THE AGRICULTURAL COMPETITIVENESS

ENHANCEMENT FUND

(ACEF): A REVIEW

Jose M. Yorobe Jr., Ph.D.

February 2005
 DISCLAIMER

“The views expressed in this report are strictly those of the authors and do not necessarily reflect those of
the United States Agency for International Development (USAID) and the Ateneo de Manila University”.
 Abstract

Nine years after the creation of the Agricultural Competitiveness Enhancement Fund
and a month before its closure, questions have arisen on what the fund has achieved
and whether its extension is justified. This review assesses the status and performance
of the ACEF and identifies the constraints in its implementation. The discussion
focuses on the fund’s performance in implementation and suggests modifications for
improving effectiveness and efficiency. The review finds that ACEF needs to be more
aggressive in identifying strategic investment areas to benefit the most vulnerable
agricultural sectors. There is also need to monitor and ensure the availability and
timely release of funds for agricultural enhancement. Impact assessment must be
conducted on a regular basis to determine the fund’s contribution to the
competitiveness agenda.
 The Agricultural Competitiveness Enhancement Fund
(ACEF): A Review

Jose M. Yorobe, Jr.

EPRA Consultant

I. Introduction

The accession of the Philippines to the World Trade Organization (WTO)

Uruguay Round Final Act in 1994 has enhanced the country’s liberalized trade regime

through the opening of its agricultural markets to foreign competition. Part of the

agreement in the WTO was the tariffication by member countries of all quantitative

import restrictions (QR’s) in agriculture. The enabling law for this commitment is now

embodied in Republic Act No. 8178 enacted on July 24, 1995 known as the

“Agricultural Tariffication Act”. The Philippine market commitment, among others,

involved a two-tiered tariff quota system for sensitive agricultural commodities: the

in-quota tariff rate for the minimum access volume (MAV) of imports allowed at a

lower tariff rate and the out-quota tariff for volumes beyond the MAV.

To cushion the impact of the liberalized trade regime and also provide for the

adjustment costs in the agricultural sector, the law also created the Agricultural

Competitiveness Enhancement Fund (ACEF) whereby the proceeds from the MAV

accrues to the fund to be earmarked and disposed for projects enhancing the

competitive structure of the agricultural sector. Basically, it seeks to raise farm

productivity and reduce costs by providing for the necessary support services such as,

irrigation, farm to market roads, post-harvest facilities, credit, research and

development, extension services, market infrastructure and information. The fund

essentially supports the Agriculture and Fisheries Modernization Act (AFMA) of 1997

with the objective of modernizing and enhancing productivity and income in the

agriculture and fisheries sectors.

Nine years after its creation, this review intends to assess the status and

performance of the ACEF and identify the related constraints in its implementation.

With the impending closure of the fund this March 2005, questions arise on what the

fund has achieved and whether its extension is justified. While a quantified social and

economic impact measurement can provide a more substantive assessment on the

relative contribution of ACEF in enhancing the competitive structure of the

agricultural sector, this review simply focuses on its performance in implementation

and suggests modifications for improving effectiveness and efficiency.

II. Key Features of the ACEF

The implementation guidelines on the utilization and disposition of the ACEF

are provided for under the Department of Agriculture’s Administrative Order No. 39

of 1999 as amended by Administrative Order No. 10 of 2000. The primary objective

of ACEF is the allocation of the income from the MAV to agricultural projects and

activities that enhance the global competitiveness of agricultural products and other

ACEF-related activities. Some of the salient features of the implementation guidelines

are as follows:

a. The intended beneficiaries are farmers and fisherfolks, agribusiness

enterprises and industry organizations, non-government organizations

(NGOs) and people’s organizations (POs), and the government sector.

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 b. Priority is given to projects having sector/industry-wide impact such as

establishment of common service facilities.

c. It supports income and non-income generating projects on a cost-sharing

basis with the proponent.

d. The minimum amount of assistance is P500,000 and not to exceed P60

million extended as a loan, free of collateral and interest and the principal

is payable in six years plus one year grace period.

e. The fund is governed by a project executive committee that reviews and

disposes the funds, and a technical committee and secretariat that

undertakes the review, processing and monitoring of projects.

f. An important component of the project proposal is the project feasibility

study, the cost of which is borne by the proponent.

III. Status and Performance

The Minimum Access Volume (MAV)

The operation and existence of the ACEF depend largely on the income

generated from the utilization of the MAV. The MAV represents the in-quota volume

of agricultural products allowed into the country at a lower in-quota tariff rate. The

MAV comprises one of the country’s commitments to the WTO which is scheduled to

end in 2005. Beginning 1995, the MAV volume was set to equal 3 percent of

consumption at the base period 1986-1988 and rising every year to reach 5 percent of

the base period consumption at the end of ten years (Clarete, R., undated). The rules

3
and implementing guidelines governing the MAV is contained in the Department of

Agriculture’s Administrative Order No. 9 series of 1996. As provided for in R.A. No.

8178, Section 8, all the proceeds of the importation under the MAV will be intended

for the ACEF and shall be deposited under Special Account 183 of the General Fund.

The MAV Secretariat of the Department of Agriculture administers and manages the

MAV. The list of agricultural products under the MAV system is presented in Table 1.

Out of the sixteen agricultural products described under the harmonized system

of the Tariff and Customs Code to be under the MAV, only nine have been subscribed

for since 1995. Table 2 shows the yearly MAV allocation in comparison with the

actual utilization. The rate of MAV utilization was observed to be high for coffee,

poultry and corn and the MAV for potatoes were fully subscribed for in the later years.

A sustained usage of the MAV can be observed for corn and coffee but, the volume

was significantly large for corn. The corn MAV imports represented only a small

fraction of the total importations. Beginning 1999, importation of beef under the MAV

was no longer observed and the rate of MAV utilization for other commodities

accentuated beginning this period.

The Philippine commitment to WTO on the MAV ended in 2004 but was

extended on status quo until another agreement can be forged with WTO. Needless to

say, once the MAV commitment cannot be secured, the government is bound to put in

place a single tariff rate for agricultural commodities under the MAV. This move will

4
 Table 1. List of agricultural products under the MAV, 2005.
Heading Product Description
(H.S. Code)

HS 0101 Live horses, assess, mules and hinnies

HS 0102 Live bovine animals
HS 0103 Live swine
HS 0104 Live sheep and goats
HS 0105 Live poultry (fowls of the species Gallus domesticus,
ducks, geeses. turkeys and guinea fowls)
HS 0201 Meat of bovine animals, fresh or chilled
HS 0202 Meat of bovine animals, frozen
HS 0203 Meat of swine, fresh or chilled
HS 0204 Meat of sheep or goats, fresh, chilled or frozen
HS 0207 Meat and edible offal of poultry
HS 0701 Potatoes, fresh or chilled
HS 0901 Coffee, whether or not roasted or decaffeinated; coffee
husks and skins; coffee substitutes containing coffee
in any proportion
HS1005 Maize (Corn)
HS 1006 Rice
HS 1701 Cane and beet sugar and chemically pure sucrose in
form
HS 2101 Extracts, essences and concentrates, coffee, tea or
mate preparations with a basis of these products
or with a basis of coffee, tea or mate; roasted chicory
and other roasted coffee substitutes and extracts,
essences and concentrates thereof

Source: ACEF Secretariat, DA.

undoubtedly improve the government revenues from importation assuming that higher

rates are used to protect domestic agricultural producers. However, this will not in any

way improve the country’s competitive position as the higher rates simply add on to

production costs making domestic agricultural products relatively expensive. We also

loose the assured Agricultural Competitiveness Enhancement Fund or the ACEF that

can be directed to the disadvantaged sectors in agriculture for projects that will

strengthen the support services. This is now an option that the government will have

5
Table 2. MAV allocation and utilization, 1996-2004

HS Code Description 1995/96 1997 1998 1999 2000 2001 2002 2003 2004 Ave (96-03)

0201 Fresh/chilled beef

MAV Alloc.(mt) 6,087 4,261 4,436 4,611 4,785
% Utilization 35.0 0.0 0.3 0.0 0.0 7.1

0202 Frozen beef

MAV Alloc.(mt) 21,131 86,054 71,317 85,581 98,418 108,259
% Utilization 92.4 89.9 9.8 0.0 0.0 0.0 38.4

0203 Pork
MAV Alloc.(mt) 49,985 36,135 38,545 40,955 43,365 45,775 48,185 50,595 53,005
% Utilization 5.6 21.2 15.8 44.1 44.5 18.6 13.3 16.7 18.4 22.0

0207 Poultry
MAV Alloc.(mt) 22,525 16,160 16,701 17,746 18,790 19,834 20,879 21,923 22,968
% Utilization 4.3 9.9 16.2 90.9 62.9 59.6 85.8 94.7 72.4 55.2

0701 Potatoes
MAV Alloc.(mt) 1,430 1,035 1,102 1,171 1,240 1,309 1,378 1,447 1,516
% Utilization 0.0 1.9 7.0 38.7 81.9 95.2 100.0 100.0 100.0 58.3

0901 Coffee beans

MAV Alloc.(mt) 932 993 6,060 1,126 1,192 1,258 1,324 1,391 1,457
% Utilization 0.1 92.5 100.0 97.3 95.7 92.9 87.5 87.9 78.9 81.4

1005 Corn
MAV Alloc.(mt) 200,061 144,623 154,266 163,908 224,550 183,192 192,834 202,477 212,119
% Utilization 98.9 99.1 71.1 99.1 99.4 73.1 41.3 24.4 0.1 67.4

1701 Sugar
MAV Alloc.(mt) 59,069 42,701 45,547 48,393 51,240 54,087 56,933 59,780 62,627
% Utilization 99.9 61.5 59.7 100.0 47.9 0.0 41.0

2101 Coffee extract

MAV Alloc.(mt) 20 20 23 25 26 28 30 32 35
% Utilization 80.6 72.3 86.5 82.0 69.7 99.3 99.3 93.8 76.2 84.4

Ave. utilization 35.2 43.0 45.2 50.2 57.3 55.4 58.6 51.7

Source: ACEF Secretariat, DA and Bureau of Customs.

to make in the coming WTO negotiations. The trade-off is however, clear to the

farmers: protection through higher tariffs in exchange for benefits in terms of support

services. Whatever is the outcome, it is imperative that the government continue the

flow of funds for support services in agriculture to keep those that can still remain

competitive in the market at the very least.

Income from the MAV

Table 3 shows the revenues generated from MAV importation representing the

tariff duties collected from 1999 to 2004 amounting to 5.19 billion pesos. This was

largest in 1999 and 2002 due to the huge corn and sugar importations. The duties

collected from corn and sugar contributed the largest share to the ACEF followed by

poultry and pork.

It should be noted however, that the ACEF was created by law in 1995 but the

implementation was delayed by about 5 years. Although the MAV was utilized since

1995 (as shown in Table 2), there was no record of income generated from the MAV

for the period 1995-1998. An estimate of the revenues for this period showed that

about 2.9 billion pesos of duties must have been collected and should form part of the

income of ACEF for competitive enhancing projects in agriculture (Table 4). This is a

sizable amount that could have initially provided for the necessary support services

badly needed by the agricultural sector at the time when the country joined WTO. If

spent on farm to market roads alone at the cost of 4 million pesos per kilometer, this

amount would translate to about 725 kilometers. The undue delay in the ACEF

implementation has also postponed for 5 years the provision of essential support
 services that can cushion the impact of trade liberalization. This delay in the delivery

of the needed support services in agriculture exacerbated the competitiveness of the

country making its position more precarious relative to its Asian neighbors. Evidently,

the lack of our competitive position stems from the failure of government to provide

the necessary support services to increase productivity and the failure of producers to

keep their production costs at the minimum (Clarete, R., undated). Now, the task to

effectively and efficiently use the fund for projects that can provide the most net

benefit in increasing income and reducing production and marketing costs of

agricultural commodities has become more urgent. Unfortunately, funds for this

purpose are also becoming scarce and it is unlikely that the government will refund the

forgone revenues for the ACEF due to increasing government budget deficit.

Table 3. Duties paid (income) on MAV utilization, 1999-2004

HS Code Commodity 1999 2000 2001 2002 2003 2004* Total

('000 pesos)

0203 Pork 20,393.3 256,719.2 156,277.1 98,038.10 97,284.6 61,292.0 690,004.3

0207 Poultry 10,208.4 143,648.0 255,008.1 235,008.60 210,954.6 48,331.2 903,158.9
0701 Potatoes 434.0 4,981.6 11,191.3 10,786.90 9,862.6 6,508.9 43,765.3
0901 Coffee beans 265.1 24,597.3 222,151.2 5,652.90 45,490.7 2,880.8 301,038.0
1005 Corn 34,474.5 342,117.3 145,589.5 336,105.90 90,315.4 387.7 948,990.3
1701 Sugar 1,294,433.6 165,637.9 212,341.3 406,989.50 213,145.3 0.0 2,292,547.6
2101 Coffee extract 40.9 3,117.2 2,849.7 8,175.10 5,706.2 43.7 19,932.8

Total 1,360,249.8 940,818.5 1,005,408.2 1,100,757.0 672,759.4 119,444.3 5,199,437.2

* As of 31 October 2004
Source of data: ACEF Secretariat, DA for 1999 and 2004 based on MAVIC and
Bureau of Customs for 2000 to 2003 including 1999 for sugar.

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 Table 4.Estimated income from MAV utilization, 1995-1998.

HS
Code Commodity 1995/96 1997 1998 Total
('000 pesos)
0201 Fresh/chilled beef 36,192.0 0.0 249.8 36,441.8
0202 Frozen beef 232,183.6 1,064,281.4 113,349.8 1,409,814.8
0203 Pork 31,899.5 98,140.5 73,891.0 203,931.0
0207 Poultry 40,740.8 24,215.6 43,326.0 108,282.5
0701 Potatoes 0.0 47.7 288.9 336.6
0901 Coffee beans 14.9 16,545.1 151,264.2 167,824.2
1005 Corn 348,926.0 239,490.9 188,650.8 777,067.6
1701 Sugar - - 200,024.3 200,024.3
2101 Coffee extract 1,033.8 382.7 514.6 1,931.1

Total 690,990.7 1,443,103.9 771,559.3 2,905,653.9

- Data not available.
Source of basic data: BAS and ACEF Secretariat, DA

ACEF Projects

For the period 2000-2004, the ACEF has supported a total of 59 on-going and

approved projects with an aggregate amount of 1.7 billion pesos distributed regionally

except for Regions 5 and 9 (Table 5). Region 4-A received the highest amount of

ACEF loan disposed followed by CAR. The ACEF loan extended to the agricultural

sector was extremely large in 2003 for this included the one billion peso loan released

to Quedancor in support of their financing programs to small farmers and fisherfolks.

A smaller amount was reportedly approved in 2001, only in Region 4-A. As of 2004,

the repayment rate for ACEF loans is 70 percent.

With the ACEF investment of 1.7 billion pesos, an equivalent amount of

private and public investments was also generated in the agricultural sector

representing the equity participation of proponents. Some of these are capital

investments that may already be existing prior to 1999 but, the effect should have been

9
Table 5. Project cost of on-going/approved ACEF projects by region, 2000-2005.

Region 2000 2001 2002 2003 2004 2005 Total

ACEF Loan Total Project ACEF Loan Total Project ACEF Loan Total Project ACEF Loan Total Project ACEF Loan Total Project ACEF Loan Total Project ACEF Loan Total Project
Cost Cost Cost Cost Cost Cost Cost
('000 pesos)
1 12,000.0 24,921.8 12,000.0 24,921.8
2 19,950.0 55,117.5 8,297.9 31,356.4 17,845.0 45,158.0 46,092.9 131,631.9
3 57,983.2 118,120.1 16,667.5 33,199.5 83,863.0 170,296.2 33,013.5 58,230.0
CAR 25,000.0 51,788.0 25,191.1 42,001.1 50,191.1 93,789.1
4-A 18,536.0 36,168.7 27,370.0 40,492.9 38,000.0 70,000.0 14,986.4 33,526.1 12,010.0 18,271.0 110,902.4 198,458.7
4-B 2,775.0 3,965.0 2,775.0 3,965.0
6 14,939.6 25,669.7 19,448.5 34,914.5 39,162.7 74,139.7 9,462.6 18,700.4
7 2,776.9 5,446.4 10,825.0 15,464.2 18,168.3 76,538.7 31,770.2 97,449.3
8 18,428.6 39,064.1 14,670.3 26,495.1
10 12,921.1 34,573.9 9,850.0 18,704.1 28,068.8 45,395.3 36,807.1 55,299.1
11 2,653.2 5,028.6 7,047.4 11,892.7 25,477.3 61,081.5 8,740.0 13,281.8
12 36,000.0 60,000.0 36,000.0 60,000.0
ARMM 2,350.0 3,517.0 12,432.0 17,952.0 14,782.0 21,469.0
Nationwide 1,010,954.8 1,015,648.8 17,006.5 30,313.6 1,027,961.3 1,045,962.4

Total 186,963.6 383,154.0 27,370.0 40,492.9 127,156.6 245,543.5 1,248,539.9 1,540,046.2 145,207.2 251,352.1 36,442.0 61,144.8 1,771,679.3 2,521,733.5

Adm. Support 15,033.4

Grand Total 1,786,712.7 2,521,733.5

Source: ACEF Secretariat, DA.

substantial considering the size of the investment. For the 2000-2005 period, the

Department of Budget and Management has already released 1.57 billion pesos for

ACEF. There are still approved projects that remain unfunded as of February 2005

and about 2.3 billion pesos worth of projects are still under review by the executive

and technical committee (Table 6).

The major beneficiaries of the ACEF were agribusiness enterprises and

companies accounting for more than half of the number of on-going/approved

projects for 2000-2005. The total amount of loan released to this group was about 0.5

billion pesos, the largest among the non-governmental entities (Table 7). Farmers and

fisherfolks, mostly represented by cooperatives and large agribusiness enterprises,

accounted for 29 percent of the borrowers amounting to 197 million pesos while only

a few borrowers was observed for non-government organizations (NGO’s) and

peoples’ organizations (PO’s) categories.

The loan released to the government sector was largest (1.09 billion pesos) for

this included the 1.0 billion peso loan extended to Quedancor (a government

financing corporation) and used to fund the financing programs for small farmers and

fisherfolks using the Self-Reliant Team (SRT) model in 2003. The intention was to

use Quedancor in retailing the fund and make it accessible to small farmers and

fisherfolks through the provision of credit since the ACEF management does not have

the administrative capability to cater to a large number of small farmers. Loans

secured from this type were paying interest charges of 12 percent per annum (see

Appendix A). In contrast, those that were directly administered by the ACEF had

access to the non-collateral and interest-free loans. This form of discrimination has
Table 6. Value of proposals still under review, as of February 2005.

Item ACEFLoan Project Cost

('000 pesos)

Executive Committee 424,214.90 813,787.30

Technical Committee 942,926.50 1,561,155.60

Total 1,367,141.40 2,374,942.90

Source of data: ACEF Secretariat,DA.

Table 7. Number and budget of on-going/approved projects by type of beneficiary, 59

projects, 2000-2005.
Type of Benefeciary Number Percent Amount
ACEF Share Total Project Cost
('000 pesos)

Farmers/Fisherfolks 17 29 197,742.9 392,100.4

Agribusiness Enterprise 32 54 469,343.0 929,306.0

NGO/PO 2 3 11,336.9 25,276.0

Government Sector* 8 14 1,093,257.1 1,175,052.2

Total 59 100 1,771,679.9 2,521,734.6

* Inclusive of the 1 billion peso loan of Quedancor.
Source of data: ACEF Secretariat, DA.

12
been seriously criticized by the small farmers and fisherfolks and it can be argued that

small farmers and fisherfolks still do not have the competitive access to the ACEF

funds. Under this ACEF-SRT Scheme, the grains, livestock and poultry and high

value crops received the most benefit accounting for more than 70 percent of the 1

billion peso fund (Table 8). These loans secured by the small farmers and fisherfolks

were mainly for the purpose of purchasing inputs and services as specified in the

disbursement guidelines.

Table 8. Total amount of loans extended by the ACEF Financing Program through
Quedancor by sector, 2005.

Sector Amount Percent

('000 pesos)

Livestock and Poultry 261,995.4 25

Rice 221,581.7 21
Corn 175,733.6 17
High Value Crops 274,864.2 26
Fisheries 83,730.8 8
Marketing Infrastructure 25,766.4 2
Market Information 999.9 0

Total 1,044,672.0 100

Source: ACEF Secretariat, DA.

The distribution of current ACEF fund disbursements by purpose is shown in

Table 9. More than half of the ACEF funds have been dispensed to support the

purchase of production inputs and services in agriculture mainly through the credit

scheme from Quedancor. The support may be considered as short-term in nature, only

for one production cycle, and the direct benefits accrue only to the individual farmer.

Other projects could have possibly provided for a better flow of benefits, addresses

the cost-minimization objective, and a sector wide impact. While it is recognized that

13
the optimal fund allocation decision may be difficult to achieve given a general

criteria of project eligibilities, there must be some bias towards projects that can

provide the highest level of welfare to society and more sustainable in reducing

adjustment costs. In global competition, the determining factor of comparison is cost.

It is thus, more compelling to favor activities that simply reduces the cost of doing

business in agriculture. This type of activity is generally a characteristic of public

investments like farm to market roads, post harvest facilities, market infrastructure,

irrigation, and the like where the impact is more sustainable and the net social benefit

is positive.

Table 9. Amount of on-going/approved projects by type of purpose, 56 projects,

as of September, 2004.

Purpose Total Budget

ACEF Share Proponent Share
('000 pesos)

Irrigation 2,387.4 2,130.0

Farm to Market Roads 800.0 75.0
Post Harvest Equip't and Facil. 93,674.9 49,259.4
Credit 1,700.0 -
Research and Development 279.0 3,110.0
Marketing Infrastructure 25,766.4 29,087.4
Market Information 999.9 635.0
Retraining and Extension 719.2 1,843.1

Other Forms of Assistance

Project Preparation/Implementation 17,582.2 238,111.8

Production Inputs 1,050,589.2 86,816.6
Laboratory Construction 3,061.4 1,305.3
Farm Infra/Machineries 510,308.4 299,375.6
Technology Acquisition 900.0 200.0

Total 1,708,768.0 711,949.2

Source: ACEFSecretariat, DA.

14
Performance

The mechanism by which the ACEF funds are allocated and administered

provides the minimum criterion to evaluate its performance. As defined by Clarete

(Undated), institutional performance maybe explained by two factors: specificity and

competition. A high degree of specificity and exposure to competition are likely to

induce strong incentives to concerned actors for better performance. The former

refers to the attainment of the objectives and the methods used while the latter is

about the availability of pressures bearing on the actors for better performance.

The delay in the implementation of the ACEF has already placed its

performance in a bad state. This is now manifested by the country’s competitive

position that lags behind its trading partners for basic agricultural commodities like

rice and corn. Due to the delay, there is now a tremendous pressure put before us to

immediately utilize the fund for activities that can provide the greatest benefit at the

shortest time possible. Unfortunately, only 1.7 billion pesos of the ACEF fund have

been disposed or only 32 percent of the 1999-2004 MAV income.

While investments on production inputs and other farm operating services

attain productivity objectives, the support is generally short-lived and not cost

effective. In contrast, the reduction in the ‘cost of doing business’ in agriculture can

be very well addressed by investments in infrastructure like farm to market roads,

marketing facilities, and irrigation where the benefits are more lasting and accrues to

the general public. What is needed therefore, is for ACEF to be more aggressive in

identifying strategic investment areas where the most benefit can be derived by

allocating adequate funds to the most vulnerable and affected sectors of agriculture.

15
Through constant consultation with leaders of these affected sectors, investments can

be directed to areas and activities where it is most wanted.

The allocation of ACEF funds to agricultural projects is currently demand

driven i.e. interested parties submit proposals for funding. The project review process

is generally transparent (as projects are approved based on merit as provided for in

the guidelines) and the stakeholders are properly informed of the process.

Considering their access to economic resources and influence, the large agribusiness

entrepreneurs possesses a competitive edge in accessing the fund. They can secure the

loan directly from ACEF, interest- and collateral-free, while small farmers and

fisherfolks have to pass through Quedancor and to be eligible for a maximum

loanable amount of only 50 thousand pesos, subject to a penalty interest rate of 12

percent. This system runs counter to the basic concept of competitive allocation and

enhancement as the payment of interest to ACEF loans already puts a barrier to their

entry and adds on to costs. Due to smallness, these farmers may not also possess the

necessary resources to compete in the allocation. There must be a better mechanism

where the fund can be retailed to the majority of small farmers and fisherfolks given

the administrative capacity of the ACEF Secretariat. The current experience of

channeling the ACEF funds through farmers’ cooperatives and organizations is

already a better proposition as the benefits directly accrues to small farmers and

fisherfolks and the project services a much larger constituency. Unfortunately, only 9

percent of the fund disposed catered to this type of beneficiary.

Critical to the performance and effectiveness of the ACEF is the availability

of funds to meet its requirements, the value of which depends on the collection of

16
duties from the MAV. It is in the interest of ACEF that the size of the fund be

constantly monitored and safeguarded to assure its availability for agricultural

competitiveness enhancement measures. It will substantially favor the agricultural

sector if the forgone MAV income in 1995-1998 of 2.9 billion pesos can be allocated

back to the sector. The timely release of the funds however, is dependent on the

system of allocation practised by the Department of Budget and Management since it

forms part of the Department of Agriculture’s budget. In most cases, the timing is

inconsistent with the urgent needs of the agricultural sector owing to the usual

bureaucratic processes in government.

The ACEF fund is presently disposed of as loans to the agricultural sector. It

is but proper that the payment of the principal by the beneficiaries should revert to the

fund (deposited in Special Account 183 of the General Fund) and ploughed back to

the affected sectors of agriculture. This move will not only extend the life of the

ACEF but also provide for a growing fund even after the MAV. As it is, there is only

one time use of the fund as payments to the ACEF loans are deposited directly to the

national treasury. While the law is explicit on the life of the ACEF, support services

in agriculture will always be a necessary condition to attain higher productivity and

competitiveness in agriculture.

One of the most important indicators of performance is efficiency, that is, the

attainment of the highest possible output given the amount of resources used. To

determine the relative contribution of ACEF to the competitiveness agenda, an impact

assessment needs to be conducted on a regular basis. This will indicate the level of

success the program has achieved and the extent of support that is still needed by the

17
sector. A major consideration to look into will be the cost of doing business in

agriculture. Domestic resource costs and the comparative advantages of agricultural

products need to be constantly monitored and evaluated. If the ACEF support has

become redundant then, the fund can be diverted to other uses that provide better

opportunities to the affected sectors in agriculture.

V. Suggested Modifications

Cognizant of the difficulties and opportunities in the implementation of the

ACEF, a draft of the proposed revised guidelines has already been prepared by the

Department of Agriculture and submitted to Congress in the interest of the possible

extension of the ACEF (Appendix B). It is substantially an improvement of the

current guidelines as it addresses the contentious issues on the following: project

eligibility, by deleting credit and highlighting infrastructure; financing, by giving

priority to small farmers and fisherfolks, putting a cap on the maximum loanable

amount, and allocating funds for feasibility study assistance; organizational structure,

by creating a regional executive committee with representation from small farmers

and fisherfolks; and, the inclusion of monitoring and evaluation procedures. In

addition, the following are suggested modifications to enhance the effectiveness and

efficiency of the ACEF implementation:

• The ACEF management must provide for a more pro-active mechanism in

identifying strategic project activities eligible for support by prioritizing

activities based on the level of impact on the sector, reduction in adjustment

18
 costs, and sustainability. This may be achieved through constant consultations

with leaders and key informants of the affected sectors. ACEF can explore

partnerships with the local government units, NGO’s and PO’s with good

track record in fund management. A directional fund allocation may be used

or simply pro-rate the allocation by importance given a set of criteria. If the

sector is wanting in infrastructure and other service facilities where the

incremental benefit is perceived to be highest, then a portion of the fund can

already be dedicated for this purpose as the executive committee may

appropriately determine. These approaches may prove to be more efficient in

view of the limited life of the fund and the difficulties in accessibility.

• The ACEF fund allocation must be transparent and equitable irregardless of

the size and resources of the proponents. It should favor projects that can

reduce the cost of doing business in agriculture and provide a sustained flow

of benefits to a larger constituency. It should discriminate against projects

with transitory effects on adjustment costs and benefits like the acquisition of

production inputs such as fertilizers and chemicals. The purpose of moving

the funds interest- and collateral-free (not to add on adjustment costs) and

with sector-wide impact need to be maintained at all levels of ACEF fund use.

• The ACEF must provide for the constant assessment of the impact of ACEF

on competitiveness in agriculture. One approach is to look at the changes in

the level of comparative advantage/disadvantage before and after ACEF. The

results can provide a good basis for planning and directional funding by the

ACEF.

19
• There must be a deliberate effort to undertake an information dissemination

campaign in the agricultural sector on the existence and purpose of ACEF and

how the fund can be accessed particularly in the affected sectors of

agriculture. The purpose is to advertise and encourage the agricultural sector

constituents to use the fund. This may be accomplished through print media or

consultations with industry leaders and farmers, organizations. The

consultation can accomplish both the dissemination objective and

identification of priority areas for ACEF funding.

• In the interest of expediting the processing of applications, loan approvals

need to be decentralized at the regional level particularly those small in value.

This will prevent the deluge of applications at the National Technical

Committee and the Secretariat whose present capabilities are limited. This

was also proposed in the draft guidelines through the creation of the Regional

Executive Committee but, the committee should include appropriate

representations from the small farmers and fisherfolks groups to attend to the

welfare of their constituency. It is necessary therefore, for the Regional

Technical Committee to possess the expertise in reviewing and processing the

applications. The monitoring and post-project evaluation can also be

accomplished at the regional level.

• The guidelines must provide for the reuse of ACEF loan payments by

depositing such payments to Special Account 183 of the General Fund. This

account is specific for ACEF purposes. The secretariat will have to properly

account for all ACEF loan payments.

20
• There should be a constant monitoring of the income coming from the MAV

and the loan payments to ensure the availability of funds for ACEF projects.

The MAV importation and income need to be regularly accounted for, verified

with the Bureau of Customs and Bureau of Treasury. The knowledge on the

size and availability of the fund will be crucial in developing the national

agricultural competitiveness agenda.

21
VI. References

Clarete, R. Undated. Minimum Access Volumes in Agriculture: Choosing An

Effective and Efficient Allocation Mechanism. School of Economics,
University of the Philippines, mimeographed .

________. Undated. Trade-Related Problems and Policy Issues in Philippine

Agriculture, mimeographed .

Department of Agriculture. Revised Implementation Guidelines on the Utilization of

the Agricultural Competitiveness Enhancement Fund (ACEF), 28 March
2000.

Department of Agriculture. Rules and Regulations for the Implementation of the

Agricultural Minimum Access Volumes MAV’s), September 1997.
APPENDIX A

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APPENDIX B

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