Government eyes incentives for agriculture PPPs

By Max V. de Leon, BusinessMirror

Posted at Apr 03 2013 08:08 AM | Updated as of Apr 03 2013 04:08 PM

MANILA - The government will dangle incentives and subsidies to make agriculture projects under the public-private partnership (PPP) scheme more attractive to businessmen and offset the inherent risks in the sector, including natural disasters, seasonality and effects of climate change.

So far, no PPP project in the agriculture sector has taken off.

Socioeconomic Planning Secretary Arsenio M. Balisacan said the most binding constraint to productivity growth of agriculture in the developing world is the absence or inadequacy of efficient infrastructure system, particularly transport, power supply and communication infrastructure.

The immediate consequence, he noted, is the high transaction costs of doing business in rural areas, effectively inhibiting farmers from taking advantage of opportunities in rapidly growing areas and urbanizing centers, including foreign markets for exports.

“In addition, with the more prevalent changes in average weather conditions nowadays, and given the sector’s vulnerability to climate-related risks, the need for infrastructure that would help farmers cope with the effects of climate change is more urgent now than ever before,” Balisacan said in his keynote speech at the 2013 Asia-Pacific Agriculture Policy Roundtable in Miyazaki, Japan, on Tuesday.

With this, he said, investment partnership with stakeholders, particularly the private sector through the PPP, is deemed crucial.

The National Economic and Development Authority (Neda) earlier said projects that are eligible under the PPP scheme include irrigation infrastructure, food-supply chain and post-harvest services (i.e., bulk-handling facilities, food/grains terminals and processing, storage, handling and port/transport facilities), production centers for various farm inputs, fish-farming infrastructure, and market and trading centers.

But Balisacan said the government is aware that in the agriculture sector, programs and projects “have a risk
profile that is dominated by seasonality issues and force majeure risks in the form of natural disasters (e.g., typhoons and droughts) and climate change-related effects, among others.”

Potential PPP projects in the agriculture sector, he said, lean toward the PPP category where the government may have to provide subsidies, incentives or availability payments to attract private sector participation.

“Given the nature of agriculture projects and the inherent risks in the sector, the government needs to find ways to make agriculture projects commercially viable. This is either through an optimal sharing of risks or through a transaction structure that would strike a balance between safeguarding public interest by ensuring that a project has a net economic benefit and making the project attractive to the private sector,” Balisacan said.

The government and the private partner could also explore other factors that would achieve such balance through new technologies and innovations that would drive down whole-of-life costs, thus making a program or project economically and financial viable, he added.

He said among the option are to grant incentives such as subsidies, in the form of viability gap funding, and guarantees to enable the partner-businessmen to realize their expected return, such as “take-or-pay” provisions.