January 13, 2009

 

The AFTA impact: Philippines, walking on a tightrope

 

An eFeedLink Exclusive

With bated breaths, the Philippine livestock and feed industries are waiting for the outcome of the Asean Free Trade Agreement (AFTA) which takes effect on January 1, 2010. 

 

According to business leaders, AFTA is said to end good times and see themselves struggling from all sides, as existing import tariffs will be down by zero to five percent. With AFTA, local feed and meat producers will definitely face an uphill battle with imports coming from Southeast Asian countries that are less expensive and presumably of much better quality.

 

Industry players are hoping that the seemingly adverse outcome of AFTA is not as much as it is perceived to be. Other sectors are warding off its bad effects, stating that the trade agreement would open for more opportunities, given the chance to import cheaper goods and raw materials from ASEAN which would pave way for a cost-effective production in the country.

 

While the possible adverse outcome are yet to be seen, local traders' anxiety mien over AFTA cannot be helped especially if they are still bleeding from numerous problems such as high power and fuel costs, scarce raw materials and inutile government policies. Given the competence of regional powerhouse Thailand, Indonesia and Malaysia where most of its agri-industries are subsidised, the Philippines will definitely walk on a tightrope in the era of AFTA.

AFTA was inspired in the 90s during the time when ASEAN countries were showing economic muscle. The zero to five percent tariff reduction comes through a "common effective preferential tariff" or CEPT. The CEPT will be gradually removed over a 10-year period commencing January 1, 1993.  The tariff reduction is touted to benefit Philippine exporters which will make the country's products cheaper in ASEAN markets.

 

But it seemingly wasn't the case. Swine producers, for instance, are lamenting over high production costs which currently stand at PHP85 (US$1.86) per kilo as against Thailand's PHP48/kg (US$1.05). According to Albert Lim, chairman of the National Federation of Hog Farmers Incorporated, pork imports stand at 40-percent tariff and a drastic reduction from zero to five percent tariff will definitely jeopardise hog producers, particularly the smaller backyard farmers who comprise 70 percent of the country's swine production.

 

This sentiment is echoed by poultry producers. According to Gregorio San Diego of the United Broiler Raisers Association (UBRA), small poultry growers will suffer a big blow against Thai and Malaysian chicken imports. Currently, farm gate price for live chicken is PHP66/kg (US$1.44), 41 percent higher than Thailand's PHP48/kg (US$1.05). Even if these countries are affected with bird flu, San Diego said they would eventually recover.

 

These two sectors' bemoaning is fully supported by the corn industry. The Philippine Maize Federation expressed fears that without tariff protection, the corn sector would collapse with the full unrestricted entry of imported corn. For this reason, the federation, along with Lim and San Diego has called a five-year moratorium, admitting unpreparedness for the delay.

 

But AFTA found an ally with the Philippine Meat Processors Incorporated (PAMPI). PAMPI executive director Francis Buencamino says it would open up the export market for local meat processors and would also facilitate the importation of raw materials for the industry. On the other hand, corporate farms such as San Miguel Corporation are also seeing an opportunity to increase their exports of bird-flu free poultry products. Southeast Asia's biggest food and beverage company is looking forward to an expansion to boost their production capacity, even eyeing Thailand - the world's fifth biggest chicken producer - as its market.

 

Despite the negatives, feedmillers are also seeing the good of AFTA. UBRA vice president attorney Elias Inciong says feed costs will be lower as alternative feed grains such as tapioca pellets - currently slapped with a 35-percent duty - could become cheaper at zero tariffs. Even Lim said other expensive feed inputs such as soymeal and ethanol by-product DDGS will become more affordable. Feedmillers on the other hand can import cheaper feed manufacturing equipment from Thailand and Malaysia.

 

Disadvantages and advantages notwithstanding, one thing is certain. AFTA will definitely change the scenario of Philippine agribusiness.

Facing the music

 

The government is faulted for the misinformation or the lack of it regarding AFTA. The Department of Agriculture maintains that when AFTA was created, the competitiveness of Southeast Asia was foremost in the mind of the ASEAN economic ministers in the light of trade liberalisation brought by the World Trade Organization. The idea here is for consumers to be offered wider choices of better quality products which will in turn increase purchasing power and cut cost of living.

 

Further, a competitive manufacturing sector in the region will directly attract foreign investments, hence, creating more jobs, increase incomes and total economic growth. In the DA's timeline, tariffs were gradually eliminated from 60 percent of its products beginning 2003 up to 80 percent in 2008. Henceforth, the reduction of tariffs was slowly executed and not expeditiously done as what has been alleged. Seventeen years of preparation since its inception in 1992 is quite a long period and postponing AFTA's full implementation in 2010 will surely affect the country's credibility in carrying a long-term commitment.

 

The heart of the problem, according to assistant trade and industry secretary Jose Antonio Buencamino is not the removal of tariff per se but poor infrastructure, cumbersome administrative requirements, smuggling and the lack of support programs needed for competitiveness.  If this can be addressed, the impact of AFTA will be somehow cushioned, he said.

 

Ryan Patrick Evangelista of the Philippine Chamber of Commerce and Industry underscores the need to improve the country's business environment and possibly lower the currently elevated cost of basic utilities such as electricity and logistics.

 

Swine expert Dr Jaime Abella Sison suggests a merger or acquisition of multinational companies of smaller firms to avert any fold-ups and facilitate more innovations in light of a stiffer competition. Sison also said re-engineering products to meet new market demand and introducing new schemes to improve productivity as well as applying new market approaches to expand sales opportunities are the best strategies in combating AFTA's dreadful results.

 

A former government official said that the Philippines might still suffer from the influx of livestock imports not necessarily from ASEAN but those that are coming from China and Taiwan.

 

Whatever AFTA has in store for the Philippines, it cannot be denied that the brunt of liberalised trade are inevitable and confronting its impact will be less difficult if all segments should unite and strive together for excellence.