The Philippine economy is comprised of only three major sectors – agriculture, industry and services. Agriculture accounts for a mere 14% of the economy and, in the past 30 years, registered the slowest growth rate. This is a shame since it accounts for a third of the jobs in the economy; thus, the sector is home to the largest number of poor Filipinos because its workers are paid the least.
The failure of agrarian reform deserves much of the blame for the sector’s lack of performance. I would even say that the Philippine agrarian reform program’s inability to properly define the property rights of agricultural land (setting the right limit to land owned, ensuring that the farmer can use the land to access farming implements through loans, etc.) is the main reason why agriculture remains in its languishing state. To quote a study by Professor Alberto Vargas of the University of Wisconsin in 2003, “the Philippines has one of the worst land tenure problems in the developing world” which has led to land conflicts that induced the creation of the Hukbalahap and the New People’s Army as means of redress.
In a world with an ever increasing demand for food, agriculture and its downstream industry, agro-processing, are one of the most viable sources of growth. How then can we make agrarian reform work?
Re-structure the property rights of agrarian reform land. (What’s the point of having property if you can’t leverage against its value?)
Land given to farmers does not provide access to credit since it cannot be used as collateral. No bank in its right mind will take farmland as security because, in case of default, there is a five-hectare limit to the amount of land that one entity can own. If a bank ends up with uncollectible debt that is more than the value of the agricultural land that is mortgaged, it could potentially get in trouble since it cannot retain ownership of the said land.
Without collateral, farmers who need implements (seeds, fertilizer, payments for extra farm hands, etc.) go to the informal market for loans (usually, the old landlord). If the farmer defaults on his payments, transferring the title of the property to the new owner is a long and tedious legal process. Further, because of a lack of options (since banks do not usually take farmland as collateral), farmers are prone to be victimized by unscrupulous lenders.
Provide access to credit and insurance. (Fix financial problems with financial tools.)
Most farmers do not have savings. Thus, access to financial instruments, like loan facilities and crop insurance, is at the heart of the farmer’s problem. If his kids get sick, or need to enroll in school, or if the farmhand needs to get paid, or typhoon season hits, the farmer needs access to financial instruments to keep his farm and his family going. The government, in this case, needs to make sure that farmers have access to the best cooperatives; that is, those that are based in the community where the farmer works, and which are funded publicly and audited regularly. (We don’t want to another Janet Napoles.)
Provide access to extension services, infrastructure and post-harvest facilities. (Hard infrastructure is good but nothing beats knowledge in empowering farmers.)
The government is going all out on post-harvest facilities and infrastructure. This is understandable since these are tangible things that are also needed by farmers. But, how about things that we can’t see or touch? Like any other business, agriculture’s future is in generating new ideas and turning the ideas into processes. Ensuring access to technologically advanced seeds and planting methods to farmers should be what extension services bridge. Analysts, including myself, usually see extension work lacking. No farmer should be left unvisited and each of them should know what new seeds and methods have been tested and how it can benefit their harvest. If we equip farmers with the know-how on how to avoid getting into agricultural tight-spots (i.e. pests, drought, floods), and how to handle such problems if they do face them, we reduce the likelihood that the farmer will need the government’s help. Thus, we upgrade to a virtuous cycle rather than a vicious one. Like they say, teaching a man to fish is always more sustainable than giving him fish everyday.
The International Rice Research Institute (IRRI) is a good source of knowledge, with its extensive research programs and massive seed stock, and is based in Los Banos, Philippines.
For a sector that is about to take off, all government needs to do is to provide a conducive environment for agricultural growth. With the exception of extension services, the three recommendations above are not budget-heavy. In fact, they are almost costless – all it asks for is an informed change in policy.
This is a guest post from Mark Canlas. Mark has almost ten years of experience as an economist and has worked with the National Economic Development Authority and the Senate of the Philippines. He is currently the economic attaché of the British Embassy of the Philippines.
He also owns a chain of college review centers and is a popular lecturer.