Scenarios for the Philippine Agri-Food System with and without Tariffication: Application of a CGE model with Endogenous Area Allocation

Abstract

This paper presents an application of a CGE model to analyze scenarios covering the SDG period at the level of the Philippine economy and for its agri-food sectors. Unlike previous CGE models, the analysis incorporates endogenous area allocation under an aggregate land constraint. The area allocation model is based on constant elasticity of transformation of area harvested in an outer nest between perennial and temporary crops, and an inner nest among the types of perennials and among the types of temporary crops. The baseline scenario finds that growth patterns prevailing since the 2010s can be sustained within the SDG period assuming productivity trends industry and service sectors continue. Unfortunately, the scenario also implies that the mediocre growth performance of agriculture will likewise be sustained into the foreseeable future. Growth proceeds at a moderate pace for most of the agri-food sectors, with the significant exception of banana, which is expected to contract. Similarly, the major crops are all projected to experience a growth in yield and minor change in area harvested, except for banana where deterioration in both indicators is marked. The usefulness of CGE model is demonstrated by applying it to a policy experiment, corresponding to one of the largest reform initiatives in Philippine agriculture, namely the tariffication of the rice import quota. Tariffication is disadvantageous to the palay sector across various measures, namely area harvested, yield, and production. Even agriculture as a whole is adversely affected, experiencing a further growth slowdown. Nonetheless, overall growth of GDP as well as household per capita expenditure rises with greater openness to rice imports. Consistent with expectation, imports are larger with tariffication, leading to more affordable consumer price of rice, and therefore greater rice demand.