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ENHANCEMENT FUND
(ACEF): A REVIEW
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
I. Introduction
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
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
productivity and reduce costs by providing for the necessary support services such as,
with the objective of modernizing and enhancing productivity and income in the
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
are provided for under the Department of Agriculture’s Administrative Order No. 39
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
are as follows:
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b. Priority is given to projects having sector/industry-wide impact such as
million extended as a loan, free of collateral and interest and the principal
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
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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
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
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Table 1. List of agricultural products under the MAV, 2005.
Heading Product Description
(H.S. Code)
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
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
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Table 2. MAV allocation and utilization, 1996-2004
HS Code Description 1995/96 1997 1998 1999 2000 2001 2002 2003 2004 Ave (96-03)
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
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
Ave. utilization 35.2 43.0 45.2 50.2 57.3 55.4 58.6 51.7
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
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
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
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
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.
* 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
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
A smaller amount was reportedly approved in 2001, only in Region 4-A. As of 2004,
private and public investments was also generated in the agricultural sector
investments that may already be existing prior to 1999 but, the effect should have been
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Table 5. Project cost of on-going/approved ACEF projects by region, 2000-2005.
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
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
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
accounted for 29 percent of the borrowers amounting to 197 million pesos while only
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
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.
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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.
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
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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
It is thus, more compelling to favor activities that simply reduces the cost of doing
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.
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Performance
The mechanism by which the ACEF funds are allocated and administered
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
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
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
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.
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Through constant consultation with leaders of these affected sectors, investments can
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
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
where the fund can be retailed to the majority of small farmers and fisherfolks given
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
of funds to meet its requirements, the value of which depends on the collection of
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duties from the MAV. It is in the interest of ACEF that the size of the fund be
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
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
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
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
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
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sector. A major consideration to look into will be the cost of doing business in
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
V. Suggested Modifications
ACEF, a draft of the proposed revised guidelines has already been prepared by the
priority to small farmers and fisherfolks, putting a cap on the maximum loanable
amount, and allocating funds for feasibility study assistance; organizational structure,
addition, the following are suggested modifications to enhance the effectiveness and
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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
view of the limited life of the fund and the difficulties in accessibility.
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
with transitory effects on adjustment costs and benefits like the acquisition of
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
results can provide a good basis for planning and directional funding by the
ACEF.
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• There must be a deliberate effort to undertake an information dissemination
campaign in the agricultural sector on the existence and purpose of ACEF and
constituents to use the fund. This may be accomplished through print media or
Committee and the Secretariat whose present capabilities are limited. This
was also proposed in the draft guidelines through the creation of the Regional
representations from the small farmers and fisherfolks groups to attend to the
• 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
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• 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
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VI. References
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APPENDIX B
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