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Blogs, Fiscal

Philippines: Rights-based, broad alliance wins victory on harmful fiscal incentives

On an ordinary busy weekday at the office four years ago colleagues from Philippines-based organization Rural Urban Peoples’ Linkages (RUPeL) were having their usual banters and discussions with farmers of RUPeL’s partner organizations.

That day, Nanay Lidy, an elder woman and one of the women leaders of the group, was sorely missed. Her animated storytelling during these meetings usually takes centerstage. But, as it turns out, she was with about a dozen backyard poultry raisers in Bulacan (some 20 kilometers south of Manila) to hear their complaints of depressed farmgate prices of chicken for the past two harvests (60 days).

At that time, viajeros (traders/middlemen) were only offering to buy their chicken at Philippino Pesos (PhP) 55/kilo (USD 1.1/kilo), an amount barely above the actual production cost of raising those chickens.

A few weeks later, RUPeL was invited to a series of consultations among livestock integrators, commercial livestock farm associations, other farmer federations and partylist groups on news reports that the Board of Investments (BOI) had granted fiscal incentives to Charoen Pokphand (CP), a Thai-based agribusiness global giant. CP is the biggest agro-industrial and food conglomerate in the Asia-Pacific region, operating in both the livestock and aquaculture businesses across the supply chain in 14 countries, with exports reaching 30 countries. When CP was granted fiscal incentives in 2102, its consolidated net profit for the year was USD 5.84 billion, it had an investment budget of USD 491 million and was then targeting total sales of USD 13 billion, a jump from last year’s USD 11.9 billion.

Even though CP is the leading market player in the fully integrated agribusiness in countries across Asia and beyond, the Philippine government had awarded to CP:

a) Income tax holidays of up to six years;

b) Duty-free imports of capital equipment;

c) Permission to employ foreign nationals;

d) Simplification of customs procedures.

It was through these marathon consultations that it later became clear to Nanay Lidy and colleagues from RUPeL that the unusually long period of depressed farmgate prices of chicken for the past two months in Bulacan and other areas in Central Luzon (the region where majority of backyard poultry raisers are operating) was not going to end anytime soon. It could, indeed, be attributed to CP’s release of what just its first batch of live chicken to the same viajeros, slaughterhouses and talipapas (local wet markets) that used to buy from the backyard raisers.

By January 11, 2013, Nanay Lidy and the backyard poultry raisers from Bulacan found themselves in the same room with the commercial poultry and hog raisers, leaders of agricultural producers and farmers’ federation, rural-based NGOs and a host of cause-oriented groups.

On this day, more than 300 agricultural stakeholders with varied economic standing, producers’ federation and community organizations, across the political spectrum and political party affiliations, came to a national gathering at the historic Club Filipino in San Juan City (East of Manila). They were there to demand that government immediately revoke the unwarranted preferential treatment accorded to CP.

To Nanay Lidy and the rest of the backyard poultry and hog raisers who were also at Club Filipino, the entry of foreign food conglomerates and the undue advantage their own government had given to them, threatened the very survival of the local agriculture industry.

Unrelenting Lobby Efforts

The Club Filipino gathering kick-started the campaign simultaneously launched by different groups to force the government to revoke the fiscal incentives granted to CP.

Congressional hearings were held at both the Senate and the Lower House to shed light on the seemingly secretive process undertaken by BOI in the granting of incentives to CP. These hearings also paved the way for Congress to finally heed the demands of the industry to rationalize the granting of fiscal incentives.

Cases were filed at the Ombudsman against BOI officials  who facilitated the approval of the incentives.

Leaders of the livestock industry also filed a petition with the Supreme Court for the issuance of a temporary restraining order and/or writ of preliminary injunction on the validity of the incentives. The petition assailed the validity of the BOI Resolutions issued granting the incentives as a grave abuse of discretion.

Cabinet members eventually called on the agricultural stakeholders for another round of dialogues. No less than the chief Commissioner of the Bureau of Internal Revenues (BIR) publicly supported their concerns.

When the stakes are high

Uncoordinated but with a centralized running theme against unwarranted fiscal incentives, entailing different approaches but respecting everyone’s initiative to express their positions, was how the campaign progressed. No single organization was claiming leadership but rather a loose network of organizations and groups working for a common goal.

This was, in a nutshell, how the campaign against the granting of fiscal incentives to CP was launched and evolved.

This was a campaign where all the groups, working for the first time together, had ownership, not leadership. Perhaps the stakes were so high that there was no room for petty squabbles or ideological divides.

Some of the partner-organizations of RUPeL and interest groups in the campaign had been, in fact, on opposing fences on a number of previous concerns.

Part of the success of the campaign was cementing an understanding of the current global economic situation where a global behemoth like CP would gobble all competition, and easily find its way even in the lowly neighboring local wet market that used to be only for small producers and backyard raisers.

The continuous awareness-raising at the grassroots level, especially among the backyard raisers and communities around the farms and feedmill complex of CP, complemented the high visibility of the campaign at the national level.

It does help when groups have different orientation, focus of actions and when, ultimately, all these initiatives are respected despite the divergence.

The government’s response

Short of admitting that it has blundered, at best, in granting the incentives to CP, the BOI reframed some of the core requirements in the granting of fiscal incentives.

According to unofficial channels from Malacanang (the Philippine government’s seat of power), it would be very difficult, as a government policy in international trade, to reverse a decision already made that is public knowledge.

As if on cue, the Secretary of the Department of Agriculture (DA) publicly asked the BOI to defer to the DA any projects seeking incentives that were engaged in agriculture production.

Since the end of 2013, all application for registration of agribusiness project must first secure the approval of the DA at the national level, through its consultations with stakeholders and industry players.

Encompassing the previous and current government, the Department of Finance (DOF), emboldened by the debates surrounding the grant of incentives to CP, has been very vocal in pushing for a more accountable and coordinated tax incentive system. It admits that government is losing at least PhP 144 billion every year in foregone revenues due to the incentives.

The PhP 144 billion revenue losses only covers 29 per cent of companies registered with the incentive-giving bodies of the government. But this amount, according to the DOF, is already equivalent to 1.5 per cent of the country’s GDP and around 9 per cent of government expenditures.

Institutionalizing the campaign center

The interim and loose nature of the campaign eventually had to progress to a more stable structure to sustain its momentum and take stock of the breadth and impact of the campaign.

Such structure will not be a “superbody” but will function as catch basin of all issues and interrelated concerns, decentralize decision making at various levels and act as center of gravity in areas where there are no existing organization to take the mantle.Members, operating as a member-driven network, decided that the campaign center was to be self-sustaining. A functioning secretariat would be composed of individuals provided by federations with sizeable working staff.

On October 16, 2013, 33 national collectives of various political shades and persuasions launched the Samahang Industriya ng Agrikultura (SINAG). Similar SINAG-like alliances were established at local levels where two or more member-federations of SINAG are operating.As Ka Arnold, a union leader of RUPeL, put it during that launch: the collective anger brought us together to form SINAG, moved us in one direction, despite differences and to our collective call of defending our local agriculture.” 

Formalizing the criteria in approving incentive-seeking projects

From the onset, the local agriculture industry made it clear that public incentives and governmental subsidies that support local agriculture production, promote rural livelihoods and food self-sufficiency are worth supporting.

Mang Rudy was with the group of backyard poultry raisers that went to see Nanay Lidy, four years ago. It is not difficult to feel betrayed, he said. “Poultry-raising is my family’s main source of income for three decades. Yet we received none of these incentives from government. And from nowhere comes a foreign giant company, fully compensated by this very same government that neglected us, competing even in our own public wet markets.”

This, despite the fact that the Executive Order (EO226) that established the BOI is very clear on the kind of project that must be granted incentives: “projects seeking fiscal incentives must conform to the policy of the State in (shall) ensure the holistic development by safeguarding the well-being of the social, cultural and ecological life of the people.

…and [incentives will be granted] only to projects that will promote small and medium scale industries… provide significant employment opportunities and accelerate the development of less developed regions.”

It is on the basis of the very mandate of the BOI that RUPeL and, later on, SINAG, proposed indicators that would institutionally guide incentive-giving bodies in approving or disapproving incentives for such projects.

It is not enough that stakeholders are consulted since the decision ultimately rests with the incumbent Secretary of the Department of Agriculture (DA).

In the course of the discussions on acceptable indicators stakeholders reached agreement that such criteria should be so unimpeachable that even government and other interest groups would find it difficult to dismiss or instantly reject.

Non-ideological and non-partisan, universally accepted principles and those which has stood the test of time were the consensus on the framework that would be used in determining the indicators.

The UN system, other multilateral bodies, academic centers and faith-based establishments were some of the institutions that provided these benchmarks.

RUPeL forwarded documents pertaining to the efforts of the then UN Special Rapporteur on the Right to Food, Mr. Olivier de Schutter.

Eventually, two of the indicators were culled from these Special Rapporteur’s documents:

  1. Projects that support agro-ecological smallholder-led production and the production of diverse and culturally-acceptable foods and not projects that simply want to produce more food;
  2. Projects that adhere and promote the definition on the right to  food as the right of every individual, alone or in community with others, to have physical and economic access at all times to sufficient, adequate and culturally acceptable food that is produced and consumed sustainably, preserving access to food for future generations

Until today, agri-based projects seeking fiscal perks have to get the consent of the DA on the basis of these principles, through consultations with stakeholders.

Postscript

The investment and fiscal policies, including the granting of fiscal incentives, is under review by the new Duterte government.

A new investment priority plan will be in place by early 2017 and the agriculture sector remains an area of interest of foreign investors, as indicated by the new Secretary of the Department of Trade and Industry, the mother unit of BOI.

The local agri-industry is ready to defend the gains of the previous years and further promote the interest of the sector that is under constant threat.

Meanwhile, Mang Rudy still tends to his backyard farm, four years after the CP fiasco.

But, since CP started its operations and commercial production in full swing many of Mang Rudy’s relatives and friends in the Central Luzon region have stopped raising chickens or hogs.

“It is a gamble to remain a backyard poultry raiser and contend with the big producers, importers and smugglers, but I have no alternative or else my family will not have anything on the dining table and, my kids will stop schooling,” he says.

And gamble it is. For the past two weeks, farmgate price of live chicken is again at a low PhP 60/kilo. Just a month ago, farmgate price was at PhP 80/kilo.

Nanay Lidy, at age 63, continues to engage government agencies on the concerns of farmers, especially under a climate of uncertainty with the new administration.

“We do not want a repeat of the unwarranted incentives granted to CP, we must remain vigilant. There is a seeming backlash on the gains achieved, especially on the human rights front, and the persistent attacks against human rights defenders, including farmer leaders and NGO activists,” she laments.

Two officials of the BOI that were involved in the decision to grant incentives to CP have retired last year, but their retirement benefits are pending as a result of the case that stakeholders have filed against them at the Ombudsman.

Perhaps, poetic justice!

Jayson H. Cainglet is the Executive Director of Philippines-based Rural Urban Peoples’ linkages (RUPeL).

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