Despite progress in recent years, the incidence of poverty in the Philippines remains very high: the national poverty rate was more than 30 percent in 2003, with even higher levels in rural areas. Because poor Filipino households spend more than half their income on food, they have been highly vulnerable to the dramatic increases in food prices that occurred during 2007–2008.
Although the food price crisis is global in scope, the Philippines has been particularly hard hit, for two main reasons. First, poor productivity during the past two or three decades has caused agriculture’s contribution to total GDP to decline. Second, even as agricultural productivity declined, the population grew rapidly. This combination of diminished domestic supply and increased domestic demand turned the country into a net food importer, making it far more vulnerable to fluctuations in the world market.
Given these conditions, this research report analyzes how policymakers can reduce poverty through trade policy reform and improved rice productivity. It uses a dynamic-recursive computable general equilibrium (CGE) model calibrated to the year 2000 social accounting matrix (SAM) of the Philippine economy, and a microsimulation model that utilizes the 2000 Family Income and Expenditure Survey (FIES), in order to analyze possible policy shifts. Three simulations produced by these tools assess the poverty and income distribution implications of reforming trade in agricultural products and major nonagricultural food items (rice, corn, sugar, beef, chicken, pork, processed meat products, fruits and vegetables, and processed fruits). One simulation assesses the impact of increased rice productivity.