Thank you very much to American Chamber of Commerce of the Philippines, especially its Agribusiness Committee for inviting me to be part of this Committee Hearing to talk about the “Impact of the Tax Reform for Acceleration and Inclusion (TRAIN) on the Philippine Agriculture”.
As well all know, the government’s tax reform package has been a subject of mixed feedback from various sectors since its implementation early this year. Even in the agriculture sector, the feedback is also mixed.
Let me start by saying that as far as I know, agricultural products are not taxed under the TRAIN law. So, any impact that it might have had on the sector, it is indirect. And it is largely due to increase in fuel prices. One of the highlights of the TRAIN is the higher specific tax on petroleum products (PhP2.50/liter for diesel and PhP7/liter for gasoline).
Thus, rice farmers in particular reported a drop in their income by as much as ten percent (10%), particularly those who are heavily dependent on pumps for their irrigation water. The TRAIN increased their production cost by 50 centavos for every kilogram of palay produced, which resulted in lower income.
As the current chairperson of the Senate Committee on Agriculture and Food, that of course bothers me, because it has always been my priority to improve the plight of Filipino farmers by making them more competitive, successful and profitable. So, definitely a decrease in their income is unacceptable.
In fact, I have been working on removing all those barriers that are in their way, which include lack of technical expertise, lack of financial literacy, lack of access to cheap credit and lack of mechanization. I have passed various legislations that are helping tear down those barriers already.
These include the enactment into law of Republic Act (RA) 10848 or the act extending the period of implementation of the Agricultural Competitiveness Enhancement Fund up to year 2022. ACEF provides a level playing field in access to not only education and training, but opportunities to modernize and mechanize existing facilities or operations.
Eighty percent (80%) of the (ACEF) fund will be in the form of credit with minimal interest, which shall not exceed five million pesos per project loan to cooperatives; and maximum of one million pesos to small farmers. For the remainder of the fund of 20 percent—ten percent (10%) will be extended as grants for research and development (R&D) of agricultural and fishery products, and upgrading research facilities of qualified state universities and colleges (SUCs); and ten percent (10%) will be used for the funding of a comprehensive scholarship and attractive grant-in-aid program for agriculture, forestry, fisheries, and veterinary medicine education, to be implemented by the Commission on Higher Education (CHEd).
Besides the ACEF law, in all the other bills I have authored for the other agricultural sectors, which have been passed into law, I made sure that there will be allocation of adequate funds to provide for R&D as well as education and training.
I cited that because it has relevance also in our topic regarding the impact of the TRAIN on the agriculture sector. Based on assessments, it is mechanization combined with modern technology that will soften or lessen its impact.
In response to this, the Department of Agriculture through the Philippine Rice Research Institute or PhilRice has put in place technologies. According to them, farmers should continue using yield-enhancing technologies and water-saving technologies such as the Alternate Wetting and Drying, and reduce harvest losses through mechanization. Those can offset the 50-centavo increase in the production cost due to TRAIN.
PhilRice data show that a typical farmer uses 397 liters (l) per hectare (ha) of fuel from land preparation until harvesting while the more mechanized farmer consumes 413 liter per hectare. The difference, of 16-26 l/ha, adds P600-1,000/ha more cost—which can can be offset by using combine harvester alone. Using which, a farmer can earn an additional net income of PhP6,000. That came from lower labor cost in harvesting, threshing etc., because the farmer used a machine. The farmer can have an additional earning of PhP3,527 from the machine, as it will reduce postharvest losses from manual procedures such as harvesting, threshing among others.
To further save on fuel, PhilRice promotes rice hull, a common farm waste, in powering up water pump. It will give farmers savings of 30 to 40 percent on irrigation cost per season. A number of other technologies, as I cited earlier, are available to farmers can translate to more savings and additional income.
There are also rice varieties that can yield more harvest. I know for a fact that if rice farmers use the inbred seedlings of PhilRice, they can increase their production from four metric tons per hectare (4MT/ha) to six metric tons (6MT/ha). It would not only double the income of rice farmers, it will even make it possible for our country to be self-sufficient in rice.
With or without the TRAIN, mechanization is really the direction that the agriculture sector is heading to, in order to keep up with intensifying competition. We are already in the midst of the regional economic integration under the ASEAN Economic Community (AEC).
That is another reason why the DA and the agencies under it are really mobilizing and implementing their Rice Mechanization Program and they are distributing agricultural machineries to the farmers.
I also closely monitor the agricultural mechanization efforts of DA and its allied agencies. My Senate Committee has also reviewed the implementation of Agriculture and Fisheries Modernization Act or (AFMA) under Republic Act No. 8435 and of RA 10601 or the AFMech Law, to ensure that it is maximized and reaches the intended beneficiaries. AFMA calls for the allocation of at least PhP20 billion a year for agriculture modernization-related programs and projects.
You might think that this talk on tax reform package has turned into a discussion on mechanization. But that is really the point, with or without the TRAIN, mechanization is really the way to go for Filipino farmers to be more successful and the agriculture sector to be more competitive.
It is through mechanization and the use of modern farm technologies, that farmers can lower their operation costs, lessen postharvest losses, improve quality, increase their profit, and overall, boost production
And as I have pointed out from the start, agricultural products are not taxable under the TRAIN. And whatever effect the TRAIN has on agriculture, it is indirect. If not, it can be offset with increased mechanization.
On top of that, farmers have the full support of the government. As you may have heard, for the first time in our country’s history, irrigation is now free for farmers. I am in fact the primary author of the Free Irrigation Service to Small Farmers Act of 2017 or Senate Bill 1465. President Duterte signed it into law as Republic Act No. 10969 early this year, which exempts small farmers or those with farms of eight hectares and below from the payment of irrigation services.
Now that free irrigation service has been institutionalized and made permanent, our farmers are relieved of yet another expense and that will translate to more savings on their cost of production. And these are on top of all the other savings that I have cited earlier.
What we should prevent and be wary of is unscrupulous groups taking advantage of the situation and using the new tax package to justify price increases. We don’t want these unreasonable increases to undermine the intended benefits of the law.
I have received reports of increases in the price of rice in some areas even though agricultural products were not covered by TRAIN. Rice dealers cannot use the increase in excise tax on fuel to justify the hike in prices because transportation costs have minimal impact on the price of rice. I have asked concerned government agencies such as the DA and the Department of Trade and Industry (DTI) to monitor the compliance of commercial establishments with the price tag requirement and ensure there is no profiteering and violations of the Consumer Protection Act and price regulations. They have activated their price monitoring teams to check against unreasonable price increases. That is the impact that we really have to deal with.
Having said all of that, I do not think that the TRAIN has any serious adverse impact on the agriculture sector in general and the farmers in particular. If at all, they are minimal and there are remedies and coping mechanisms or interventions provided by the government. We will of course continue to get feedback, especially from those who think otherwise.
On that note, thank you again for inviting me to have this discussion with the committee and the Chamber. I am looking forward to get more inputs and insights from all of you about the agriculture sector among others. Good afternoon to all of you.