Philippine Journal of Development, Volume 43 (2016)
Philippine Journal of Development, Volume 43 (2016)
Philippine Journal of Development, Volume 43 (2016)
Editorial Board
Dante B. Canlas (chair) Gilberto M. Llanto (co-chair)
University of the Philippines School of Economics Philippine Institute for Development Studies
Shujiro Urata
Waseda University
Editorial Assistants
Jocelyn P. Almeda, Caroliza R. delos Santos, and Jane C. Alcantara
Philippine Institute for Development Studies
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ISSN 2508-0954
ISSN 2508-0849 (electronic)
RP 11-17-600
Philippine Journal of Development
Volume 43 (2016) Number 1
Contents
Employment Generation Potential .....................................1
of the Rice Value Chain: The Case of Mlang,
North Cotabato in Mindanao
Carol Q. Balgos and Larry N. Digal
The Fertilizer Industry and Philippine Agriculture: ...................................29
Policies, Problems, and Priorities
Roehlano M. Briones
Can Cheap Oil Hurt Net Importers? ...................................51
Evidence from the Philippines
Arlan Z.I. Brucal and Michael R.M. Abrigo
ABSTRACT
This paper aims to examine the employment generation potential of the rice value
chain. It analyzes the issues in the chain and the strategies to address them, including
their impact on job generation. A value chain framework was used in the analysis
focusing on the case of Mlang, North Cotabato. Both primary and secondary data
were utilized. Key informant interviews and focus group discussions were applied
to collect primary data. Two rice farmer surveys in Mindanao by the World Bank
(2014) and Catholic Relief Services (2015) also served as inputs.
Using the job estimation for Mlang, the total jobs generated in the rice
value chain in North Cotabato is estimated at 23,011 from a total area of 125,731
hectares (ha) in 2014. For Mindanao, an estimated 221,796 jobs were generated
from a total of 1,189,266 ha of harvested area in 2014. A range of issues affecting
the performance of the rice value chain from production, postproduction,
to marketing can be addressed by enhancing profitability through improved
productivity, pricing, lowering cost, and diversifying income sources through
intercropping, processing, and product differentiation. Implementing these
strategies particularly to address severe constraints can potentially generate
36,672 additional jobs.
1
Research Associate and Professor, respectively, School of Management, University of the Philippines Mindanao, Mintal,
Davao City. Email for correspondence: cqbalgos@up.edu.ph; lndigal@up.edu.ph.
Employment Generation Potential of the Rice Value Chain
Introduction
Rice is an important crop not only because it is a staple in the Philippines but also because many
farmers and laborers depend on it as their main source of livelihood. In Mindanao, about 1.2 million
hectares (ha) are planted with rice, which accounts for 25 percent of the countrys total area for
rice production. The estimated number of jobs from rice production in Mindanao is more than
350,000 based on an estimate of one full-time job for every 3.3 ha cultivated per season (Dy 2013).2
This excludes jobs generated in postproduction and marketing. The value of annual wages in rice
production in Mindanao amounts to more than PHP 42 billion (Appendix 1).
Rice is also a major factor in job generation in Mindanao particularly in provinces where the
poverty incidence and prevalence of conflict are high. Majority of these poor provinces are also
the top rice-producing provinces in Mindanao, contributing about a third of Mindanaos total rice
production (Appendix 2). The poverty incidence of 47.8 percent in these regions is higher than the
average of 37 percent and 22 percent for Mindanao and the Philippines, respectively.
Landless and poor farmers in Mindanao are given opportunities to get a share of the harvest
in exchange for labor particularly in harvesting. In most cases, they use their share for their own
consumption. Farmers who own their land also retain 1530 percent of their total production for
home consumption. Since many of these farmers depend on their own produce, this becomes a
problem in cases of drought, flooding, and war or conflict in the area.
This paper recognizes the importance of agricultural productivity and its impact on
postproduction activities including processing and trade in the rice value chain, particularly in terms
of job creation. It tries to determine whether or not improvement in agricultural productivity creates
jobs, not only within the production node of the chain but also in the processing and trade nodes.
It also aims to examine how the issues in the rice value chain, other than those affecting agricultural
productivity, affect job generation potential and job quality.
Previous studies
Primary agriculture, or the production node of the agri-based chain, can absorb and generate more
employment as the agribusiness or postproduction nodes of the chain expand and develop (Balisacan
et al. 2011). This is expected as agribusiness increases demand for raw materials supplied by primary
agriculture or the production node of the chain. As agricultural productivity increases, the volume of
production increases that can increase demand for labor and eventually enhance labor productivity.
Rice is a major source of employment in the rural areas. Dy (2013), for example, estimated that
one full-time job is generated for every 3.3 ha of land cultivated per season. The countrys total of
4.7 million ha of rice land should be able to generate 1.4 million jobs. However, this estimate covers
only rice production in the value chain. Other than this, no studies have been found that provide an
estimate of jobs generated in the other nodes of the chain such as milling, wholesaling, and retailing.
Javier (2014) argued that mechanization and intensifying the use of hybrid rice varieties will help
increase the farmers income. Although mechanization will displace labor, it will address the high cost of
labor in rice production in the Philippines. The cost of labor per hectare in the Philippines is PHP 19,000
compared to only PHP 3,700 and PHP 3,300 for Thailand and Viet Nam, respectively (Bordey 2014).
2
assumed 240 man-days per year
2
Balgos and Digal
Methodology
A value chain framework was used to determine the jobs created in the various nodes of the chain
and to analyze the impact of addressing issues and opportunities in the chain on the number of jobs.
Using the framework in Appendix 3, current jobs per node in the chain were estimated, which
serve as the baseline, following the methodology developed by the World Bank Mindanao Jobs
Report Team (WB 2015). Jobs are estimated based on full-time equivalent (FTE) units with 8 hours
per day, 26 days a month, and 12 months a year totaling 312 days per year. This is about 2,496
hours a year at 8 hours of work per day. However, the number of people identified as employed is
higher than the actual number of people with full-time jobs due to the seasonality and nature of farm
activities of farmers who work less than 8 hours per day. This methodology was modified to include
additional aspects particularly in assessing how constraints and opportunities affect the number
and quality of jobs in the chain. Constraints in the chain were examined and used as basis for the
recommendations. The direct and indirect effects of these recommendations on the number and
quality of jobs created were also identified.
There are variations in the value chain that affect the number and quality of jobs that can be
created directly and indirectly. These include differences in the types of farms in terms of the degree
of mechanization, or whether they are irrigated or rainfed, lowland or upland, or into the traditional,
organic, or commercial variety. These differences affect cropping intensity and level of productivity,
which in turn affect job generation. Also, the ability of farmers to adopt mechanization or to access
credit and better markets depends on whether they are organized or not.
These variations on the types of farms and the presence of farm organizations and degree of
processing represent different strands of the value chain, which also vary across locations as well as
their horizontal and vertical dimensions.
A case approach was used to provide a more detailed analysis of the strands variations in the
chain. The analysis focused on the municipality of Mlang as the main producing municipality of
North Cotabato and also the top producing province in Mindanao. Mlang is also home to Don
Bosco Multi-Purpose Cooperative (DBMPC) that produces organic rice using traditional varieties
of brown, red, and black rice.
It should be noted, however, that the effects of addressing the issues in the chain on job generation
depend on the cases and chains covered, particularly the level of technology used that substitutes
labor with other inputs such as machines. Some of these cases have fixed proportions technology
which simply do not allow for substitution of inputs on input prices change. Others, however, can
substitute labor with machines such as the use of tractors by farmers or mechanical dryers by millers.
Thus, there are limitations in terms of the aggregate estimates of job generation.
Data used in the analysis came from both primary and secondary sources (Appendix 4). Primary
data were collected through key informant interviews and focus group discussions. A total of 28
informants were interviewed that included irrigated and rainfed farmers, organic and conventional
farmers, traders, millers, and government agencies. Three focus group discussions consisted of
one participated in by rainfed farmers, irrigators association members, and a field officer of a seed
company, a group from the local government, and another group consisting of millers/traders and
processors, including members of DBMPC.
Secondary data were also sourced from government agencies, provincial and municipal
agriculture offices, and the municipal development planning office. These surveys lacked details
on jobs, thus, only the number of workers in production and postproduction activities were used
primarily to validate data collected from key informant interviews.
3
Employment Generation Potential of the Rice Value Chain
North Cotabato is one of the top three provinces in Mindanao in terms of the average volume and
area devoted to rice production from 2005 to 2014, accounting for 12 percent of the total volume
produced (Appendix 2). The value chain map for North Cotabato is shown in Appendix 5.
Mlang is the top rice-producing municipality in North Cotabato, accounting for 20 percent
of the total volume of production and 18 percent of the total area planted to rice in the province
(PAGRO 2014). About 64 percent of the 22,868 ha in Mlang is irrigated. It has 37 barangays with
8,636 rice growers, or an average of 2.6 ha per grower. In terms of production, Mlang produced
116,692 metric tons (MT) or 5.10 MT/ha in 2014, which is 7 percent above the provincial average of
4.8 tons per hectare.
Two strands in the rice value chain in Mlang were examined in terms of job creation: the organic
rice produced by the DBMPC and the inorganic/commercial rice (hybrid and certified seeds). Data
from this analysis were used to estimate total employment for the municipality, province, and the
entire Mindanao. Given the limitation of this case approach, available data from surveys conducted
in Mlang and some municipalities in North Cotabato under the World Bank study (2014) and Farmer
Alliances for Resource Strengthening and Marketing project (CRS 2015), including secondary data
from the provincial agricultural office of North Cotabato, were used.
The DBMPC chain (organic strand) generates 0.53 full-time jobs per hectare from production to
retailing (Appendix 6). Given a total of 320 ha under the cooperative, this chain generates about
176 full-time jobs, the bulk of which are in production which accounts for 62 percent of the total
jobs generated. This is followed by postproduction and processing with 27 percent and 11 percent,
respectively. They have 268 farmers with an average production of 6080 bags (1 bag = 6065
kilograms [kg]) of palay per farmer per season.
DBMPC leases 200 ha for six years since 2011 and plans to expand to 700 ha due to increasing
demand for their product. Farmers who hire maintainers for their farms pay 12-percent share of the
total production. This share is also applied to farms leased by the cooperative that has maintainers.
The cooperative has 14 full-time field employees who help manage the leased farms.
Carabao is still widely used in plowing, wherein two persons take turns to cover one hectare
within a day. Plowing is done twice per cropping as well as rotavation using turtles. A turtle is operated
by two persons covering one hectare per day, while leveling or plaining is done by one person within
three hours. Plowing and rotavation both cost PHP 2,500/ha while leveling is PHP 1,000/ha for
two activities. It takes two persons to maintain the dike for a two-hour work. The prevailing rate is
PHP 200/day regardless of the number of hours. Transplanting is done by 20 persons covering one
and a half days. The contract rate for transplanting is PHP 4,500/ha. In terms of full-time equivalent,
land preparation and planting generated a total of 0.05 FTE.
Crop management
Labor for crop management is not as limited as during the planting season since spraying and
fertilizing can be done by one to two persons only. Payment for fertilizing is at PHP 50/sack and
PHP 25/tank, respectively, or PHP 200/laborer. Weeding is done three to five times per cropping
period and would need four persons to finish the work in six hours per activity. Labor for weeding is
paid per day at an average of PHP 175.
4
Balgos and Digal
Spraying of chemicals is not allowed in organic farming, thus weeding cost and labor is more
than doubled. In lieu of chemicals, farmers plant pest-repellent crops near the plantation for two
days per cropping. Spraying liquid fertilizer is done up to 10 times per cropping, consuming about
10 tanks/ha or PHP 250/ha per activity. In terms of FTE or jobs per hectare, crop management
generated a total of 0.27.
Majority of rice farmers in Mlang plant commercial or inorganic rice using hybrid and inbred varieties,
generating about 75.36 man-days or FTE of 0.48 from production to retailing (Appendix 7). Given
a total of 22,868 ha in Mlang, this chain generates about 10,977 full-time jobs, the bulk of which is
in production that accounts for 46 percent of the total jobs generated. The data used to estimate jobs
generated for commercial rice are based on the production of inbred seeds in irrigated areas.
A farmer with an irrigated area can produce 100 bags of 62.5 kg or 6.2 MT/ha. Productivity
ranges from 80 to120 bags/ha. With irrigation, some farmers can plant more than twice a year. Those
in rainfed areas may also plant twice a year but have to invest in water pumps. Farmers who can no
longer till their own land due to old age hire maintainers.
Transplanting is done by about 10 persons per hectare for two days, while some farmers hire 25
persons to do the job in one day. Hybrid seeds are expensive and are treated with utmost care, thus
the time spent in pulling and transplanting is almost doubled. Some laborers prefer to be paid on
5
Employment Generation Potential of the Rice Value Chain
a daily basis. Farmers hire laborers from other barangays or other municipalities when laborers in
the area are limited, with a contract price of PHP 4,500/ha or an individual wage of PHP 150200/
day. Due to the high cost and limited supply of labor during planting season, majority of the farmers
in Mlang opt for direct seeding or broadcast planting where only one person is hired for four hours
at only PHP 1,000/ha. However, this is not common for hybrid production. In terms of FTE, land
preparation and planting generated a total of 0.04.
6
Balgos and Digal
Comparison between organic and nonorganic rice potential for job creation
Activities in rice production between organic and commercial/inorganic are similar. However, there
are variations in some activities particularly in the production node which affect cost, productivity,
and requirement for manpower.
Organic rice production generates 0.11 more jobs per ha (FTE) than inorganic rice. The difference
is most noticeable in crop management. Manpower requirement for crop management in organic
rice production is almost double compared to inorganic. Spraying of herbicide is prohibited, thus,
requiring more labor for weeding. Pests and diseases are controlled the natural way by placing madre
de cacao leaves and insect-repellent plants around the production areas. Inorganic rice production,
on the other hand, simply requires spraying chemicals.
While postproduction activities are similar, jobs created in terms of FTE vary. All postproduction
activities are based on the productivity of each strand. Organic production yields 60 bags/cropping
while that for inorganic can reach up to 100 bags. This difference in productivity translates to a
higher labor requirement for postproduction activities. For organic rice, jobs created per hectare is
only 0.15 FTE compared to 0.18 FTE for inorganic rice.
With processing and marketing, inorganic rice also generates more jobs per ha compared to
organic rice, particularly in this case where productivity is less for organic rice. Also, the chain
of DBMPC is shorter because they are vertically integrated such that they perform different
functions in the chain from production to processing, wholesaling, and retailing. Value chain
vertical integration usually improves the coordination of the chain of activities which enhances the
performance in terms of cost, quality, and volume (Riisgaard et al. 2008). For inorganic rice, more
jobs are generated since marketing involves wholesale and retail, and the produce passes through
more actors in the chain.
In terms of compensation and quality of work, both organic and inorganic rice have the same
pool of workers in Mlang particularly in production and crop management. However, in terms of
processing and marketing, DBMPC pays better such that workers that dry palay were paid higher
7
Employment Generation Potential of the Rice Value Chain
than for inorganic rice. Organic palay are dried and milled separately from inorganic rice and, thus,
it is critical that the quality of work is observed. DBMPC does not pay less than the minimum wage
to their staff.
There are many constraints that directly and indirectly affect job creation. Factors that affect prices,
productivity, and costs, which in turn affect profits, influence decisions of actors in the chain to
expand or reduce investments. Hence, these factors affect job creation.
Determining the extent or severity of constraints is based on their effects on the profitability of the
enterprise particularly on costs, productivity, and price. In terms of production costs, based on a
survey of 87 farmers in Mlang (WB 2014), the main costs incurred are inputs and labor which account
8
Balgos and Digal
for 26 percent and 22 percent to total production costs, respectively. Bureau of Agricultural Statistics
data in 2012 also showed a similar distribution of costs. Given this production cost structure, it is not
surprising that based on a survey of 240 farmers in North Cotabato and Sultan Kudarat (WB 2014),
farmers identified the high costs of inputs as one of the top production constraints (Appendix 12).
9
Employment Generation Potential of the Rice Value Chain
Limited intercropping
Intercropping increases jobs. However, intercropping in rice production is limited in North Cotabato
(WB 2014; CRS 2015).
The potential of intercropping to increase farmers incomes has not been fully exploited compared
with other countries (Javier 2014). According to the International Rice Research Institute, it has
many advantages that include expanding food and income sources, increasing farm productivity,
and minimizing risks such as pest and diseases associated with monoculture (IRRI 2015). But this
system would only be feasible in areas where access to market and water is adequate, with sufficient
rainfall and good soil. This is true for the rice farmers in Barangay Buayan in Mlang who planted
mongo and watermelon as intercrops for rice. Watermelon basically needs daily watering, and the
usual irrigation alone is not enough. Irrigation is sometimes diverted to another area and thus, water
is pumped up from a river. However, very few farmers are intercropping with watermelon due to the
high cost of production. Although a farmer may get a profit as much as PHP 100,000/ha, inputs and
labor costs require a minimum of PHP 50,000/ha (Appendix 15). In addition, the price is erratic,
ranging from PHP 6 to PHP 10/kg.
Postharvest
10
Balgos and Digal
kg for dried palay, farmers opt to sell them wet due to limited drying facilities especially during wet
season. Based on a survey (WB 2014), farmers perceived drying to be laborious and an additional
cost. Furthermore, they need immediate cash. The price difference cannot cover the delays, the cost
of drying, and risk of losses when palay is exposed to rain. Drying fees contribute only 2 percent
of the total cost. However, the price is further discounted by about PHP 1.30/kg or a reduction
of an average of 4.5 kg/sack when the palay is very wet. Because of this, some farmers perform
skin drying especially during wet season to avoid further discounting of price. Skin drying is a
preliminary step that takes only three to four hours using a waterproof canvass spread on roads
or on multipurpose drying pavements. Full drying takes two days or more to achieve a 14-percent
moisture content which can be classified by buyers as dry.
Poor road conditions from the farm to postharvest facilities and markets
Poor road condition increases labor since manual and animal hauling are needed especially during
wet season. This increases cost and decreases profitability, thus limiting expansion. This is a prevailing
issue for farmers especially in distant barangays where roads become impassable to trucks during
heavy rains (WB 2014). It is difficult for farmers to bring inputs to the farm and transport palay to
drying areas. They use motorcycles, animal power, and manual hauling which are more expensive
ways of transporting inputs and produce.
Due to the poor road conditions, some farmers opt for a pick-up arrangement. While this lowers
the cost of transport, however, it limits price options since they are forced to sell directly to those who
offer to pick up their produce (WB 2014).
Processing
11
Employment Generation Potential of the Rice Value Chain
roads, trucks are not loaded to their optimum capacity, reducing the cargo weight by 20 percent and
therefore increasing the transport cost per unit of palay. In addition, the delays affect the repayment
of their financing. In effect, farmers would not be eligible for financing the next time and would not
be able to plant for the next cropping season. This would mean a decrease in job opportunity.
Direct and indirect effects on job creation can be realized if recommendations to address, particularly
the severe constraints, are implemented. The effects can be calculated using the baseline jobs estimated.
It is assumed that a total of 31,118 potential jobs would be created in Mindanao if
recommendations listed in Appendix 16 are implemented. Only recommendations that have a
direct impact on job creation are considered. Other recommendations that are assumed to indirectly
affect job creation are discussed in the next section.
Access to better seeds will generate about 1,833 additional jobs. Currently, areas harvested with
hybrid rice represent only 2 percent of the total rice areas in Mindanao, while the national average
is 4 percent as of 2014. Increasing it further to 10 percent would generate 7,036 more jobs. The
necessary additional areas can be taken or converted from irrigated areas currently planted with
inbred seeds. Since hybrid seeds produce a higher volume of production, this would translate to
more jobs created in the postproduction stage.
Increasing the current irrigated areas from 64 percent in Mlang, 70 percent in North Cotabato,
and 65 percent in Mindanao to 80 percent would generate additional 627, 2,114, and 30,231 jobs
12
Balgos and Digal
in Mlang, North Cotabato, and Mindanao, respectively. It is assumed that these additional areas
would be rainfed having one cropping only, thus, once irrigated will have two croppings and generate
almost double the number of jobs.
Only 2 percent of irrigated areas planted with inbred seeds were identified as rice farms adopting
the rice-rice-watermelon/mongo production system in Mlang. Assuming that Mlang has the same
percentage of intercropped areas as the whole of Mindanao, about 6,357 jobs would be generated
for Mindanao. Few farmers are intercropping with watermelon due to the high cost of production
and the fact that it is labor intensive. Assuming an additional 5 percent of irrigated areas would be
intercropped with watermelon, an additional 71 jobs would be created in Mlang, and 371 and 3,805
in North Cotabato and Mindanao, respectively.
Currently, organic rice-producing areas in Mindanao constitute less than 1 percent. With the
increasing demand for organic rice both in domestic and export markets, expansion for organic rice
production areas becomes attractive. Increasing organic rice-productive areas to 5 percent would
generate 2,739 additional jobs in Mindanao. If these areas are further increased to 10 percent, 3,074
more jobs would be generated. Organic rice production generates more jobs than conventional rice.
With better road conditions, transporting and hauling palay from the farm to postharvest facilities
would be faster and less costly. During rainy season, some roads are usually impassable, doubling the
hauling time and cost. It is assumed that 50 percent of the areas are affected by bad road conditions
during wet season. Once addressed, there would be about 481 less jobs from transport and hauling
services. However, temporary jobs would be created for the road repair and maintenance. Eventually,
expansion for rice production becomes attractive when income is increased due to decreased
postharvest expenses.
Mechanization
There would be a reduction of jobs with the use of the drum seeder for planting, combine harvester
for harvesting and threshing, and flat-bed dryer for drying. Assuming that 5 percent of lowland areas
for both rainfed and irrigated are mechanized, jobs would be reduced by up to 5,638 in Mindanao.
Drum seeders and combine harvesters are available in some areas. However, very few use them due
to issues of suitability to the area particularly during rainy season. Moreover, the drum seeder is
designed such that seeds are distributed thinly and would require more replanting when they fail
to germinate, not to mention its limited availability especially during planting season. The combine
harvester, on the other hand, is not popular since it was only recently introduced to farmers. Flat-
bed dryers are available in Mlang but are seldom used because they are considered laborious and,
moreover, only a few units are available.
If mechanization is further increased by about 10 percent, the reduction in jobs can reach to
11,277. However, reduction in labor also reduces costs and, subsequently, increases profit.
13
Employment Generation Potential of the Rice Value Chain
Each of the recommendations also has indirect effects on job generation. For example,
adequate access to better seeds would not only increase jobs but also increase the farmers volume
of production and productivity, which would then result in increased profit. Similarly, more
irrigation increases productivity and profit. While mechanization reduces labor, it lowers the cost
to produce and, subsequently, increases the farmers profit. Other recommendations also have
similar indirect effects.
Direct effects of the aforementioned recommendations on job creation would result in 31,118
additional jobs. Their indirect effects, including the other recommendations on improving access
to credit, peace and order conditions, enhancing extension services, among others, are estimated to
result in 5,554 more jobs. This assumes an expansion of 4 percent in area or an additional 48,000 ha
due to better profits in rice production. The average growth of Mindanao in terms of rice production
area from 2005 to 2014 was only 1.5 percent. This could increase further if farmers invest in higher
levels of technology such as the use of hybrid seeds and better fertilization and pest management.
Considering both direct and indirect possible effects of implementing these recommendations,
employment in Mindanao would be increased by 36,672 more jobs (Appendix 17).
Concluding comments
Clearly, rice contributes substantially in terms of job generation particularly in conflict areas where
the poverty incidence is high. Majority of the jobs created is in the production node that provides
opportunities particularly for the landless farmers. However, there are severe constraints particularly
in the production node that limit job generation. Nevertheless, aggregate estimates generated should
be applied with caution since they were based on cases in the chain where the level of technology or
substitution of labor with other inputs varies. The suggested strategies, if implemented, are expected
to significantly enhance job generation potential. However, the net benefits of implementing these
strategies will have to be examined. Further research in terms of quality of jobs and cases to cover
other locations can provide more insight into the impacts of these constraints and help improve
estimates from the case covered in this research.
14
Balgos and Digal
APPENDIxES
15
Appendix 2. Top rice-producing provinces in Mindanao, 20052014
Province Area Volume
Area in Hectares Percent Share to Volume (in metric tons) Percent Share to Total Jobs
Mindanao Generated
Average 2014 Average 2014 Average 2014 Average 2014
20052014 20052014 20052014 20052014 2014
16
Zamboanga del Sur 70,231 75,171 6 6 302,848 341,395 8 8 44,218
Agusan del Sur 64,094 87,973 6 8 208,112 292,019 5 7 51,749
Lanao del Sur 58,914 59,220 5 5 170,894 164,117 4 4 34,835
Zamboanga Sibugay 44,218 44,352 4 4 159,066 173,535 4 4 26,089
Lanao del Norte 39,565 40,214 4 3 151,852 171,770 4 4 23,655
Other Mindanao
262,602 278,465 24 24 961,631 1,047,877 25 24
provinces 163,803
Mindanao 1,083,558 1,166,830 100 100 3,868,813 4,319,305 100 100 686,371
Employment Generation Potential of the Rice Value Chain
Source: Authors compilation based on key informant interviews; World Bank [WB] (2014);
Catholic Relief Services (2015)
Source: WB (2015)
17
Employment Generation Potential of the Rice Value Chain
18
Balgos and Digal
Appendix 6. Mlang rice value chain jobs generation per hectare (organic/irrigated area)
Actor/Node Activities Man-days / Season 1 year FTE
(per hectare) (2 seasons)
Production 50.83 0.33
Land preparation 8.32 0.05
Crop management 42.51 0.27
Farmers Postproduction 22.75 0.15
Harvesting 20 0.13
Threshing 1.5 0.01
Hauling 1.25 0.01
Trader Processing 9.81 0.06
Wholesaler-miller Hauling 0.38 0.00
Cooperative Drying 6 0.04
Milling 1.17 0.01
Packing 1.28 0.01
Trucking .99 0.01
Wholesaler Marketing .03 0.00
Retailer
Total 83.43 .53
Appendix 7. Mlang rice value chain jobs generation per hectare (inbred/irrigated area)
Actor/Node Activities Man-days / Season 1 year FTE
(per hectare) (2 seasons)
Production 34.13 0.22
Land preparation 6.25 0.04
Crop management 27.88 0.18
Farmers Postproduction 28.54 0.18
Harvesting 25 0.16
Threshing 1.46 0.01
Hauling 2.08 0.01
Trader Processing 9.50 0.06
Wholesaler-miller Hauling 0.63 0.00
Cooperative Drying 6.67 0.04
Milling 1.80 0.01
Trucking 0.41 0.01
Wholesaler Marketing 3.20 0.02
Retailer Wholesaling 1.79 0.01
Retailing 1.41 0.01
Total 75.36 0.48
19
Employment Generation Potential of the Rice Value Chain
Appendix 8. Job generation from watermelon production activities in Mlang, North Cotabato
Activities Man-day/Hectare/Cropping Full-time Equivalent
Seedling preparation 4.55 0.01
Planting 6.82 0.02
Watering and fertilizing 9.45 0.03
Harvesting and hauling 0.68 0.00
Total labor 21.50 0.07
Appendix 9. Job generation from mongo production activities in Mlang, North Cotabato
Activities Man-day/Hectare/Cropping Full-time Equivalent
Broadcast (sabwag) planting 0.25 0.0008
Spraying 0.38 0.0012
Harvesting 9 0.0288
Drying 0.38 0.0012
Cleaning 3.38 0.0108
Hauling 0.02 0.0001
Total production and postharvest 13.40 0.04
20
Balgos and Digal
Appendix 10. Jobs generated per hectare of rice by type of seeds and type of water source
Node Jobs Generated per Hectare of Land
Organic Inorganic/Inbred Rainfed*
(irrigated)
Production 0.33 0.22 0.03
Land preparation 0.05 0.04 0.02
Crop management 0.27 0.18 0.01
Postproduction 0.15 0.18 0.03
Harvesting (manual) 0.13 0.16 0.03
Threshing 0.01 0.01 0.00
Hauling (field to highway) 0.01 0.01 0.00
Processing 0.06 0.06 0.01
Hauling (highway to millers) 0.00 0.00 0.00
Drying (dry season) 0.04 0.04 0.01
Milling and packing 0.02 0.01 0.00
Trucking 0.01 0.00 0.00
Marketing 0.0002 0.02 0.01
Overhead 0.00 0.00 0.00
Wholesaling 0.00 0.01 0.00
Retailing 0.00 0.01 0.00
Total labor 0.53 0.48 0.08
21
Employment Generation Potential of the Rice Value Chain
Appendix 11. Jobs generated in Mlang, North Cotabato, and Mindanao by type of seed and type
of water source
Nodes Total Jobs Generated*
Mlang North Cotabato Mindanao
Number of hectares harvested 22,868 125,731 1,189,266
Production 1,893 10,977 97,516
Land preparation 469 2,576 24,203
Crop management 1,425 8,400 73,314
Postproduction 1,577 9,110 83,141
Harvesting (manual) 1,379 7,968 72,688
Threshing 102 564 5,300
Hauling (field to highway) 97 578 5,152
Processing 553 3,167 28,895
Hauling (highway to millers) 36 205 1,899
Drying (dry season) 387 2,215 20,294
Milling and packing 105 604 5,453
Trucking 25 143 1,250
Marketing 180 1,026 9,691
Overhead 0 3 25
Wholesaling 100 572 5,407
Retailing 79 451 4,259
Total labor (rice) 4,204 24,280 219,244
Intercropping 45 284 2,552
Total labor 4,249 24,564 221,796
22
Balgos and Digal
Appendix 12. General cost structure of rice for the municipality of Mlang, North Cotabato
Mlang Average per Kilo Share to Total Costs
(%)
Production cost
Seeds 0.81 7.1
Chemical fertilizers 1.41 12.3
Pesticides/Herbicides 0.67 5.9
Labor
Family labor 0.77 6.7
Hired labor 1.42 12.4
Transport of inputs 0.28 2.5
Interest expense 0.18 1.5
Irrigation 0.16 1.4
Equipment 0.47 4.1
Depreciation 0.53 4.6
Land rental
Sacks
Total expense 6.62 58.1
Postproduction cost
Thresher and harvester costs 0.21 1.8
Personal share 3.37 29.4
Drying fees 0.17 1.5
Transport costs
Farm to dryer/storage 0.12 1.0
Farm/dryer to buyer 0.17 1.5
Fuel cost 0.02 0.2
Labor cost (hauling) 0.04 0.3
Food 0.28 2.5
Losses 0.40 3.5
Total postproduction cost 4.77 41.7
Total cost 11
Logistics cost 1.41 11.6
Volume sold (in kilograms) 0
Average price 0
Totalsales 0
Net profit 2.94
Source: WB (2014)
23
Employment Generation Potential of the Rice Value Chain
Appendix 13. Total area harvested and productivity in North Cotabato by type of seed, 2014
Type of seed Total Percent to Area Harvested in Production Productivity
Number of Total Hectares (Irrigated) (in metric
Hectares tons)
Hybrid 1,420 1 1,420 8,834 6.22
Certified 30,635 24 25,521 135,965 5.33
Good 93,676 75 60,936 307,206 5
Total 125,731 100 87,877 452,005
24
Balgos and Digal
Appendix 16. Direct effect of the following recommendations to employment in the production
and postharvest nodes in Mlang, North Cotabato, and Mindanao
Source: Figures were derived by converting the number of man-days to job equivalent for one year. Data
were gathered from key informant interviews.
25
Employment Generation Potential of the Rice Value Chain
Source: Figures were derived by converting number of man-days to job equivalent for one year. Data were
gathered from key informant interviews.
26
Balgos and Digal
References
Balisacan, A., C. Abad Santos, N. Fuwa, D. Mapa, S.F. Piza, and M. Sombilla. 2011. Inclusive agribusiness growth
in the Philippines: The role of direct and indirect channels with a focus on the labor market. Quezon City,
Philippines: Asia-Pacific Policy Center.
Bordey, F. 2014. Benchmarking the Philippine rice economy relative to major rice-producing countries in Asia.
Laguna, Philippines: Philippine Rice Research Institute.
Bureau of Agricultural Statistics (BAS). 2012. Cost and returns. Quezon City, Philippines: BAS. http://agstat.psa.
gov.ph/ (accessed on October 29, 2012).
Catholic Relief Services (CRS). 2015. Farmers alliances for resource strengthening and marketing (FARM).
Survey of rice farmers in Mindanao. Unpublished raw data. Manila, Philippines: CRS.
Department of Labor and Employment (DOLE). 2015. Minimum wage in agriculture. Manila, Philippines: DOLE.
Don Bosco Multi-Purpose Cooperative (DBMPC). 2015. Personal interviews. Mlang, North Cotabato.
Dy, R. 2013. Job creation is not a walk in the park. Philippine Daily Inquirer. November 25. http://business
.inquirer.net/153695/job-creation-is-not-a-walk-in-the-park (accessed on June 28, 2015).
International Rice Research Institute (IRRI). 2015. Diversified cropping systems. Laguna, Philipppines: IRRI.
http://irri.org/our-work/research/rice-and-the-environment/diversified-cropping-systems (accessed
on May 2015).
Javier, E. 2014. Rice trade liberalization (Part 2). October 21. Nueva Ecija, Philippines: Philippine Rice Research
Institute. http://www.philrice.gov.ph/rice-trade-liberalization-part-2/ (accessed on October 21, 2014).
Philippine Statistics Authority (PSA). 2015. Palay production data and area harvested. Quezon City,
Philippines: PSA.
Provincial Agriculture Office (PAGRO). 2014. North Cotabato rice production data. Provincial Government of
North Cotabato.
Riisgaard, L., S. Bolwig, F. Matose, S. Ponte, and A. Du Toit. 2008. A strategic framework and toolbox for action
research with small producers in value chains. DIIS Working Paper No. 2008/17. Copenhagen,
Denmark: Danish Institute for International Studies.
Sunstar. 2014. DA Pinoy program. November 17. Manila, Philippines: SunStar Publishing, Inc.
World Bank (WB). 2014. Rural connectivity and agricultural supply chain analysis in Mindanao, Philippines.
Taguig City, Philippines: WB.
. 2015. Mindanao jobs report: Jobs value chain analysis. Taguig City, Philippines: WB.
27
Philippine Journal of Development
Volume 43 (2016) Number 1
Roehlano M. Briones2
ABSTRACT
The fertilizer policy in the country has evolved from pervasive interventionism
in the 1970s to todays market-oriented regime. Government has abandoned
price policies and subsidies, focusing rather on standard setting, quality
regulation, and training. Over the same period, domestic demand for fertilizer
has continually increased, though recently, resurgent fertilizer prices have reduced
total utilization. Evidence suggests that farmers (at least in the case of rice) are
underapplying fertilizer, forfeiting efficiency gains at the margin. On the supply
side, imports have in the past few decades emerged as the main source of fertilizer,
as domestic production has dwindled. With deregulation, numerous private
sector players have taken over its distribution; analysis of the supply chain points
to low marketing margins. Integration analysis fails to find systematic arbitrage
opportunities between the domestic and world markets. Within the domestic
market, however, there remain large disparities in prices across regions. Priorities
for research and policy are therefore understanding the behavior of farmers in
terms of fertilizer application, and addressing internal price disparities, perhaps
by improved transport infrastructure and logistics.
1
The paper was based on a study supported by the International Food Policy Research Institute. The author is solely
responsible for all opinions, errors, or omissions.
2
Senior Research Fellow, Philippine Institute for Development Studies, Three Cyberpod Centris - North Tower, EDSA
corner Quezon Avenue, Quezon City. Email for correspondence: rbriones@mail.pids.gov.ph.
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
OVERVIEW
During the postwar period, growing fertilizer demand was mostly met by increasing domestic production,
supported by incentives and price policies. David and Balisacan (1981) summarize the postwar history
of the fertilizer industry up to the 1970s. During the 1950s, the fertilizer industry was regarded as a
new and necessary industry exempted from taxes and customs duties. Market policies in the form
of controls and tariffs on fertilizer imports raised the domestic price of fertilizer. Government also
extended subsidies, e.g., distribution of discounted fertilizers to sugar planters cooperatives.
In 1973, government intensified interventions in the fertilizer industry, first establishing a
Fertilizer Industry Authority (FIA) to regulate prices, imports, production, and marketing. Over the
next two years, the authority imposed two-tier pricing: with food producers able to access fertilizer
at an administered price that was lower than the market price. A supervised credit program was
simultaneously launched, which incorporated a fertilizer subsidy. After 1975, the authority continued
its price-targeting policy by imposing a quantitative restriction (QR).
In 1977, Presidential Decree (PD) No. 1144 reorganized FIA into the Fertilizer and Pesticide
Authority (FPA). The PD assigned FPA a regulatory function over both fertilizers and pesticides
to ensure the safety and efficacy of products sold in the market. However, the authority retained
the mandate to determine and set the volume of prices, both wholesale and retail, of fertilizer and
fertilizer inputs.
In 1986, government began a series of reforms that allowed a much greater scope for market
allocation and pricing. FPA ceded administrative controls (Alcala 2012), abandoned the QR, and the
price-setting function (OP 1992). Import duties were also reduced over a series of tariff reduction
programs. Currently, applied rates are in the range of 13 percent (Table 1). The Agriculture and
Fisheries Modernization Act of 1997 furthermore allows duty-free importation by enterprises
engaged in agriculture, conditional on direct use by these enterprises, i.e., plantations, aquaculture
operators, farmer cooperatives, etc.
30
Briones
Together with opening the domestic market to foreign competition (thus making fertilizers
cheaper), government has retreated from extending fertilizer subsidies. The remaining incentive for
the sector is indirect, namely, the exemption of sale and importation from the 12 percent value-
added tax.
As mentioned earlier, fertilizers were part of the package of technology promoted under Masagana
99 based on subsidized credit and inputs. Even without subsidy, mineral fertilizers continued to be
a prominent fixture in the countrys agricultural programs. After an initial enthusiasm over the new
technologies, in the 1980s and 1990s, the government began to promote judicious and scientific
use of agri-chemicals under Integrated Pest Management and balanced fertilization and site-specific
nutrient management (SSNM). SSNM is defined as the dynamic field-specific management in a
particular cropping season to optimize supply and demand according to their variation in time and
space (Dobermann and Witt 2004).
Regulations on importation and manufacture are now directed toward maintaining product
quality and standards. Imports need not be accompanied by a permit; instead, licensed fertilizer
importer-distributors can bring in registered fertilizer products. An import license is good for one
year (subject to renewal) and may be obtained within three days of filing. Requirements for a license
are as follows:
Duly accomplished and notarized application form (original copy) with documentary stamps
Business Name Registration Certificate (Securities and Exchange Commission/Department
of Trade and Industry/Cooperative)
Copy of latest income tax returns and financial statements
Copy of Distributorship Agreement/Certification with mother company
List of distributors and dealers per province by region (for importer-distributors)
Product registration approval of all fertilizer grades to be sold
Inspection and recommendation by the FPA regional/provincial officer on their area coverage
Registration of fertilizer warehouse
Filing and license fee
Registration of fertilizer products is good for three years, and will take not more than 265 days for
new products and only 65 days maximum for renewal (FPA 2016). Requirements for registration are:
31
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
DEMAND-SIDE ISSUES
Consumption has followed an upward trend since 1990, punctuated by occasional sharp declines. Figure 1
presents estimates of fertilizer consumption from 1990 onward using supply and utilization accounts
from the Philippine Statistics Authority. Consumption is proxied by net supply, i.e., production plus
net imports. Consumption has been on an upward trend since 1990, suffering a major decline in
1998 due to the nationwide drought brought about by El Nino. Note that consumption subsequently
recovered to a peak of 2.6 million tons in 2004. Since then, consumption has declined, with another
abrupt drop in 2008 when world fertilizer prices soared.
2,500
2,000
1,500
1,000
500
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012P 2014P
32
Briones
The most popular type of fertilizer in the country is nitrogen fertilizer. The major types of fertilizer
in the country are potash (0-0-60), complete NPK (nitrogen, phosphorus, and potassium (14-14-
14), ammonium phosphate (16-20-0), diammonium phosphate (18-46-0), ammonium sulfate (21-
0-0), and urea (46-0-0). The main type of fertilizer consumed has usually been nitrogen based.
Until recently, next in importance are phosphate-based fertilizers (Figure 2). The largest shares in
consumption are urea and ammonium sulfate, which account for about half of quantity sold in
recent years. The next in rank is complete NPK fertilizer, accounting for one-fifth to a quarter of
fertilizers sold by volume.
2,000
1,500
1,000
500
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
The major users of fertilizer are cereals, followed by fruits and vegetables, and sugarcane. About
60 percent of fertilizer consumption goes to food crops, mainly rice and corn (Mojica-Sevilla 2006).
This is consistent with Bunoan-Olegario (2011) who estimates that rice accounts for 38 percent of
fertilizer use, followed by maize (21 percent). The next major users are fruits and vegetables, at 19
percent; sugarcane accounts for 7 percent; and other crops, 15 percent.
For both paddy rice and maize, fertilizer application has ranged between 200 and 250 kilograms
(kg) per hectare (ha), with paddy rice being slightly higher (Figures 3 and 4). In both, the biggest
item is for urea, about 100 kg/ha for either crop. The next biggest category is complex NPK fertilizer,
between 70 and 80 kg/ha for paddy rice, and 5565 kg/ha for maize.
Table 2 reports fertilization rates by major crop, based on actual nutrient applied (instead of
fertilizer quantity). By proportion of area harvested, the extent of fertilizer application is widest with
rice, followed by sugarcane, maize, palm oil, potato, and tobacco. Highest nitrogen fertilizer rate
is found for sugarcane, potato, and cocoa. Sugarcane also exhibits the highest fertilization rate for
phosphorus at 55 kg/ha (together with potato); the highest fertilization rate for potassium is rubber,
followed by palm oil.
Fertilizers account for a significant but still minor share in production cost (Table 3). The highest
shares are observed for several types of fruits and vegetables, and lowest for root crops, with cereals
in between (about 105 percent share). The high fertilizer costs for fruits and vegetables apparently
33
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
Figure 3. Fertilization rate in 50-kilogram bags per hectare for paddy rice, 20032012
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 4. Fertilization rate in 50-kilogram bags per hectare for maize, 20032012
5.0
4.0
3.0
2.0
1.0
0.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
contradict the data in Table 2. The latter, though, pertains to the average for all vegetables, which
includes many categories grown with lower intensity, such as peanut and mungbean (as seen in
Table 3).
Fertilizer, combined with the adoption of modern crop varieties, was a major contributor to growth in
agricultural productivity. Prior to the dissemination of IR-8the prototypical miracle rice variety
only 14 percent of farmers applied fertilizer before transplanting and 41 percent after transplanting
(Castillo 1975, citing Sumayao 1969). For the same group of farmers, in their fourth season of
planting IR-8, 37 percent applied fertilizer before transplanting and 54 percent after. By the 1990s,
close to 100 percent of farmers in irrigated areas apply mineral fertilizer (Horstkotte-Wesseler 1999).
34
Briones
The advantage of modern over traditional varieties is higher yields, larger yield increases, higher
maximum yield fertilizer levels, and higher average productivity of fertilizer. The average maximum
yield increase due to fertilizer during the dry season is 3.1 tons/ha in the case of modern varieties,
but only 0.7 tons/ha for traditional varieties. The increment is smaller during the wet season, but still
substantial (Barker et al. 1985).
Average productivity measured by the ratio of kg of rice per kg fertilizer was higher for modern
varieties by 8.9 kg rice/kg fertilizer during the dry season and by 6.2 kg rice/kg fertilizer during the wet
season. The coefficient of variation of yield implies that modern variety yields are less variable than
traditional variety yields; that is, at any given level of applied fertilizer, there is a higher probability
of receiving the expected yield with the modern varieties than with the traditional varieties. Hence,
the country's rice output grew by 3.27 million tons over the period 19651980. Of this increment,
1.01 million tons or 30 percent could be attributed to increased fertilizer use (Herdt and Capule 1983).
These findings continue to hold in the post-Green Revolution period, i.e., fertilizer continues
to contribute significantly to output. A panel data set covering the period 19951999 generated an
estimate of output elasticity of fertilizer application of 0.11 (Shively and Zelek 2003). Using another
panel data set spanning the period 19962007, Mariano et al. (2010) estimate the output elasticity of
fertilizer for irrigated systems at 0.08.
In the case of rice, fertilizers are still being applied at below profit-maximizing levels. A number
of studies indicate that Filipino rice farmers are applying insufficient quantities of fertilizer. In
one study by the International Rice Research Institute (IRRI) (conducted in the latter half of the
1990s), farmer's practice is contrasted with SSNM (Gines et al. 2004). SSNM led to a significantly
35
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
larger fertilizer cost. In their sample, rates of N were similar in SSNM and farmer practice (about
110 kg/ha), but more P and K were applied in the first year. Average fertilizer cost in SSNM was
45 percent higher than under farmer practice, even as average yields were 11 percent higher. In
general, farmer practices tended to remain unbalanced, applying an average of 30 percent less P and
130 percent less K than SSNM.
Pingali et al. (1998) compared the marginal productivity of fertilizer with the ratio of fertilizer
to rice prices. In 1985 and 1986, based on farm-level data, the marginal product of 1 kg fertilizer
was estimated at 15.3 kg/ha during the wet season, and 8.3 kg/ha during the dry season, evaluated
at the sample means (84.2 kg/ha and 133.6 kg/ha during dry and wet seasons, respectively, based on
product weight). The marginal product is far above the ratio of fertilizer to paddy rice price, equal
to 4.1. Fertilizers are still contributing positively to profitability in rice farming. On the other hand,
this implies that fertilizer is being underutilized in Philippine farms. In contrast, for Indonesian
farms, the marginal product (2.7 kg paddy/kg fertilizer) is close to but above the input/output price
36
Briones
ratio (1.7). Average fertilizer application in the Indonesia sample is 176 kg/ha (product weight) in
irrigated areas, whereas in the Philippines, the average fertilizer application (wet and dry seasons) is
109 kg/ha.
Another IRRI study suggests that Filipino rice farmers may be mismanaging nitrogen fertilizer
application (Dawe et al. 2007). Data from a rice farmer survey spanning 19882002 is contrasted
with computed optimal N based on experimental trials. The comparison suggests that farmers tend
to overapply N during the wet season and underapply N during the dry season (3155 kg gap from
optimal). For irrigated areas, bridging the gap may result in up to a one-ton yield incrementa
substantial increase (compared with the yield of irrigated systems in 2012 of 4.2 tons/ha).
What accounts for this systematic underapplication of fertilizer is not clear. Mataia and Dawe
(2007) rule out one possible reason, which is access to credit. Another potential explanation, namely,
risk aversion, has been ruled out in Abedullah and Pandey (2004) at least for the case of favorable
rainfed environment in the Philippines. Other reasons may be the sheer lack of knowledge of farmers
on the techniques of determining correct fertilizer application. Deeper analysis is needed to pinpoint
the explanation.
There are few players in domestic fertilizer production. Currently, domestic production of fertilizer is
obtained from five firms. The largest is Philippine Phosphate Fertilizer Corporation (PHILPHOS),
originally a Philippine government corporation established in 1980 and privatized in 2000.
PHILPHOS produces for both the export and domestic market. Fertilizer production is subject to
large-scale economies, limiting the number of domestic manufacturers. However, the market as a
whole need not be an oligopoly if there is strong competition from imports.
Fertilizer imports by value have been rising. Importation peaked in 2008, declining in 2009 as the
domestic market adjusted to the high fertilizer prices. Since then, imports have recovered (Figure 5).
Exports are far lower with a much more erratic trend (but a downward direction is observed since
2011). Up to 2011, imports were mostly sourced from the Association of Southeast Asian Nations
(ASEAN) and other free trade partners, i.e., China, Japan, Korea, and Australia, for which the import
duty is zero. Together with the tariff exemption of agricultural enterprises, imports of fertilizers into
the Philippines are effectively duty free. Since 2013, however, imports from other countries have
increased rapidly.
The main type of fertilizer imported (by value) is nitrogenous fertilizer (Figure 6), consistent
with fertilizer usage patterns shown in Section 3. The Philippines has no domestic source of
ammonium, as any domestic natural gas deposits are prioritized for use of the power and fuel
industry. Domestic production depends mainly on imported raw materials such as rock phosphate,
anhydrous ammonia, sulfuric acid, and other finished fertilizer grades, which are needed in the
blending process of fertilizer production (Alcala 2012).
37
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
2001 2003 2005 2007 2009 2011 2013
large plantations, and may also have a dealer's license. In some areas, there may be area distributors
whose operations span multiple provinces and who supply distributors. As discussed earlier, imports
can also be done by large plantations and farmer cooperatives.
As of 2012, there were 483 licensed handlers in the fertilizer industry, spanning importation,
distribution, repacking, export, and manufacturing. Of these, 150 were listed as importers. Much of
importation is done within the region (in 2012, 68% of imports by volume originated from ASEAN
countries and China). Eight handlers were also listed as end-users. Many more handlers are farmer
cooperatives or associations (e.g., sugar planter organizations) who distribute fertilizer to their
38
Briones
Importers/Manufacturers/Distributors
Growers associations
Dealers
Farmers
members. Hence, even if there are entry barriers to fertilizer marketing, these are not so high as to
limit the number of players.
39
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
Figure 8. Dealers prices per 50-kilogram bag of fertilizer in PHP, national average, 19902016
1800
1600
1400
1200
1000
800
600
400
200
0
1990 1995 2000 2005 2010 2015
Figure 9. Dealers price per 50-kilogram bag of urea, national average, 19802015, nominal
and real PHP (2010 = 100)
1800
1600
1400
1200
1000
800
600
400
200
0
1980 1985 1990 1995 2000 2005 2010 2015
Price per bag of urea, PHP Price per bag of urea, PHP (2010 = 100)
fixed, even during the period of soaring fertilizer prices, as in 2008. However, any attempt to adjust the
markup would be counterproductive as farmers can easily shift to other dealers.
A key informant at the distribution node is located in Ilocos Norte. This distributor supplies
dealers all over the province. They have been in the business since 1978. Their main fertilizer
products are urea and complete NPK. Their main source is a large importer who lands the product
in Port Poro Point located in the Ilocos Region. These days, the purchase price of the product is
about PHP 1,000/bag for urea and PHP 1,050/bag for NPK (equivalent to USD 471/ton and
40
Briones
Table 4. Breakdown of markup and cost along the supply chain for imported urea, PHP per
50-kilogram bag, late-2013
Selling Pricea Gross Net Margin Net Margin
Markup (PHP per bag) (percent over
selling price)b
Dealer 1,090 30 ~30c 2.8
Distributor 1,060 60 ~50 d
4.7
Importer 1,000 86 ~30 e
3.0
Exporters price (cost, 914 239f - -
insurance, and freight, bagged)
Export price (free on board, 675 - - -
bulk)
a
Importers actual price; distributor and dealer estimated from markups
b
As a proportion of selling price
c
For both informants, associated costs are trivial, as fertilizer forms only a small portion of deliveries of the
agri-trading retail shop.
d
According to the informant, the only nontrivial cost is that for delivery. Estimated from a delivery charge of
PHP 3,500 for 25 tons of transport
e
The implicit cost of PHP 56 is consistent with port and customs clearance charges of about PHP 20/bag
(PHP 10,000 per container), estimated from Manila International Container Port tariff schedule, and transport
cost of PHP 36/bag (PHP 18,000 per container) estimated by two trucking companies. According to the
fertilizer importer, other cost items on a per-bag basis are minimal.
f
Implicit markup only. Free on board price from World Bank Pink Sheet (WB 2013).
Blank denotes information not available.
Sources: Informant interviews and references cited
USD 495/ton, respectively). They sell this to their dealers with a markup of PHP 50/bag, plus delivery
fee. They could not raise the markup without risk of losing their buyers to other distributors from
adjoining provinces.
Lastly, an importer based in Metro Manila provided data on prices in the last quarter of 2013,
as follows (in USD):
NPK (14-14-14): 475
16-20-0: 362370
Urea (46-0-0): 425442
Ammosul (21-0-0): 220232
Muriate of potash: 450454
18-46-0: 533540
The informant claims that the margins vary depending on the competition. However, the normal
margin is only 3 percent on price export (i.e., cost, insurance, and freight plus charges). They are not
able to raise their margin beyond this due to the fact that they only have less than 10 percent of the
market share in fertilizer trading due to stiff competition.
Lastly, all the informants state that licensing and product registration requirements are
straightforward and easy to comply with. The FPA normally processes license renewal in just
one day.
41
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
Market integration
Following Fackler and Goodwin (2001), the concept of market integration adopted here invokes
transmission of shocks between spatially separated marketsin this case between domestic and
foreign market for fertilizer. Simple transmission can be tested by applying Granger causality, which
checks whether shocks in one market (i.e., world) evoke significant responses in another market (i.e.,
domestic). Denoting monthly domestic and world prices (in common currency) as, respectively,
DPt, WPt, with b0, b1, b2 as parameters, and et an error term. Taking natural logarithms (denoted by
lower case), the posited relationship is as follows:
dpt = 0 + 1wpt + t
(1)
The bivariate case traces from Richardson (1978), which handles prices in original or logarithmic
form, and can incorporate other variables. For the markets considered here, another important
source of systematic variation is the exchange rate. Hence, let the domestic price be expressed in local
currency and the redefined world price in USD; denote the monthly exchange rate by ERt. Equation
(1) can be extended as:
dpt = 0 + 1wpt + 2ert + t (1)
42
Briones
Figure 10. Monthly price of urea (Black Sea FOB), in USD per ton, and domestic price spread
40,000 3.5
35,000 3.0
30,000
2.5
25,000
2.0
20,000
1.5
15,000
1.0
10,000
5,000 0.5
0 0.0
Mar-91
Jul-93
Nov-95
Nov-02
Jul-07
Nov-09
May-92
Sep-94
Mar-98
Jul-00
May-99
Sep-01
Mar-05
May-06
Sep-08
Mar-12
May-13
Jan-90
Jan-97
Jan-04
Jan-11
Spread FOB, pesos/ton
The relationship can be estimated by ordinary least squares if t ~ N (0, 2 ) . However, finite variance
may be violated if both time series are random walks. Prior to estimating (1), there is a need to
check if the time series are I(0) stationary. If the series are not stationary but are stationary in first
differences, i.e., I(1), then equation (1) can still be estimated if there is a set of parameters for which
the following holds:
t = dpt + b0 + b1wpt + b2 ert ~ I (0) (1)
With multiple time series, if vector autoregression (VAR) of dpt, wpt, ert on lagged values is I(1), the
presence of a cointegrating relation (1') can be determined. The model determining the time series
itself is a vector error correction (VEC) model of the form:
p 1
yt y t 1 i y t i t
i 1
(2)
Here the yt vector is a 1x3 element vector consisting of time-series variables of interest, while p is
the maximum number of lags in the VAR model. The VEC form is useful as it provides information
about the speed of adjustment to the long-run equilibrium relationship expressed by the cointegrating
equation corresponding to (1). A similar approach is taken in previous studies of developing country
agriculture, such as a multicountry study of the Food and Agriculture Organization (Rapsomanikis
et al. 2003), a study of the fish market in India and the Philippines, respectively (Shinoj et al. 2008;
Garcia and Salayo 2009). The market integration test is implemented in several steps:
Step 1. Test for stationarity: For all three time series, the test rejects I(0) stationarity but fails to
reject I(1) stationarity (Table 5).
43
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
Table 6. Results of VAR model estimation with Wald test for Granger causality
Variable and Lags Coefficient z-statistic P>z c2 - statistic P > c2
Domestic price (logs) - - - 143.23 0.000
Domestic price (-1) 1.46 31.3 0.000 - -
Domestic price (-2) -0.52 -13.02 0.000 - -
Step 2. Determine lag structure: The Hannan-Quinn information criterion and the Schwarz
Bayesian information criterion, both point to lags of up to two periods.
Step 3. Estimate a VAR model and apply causality test: Estimates from the VAR model
are shown in Table 6. Coefficients of the lagged variables are all statistically significant (based on
the z-statistic). Not surprisingly, the hypothesis that lagged values of domestic price (in logs) do
not Granger-cause the domestic price is rejected. Similar results hold for foreign price. Lastly, the
null of no Granger causality from exchange rate (in logs) to the domestic price cannot be rejected.
Nevertheless, the lagged values of the exchange rate individually have significant coefficients (at 1%
significance). In short, domestic price and foreign price Granger-cause the domestic price.
Step 4. Apply Johansen test for existence of cointegrating vector(s): The Johansen test
involves a null hypothesis of zero to three cointegrating vectors. Results are summarized in Table
7. The hypothesis of no cointegrating relation is rejected (52.2053 > 29.68); however, the hypothesis
of at most one cointegrating relation cannot be rejected (7.24 < 15.41). The existence of a single
cointegrating vector becomes the working hypothesis in the VEC model.
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Step 5. Estimate parameters of cointegrating vector using VEC: VEC analysis is presented
in Table 8. At the top of the table are the estimates of the cointegrating equation, which capture
the long-run relationships. With domestic price variable restricted to a coefficient of unity, the
signs of foreign price and exchange rate coefficients are negative as expected. The coefficients are all
statistically significant at 1-percent level (or even lower). The values imply a transmission elasticity
of about 0.82 from world to domestic prices (holding exchange rate constant); a similar transmission
elasticity holds for changes in the peso-dollar exchange rate (holding world dollar prices constant).
The short-term adjustment relation is shown in the bottom part of the table. When the value of
cointegrating equation is positive, i.e., the domestic price is too high, then an increase in its value
causes 0.06-percent decline in the domestic price of the next period. The difference is small on a
monthly basis but adds up to a sizable proportion on an annual time scale. Note that in the short-run
adjustment equations, the coefficients of logdom in the D.logfob and D.logpusd equations are not
significant, consistent with the notion of a small open economy and small sector (i.e., fertilizer alone
does not affect the market exchange rate).
45
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
country are themselves integrated. Across the country, there is a wide dispersion in retail prices of
fertilizer based on the dealer's price index (Table 9). Relative to the national average, the cheapest
fertilizers are found in Ilocos, Cagayan Valley (in the north); Western Visayas (central); and Davao
Region (south). The most expensive fertilizers, meanwhile, are in the Autonomous Region in Muslim
Mindanao (ARMM) and Eastern Visayas, which also happen to be among the poorest regions of
the country. Variations in fertilizer prices (as gauged by the standard deviation) are similar across
fertilizer grades, i.e., in the range of 69 percent. The widest range in the index is for urea, followed
by ammonium sulfate.
Galang (2014) has found that, in the case of urea, regional markets are integrated in the long
run. This appears consistent with the results of this paper, which fails to find evidence of market
46
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power in the fertilizer industry. The number of market players in the industry makes it highly
unlikely for one or a small number of fertilizer dealers to control the market price, whether at
the national or regional level. Nonetheless, the disparities in Table 9 are undeniable; these
must therefore be attributed to transaction cost differences, perhaps due to meso-level gaps in
infrastructure and logistics. Other sources of discrepancy may be at the micro level, due to tied
credit-output transactions between farmer and trader causing failure of competition, especially in
poorer and more isolated areas such as ARMM and Eastern Visayas. Explaining these interregional
price differences warrants future research.
CONCLUSION
Way forward
The foregoing suggests a few implications for policy and research. The first, of course, is to stay the
course on the market-oriented regime in fertilizer policy. There certainly remains a persistent (though
no longer vocal) constituency for interventionism, emphasizing fertilizer subsidies and industry
protection. Inappropriate solutions to very real problems in the sector must always be resisted.
47
The Fertilizer Industry and Philippine Agriculture: Policies, Problems, and Priorities
Identifying appropriate solutions is, however, far from easy. Priorities for further research
involve evidenced-based analysis at both levels of the problem, i.e., the market and the farmer. The
former warrants careful documentation of structure, conduct, and performance of fertilizer trading,
along with assessment of binding constraints and choke points. On the other hand, the latter will
entail a more flexible model building, together with primary data collection and hypothesis testing,
to arrive at a comprehensive understanding of the farmer's goals, opportunities, and constraints.
This will help improve the package of technologies, incentives, and infrastructure toward boosting
competitiveness of smallholder systems in the Philippines.
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Bunoan-Olegario, A. 2011. Agriculture and fertilizer market in the Philippines: Current situation and outlook.
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Fackler, P. and B. Goodwin. 2001. Spatial price analysis. Handbook of agricultural economics Vol. 1B: Marketing,
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Fertilizer and Pesticide Authority (FPA). 2014. Fertilizer supply and demand. Quezon City, Philippines:
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-2008fertSDandaveprices.pdf (accessed on June 30, 2014).
. 2016. Citizens charter. Quezon City, Philippines: FPA.
Food and Agriculture Organization (FAO). 2006. Fertilizer use by crop. Fertilizer and Plant Nutrition Bulletin
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Galang, I. 2014. A spatial integration analysis of the regional fertilizer markets in the Philippines. PIDS Discussion
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Garcia, Y. and N. Salayo. 2009. Price dynamics and cointegration in the major markets of aquaculture species in
the Philippines. Asian Journal of Agriculture and Development 6(1):4982.
Gines, H., G. Redondo, A. Estigoy, and A. Dobermann. 2004. Site-specific nutrient management in irrigated
rice systems of Central Luzon, Philippines. In Increasing productivity of intensive rice systems through
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site-specific nutrient management, edited by A. Dobermann and C. Witt. Enfield, NH and Los Baos,
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on June 30, 2016).
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Philippines: Philippine Rice Research Institute.
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farming systems in rice production in the Philippines? Agriculture, Ecosystems, and Environment
139(4): 603610.
Mataia, A. and D. Dawe. 2007. Lack of credit is not a major constraint to improving the productivity of rice
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by D. Dawe, P. Moya, and C. Casiwan. Laguna, Philippines: International Rice Research Institute.
Mojica-Sevilla, F. 2006. The Philippine fertilizer industry. Food and Agri Business Monitor. Pasig City, Philippines:
Center for Food and Agri Business, University of Asia and the Pacific.
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.psa.gov.ph (accessed on June 30, 2016).
Pingali, P., M. Hossain, S. Pandey, and L. Price. 1998. Economics of nutrient management in Asian rice systems:
Towards increasing knowledge intensity. Field Crops Research 56(1):157176.
Presidential Decree No. 1144. 1977. Creating the Fertilizer and Pesticide Authority and abolishing the Fertilizer
Industry Authority. Manila, Philippines: Office of the President of the Republic of the Phililppines.
Rapsomanikis, G., D. Hallam, and P. Conforti. 2003. Market integration and price transmission in selected food
and cash crop markets of developing countries: Review and applications. FAO Commodity Market
Review 20032004. Rome, Italy: Food and Agriculture Organization.
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International Economics 8(2):341351.
Shinoj, P., B.G. Kumar, R. Sathiadhas, K.K. Datta, M. Menon, and S.K. Singh. 2008. Spatial price integration
and price transmission among major fish markets in India. Agricultural Economics Research Review
21:327335.
Shively, G. and C. Zelek. 2003. Technical change, factor bias, and input adjustments: Panel data evidence from
irrigated rice production in Southern Palawan, Philippines. Philippine Journal of Development 30(1):
91110.
Sumayao, B. 1969. The Bicolano farmers' response to an improved rice variety IR-8-288-3. Laguna, Philippines:
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research/commodity-markets (accessed on January 1, 2013).
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Philippine Journal of Development
Volume 43 (2016) Number 1
ABSTRACT
Conventional wisdom suggests that oil price increases have a negative effect on
the output of oil-importing countries. This is grounded on the experience of
the United States between the 1940s and the late 1980s, where recessions were
generally preceded by oil price increases. This paper evaluates the impact of oil
price shocks on the Philippinesa developing country and a net oil-importing
economy. Following Kilians (2008) structural decomposition of real oil price
change, we find indications that the 20082009 and 20142015 oil price drops
may have lowered the Philippine economys output growth, potentially due to the
economys reliance on remittances from abroad and the export market.
1
Arlan Brucal is Research Officer, Grantham Research Institute for Climate Change and the Environment, The London
School of Economics and Political Science, Houghton Street, London, United Kingdom. He acknowledges support
from the Grantham Foundation and the Economic and Social Research Council through the Centre for Climate Change
Economics and Policy. Email for correspondence: A.Z.Brucal@lse.ac.uk. Michael Abrigo is Research Fellow, Philippine
Institute for Development Studies, Three Cyberpod Centris - North Tower, EDSA corner Quezon Avenue, Quezon City.
This study benefits from the helpful comments of Michael Roberts, Peter Fuleky, and participants at the Seminar on
Energy and Environmental Policy in Hawaii and the Second Annual Public Policy Conference in the Philippines. Email for
correspondence: mabrigo@mail.pids.gov.ph.
Can Cheap Oil Hurt Net Importers? Evidence from the Philippines
Introduction
With its history of ups and downs, oil price has been in its deepest decline in 20142015 since the
1990s. Brent crude oil generally increased from about USD 20 per barrel in 1991 to more than
USD 110 per barrel by mid-2008, before it slid down to less than USD 50 per barrel at the end of
the year. It stabilized at USD 110 per barrel from 2010 to mid-2014 before it plunged by more than
50 percent by mid-2015. As with any other major economic phenomena, the sharp declines in the
global crude oil price will create winners and losers.
Conventional wisdom suggests that unanticipated oil price increases have a positive effect on
the output of oil-exporting economies while reducing that of oil-importing economies. Assuming
the effect is symmetric, an unanticipated drop in the price of oil should be seen as a boon for net
oil-importing economies and a bane to net oil exporters. This notion is supported by a number
of studies, including the recent study by Oxford Economics (Bulloford and Sterne 2015), which
postulates that the recent decline in oil prices increases gross domestic product (GDP) growth for
most importing countries, with the Philippines gaining the most of the oil price slump, while Russia
suffers at the bottom.
A major limitation of earlier studies was that they considered oil price shocks as exogenous.
Modern literature recognizes that price shocks are symptoms of more fundamental economic
developments that drive demand and supply of oil (Barsky and Kilian 2002, 2004; Kilian 2009),
with different drivers having different effects. For example, when oil and gas prices fall due to an
unanticipated increase in global supply of crude oil, people would have more money to spend on
other goods and services. But when the world economy grows faster, for reasons unrelated to the
global crude oil market, demand for crude oil grows, driving prices up including nonenergy goods.
This inflationary effect may reduce consumption, thus dampening the earlier positive effect of an
oil price drop. This complex dynamics of the global crude oil market makes it extremely difficult to
assess the causal effect of an oil price change on macroeconomic aggregates without disentangling
the factors that drive oil price movement.
The notion that an unanticipated increase in oil price can have serious negative impact on an
oil-importing economy can also find basis from the experience of the United States (US) and other
advanced countries. In a series of contributions, Hamilton (1983, 2009a, 2009b) provided empirical
evidence for the negative relationship between oil price and the US macroeconomy. Meanwhile,
Jimenez-Rodriguez and Sanchez (2005) and Jimenez-Rodriguez (2008) contributed to the literature
by analyzing select Organisation for Economic Co-operation and Development countries, with
results being generally the same with that of the US and only differing in magnitude. Surprisingly,
only a few studies look into the effect of oil price shocks on emerging and developing economies, with
limited focus on oil-importing economies. For example, Berument et al. (2010) analyzed the effect
of oil price shocks on Middle East and North African countries and found that oil price increases
have (1) a positive impact on output in most exporting countries but (2) an ambiguous effect on oil
importers, depending on whether the price shock is driven by demand or supply factors.
Recent developments in the crude oil market reignited interest in providing a global perspective
to the macroeconomic impact and influence of oil price shocks. By using a two-country dynamic
stochastic general equilibrium model, Bodenstein et al. (2011) illustrated that although oil importers
experience a deterioration in the oil component of their trade balance, an improvement in the nonoil
trade balance substantially dampens the effects on the overall trade balance. Kilian et al. (2009)
empirically validated this theory by using a structural vector autoregressive (VAR) model of the
global crude oil market. They found that the overall effect of an oil price shock on the current account
52
Brucal and Abrigo
depends critically on the response of the nonoil trade balance, with oil-importing economies tending
to experience an improvement in this balance and the opposite being the case for oil-exporting
countries. Meanwhile, Rasmussen and Roitman (2011) found that the correlation of GDP and oil
prices is positive. They also found that imports and exports move in the same direction as oil prices,
which may be an indication that petrodollars gained by oil exporters during oil booms are likely to be
recycled in the global economy through international trade. At the country-specific level, Mohaddes
and Raissi (2013) found that oil price increases drive Jordan's output growth through their impact
on external income and, in turn, on capital accumulation.
In this paper, we evaluated the dynamic impact of oil price shocks on the Philippine economy.
Studying the Philippine economy in the context of an oil shockmacroeconomy relationship offers
a number of advantages. First, the Philippines is among the top developing economies in terms of
share of imported energy (i.e., oil, coal, and natural gas) to total energy use (Bulloford and Sterne
2015). Second, the Philippines has become increasingly reliant on external markets to boost its
economy since the 1980s. For instance, in 2015, the country's exports make up more than 27 percent
of its GDP, which is higher than the average share of middle-income countries. In 2014, the country
ranked third in terms of the amount of personal remittances received from abroad, next to China
and India. More interestingly, the share of personal remittances to total output is highest in the
Philippines and significantly higher than the world and regional averages (Figure 1). Third, the top
destinations of most overseas Filipino workers (OFWs) are oil-exporting countries, such as Saudi
Arabia, United Arab Emirates, Qatar, and Kuwait. Thus, one can expect that any disturbance to
global crude oil that affects these oil-exporting economies would have influence on the growth of the
Philippine economy through remittances.
The countrys energy dependence on oil imports and its reliance on external markets, particularly
on remittances from oil exporters, make the Philippines an interesting case to empirically investigate
the net effect of oil price shocks to a developing economy. For example, the 20082009 and
GDP = gross domestic product; OECD = Organisation for Economic Co-operation and Development
Source of raw data: World Development Indicators, World Bank
53
Can Cheap Oil Hurt Net Importers? Evidence from the Philippines
20142015 oil price drops are believed to have lowered the cost of fuel imports, which increased
vehicle purchases or consumption of oil-dependent commodities, but at the same time, cut down
total OFW remittances thus lowering total output. Moreover, it is not clear what was driving the oil
price decline. As previously mentioned, different factors drive oil price movements, with each factor
potentially having different implications on the countrys macroeconomic aggregates.
Our major results can be summarized as follows: First, contrary to recent popular views that
supply shocks cause oil prices to fall, we found strong evidence to suggest that these oil price shocks
have been predominantly driven by a combination of aggregate and precautionary demand shocks.
Second, the magnitude, duration, and direction of response of the Philippine economy to oil price
shocks highly depend on whether changes in oil price are driven by supply or demand factors. Third,
the oil price decline, which was primarily driven by demand shocks, may have lowered the growth of
the Philippines services and goods exports and, ultimately, its output, which suggests that not all oil
price drops are beneficial to net oil importers.
Empirical Strategy
Historically, a number of researchers consider oil price shocks as exogenous. This is possibly
because most of these shocks concurred with war-driven oil production shortfalls and geopolitical
uncertainties in oil-exporting countries (Hamilton 1983; Guo and Kliesen 2005; Rahman and Serletis
2010; Melichar 2013). However, there is an increasing recognition that oil price shocks are associated
not only with shocks on the current physical availability of oil but also with: (1) unanticipated changes
in the aggregate demand and (2) shocks driven by uncertainties about the expected supply relative
to the demand for oil (Barsky and Kilian 2004; Kilian 2009; Kilian and Murphy 2014). Another
evidence suggests that, since the 1970s, exogenous changes in oil production are significantly less
important in influencing global oil price compared to changes in precautionary demand for oil and
global demand fluctuations (Kilian 2008). Macro aggregates may also have influence on oil prices.
One channel is through monetary conditions, which may result in changes in the demand for oil and,
eventually, in oil price (Barsky and Kilian 2002).
The endogeneity of oil price changes has implications on how researchers evaluate the influence
of crude oil price changes on macroeconomic aggregates. Identifying the underlying demand and
supply shocks in the global crude oil market helps us understand what is driving oil price changes
and determine how macroeconomic aggregates are affected by different shocks influencing oil price
changes (Kilian 2009). Hence, it is important to recognize the extent to which oil price changes
are driven by one shock or another because it is plausible that different oil price shocks may have
different effects on the Philippine macroeconomy.
In order to account for the potential endogeneity of crude oil prices, we used the VAR model
proposed by Kilian (2009) to extract the underlying structural innovations behind each oil price
shock (see equation 1). We updated the sample period up to 2015 to cover oil price changes. The
model uses monthly data of zt = (prodt, reat, rpot), where prodt refers to global crude oil production
from the Energy Information Administration (EIA); reat denotes the index of real economic activity
derived from the bulk dry cargo shipping rate index developed by Kilian (2009); and rpot is the
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Brucal and Abrigo
refiners acquisition cost of imported crude oil provided by EIA and deflated by the consumer price
index from the US Bureau of Labor Statistics, which serves as proxy to global crude oil price.2 Except
for reat, which is stationary by construction (Kilian 2009), all of the series are period-to-period log-
transformed differences. The sample period is 1974.12015.10.3 We removed seasonal variation by
including monthly dummies in the specification.
As in Kilian (2009), the following exclusion restrictions are imposed to the reduced form errors,
et, in order to estimate the structural shocks underlying oil price changes:
where kt denotes the serially and mutually uncorrelated structural shocks in each VAR equation
k=1,2,3. The exclusion restriction implies the following: Oil supply shocks denote unanticipated
changes in global crude oil production and are assumed not to respond to any change in the demand
for oil within the same month. Kilian (2009) justifies this assumption by stating that adjustments
in oil production are costly and the future state of the crude oil market has a lot of uncertainties,
making oil production slow in responding to any demand shock. Shocks to global real economic
activity are referred to as aggregate demand shocks.4 The exclusion restriction assumes that oil-specific
demand shocks, which increase oil price, will not lower real economic activity within the same
month but only with a delay of at least one month. This assumption is consistent with the sluggish
response of the major economies to major oil price increases observed in the sample period and in
previous studies (e.g., Hamilton 1983). Finally, unanticipated oil price changes, here referred to as
oil-specific demand shocks, denote shocks to changes in demand for crude oil not already captured by
instantaneous shifts in aggregate demand for industrial commodities and supply of oil. These shocks
include changes in precautionary demand for oil due to shifts in expectations about future demand
relative to supply of oil. For example, crude oil price started to escalate in 1979, even though there
was no significant disruption in the global crude oil production. The increase in crude oil price in
1979 was associated with the looming Iran-Iraq War which occurred in 1980 (Kilian 2009).5 While
the residual shocks in the model may also include other shocks (e.g., unexpected weather patterns
and changes in preferences), there is evidence to support that the residual shock largely represents
exogenous shifts in precautionary demand for oil.6
2
Some studies use monthly price data of Western Texas Intermediate crude oil while others use Brent crude oil as proxy
to world oil price. We are agnostic as to which price data should be used, although these prices are highly correlated
within the sample period.
3
We recognize that the first oil embargo occurred between 1973 and 1974. Nonetheless, data on US refiner acquisition
cost of crude oil start in 1974. While there are ways to estimate oil prices prior to 1974 (Barsky and Kilian 2002), we believe
that this is beyond the scope of this paper.
4
Kilian (2009) clearly distinguishes aggregate demand for industrial commodities in this context as opposed to aggregate
demand for overall goods and services.
5
The 19781979 Iranian revolution brought insignificant change in the global production of oil as Iranian cutbacks were
more than offset by increased production elsewhere (Kilian 2009; Hamilton 2013).
6
For detailed discussion, see Kilian (2009).
55
Can Cheap Oil Hurt Net Importers? Evidence from the Philippines
Figure 2 plots the historical evolution of the structural shocks implied by the VAR model. The
shocks are expressed in annual averages for better readability. The spikes and drops in the figure
notably capture the important oil price shocks in history as documented by Kilian (2009) and
Hamilton (2013), and based on recorded US recessions from the National Bureau of Economic
Research. For example, there was a global oil supply disruption in 1980, which was associated with
the outbreak of the Iran-Iraq War. Meanwhile, the years 1978, 1979, and 1980 experienced large
positive economic shocks attributed to the growing global economy. There was also an unanticipated
increase in oil-specific demand in 1979, which was consistent with the increased uncertainties on
the future supply of oil attributed to the geopolitical conflicts in the Middle East. These estimated
structural shocks also capture the 2008 unanticipated fall in aggregate demand following the Great
Recession, which also coincided with a drop in oil-specific demand due to low expectation on future
demand for oil. In 2014, US oil production increased, causing a slight unexpected uptake in global
oil production.
After estimating the monthly structural shocks in the global crude oil market, we performed
historical decomposition of price changes over the same period following Burbidge and Harrison
(1985). This technique decomposes observed oil price change at any period as a linear function
of past orthogonal shocks. Historical decomposition thereby allows us to isolate the specific
contributions of past oil supply shocks, aggregate demand shocks, and oil-specific shocks to
the observed history of oil price changes. We then took the quarterly average of the estimated
contribution of the shocks to oil price change in order to have the same frequency with the
quarterly GDP estimates of the Philippines provided by the Philippine Statistics Authority for the
period 1981.q12015.q4, as follows:
where vj,i,t refers to the estimated contribution of past orthogonal shocks to the oil price change in the
j-th equation in the VAR model in the i-th month of the t-th quarter of the sample.
We can examine the influence of these structural shocks on Philippine macroeconomic
aggregates based on the specification:
where yt is a nx1 vector denoting growth rates of each macroeconomic variable at period t, jt refers
to the quarterly averaged contribution of structural shocks to oil price changes, Qtr are quarter
dummies to account for potential seasonality in the macroeconomic variables, and is the usual
model residual. Following Kilian (2009), the impulse response coefficient at horizon h in this
regression model corresponds to jh, which captures the transmission of the worldwide oil demand-
and supply-related shocks to the local macroeconomy.7
7
We also estimate the impact of each oil shock on the Philippine macro aggregates following the estimation of impulse
response function by local projections developed by Jorda (2005). We find that the qualitative results remain the same
using a different estimation method.
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Brucal and Abrigo
In Kilians (2009) original formulation, the impulse responses are based on raw structural
innovations rather than the historical decomposition of oil price shocks. In this paper, we wish to
highlight the influence on the local economy of the factors that constitute oil price shocks, thus the
use of the decomposed series. In any case, the qualitative results when using structural innovations
like those used in Kilian (2009) do not differ from the results we present here as more recent shocks
receive greater weight in the historical decomposition.
Figure 3 plots the relative contribution of each oil demand and supply shock to the movement of
the real price of oil. Historically, the biggest contributions are due to aggregate demand shock and
oil-specific demand shocks, consistent with Kilian (2009). Oil supply shocks are relatively stronger
Note: The figure illustrates the estimated structural residuals from the VAR model, averaged to annual frequency.
The starting data is dictated by the availability of price data (proxied by refiners acquisition cost of imported
crude oil) from the US Department of Energy. While data are available from 1974.1, the VAR model allows for
lags up to 24 months, which makes estimated shocks only available starting 1976.1.
Source of raw data: Energy Information Administration [EIA] (n.d.), Kilian (2009)
57
Can Cheap Oil Hurt Net Importers? Evidence from the Philippines
pre-1980s. Thereafter, these shocks only serve either to amplify oil price surges or lower oil prices
at other times. Oil-specific demand shocks are relatively stronger in the late 1980s up to the early
2000s. The biggest drops, which were around 20082009 and 20142015, were mostly driven by
both aggregate demand and oil-specific market demand shocks. This is in contrast with the popular
view that the 20142015 oil price collapse was a manifestation of the unprecedented increase in US
domestic crude production.
Figure 4 (first column) summarizes the cumulative response of the GDP growth rate of the
Philippines, along with consumption, exports, and inflation.8 Results show significant differences
in how each structural shock in oil demand and supply underlying oil price changes influences the
movement of key macroeconomic aggregates. Our estimates suggest that a 1-percent decrease in
the price of oil driven by an unanticipated increase in the global supply of oil increases GDP growth
by about 1 percent on impact, and its cumulative effect is increasing over time. The response of
GDP growth is positive at all horizons, although one-standard error bands imply that the impact is
mostly statistically insignificant. An unanticipated increase in aggregate demand, which increases oil
price, induces a positive but statistically insignificant effect on GDP growth. The effect is generally
increasing up to three years.
Meanwhile, a 1-percent increase in the world crude oil price, due to unanticipated increase in
oil-specific demand, increases output growth by 0.11 percent. This result is striking because oil-
specific demand shocks can be driven by uncertainties in the future demand for oil relative to supply
of oil, which appears to benefit the Philippine economy in the short run (at the very least). The effect
is also nontrivial given that the crude oil price declines are quite significant.
8
It should be noted that the response is cumulated across the horizon, which means that the current oil price increases
include the effect of previous oil price increases.
58
Brucal and Abrigo
Oil supply shock Oil supply shock Oil supply shock Oil supply shock
10 10
4 20
5 10 5
2
0 0 0 0
-2 -10
-5 -5
0 4 8 12 0 4 8 12 0 4 8 12 0 4 8 12
Aggregate demand shock Aggregate demand shock Aggregate demand shock Aggregate demand shock
1.5 4 1
.5
Consumption
1 .5
2
Inflation
Export
GDP
.5 0 0
0
0 -.5
-.5
-.5 -2 -1
0 4 8 12 0 4 8 12 0 4 8 12 0 4 8 12
Oil-specific demand shock Oil-specific demand shock Oil-specific demand shock Oil-specific demand shock
1 .5 2 1
1
.5 .5
0 0
0 0
-1
0 4 8 12 0 4 8 12 0 4 8 12 0 4 8 12
We also looked at the subcomponents of the economys output to determine how each underlying
structural shock to oil price changes influences output growth. For consumption (second column),
only unanticipated supply shock influences consumption. This is fairly intuitive since, holding
demand constant, a price decline driven by exogenous increase in global crude oil production
(e.g., discovery of fracking) increases the purchasing power of consumers. This is supported by the
significant decline (at two-standard error bands) in the consumer price index (last column) brought
about by the supply shock-driven oil price decline. Meanwhile, a positive aggregate demand shock,
in contrast, has two opposing effects: (1) the short-run stimulating effect of higher global demand
which increases domestic consumption and (2) the growth-retarding effect of higher inflation due to
higher oil prices. Our results imply the two effects generally offset each other, although none satisfies
conventional statistical significance. The effect of oil-specific demand shock is generally small and
statistically insignificant at all horizons.
Exports, which include earnings from sale of goods and services abroad, gain from any
unanticipated increase in the global production of oil, which lowers global oil price, with a statistically
significant (one-standard error) positive uptake after a year. Aggregate demand shocks have (if there
is any) positive effect on exports and it is increasing up to one year. Interestingly, unanticipated
increase in oil-specific demand, which increases crude oil price, significantly increases exports on
59
Can Cheap Oil Hurt Net Importers? Evidence from the Philippines
impact and is sustained up to two quarters, followed by a decline below an initial level in the third
quarter, then rising again after a year. The effect after a year is statistically significant.
The key results can be summarized as follows: First, an unanticipated increase in oil supply,
which brings down oil price, has immediate, short-lived, and statistically significant effect on output,
consumption, and exports of the Philippines. This is fairly intuitive because oil supply shocks in this
context are seen as a rightward shift in the aggregate supply curve of the economy, and are expected to
drive down price, thus, reducing both the cost of production and consumption, holding other things
constant. The findings for positive aggregate demand shocks are consistent with earlier findings in
the literature, which suggest two opposing effects on output: (1) the short-run stimulating effect of
higher global demand and (2) the growth-retarding effect of higher inflation due to higher oil (and
presumably other commodities) prices. Finally, unanticipated increases in precautionary demand
appear to be beneficial to the Philippine economy. This finding is consistent with other studies that
look into the direct and indirect effect of oil price shocks through factor mobility (Mohaddes and
Raissi 2013) and international trade linkages (Kilian et al. 2009; Bodenstein et al. 2011; Rasmussen
and Roitman 2011).
Based on the above results, we can surmise that the recent oil price decline, which is primarily
driven by demand shocks, may have slowed down the output growth of the Philippines. Lower oil
price is a result of lower demand for industrial commodities and a gloomy outlook of future global
economy. Both low actual and perceived global demand significantly reduced demand for Philippine
exports, with stronger negative impact on service exports that are concentrated in oil-producing
economies in the Middle East. This negative effect on output outweighs the increase in consumption,
thus ultimately reducing total output of the economy.
Conclusion
Conventional wisdom suggests that oil price declines are generally good for oil importers. Previous
studies, particularly those focusing on advanced oil-importing economies, provide empirical basis
for why oil price increases are traditionally seen as boon to exporters and bane for importers. Quite
surprisingly, literature on oil pricemacroeconomy relationship applied to developing countries
remains thin. Moreover, only a few looked into net oil-importing countries. In this paper, we took
the Philippine economy as a test case to empirically assess how oil price shocks can influence an oil-
importing developing economy and determine other potential mechanisms by which global crude
oil price changes can benefit or harm an economy.
This study is far from being perfect. First, the uniqueness of the Philippine economy in terms
of its reliance on foreign remittances can cast doubts on the ability of the study to generalize its
results. Future research can improve on this study by looking at other labor-exporting countries,
such as India, China, and the Pacific Islands. Second, we are agnostic on how much of the influence
is due to exchange movement associated with oil price fluctuations. Presumably, exchange rates are
also affected by oil price movements (and vice versa for the US case), which may greatly influence
exports. How correlated is Philippine foreign exchange to crude oil price, and its implications on
export and output growth, are questions that are beyond the scope of this study.
Despite these limitations, this study provided results that appeal to conventional wisdom,
which makes it relevant both at the theoretical and policy fronts. In particular, we found evidence
suggesting that recent oil price declines, which were largely driven by demand shocks, may have
harmed the Philippine output growth. This is due to the fact that the economy is not only dependent
60
Brucal and Abrigo
on oil imports but also on remittances and earnings from external markets. That said, the indirect
(negative) effect on trade appears to outweigh the (positive) effect of lower crude oil and gas prices
on the economy.
The central message of this paper is simple: Not all oil price shocks are alike and not all economies
would respond similarly to the same underlying shock. Like any other economic phenomenon,
oil price movements produce winners and losers. However, it is also probable that gainers are
compensating losers in some ways through increased demand for cross-border goods or service
exports. The net effect on a certain economy is ambiguous and largely dependent on the relative
strength of the direct and indirect effects of oil price shocks.
References
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. 2004. Oil and the macroeconomy since the 1970s. Journal of Economic Perspectives 18(4):115134.
Berument, M.H., N.B. Ceylan, and N. Dogan. 2010. The impact of oil price shocks on the economic growth of
selected MENA countries. The Energy Journal 31(1):149176.
Bodenstein, M., C.J. Erceg, and L. Guerrieri. 2011. Oil shocks and external adjustment. Journal of International
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Bulloford, J. and G. Sterne. 2015. Oil-ipedia! 6 price scenarios, 45 economies. Technical Report. Oxford,
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Guo, H. and K.L. Kliesen. 2005. Oil price volatility and US macroeconomic activity. Federal Reserve Bank of
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Kilian, L. 2008. Exogenous oil supply shocks: How big are they and how much do they matter for the US
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. 2009. Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market.
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Kilian, L. and D.P. Murphy. 2014. The role of inventories and speculative trading in the global market for crude
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Kilian, L., A. Rebucci, and N. Spatafora. 2009. Oil shocks and external balances. Journal of International
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Melichar, M. 2013. Essays on the macroeconomic effects of energy price shocks. Unpublished manuscript.
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Mohaddes, K. and M. Raissi. 2013. Oil prices, external income, and growth: Lessons from Jordan. Review of
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Rahman, S. and A. Serletis. 2010. The asymmetric effects of oil price and monetary policy shocks: A nonlinear
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62
Philippine Journal of Development
Volume 43 (2016) Number 1
ABSTRACT
1
This paper was based on a report prepared under the United States Agency for International Development (USAID)-
funded Trade-Related Assistance for Development Project titled, The Philippines and the Trans-Pacific Partnership: A
Readiness Assessment. The content of the study is the sole responsibility of the author(s) and does not necessarily reflect
the views of USAID or the United States Government.
2
Director, Mergers and Acquisitions, and Division Chief, Economics Office, respectively, Philippine Competition
Commission, San Miguel Avenue, San Antonio, Pasig City, Metro Manila, Philippines. Email for correspondence:
ktuy@phcc.gov.ph; bela.villamil@phcc.gov.ph.
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
INTRODUCTION
The Trans-Pacific Partnership Agreement (TPPA) is a free trade agreement (FTA) aimed at creating a
platform for economic integration across the Asia-Pacific region. It stands out from other FTAs due
to its nature and scope: a megaregional trade agreement with negotiators also pursuing nontrade-
related issues. While it was hailed as a state-of-the-art FTA that will link countries on both sides of
the Pacific, a recent rise in protectionist policies has made it doubtful that the agreement will come
into force. Nevertheless, the TPPA remains a model for future agreements in the region.
Twelve countries participated in negotiations for the TPPA. These are: Brunei, Chile, New
Zealand, Singapore, United States, Australia, Peru, Viet Nam, Malaysia, Mexico, Canada, and Japan.
Due to the United States recent withdrawal from the trade agreement, there have been talks of the
possibility of a version of the TPPA without the United States, or a shift in focus to negotiating other
megaregional FTAs, such as the Regional Comprehensive Economic Partnership (RCEP) and the
Free Trade Area for the Asia-Pacific (FTAAP).
The Philippines announced its interest in joining the TPPA in June 2015, and it is currently
involved in discussions for both the RCEP and the FTAAP. There is a need, therefore, to determine
if regulatory and policy reforms are necessary for the Philippines to qualify for entry into emerging
new trade agreements such as the TPPA.
The focus of this paper is on telecommunications, an industry with issues that have increasingly
gained attention in the past few years. Public telecommunications networks and services (PTNS)
are vital for the effective functioning of the Philippine economy. In 2015, the gross value added of
telecommunications was PHP 362 billion or 2.7 percent of the gross domestic product (GDP) (PSA
64
Uy and Villamil
2016a). The industry also employed 1.0 percent (or approximately 381,000) of the working population
(PSA 2016b). Aside from its contribution to GDP and employment, the public telecommunications
infrastructure provides basic services that all people depend upon.
Unfortunately, the high price and poor quality of telecommunications services in the Philippines
have become binding constraints to the countrys development. According to the International
Telecommunication Union (2015), the rates of information and communications technology (ICT)
services in the Philippines are excessively prohibitive. In the ITUs ICT Price Basket (IPB), which
measures the affordability of ICT services, the Philippines ranked 120th out of 170 economies as of
end-2014.
Among the members of the Association of Southeast Asian Nations (ASEAN), ICT services in
the Philippines are among the least affordable. ICT services in the country cost 5.9 percent of per
capita gross national income, compared to the regional average of 3.4 percent. The IPB is based on
three subbaskets: fixed telephone, mobile cellular, and fixed broadband services. The price of fixed
telephone in the Philippines is highest among the ASEAN countries. Mobile and broadband are also
relatively expensive, although prices are not as high as in the least developed countries (LDCs) of
Laos and Cambodia.
And yet, despite the exorbitant rates being charged by operators, quality of services, particularly
for broadband, remains poor. The Philippines is reported to have the slowest internet in the ASEAN,
and among the slowest in the world. Based on data from Ookla Net Index for December 2014, the
Philippines ranked 167th out of 190 countries. Average download speed in the country was recorded
at 3.4 megabits per second (Mbps) while average upload speed was only 1.3 Mbps. To compare, the
regional averages were 18.1 and 14.3, respectively.
The Philippines also scored low on reliability. Based on surveys, only 69 percent reported
achieving the speed advertised by their provider. In contrast, the reliability rating of the other non-
LDCs in ASEAN ranged from 89 to 100 percent.
The quality and cost of PTNS have a significant impact on economic growth and income
inequalities in the country. As nearly every company, business, government, and person use
telecommunications services, the lack of reliable and affordable access, particularly for the general
public and small enterprises, is a constraint on development, competitiveness, and investments.
Improving the provision and access to telecommunications services is critical for the Philippines to
complete its transition from a factor- to an efficiency-driven economy.
The poor performance of the industry suggests that the policies and laws currently in place
may need to be overhauled, or at least, revisited. Consistency with best international practice and
experience in the crafting of laws, rules, and procedures could address the issues described above.
This paper on telecommunications of the TPPA is expected to promote competitive access for
telecommunications providers. Among other things, it will include provisions for interconnection,
access to physical facilities, and transparency. Reforms in these areas will likely benefit consumers
and help businesses become more competitive.
Under Chapter 13 of the TPPA, each state party has the obligation of ensuring that access to and use
of any public telecommunications service, including leased circuits, offered in its territory or across
65
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
its borders, are provided at reasonable and nondiscriminatory terms and conditions.3 Hence, each
party shall ensure that service suppliers of the other party are permitted to:
1. Purchase or lease, and attach terminals or other equipment that interface with a public
telecommunications network;
2. Provide services to individual or multiple endusers over leased or owned circuits;
3. Connect leased or owned circuits with public telecommunications networks and services,
or with circuits leased, or owned by another enterprise;
4. Perform switching, signaling, processing, and conversion functions; and
5. Use operating protocols of their choice.4
3
TPP Final Text (2016), Article 13.4 (1)
4
TPP Final Text (2016), Article 13.4 (2)
5
Commonwealth Act No. 146, Section 13 (b)
66
Uy and Villamil
lower prices, and technology transfer. In contrast, discriminatory regulation impedes investments to
the detriment of consumers and economic development.
To ease these restrictions on foreign ownership then, the Philippines must address the
constitutional provisions that constrain the growth and productivity of the country, either by
amending the Constitution or through creative legislation that expands the opportunities for foreign
investment but in a manner consistent with the Constitution. For instance, Congress would well be
within its powers to redefine public utilities by amending the PSA, so that it narrows the areas of
the economy that would remain covered by the Constitution, and opens up more opportunities for
foreign investment in previously protected sectors.
There is also a requirement under the TPPA for the state parties to ensure that an enterprise
of a party may use public telecommunications services for the movement of information in its
territory or across its borders. This includes use for intracorporate communications and for access to
information contained in databases or otherwise stored in machine-readable form in the territory of
either party.6 Measures necessary to ensure the security and confidentiality of messages may be taken
as long as it is not applied in an arbitrary or unjustifiable discrimination or as a disguised restriction
on trade in services.7
Generally, there is no issue with respect to intracorporate access to and movement of information
in the Philippines, as enterprises of another party can freely enter into agreements with suppliers
of such services operating within the Philippines. Such access to intracorporate information is, of
course, subject to national security and privacy considerations (Data Privacy Act of 2012).
The TPPA further requires that state parties shall ensure that no condition is imposed on access
to, and use of, PTNS, other than as necessary to safeguard the public service responsibilities of PTNS
suppliers, in particular their ability to make their networks or services available to the public or
protect their technical integrity.8 Conditions for access to and use of PTNS may include:
1. The use of a specified technical interface, including an interface protocol, for connection
with those networks or services;
2. The interoperability of those networks and services;
3. Type approval (or Certificate of Conformity) of terminal or other equipment that interfaces
with the network and technical requirements relating to the attachment of that equipment
to those networks; and
4. A licensing, permit, registration, or notification procedure which, if adopted or maintained,
is transparent and provides for the processing of applications filed thereunder in accordance
with a partys laws or regulations.9
As PTNS in the Philippines are owned and operated by private entities, access to and use of their
network is dependent on negotiations between contracting parties. However, public utilities are not
allowed to provide or maintain any service that is unsafe, improper, or inadequate or withhold or
refuse any service which can reasonably be demanded and furnished (Public Service Act of 1936).10
On access by PTEs to public telecommunications networks, the Philippines has already provided
for mandatory interconnection for all duly authorized PTEs under Republic Act (RA) No. 7925 or the
6
TPP Final Text (2016), Article 13.4 (3)
7
TPP Final Text (2016), Article 13.4 (4)
8
TPP Final Text (2016), Article 13.4 (5)
9
TPP Final Text (2016), Article 13.4 (6)
10
Commonwealth Act No. 146, Section 19
67
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
Public Telecommunications Policy Act of the Philippines. The said law provides that interconnecting
carriers shall negotiate on access charges or revenue-sharing arrangements, which is submitted to the
telecommunications regulatory agency, the National Telecommunications Commission (NTC), for
information. Should the parties fail to agree on the same, they may submit the dispute to the NTC
for resolution.
Interconnection
Interconnection refers to the linking with suppliers providing public telecommunications services in
order to allow the users of one supplier to communicate with users of another supplier and to access
services provided by another supplier11 (WTO 1997). As defined under Philippine law, specifically
Section 2 of EO 59, it is the linkage, by wire, radio, satellite, or other means, of two or more existing
PTEs with one another for the purpose of allowing or enabling the subscribers or customers of one
PTE to access or reach the subscribers or customers of the other PTE.
Interconnection is fundamental to the success of a competitive telecommunications market and
thus one of the most critical issues in the industry today. Without such arrangements, subscribers of
one PTE would be unable to access the subscribers of other PTEs. Because interconnection rates and
terms are negotiated bilaterally between firms, they are strongly affected by the relative bargaining
strengths of the PTEs. Operators with fewer subscribers, for instance, have weaker bargaining power
since dominant PTEs have little incentive to grant favorable terms to a minor market player.
The TPPA requires that each state party shall ensure that suppliers of public telecommunications
services in its territory provide, directly or indirectly within the same territory, interconnection with
suppliers of public telecommunications services of the other party at reasonable rates.12
Likewise, each party shall ensure that a major supplier in its territory provides interconnection
for the facilities and equipment of suppliers of public telecommunications services of the other party:
1. At any technically feasible point in the major suppliers network;
2. Under nondiscriminatory terms, conditions, and rates;
3. Of a quality no less favorable than that provided by the major supplier for its own like
services, for like services of nonaffiliated services suppliers, or for its subsidiaries or
other affiliates;
4. In a timely manner, and on terms and conditions, and at cost-oriented rates, that are
transparent, reasonable, having regard to economic feasibility, and sufficiently unbundled
so that the suppliers do not have to pay for network components or facilities that they do
not require for the service to be provided; and
5. On request, at points in addition to the network termination points offered to the majority
of users, subject to charges that reflect the cost of construction of necessary additional
facilities.13
Philippine regulation already provides for interconnection of PTEs under Section 5 of NTC
Memorandum Circular (MC) No. 14-7-2000, i.e., interconnection should be ensured to any
11
TPP Final Text (2016), Article 13.1
12
TPP Final Text (2016), Article 13.5 (1) and (2)
13
TPP Final Text (2016), Article 13.11 (1)
68
Uy and Villamil
technically feasible point in the network, under nondiscriminatory terms, conditions (including
technical standards and specifications) and charges and of a quality no less favorable than that
provided for its own like services or for like services of nonaffiliated service suppliers or for its
subsidiaries or other affiliates; and in a timely fashion, on terms, conditions (including technical
standards and specifications) and cost-based charges that are transparent, reasonable, having regard
to economic feasibility, and sufficiently unbundled so that the supplier need not pay for network
components for facilities that it does not require for the service to be provided. The circular likewise
outlines the procedure for interconnection negotiations which is given a 90-day timetable for
execution, and allows recourse to the NTC. This is in compliance with the TPPA that requires each
party to make publicly available the applicable procedures for interconnection negotiations with a
major supplier in its territory.14
More expansively, Section 10 of this regulation requires all PTEs, with respect to interconnection:
1. To provide interconnection at cost-based charges in a manner sufficiently unbundled;
2. To negotiate in good faith with other PTEs regarding the terms and conditions of
interconnection agreements;
3. To interconnect directly with the facilities and equipment of other PTEs to allow access to
all types of services available to the customers of both parties;
4. To install network features, functions, and capabilities necessary for interconnection;
5. To provide nondiscriminatory access to network elements at any technically feasible point
on charges, terms, and conditions that are just and reasonable;
6. To provide unbundled network elements in a manner that allows requesting carriers to
combine such elements in order to provide telecommunications service;
7. To make available to other PTEs on a timely manner all data and other relevant information
necessary to ensure an efficient, timely, and reliable interconnection; and
8. Not to abuse information obtained from competitors in relation to interconnection with
the latter.
While the Philippines regulations on interconnection are compliant with the TPPA standard,
as earlier discussed, such guarantees do not extend to interconnection with PTEs of other countries
seeking to operate in Philippine territory.
The TPPA further requires that interconnection with a major PTE should be through:
1. A reference interconnection offer (RIO) or another standard interconnection offer
containing the rates, terms, and conditions that the major supplier offers generally to
suppliers of public telecommunications services; or
2. Terms and conditions of an interconnection agreement in effect;15
3. And that suppliers of public telecommunications services of another party have the
opportunity to interconnect through negotiation of a new interconnection agreement.16
14
TPP Final Text (2016), Article 13.11 (4)
15
TPP Final Text (2016), Article 13.11 (2)
16
TPP Final Text (2016), Article 13.11 (3)
69
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
providers (or access seeker). It contains prices and sufficient details to allow an access seeker to weigh
the offer without having to negotiate directly with the access provider.
Unfortunately, however, implementation is another matter entirely. No PTE has ever submitted
a RAO for NTCs approval. A major PTE in the Philippines reportedly asserted that the commission
cannot compel telecommunications entities to reveal interconnection terms with other carriers,
characterizing such information as trade secrets (ABS-CBN News 2010). Interconnection agreements
between PTEs have thus remained undisclosed to the public and even the NTC itself, except for very
general terms that do not disclose costs and pertinent terms and conditions. While there may be a
vestige of compliance with the standard that a major PTE in the Philippines file all interconnection
agreements to which it is party with its telecommunications regulatory body,17 the NTC itself
discloses that the information contained therein is extremely limited (Cabarios 2015).
The Philippines is therefore noncompliant with the requirement under the TPPA that if a major
supplier in the territory of a party has a RIO, the party shall require the offer to be made publicly
available,18 including interconnection agreements in effect between a major supplier in its territory
and other suppliers of public telecommunications services in its territory.19
Number portability
The TPPA requires that each party shall ensure that suppliers of public telecommunications services
in its territory provide number portability without impairment to quality and reliability, on reasonable
and nondiscriminatory terms and conditions.20
Number portability refers to the ability of a customer to transfer an account from one service
provider to another without requiring a change in number. It reduces switching costs (that is, the
costs that consumers incur as a result of changing suppliers) and increases competition. Without
number portability, consumers are tied to the usage of their number. This barrier to exit can be used
by incumbent operators to exploit monopolistic or dominant power.
Since switching costs lock users, firms need fewer resources to keep subscribers. Customers are
then likely to receive higher prices and poorer service. There can also be price discrimination, such
as higher rates for old customers. Moreover, switching costs are an additional barrier to entry for
new operators, limiting the competitive constraint from potential competition and strengthening the
market power of incumbent firms.
Number portability is a measure that has been used extensively and successfully in other countries
to promote competition in telecommunications. However, there is no regulation that mandates
number portability in the Philippines at the present time. Past efforts of the NTC to introduce number
portability was met by strong opposition from the incumbent public telecommunications operators
who argued that the measure would be too costly to implement. This argument, however, has limited
basis given that number portability has already been successfully implemented in economies smaller
than the Philippines, and is even offered free of charge in many countries.
17
TPP Final Text (2016), Article 13.11 (4)
18
TPP Final Text (2016), Article 13.11 (5)
19
TPP Final Text (2016), Article 13.11 (5)
20
TPP Final Text (2016), Article 13.5 (4)
21
TPP Final Text (2016), Article 13.5 (5)
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Uy and Villamil
provides for the numbering plan within the country, which establishes the minimum functional
dialing characteristics and capabilities that the national switching network, and switching equipment
and accessories comprising the said network, must comply with. This is publicly available and PTEs
are obligated to conform to this regulation.
Equal treatment
The TPPA requires equal treatment to be accorded by a major supplier in a partys territory to
suppliers of public telecommunications services of the other party, as to itself, its subsidiaries, its
affiliates or nonaffiliated service suppliers regarding the availability, provisioning, rates, or quality
of like public telecommunications services, and the availability of technical interfaces necessary for
interconnection.22
This requirement is met in the context of interconnection by NTC MC 14-7-2000, which
obligates an access provider to provide nondiscriminatory treatment to access seekers, at no less
favorable terms than the former affords to itself or its subsidiaries or affiliates; nondiscriminatory
treatment to customers of the interconnecting party, at no less favorable terms than it affords to its
own customers; nondiscriminatory dealing with interconnecting parties in relation to the technical
and operational quality of the services it provides.
Contrary to the TPPA requirement on equal treatment, which has the objective of opening up
competition to suppliers of public telecommunications services of other state parties, the equality
of treatment clause in RA 7925, which pertains to equality of treatment in the grant of legislative
franchises,23 actually ensures that major suppliers in the Philippines retain their incumbent advantage
vis--vis smaller players or new entrants. This clause could only have a procompetitive effect when a
new domestic player or a major supplier in another state party, with sufficient resources at par with
the current incumbents, enters the Philippine telecommunications market.
Considering that foreign telecommunications providers cannot be given a legislative franchise
to operate a PTNS, this is not bound to happen, unless, as previously noted, the Constitution is
amended or legislation excluding telecommunications services from the definition of public
utilities is subsequently enacted.
The TPPA also prohibits a party from proscribing the resale of any public telecommunications
services, and requires each party to ensure that a major supplier in its territory does not
impose unreasonable or discriminatory conditions or limitations on the resale of its public
telecommunications services.24 While the Philippines makes no such prohibition of reselling,
especially to suppliers of public telecommunications services of another party, said suppliers cannot
offer these services for sale in the territory of the Philippines, which renders said TPPA obligation
inapplicable to the Philippine context.
22
TPP Final Text (2016), Article 13.7
23
Section 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or
immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously
granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such
franchises: Provided, however, that the foregoing shall neither apply to nor affect provisions of telecommunications
franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized
by the franchise.
24
TPP Final Text (2016), Article 13.9
71
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
The current Philippine regulatory framework leaves arrangements of reselling of services to the
contracting parties. This is only limited by the statutory requirement that no person shall commence
or conduct the business of being a public telecommunications entity without obtaining a franchise25
from the legislature, and a certificate of public convenience and necessity from the NTC.
An exception for obtaining a legislative franchise exists for value-added service providers (VAS),
provided it does not put up its own network.26 However, this is subject to: prior approval of the NTC;
other providers of VAS are not discriminated against rates nor denied equitable access to facilities;
and separate books of account are maintained for the VAS.
However, the same circular also provided that existing agreements on a bundled basis
shall continue to be in force and effect, until the NTC shall have reestablished rates and settling
25
RA 7925, Section 16
26
RA 7925, Section 11
27
TPP Final Text (2016), Article 13.10
28
NTC MC No. 14-7-2000, Sections 5659
72
Uy and Villamil
procedures.29 Thus, the implementation of the unbundling has not been enforced. According to the
NTC, it is extremely difficult to do so citing common costs, and at any rate, it has no power to
compel submission of information from the PTEs (Cabarios 2015). This reinforces the need for new
legislation to clarify and expand the powers of the NTC.
29
NTC MC No. 14-7-2000, Section 64
30
TPP Final Text (2016), Article 13.12 (1)
31
TPP Final Text (2016), Article 13.12 (2)
32
RA 7925, Section 11
33
TPP Final Text (2016), Article 13.13 (1)
34
TPP Final Text (2016), Article 13.13 (2)
73
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
and conditions, and at rates, that are reasonable, nondiscriminatory, and transparent, subject to
technical feasibility.35
One of the major limitations to market entry in PTNS is the cost of network deployment. Extensive
infrastructure is needed to build telecommunications networks. In addition, the acquisition of rights-
of-way and other permits required to install ducts, conduits, and poles can be time consuming.
Infrastructure sharing and colocation can significantly reduce barriers to competitive entry.
They allow operators to provide services at a lower cost than if they built their infrastructure.
Sharing also helps to reduce the control of essential facilities by dominant operators. Another benefit
is reduced environmental impact and inconvenience to the public. Similar to the obligations for
interconnection, prices for access to and use of facilities should be as transparent as possible to
ensure fair trading.
However, agreements in the Philippines on colocation and access to poles are internal to the
parties and are not provided to the public.
State parties to the TPPA are obligated to endeavor to cooperate on promoting transparent and
reasonable rates for international mobile roaming services.37 Should a party choose to regulate rates
or conditions for wholesale international roaming services, it shall ensure that a supplier of public
telecommunications services of another party has access to the regulated rates or conditions for its
customers roaming in the territory of the first party.38
Also, each party shall provide to the other parties information on rates for retail international
mobile roaming services for voice, data, and text messages offered to consumers of the party when
visiting the territories of the other parties.39
Currently, the Philippines has no regulations on international mobile roaming services, leaving
it to its PTNS to negotiate with its foreign counterparts. There is then a lack of transparent and
reasonable rates for such services. The information on retail rates will depend on different providers,
and can be accessed by the customers through its service provider and not the NTC.
35
TPP Final Text (2016), Article 13.14
36
TPP Final Text (2016), Article 13.15
37
TPP Final Text (2016), Article 13.6 (1)
38
TPP Final Text (2016), Article 13.6 (4)
39
TPP Final Text (2016), Article 13.5 (6)
74
Uy and Villamil
COMPETITIVE SAFEGUARDS
Under the TPPA, state parties are obliged to maintain appropriate measures for the purpose of
preventing suppliers of public telecommunications services that, alone or together, are a major
supplier in its territory from engaging in or continuing anticompetitive practices,40 which include:
1. Engaging in anticompetitive cross-subsidization;
2. Using information obtained from competitors with anticompetitive results; and
3. Not making available, on a timely basis, to suppliers of public telecommunications services,
technical information about essential facilities and commercially relevant information that
are necessary for them to provide services.
The Philippine Constitution already explicitly provides that the state shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or unfair
competition shall be allowed.41 Jurisprudence affirms the foregoing provision in the following manner:
Section 19, Article XII of our Constitution is antitrust in history and in spirit. It espouses
competition. The desirability of competition is the reason for the prohibition against restraint of trade,
the reason for the interdiction of unfair competition, and the reason for regulation of unmitigated
monopolies. Competition is thus the underlying principle of Section 19, Article XII of our Constitution
which cannot be violated by RA 8180. We subscribe to the observation of Prof. Gellhorn (1986, p. 45)
that the objective of the antitrust law is to assure a competitive economy, based upon the belief that
through competition, producers will strive to satisfy consumer wants at the lowest price with the
sacrifice of the fewest resources. Competition among producers allows consumers to bid for goods
and services, and thus matches their desires with society's opportunity costs.
Again, we underline in scarlet that the fundamental principle espoused by Section 19, Article
XII of the Constitution is competition for it alone can release the creative forces of the market. But
the competition that can unleash these creative forces is competition that is fighting yet is fair. Ideally,
this kind of competition requires the presence of not one, not just a few, but several players. A market
controlled by one player (monopoly) or dominated by a handful of players (oligopoly) is hardly the
market where honest-to-goodness competition will prevail. Monopolistic or oligopolistic markets
deserve our careful scrutiny and laws which barricade the entry points of new players in the market
should be viewed with suspicion (Tatad v. Sec. of Energy 1997).
Such emphasis on competition found its way into RA 7925, Section 4 (f), where it was declared
as a national policy that (a) healthy competitive environment shall be fostered, one in which
telecommunications carriers are free to make business decisions and to interact with one another in
providing telecommunications services, with the end in view of encouraging their financial viability
while maintaining affordable rates. Again, in NTC MC 14-7-2000, the commission stipulates that it
can disapprove an interconnection agreement if it is anticompetitive.42
It may be noted, however, that RA 7925 expressly mandates cross-subsidization to unprofitable
local exchange areas in order to promote telephone density and provide extensive access to basic
telecommunications services.43 While this cross-subsidization policy used to be common in other
countries, it has been phased out due to the distortions it creates in markets. Today, the mechanism
40
TPP Final Text (2016), Article 13.8
41
1987 Constitution, Article XII, Section 19
42
NTC MC No. 14-7-2000, Article V, Section 14 (d)
43
RA 7925, 5(c)
75
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
most used around the world is a Universal Service Fund (USF), which collects a percentage of
revenues from PTEs.
To give teeth to the Philippines increasingly difficult battle against anticompetitive acts and
practices in various industries and markets, Congress has passed RA 10667, or otherwise called
the Philippine Competition Act (PCA). The PCA prohibits acts that restrict, prevent, or lessen
competition, such as bid manipulation, controlling production, markets or technical development,
as well as the abuse of dominant position by a major player that includes imposing barriers to entry,
or selling goods or services below cost to drive out competition, discriminatory prices, and the like.44
In addition, mergers and acquisitions that substantially prevent, restrict, or lessen competition in the
relevant market or in the market for goods or services are likewise prohibited.45
This law will now cover the telecommunications industry, prohibiting major suppliers
from performing any act that will substantially restrict or lessen competition in the
telecommunications market.
In this context, it is expected that the Philippine Competition Commission (PCC), which has
been created by the PCA, will also work with the NTC to address some of the challenges previously
discussedsuch as those on number portability, as well as on requiring more transparent reportorial
submissions from industry players, among othersto the extent that these unreasonably restrict
competition in the sector. One positive step done by the PCC toward promoting competition was
when it sought to review a recent acquisition of the incumbent players of a potential entrants
telecommunication assets, including radio spectra. However, as of date, the review was put on a
standstill due to an injunction filed by the incumbents against PCC to prevent the former from
proceeding with its review (Camus 2017). Notably, according to the PCC, its initial study has yielded
concerns that the transaction is likely to lead to substantial lessening of competition in the relevant
markets, translating into consumer harm.
Developments on the PCCs discharge of its mandate to promote competition in the
telecommunications sector, and the role NTC, alongside with the newly created Department
of Information and Communications Technology, will take in supporting PCCs efforts, will
demonstrate the countrys resolve to promote competition in this vital sector.
As is apparent from the PCA, the PCC comes well equipped with its massive task, having
primary and original jurisdiction over all competition-related issues, with the power to penalize
potentially anticompetitive practices, such as foreclosure of competitors, exploitation of market
power, and collusion. It can also prohibit mergers and acquisitions, and impose structural and
behavioral remedies to address market failures.
The TPPA requires a state party to have a telecommunications regulatory body that is separate from,
and not accountable to, any supplier of public telecommunications services and is able to render
impartial decisions.46 Such body should not hold a financial interest or maintain any operating
or management role in such a supplier.47 As previously stated, the NTC fulfills this function. It
44
RA 10667, Section 1415
45
RA 10667, Section 20
46
TPP Final Text (2016), Article 13.16
47
TPP Final Text (2016), Article 13.16
76
Uy and Villamil
has jurisdiction over licensing, pricing, adoption of standards of reliability and interoperability,
frequency allocation and assessment, dispute resolution, and consumer protection (Patalinghug and
Llanto 2004).
The licensing process of the Philippines is in accordance with the TPPA which requires the same
to be made publicly available.48 The NTC publishes its Rules of Practice and Procedure (Rules) for
public information. Existing permits and/or licenses are likewise publicly available in its offices and
website, while the terms and conditions of the licenses can be found in the document issued itself.
In the event of denial, the NTC provides the reasons for the same, and any revocation or refusal for
renewal undergoes the proper proceedings pursuant to its rules.49
NTCs powers to enforce its mandate can be found in RA 7925 and the Public Service Act or
Commonwealth Act No. 146. The sanctions, however, are not up to par with the TPPAs requirement
that the authority shall include the ability to impose effective sanctions, which may include financial
penalties, injunctive relief (on an interim or final basis), corrective orders, or the modification,
suspension, or revocation of licenses.50 The fine imposable by the NTC is only PHP 200 per day
for the period during which default or violation continues.51 There are no penalties or sanctions
provided under RA 7925.
The maximum fine of PHP 200 per day, which was established 80 years ago in the Public Service
Act of 1936, is clearly insufficient to deter anticompetitive behavior. Without effective sanctions for
violations, inducing compliance is difficult. If penalties are too low and enforcement is unlikely,
operators will tend to choose to violate the law and face the possible consequences.
For instance, in 2011, the NTC issued a memorandum circular requiring operators to reduce
short message service (SMS) interconnection fees by PHP 0.20 and to drop prices from PHP 1.0 to
PHP 0.80 per text. While operators complied with the former, they did not reduce the SMS rates they
charged their customers. Thus, in 2012, the NTC instructed these firms to reimburse their subscribers
for the difference in the rates they charged from when the circular was supposed to have been effective.
The NTC also ordered the companies to pay PHP 200 per day until they are able to comply with the
circular. This penalty for failing to implement the order is equivalent to only PHP 72,800 annually,
a drop in the bucket compared to the billions these companies earn every year. Unsurprisingly, the
operators chose to pay the fee instead of reducing rates and reimbursing customers.
The noncompliance by the operators highlights the NTCs weakness as a regulator. For any law
to have a deterrent effect, sanctions must be significant. One possible alternative may be to make
the penalty a multiple of the profits earned as a result of the unlawful activity. For instance, in some
countries, a fine of up to twice the gain or loss caused by the crime may be imposed. The amount of
the losses to customers and other firms are included as they are often greater than the gains of the
violating operator, thus highly discouraging unlawful behavior.
The passage of the PCA created an opportunity to indirectly give some teeth to NTCs regulatory
powers. The PCA empowers the PCC to impose far more significant and nontrivial fines and
penalties. The NTC and the PCC could therefore work together to set up a system that can now deter
players from engaging in anticompetitive behavior.
For resolution of telecommunications disputes, the TPPA requires that a telecommunications
regulatory body should undertake this function. This includes interconnection-related disputes.52
48
TPP Final Text (2016), Article 13.18 (1)
49
TPP Final Text (2016), Article 13.18 (2)
50
TPP Final Text (2016), Article 13.20
51
Commonwealth Act No. 146, Section 21
52
TPP Final Text (2016), Article 13.21 (1)
77
Philippine Telecommunications Laws and Regulations: A TPP Gap Analysis
If the regulatory body declines to do so, it shall, upon request, provide a written explanation.53 A
system for petitioning for reconsideration a determination or decision of the telecommunications
regulatory body must be in place. Nonetheless, these modes of redress will not stay compliance from
the determination or decision of the regulatory body.54
The designated function of the NTC to preside over a dispute on interconnection charges can
be found under RA 7925. The law stipulates that should the parties fail to agree thereon within a
reasonable period of time, the dispute shall be submitted to the commission for resolution.55 Any
other issues within NTC jurisdiction may be submitted for its consideration.56 The steps for the
proceedings before the NTC are set forth in the Rules of Practice and Procedure of the Commission,
and is appealable to the Court of Appeals (NTC 2006).
Each party is obligated under the TPPA to administer its procedures for the allocation and use of
scarce telecommunications resources, including frequencies, numbers, and rights-of-way, in an
objective, timely, transparent, and nondiscriminatory manner.57 Moreover, it shall make publicly
available the current state of allocated frequency bands, but retain the right not to provide detailed
identification of frequencies allocated or assigned for specific government uses.58 However, when
making a spectrum allocation, each party shall rely on an open and transparent process, and market-
based approaches in assigning spectrum.59
Pursuant to NTC MC No. 8-9-95, the radio spectrum allocation and assignment shall be
subject to review in the interest of public service and in order to keep pace with developments in
wireless technology to ensure wider access to the limited radio spectrum and the use of cost-effective
technology (NTC 1995). The NTC issues circulars providing for frequency allocations for wireless
systems. Assignments of frequency allocated are not available to the general public information due
to security reasons.
UNIVERSAL SERVICE
The TPPA requires each state party to administer any universal service obligation that it maintains
in a transparent, nondiscriminatory, and competitively neutral manner, and shall ensure that its
universal service obligation is not more burdensome than necessary for the kind of universal service
that it has defined.60 The full universal service goal of RA 7925 is met by the state requirement for
carriers to cross-subsidize underserved areas.
The underlying concept of universal service is to ensure that all citizens have access to basic
telecommunications services at reasonable charges. Since PTNS are more costly to provide in some
53
TPP Final Text (2016), Article 13.21 (1)
54
TPP Final Text (2016), Article 13.21 (1)
55
RA 7925, Article 18
56
RA 7925, Article 3, Section 5
57
TPPA, supra note 1, Article 13.19 (1)
58
TPPA, supra note 1, Article 13.19 (2)
59
TPPA, supra note 1, Article 13.19 (4)
60
TPP Final Text (2016), Article 14.15
78
Uy and Villamil
areas than others, PTEs will tend to focus on more lucrative services and coverage, and neglect less
profitable locations.
Mechanisms to implement universal service should avoid distortion of natural market
competition and undue burden on the sector. Unfortunately, with the introduction of competition
and liberalization in telecommunications, the traditional approach of crosssubsidization is
no longer effective. Cross-subsidies have been shown to create strong distortions that impede
effective competition.
Over the last two decades, many countries have turned to USFs to address universal service
requirements. USFs operate by having the industry itself finance projects to extend the reach of
PTNS, with PTEs typically contributing between 0.5 and 5 percent of their revenues. By applying fees
horizontally to the whole sector, relative prices remain steady, and distortions in the economy are
minimized. To align with recognized best practices, the Philippines would need to amend or replace
RA 7925 to remove provisions on cross-subsidization and create a more competitively neutral
mechanism, such as a USF, to achieve its universal service objectives.
CONCLUSION
There remain a number of issues in the telecommunications industry that must be resolved before
the Philippines can be considered fully compliant with anticipated requirements in new generation
FTAs that it might want to join in the future. Comprehensive amendments to RA 7925 are in order,
especially with respect to interconnection, unbundling of network elements, cross-subsidization,
number portability, and the powers of the NTC to police the market players, as was illustrated in
this paper. Alternatively, given the broad mandate and powers given to the newly formed PCC, and
the positive impact that addressing these issues may have on the environment for competition in the
telecommunications sector, it may now be possible for the PCC and the NTC, working together, to
bridge these gaps through a series of administrative issuances.
In any case, significant changes are still warranted in the Philippines regulatory framework
for the telecommunications sector. These are essential to be compliant with the requirements of
emerging new trade agreements. More importantly, there is a need to ensure adequate competition in
the sector that upholds the public welfare and promotes international competitiveness of Philippine
enterprises, for which ICT services represent significant costs of doing business.
Finally, whether or not such legislative solutions would be enough to achieve compliance with
the requirements of new trade agreements such as the TPPA, given the constitutional restrictions on
foreign participation in public utilities, is arguable and deserves further study.
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81
Volume 43 (2016) l Number 1
The Philippine Journal of Development is a
multidisciplinary social science journal
published twice a year. As a policy-oriented
journal, it features papers that have strong
policy implications on national or
international concerns, particularly
development issues in the Asia-Pacific region.