My most fervent wish for agriculture for the New Year

Source: Manila Bulletin

By Dr. Emil Q. Javier

‘There are those who look at things the way they are, and ask why . . .

I dream of things that never were, and ask why not?’. . .  Robert Kennedy.

The lack of productivity and competitiveness of our agriculture could be traced to many causes. However, the most fundamental is the lack of economies of scale of our small, fragmented landholdings. The various parts of the agriculture value chain from planting, culture, harvesting, processing, storage and marketing can be made more productive and efficient if the farms were consolidated and managed as larger management units.

Most if not all of our constraints and limitations can be overcome if our small farms were operated as larger businesses 1) as cooperatives, 2) as contract growers to corporate integrators, 3) as joint ventures with corporate partners, and 4) as straight leases or outright sales to larger farmers and agribusinesses.

Persevering with Cooperatives

Farmers’ cooperatives are very successful in Japan, Korea, China and Taiwan. Huge cooperatives dominate agriculture in parts of Europe like the Netherlands, Germany and France. We have not been as successful in farm cooperatives promotion and development but the fact that we have some very successful coops like Lipa City Multi-Purpose Cooperative Marketing Association (LIMCOMA) and Sorosoro Ibaba Development Cooperative (SIDC) in Batangas show that it can be done.

The banes of our coops are loose financial controls and weak business development. The Philippine Business for Social Progress (PBSP) and the corporate social responsibility (CSR) projects of many corporations demonstrate how the farmers associations can be empowered and assisted by professional managers. We should appeal to the Philippine Chamber of Commerce and Industry (PCCI) and their affiliates to do more.

For example, our agriculture will be more vibrant and farmers can earn more if they can sell directly to the rapidly expanding supermarket modern trade.

Additionally, the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR), should have dedicated programs to commission private service providers to render training and management support to coops.

These management service providers shall be compensated based on coop performance parameters like membership, capital build-up, farm yields, diversification and new businesses and, of course, farmers’ incomes. The previous DAR leadership initiated a project along this line. We hope the new DA and DAR secretaries pick it up.

Contract Growing by Small Farmers with Corporate Integrators

Contract growing as a business model is a standard business practice among food and beverage companies in industrialized countries. Del Monte (and its competitors) in the United States has hundreds of thousands of acres of fruits and vegetables under cultivation but does not own any of them.

Thailand is eminently successful with small farmers growing fruits, vegetables, flowers, shrimp and fish, sugarcane, and even fast growing trees for agribusiness processors and exporters.

In the Philippines, contract growing is working for broilers, swine, bananas, pineapple, papaya and tobacco. These are the bright stars in the agriculture sector. They are highly productive and globally competitive. The small farmers are relieved of the burden of sourcing inputs, modern technology, credit and finding profitable markets. The corporate integrators share the risks with the farmers in exchange for assured, quality raw materials. We should aspire to do the same with the rest of the commodities like they do in Thailand.

DA, DAR, the Department of Trade and Industry (DTI) and the local government units (LGUs) together with PCCI and its affiliate industry associations and their members should come together and collectively encourage, promote and sustain this inclusive business model. We should applaud and support the efforts of Nestle (coffee), Kennemer (cacao) and SL Agritech (hybrid rice) who are actively mobilizing the small growers and their cooperatives as valued partners in their supply chains.

Joint Ventures with Corporate Partners

Without selling their farms, the small farmers and agrarian reform beneficiaries can join up as business partners in agribusiness corporations with their land as equity and as farm workers receiving proper wages and benefits. The business model can be made to work and more widely acceptable if the small farm owners and their cooperatives are assisted by the corporation to engage in ancillary enterprises like cooperative stores/markets, transport, farm service providers, cable TV, generic drug stores, pre-schools and other rural businesses. Thus, in addition to dividends from the joint venture and wages from employment, the farmer-members receive supplementary income from the cooperative operations.

The Nakar coconut initiative of urban planner Flor Orendain is a potentially powerful model if the hundreds of coconut farmers in Infanta and Nakar, Quezon will be persuaded to sign up and the hoped-for thousands of overseas Filipino workers (OFWs) will ante up the capital.

The “corporative” concept of the new Land Bank of the Philippines (LBP) President Alex Buenaventura is a more easily realizable variant of Orendain’s proposal. Instead of private individual investors, LBP itself and banks awash with idle agri-agra funds will serve as incorporators and philanthropic capital providers. As proposed, almost all the earnings of the corporative will accrue to the farmer-partners. Part of the incomes of the individual farmer-partners will be retained so that in time the farmers can buy out LBP and the original investors and the farmers themselves become majority owners. However, LBP and the other bank partners will continue to provide professional management to the joint venture, if the farmers so wish.

These two concepts are compatible with each other and should be actively piloted and demonstrated. In both models, the corporation will engage in postharvest, processing and trading and, therefore, the farmer partners will benefit not only from primary production but also in their share in the rest of the value chain where more of the margins in agriculture are made anyway. Both are socially acceptable and financially viable and are potential game changers. Key is the availability of competent, socially motivated business managers and community leaders.

Straight Lease and Outright Sale of Farms

Straight lease and outright sale of small farms to larger farmers and agribusiness corporations are straightforward and expedient. This mode of land consolidation is going on. No law prohibits lease/sale of farm lands except the provision of the agrarian reform law which limits ownership of farm lands by individuals not to exceed five hectares. Many farmers’ sons and daughters realizing they cannot make a decent living off the small parcels due to them, elect to lease/sell their shares and seek employment and their fortunes elsewhere.

The five–hectare limit unnecessarily constrains the land market and prevents the small farmers from receiving fair value for the lands they are giving up. By this time, it is an anachronism we can ill afford. After four decades of land reform and redistributing close to 8.5 million hectares of the target of nine million hectares, we have essentially achieved the immediate political objective of fairer distribution of assets in the countryside to the small tillers and the landless. However as a consequence, we have fragmented our farm lands into small, economically barely viable economic units. The situation can only get worse as the land is equitably distributed among all the siblings after each generation.

Further fragmentation of our farm lands can only consign our agriculture to further lack of productivity, lack of global competitiveness and ultimately rural poverty.

We should declare victory in agrarian reform and move on. We should free up the land markets to allow for reconsolidation of farms into more viable farming units. It is time we focus our efforts on land, water and labor productivity.