2020, the local sector was impacted by the disruptions coming from the COVID-19 pandemic, seeing a 4 percent contraction – a PHP 262.1 billion (US$5.4 billion) dro – in GDP contribution.

The Philippine agri-food sector is notably responsible for 42.7 percent of the country’s entire workforce, making it the single most critical source of employment in the economy. The sector also contributed a total of PHP 829.5 billion (US$17.1 billion) in tax revenues.

However, Oxford Economics reports that the scale of this impact was considerably smaller than what the economy endured as a whole, highlighting the essential nature of agri-food production and distribution.

Nonetheless, the sector can expect the pandemic to continue to present challenges in economic recovery. According to the report’s Economic Recovery Matrix, the Philippines showed important vulnerabilities due to its dependence on tourism to revive its food industry.

It placed second worst across ten countries when it comes to the sector’s expected economic recovery.

De Leon-Lim comments that given that uncertainties in international tourism are anticipated to continue into the near future, the agri-food industry will need to work closely with the Philippine government to identify other ways it can thrive in the new normal. 

Necessity of fiscal adjustments
The FAO Food Price Index was pushed down as world food prices dropped in February of last year, amid the volatile market conditions caused by the COVID-19 pandemic onset.

The report’s Fiscal Risk Assessment framework found that the Philippines is among the most at risk in Asia from post-COVID-19 fiscal adjustments, scoring higher than China, India and other higher income Asia economies.

Lambert notes that fiscal adjustments can include reducing public expenditure or raising tax revenues, which can pose a risk to the recovery of the Philippines’ agri-food sector, and subsequently the wider national economy.

The report authors warn that poorly crafted fiscal responses can potentially harm the agri-food sector’s recovery, impacting food security, income and employment, and economic opportunities as a whole.

They recommend that for governments to develop successful fiscal responses that do not inhibit the recovery of the agri-food industry, three conditions need to be met: using education to influence behavior; favoring regulatory standards over taxes; and maintaining a constant conversation with the industry.

Adding to this, FIA executive director Matt Kovac highlights the need to also understand the current and future risk landscape before implementing measures to revive the economy post-COVID19.

“The report has highlighted a range of substantial short-term and long-term challenges facing the agri-food sector in the Philippines, and it is crucial for policymakers to recognize and work around these risks,” says Kovac.

“FIA will be utilizing the report’s insights to actively engage industry stakeholders, regulators, and policymakers to facilitate constructive and collaborative discussions that would support the agri-food sector’s contribution towards the Philippines’ recovery roadmap, ensuring that gains made in the industry are not lost during these challenging times.”