Archives: Business World Article

Philippine farm output likely contracted in 2024, reflecting the adverse impact of weather-related events such as El Niño and La Niña, analysts said.

Former Agriculture Undersecretary Fermin D. Adriano estimates that the value of agricultural output may have declined by more than 1% in 2024.

If realized, this would be a reversal of the 0.4% growth in the value of agricultural production in 2023 and miss the Department of Agriculture’s (DA) 1-2% growth target for 2024.

“Of course, El Niño and La Niña adversely affected the sector,” Mr. Adriano said in a Viber message.

The El Niño weather event, which began in June 2023, brought below-normal rainfall conditions, dry spells and droughts that affected overall harvest during the year.

The Philippines continued to experience below-normal rainfall conditions in the first half of the year. In the second half, the country experienced a series of storms that brought heavy rains and caused flooding.

“The year 2024 was full of challenges and issues. Overall, the agricultural output will be lower than 2023 due to natural calamities including El Niño and La Niña one after the other,” former Agriculture Secretary William D. Dar said in a text message.

Mr. Dar said the delayed distribution of inputs to farmers, as well as lack of technical assistance from local government units may have also contributed to the decline in agricultural production.

“With the series of typhoons and calamities in the fourth quarter, we can only expect output in the whole of 2024 to be lower than in 2023,” said Federation of Free Farmers National Manager Raul Q. Montemayor in a Viber message, citing El Niño and La Niña as factors that contributed to the drop in farm output.

The Philippine Atmospheric, Geophysical, and Astronomical Services Administration (PAGASA) declared the end of the El Niño in June 2024 but dry spells persisted in some parts of the country.

According to the DA’s final El Niño bulletin, agricultural damage was tallied at PHP 15.3 billion with total volume lost at 330,717 metric tons, spanning 109,481 hectares of farmland.

In the second half, La Niña conditions increased the likelihood of tropical cyclones, low-pressure areas, and the intensification of the southwest monsoon in the Philippines.

La Niña conditions are expected to persist until the end of the first quarter of 2025, according to PAGASA.

Hog production, in particular, saw a decline in production due to these weather disturbances.

“El Niño affected production because warmer temperatures caused pigs to pant and reduced significantly their feed intake causing slower growth and lower weights,”

National Federation of Hog Farmers, Inc. (NatFed) Vice-Chairman Alfred Ng said in a Viber message.

Mr. Ng said heavy rainfall also raised the likelihood of respiratory diseases among hogs, which would have led to higher treatment costs.

“Mortalities may also be an issue especially for poorly managed farms and facilities,” he added.

At the same time, Mr. Adriano said several animal diseases like the African Swine Fever (ASF) and the Highly Pathogenic Avian Influenza  or bird flu, continue to affect the production in livestock and poultry sectors.

In the second half of 2024, the Philippines saw a resurgence in ASF cases which prompted the government to fast-track the roll out of vaccines for limited use.

Only the AVAC ASF Live vaccine from Vietnam has received approval for a limited government-controlled rollout. The Food and Drug Administration (FDA) has issued a Certificate of Product Registration for AVAC, valid for two years and subject to annual review.

The recent outbreaks were blamed on the spread of contaminated water due to heavy rains, the DA said.

Outlook for 2025

Meanwhile, Mr. Montemayor said that farm production may likely rebound in 2025 due to low base effects.

“For 2025, you could say there is nowhere else to go but up given that we will be starting from a low base,” he said.

According to NatFed’s Mr. Ng, the DA and the FDA will soon allow the widespread use of the ASF vaccine which could help the hog industry’s recovery.

“If vaccine is successful for backyard raisers, then ASF virus load will go down and commercial farms with stronger biosecurity systems will also be protected. Then, the industry can bounce back as commercial farmers may be encouraged to come back,” he added.

The DA said earlier that the commercial use of the ASF vaccine could be allowed by February or March of this year.

The department also said that it is seeking to begin large-scale trials of a bird flu vaccine by March.

For Mr. Dar, the government must distribute agricultural inputs in a timely manner to help the sector boost production and income this year.

The Philippine Statistics Authority is set to release fourth-quarter and full-year data on farm output on Jan. 28 (Tuesday).

The agriculture sector contributes about a tenth of the country’s gross domestic product and provides around a quarter of all jobs. – Adrian H. Halili, Reporter

The Philippines’ trade-in-goods deficit widened in 2024, the largest trade gap in over two years as imports picked up while exports continued to decline, the Philippine Statistics Authority (PSA) reported on Friday.

Preliminary data from the PSA showed the country’s full-year trade balance — the difference between the values of exports and imports — grew by 3.1% year on year to USD 54.21-billion deficit in 2024 from the USD 52.59-billion gap a year earlier.

The latest figures marked the lowest trade gap since the USD 57.65-billion deficit in 2022.

Merchandise exports in 2024 declined by 0.5% to USD 73.21 billion, below the 4% growth projection set by the Development Budget and Coordination Committee (DBCC) for 2024.

A year earlier, exports fell by 7.5%.

Meanwhile, imports rose by 1% year on year to USD 127.43 billion in 2024, picking up from the 8% contraction in 2023. Imports growth missed the DBCC’s 2% growth target.

In December, the country’s trade-in-goods deficit narrowed to USD 4.14 billion from the USD 4.85 billion deficit in November.

This was the smallest trade gap in nine months or since the USD 3.35 billion deficit in March 2024.

Merchandise exports for the month fell by 2.2% to USD 5.66 billion, slower than the 8.6% contraction in November.

By value, export haul in December was the lowest in six months or since the USD 5.57 billion in June 2024.

Likewise, imports contracted by 1.7% to USD 9.79 billion, slower than the 4.1% drop a month earlier.

Import value was the lowest in nine months or since USD 9.57 billion in March 2024.

“For the last few years, both exports and imports were quite weak and hardly drivers of economic growth,” said Diwa C. Guinigundo, country analyst at GlobalSource Partners.

Mr. Guinigundo added that on a net basis, external trade contributes minimal impact on the economy.

“Weak exports are overshadowed by higher imports even as they have been quite sluggish recently, [while] modest imports are also indicative of weak manufacturing and business activities,”Mr. Guinigundo said in a Viber message.

Additionally, he noted that over the last two years, the Philippine economy saw some slowdown, falling behind the lower end of the growth targets.

In 2023, the Philippine economy grew by 5.5%, significantly slower than the 7.6% expansion in 2022.

This was the weakest growth in three years since the 9.5% slump in 2020.

The PSA will be reporting the fourth quarter and full-year gross domestic product on Jan. 30, Thursday.

Manufactured goods, accounting for more than three-fourths of exports, went down by 2.6% to USD 58.34 billion last year.

Electronic products, making up most manufactured goods and more than half of all exports, slumped by 6.7% to USD 39.08 billion. Semiconductors also fell by 13.5% to USD 29.16 billion.

The United States remained the top destination for Philippine-made goods in 2024, with exports valued at USD 12.12 billion or 16.6% of total export sales.

It was followed by Japan with USD 10.33 billion (14.1% share), Hong Kong with USD 9.6 billion (13.1%), China with USD 9.44 billion (12.9%), and South Korea with USD 3.57 billion (4.9%).

Imports of capital goods inched down by 0.1% to USD 35.7 billion.

On the other hand, imports of raw materials and intermediate goods rose by 2% to USD 46.35 billion.

Imports of consumer goods also climbed by 5.6% to USD 25.81 billion, while imports of mineral fuels, lubricants and related materials declined by 5.2% to USD 19.06 billion.

By commodity group, electronic products had the highest import value at USD 27.37 billion in 2024, up 2.7% from USD 26.64 billion a year ago.

China was the biggest source of imports for the year with USD 32.81 billion worth of goods, accounting for 25.8% of the total import bill.

It was followed by Indonesia with USD 10.55 billion (8.3% share), Japan with USD 10.07 billion (7.9%), South Korea with USD 9.63 billion (7.6%) and United States with USD 8.17 billion (6.4%).

Jesus L. Arranza, chairman of Federation of Philippine Industries, said in a phone call that illicit trade and imports for consumer goods like rice and sugar contributed to the widening of the gap for the year.

He added that the increase in smuggling in the country has led to the decline in domestic manufacturing.

“The president would like to stabilize the price of rice, the price of sugar… There is our desire, also, to bring down prices for the consumers. Because the consumers have already made noise,” he said in a mix of Tagalog and English.

Mr. Arranza also said that the narrowing of the gap in December was due to goods already being delivered during the October-November period, anticipating the end of the season.

Mr. Guinigundo said that while it is good that US tariff increases will not be applied on Philippine exports, they could affect Philippine exports to China, which participates in the Southeast Asian country’s semiconductor market.

“This would require a rethink of Philippine exporters on their market focus,” Mr. Guinigundo said. — Pierce Oel A. Montalvo

Expectations of rising prices prompt households to increase spending, which may cause inflation to be more persistent, according to a discussion paper by researchers at the Bangko Sentral ng Pilipinas (BSP).

“Our empirical results indicated that households tend to increase their planned consumption in the near term when they expect higher prices. This is particularly true for essential commodities like food and non-alcoholic beverages, fuel, and utilities,” the researchers said.

The discussion paper, authored by BSP Research Academy Principal Researcher Faith Christian Q. Cacnio and Research Associate Cymon Kayle Lubangco, explores the effect of inflation expectations on household consumption.

“Moreover, the proportion of households that intend to increase their consumption in the near term grows within higher inflation expectations,” they added.

In its latest Consumer Expectations Survey, the BSP said households still expect inflation to increase in the near term. Household inflation expectations may remain above the 2-4% target range in the near term.

“We also observed that a larger number of households tend to expect elevated prices for commodities with greater consumer price index (CPI) weights when actual inflation is within target than during low and high inflation periods,” the BSP researchers said.

“This results in higher average expected inflation during quarters when inflation is within target.”

Headline inflation averaged 3.2% in 2024. The BSP also expects inflation to remain within the 2-4% target band from this year to the next, as its baseline projections are at 3.3% and 3.5% for 2025 and 2026, respectively.

However, the central bank has warned that the balance of risks to the inflation outlook until 2026 remains on the upside.

“The planned expenditure for a specific commodity is more responsive to expected price changes for that commodity than to the overall household inflation expectations,” according to the researchers.

They found that inflation expectations tend to be sensitive to price movements of key commodities such as oil and rice, as well as currency appreciation.

“In assessing the potential effect of certain shocks, we observed that households’ inflation expectations rise with increases in international benchmark prices of oil and rice and decline in response to higher policy rates and an appreciation of the Philippine peso,” they said.

“Conversely, higher international prices of oil and rice lead households to increase their near-term consumption in anticipation of higher future inflation,” they added.

Fuel and rice are usually among the main sources of local inflation. In particular, rice is typically the biggest contributor to overall inflation.

However, rice inflation has been on a downtrend in recent months after the government slashed tariffs on rice imports in July.

“Following an oil price shock, the likelihood of purchasing durable goods within the next 12 months also increases significantly,” the researchers said.

“Furthermore, a depreciation of the Philippine peso results in a notable rise in the average likelihood of increased consumption of various goods in the next period.”

The peso has been under pressure in recent months as the dollar surged after US President Donald J. Trump’s victory and expectations of slower rate cuts by the US Federal Reserve.

Last year, the peso sank to the record-low PHP 59-per-dollar level three times.

“Linking changes in household inflation expectations to consumption behavior, our simulation results suggest that an increase in the policy rate will lead households to defer increasing their consumption of most commodities.”

The study’s simulation results showed that an increase in the policy rate helps “moderate inflation expectations, which, in turn, affects consumption spending.”

However, it noted that shocks to international oil prices and currency fluctuations have a “more pronounced impact” on inflation expectations and spending versus policy rate changes.

“This highlights the significant effects of supply-side shocks on inflation expectations and economic activity.”

“Supply-side shocks are generally considered to have temporary and short-lived effects on prices and do not necessarily warrant a monetary policy response,” they added.

The BSP researchers said central banks must “remain vigilant to prevent these shocks from leading to second-round effects.”

“Central banks should continue to closely monitor price developments in goods and services, even when inflation is within target, as households tend to form higher inflation expectations during this period.”

“Clear communication is crucial to curb these expectations and keep them aligned with the inflation target. Understanding the potential effects of supply-side shocks on inflation expectations and, subsequently, on household consumption could also help calibrate central banks’ necessary responses.”

The BSP began its easing cycle in August last year, cutting rates by a total of 75 basis points to bring the benchmark to 5.75%.

BSP Governor Eli M. Remolona, Jr. has said there is still room to reduce interest rates further as the current policy rate is still restrictive.

The Monetary Board’s next rate-setting meeting is on Feb. 13. — Luisa Maria Jacinta C. Jocson

The Bangko Sentral ng Pilipinas’ (BSP) net income grew by more than five times to PHP 113.1 billion in the first 10 months of 2024 as its revenues surged amid higher interest earnings.

The central bank’s net profit surged to PHP 113.1 billion in the January-October period from PHP 21.6 billion a year prior, preliminary data posted on its website showed.

Broken down, the BSP’s revenues jumped by 49.5% year on year to PHP 264.1 billion from PHP 176.6 billion.

Interest income, which accounted for the bulk or 76% of the central bank’s revenues, climbed by 23.1% to PHP 200.7 billion from PHP 163 billion a year prior.

Miscellaneous income, which includes fees, penalties and other operating income, increased by 366.2% to PHP 63.4 billion from PHP 13.6 billion.

Meanwhile, the central bank’s expenses declined by 11.5% to P182.3 billion in the 10-month period from PHP 206 billion in the previous year, according to the data.

This came as other expenses, which include net trading losses, fell by 37.1% to PHP 42.3 billion from PHP 67.2 billion.

On the other hand, its interest expenses inched up by 0.9% to PHP 140 billion in the period from PHP 138.8 billion a year prior.

This brought the BSP’s net income before foreign exchange (FX) gains, tax and capital reserves to PHP 81.8 billion in the January-October period, a turnaround from the PHP 29.4-billion loss in the prior year.

The central bank also posted a PHP 31.4-billion net FX gain from its foreign currency-denominated transactions, which boosted its bottom line for the first 10 months of 2024.

Meanwhile, separate BSP data showed that the regulator’s total assets stood at PHP 8.19 trillion at end-October 2024. This was 9.5% higher than the PHP 7.48 trillion in the same period the year prior.

On the other hand, the central bank’s liabilities increased by 7.6% to PHP 7.93 trillion in the same period from PHP 7.36 trillion.

BSP data showed that currency in circulation stood at PHP 2.38 trillion, while deposits with the central bank were at PHP 2.71 trillion.

The BSP’s net worth rose to PHP 266.2 billion at end-October from PHP 119.8 billion from a year prior.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the increase in the central bank’s January-October net income came amid the elevated interest rate environment.

“This could be brought about by higher interest income in most of 2024 and other investment income amid rate cuts that started in the latter part of 2024, though offset by some market volatility amid the Trump factor that emerged starting around October,” he said.

The BSP began its easing cycle in August last year, cutting by a total of 75 basis points thus far to bring its policy rate to 5.75%.

The increase was “also partly due to some forex gains amid the higher US dollar in 2024 amid US dollar holdings with higher value when converted to pesos,” Mr. Ricafort added.

The peso closed at PHP 58.10 per dollar at end-October 2024, weakening from its PHP 56.73 finish a year prior.

The local unit mostly traded at the PHP 55 to PHP 58 level in the first 10 months of 2024. In the same period in 2023, it ranged from PHP 54 to PHP 56. — Luisa Maria Jacinta C. Jocson

President Ferdinand R. Marcos, Jr. is pushing for more incentives for the semiconductor industry, following a meeting with the Private Sector Advisory Council (PSAC) on Tuesday.

At the meeting with the PSAC-Education and Jobs Sector Group (PSAC-EJSG), Mr. Marcos emphasized the importance of the semiconductor industry, as semiconductors account for a significant portion of Philippine exports.

“Actually, we really need to push on the semiconductor industry. It’s because, again, it’s not something that we had in mind but the situation — considering how much money we make as the income we get from exports already,” he was quoted in a statement as saying during the meeting.

The Palace said the PSAC-EJSG recommended a “review” of the implementing rules and regulations (IRR) of the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act to include a specific provision on incentives for the semiconductor industry.

Mr. Marcos signed the CREATE MORE Act into law in December. The interim IRR was also released last month.

“We’ll do it through the IRR, perhaps. Because it took us such a while to get the CREATE MORE in the first place,” Mr. Marcos said. “So maybe it’s just another incentive scheme.”

The President said there is no specific provision on incentives for the semiconductor companies under the CREATE MORE law, which provides incentives for other industries such as car manufacturing.

The PSAC-EJSG presented a “roadmap” for the semiconductor and electronics industry during Tuesday’s meeting. It also recommended the creation of a National Education and Workforce Development Plan, although there were no details provided.

Electronics is the single-biggest export industry in the Philippines, accounting for nearly 60% of total Philippine merchandise exports. The bulk of these exports are finished semiconductor products that are incorporated into electronic devices.

Latest data showed semiconductor exports fell by an annual 33.1% to USD 1.91 billion in November, amid soft global demand.

“The push for incentives for semiconductor locators aligns with the Philippines’ goal of strengthening its position in the global semiconductor value chain, which is critical for economic growth, technological advancement, and job creation,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said.

“Positioning the Philippines as a hub for semiconductor production or assembly can yield long-term economic benefits,” he said in a Facebook Messenger chat.

He said neighboring countries like Vietnam, Malaysia, and Thailand offer competitive incentive packages for semiconductor locators, “creating pressure for the Philippines to follow suit.”

“The CREATE Act is designed to offer rationalized tax incentives to attract and retain investors. However, it may not explicitly address the unique needs of semiconductor locators, such as the capital-intensive nature of the industry,” said Mr. Rivera.

“That is, semiconductor firms require significant upfront investments in technology and facilities.”

He noted that semiconductor projects often take years before getting returns, “necessitating longer or more flexible incentive structures.”

“Adding specific provisions to the IRR for semiconductor locators would signal that the Philippines recognizes these needs and is committed to becoming a global player in this space,” he said.

Think thank InfraWatch convenor Terry L. Ridon said incentives are insufficient to ensure the semiconductor sector’s expansion “for as long as other binding constraints remain unresolved, such as corruption, high energy prices and red tape.”

Mr. Ridon noted high energy prices remain the biggest threat to the Philippines’ semiconductor sector.

Mr. Marcos signaled incentives for semiconductor locators after US President Donald J. Trump took office on Jan. 20.

The US and the Philippines under then President Joseph R. Biden have committed to boosting their semiconductor partnerships, particularly under the US CHIPS Act.

The Department of Trade and Industry has said it is eyeing to produce 128,000 engineers for the local semiconductor industry with support from the US under the CHIPS Act.

The Philippine Economic Zone Authority’s (PEZA) economic zones are home to 482 electronics manufacturing services and semiconductor manufacturing services (EMS-SMS) companies that provide critical back-end support to their principal clients in the US.

“Most of these are longstanding American RBEs (registered business enterprises) that have made the Philippines their manufacturing hub in the region,” PEZA Director-General Tereso O. Panga said.

He noted that many of these companies have received support from the CHIPS Act’s International Technology Security and Innovation Fund to “enhance the host country’s electronics’ manufacturing capability and supply-chain resilience.”

The Semiconductor and Electronics Industries in the Philippines Foundation, Inc.  in December said exports of semiconductor and electronic products are likely to be flat in 2025 amid a “tough business environment and low demand.”

“The semiconductor industry has been our bread and butter as far as exports go. And yet, this has remained a low value-added product with very high costs since a large part of the imports are being imported,” Ateneo de Manila University economics professor Leonardo A. Lanzona said via Messenger chat.

He said further incentives for semiconductor players “will only increase the opportunity costs of this product since we will forego the production of alternative products that may also deserve such incentives.”

“Worse, changing the law simply for semiconductor locators indicates that this product is no longer competitive with its survival simply dependent on government support,” he added. “This is the opposite of trade efficiency or market discipline.” – Kyle Aristophere T. Atienza, Reporter

The Department of Finance’s (DoF) Privatization and Management Office (PMO) will release next month new guidelines allowing for the submission of unsolicited bids for state assets. 

“We are looking to publish the privatization guidelines. It has been approved. Only the actual publication is left. Our publication in the Official Gazette has been moved by another month,” Finance Undersecretary Catherine L. Fong told reporters at a briefing on Jan. 16.

The Privatization Council (PrC) approved the Guidelines on the Privatization and Disposition of Government Assets on Sept. 6 last year. The rules, which seek to institutionalize the PrC’s policies and decisions over the years, will be published in newspapers by next month.

Ms. Fong said among the key revisions is allowing unsolicited offers for assets in the PMO’s database. She noted 28,000 titles in the PMO database are small assets of about 200 square meters, which can be accessible to “ordinary Filipinos.” 

“This is an innovation — the first time allowing unsolicited proposals,” Finance Secretary Ralph G. Recto said.

Aside from unsolicited proposals, the new guidelines will also allow negotiated sales and direct purchases by present occupants of the residential properties, and the accreditation of real estate brokers to assist in the sale of properties.

This will help the government meet its PHP 101.01-billion privatization revenue goal for this year, which is more than double the PHP 42.12-billion target in 2024.

PMO is the marketing arm of the government concerning transferred assets, government corporations, and other properties assigned to it by the PrC.

Ms. Fong said unsolicited proposals will be published and can be subject to a challenge, similar to public-private partnership (PPP) projects.

Most of the assets are located in the province. She said the PMO is exploring options that would allow more Filipinos to purchase their own homes.

“The Land Bank of the Philippines is also interested in joining. They want to have a fire sale with their repossessed assets. There are a lot of government assets that are too small,” Ms. Fong said.

Meanwhile, the government also hopes to dispose of idle assets that require high maintenance costs and face legal challenges.

According to DoF data, PHP 4.4 billion was collected from the PMO disposition efforts in 2024, “with proceeds coming from the litigated assets, income from leases and dividend income.” This was significantly higher than PHP 1.94 billion in 2023.

Among the assets to be sold are the Caliraya-Botocan-Kalayaan (CBK) hydroelectric power plant complex, which has a minimum valuation of USD 300 million.

It will be auctioned off in April by the Power Sector Assets and Liabilities Management Corp. (PSALM). CBK has a 25-year build-rehabilitate-operate-transfer contract with state-owned National Power Corp. that will expire in 2026.

Mr. Recto said this could reach USD 1 billion if it becomes a part of the green energy auction. The DoF is working with the Department of Energy to increase the value of the assets.

The DoF is also planning to sell the property where the amusement park Star City is located in Pasay City.

“We want to sell Star City, but it is tied to Sukuk bonds. We have to balance the Treasury’s need for assets for Sukuk bonds, which is not easy to replace because it requires leasing, not just any property,” Ms. Fong said.

Star City is owned by Star Parks Corp., a subsidiary of Elizalde Holdings Corp. It is under a lease agreement with Philippine International Corp., which will expire in 2026.

If replacement is an option, Ms. Fong said the PMO will choose an asset without a lease, but it has to match the PHP 15-billion zonal value of the Star City property.

Filomeno S. Sta. Ana III, cofounder and coordinator of Action for Economic Reforms said the government’s reliance on privatization is “a lazy way of raising revenues.”

It is a “one-off source of revenues and thus unsustainable,” he said.

Instead, the DoF should raise more “efficient” taxes.

“A good example of an efficient tax is the excise tax on harmful products like tobacco, vape/e-cigarette, alcohol, soda and ultra processed foods.” he said. 

Mr. Sta. Ana said that the overall revenue collection is getting a boost from nontax revenue, including the fund transfers by the Philippine Health Insurance Corp., Philippine Deposit Insurance Corp. and other state-run agencies. These fund transfers are now being challenged in the Supreme Court.

Meanwhile, the DoF said around P23.94 billion in private capital through PPP projects is expected to be mobilized in 2025.

It noted that 97 PPP projects were added to the pipeline after the PPP Code was signed into law in December 2023. The implementing rules and regulations took effect on April 6, 2024.

These PPP projects include the Cavite Bus Rapid Transit System, School Infrastructure Project Phase III, and the Department of Education-Senate Teacher’s City. — Aubrey Rose A. Inosante