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Poverty reduction is business expansion

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Rolando T. Dy

M. A. P. Insights

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How will poverty reduction impact on businesses’ bottom lines? And why should businesses seek rational spending on poverty alleviation? Here is why.

The Philippines had a poverty incidence of 21.6% in 2015 out of the population of 101M. This translates to 21.8M poor. Of these poor, 16.6M reside in the rural areas where agriculture is the main source of incomes. This is the highest among ASEAN peers.

In 2015, a family of five needed at least P9,064 every month to meet both basic food and non-food needs, based on data from the Philippine Statistics Authority (PSA). These meant P210 per family per day and P302 per family per day, respectively. In the same period, PSA estimated that 16.5% of the families were poor.

In 2015, Filipino households spent P4,883 billion on goods and services: P2,046 billion on food, and P2,837B on non-food — rental, electricity, transport, education, health, and clothing, in that order. Of food spending, 80% was consumed inside the home, and 20% consumed outside the home. The latter had grown faster in the past.

But there are harsh realities. Some 35% of households accounted 63% of all spending, and another 45% comprised 31 percent. That left 20% of the households with only six percent of the spending power. The spending power of the upper 35% was 4.5-times higher than of the lowest 20%.

What happens if there is less poverty? Let us do a sensitivity analysis.

Let us assume that President Duterte achieves his administration’s target of 14% poverty incidence in 2022. Assuming a population growth of 1.5% a year, the population in 2022 would be 112M, or an 11% gain. Then, there will be 15.7M poor, or a reduction of around 6M from 2015 or around 1M families (see Table 1).

Poverty Reduction is Business Expansion

HOW WILL THE ADDITIONAL NON-POOR BOOST MARKETS?
Let us use the 2015 Family Income and Expenditure Survey (FIES) of PSA as proxy data. In 2015, there were 22.73M families with 101M people. That is about 4.45 members per family. The family size for poor families was about 5.8.

In 2015, the average family income was P227,000 per family per year while the average family expense was P215,000 per family. The average spending of nearly P18,000 a month (P600 per day) seems low, but I reserve comment on the matter.

The bottom 30% of families spent P703B in 2015 versus P152B for the upper 70%. The market multiples are: total spending 5.9 times, food spending 3.7 times, and non-food spending 9.5 times. Per family basis, the multiples are: 2.5 times for total spending, 1.6 times for food, and 4.1 times for non-food (see Table 2).

Poverty Reduction is Business Expansion

SCENARIO 1
Poverty incidence will be reduced from 21.6% of population to 14% of population (the Duterte target). Moving some 1M families will mean P158B in additional spending, up by 153% from P103B. Food spending will increase by 58% while non-food spending will be up by 310% (see Table 3).

Poverty Reduction is Business Expansion

SCENARIO 2
Poverty incidence will be reduced from 21.6% of population to 11% of population (Note: Indonesian level in 2015). Moving some 1.6M families will mean P253B in additional spending to P418B, up by 153% from P165B. Food spending will increase by 58% to P161B while non-food spending will improve by 306% to P256B.

WHAT DO THE MAGNITUDES MEAN TO BUSINESS?
Under Scenario 1, total additional spending power from poverty reduction would be in the order of P158B:P37B for food, and P121B for non-food. Under Scenario 2, the figures would be 1.6 times: P253B, P59B, and P193B.

The implications of these market expansion for business are tremendous. The additional spending would, in turn, drive investments, gains in employment and other multiplier effects. Add to that the payment of national and local government taxes.

To achieve the targets, we go back to the hard reality: three-quarters of the poor are in the rural sector. How will the poor be empowered?

By improving the productivity of agriculture and fisheries as well as pursuing sector diversification to broaden farm incomes and address underemployment. Non-farm jobs from agri-based factories will follow with scale from both productivity and diversification drives. These principles are as perennial as the grass. To succeed, policy and institutional reforms are imperative: extension service, research and development, project management, access to farm lands and rural infrastructure.

IGD, a global research firm, forecasts that grocery retail sales in the Philippines will increase 9.3% a year to P7.08 trillion by 2021 from P4.53 trillion in 2016. This will be driven by a growing population, strong domestic consumption, and a buoyant economy.

For the first time, the country will move up to fifth-largest grocery retail market in Asia, after China, India, Japan, and Indonesia. Shirley Zhu, Program director for IGD’s Asia Pacific, said: “Driven by more disposable income and increasingly urbanised lifestyles, Filipino shoppers are demanding more convenience in their grocery shopping. As a result, convenience and online are the hottest channels in the market,” as cited in https://igd.com/about-us/media/press-releases/.

How much more growth will there be if rural poverty is reduced to ASEAN level?

The Duterte administration has plans to dramatically reduce poverty through the Philippine Development Plan, 2017-2022. There are ongoing and completed commodity road maps with specific interventions and metrics in every value chain corridor. These include cacao, coffee, and rubber.

With scarce resources, commodity choices must be subject to benefit-cost studies rather than political imperatives. Poverty reduction is great for business and society, if executed well.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the M.A.P.

Rolando T. Dy is the Vice-Chair of the M.A.P. AgriBusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

map@map.org.ph

rdyster@gmail.com

http://map.org.ph

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