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Blogs, Macroeconomic policies

Philippines: Tax Incentives to Agrobusiness Conglomerate Undermine Food Security and Rural Employment

Granting Fiscal Incentives, Taking for Granted the Local Industry

Late in 2012, the Philippines’ Board of Investments (BOI) announced the granting of fiscal incentives (income tax holidays and duty free imports, among others for up to 6 years) to Thai agribusiness behemoth Charoen Pokphand (CP).

According to CP, they are investing no less than Philippine Pesos PhP 7 billion (USD 160 million) for the three projects that were granted fiscal incentives. These include a breeding of great grandparent stocks and parent/ breeding stock, a broiler project and an aqua feed mill.

Industry sources say that with an investment of that magnitude, the promised fiscal incentives would mean revenue losses for the government coffers of at least PhP 1.2 billion (approximately USD 27 million) per year, just on income tax holiday.

The Board of Investments said that these incentives were given to CP, on a pioneer status, on the sheer amount of the investment of US$ 160 million (or PhP 7 billion). However, this investment only accounts for one per cent (1 per cent) of the domestic livestock industry. Therefore, the local industry accounts for 99 per cent of the total domestic investments, notwithstanding the absence of any government subsidy, and yet they are not being provided with similar tax incentives.

No Value Added to the Local Industry

The BOI chose to grant incentives to CP in spite of its limited value-added to the local industry. CP and BOI also claim that these projects will generate jobs –another pre-condition for the granting of incentives. However, the jobs to be generated by these projects, 80 employees plus the potential for an additional 1,500 jobs is miniscule as compared to the 7 million Filipinos plus their families that will be dislocated by CP’s entry into the local market.

In spite of the potential impact on the rights of the latter, neither the Department of Agriculture nor the industry players were ever consulted by BOI. Until today, it has never provided the local industry with any pertinent information on the nature of the granting of incentives, nor on form or manner of the PhP 7 billion.

No human rights assessment of the incentives was carried out. Not that the local population needs one, as some of the immediate effects of the incentives will be clearly negative. For instance, everywhere across in Asia and beyond, CP boasts of its highly mechanized swine farms and poultry factories that would only need one worker per 1,000 hogs and another worker for 150,000 chickens. In contrast to this, the average ratio for the local industry is about 50 workers per 1,000 hogs. Backyard hog raisers have around 3-5 pigs, while chicken raisers have around 20-150 chickens at any given time. So, accounting for the around 2 million backyard hog raisers and about 3.5 million small chicken growers, the mathematics for job generation and dislocation is simply astonishing.

Beyond the swine and poultry sectors, CP’s impact will be felt among country’s corn, rice, coconut and sugarcane industries because the domestic swine industry sources its raw materials from corn, rice, coconut, and sugar cane planters.

Not only do the tax incentives expose dangers for human rights, but the act of granting them is highly discriminatory. According to a report released by the National Statistics Office last 14 November 2012, 33.4 per cent of the employed population was in the agriculture sector. Furthermore, within the agricultural sector, the swine industry is second only to the rice industry in terms of contribution to the employment of Filipinos. So, it is the local industry that has for a long time borne the brunt of supporting the rural population, but it has done so without any long-term government support, certainly not any in the scale granted to CP’s investment.

It is not, either, that CP has the monopoly of knowledge or any farming technological advantage in the industry. The big difference with the local industry is that the latter considers the impact of any mechanization on the thousands of workers plus their families (rural incomes and rural livelihoods) who, for three generations now, have worked on these farms; on the country’s food security and on rural development.

First Casualty

Mang Rudy (Mr. Rudy) is one of the millions of backyard poultry raisers in the country (backyard farming is up to around 500 chicken heads). He has been a raising chicken for the past 30 years, enough to make ends to send his children to school and ensure food on their table.

In August of this year however, something hitherto inconceivable happened. He was only able to sell his chicken way below the cost of production, selling at PhP 55/kilo (live weight) when his cost of raising chicken is around PhP 68-70/kilo. He learned later that in some areas, farmers were only to sell at PhP 50/kilo.

He also belatedly learned that the drastic drop on the farmgate price of chicken happened when CP started to commercially release their chicken to the same suppliers and wholesalers.

Already, three of Mang Rudy’s colleagues have stopped raising chicken after two harvests of heavy losses. As for Mang Rudy, he has no choice but to continue since he is heavy in debt from suppliers, feed millers and drug companies that are providing him inputs for this poultry raising.

A different voice

Economists and human rights advocates often argue over apparent contradictions in their views. Not in this case. The investment incentives represent a case where what is good for human rights also makes eminent economic and fiscal sense.

The Philippines Bureau of Internal Revenue (BIR) considers that fiscal and tax incentives should only be given to exporters who export finished or semi-finished products, qualified micro and small enterprises and research and development activities.

In a media interview last September, BIR Commissioner Kim Henares has said that if the investment is to take advantage of the domestic market, incentives must be given to pioneer companies that come and set up, as incentives deemed excessive or redundant represent lost revenues for the government.

Giving tax perks to mature and viable industries distorts the main purpose of giving incentives to investments bringing more benefits to the Filipino people. Henares adds that what is needed is a rational fiscal incentive system that will enhance the competitiveness of the country as an investment site, generate jobs, enhance inclusive growth, cost efficient, trim waste from government spending and help free up fiscal space for real/concrete investments.

This is precisely the contention of local producers: the livestock industry is a well-developed and crowded enterprise to millions of Filipinos dependent on the industry.

Way Forward

It has been exactly a year since the local livestock industry and allied sectors started to organize themselves and collectively oppose the tax incentives granted to CP.

The issue of the tax incentives granted to CP has brought to the fore governmental policies over the years that favor big foreign companies at the expense of the small local producers.

CP’s incentives, while lopsided, have elevated the discourse on the wanton and arbitrary use of fiscal incentives to “lure” investments in whatever manner and whatever the social cost it entail.

Since that time, the Rural Urban Peoples’ Linkages (RUPEL) has been providing organizational and technical support to the local livestock industry, small farmer organizations and rural communities so they can better advocate for their rights in investment incentives decisions concerning CP that directly and indirectly will impact them.

To this purpose, today it has formed an alliance among all the major agriculture industries in the Philippines called SINAG (Samahang Industriya ng Agrikultura), that will among others work for governmental policy changes and propose legislation that will rationalize tax incentives in the country.

Jayson Cainglet is the Executive Director of Rural Urban Peoples’ Linkages (RUPEL).

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February 2017
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