Inclusive Economic Recovery 101: Why helping MSMEs and strengthening the FDA is crucial

By JAIME ARISTOTLE B. ALIP, PhD
August 27, 2021

Like a bad refrain, strict quarantines were declared again in response to the surge of COVID cases from the highly infectious delta variant. While government-mandated quarantines are essential to contain the pandemic, the economy suffers, leading to business closures and loss of jobs. The pandemic’s impact on micro, small and medium enterprises (MSMEs) has been excruciating. This is worrisome, as MSMEs account for 99.5 percent of all businesses in the country.

Recently, quarantine classifications had been relaxed, in line with efforts to regenerate the economy and prop up MSMEs. Unfortunately, those in the food processing industry face a perennial bottleneck: licensing and registration. This has been a continuing challenge for the Food and Drug Administration (FDA), the agency tasked to ensure that all food and medicines used in the Philippines are safe for public consumption. The FDA is under the Department of Health (DOH) and very much in demand, as it also reviews medicines for use in COVID vaccination programs.

Clearly, there is a need to strengthen the FDA to enable it to fulfill its urgent mandate in these trying times.

Burden of Regulatory Compliance

Enterprises with an asset size of up to PhP100 million and less than 200 employees are classified as MSMEs. The sector is responsible for 40 percent of our Gross Domestic Product (GDP) and plays an important role in our economy. MSMEs pave the way for new entrepreneurs and help in poverty reduction by creating jobs for our growing labor force. As suppliers and providers of support services, MSMEs serve as valuable partners to large enterprises. MSMEs stimulate economic development in rural and far-flung areas. Overall, MSMEs employ more than 5 million workers or approximately 63 percent of the country’s workforce.

Many MSMEs are into food production and processing and are required to get a license to operate (LTO) and a certificate of product registration (CPR) from the FDA. MSMEs selling food products without FDA registration are subject to sanctions. The FDA is empowered to issue a cease-and-desist order, as well as impose fines, to prevent the sale of unregistered products. It also issues a public warning against products that are not registered.

To ensure public health and safety, as well as to protect consumer rights, the FDA, and the business sector, including MSMEs, have a mutual interest in ensuring that regulatory requirements are met. This is especially important at this time of pandemic when business processes are being reengineered to respond to the new normal of limited mobility and human contact. Unfortunately, the difficulties that MSMEs face in FDA registration hinder the industry’s growth and potentials.

Perennial Backlog

The backlog in FDA’s processing of applications for license and registration had been the subject of lamentation for years. The agency has tried to address this, with the FDA Director-General even instituting an agency-wide “Project Backlog” in 2018, to settle some 80,000 pending applications. That year, FDA also piloted a program with the Department of Trade and Industry to fast-track the permit process for micro-enterprises producing low-risk food products.

However, the problem persists. In Nov. 2019, the Anti-Red Tape Authority (ARTA) instructed FDA to address its backlog of 11,000 CPR applications. Then, in Feb. 2020, the ARTA pushed for the deputization of local government units (LGUs) to conduct inspections on food-processing MSMEs with low-risk products. This program was pilot implemented in Quezon City, where LGU inspectors were trained and provided with the standard checklist for conducting inspections in line with FDA Good Manufacturing Practice (GMP) regulations.

MSMEs in the provinces face even more difficulties. While applications may now be submitted online, the approval process still takes time because FDA’s system remains highly centralized. Laboratory tests and nutritional value analyses for products are done in Manila, due to lack of laboratory facilities in FDA regional offices. The situation is aggravated by lack of manpower.

Social media is rife with tales of start-up businesses who experience difficulty in getting their FDA licenses and certificates of registration. Those in the microfinance industry also know that their clients who engage in food production or food processing are usually stymied by the complex and lengthy FDA registration process, sometimes leading to the discontinuance of their micro-enterprises.

Reforms Needed

The FDA has adopted measures, including automation, to improve its processes. However, as people explore alternative sources of income due to the pandemic, more applications are filed, and efficiency becomes more important.

The government must invest in updating FDA’s information technology (IT) infrastructure, to enable it to cope with the rising number of license and registration applications online. The approval of FDA’s pending request for the hiring of additional inspectors and evaluators should also be prioritized. It would be good for FDA to roll out the pilot programs implemented in NCR, where DTI Negosyo Centers and the LGU were deputized to conduct inspections. FDA should also consider alternative tools, such as remote video and other digital channels, to facilitate remote and live interactions in inspecting products and establishments.

FDA’s centralized registration process also needs to be reexamined. It could delegate to the regions the approval of micro-enterprises engaged in the production of low-risk food products, for instance. FDA should also consider partnering with academic and other institutions with facilities and technical expertise for laboratory testing and inspection at the local level. It could even partner with the private sector, such as the Philippine Food Processors and Exporters Organization Inc. (PhilFoodEx), to facilitate testing procedures.