TOWARDS IMPROVING THE PUBLIC INVESTMENT PROGRAMMING SYSTEM OF THE PHILIPPINE’S DEPARTMENT OF AGRICULTURE

8/8/2019 TOWARDS IMPROVING THE PUBLIC INVESTMENT PROGRAMMING SYSTEM OF THE PHILIPPINES DEPARTMENT OF AG

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TOWARDS IMPROVING THE PUBLIC INVESTMENT PROGRAMMING

SYSTEM OF THE PHILIPPINES DEPARTMENT OF AGRICULTURE

by

Ulysses J. Lustria Jr.

Submitted to the School of EconomicsUniversity of the Philippines

In Partial Fulfillment of the RequirementsFor Economics 299: Graduate Research Seminar

Adviser:

Prof. RUPERTO P. ALONZODirector, UP-SE Program in Development Economics

October 2002


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ACKNOWLEDGMENTS

The author wishes to express his appreciation and gratitude to the following

persons and organizations for making this piece of work a reality:

Prof. Ruperto P. Alonzo, my Economics 299 Adviser and Program Director of the

UP Program on Development Economics, for his insights and constructive criticisms;

The UP School of Economics; for a wonderful and relevant graduate course;

The Public Investment Program Division headed by Ms. Lerma G. Abesamis, for

the wholehearted support;

The Department of Agriculture Expanded Human Resource DevelopmentProgram and the Ford Foundation, for the scholarship;

My great wife, Dema, and our two kids, Jeyu and Gabriel, for the inspiration;

My parents, Papa and Mama, for their eternal support; and

God, for the wisdom, guidance, and unconditional love.


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ABSTRACT

This paper highlights the importance of developing and institutionalizing an appropriateand rational public investment programming system given the scarce resources of thePhilippine Department of Agriculture (DA) and a high public demand for better

performance especially now that one of the main concerns of the Philippine governmentis agriculture, particularly food security. The paper first described of the existing publicinvestment programming system being used by the DA and then identified the systemsstrengths and weaknesses. The latter was done by assessing consistency with sectoralconsiderations (e.g., goals and resource requirements), assessing consistency withbudget requirements and ceilings, comparing the DAs system with the recommendedmodel of a public investment programming system, and comparing with good practices.The assessment shows that there is indeed a long way to go before achieving optimalresource allocation. The DAs public investment programming system would onlyachieve optimal resource allocation if the right policies are used along with a focus oneconomic efficiency. Thus, political will is needed.

Keywords

public investment programming system, resource allocation, agriculture, Philippines


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TABLE OF CONTENTS

Page

Acknowledgements ii

Abstract iiiTable of Contents iv

I. Background 1

A. Public Investment Programming: A Necessity in theDeveloping Countries 1

B. Public Investment Programming in the Philippines 2

C. Public Investment Programming and Overseas Development

Assistance (ODA) 3

D. The Objectives of This Study 3

II. The Status of the Public Investment Programming System at theDepartment of Agriculture 4

A. The Framework and the Process 4

B. The Methodologies for Public Investment Programming 6

III. Strengths and Weaknesses 10

A. AFPIPs Consistency with Sector Goals 10

B. AFPIPs Consistency with AFMPs Resource Requirements andBudget Ceilings 12

C. Comparison with Variants (Traditional and Stringent) 13

D. Comparison with Good Practices 16

III. Towards an Improved Public Investment Program for the DA 18

References 28


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LIST OF TABLES

TABLE TITLE Page1 Investment Gap (Comparison of the AFPIP, NEP, and GAA) 8

2 The NEDA-EPC Scores per Programs/Activities/Projects in the DAAFPIP CY2003-2005

10

3 AFPIP vs. AFMP Financial Requirements 12

4 DA AFPIP CY2003-2005 Budget Scenarios 13

5 Good Practice vs. DA current Practice in Public InvestmentProgramming

16

6 Suggested DA PAPs Prioritization Criteria 22

LIST OF FIGURES

FIGURE TITLE Page1 The PIP Process: A Stringent Variant (Recommended) 14

2 The Traditional PIP Process 15

LIST OF ANNEXES

ANNEX TITLE Page1 DA AFPIP Format 30

2 Enhanced Prioritization Criteria of the AARNR Sector 33

3 Proposed DA Budget Allocation (CY2003 Presidents Budget)Using GVA Methodology

37

4 Financial Analysis for a Communal Irrigation System:Rehabilitation vs. Construction)

39

5 Financial Analysis for a Road Project: Rehabilitation vs.Regravelling

41


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I. Background

A. Public Investment Programming: A Necessity in the Developing Countries

A rational public investment programming /1 system is very much needed in

developing countries given their scarce resources.

This is in consonance with the allocation challenge, i.e., allocating public

resources (including both external and domestic funds) across strategic priorities. The

capacity to allocate resources across strategic priorities on the basis of both the desires

of the citizenry and opportunity costs of the resources expended is obviously crucial if a

government is to cost-effectively ensure that stabilization, allocative efficiency and

distributional objectives are satisfied (Reid, 1998).

Developing countries would benefit much with having a good Public Investment

Program (PIP). A good PIP is aimed at ensuring five functions: improving economic

management, to ensure that macroeconomic sector strategies are translated into

programs and projects; improving aid coordination and channeling external resources to

priority areas; strengthening the hand of the government in negotiating with external

donors; assisting public financial management, by balancing (partial) commitments and

resources over a multi-year framework; and strengthening the project cycle by providing

a framework within which project preparation, implementation, and monitoring can

occur (Schiavo-Campo and Tommasi, 1999).

Other benefits that developing countries, especially the aid-dependent, can gain

from having good PIPs are that: the process of PIP preparation itself gives an

opportunity to review, and then integrate into the budget, aid-financed expenditures that

were previously non-budgeted; PIP exercises contribute also to extending the horizon of


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financial programming and planning beyond the annual budget, and the perspective of

policymakers in a more realistic way than previous five-year plans; if conducted

rigorously and with full participation, the process can be an invaluable capacity-building

tool, and a way to introduce financial discipline and the awareness of opportunity cost

into the informal rules of the bureaucracy; and a good PIP process can set the stage for

the eventual medium-term programming of all expenditure which is the optional way of

incorporating the needed multi-year perspective into the budget process (Schiavo-

Campo and Tommasi, 1999).

B. Public Investment Programming in the Philippines

The process of public investment programming in the Philippines can be

described as a two-way process wherein programs and projects are simultaneously

identified and programmed at the local and at the national level.

The programs, activities and projects (PAPs), which are expected to be funded

by the national government or from Official Development Assistance sources, are then

submitted to the National Economic and Development Authority (NEDA), where

proposals are reviewed for consistency with the Medium Term Philippine Development

Plan (MTPDP) and where domestic or external resource constraints are considered.

Investment prioritization criteria are used along with public consultations at the local and

national levels (Alonzo, 1993).

The Philippines is also probably one of the few countries in the world whose

government has tried to articulate in a quantitative manner its societys social

preference function by using an explicit set of weights for the different national

objectives. However, although the current system appears smooth and systematic,


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certain kinks still remain. Agencies still complain that fund releases come too late.

There are also problems regarding the criteria for project selection and prioritization

across sectors and regions, and over time (Alonzo, 1993).

The weaknesses identified in the Public Expenditure Handbook of the World

Bank (1998) can also be found in the Philippines and should be looked at, such as:

poor planning; no links between policy making, planning and budgeting; poor

expenditure control, inadequate funding of operations and maintenance; little

relationship between budget as formulated and budget as executed; inadequate

accounting systems; unreliability in the flow of budgeted funds to agencies and to lower

levels of government; poor management of external aid; poor cash management;

inadequate reporting of financial performance, and poorly motivated staff.

C. Public Investment Programming and Overseas Development Assistance

(ODA)

The large amount of ODA funds flowing in calls for careful programming by the

recipient country (Schiavo-Campo and Tommasi, 1999). With a proper investment

programming system in place, the recipient country and the donors would both benefit.

Careful programming of investments is essential. Given the active role of

external aid in the Philippines and its thrust to strengthen economic cooperation, a

public investment programming system that really works in its recipient countries is

important especially to help increase the impact of ODA programs.

D. The Objectives of This Study

The development and institutionalization of an appropriate and rational public

investment programming system is imperative given the scarce resources of the


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Department of Agriculture (DA) and a high public demand for better performance

especially now that one of the main concerns of the Philippine government is

agriculture, particularly food security.

The study seeks to:

a. describe the existing public investment programming system being used by

the DA;

b. identify the systems strengths and weaknesses by:

- assessing consistency with sectoral considerations (e.g., goals and

resource requirements),

- assessing consistency with budget requirements and ceilings,

- comparing the DAs system with the recommended model (in Schiavo-

Campo and Tommasi, 1999) of a public investment programming system,

and

- comparing with good practices; and

c. provide recommendations to enhance the existing system.

This study seeks to answer these objectives and hopes to contribute in the

improvement, specifically, in the selection of the DAs PAPs and generally, the DAs

resource allocation.

II. The Status of the Public Investment Programming System at theDepartment of Agriculture

A. The Framework and the Process

The DA has only recently (starting in year 2000) institutionalized the formulation

of its Agriculture and Fisheries Public Investment Program (AFPIP) using the NEDA-

prescribed three-year rolling format. (see Annex 1) The AFPIP translates the goals and


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strategies of the Agriculture and Fisheries Modernization Program (AFMP) into PAPs

programmed for three years. The DA formulates its MTPIP or AFPIP based on the

investment programs submitted by its central office units, bureaus, attached agencies,

and corporations. The submitted PAPs are then prioritized using the NEDA-prescribed

Enhanced Prioritization Criteria. (See Annex 2)

At this stage, there is no budget constraint imposed yet. The AFPIP thus

represents the total public resource requirement of the agriculture sector, assuming that

local government concerns are already considered.

In past years, this AFPIP-first pass (without budget ceilings) is the one officially

endorsed to the NEDA since it includes the pipeline PAPs which may not yet have firm

funding commitments but may still be immediately activated. These PAPs do not have

budget cover for the first year of the AFPIP but should be included in the AFPIP not only

to show the total public resource requirement of the agriculture sector but also to ensure

that when these are activated, they are already included in the list and as such, have

already been endorsed by the DA. But with this long list, the line agency is basically

letting the oversight agencies determine which PAPs to implement.

With budget constraints, the DA produces AFPIPs using different indicative

budget ceilings. The original AFPIP is scaled down by pro-rated reduction and also by

considering the past budget allocation of each unit (i.e., regional field units or bureaus,

attached agencies, and central office), and each units budget utilization. Pro-rated

reduction is done by proportional decreases in budget allocations of selected PAPs.

The budget allocations of some PAPs, however, are considered fixed and therefore are


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not reduced if they are considered already at a minimum or are considered top priority.

Allowance for inflation is also inputted in the process.

The AFPIPs using different budget scenarios are presented to the DA

management. The DA-approved scenario is the one presented to the NEDA ICC for

approval.

However, the present system of relying so much on past allocation and budget

utilization and downscaling on a pro-rated basis to determine future investments shows

that there is an absence of a rational resource allocation scheme.

The DA is presently developing a scheme which would improve the allocation of

the Departments resources and maximize the impact of its programs and projects. The

scheme would also include an assessment of investment gaps and potentials both at

the sectoral and spatial (regional) levels. The DA also hopes to develop quantitative

methods (e.g., econometric models) for said scheme.

Under the Implementing Rules and Regulations (IRR) of the Agriculture and

Fisheries Modernization Act (AFMA) of 1997, DA has created a Public Investment

Program Division tasked not only to oversee the development and installation of the

said scheme but also to oversee the whole public investment programming process.

B. The Methodologies for Public Investment Programming

1. Steps and Actors Involved in PAP Selection and Prioritization

Proposed PAPs are submitted by DA units to the PIPD. At this stage, there is no

budget ceiling imposed yet. These PAPs were selected by the DA units based on their

internal selection processes.


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Pipeline foreign-assisted projects (FAPs), however, pass through the Project

Development Service for its review and subsequent endorsement to the PIPD.

However, some pipeline FAPs have been directly submitted to the PIPD by the

proponent DA units as part of their respective PIPs. Some of these pipeline FAPs did

not undergo screening by the PDS. Thus, the PIPD endorses this pipeline FAPs to the

PDS for review.

The submitted PAPs are consolidated using the AFPIP format (discussed below).

All PAPs are also assessed by the PIPD using the NEDA Enhanced Prioritization

Criteria. After a DA management review, the DA AFPIP is endorsed to the NEDA.

As mentioned before, however, DA prepared AFPIPs using different budget

scenarios for the AFPIP CY 2003-2005. This required scaling down of budget allocation

per PAP and removal of some PAPs from the priority list.

For the final AFPIP, the DA budget in the National Expenditure Program (NEP)

was used as the budget ceiling. This proposed NEP ceiling was initially recommended

by DBM. The included PAPs were based from an earlier submission of the DA (which

unfortunately was not based from the AFPIP-first pass prepared by the PIPD) but were

scaled down to meet the DBM-recommended ceiling. DA then submits a

counterproposal (which is called DA Comments on the DBM Recommended

Presidents Budget). Finally, the DBM releases a final DA budget which is a part of the

NEP.

The final AFPIP mirrored the NEP ceiling for its priority projects but also included

other PAPs (not prioritized) above this ceiling.


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Note, however, that the results of the NEDAs Prioritization Criteria were never

used for PAP prioritization and eventual selection. As long DA worked within the NEP

ceiling for its priority projects, DBM has no questions. This was unlike before wherein

DBM looked carefully at the list of PAPs and their specific allocations.

2. Investment Gap Analyses

The DA hopes to improve PAP prioritization by better investment gap analyses.

The DA has already done investment gap analyses by comparing AFPIP

requirements with the GAA. Table 1 below demonstrates this analysis. The National

Expenditure Program (NEP) budget requirements for the DA were also included as

additional comparator.

Table 1. Investment Gap (Comparison of the AFPIP, NEP, and GAA).(in billion pesos, at current prices)

Particulars 1999 2000 2001 2002 2003 2004 2005

AFPIP 35.73 32.73 58.54 70.34 44.08 42.94 53.00

NEP 14.96 22.86 23.44 19.81 18.95 n.a. n.a.

GAA 14.70 20.80 16.11 20.47 n.a. n.a. n.a.

Gap (AFPIP minus NEP) 20.77 9.87 35.10 50.53 25.13

Gap (AFPIP minus GAA) 21.03 11.93 42.43 49.87

Gap (NEP minus GAA) 0.26 2.06 7.33 -0.66

Source: DA AFPIP, NEP, GAA (various years)Note: the GAA for CY2001 was a reenacted budget based from the GAA for CY2000.

Table 1 shows that the unconstrained demand requirement (AFPIP) is not being

met by the supply (as represented by GAA or even by the NEP).


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The DA is also conducting calculations of the ideal budget allocation by

commodity using the Gross Value Added analysis recommended by the PLANADES

study (see Annex 3). This analysis requires that the budget ceiling has already been

determined and is then allocated for each of the major commodities (rice and corn, high

value commercial crops (HVCC), livestock, and fisheries) using GVA contribution as the

basis. It should be noted, however, that the method has the added feature of assigning

75% of the allocable DA budget for distribution by commodity using the GVA shares

and 25% for commodity prospects and opportunities.

Annex 3 shows that there is over-allocation for rice and corn and under-

allocation for HVCC, livestock and fisheries using the 2003 NEP as basis. Note that

coconut, although suffering from a very low value of production, is categorized by DA

under high-value commercial crops since it is traditionally under this category.

The DA is also starting to estimate investment gaps by functional grouping using

supply-demand analysis. The processes are discussed in detail in the PLANADES

study. This study proposes at least three methods to determine investment gaps: 1)

comparing requirements vs. existing capacities, 2) identifying intervention areas that

have the highest returns, and 3) comparing benchmarks against actual performance

indicators.

Method 2) is akin to the marginal approach suggested in Alonzo (1993, 1994).

Marginal projects across sectors are compared and the inferior ones are scrapped until

the optimum (marginal projects are on the same plane of acceptability) is reached.

This method could also be possibly used for allocation across commodity sectors

instead of just functional sectors.


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III. Strengths and Weaknesses

The strengths and weaknesses of the DA public investment programming system can

be assessed through various means.

A. AFPIPs Consistency with Sector Goals

The specific question here that should be answered is: Is the AFPIP consistent

with the sector (Agriculture, Agrarian Reform and Natural Resources Sector) goals

espoused in the MTPDP?

The scoring results using the NEDA Enhanced Prioritization Criteria (NEDA-

EPC) could be used to answer this question. This approach considers as parameters

the AARNR sector outcomes, the recommendations of the Sector Effectiveness and

Efficiency Review, as well as the DAs Major Final Outputs. Thus, a high score

approximates consistency with sector goals.

Table 2. The NEDA-EPC Scores per Programs/Activities/Projects in the DAAFPIP CY2003-2005.

NEDA-EPCScores

Number of PAPs

Prioritized NotPrioritized

Total in %

0-35 1 4 5 2.19%36-70 10 29 39 17.11%71-105 29 109 138 60.53%106-150 32 14 46 20.18%

Total 72 156 228 100.00%

Source: DA AFPIP CY2003-2005

Table 2 shows that the DA AFPIP is generally consistent with the sector goals

since most of the PAPs scored high (61% are in the 71-105 range and 20% are in the

106-150 range).


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We should note, however, that the NEDA EPC itself is not without flaws. First,

proposed PAPs which may not be economically feasible can still get good scores.

The NEDA EPC also does not discriminate PAPs which should not be provided

at all by government but by the private sector.

One factor that the NEDA EPC does not consider is the location of the proposed

PAP. Location is very important for the DA because of the AFMA provision that it

should focus its resources on Strategic Agriculture and Fisheries Zones (SAFDZs)2 and

also on the establishment of Model Farms. This is akin to the recommendation from a

PLANADES study (1992) of anchoring the investment program on a physical framework

plan (cited in Alonzo, 1994).

Another factor not included in the NEDA EPC is PAP performance (for ongoing

projects). Thus, projects which have low physical and financial accomplishments can

still get good scores.

Counterparting from LGUs, proponents and/or beneficiaries should also be

emphasized. Although Category III, no. 3 in the NEDA EPC has the criterion Increase

NG-LGU collaboration in RD/NRM interventions, it may still be important to give more

points to PAPs wherein counterpart resources are clearly provided. With resource

sharing, the DA would then be able to invest in more projects.

PAP continuity could be helped ensured by having operations and maintenance

(O & M) plans. PAPs with provisions on how to continue the project activities/gains

after the project life ends should be given more points. The NEDA EPC does not

consider this criterion.


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The NEDA EPC also exhibits inconsistency. Whereas it positively discriminates

on high value commodities (Category I, A, no. 4 and Category III, no. 1), it supports

commodity-neutral interventions (Category III, no. 6).

It should be noted, however, that the NEDA EPC is still being improved or is still

for improvement, according to the NEDA.

B. AFPIPs Consistency with AFMPs Resource Requirements and BudgetCeilings

One way of assessing the strength of the DA public investment programming

system is to see if the AFPIP is consistent with AFMP budget requirements.

Table 3 shows that the AFPIP is much higher than the AFMP by a total of P105

billion for seven years.

Table 3. AFPIP vs. AFMP Financial Requirements.(in billion pesos, at current prices)

PARTICULARS 1999 2000 2001 2002 2003 2004 2005 Total

AFPIP35.73 32.73 58.54 70.34 44.08 42.94 53.00 337.36

AFMP35.73 32.73 32.73 32.73 32.73 32.73 32.73 232.12

Difference- - 25.81 37.61 11.35 10.21 20.27 105.24

Source: DA AFPIP (various years), AFMA IRR

An AFPIP with higher resource requirements could mean the prioritization should

be improved to be able for the AFPIP to approximate the AFMP resource requirement.

However, a big assumption here is that the resource requirements identified for the

AFMP are correct.

Recently, the DA has tried to close the gap for the AFPIP CY 2003-2005 not

just between the AFPIP and the AFMP but between the AFPIP and the estimated

budget ceilings. The DA formulated AFPIPs using different budget scenarios or


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ceilings. Note that the AFPIP budget figures (for CY 2003 to 2005) in Table 3 are large

because theyare based from the first submissions (without budget ceiling). Other

budget scenarios used were P34, P32, and P26 billion as the base budgets for CY 2003

(Table 4). In fact, the final AFPIP CY 2003-2005 (which is P24 billion for CY 2003)

uses the Regular (P3.12 billion) and AFMA (14.37 billion) budget figures from the NEP

CY 2003 for its priority PAPs.

Table 4. DA AFPIP CY2003-2005 Budget Scenarios. (in billion pesos, atcurrent prices)

AFPIP Scenarios 2003 2004 2005 Total

P34 Billion 34.07 33.78 35.56 103.41

P32 Billion 32.03 30.66 33.51 96.2

P26 Billion 26.31 26.16 27.41 79.88

P18.9 Billion (forthe NEP-includedPAPs)

24.21= 18.95(NEP) +5.26 (non-

NEP PAPs)

25.99 29.17 79.37

Source: DA AFPIP CY2003-2005 (various scenarios)

C. Comparison with Variants (Traditional and Stringent)

The strengths and weaknesses of the public investment programming system of

the DA could be determined by describing the current DA public investment

programming system and comparing it with the recommended model (in Schiavo-Campo

and Tommasi, 1999).

Below is Figure 1 which shows a schematic diagram of the recommended PIP

process: a Stringent Variant. Also provided for comparison is Figure 2 which shows the

Traditional PIP Process.


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Figure 1. The PIP Process: A Stringent Variant Recommended).

Source: Schiavo-Campo and Tommasi, 1999.


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Figure 2. The Traditional PIP Process.

Source: Schiavo-Campo and Tommasi, 1999.


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Schiavo-Campo and Tommasi (1999) states that concerning the projects to be included in

the PIPs a more stringent approach for the second and third year would be preferable,

by including only projects for which a decision has been firmly made and the source of

financing is certain (or at least probable).

The DA AFPIP does not adhere to the stringent variant but to the traditional

variant. Many DA PAPs which are still indicative in terms of decision and payment

(financing) are included in Year 2 (t+2). In fact, some PAPs which are still indicative in

terms of payment even enter Year 1 (t +1) although these are of course not included in

the list of PAPs covered by the NEP CY 2003.

This shows that the DA AFPIP process needs more improvement in the selection

of PAPs in terms of status of decision and payment.

D. Comparison with Good Practices

Various literature mention good practices for public investment programming.

Comparing current practices used by DA with the good practices could help us assess

the strengths and weaknesses of the DA AFPIP process.

Table 5. Good Practice vs. DA current Practice in Public InvestmentProgramming.

Good Practice Current Practice Policies drive programs,

programs drive projectsLack of clear-cut policies; weak link betweenpolicies, programs and projects

A dual PIP is inherently abad PIP

The AFPIP is a dual PIP because it has a list ofPAPs included based on a certain budget ceiling

and another list of PAPs above the ceiling Balances between sectors

and subsectors consistentwith government strategy

The AFPIP does not consider balance betweensectors and subsectors as shown by theoverallocation of funds to the grain sector.However, the fund allocation mirrors thegovernment strategy (of prioritizing the grainsector since rice is a political commodity).


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Investment programappropriate to the economicand social environment;compatible withmacroeconomic framework

The AFPIP process is not appropriate to theeconomic and social environment since it stilllacks a rational allocation and PAP prioritizationscheme.

Ranking a set of projectsdepends on the total financialenvelope granted to the setof projects and not vice versa

The DA still ranks PAPs in a straightforwardmanner without considering the financialenvelope/s granted to each set of projects.

the use of simplemethodology

The DA is still in the process of developingresource allocation and PAP prioritizationmethodologies

that projects entering thepublic investment programmust be economically

justified

The DA does not yet discriminate economicallyfeasible PAPs

stringent rule for includingPAPs The DA does not have stringent rules forincluding PAPs. However, it follows the NEDA-ICC guidelines for foreign-assisted projects(FAPs) and locally-funded projects (LFPs) whichpass the said committee.

The use of prioritizationprocedures (e.g., scrappingof marginal projects) toachieve optimum allocation

The DA is still in the process of PAPprioritization methodologies which hopefullywould be towards optimal allocation.

The application of thesubsidiarity principle to

investment decisions

The DA is weak in terms of applying thisprinciple as many PAPs are still processed

from the national level (top-down planning). BigPAPs may actually be local level PAPs whichhave little externalities.

The use of a Red Flagsystem- e.g. minimumrequirements

The DA is still in the process of developingresource allocation and PAP prioritizationmethodologies which hopefully wouldincorporate red flags

The anchoring of theinvestment program on aphysical framework plan

The AFPIP has not yet incorporated the SAFDZas a framework because the DA has not yetdeveloped nationwide SAFDZ integrateddevelopment plans.

Sources: Alonzo, 1994 and 1994; Schiavo-Campo and Tommasi, 1999; and TheWorld Bank, 1998.

Based on Table 5, the DA public investment programming system could be

assessed as still poor in many areas.


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IV. Towards an Improved Public Investment Program for the DA

Below are the recommendations to improve the DAs public investment

programming system based on the abovementioned assessments.

A. Policies, especially domestic, should be defined clearly. These policies should

be included in the prioritization criteria to help ensure that PAPs support said

policies.

There is wide consensus among development experts that the

government should support policy instruments such as agricultural research,

extension, irrigation, and marketing infrastructure, which include farm-to-market

roads and market facilities (Timmer, 1994).

Balisacan (2002) agrees that we have to spend more on rural

infrastructure such as roads and ports but with coordination. He also qualifies

that we should invest more on small-scale irrigation instead of the traditional

gravity irrigation. Other areas mentioned are technical education and skills

development in rural areas, and capacity building for microfinance providers and

LGUs. The areas to spend less include postharvest facilities, since these are

private goods, and general food price subsidies.

David (2002) also cites irrigation; research and development; market

infrastructure; roads; and water transport as areas which need prioritization.

She, however, argues that the issue is not just underspending on the sector but

rather one of inefficiencies in budgetary allocations within the sector

accompanied by low economic returns on many PAPs.


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B. Although a longlist of PAPs may not be avoided, what should be ensured is that

PAPs should be properly evaluated before inclusion in the AFPIP. Thus, the DA

should use red flags which consider criteria such as a list of public and private

goods to be supported by DA and economic efficiency.

C. The DA should continue developing rational resource allocation and PAP

prioritization methodologies such as the GVA analysis demonstrated in Annex 3.

These methodologies should take into account economic feasibility and other

relevant factors.

However, Simple criteria should be developed which is understandable to

the layman (Alonzo, 1993).

D. Investment gap analyses should be done to determine sectoral requirements and

then ranking similar projects to see which would be included in the financial

envelope assigned to the said sector.

E. The DA should fasttrack the development of the SAFDZs integrated development

plans and also model farms 3 as these would help provide the anchor (physical

framework plan) for the AFPIP.

F. The DA should develop participatory processes which would ensure that more

PAPs are identified in the local level.

G. A Proposed PAPs Prioritization Methodology

Moving towards an optimum can be done by screening programs, activi ties,

and projects (PAPs) to weed out undesirable projects (Alonzo, 1993 and 1994). For

this, a PAPs Prioritization Methodology is needed.


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1. First Step

After the DA units have submitted their respective PAPs (wherein budget

ceilings are not yet applied), we could already screen these by instituting red flags.

A red flag indicates that a project fails to meet some minimum requirement with

respect to a given criterion, and should therefore be sent back to the drawing board or

scrapped altogether (Alonzo, 1993 and 1994).

The red flags we could use are:

a. Public and Private goods

The DA should form a list of goods (both public and private) which it should

provide or support. For example, should it provide small postharvest facilities which

could already be provided by the private sector?

Further, should DA provide private goods which are underprovided by the

market? Or could it just provide subsidies or incentives for private production?

(PLANADES, 2000)

With a clear policy, we could already screen out PAPs which are not included in

the list.

b. Economic Efficiency

Only PAPs which are economically feasible should be considered in the MTPIP.

However, since not all PAPs undergo feasibility studies or fullblown economic analysis,

other guidelines (discussed later) could be developed.

Alonzo (1993, 1994) mentions that a thorough, fullblown, cost-benefit analysis

covering the social, financial, and economic aspects may not be warranted for small

projects, but simple guidelines can be developed.


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2. Second Step

After the PAPs have been screened using the red flags, they can be prioritized

using the NEDA-prescribed Enhanced Prioritization Criteria (EPC). The NEDA EPC

would not only be used for compliance with NEDAs requirements but because it is a

good measure of consistency with the AARNR sector outcomes, the recommendations

of the Sector Effectiveness and Efficiency Review, as well as the DAs Major Final

Outputs.

However, we can add other criteria not covered by the NEDA EPC such as:

a. Location PAPs located in the model farms and SAFDZs should have higher

points. (Location is very important as discussed in part III, A, of this paper.)

b. Performance PAPs, which have better physical and financial performance,

should be given higher points. For Pipeline PAPs, economic analysis should be

applied. Pipeline PAPs with higher net returns should have higher points.

c. Counterparting PAPs, which have counterpart from LGUs, proponents and/or

beneficiaries, should be given points. From the start, it is imperative that all

major players during project implementation should share the burden to achieve

the desired results. Counterpart can be in monetary form or in kind.

Counterpart schemes with the LGUs, POs, NGOs and other private group should

be clearly discussed in the project documents.

d. Continuity/Sustainability PAPs which have operations and maintenance (O &

M) plans to ensure their continuity/sustainability should be given points. A plan

should be prepared to enable the project evaluator and implementor to see how

the project activities, gains and investments will be sustained after the project life


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cycle. The scheme shall identify who shall continue the project activities/gains

and how will the project be continued after the project life ends.

Table 6 shows the suggested DA PAPs Prioritization Criteria.

Table 6. Suggested DA PAPs Prioritization Criteria.

Category RawScore

Weight(in %)

Weighted Score

NEDA EPC(perfect score -150 pts./1.5)

20

Location- Model Farm (100 pts.)- SAFDZ (80 pts.)- PAPs supportive of the model farms or

SAFDZs but not located in the said areas (50

pts.)- NPAAAD 4 (30 pts.)- PAPs supportive of NPAAAD but not located

in the said areas (20 pts.)

20

Performance physical and financial1% = 1 pointPerfect score 100% or 100 pts.

20

CounterpartWith counterpart 100 pts.Without counterpart 0 pts.

20

Continuity

With continuity scheme 100 pts.Without continuity scheme 0 pts.

20

Total 100

It should be emphasized that the weights and even the factors in the criteria are

not fixed. These weights should be finalized by DA management preferably with the

help of experts in the field of rural development and agriculture.

3. Third Step

Given a budget ceiling, the budget shares across sectors (e.g., rice and corn,

HVCC, livestock and poultry, and fisheries) should be determined. These shares can

be determined using the Gross Value Added (GVA) Analysis explained in the

PLANADES study (2000). (Please see Annex 3.)


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Given the budget shares and the list of PAPs prioritized per sector, we could

already scrap the PAPs (under each sector) which do not make the cut. However, it

would also be better if budget envelopes (which are percentage shares from the budget

shares per sector) be determined for specific interventions like irrigation, R & D, farm-to-

market roads, extension, and other. The estimation of budget envelopes per

intervention shall be based on technical knowledge to be provided by experts.

PAPs with low scores but are considered necessary by DA can be excluded

from the prioritization in Step 2 and are automatically included in the MTPIP priority list

of PAPs.

We would better understand the methodology by applying it to one of the DAs

units such as the National Irrigation Administration (NIA). All of its proposed PAPs

would first be assessed using the economic efficiency red flag. The goods to be

supported red flag does not apply since irrigation is considered a public good unless

DA has specific policies such as focusing on national irrigation systems and not

including communal irrigation systems anymore.

PAPs not passing the red flag should be dropped. However, the list of PAPs

which failed should be presented to DA management for final decision. This is not only

in consideration to ongoing and pipeline PAPs which have or will have foreign funding

but also to locally-funded PAPs which are ongoing.

Most likely, there would be no economic efficiency problems in terms of pipeline

foreign-funded PAPs and large pipeline locally-funded PAPs since these would be

reviewed by the NEDA ICC. However, small locally-funded PAPs (ongoing and

pipeline) may need careful evaluation.


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The PAPs which pass the first step would undergo the second step. The

information we would be needing are the location of the PAPs, their respective physical

and financial performance, presence of counterpart resources, and O & M scheme.

After scoring them, the NIA PAPs would be included in the total list of PAPs under the

Rice and Corn sector. Given a budget ceiling for the first year and the specific budget

envelope for irrigation, the NIA PAPs which do not make the cut are scrapped from the

priority list and included in the non-prioritized list which is subject for DA management

review and final decision.

However, this s easier said than done. For the AFPIP CY2003-2005, NIA

submitted 58 PAPs wherein 16 are ongoing foreign-funded, 17 pipeline foreign funded,

19 ongoing locally-funded, and 6 pipeline locally-funded with a funding requirement of

P9.96, P11.37, P12.98 (in billions) for years 2003, 2004, and 2005, respectively. Given

a budget envelope of about P5.7 billion (includes government counterpart and loan

proceeds) for CY2003, many NIA PAPs for CY 2003 would be cut. The ongoing

foreign-funded PAPs (also about P5.7 billion) alone will eat up the said budget

envelope.

What NIA did was to extend the project life of the PAPs and thus reducing its

annual budget allocations especially for 2003-2005. Further, pipeline PAPs had to be

slid down to later years. In effect, NIA spread its resources to cover, though partially, all

or almost all its PAPs. There is a problem with this approach because project impacts

are reduced and scarce resources are spread too thinly. The PAPs may already be not

optimal investments with their reduced budgets.


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However, there is still room for PAP prioritization here especially for the next

years. Budget allocation should be based on the scores of the PAPs using the

proposed criteria. Thus, the rationing of budgets could be prorated based on the

scores.

H. PAPs Selection

However, even before DA units such as NIA submit their proposed PAPs, they

should be able to select the optimal set of PAPs on their own. This can be done by

comparing PAPs using simple financial analysis.

For example, it is easy to choose between rehabilitating or constructing an

irrigation system by just comparing the Net Present Values (NPV) of the two options.

(See Annex 4.) Note that even though the investment cost for construction is high, the

very high NPV justifies going for said option as compared to rehabilitation.

The same test could be used for road rehabilitation and road regravelling. (See

Annex 5.) Though the cost for rehabilitation is higher, the higher NPV justifies choosing

the rehabilitation project. Notice that the IRR for regravelling (103.7%) is very much

higher but the NPV is lower. This shows that IRR is not the correct criterion for

assessing efficiency. (The NEDA Manual (2000) explains the strengths of the NPV as

compared to other measures such as the IRR and the BCR.)

End Note

This paper has identified the strengths and weaknesses of the DAs public

investment programming system and has provided recommendations to improve it. The

assessments show that there is indeed a long way to go before achieving optimal

resource allocation.


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We also have to emphasize here that the public investment program is just one

of the ways for government intervention in the development process (Alonzo, 1994).

Another option is through policy changes. This is precisely why the proposed

prioritization criteria included policy directions as one red flag.

The DAs public investment programming system would only achieve optimal

resource allocation if the right policies are used along with a focus on economic

efficiency. Again, political will is needed. But, to paraphrase one DA official, we have

to start somewhere.

Notes:

1. Public Investment Programming is the task of formulating the broad, aggregateportfolio of public investments supportive of optimal rural and agricultural growth,where the portfolio is composed of types of public goods and is proposed as partof the development budget in advance of the identification and financing ofspecific projects and the passage of the General Appropriations Act(PLANADES, 2000).

2. The Strategic Agriculture and Fisheries Zones (SAFDZs) refers to the areas withinthe Network of Protected Areas for Agriculture and Agro-industrial Development(NPAAAD) identified for production, agro-processing and marketing activities tohelp develop and modernize, with the support of government, the agriculture andfisheries sectors in an environmentally and socio-culturally sound manner(Department of Agriculture, 1998 and 2000).

SAFDZs have the following characteristics namely:

agro-climatic and environmental conditions giving the area a competitiveadvantage in the cultivation, culture, production and processing of particularcrops, animals and aquatic products;

strategic location of the area for the establishment of agriculture or fisheriesinfrastructure, industrial complexes, production and processing zones;

strategic location of the area for market development and market networkingboth at the local and international levels; and


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dominant presence of agrarian reform communities (ARCS) and/or small owner-cultivators and amortizing owners/agrarian reform beneficiaries and other smallfarmers and fisherfolks in the area (Department of Agriculture, 1998).

SAFDZ are "special enclaves for production and processing and take-off points

for an aggressive export offensive." This special enclaves shall be linked to majorroads, seaports and airports to make sure the shipment and movement ofagricultural and fishery products to domestic and export markets is smooth andcost-efficient. (Department of Agriculture, 2000)

3. Model Farms refer to efficiently-managed, contiguous area of agricultural land orfisheries characterized by a diversified cropping and integrated farming or fisherysystem which shall serve as a demonstration center for agricultural or fisherytechnologies (Department of Agriculture, 1998).

4. The Network of Protected Areas for Agriculture and Agro-industrial Development

(NPAAAD) refers to agricultural areas identified by the DA to ensure the sustainedproduction of the countrys basic agricultural and fisheries commodities through thestewardship and utilization of the most productive agricultural and fishery land andresources for optimal production, processing and marketing (Department ofAgriculture, 1998).

The NPAAAD includes:

all irrigated areas;

all irrigable land already covered by irrigation projects with firm fundingcommitments;

all alluvial plains highly suitable for agriculture, whether irrigated or not; agro-industrial croplands or land presently planted to industrial crops that

support the viability of existing agricultural infrastructure and agro-basedenterprises;

highland or areas located at an elevation of five hundred (500) meters or aboveand have the potential for growing semi-temperate and high-value crops;

all agricultural land that are ecologically fragile, the conversion of which willresult in serious environmental degradation, and mangrove areas and fishsanctuaries; and

all fishery areas as defined pursuant to the Fisheries Code of 1998 (Departmentof Agriculture, 1998).


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References:

Alonzo, Ruperto P. A Review of Equity-Oriented Investment Criteria and the Medium-Term Public Investment Program. Paper submitted to NEDA/NPPS for theDPRP Project. 1993.

Alonzo, Ruperto P. Integrating Population and Development Concerns in investmentProgramming. Paper submitted to NEDA for the IPDP Project. 1994.

Balisacan, Arsenio M. Food Insecurity, Poverty, and Rural Development. Apresentation during the Training Program on the Economics of RuralDevelopment: Focus on Food Security and Poverty Alleviation in AgrarianReform Communities. September 24-25 2002.

David, Cristina C. Agriculture, in A. Balisacan and H. Hill (eds.), The PhilippineEconomy: Development Policies, and Challenge. 2002.

Department of Agriculture. High growth areas for agriculture: future sites for SAFDZs. Anews article (September 12, 2000). (www.da.gov.ph) 2000.

Department of Agriculture. Implementing Rules and Regulations Pursuant to RepublicAct 8435: The Agriculture and Fisheries Modernization Act of 1997. DAAdministrative Order No. 6. July 10, 1998.

Department of Agriculture. Primer for the Implementation of the Strategic Agriculturaland Fisheries Development Zones. 2000.

Department of Agriculture. The Philippine Agriculture and Fisheries Modernization Plan2001-2004. December 2001.

National Economic and Development Authority. Project Development and EvaluationManual. Vol. 2. 2000.

PLANADES. The Public Investment Programming System of the Department ofAgriculture. Paper submitted to the Department of Agriculture. 2000.

Reid, Gary J. Performance-Oriented Public Sector Modernization in DevelopingCountries: Meeting the Implementation Challenge. March 1998.

Schiavo-Campo, Salvatore and Daniel Tommasi. Managing Government Expenditure.Http://www.adb.org/work/governance/govpub.asp#govtexp . April 1999.

The National Economic Development Authority. The Medium Term PhilippineDevelopment Plan 2001-2004. 2001.
http://www.da.gov.ph/http://www.da.gov.ph/http://www.da.gov.ph/http://www.adb.org/work/governance/govpub.asp#govtexphttp://www.adb.org/work/governance/govpub.asp#govtexphttp://www.adb.org/work/governance/govpub.asp#govtexphttp://www.da.gov.ph/


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The National Economic Development Authority. The NEDA Enhanced PrioritizationCriteria for the AARNR Sector. 2002.

The World Bank. Public Expenditure Handbook.Http://www.worldbank.org/publicsector/pe/pehandbook.htm . 1998.

Tenth Congress of the Philippines. Agriculture and Fisheries Modernization Act of 1997.Republic Act No. 8435. July 28, 1997.

Timmer, C. Peter, (ed.). Agriculture and the State: Growth, Employment, and Poverty inDeveloping Countries. 1994.
http://www.worldbank.org/publicsector/pe/pehandbook.htmhttp://www.worldbank.org/publicsector/pe/pehandbook.htmhttp://www.worldbank.org/publicsector/pe/pehandbook.htm


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Annex 1DA AFPIP Format

Source: Public Investment Program Division, Department of Agriculture.

PROGRAMS/ACTIVITIES/PROJECTSDESIRED

MFOsIMPLEMENTING

AGENCYFUNDING

TYPEFUNDINGSOURCE

CY 2002GAA

CY 2003 CY 2004

GOPLOAN

PROCEEDSGRANT TOTAL GOP

LOANPROCEEDS

GRANT

TO

. RegularA. General Administration and Support Services

B. Operations

C. Support to Operations

I. AFMPA. OSEC + Attached Agencies & Corporations

Foreign-assisted Projects (on-going andpipeline)Locally-funded Projects (on-going and pipeline)

II. ALLOCATION TO LGUs (where applicable)

A. LGEF

Foreign-assisted Projects (on-going andpipeline)Locally-funded Projects (on-going and pipeline)

B. MDF

Foreign-assisted Projects (on-going andpipeline)

Locally-funded Projects (on-going and pipeline)

TOTAL


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PROGRAMS/ACTIVITIES/PROJECTS

CY 2005 TOTAL CY 2003-2005

SCOREGOP

LOANPROCEEDS

GRANT TOTAL GOPLOAN

PROCEEDSGRANT TOTAL

I.

Regular

A. General Administration and Support Services

B. Operations

C. Support to Operations

II.

AFMP

A. OSEC + Attached Agencies & Corporations

Foreign-assisted Projects (on-going and pipeline)


III. ALLOCATION TO LGUs (where applicable)

A. LGEF



B. MDF



TOTAL


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DA AFPIP Format

The AFPIP format is prescribed by the NEDA. It has a three-year programming

period. The first column contains the PAPs. They are categorized first by major source,

which is either Regular or AFMA.

This categorization has been a source of contention. The DA contends that

since the two major categories are separated, it should be given twenty billion pesos in

the first year of the AFMA implementation and seventeen billion pesos annually up to

2005, over and above the 1998 budget. The DBM interprets differently. It contends that

the regular funds should form part of the suppose allocation for the AFMA. For

example, instead of the DA receiving thirty-five billion plus (P20 billion AFMA fund plus

the 1998 budget of P15.7 billion) for CY 1999, it would be receiving about twenty-four

billion only (P20 billion AFMA fund plus the regular funds of about P4 billion).

The second column contains the type of Major Functional Outputs (MFOs) for

each PAP. These MFOs are described in Category II of the NEDA Enhanced

Prioritization Criteria. The other columns are self-explanatory.

It should be noted that the DA has attempted to show disaggregation by

functional grouping (e.g., irrigation, R & D, etc.) using this AFPIP format. However, the

attribution process still has to be refined.


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Annex 2

ENHANCED PRIORITIZATION CRITERIA OF THE AARNR SECTOR

CATEGORY I Responsiveness to desired/agreed sector outcomes (total 40 pts)

RAW SCORESRANGE SECTOR OUTCOMES

10

7

5

3-42

1

A. Increased Rural Incomes and Employment

1. Significantdecline of under/unemployment2. Increased diversification of production and income sources3. Increased proportion of high value commodities to total production4. Enhanced marketable surplus production

10

6

3

5-6

3-4

1-2

B. Equitable Access to Productive Resources

1. Improved security of tenure of fisherfolk/ farmers/IPs to land and useof natural resources through the immediate issuance of permits, land

titles, licenses or agreements

2. Increased access to timely, relevant and efficient information inproduction, markets and prices, management and technologies

3. Increased access and application of Research and Development (R&D)outputs/appropriate and environmentally sound technologies e.g.

organic farming, integrated-nutrient management, integrated pest

management and agro-forestry

4. Increased access to credit resources5. Increased access to rural infrastructure (farm to market roads,

irrigation, post-harvest facilities, water systems, telecommunications,

electricity)

6. Increased local and private resource flow for rural development andnatural resource management (RD/NRM) activities

10

7

5

3

2

1

C. Enhanced Ecological Integrity and Sustainable Development of

Natural Resources

1.Increased biodiversity protection and conservation2.Reversal/Abatement of soil degradation as well as air and water

pollution

3.Increased carrying capacity of ecology and environment fordevelopment (i.e. sustainable use of critical resources as land, air,

water and energy.


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CATEGORY I (continued)

RAW SCORESRANGE SECTOR OUTCOMES

107

5

3-42

1

D. Empowerment of Rural Communities/Human Capital

1. Increased/enhanced representation and meaningful participation of all

stakeholders (i.e. farmers, fisherfolks and miners associations andcooperatives, etc.) RD/NRM activities especially in decision-making

bodies at different levels of governance

2. Improved/strengthened capacities of stakeholders in RD/NRMactivities Such as multi-stakeholder negotiations and consensusbuilding mechanisms, building partnership/strategic alliance withthe private sector on various productive enterprises

3. Improved/enhanced technical and entrepreneurial skills for off farmemployment

4. Upheld indigenous rights and preserved indigenous culture,traditions and technologies


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CATEGORY II Alignment with committed/agreed agency output (total 50 points)

(Perfect Score will depend on the number of MFOs identified and sub-MFOs Per Agency)

RAW

SCORE

RANGE

SCORE

COMMITTED MFOs

Department of Agriculture8

4

4

1. Policy, Advocacy, Planning, Monitoring, Evaluation and Information

Preparation of plans and programs and projects as well as implementation,monitoring evaluation and advocacy activities

Information Support Services-installation of information data based systemon soil, land and water resources, as well as maps, statistical reports, pricesknowledge products and services to make them accessible to farmers,

fisherfolks, and LGUs

16

6

5

5

2. Production support, marketing and credit facilitation services

Market development servicesmarket promotion and other market-relatedactivities such as market matching, trade fairs, market dialogues, etc.

conducted to serve as venue for market negotiations/transactions betweenproducers (farmers/fisherfolk) and buyers

Production support servicessuch as laboratory services, seeds, seedlings,fingerlings, etc provided to LGUs, farmers and fisherfolk

Credit facilitation servicesLoan, insurance and guarantee provided tofarmers and fisherfolk through GFIs and other lending institutions

11

6

5

3. Irrigation and Other Infrastructure

Irrigation development services, construction, rehabilitation and managementof irrigation systems (NIS, CIS and SIS)

Other infrastructure and/or post-harvest development service-post harvestfacilities such as threshers, dryers, shellers, cold storage facilities, coldchain projects, fish ports and other infrastructure projects including farm-to-

market roads provided to farmers, fisherfolk and LGUs

11

5

6

4. Research and Development & Extension (RD &E)

Extension support, education and training servicesextension support,education and training provided to LGUs, farmers, fisherfolk, SUCs, AFCs

and rural-based organizations

Research and development servicesnew technologies and genetically-improved varieties/breeds developed and disseminated to farmers,

fisherfolks and LGUs

4

4

5. Regulatory Services

Regulatory servicessuch as the issuance of licenses, import/exportpermits, certificates of standards and quality control, etc., to clients


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CATEGORY III: Consistency with the Recommendations of the Sector Effectiveness

and Efficiency Review (SEER) (60pts.)

RAW SCORES RANGE SEER RECOMMENDATIONS

10 1. Increase intervention/allocation to High value commodities

Demand side strategies (i.e. marketing, information, credit,postharvest)

Private land distribution

Public land distribution

10 2.Activities that encourage private sector participation, e.g.

Production: farm-firm linkage

Equity investments for Rural Development/NaturalResources Management (RD/NRM) programs/projects

Environmental and natural resources management

10 3.Increase NG-LGU collaboration in RD/NRM interventions,e.g.

LGU involvement as the focal point for priority-setting andprovision of localized services and development assistance

in their respective areas

NG interventions consistent with local priorities

Institutional reforms to deepen devolution of RD/NRMprograms to LGUs, with corresponding resource allocation

10 4.Prioritize allocation to productivity increasing interventions,e.g.

Irrigation

R & D

Extension

ENR management/rehabilitation of degraded naturalresources

10 5. Give emphasis to convergence strategies

Complementation of interventions among RD agencies to

avoid duplication/overlaps in the delivery arrangementsand waste of funds

10 6. Commodity-neutral/functional/integrated developmentinterventions/watershed and ecosystems approach


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Annex 3

Proposed DA Budget Allocation (CY2003 Presidents Budget)Using GVA Methodology

I. The Total BudgetCY2003 PRESIDENT'S BUDGET

Total DA Budget (in pesos) 18,946,032,000.00

PS 2,364,720,000.00

Regular MOE 163,210,000.00

Balance for Allocation 16,418,102,000.00

- By Congruence (75%) 12,313,576,500.00

- Adjustment based on

Prospects/Opportunities

(25%) 4,104,525,500.00

II. The Process

Sector/SubsectorAverage

Share in GVA(%)

1

ByCongruence

(75%)

Proposed Budget President' s Budget

Based on Congruence CY 20032

(a) (b)

Agriculture 80.05 60.04 9,857,172,075.79 10,937,813,200.00

Palay and Corn 24.19 18.14 2,978,204,451.20 8,773,903,600.00

- Palay 18.23 13.67 2,244,565,141.00

- Corn 5.96 4.47 733,639,310.20

HVCC 30.83 23.12 3,796,154,530.33 1,277,651,350.00

- Coconut including copra 3.53 2.64 434,256,968.53

- Sugarcane 2.73 2.05 335,909,473.73

- Banana 2.18 1.64 268,799,909.94- Other Crops 22.39 16.79 2,757,188,178.13

Livestock and Poultry 25.04 18.78 3,082,813,094.26 886,258,250.00

- Livestock 13.66 10.24 1,681,559,073.33

- Poultry 11.38 8.53 1,401,254,020.93

Agricultural activities and

Services3, 4

Fishery 19.95 14.96 2,456,404,424.21 2,391,293,800.00

Agriculture and Fishery 100.00 75.00 12,313,576,500.00 13,329,107,000.005

OTHER ITEMS (MOOE and/or CO, all held at OSEC)

- Regular CO 45,000,000.00

- Unallocable balance of RFU budget 184,076,000.00

- Basic Infrastructure (FMR) 700,000,000.00- Unallocable budget on support services

- locally-funded projects 438,556,000.00

- foreign-assisted projects (counterpart + LP) 1,703,776,000.00

- NNC 17,587,000.00

SUB-TOTAL (OTHER ITEMS) 3,088,995,000.00

TOTAL ACTUAL ALLOCATION 16,418,102,000.00


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1 Based on three-year average (from 1999-2001).2 Weighs to distribute budget of several DA agencies have been assumed.3 GVA value on agricultural activities and services refer to agricultural services on fee

or contract basis such as operation of irrigation systems, pest and disease control,harvesting, grading and packing crops, artificial insemination services, and the

provision of agricultural equipment together with operators. It also includesprocessing in the farm like copra and cassava drying and shelling of copra nuts, andprocessing of milk into butter and cheese, and fruits into wine are classified as part ofagricultural activities. Further, it includes horticulture and landscape gardening.

4 For simplicity, the corresponding GVA value for agricultural activities and serviceshas been distributed/allocated to the four major sub-sectors using the same (i.e.,corresponding GVA share to total GVA in Agriculture and Fishery.

5 Includes 2003 DA NEP Budget allocated for MOE (except regular) and CO of allGMA programs, agencies/bureaus and RFUs (only those specified as regionalactivities to support the sub-sector).

Applying the GVA analysis to the 2003 DA Budget from the National ExpenditureProgram, we get these results:

We have an over-allocation for the Rice and Corn Sector. Instead of P8.77 Billion, weshould only be allocating P2.97 Billion for this sector.

On the other hand, we have under-allocation for the following sectors:

HVCC instead of only P1.27 Billion, we should allocate P3.79 Billion;

Livestock and Poultry instead of only P.88 Billion, we should allocate P3.08 Billion;

and

Fisheries instead of only P2.39 Billion, we should allocate P2.45 Billion.


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Annex 4

Financial Analysis for a Communal Irrigation System:(Rehabilitation vs. Construction)

Rehabilitation

UnitWithoutProject With Project With - Without

Area hectares 100.00 100.00 -

Unit Cost pesos/ha - 60,000.00 60,000.00

Total Cost pesos/ha - 6,000,000.00 6,000,000.00

Farmers persons 50.00 50.00 -

Hectares/Farmer ha/farmer 2.00 2.00 -

Yield, Paddy MT/ha 3.00 4.00 1.00

Price pesos/MT 8,500.00 8,500.00 -

Cropping Intensity Index times/year 1.00 1.50 0.50

Gross Value of Production pesos 2,550,000.00 5,100,000.00 2,550,000.00

Cost of Production pesos 1,428,000.00 2,856,000.00 1,428,000.00

Net Value of Production pesos/year 1,122,000.00 2,244,000.00 1,122,000.00

O&M Cost pesos/year - 180,000.00 180,000.00Incremental NVP pesos/year 942,000.00

Project Life years 30.00 30.00Capital Cost/Annual Net

NVP 6.37

EIRR 15.5%Discount Factor at 15% 6.57NPV at 15% pesos 185,152.82


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Construction

UnitWithoutProject With Project With - Without

Area hectares 100.00 100.00 -

Unit Cost pesos/ha - 125,000.00 125,000.00

Total Cost pesos/ha - 12,500,000.00 12,500,000.00

Farmers persons 50.00 50.00 -

Hectares/Farmer ha/farmer 2.00 2.00 -

Yield, Paddy MT/ha 3.00 5.00 2.00

Price pesos/MT 8,500.00 8,500.00 -

Cropping Intensity Index times/year 1.00 2.00 1.00

Gross Value of Production pesos 2,550,000.00 8,500,000.00 5,950,000.00

Cost of Production pesos 1,428,000.00 4,760,000.00 3,332,000.00

Net Value of Production pesos/year 1,122,000.00 3,740,000.00 2,618,000.00

O&M Cost pesos/year - 250,000.00 250,000.00

Incremental NVP pesos/year 2,368,000.00

Project Life years 30.00 30.00Capital Cost/Annual NetNVP 5.28EIRR 18.8%Discount Factor at 15% 6.57

NPV at 15% pesos 3,048,239.78

Assumptions:1. Average area planted/harvested per farmer is 2 has; 50 farmers form an association.2. Increase in paddy yield is 1.0 MT/ha for rehabilitation, 2.0 MT/ha for construction.3. Increase in cropping intensity index is 0.5 for rehabilitation, 1.0 for construction.4. Cost of production is 56% of gross value of production, with and without the project.

5. Operation and maintenance cost is 3% of capital cost for rehabilitation, 2% forconstruction.

6. For simplicity, full development is assumed at year 1.


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Annex 5

Financial Analysis for a Road Project: Rehabilitation vs. Regravelling

Unit Road Rehabilitation Road RegravellingLength km 3.00 3.00Unit cost pesos/km 1,000,000.00 450,000.00Total Cost pesos 3,000,000.00 1,350,000.00Influence Area hectares 500.00 500.00Yield, paddy MT/hectare 3.00 3.00Cropping Intensity Index times/year 1.30 1.30Unit Saving in Transport Cost pesos/MT 1,000.00 750.00Total Benefits pesos/year 1,950,000.00 1,462,500.00O&M Cost pesos/year 75,000.00 60,750.00Annual Net Benefits pesos/year 1,875,000.00 1,401,750.00

Project Life years 10.00 10.00Capital Cost/Annual Net NVP 1.60 0.96EIRR 62.0% 103.7%Discount Factor at 15% 5.02 5.02NPV at 15% pesos 6,410,191.17 5,685,058.92

Assumptions:1. Length of road project is 3.0 km.2. Influence area is two km on either side, divided by two for average distance.

I.e., 500 hectares = (4 km x 2.5 km)x(100 hectares/km)/2

3. For conservatism, yield & CII are assumed to be the same with and without project.4. Saving in transport cost is P1.00/kg for rehabilitation, P0.75/kg for regravelling.5. O&M cost is 2.5% of capital cost for rehabilitation and 4.5% for regravelling.6. For simplicity, full development is assumed at year 1.

TOWARDS IMPROVING THE PUBLIC INVESTMENT PROGRAMMING SYSTEM OF THE PHILIPPINE’S DEPARTMENT OF AGRICULTURE

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