Limited access to broadband Internet has adversely impacted the country’s “e-readiness” rankings

Notes: a total of 70 countries are ranked. A lower rank indicates a higher degree of e-readiness.

8. 
   ICT is becoming essential for the effective functioning of the Philippine government at all levels: for information management within and among individual agencies, for communications between national and regional offices, and for service delivery to the public. Government departments and agencies in the Philippines are significant ICT users, not only of “connectivity” but also of computerized information systems. There has been a proliferation of IT projects and databases at different levels of governments to support improved information management and service delivery, including “e-Services or “E-Government”. These IT projects have been funded by a combination of budget appropriations, CICT (Commission on ICT) E -Government funds, Department of Science and Technology Funds, development partners and, in some cases, private sector or foundation contributions. ²⁸ Such projects represent a substantial commitment of financial and human resources to start-up and to operating costs. The quality, effectiveness and sustainability of these projects vary considerably, however.
   

9. 
   One reason for the uneven quality and effectiveness of ICT projects is that responsibilities for ICT planning, budgeting, monitoring and evaluation have been unclear and fragmented in practice.²⁹ Responsibility for ICT policy has been assigned to high-level institutions, such as the National Computer Centre (NCC) and, more recently, to the CICT under the Office of the President (Annex I). However, even though ICT has long been identified as important for the country’s socio-economic development, these institutions are not fully prepared to carry out their policy development role and timely policy implementation. As noted in Table 2, ICT projects in the Philippine public sector are often characterized by a multiplicity of overlapping initiatives, lack of common policy framework, inadequate budgeting and insufficient attention to information security – contrary to best practice models.
   

10. 
    The legal framework for E-Services or E-Government is partially developed, but other important legislation is still pending. The E-Commerce law enacted in 2000 provides the basis for electronic transactions. However, additional legislation that would contribute to a more robust environment is still pending: this includes the Convergence Bill, the revision of the public telecommunications policy Act, the E-Government Bill, the Privacy and Data Protection Act, the Cybercrime Bill, and the Freedom of Information Bill.
    

11. 
    While several government departments are positioning themselves to provide “E-Government” services,³⁰ a number of important Government ICT or E-Government programs have yet to be fully launched. Key programs that remain to be launched include the introduction of government-wide financial management information systems, integrated education information systems, integrated health information systems, and nation-wide social protection systems. Such programs require extensive institutional change management, technical support, communications management, and excellent coordination among various institutions. The main constraints to launching these programs include inadequate ICT infrastructure, insufficient availability of skills, insufficient attention to change management, and institutional resistance. Other risk factors include lack of attention to systems integration, inter-operability, and handling of sensitive data.
    

12. 
    The growth of IT-enabled services (ITES) has been significant. What is commonly described as the “IT industry” may cover activities ranging from hardware (e.g., microchip) manufacturing, computer servicing to internet cafes, plus a host of new types of “IT-enabled services” that have grown up as a result of increased availability of IT infrastructure. The Philippines is a world leader in growth of IT-enabled services, in particular business process outsourcing (BPO). The sector includes call or contact centers (voice services), back office processing, software development, architecture & engineering, animation, transcription services, and games development. The industry association (BPAP) lists over 800 companies, 80 percent of which are in Metro Manila. The remaining 20 percent are located in other major cities such as Bacolod City and Cebu City. The industry generated US$6.1 billion in revenues in 2008 (4 percent of GDP), and expected to grow a further 10-20 percent in 2009. The industry plans to move higher up the service “value chain” and increase the proportion of more advanced services such as back-office (corporate) services, and IT outsourcing and engineering/design process delivery. The industry expects to add a further 100,000 jobs and expand into “new wave” cities, subject to general investment climate factors and, particularly, availability of tele-communications infrastructure and labor. While growth in this sector has been vibrant, the main constraint to expanding toward more advanced and higher-value services is cited as the shortage of skilled labor.
    

13. 
    The Philippines is in a position to develop its ICT potential much further. Developing this potential would enhance the Philippines’ competitiveness, provide additional income-generating opportunities (particularly in rural areas), and improve public service delivery around the country. This requires more equitable and affordable access to high-speed, or broadband, Internet, especially at the LGU level. While investments are expected to come primarily from the private sector, the government can facilitate further development of broadband Internet into rural areas through a combination of regulatory incentives to increase competition in service provision (such as reforms in the spectrum and licensing regime, promotion of passive infrastructure-sharing and open access), a competitive capital subsidy mechanism for network development and public access facilities in commercially less viable areas. The government also can stimulate increased investment in more remote areas where there are few high-volume institutional users through its own use of ICT – e.g., through the schools Internet program, the LGU portals and assorted online services provided by various Departments. To achieve these outcomes, it will be critical in take actions designed to clarify leadership responsibilities for ICT development, improve access to broadband Internet and address the countries. These actions are discussed next.
    

14. 
    As a first step, developing a more effective governance and institutional framework for Government ICT to support the country’s objectives would entail the establishment of an adequately-resourced Department,³¹ backed by an inter-departmental steering committee or advisory council. Institutions with explicit responsibility and resources for ICT leadership have been established throughout the region, including in Malaysia, Singapore, Thailand, and Vietnam. Such an institution would need to have clear accountabilities in the following areas:
    

• 
  E-Government/e-services strategy and policy,
  
• 
  governance and coordination in regard to the development of standard information infrastructure, shared networks, common business processes, and one-stop service delivery centers,
  
• 
  formulation of legislation and regulations,
  
• 
  prioritization and allocation of resources for e-services infrastructure and services,
  
• 
  provision of technical guidance to other departments, and
  
• 
  ICT investment monitoring and evaluation.
  

15. 
    In view of the complexity of Government ICT or E-Government, and the risky nature of ICT investments, including a high rate of project failure worldwide, clear and accountable leadership in this area is very important to deliver good results. Measures that the government could consider include the following:
    

• 
  Assigning explicit management responsibilities for Government ICT/E-Government to a single (existing or new) Department, with a mandate, staffing and budget for strategy and policy, governance and coordination, and implementation facilitation. Several institutional models are available.³²
  
• 
  Developing standard government information infrastructure, including shared networks, data centers, common business processes, and one-step service delivery centers.
  
• 
  Integrating IT planning into regular planning and budgeting processes, rather than as separate/one-time projects.
  
• 
  Developing monitoring and evaluation frameworks to review the progress and impact of what are generally high-cost long-term investments.
  

16. 
    First, more investment is needed, primarily from the private sector. The telecommunications industry is quite profitable (PLDT and Globe had earnings margins of around 60 percent in 2008), but has thus far focused on new service provision in relatively profitable urban areas. Extending service to rural and more remote areas is likely to require a combination of investment incentives and regulatory measures by the government.
    

17. 
    On the regulatory side, the government can take a number of measures to promote a more open and competitive market for telecommunications, particularly for new broadband services providers. The market is currently quite concentrated. A more competitive market could support additional investments in un-served or under-served areas, and would stimulate more diversification of services and innovation. Policy measures that the regulator, the National Telecommunications Commission (NTC), could implement to stimulate new market entry include the following, in line with international best practices:
    

• 
  A more simplified licensing process that assigns responsibility for new licenses to the telecommunications regulator only, and phases out the requirement for congressional approval.
  
• 
  Adoption of a unified licensing system in which any telecommunications operator can provide any type of service, including bundling (such a licensing regime is anticipated in the proposed Convergence Bill). Regional licenses could also be considered.
  
• 
  Review of existing allocations for radio spectrum, in particular, increasing allocations to the operators overall, assigning additional spectrum for wireless broadband 2.5 GHz (LTE, WiMAX). Further roll-out of mobile broadband (3G) would likely be stimulated by allowing the use of 3G in the lower frequency bands (850/900 MHz).
  
• 
  Adoption of regulations requiring non-discriminatory access to existing fibre-optic infrastructure.
  

18. 
    Additional regulatory measures include promoting sharing of passive infrastructure among telecommunications operators (e.g., mobile base stations, or towers), and co-location of telecommunications with other infrastructure (e.g., fiber-optic cables along roads, power lines, pipelines). The latter requires coordination among institutions responsible for public works, and the telecommunications industry. Telecommunications infrastructure-sharing among service providers may be encouraged or mandated, based on consultations; the objective is to reduce costs and encourage more widespread network deployment.
    

19. 
    The government can partially finance network infrastructure in commercially less attractive areas through “smart-subsidies”; for example, from a universal service fund, or an ICT development fund. Such funds have been established in several countries, typically financed by telecoms industry levy, and/or national budgets, sometimes with development partner contributions. The objective of such “smart subsidies”, subject to competitive tender for the lowest subsidy, is to enable operators to bring potentially loss-making or marginal investments into a normal commercial rate of return. While there are some risks associated with universal service funds (such as non-disbursement, overly complex procedures, non-transparent funds management), they have contributed to increased access to services in many countries. Clarifying the use of such funds is extremely important: for example identifying a pipeline of activities to be funded and an implementation schedule, and reviewing project costs and required contributions on a regular basis, in consultation with the telecommunications industry. Investments that could be supported through capital subsidies from a Philippines Universal Service fund could include, for example:
    

• 
  Fiber-optic connectivity to the 17 un-served provinces: costs, subsidy analysis, organizing competitive tenders - and beyond, to the municipal/LGU level.
  
• 
  Broadband internet access for 4,700 un-served secondary schools, competitively tendered, e.g., by region; this could be extended to primary schools later.
  
• 
  Public access facilities in areas unlikely to be served by traditional commercial Internet cafes in the medium term. As noted, there are already tens of thousands of registered Internet cafes in the Philippines, offering access at around P30-60 per hour in cities, but more in smaller towns. Internet cafes are commercially-driven and tend to be concentrated in larger population centers. Several government agencies (including e-LGU, DOTC, CICT, MCT, and DOST) are currently supporting “tele-centres”, known as “Community E-Centres”. Over one thousand have been set up, of which about 66 percent are currently operating. Some of these are in locations where Internet cafes are already operating. The challenge is to ensure that government-supported centers do not crowd out commercial internet cafes, and are financially and operationally sustainable.
  

20. 
    The government could consider a subsidized loan program for lower-income households to acquire low-cost PCs. Examples of such programs exist in Thailand, Malaysia, Egypt, and Tunisia. The Philippines has already experimented with such programs (i.e., PC ng Bayan, Laptop ng Bayan, Nettop Ng Bayan), but these have targeted government employees. While poor households may have other expenditure priorities, such a program could increase options for income-generation and skills development, particularly for youth.
    

21. 
    The government itself is a major potential user, or “anchor tenant” of broadband Internet. The proliferation of new information systems, including E-Government programs, can provide a strong incentive for the development of telecommunications infrastructure, provided that it is well coordinated. The education sector is a large potential source of aggregated demand. For example, the Department of Education’s has launched a program to connect all (over 6,500) public secondary schools to the Internet by end-2009 (one third have been connected so far). DepEd intends to provide each school with a P48,000 budget to purchase Internet access locally. However, the projected bandwidth requirement per school is up to 3.5 Mbps (in order to deliver substantial volumes of multimedia educational content) according to DepEd, suggesting that a more aggregated approach (e.g., competitive tenders for service provision to clusters of schools) could be more cost effective. The biggest institutional demand in the medium term could come from the 1,495 LGU offices. While there are existing laws for the LGUs to computerize specific functions by 2010, such as real property tax, business documents, and vital documents, only about a third have so far done so.
    

22. 
    Public Cost of Improving Internet Access. Annex II presents a possible program of measures to address the key shortcomings that currently limit Internet access in the Philippines. It outlines the recommended sequence of actions and assesses the potential costs of recommendations against their expected impact on broadband expansion: measures that have a low cost but high impact are recommended for implementation first. Proposed measures are sequenced over a three-year period and would have an estimated budgetary cost for the government of approximately US$250-300 million, excluding any resources raised through a possible universal service fund. This represents approximately 0.16 percent of GDP, spread out over three years. The first priority is to improve telecommunications market efficiency through specific regulatory measures and improvements, as this has no high costs associated with it and could be implemented fairly fast. Second, measures that provide incentives and stimulate demand can be put in place, and Government has an important role in this regard. Third, plans and policy measures need to be established for when the market moves closer to commercial maturity, and targeted financial and policy intervention is required to provide broadband services to beyond what the market can achieve.
    

23. 
    The Philippines needs more skilled ICT human resources both in the public and private sector. The IT-enabled services industry regularly cites shortages of skilled labor as constraints to expansion. In the public sector, the limited availability of technical staff, particularly at the LGU level, is an oft-quoted impediment to effective use of information systems. While appropriate skills development for the labor market is a broader education policy issue, linked to factors such as teacher professional development, curriculum quality improvements and so on, the needs of this sector are immediate and growing.
    

24. 
    In the short term, the IT sector skills deficit could be addressed through innovative government-industry partnerships. BPO firms have linked up with the country's Technical Education and Skills Development Authority (TESDA) to train workers who are interested in working in outsourcing firms. Other options for the government to support faster development of skilled ICT human resources include:
    

• 
  Developing training incentive mechanisms, facilitate industry/university partnerships, and develop a quality certification program for the multiple private institutions offering ICT learning opportunities.
  
• 
  Facilitating the establishment of an industry-led group to facilitate eSkills information and co-operation, pool resources and establish closer collaboration between all stakeholders.
  
• 
  Increasing investment in teacher professional development & teacher support mechanisms (DepEd, TESD).
  
• 
  Considering a program of training incentives to ensure that skills are matched with industry demand. For example, the government could provide financial rebates to companies that provide staff training in selected sectors.
  

-Government

World Ban

Note prepared by:
Natasha Beschorner, CITPO

The World Bank

PHILIPPINES Discussion Note No. 10

1. 
   The performance of Philippine agriculture over the past decade exhibits a mixed picture. On one hand, sector output growth accelerated after 2001, following a protracted period of stagnation: real agriculture value-added growth increased from an average of 1.6 percent per annum during 1980-2000 to 3.9 percent over 2000-07, above or on a par with sector growth rates in comparator countries in the region (Table 1). Much of that growth increase reflects higher sector productivity growth, which picked-up in the latter period, both in terms of land productivity and labor productivity.³³ These developments point toward a sector with considerable potential, even though it has not been the key driver of overall growth.³⁴ Two concerns about the agriculture sector’s performance are the continuing lack of product diversification, which renders it vulnerable to commodity price fluctuations, and declining sector competitiveness. These aspects raise doubts about the sector’s prospects for future growth.
   

2. 
   The Philippine agriculture sector has hardly evolved over the last three decades. Palay (rice) remains the dominant crop, accounting for around 24 percent of total agriculture gross value-added (Table 2). With the exception of important increases in the production of livestock and poultry, and marked declines in coconut and sugar production, the sector structure remains broadly the same as in 1970. Moreover, except for bananas and pineapples, traditional and nontraditional exports have found it difficult to penetrate world markets. These aspects of Philippine agriculture point toward a lack of dynamism.
   

3. 
   The Philippine farm sector’s competitiveness is eroding.³⁵ The share of agricultural gross value added that is exported declined from an average of 44 percent in the 1970s to 15 percent in 2008, while imports rose from 12 percent of agriculture value-added to 27 percent Indicators of revealed comparative advantage (RCA) have also been declining over the past three decades for agriculture as a whole and particularly for traditional exportables, such as coconut and sugar.³⁶ Moreover, even though labor productivity increased in the last decade, several studies (e.g., Mundlak, Larson and Butzer (2002); Teruel & Kuroda, 2005) show that total factor productivity growth in the sector has been declining. This has been linked to declining investment in rural infrastructure, including roads, electrification and irrigation. In contrast, the share of agribusiness in the import markets of the European Union, Japan, and the United States has remained relatively stable between 2000 and 2008, contrary to other sectors whose shares have typically declined by 50 percent. This suggests that the future of Philippine agriculture lies more with the agro-processing stages than with the initial raw commodity production stage.
   

4. 
   The preceding overview suggests that while Philippine agriculture exhibits considerable potential for further expansion, it also faces important constraints that impede the realization of that potential. These constraints, which are discussed below, refer to (i) a public policy and expenditure framework that continues to emphasize the pursuit of food security with a particular bias in favor of a single crop, namely rice, (ii) the underdevelopment of land markets, which impedes the efficient allocation of land toward the most efficient uses and limits access to credit, and (iii) various barriers to competitiveness, including insufficient access to credit, poor transport infrastructure, inadequate food safety standards and an absence of closer public-private partnerships in both research and development (R&D) activities and in sector-relevant infrastructure development.
   

5. 
   Eliminating these constraints to permit faster sector development is important for poverty reduction. Agriculture only accounts for about 15 percent of economic output, but for 40 percent of total employment; comprising mostly the less-skilled segments of the labor force. Furthermore, most of the poor (around 70 percent) reside in rural areas and are employed in agriculture. The pace of poverty reduction, therefore, is closely linked to the growth and evolution of the agriculture sector. By raising farm incomes, faster agriculture sector growth can contribute to poverty reduction, especially in the regions with favorable climatic and soil conditions. However, the main pathway out of rural poverty is not likely to go through higher farm incomes, but through the absorption of the rural labor force into more productive non-agricultural activities. Non-farm activities are already as important as farm activities in determining rural poverty rates in the Philippines, and becoming increasingly important. Even so, a more dynamic agriculture sector growth can contribute to a smoother transition from agriculture to non-agriculture employment.³⁷
   

6. 
   Achieving greater food security through self sufficiency in rice has been a persistent, but elusive goal of successive Philippine governments. Since the 1960s, public policy in the sector has focused primarily on rice self sufficiency, leading to extensive support for lowland irrigation development and policies designed to protect the rice sub-sector. This emphasis has shifted the focus of public policies away from the development of a potentially vibrant agri-business sector and led to lost opportunities that resulted in declining competitiveness. An attempt was made to foster a less distorted sector development through the passage of the Agriculture and Fishery Modernization Act (AFMA) of 1997, which sought to create a competitive and diversified agricultural sector that is better able to withstand the pressures of globalization.³⁸ The overriding concern with food self-sufficiency, however, meant that a disproportionate share of public expenditures continued to be directed toward rice. In addition to allocations for irrigation and production support (i.e., fertilizers and seeds), rice-related programs represent the dominant part of public expenditures for farm machinery, post-harvest equipment, R&D, and training programs (World Bank, 2007).³⁹ In contrast, public expenditures for services that are key to exportable agricultural products have been modest, while spending on R&D, extension services and market development programs in support of the broader sector has been very low. These developments undermine the stated goals of greater diversification and improved competitiveness in agriculture.
   

7. 
   The emphasis on rice self sufficiency has been fiscally very expensive and difficult to sustain. The National Food Authority (NFA) plays a key part in the government’s pursuit of food security. It has a near monopoly of rice imports and is mandated to stabilize domestic rice prices by procuring rice in world markets and reselling it domestically at a subsidized rate. Apart from high administrative costs, a strategy that seeks to maintain high enough prices for domestic producers and low prices for domestic consumers is bound to result in large deficits for NFA. During the 2008 food price crisis, NFA imported over 2 million metric tons (MT) of rice and achieved a cumulative operational loss of PhP 72 billion, equivalent to 1 percent of GDP.⁴⁰
   

8. 
   Fragmented land ownership, tenure insecurity, and a weak regulation of access to public lands constrain agribusiness investment. Population pressure and twenty years of agrarian reform have led to a consistent decline in average farm size, which is now about 1.7 hectares. Given the significant encumbrances faced by agrarian reform beneficiaries, land distributed under the agrarian reform program is mainly traded only in the black market. A minimum of ten years must pass before land distributed under the agrarian reform can be rented and this period can become even longer depending on the repayment schedule of the agrarian debt. Almost one million hectares of privately owned lands are still waiting to be distributed under the recently extended agrarian reform program. Moreover, almost two million hectares of agrarian reform land have been distributed under collective titles. As a result of these restrictions, land rental markets underperform, farm consolidation is problematic in areas with a significant presence of agrarian reform beneficiaries, and incentives to invest in land are weak.
   

9. 
   Access to rural finance is a major obstacle to the development of the agribusiness sector. It is one of the key constraints keeping the majority of small farmers and hundreds of thousands of micro and small enterprises in the Philippines from growing and contributing to the country’s overall economic growth.⁴¹ A large number of these enterprises are involved in adding value to primary crops, but are constrained by low-productivity technologies that hardly meet the emerging standards for quality and food safety requested by the evolving domestic market and foreign importers. Only about one fourth of these enterprises have access to a reliable source of credit through rural banks, credit unions and non-profit microfinance institutions. Because they often lack acceptable forms of collateral and transparent accounting practices, small rural enterprises are considered risky and costly loan subjects by the regulated financial institutions. The situation is even worse for small-scale farmers, whose land cannot be used as collateral by formal lenders. Institutional weaknesses and past governance failures have undermined the use of warehouse receipts as a tool for improving access to credit, while provisions to direct resources towards the agricultural sector through the Agri-Agra Law have proven ineffective.
   

10. 
    Logistics and supply chain efficiency are hampered by insufficient investments and lack of competition. The logistics and supply chains for the internal distribution of agricultural products within the Philippines are generally characterized by high transportation costs. An examination of the inter-island shipment of agricultural products from the farm gate in Mindanao to the production facilities and wholesale markets in the Visayas and Luzon shows that the small scale of post-harvest and storage activities and small consignment sizes were the main causes of high logistics costs (World Bank, 2003). These factors create diseconomies of scale upstream, as the small volume of produce requires trans-shipments of products and does not justify the development of large-scale ports equipped with high-productivity cranes. Two other problems contributing to high transportation costs are the low quality of farms-to-market roads, especially those connecting smallholders’ farms, and the absence of competition coupled with inadequate regulation in local shipping. The process by which operating licenses are awarded to shipping firms lacks transparency, and regulation of shipping rates is weak or non-existent, even when there is only one operator on a particular route. The Cabotage Law, which prohibits international liners from inter-island shipping in the Philippines, also contributes to high shipping costs. As a result, it is more expensive to transport goods from Mindanao to Manila than it is to export them from Mindanao to China.
    

11. 
    Institutional fragmentation and a weak regulatory system impede progress in the development of food safety standards, which is critical for product diversification and export promotion. To be competitive on the international food market, the Philippines must be able to comply with food safety standards and have in place effective quality and safety controls throughout the agri-food processing chain.⁴² The system for ensure food safety in the Philippines is highly fragmented, however. Currently, the Agriculture Department’s regulatory functions are carried out by thirteen different agencies with widely varying implementation and enforcement capacities. This problem is compounded by limitations in laboratories and personnel, with the result that the food safety regulatory framework is incapable of supporting the expansion of food exports. This constraint is particularly binding for small and medium enterprises, which lack the internal capacity to comply with the procedures required for accessing high-valued international markets, and so discourages further investment in the development of export-oriented food products.⁴³
    

12. 
    Development of the agriculture sector in the Philippines has traditionally been led by the public sector, with little involvement of the private sector. As a consequence, the Philippine system of agricultural research, development and extension (RDE) is overwhelmingly in public hands, while formal partnerships with private firms in planning, funding, and implementation of RDE activities are limited. While private R&D is mainly targeted towards plantations and products of interest to large-scale commercial agriculture, the public sector maintains the lead in providing RDE services to small-scale farmers and has primarily focused on the rice sub-sector, thereby limiting opportunities for product diversification. Over the past decade, associations of producers and agribusiness have begun to coalesce with increases in the number of agro-processors (large and small) producing a range of agricultural, livestock, and fish products for both the domestic and export markets. This development provides an opportunity for shifting the leadership in product development to private sector associations and interests, while the public sector focuses increasingly on providing a supporting role through complementary public infrastructure spending and the enforcement of sector regulations and standards.
    

13. 
    The government’s intervention in the rice sector needs to be reformed in order to create a less distorted incentive structure for agricultural production. This requires a readjustment of public expenditure in two ways: First, resources allocated to programs with negligible impacts (such as rice production support programs based on fertilizer and hybrid seed subsidies) need to be redirected toward the provision of services supporting agribusiness competitiveness, such as market access and information, regulatory and supervision functions, extension services and R&D. Second, expenditures that continue to be made in support of the rice sector need to be made more efficient by focusing on the improvement and scaling-up of extension services, R&D, and market access. Redesigning interventions in the rice sector and allowing farmers to profit from higher farm gate prices also will provide better incentives for production. As demonstrated during the first part of the 2008 crisis, higher farmgate prices led to a significant supply response. While self-sufficiency in rice is not a realistic target, a large share of the domestic consumption of rice can still be sourced domestically, as most of the areas under rice cultivation should continue to remain profitable thanks to projected price trends and increased productivity once these reforms take hold (IRRI, 2007).
    

14. 
    The reallocation of public spending needs to be accompanied by significant changes in the governance of public programs. Rice R&D management can be improved by investing in improved facilities, setting clear objectives and priorities, and by adopting an adaptive and participatory approach. At the same time, it needs to be linked through LGU-managed extension services that would inform R&D based on local agro-climatic and socio-economic conditions. To link the Department of Agriculture to the demands emerging from their farm and agribusiness constituencies, would require capacity strengthening in the LGUs. Sustainability of irrigation services will also require more decentralization with water user associations and public-private partnerships (PPP) replacing the role of the government in the construction, operation, maintenance and management of irrigation systems. A renewed role for civil society in the design, implementation, and monitoring of public programs in agriculture needs to accompany the process of decentralization of support services to LGUs.
    

15. 
    Reforming the structure of support to the agricultural sector often involves an adjustment process that produces winners and losers. To prevent the prospective losers from blocking the reforms, it may be necessary to compensate them. Transfers that are de-linked from the size of area under cultivation represent an attractive option for supporting the reform process. International experience (e.g., Mexico, Romania, Turkey) has shown that properly timed and targeted cash transfers allow small-scale farmers to finance investments in land and machinery that open up new opportunities, including nonfarm activities for farmers who lease land. For such adjustment programs to succeed, appropriate targeting mechanisms need to be developed to ensure that resources are directed towards vulnerable farmers. The creation of a registry of farms in which cadastral information and socio-economic characteristics of the operators are merged, is feasible in the Philippines and would be useful for improving the design of the compensation packages as well as for introducing new services aimed at raising the productivity of small farms.
    

16. 
    Reforms are needed to ensure that the completion of the agrarian reform program does not continue to affect tenure security and make land markets less efficient. Recent changes to RA6657 go in the right direction of improving tenure security and access to credit among CARP beneficiaries by subdividing collective titles affecting almost 2 million hectares of land. Unfortunately, the reform of RA 6657 falls short of the objective of reactivating land markets. While the possibility of lease-back arrangements has been maintained, under the current framework it is still very difficult for an efficient small farmer to expand beyond the original land holdings by leasing land distributed under CARP, in turn limiting the potential for on-farm investments that would make the sector more competitive. An example in case is mechanization of rice harvesting and threshing, which would contribute to making Philippine rice more costly to produce than in Thailand (IRRI, 2007). Reducing the period during which awarded land cannot be transferred from ten to three years would represent a major step towards creating more efficient land markets (World Bank, 2009). In the shorter term, a reform of the modalities by which agrarian debt is repaid should be explored. One possibility would be to make LGUs the recipients of the amortizations that would be used for social development purposes, while the national government would absolve agrarian reform beneficiaries from any obligation.
    

17. 
    The development of a decentralized, negotiated, and community-managed approach to agrarian reform needs to accompany the transition towards the end of the CARP. Such an approach will increase the likelihood of completing the program in the remaining extended period, reduce land-related conflicts, ensure a better selection of beneficiaries, and contribute to the reactivation of land markets. A more rigorous selection process of agrarian reform beneficiaries yields a double advantage: it ensures that the program targets poor farmers with good productive skills while at the same time reducing the risk that the transfer of land embodies speculative motivations. The latter further motivates the recommendation to substantially reduce the period during which awarded land cannot be sold. Finally, the proposed decentralized program could be allowed to graduate into a program aimed to support the formation of small and medium farms wherever productivity gains have the potential to emerge - for instance in the rice, corn, and high value crop sectors – either through the purchase of unproductive lands or through consolidation of micro-farms.
    

18. 
    Recent progress in agribusiness development has occurred in spite of limited public sector support. Whereas the AFMA goal of sharpening the role of the public sector continues to be relevant, the private sector needs to broaden its role in the governance of agricultural value chains and clusters. A significant policy option for Government at this time is therefore to recognize and promote private sector leadership for the sector, with Government retaining the core regulatory and supervision functions in support of public interest. In this context, the limited consultative role that the private sector currently has in the sector’s governance would shift towards that of a substantial delegation in the provision of services currently under public responsibility. Specifically, reform in this area could pursue the following options:
    

• 
  strengthening the legal framework for the establishment of privately-led forms of associations (commodity associations or councils, inter-professional associations, representing the various type of interests along specific value chains as the main forum for developing shared strategies and channeling policy recommendations and advocacy for the sector,
  
• 
  strengthening the role of such private sector associations in the provision of key services to the agribusiness sector, such as market intelligence, quality assurance, export and consumption promotion, environmental management, food traceability, and food security, and
  
• 
  promoting private/public joint grant-based research and development programs, especially for crops where strong market linkages between growers and processors exist.
  

19. 
    Building a PPP framework for the development of agribusiness clusters needs to be at the core of the reform process. The regional agribusiness strategy pursued by NEDA based on the development of dynamic agribusiness clusters, which recognize the role of the natural resource base for local comparative advantage, moves in the right direction. Nevertheless, to reach its goals of creating employment and investment opportunities, greater emphasis needs to be placed on creating an environment conducive to a deeper involvement of the private sector. There are significant opportunities for developing PPPs in agribusiness clusters, which include:
    

• 
  Developing an appropriate institutional framework, whereby private sector-led development boards would collaborate with national government and LGUs in planning, programming and implementing development plans for specific clusters. These plans would seek to link farm production with agri-business in their areas through infrastructure and partnerships for selected farm-to-market roads, cool storage facilities, vans, produce packing facilities, etc.
  
• 
  Contracting of extension services and technology support for farmers and agribusiness SMEs by local associations and cooperatives themselves, thereby imparting a more demand driven and accountable approach.
  
• 
  Promoting private sector accreditation and management of facilities and laboratories with the government providing regulatory oversight, and
  
• 
  Strengthening the capability of rural banks to better service the agri-business sector.
  

20. 
    While growth in nonfarm activities will benefit from a thriving agricultural economy, improvements in the competitiveness of agriculture will in turn require an expanding nonfarm sector to offer new local opportunities to workers exiting farming. Such linkages normally involve small towns and secondary cities, where providers of services to the local agribusiness sector are also located. To strengthen their poverty reduction impact, future interventions need to take into account the complex set of linkages and spillovers that exist locally among sectors. To do so, rural development interventions should consider targeting SMEs for the introduction of new technologies (processing, marketing, and business management), farmers and agro-processors to develop market linkages, providers of business services to improve their capacity to assist local entrepreneurs, local financial institutions to improve the services offered to SME, and LGUs to improve the quality and accessibility of the services that cater to the local agribusiness sector. The recent experience with the Mindanao Rural Development Program suggests that important gains can be achieved by strengthening the capacity of rural towns in the delivery of key services to the farm sector.
    

.