With more funding, the agricultural industry is expected to stay resilient
Despite a decrease in its proportion of domestic production in the second quarter of 2021 and the effect of weather-related disruptions, the agricultural sector is projected to remain resilient with improved access to finance.
In response to emailed queries from the Philippine News Agency, Rizal Commercial Banking Corporation (RCBC) head economist Michael Ricafort said that agriculture contributes to almost 10% of domestic production and approximately 25% of total employment.
“(It) has been relatively resilient as a contributor to the economy since the pandemic last year, as part of the essential industries/activities, as well as the fact that agricultural areas have not been hit hard by the Covid-19 (coronavirus disease 2019) pandemic due to lower population density and being located away from urbanized/congested/high population density areas,” he said.
Ricafort stated that the central bank’s decision to provide additional financing access to the agriculture sector through reserve requirement ratio (RRR) compliance, lowering risk weights for some loans, and lowering capitalization requirements for some banks, among other things, will “encourage and boost lending activities” that will support the sector and rural areas in general, as well as “contribute to growth for the broader economy.”
He said that policy flexibility helped improve food security in the nation, citing the effect of certain interruptions in global supply chains as well as the impact of severe weather conditions.
The Bangko Sentral ng Pilipinas (BSP) has permitted, among other things, banks’ Agri-Agra lending as temporary compliance to banks’ RRR in order to offer extra liquidity to stimulate economic activity in the midst of the pandemic.
The Republic Act (RA) 10000, also known as the Agri-Agra Reform Credit Act of 2009, mandates banks to provide 10% of their loans to agrarian reform beneficiaries (ARBs) and 15% to the agricultural industry.
Monetary authorities said that banks’ compliance with the legislation remained below the necessary level, and as a result, the latter have been penalized for noncompliance.
According to BSP statistics, overall compliance of the banking industry with the legislation as of end-June 2021 was 0.96 percent for agra lending and 9.67 percent for Agri loans.
Both are higher than the previous quarter’s figures of 0.93 percent for agra lending and 9.66 percent for agricultural loans.
As of the end of June this year, total bank loans to ARBs reached PHP47.191 billion under direct compliance, while alternative compliance was PHP25.584 billion.
Agriculture loans under direct compliance totaled PHP360.091 billion over the same time, while alternative compliance was PHP356.793 billion.
Weather-related issues, the most recent of which was Severe Tropical Storm Maring, which ravaged northern Luzon, one of the largest agricultural producers, are “a drag on agricultural output,” according to Ricafort.
He said that the Maring damage “may potentially contribute to some pick-up in inflation until the next planting/harvest season restores/brings back supplies.”
According to Ricafort, the extra funding that banks may offer to the agricultural industry would have a beneficial effect on the sector.
“Increased agricultural loans would also assist to enhance the sector’s productivity, modernization, and general growth in the future,” he said.