As our farming bases are relatively small, family-run units that integrate only outside the farm-gate, the negative impact of TRAIN and taxes are minimal.

Among the most debilitating consequences of inflation is the recent hike in retail food prices. Some sectors blame this 100 percent on recent tax reform initiatives. They are wrong.

While the incremental excises under the Tax Reform for Acceleration and Inclusion (TRAIN) contributed in some ways to hikes at the marketplace and at the farm gate, TRAIN only had minimal impact.

One, the impact of the incremental excise is limited to the pro-rata cost of fuel and electricity in agricultural production. Such impact is relatively small given the largely non-corporate small scale and non-mechanized nature of Philippine farming. Ironically our backwardness has an upside.

Two, farm-gate values are not subject to value added taxes (VAT) save for those that comprise agro-industrial costs.

These include VAT-impacted fuel, electricity and any VAT inherently embedded in fertilizer or pesticide inputs.

Again, as our farming bases are relatively small, family-run units that integrate only outside the farm-gate, the negative impact of TRAIN and taxes are minimal.

Three, the widest margins in agriculture where TRAIN impacts the most are at the post farm-gate stage where middlemen and traders dominate. This was evident in the recent rice and sugar controversies which continue to inflict inordinately high prices despite adequate supply and consistent demand.

From a banker’s perspective where financial inclusion is concerned, allow us to add as a catalyst the impact of creditors in the inordinate increase in food prices.

Given the debtor profiles of middlemen at the post farm-gate stage, plus the short-term values of their capital assets and their even shorter term liquidity requirements, arrayed against the increase in key policy rates from the Bangko Sentral ng Pilipinas, these create latent non-traditional factors outside the value chain that tend to inflate agricultural prices.

Note the profound impact of creditors on agricultural costs.

The first was a surrender to the Basel Accords on the question of minimum capitalization required for rural banks (RB). The increased capitalization to safeguard the system led to an effective genocide among small family-owned RB as hundreds of undercapitalized banks closed, merged or sold out to larger commercial banks. As RB were critical providers of financial inclusion for farmers and fisherfolk, their severe depletion impacted negatively on agricultural productivity. In economics, low productivity increases the relative price of available products.

The second factor is the opening up of the rural banking industry to foreign capital and ownership. Following their need for incremental capital, foreign investments which provide RB borrowed capital likewise required commercial and credit standards and protocols which tend to disenfranchise farmers and fisherfolk as principal RB debtors. The latter, absent acceptable securities and consistent cash flows, are forced to depend on informal credit providers thus increasing both costs and prices.

Philippine banks are now being required to comply with another Basel requirement. Like the capital adequacy ratio, Basel’s new Net Stable Funding Ratio is a balance sheet measure to determine a bank’s capacity to cover long term liquidity. While banks currently comply with a Required Stable Funding ratio for a one-year period, NSFR requires their available stable funding to exceed the RSF.

On one end, the NSFR discourages banks from long-term financing critical to CAPEX-heavy corporate farming. On another, it forces banks to scale back short-term funding in order to build up the ASF. That’s a double whammy.

If we are to transition into large scale modern agricultural enterprises, NSFR poses downside risks and is likely to perpetuate inefficiencies in a backward agricultural sector.

Absent investments in corporate farming enterprises due to the dearth in credit, resultant cost inefficiencies will continue to contribute to high food prices.

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