Rural poverty reduction: Land reform matters
Philippine poverty incidence at headcount was 25.8 percent in 2014.
However, rural poverty continues to be very high at nearly 40 percent of the rural population.
For comparison, the rural incidence in Thailand was down to only 10 percent in early 2000s.
High rural poverty is, for one, caused by low farm productivity, which results in low income. Low productivity affects investments in agri-processing which require raw materials at scale and competitive costs.
Low productivity also impacts on job creation.
But creating farm jobs alone will not be enough; it must be complemented by non-farm jobs.
How do we reduce poverty as they have done in other countries in the Association of Southeast Asian Nations?
Why it is that Philippine productivity has not moved faster than the rest?
Production is a result of a combination of land, labor, capital, and technology.
The effectiveness of the combination rests with organization, management and entrepreneurship. Management and entrepreneurship are scarce commodities in the countryside. We need entrepreneurs and investors.
There is no one-size-fits-all solution to rural poverty.
Land reform is regarded to be a major solution, as land ownership would lead to farm investments and, in turn, productivity.
Effective extension services are another solution as farmers are taught better ways of farming.
Research and development bring in new varieties, higher quality, productivity, lower costs, and other benefits. Strong farmers association is another solution.
Since the launch of the Comprehensive Agrarian Reform Program (CARP) in 1988, its extensions to 1998 and 2008, and further to 2013, some 4.5 million hectares of private agricultural lands (2.7 million agrarian reform beneficiaries -ARBs) have been distributed, with only 0.8 million hectares still to be acquired.
Another 3.8 million hectares of DENR lands (2.5 million ARBs) have also been distributed. CARP is one of the world’s longest-running and largest land reform programs.
While land acquisition has slowed down due to lack of budget since 2014, land reform legal provisions remain: retention limit of five hectares and transferability of 10 years from the ARBs.
Some studies have shown that ARB incomes have improved versus non-ARBs.
Some sectors claim that this is true with all the support services being spent for them.
And there is an ongoing debate on the productivity and income effect of land reform.
Certainly, fast-paced land reform succeeded in Taiwan with an already well-organized farmers’ associations (thanks to a half century of Japanese tutelage).
But partial land reform also succeeded in dramatically reducing rural poverty in Malaysia under its managed land schemes.
There, small farmers, large estates and managed land schemes co-existed, as in Thailand and Indonesia.
And their respective rural poverty incidences are lower than those in the Philippines.
Where is the challenge?
The countryside is in dire need of investments. Investments increase production and jobs. Small farmers and ARBs are too cash-starved to make the investments.
Let me share this story.
I get inquiries from parties who want to invest in land-based agribusiness. The five hectare ownership limit is a turn-off. Why is this?
A typical gross margin in good farming – that is sales less farm inputs and labor – under good farm practice is about P100,000 per hectare per year. At five hectares, the total gross margin would be P500,000. That is not all, the entrepreneur has to pay a farm supervisor of P200,000 a year and overhead costs of another P100,000.
That leaves P200,000 for him at best. With an investment of about P1 million, the return to investment with all the typical risks would be about 20 percent.
For potential investors, this is not an attractive proposition. Farm size must be larger in order to spread the fixed costs and increase profits. Their investments will create jobs, local taxes and economic multipliers.
Efficient managers can expand farm scale via purchase or leases.
Here are the solutions:
First, already land-reformed areas will no longer have restrictions on land transferability and retention limit. That is 4.5 million hectares.
Remaining lands that are yet to be acquired can continue to be distributed with ARBs getting 3 hectares maximum. Thus, land markets are free for a large part of the countryside. ARBs are free to transact their lands.
Second, idle farm lands must be taxed much higher. Many lands are under retention limit and are under absentee land owners. The typical land tax is only P500 per hectare per year. They can wait it out the restrictions.
Third, land consolidation must be pursued for those willing farmers. Land information must be published for investors to inspect.
The countryside needs serious investors who can bring in the market, technology, finance, management and disciple to the venture. These businesses will create jobs. A business-as-usual mode will not ease high rural poverty.
Alleviating rural poverty is not only about farming but productive farms. It is also about non-farm jobs and factory jobs.
The countryside begs for tested and new solutions to mass poverty. There is no single silver-bullet solution.
If we can just allow the agricultural land market to operate, particularly in areas where CARP is already completed, and combined this with the policy instrument of imposing higher taxes on idle and abandoned lands, then we have a chance of turning around rural poverty.
There is need to put the best minds and managers in the leadership of the agricultural sector to address a key bottleneck in our development: rural poverty.
(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is the Vice Chair of the MAP Agribusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Feedback at [email protected] and [email protected]. For previous articles, please visit map.org.ph.)
