Mr. Sta. Ana coordinates Action for Economic Reforms. This piece was published in the February 20, 2012 edition of the BusinessWorld, pages S1/4 to S1/5.
“As long as there’s a few farmers out there, we’ll keep fighting for them.” – Willie Nelson
I am not exactly a fan of Willie Nelson and his Western country music. But I cannot forget his collaboration with Wynton Marsalis, my idol for being one of the greatest trumpeters and for championing both jazz and classical music. Nelson and Marsalis teamed up to play good music and produced an album titled “Two Men with the Blues.”
I like the blues, too. And I will highly recommend the Nelson and Marsalis album. Their interpretation, for example, of “Georgia on my Mind” is tender and sweet yet retains a tinge of melancholy.
So, I remember Willie Nelson for two things: first, his collaboration with Marsalis, playing and singing the blues; and second, his famous quote about farmers.
That quote well applies to the specific situation of our tobacco farmers.
The members of the House of Representatives from the tobacco-growing districts are resisting the tobacco tax reforms that the Aquino administration wants legislated. In opposing the administration bill, these legislators—collectively called the Northern Alliance—invoke the plight of the tobacco farmers.
Their argument is simple. A substantial increase in the tobacco tax will result in the decline of tobacco production and will therefore negatively affect the farmers. But the threat to farmers is not supported by facts.
The truth is that tobacco farmers can shift from tobacco farming to other crops, without much difficulty. Rene Rafael Espino, a professor of agriculture at the University of the Philippines, Los Baños, says that the soil and climate found in places where tobacco is grown are suitable for other crops like vegetables, peanuts, corn, and mungbean.
The farmer’s choice of crop to be cultivated is mainly determined by profitability, as well as by information and knowledge, market support, and provision of inputs. The task of government then is to provide the support in terms of access to markets, inputs, and technology.
The Department of Agriculture under the leadership of Secretary Prosy Alcala is fully aware of this and is taking the necessary steps to address the farmers’ needs as they shift from tobacco farming.
The fact, too, is that many farmers through the years have shifted from tobacco production to other crops. The figures from the Bureau of Agricultural Statistics show that tobacco produce dropped from 81,723,000 metric tons in 1990 to 40,529.77 metric tons in 2010. Peak production during the 20-year period (1990-2010) reached 120,000 metric tons in 1992. But production dramatically fell to less than 60, 000 metric tones in 1994 and further declined in the following years. Similarly, the hectares devoted to tobacco farming decreased from 63,200 hectares in 1990 to 29,707 hectares in 2010.
In other words, tobacco production has declined not because of high taxes (the Philippines having one of the cheapest tobacco taxes in the world). It must likewise be emphasized that under the present regime, where the rules have favored a monopoly, the tobacco farmers have to deal with a monopsony, which dictates the price.
All this suggests that tobacco farming is no longer profitable or other crops yield higher economic benefits to farmers. An empirical study titled “Survey of Tobacco Growing Areas in the Philippines,” co-authored by Rene Rafael Espino, Danilo Evangelista, and Edgardo Ulysses Dorotheo and published in 2008, has this conclusion:
“In terms of income, vegetable cultivation provided the highest income to farmers even though it required higher input cost and lower labor requirement compared to virginia tobacco. Corn, mungbean, and peanut were also preferred by farmers mainly due to their low labor requirement and gave an income at par with tobacco. Hence, farmers tend to have more time to engage in other activities and at the same time minimize the hiring of extra labor to do the various activities in the farm.”
The study found out that “corn, legumes (mungbean, beans, peanut) and various species of vegetables (tomato, eggplant, garlic, onion, etc.) are the preferred crops by farmers to cultivate.”
That tobacco production is a “sunset industry” is evident, which even the public officials from tobacco-growing areas recognize. We had an opportunity to talk to Mary Jane Ortega, a charming, amiable, articulate and refined lady, a three-term mayor of San Fernando City in La Union, and the wife of Representative Victor Ortega, who happens to be the president of the Northern Alliance. Madame Ortega told us that she and Rep. Ortega realize that tobacco farming is a sunset industry. Hence, her husband tried to promote new industries like production of honey and silk. Unfortunately, market support did not come then, which government could have addressed if it were more interventionist.
The sin tax reforms will benefit everyone including the tobacco farmers. The increased excise taxes from tobacco consumption will finance public goods, especially universal health care, and will strengthen the macro-economic environment, thus creating more jobs and reducing poverty. The tobacco farmers will benefit not only from the provision of public goods but also from the earmarked funds (15 percent of the incremental revenue from the tobacco excise tax) that will be “exclusively utilized for programs to promote economically viable alternatives for tobacco farmers and workers.”
To conclude, the champions and supporters of the administration bill on tobacco tax reforms are the ones who can claim what Willie Nelson said: “As long as there’s a few farmers out there, we’ll keep fighting for them.”
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