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Rice corporatives: Corporate farming with a twist

(Last part of the series)

Published

By Dr. Emil Q. Javier

Dr. Emil Q. Javier

Dr. Emil Q. Javier

The previous week’s column on the corporative as an alternative business model not only to raise land, water and labor productivity but also to improve incomes of small farmers elicited many queries.

This new approach to modernizing Philippine agriculture being espoused by the new Land Bank of the Philippines (LBP) President, Alex Buenaventura, is still very much at the conceptualization stage and waits for more inputs from the prospective small farmer partners themselves, their respective associations, the rural financing sector and the local governments.

 

Land ownership, amortization and land tax arrears and penalties

The first concern is about land ownership. What happens to the land should the corporative fail? The agreement between the small farmer partners and the corporative is only about use rights over the land in the duration of the agreement. The small farmer partners therefore retain ownership regardless of what happens to the corporative. The only obligation of the small farmer should he/she decide to sell or lease the property to a third party is to require the third party to abide with the usufruct contract with the corporative.

As additional incentive to the small farmers many of whom are agrarian reform beneficiaries who are behind in the land amortizations to the LBP, Alex Buenaventura proposes that the penalties and surcharges for delayed payment be waived. However, the balance of the land amortizations will be paid by the corporative charged to the small farmer individual shares in the corporative income.

The agrarian reform beneficiaries whose lands are covered by collective Certificates of Land Ownership Awards (CLOAs) will be encouraged to explore the corporative option as a way of addressing the many operational and social conflicts in land redistribution. The actual surveying, parcelization and titling of individual farm lots is tedious, delicate and often contentious particularly with the assignment of individual lots. With the corporative business model there is no rush for parcelization and titling of lands. They can proceed diligently, deliberately and transparently avoiding the implementation problems the Department of Agrarian Reform (DAR) and beneficiaries are now going through.

As far as the local governments are concerned the question is what happens to the land tax arrears and who pays, going forward. Similarly, Alex Buenaventura proposes that the arrears and penalties be condoned but the local government units (LGUs) will be assured that moving forward, the corporatives will automatically remit to the LGUs the quarterly land taxes due from the small farmers. The LGUs are therefore assured of income and spared from the unpopular burden of collecting taxes.

 

Source of low-cost capital

Where will LBP draw the capital for the corporatives which by design will not earn dividends? The ready source is the annual income of LBP, half of which under the law LBP, as a government-owned and controlled corporation (GOCC), is required to remit to the National Treasury.

The income of LBP in 2015 was P13 billion. Income for fiscal year 2016 is tracking close to the previous year. Thus, from its earnings alone LBP can set aside close to P7 billion every year as equity to the corporatives.

All that is needed is an Executive Order by President Rodrigo Duterte with an endorsement by Secretary Carlos “Sonny” G. Dominguez III of the Department of Finance (DOF) allowing LBP to retain half of its earnings to support the Bank’s missionary rural financing mandate.

If only for this season we support the status quo of LBP being a universal bank. Being a universal bank has not prevented it from becoming the biggest lender by far to the rural sector. But rural lending is low margin and high risk. The LBP needs a steady source of low-cost funds with which to subsidize its missionary small farmer credit operations. The LBP can better perform its mandate if it remains as a profitable universal bank.

 

Recruitment and training of corporative managers

A very important requirement in the wide scale adoption of the corporative business model is the availability of experienced senior managers. With a basic module of 300 hectares of rice lands per corporative, we will need 10,000 chief executive officers (CEOs) if all the three million hectares of rice lands were enrolled with the corporatives.

Assuming only 10 percent of the rice farmers will join the corporatives, the program will need 1,000 senior business managers with grounding in the various aspects of technical agriculture, processing and marketing.

A key feature of the corporative development program therefore is a massive recruitment and in-service training program for senior managers and business development officers.

 

Management of the corporative after the farmers gain majority control

The business model calls for the gradual buy out by the farmers of the original investments of LBP and/or philanthropic private sector partner until such time the farmers gain majority control with, say 70 percent of the equity.

Legally, the small farmers collectively as a cooperative or irrigators association can take over the management of the corporative, if they so desire.

However, it is in the better interest of the farmers owners to keep the corporative under professional management under the direct supervision of the minority owner, LBP. Or retain the corporative as a corporate social responsibility (CSR) project of the private company sponsor.

It will be the call of the small farmers.

 

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Dr. Emil Q. Javier is a Member of the National Academy of Science and Technology (NAST) and also Chair of the Coalition for Agriculture Modernization in the Philippines (CAMP). For any feedback, email eqjavier@yahoo.com.

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