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Overview

The purpose of this report is to improve the Philippines’ preparedness for the El Niño–Southern Oscillation (ENSO) by informing stakeholders of ENSO’s agricultural and economic impacts. The report finds that ENSO has detrimental impacts on the Philippine people, economy, poverty levels, and agricultural sector. The country has taken actions and enacted policies to respond to ENSO events, but these have not adequately mitigated the costs of ENSO impacts. That said, there are further actions the country can take to better prepare for these impacts. This is important because of the Philippines’ high exposure to climate shocks, the rural population’s climate vulnerability, and the prominence of the agricultural sector in the national economy. There is also some urgency as recent forecasts suggest another El Niño will likely occur in winter 2018–2019.

ENSO has important impacts on the Philippines’ climate, agriculture, economy, and society

The Philippines is highly exposed to ENSO-related climate and agricultural shocks. ENSO describes naturally occurring ocean and atmospheric temperature fluctuations, which have major implications on global weather patterns. Since 1980 there were seven severe ENSO events, which include both El Niño, ENSO’s warm phase, and La Niña, ENSO’s cold phase. In 1982–1983, El Niño–related droughts affected 450,000 hectares of farmland in the Philippines. The most severe El Niño occurred in 1997–1998, when rainfall fell to half of historical levels, causing drought in two-thirds of the country. This led to forest fires that destroyed almost 10,000 hectares of natural forests. In 2015–2016, dry El Niño conditions lasted for 18 months and affected about a third of the country. In total, six cities, 16 provinces, and 65 municipalities declared a state of calamity. By May 2016, over 400,000 farmers and 550,000 hectares were directly affected by El Niño–induced drought. Later, La Niña caused flooding in low-lying farm areas causing increases in crop pests and diseases. Overall, the most recent El Niño event in 2015–2016 caused $327 million in agricultural production losses.

ENSO’s most notable effect is on average rainfall, which declines during El Niño and rises during La Niña. These average rainfall variations are most pronounced during the driest six months of the year, December to May. During El Niño in the Philippines, average rainfall decreased by 14 percent in Luzon, the northern island chain; 21 percent in Visayas, the central island chain; and 35 percent in Mindanao, the southern-most island chain. During La Niña, by contrast, rainfall increased by 31 percent in Luzon, 41 percent in Visayas, and 19 percent in Mindanao (see Figure A for El Nino’s rainfall patterns and El Niño–affected areas in the Philippines).

ENSO affects crop production because it disrupts normal weather patterns. More specifically, El Niño creates water shortages and La Niña creates water abundance, including flooding. Water shortages reduce crop planting areas, delay planting seasons, and generally lower crop yields. One study found that a one degree increase in sea surface temperatures during July–September is associated with a 3.7 percent decline in irrigated dry season production and a 13.7 percent decline in rainfed dry season production in Luzon. In both irrigated and rainfed systems, the decline was larger for harvested areas (9 percent decline) than for yields (5 percent decline). Another study estimated substantial yield losses for wet season crops, showing rice yield losses during El Niño events in 1973, 1983, and 1990. Simulations carried out for this report show La Niña crop yield gains can partially make up for El Niño yield losses.

There is some evidence that ENSO events affect the livestock and fisheries sectors, though this link is inconclusive. A report by the Philippine Bureau of Fisheries and Aquatic Resources shows El Niño may reduce annual fish catches by 20 percent in open waters and by 23 percent in waters within 15 kilometers of the shoreline. Despite this, national production data also show fish production, from 1980 to 2015, has consistently risen in the Philippines despite numerous ENSO events, seemingly contradicting the ENSO-fisheries link. ENSO’s links with livestock declines is also poorly established. That said, La Niña increases annual “hot” days by 25, which can cause increased heat stress on livestock and related cost increases for producers.

ENSO’s impacts on agriculture have economy-wide implications. Over 7 million hectares of the Philippines’ 30 million hectares are devoted to agriculture. Agriculture was only 12.5 percent of total gross domestic product (GDP) in 2011. But, when downstream agricultural processing, input production, and agriculture-related trading and transporting are included, the contribution of the entire agriculture food system (AFS) was over 30 percent of GDP. Agriculture also employs over a quarter of the country’s workforce. As such, any shocks to agriculture lead to reverberations across the entire economy, with serious implications on welfare, food security, and national poverty levels.

Strong El Niño events lead to GDP losses, while strong La Niña events lead to smaller GDP gains. Simulations for this report show that national GDP losses during a strong El Niño event are $3.3 billion, while national GDP gains during La Niña are $0.5 billion. Percentage losses are larger in agriculture, where GDP falls by nearly 7 percent. Subnationally, GDP losses vary across regions within the Philippines: agricultural GDP falls by 1.9 percent in Luzon during a strong El Niño, but by 1.4 percent in Mindanao. Moderate La Niña events saw some gains in Luzon and Visayas, but small losses in Mindanao. Overall, most of El Niño’s economic losses occur outside of agriculture, while La Niña’s agricultural impacts cause slightly greater economic benefits in agriculture than the wider economy.

Net food consuming households, usually in wealthier urban areas, suffer greater welfare losses during a strong El Niño. Simulations show consumption, or welfare, levels fall for all households across the income distribution. Urban household consumption is affected more negatively than rural household consumption, especially farming households, during strong El Niño events because urban households are more likely to be net consumers of food products. Net consumers, who can also frequently be non-farming rural households, are hurt by higher food prices, but unlike net producers, do not benefit from higher farm incomes. However, net producers in rural areas tend not to be poor. The rural poor, which is two-thirds of the poor population, typically do not own the land on which they work and may not benefit when farm prices rise. Therefore, when El Niño lowers crop yields, it reduces wages and farm labor demand, causing some laborers to search for non-farm work to smooth income. ENSO also causes greater food insecurity by raising household food expenditures. This can cause greater malnutrition and consumption poverty for the poor, since poor families spend more of their total income on food. The World Bank estimates that much of the increase in poverty, from 25 percent in 1997 to 28 percent in 1998, was attributable to the impact of an El Niño shock on the agricultural sector.

Women are heavily involved in the Philippines’ agriculture sector and face different vulnerabilities to ENSO than men. Women’s extensive involvement in farming and other agricultural-related activities is well documented in the Philippines. Women also have fewer assets than men that they can use to adapt to ENSO events. Men generally hold more agricultural assets, including land and irrigation systems, which allows them to offset agricultural losses during ENSO events. Women’s assets are lower in value but generally have higher liquidity—and are thus more easily sold during times of crisis. As such, when coping with a natural disaster, households tend to sell women’s assets first. Women also have lower access to agricultural technologies and climate information that support ENSO preparedness. Simulations indicate female-headed households are slightly less affected by strong El Niño events than male-headed households. This is mainly because female-headed households tend to be poorer than male-headed households, and, as reported above, poorer households are slightly less affected than higher income households. That said, women also spend more of their earnings on food consumption and tend to be landless laborers, so production shocks disproportionately affect them.

The Philippines acted to support ENSO preparedness, but there is room for improvement

The Philippines developed the Roadmap to Address the Impact of El Niño (RAIN), which directly addresses ENSO. RAIN directly responded to El Niño in 67 provinces and was successful in stabilizing food prices and food supplies by supporting crop production in unaffected or mildly affected regions at times when other areas were broadly impacted by drought. RAIN accomplished this through several components, including Cash-for-Work, food distribution, public information, water system improvements, and seeds and fertilizer distribution. During the most recent El Niño in 2015–2016, the National Economic and Development Authority (NEDA), which leads the Philippines’ El Niño Task Force, allotted $422 million for El Niño, $83 million to manage water supplies, $29 million to provide food stamps, and another $40 million to support affected urban households.

Most of the Philippines’ climate-related efforts were intended for non-ENSO events, but indirectly supported ENSO preparedness. These efforts include several climate change and disaster risk reduction programs, including: the National Action Plan to Combat Desertification 2010–2020; the Adaptation and Mitigation Initiative in Agriculture; the Nationwide Operational Assessment of Hazards, and the piloting of Weather Index–Based Insurance. Moreover, two national development programs have major implications on ENSO preparedness in the Philippines. These include the national rice self-sufficiency policy and the Pantawid Pamilya conditional cash transfer program. Under the rice self-sufficiency policy, the National Food Authority controls rice trade by implementing import tariffs and establishing other import restrictions, such as curbing the private sector’s ability to import. These actions reorient domestic rice demand to domestic producers; however, they can also create harmful market distortions, especially for foreign trading partners. The Pantawid Pamilya cash transfer program, by contrast, reduces losses for poor families during ENSO by providing them cash resources in return for them meeting a set of conditions. NEDA also relies on international support, including from the World Bank, to enhance ENSO preparedness.

These important efforts also demonstrated several areas to improve the Philippines’ ability to prepare for ENSO events. These areas include the following:

Government areas to strengthen

• Government agencies and systems could be better adapted to slow onset disasters, like El Niño–related water scarcity.

• Drought aid delivery could be timelier and more efficient.

• More detailed forecasting systems would be more helpful to local farmers.

• There have been various budget and financing delays and shortfalls around ENSO relief and preparedness.

General areas to strengthen

• Gender issues have generally not been integrated into ENSO-related response and preparedness activities.

• There is no ENSO financing mechanism fitted to the Philippines’ context.

• Local stakeholders and governments could be better prepared for ENSO and better able to access hard-to-reach locations.

Policy interventions do not neutralize ENSO-related losses

Policy interventions and investments do not fully offset GDP losses from strong El Niño events. In-depth modeling carried out under this study estimated the effects from seven ENSO-related policy interventions, including introducing drought-tolerant crop varieties, expanding irrigation, applying food import subsidies, storing grains, removing rice quotas, providing cash transfers to poor households, and applying all these policy interventions simultaneously. These models show that GDP losses during El Niño of $3.3 billion with no interventions, are reduced to $1.4 billion with all six interventions. In other words, even with an ambitious policy framework, a strong El Niño still causes $1.9 billion in GDP losses. When interventions are implemented in isolation, which is more likely to be the case, losses are much higher. For example, the simulation shows food import subsidies and cash transfers are the least effective in mitigating El Niño losses. The reason is that food import subsidies do not increase local agricultural production and cash transfers require tax increases for higher income households to offset transfer costs. Therefore, food subsidy gains are limited and cash transfers may actually increase overall GDP losses. Removing rice import quotas is the most effective in mitigating GDP losses. Increased rice imports offset domestic production shortfalls for downstream processing and ease upward pressure on consumer food prices.

Simulated policy interventions are effective in reducing welfare losses and limiting poverty increases caused by El Niño. As with GDP during El Niño, expanding irrigation use, depleting grain stores, and removing rice import quotas are effective in reducing household consumption losses, particularly for poorer households. Simulations show that cash transfers reduce losses for poorer households but increase losses overall. When all policy scenarios are implemented, total consumption losses drop considerably and become consumption gains for the poorest households. Simulations also show that 5.1 million Filipinos fall into poverty during a strong El Niño event, but irrigation, cash transfers, and removing rice import quotas can mitigate this. In the most ambitious scenario, where all interventions are implemented together, the poverty headcount would actually decrease during a strong El Niño. This shows there is tremendous potential to implementing national policies related to ENSO.

Urban households benefit the most from simulated policy interventions. While removing rice quotas offsets consumption losses for rural households, no policy scenarios completely offset El Niño’s consumption losses on urban households. That said, it is also true that urban households benefit more from interventions than rural households. The one exception is cash transfers, which are financed through taxes on higher income households, most of whom reside in urban areas. Cash transfers are also the most likely policy intervention to benefit female-headed households, but this is because cash transfers target lower income households. Lifting rice import quotas is the only simulated intervention that completely negates consumption losses from strong El Niño events.

The government can take additional actions to improve ENSO preparedness in the Philippines

There are many opportunities to improve ENSO preparedness and resilience. In Table A, recommendations are divided into two groups: preparedness and resilience.

Preparedness are measures specifically geared toward ENSO and should, ideally, be in place before the next ENSO event occurs. These actions will significantly empower people to cope, respond, and recover from damaging ENSO events. Resilience, by contrast, are measures that are not specifically tailored to ENSO, but that will build individuals’ and organizations’ ability to adapt to multiple forms of risks and shocks without compromising long-term development. Recommendations in blue are a high priority, recommendations in tan are a moderate priority. The last two columns denote which actions are short-term (S), or should be completed within a year, and which actions are medium- to long-term (M/L), or would not be achievable in less than a year.