Business discipline for agricultural development

CAN BUSINESS discipline truly help agricultural development? Definitely. First of all, agriculture cannot be sustainable unless it is profitable. Secondly, the business discipline necessary to sustain profits is required for optimal agricultural development.

The table below on government interventions suggests priorities for Department of Agriculture budget use.

Background

During these critical times of global food insecurity brought by climate change, it is imperative we maximize scarce resources. This would be good not only for increasing food production, but also for improving small farmer incomes.

At the Philippine Agriculture Economics and Development Association (Paeda), we reached a consensus that the business discipline of using Return on Investment (ROI) should be a key factor in determining agricultural budget priorities.

In June 2005, I wrote an Inquirer article on “Less Politics, More Economics”. This showed very clearly that restoring and repairing irrigation facilities yielded higher returns than building new ones. However, many speculated that the latter was often preferred because of larger kickbacks.

The DA immediately took action on this. Today, we see the reversal of priority spending from new irrigation systems to restoration and repair.

Using ROI

However, using ROI should not be limited to irrigation. The table above shows preliminary ROI for other government interventions based on our recent research. However, the ROI varies depending on the specific area of the country. It is therefore important that the Local Government Units (LGUs), the Department of Agriculture (DA), and the provincial and municipal Agriculture and Fishery Councils (AFCs) conduct their own ROI estimates in their unique areas. Agriculture spending priorities can then be determined with “less politics, more economics.”

The ROI should be supplemented with other considerations. For example, if hybrid seeds appear to have a higher ROI than certified seeds in a certain area, it still should be determined if hybrid seeds should be subsidized. In areas where the land has lost much of its fertility due to too much chemical use, the ROIs may be actually negative for hybrid seeds. Even where hybrid rice is successful, there is no need for subsidies for those hybrid rice farmers who are already successful.

Shallow tube wells is another example. Though some may have a high ROI, these may be disastrous in areas where the water table is already low. In those areas, the water needed for future planting season may be used up.

Conclusion

Today, politics and other considerations often determine how the DA budget will be spent. It is recommended that the business discipline of ROI determination be used as a major factor in the final Congress DA budget item prioritization in the coming weeks.

The same ROI guideline should also be used to determine DA budget allocations at the local level. The LGUs, DA, and the AFCs can then determine which item should be funded first. They can also choose the most effective combination of government interventions in their specific areas. By using business discipline, agricultural development can optimally be achieved to attain our much needed food security and increase farmer incomes. –Ernesto Ordoñez, Philippine Daily Inquirer

(The author is chair of Agriwatch, former secretary for presidential flagship programs and projects, and former undersecretary for Agriculture, and Trade and Industry. For inquiries and suggestions, e-mail agriwatch_phil@yahoo.com or telefax 8522112)