Increased participation in the global value chains (GVCs) of multinationals is one of the development thrusts being pursued by the Department of Trade and Industry (DTI).  As we argued in previous columns, there is a danger that the country might get trapped in low value-adding activities associated with the GVCs if the government industrial strategy is simply focused on rolling the red carpet to GVC investors. China has demonstrated that a country participating in the GVCs need not adopt a passive policy of simply embracing these GVC investors through a policy of investment and trade liberalization. A developing country can pursue an active and forward-looking program of industrial modernization and diversification by pressing GVC investors to focus on higher rungs of the technology and skills ladder, promoting its own home-grown GVCs, nurturing domestic industries side by side with the export industries, and developing a comprehensive and continuous program of  R&D and technology development for Philippine industry. This, in brief, is what Industrial Policy, with capital “I” and “P”, means.

In this connection, one economic sector where Industrial Policy can be fully applied in is agriculture. Once a relatively vibrant sector in the 1950s-1970s, agriculture has continuously stagnated, from the 1980s to the present. Agriculture accounts for less than 10 percent of the GDP today, although the sector still employs over 30 percent of the labor force. Poverty, inequality and backwardness are widespread in the countryside. These explain why rural insurgency, the longest running in Asia, has persisted.

And yet, our agricultural decline can be reversed. According to agronomists from UP Los Banos, the solutions are two-fold: first, strengthen and upgrade the value chains for various agricultural products, and second, industrialize the sector by modernizing the sector and encouraging the development of agri-based industries.

On value chains, Dr. Ted Mendoza, a Trustee of the Philippine Rice Institute, wonders why the 19^th-century “supply chain” focus in agricultural production has remained predominant in 21^stcentury Philippines. In supply chain orientation, the farmer producer is asked to concentrate on increasing the output from the land – food and raw materials – based on improvements on land preparation, seed selection and so on. Mendoza argues that this supply chain focus has enchained the farmer producer into a vicious cycle of low income, poverty and eventually, low investment on land productivity and low yields. Hence, to Mendoza, this “supply chain agriculture” should be buried and be replaced with the more progressive “value chain approach”.

In an integrated “value chain approach”, the farmer producer puts under his/her control and ownership the interrelated farm production and marketing processes, starting with the seed production and land preparation and ending with the processing, packaging and trading of the product, either for export or for display in the store shelves. In each link of the integrated value chain, extra value is added and earned.  If done consistently and sustainably, the integrated value chain approach becomes a virtuous circle of higher income, higher investment on the upgrading of each phase of the chain and, yes, higher and sustained productivity in overall agricultural production.

The value chain approach is not a new or novel idea. It has been part of the conversation piece among development workers in agriculture, within and outside the government, for a number of decades already. What is needed is a decisive push along this line from the government.

In this context, the task of the Department of Agriculture (DA) is to provide assistance in the promotion, consolidation and sustained upgrading of the integrated value chain approach. The DA should abandon the piecemeal or segmented type of extending technical and other forms of assistance. Agricultural extension service should be integrative and should adhere to the integrated value chain approach. This means the package of assistance should cover all phases of the production and marketing chain, e.g., seed selection and preparation, land plowing, irrigation, credit, processing, market development, etc.

To be able to master and develop the chain, the small farmers need to band together, especially on activities where a group approach makes a lot of financial sense such as farm input procurement, farm-level trading and so on. The integrated value chain approach requires a strong and united farmer association at the community, regional and national levels. Here the Cooperative Development Authority (CDA) can play a critical role in information, education and communication.

More importantly, the above integrated value chain framework can be the platform for rural industrialization. Which means the formation of agri-based industries such as the processing and packaging industries and the revival of the old efforts to establish our own Philippine fertilizer industry, Philippine agri-chemical industry, Philippine tractor industry and Philippine agricultural machinery industry. This is where the assistance and services of the DTI and the Department of Science and Technology (DOST) are most needed. This is also where industry-agriculture-academe linkages can be developed.

As it is, Philippine agriculture today is in a dismal state, as reflected in the official statistics on rising agricultural imports vis-à-vis agricultural exports, declining production, weak job generation by the sector and grinding rural poverty. There is also a lot of policy confusion, as vividly shown in the intramurals within the executive branch as to who should control or manage the National Food Authority (NFA), who should be given the authority to import rice or not and so on. The overall development framework that should guide and galvanize the country’s agricultural producers is missing. PDP 2017-2022 talks of “value chain access” for the farmers in a very limited way, that is, mainly through road development (infras).

It is high time that the government focuses on reviving a stagnating agricultural sector and transforming it into a modern and productive one. The way forward is to formally pursue the integrated “value chain approach” and use this approach as the platform for rural-based industrialization and small farmer development. In this system, the DA, DTI, DOST and other agencies such as the CDA and Department of Agrarian Reform should be mobilized in support of a unified value chain development in the agricultural sector.