ernesto ordonez

Effective and pro-poor budgeting

Former Undersecretary Ernesto Ordonez shows the way to ensure that growth in the agriculture budget means better prospects for farmers.

Effective and pro-poor budgeting

By Ernesto M. Ordonez

(First published in the Philippine Daily Inquirer, August 19th, 2011)

Agriculture Secretary Proceso Alcala should be congratulated for seeing through the 54-percent increase in the Department of Agriculture’s 2012 budget, which the executive branch proposed to Congress. This was a welcome turnaround from last year’s proposal of a 12-percent decrease.

However, we must ensure that the budgeting of this money is done wisely.

Last August 17, the first Congressional hearing on the budget was conducted. We recommend that a Return on Investment (ROI) approach be used to optimize the final budget configuration.

A simple way to explain ROI is to measure the benefit return derived from a given cost (investment). When we apply this ROI approach, we will also consider return based not only on economic but also social equity considerations. However, it is always desirable to compute the financial viability of government intervention.

Below are two areas where the ROI approach may be applied, requiring a realignment in the DA’s budget.

For irrigation, the current proposal is to increase the budget from P11.7 billion to P26.8 billion. AF 2025 Rice Cluster coordinator Emil Javier believes the National Irrigation Authority (NIA) does not have the absorptive capacity to get the proper returns from these large investments. There have been many reports of possible inefficiency and even corruption in the past. There is also no comprehensive evaluation report of recent irrigation budget use. Therefore, Javier recommends P20 billion instead. To get the best ROI for this amount, we recommend two steps.

The first is to decide on what kind of irrigation should get priority. Whether one spends the money on rehabilitation of an existing but non-performing irrigation system or installing a brand-new one, the benefit of added harvest for the year is the same.

We know of irrigation rehabilitation projects costing P60,000 a hectare, while a new irrigation system may cost more than P1.3 million per hectare. It is clear that each irrigation system should be subjected to an ROI evaluation.

The second step is to help ensure that the promised returns are delivered. These investments should not be lost to incompetent supervision or corruption.

Rolando Dy, AF 2025 Commercial Crops coordinator, recommends that the Philippine Coconut Authority budget should be increased from P693 million to P2 billion. The additional amount should go to fertilization and intercropping.

Fertilization costs only P3,500 per hectare a year. After eight years, the P24,000 fertilization investment will give a cumulative return of P200,000—more than 14 times the investment.

As for intercropping, Cocoa Foundation’s Josephine Ramos said intercropping cacao would yield an annual average return of more than 90 percent in the first eight years, and more than 200 percent ROI for each succeeding year.

According to AF 2025 Fisheries coordinator Arsenio Tanchuling, similar high ROIs can be found in the additional P1 billion budget increase which he recommends for the fisheries sector.

AF 2025 Fruits and Vegetables coordinator Roberto Amores said the same for the P1 billion increase which he suggested, on top of the current P1.1 billion for this important sector.

Given the threat of climate change, Philippine Crop Insurance Corp. (PCIC) president Jovito Bernabe recommends a doubling of PCIC’s proposed budget to P400 million, which will cover only 10 percent of its target population.

In all these interventions, financial long-run sustainability with adequate ROIs should be required.

More examples are trading centers (bagsakan), which have a proposed P911 million budget, and farm-to-market roads, which have a budget of P5 billion.

The locations and financial structuring of these projects should yield the required ROIs. Thus, they will not become dole-outs and projects of unscrupulous politicians.

The 54-percent DA budget increase can turn from good to bad news if the funds are improperly spent.

We recommend that social and economic ROIs be calculated for each proposed government intervention. This way, the ROI approach can help ensure an effective and pro-poor DA budget for 2012.

(The author is chairman of Agriwatch, former secretary for presidential flagship programs and projects, and former undersecretary for Agriculture, and Trade and Industry. For inquiries and suggestions, e-mail [email protected] or telefax [02] 8522112.)