IN less than two weeks, we Filipinos will once again cast our votes. By this time, we should have thoroughly studied the candidates' platforms to see if these are really feasible. I consider myself a farmer-accountant by profession and farmers, in particular, want drastic changes to government policies and procedures. We are hoping that the incoming administration will address minimal agricultural subsidies, extreme weather events, costly farm inputs, high petroleum prices and even thievery. Making things worse, prices of agricultural produce, especially rice and corn, have been kept relatively low for years.
In its simplest sense, agriculture is the cultivation of plants and livestock for consumption. As defined under Philippine Accounting Standards (PAS) 41, however, agriculture is the management by an entity of the biological transformation of biological assets for sale into agricultural produce or additional biological assets. Agricultural produce is the harvested product of an entity's biological assets. The processes of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset are referred to as biological transformation.
The application of PAS 41 has always been a challenge, especially in measuring biological assets, both at initial recognition and subsequent measurement. This is because the standard presumes that fair value can be reliably measured for most biological assets. But looking at the Philippine scenario, especially with the rice and corn that I'm familiar with, market prices or even alternative fair value measurements are clearly unreliable.
PAS 41 prescribes the accounting treatment, financial statement presentation and disclosures related to agricultural activity. It accounts for biological assets, agricultural produce at the point of harvest and government grants related to those biological assets. Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest.
Most farmers, if not all, do not apply PAS 41 mainly due to the volatility of market prices where fair valuation is a challenge. Most usually measure biological assets at cost (which is allowed) less accumulated depreciation and impairment losses. Others use the cash basis of accounting, especially since most of our farmers lack awareness and formal accounting education.
I spoke with farmers in Cagayan and Isabela and asked them about their perspective. Here's what I learned: they borrow money from traders, taking the risk that the latter will buy their produce at a lower price than the already low fair value. Others are afraid to continue farming because of the huge risk they are taking, especially during severe droughts (which happened last year) where recovery is almost zero.
Currently, an ordinary farmer's average monthly earnings for rice or corn is approximately P3,000 to P3,750 per hectare or around P20,000 to P25,000 per cropping. This is mainly due to low farmgate prices. The farmer's labor and borrowing costs aren't even factored into the profit or loss calculation.
Along with the constant rise in fertilizer and petroleum prices, farmers also have to constantly deal with extreme weather. In Cagayan Valley and in certain parts of Luzon, they sustained significant losses in 2020 and 2021 due to droughts and typhoons. Farmers are also being victimized by thieves — I know someone who had 23 sacks worth of rice stolen while the grains were being dried.
It is unfortunate that agriculture, for rice and corn farmers, is more of a gamble nowadays. Even more unfortunate is that most farmers are trapped in this situation as they only know farming as a source of livelihood. They continue to hope for government intervention to rescue them. More attention is needed in terms of support, at least for subsidies, farm inputs and ways to stabilize prices.
Who knows? Maybe in the next six years farmers will finally apply PAS 41. This, of course, is in the context that they secure more profitable agriculture endeavors so as not to add crop accounting to their already heavy burdens.
Gee A. Pastor is the quality assurance review manager of Paguio, Dumayas and Associates, CPAs (PDAC)-PrimeGlobal Philippines, an institutional member of the Acpapp. The views and opinions in this article are his and do not represent those of PDAC and the Acpapp.
