Credit key to agriculture growth
Without credit, significant agriculture growth will not happen. This is the cause of our dismal agriculture growth.
From 2011 to 2015, the industry grew by 6.4 percent, while agriculture grew by 1.1 percent. This is in spite of the fact that the Department of Agriculture had 15 times more in budget than that of the Department of Trade and Industry’s.
The table below shows that agriculture has consistently been below 2 percent of total credit. Agricultural production loans had been consistently at 30 percent of total agriculture loans.
Land Bank of the Philippines (LBP) is the government bank for agriculture. Yet its 2014 annual report showed it lent only 9 percent of its P386-billion loan portfolio to small farmers and fisherfolk. The latest report is that this has gone down to 8 percent.
The new LBP president, Alex Buenaventura, made a commitment to increase LBP’s lending to agriculture. He advocates a creative approach where professional farm managers are hired to run economic groupings of small farmers in a model called “corporatives.” He pointed out that the reason for low agriculture credit was not high interest rates, but the lack of feasible products that are credit-worthy.
He added a recommendation supported by chair Emil Javier and president Ben Peczon of the Coalition for Agriculture Modernization in the Philippines, an Agri-Fisheries Alliance (AFA) coalition. This is to let LBP keep 50 percent of its profit strictly for agriculture lending, instead of remitting it to the Treasury.
On Feb. 18, the AFA focused its meeting on agriculture credit. Joining this meeting and providing valuable insights was Jesus Tambunting, former president of Planters Development Bank and former Philippine Ambassador to the United Kingdom.
The following key recommendations from the meeting are as follows:
Expand the agriculture guarantee system. The Agriculture Guarantee Fund (AGF) is now at P5 billion. It was helped by President Arroyo’s directive that GOCCs should remit 5 percent of their profits to this fund. However, this was done only in 2007. It should be resumed this year on an annual basis. This way, the P5 billion AGF will not look inconsequential compared to the P175 billion Housing Guarantee Fund (HGF). Certainly, agriculture is just as important as housing. It is only with sufficient guarantee funds that banks will start lending to agriculture beyond its 2 percent agriculture share of lending today.
Improve the AGF conditions. Since the AGF is lodged in LBP, other banks are not motivated to use it. The AGF should be transferred immediately to a neutral body like the Small Business Guarantee and Finance Corporation. In addition, the AGF should not decrease the 85 percent guarantee cover with a requirement that 30 percent of the delinquent loans should be paid by the erring bank. This makes the guarantee cover effectively only at 55 percent.
Considering that HGF often covers 100 percent of the loan, the 30-percent additional requirement should be abolished to make lending to agriculture attractive.
The AGF should be implemented with a complimentary strategy for crop insurance. The recent announcement of Finance Secretary Carlos Dominquez that all guarantee mechanisms will be lodged in one institution is welcomed, and was previously recommended by AFA on Aug. 30, 2016. However, the increase in coverage of Philippine Crop Insurance Corporation should be significantly improved to at least P10 billion with more practical insurance conditions to supplement the guarantee mechanisms. Otherwise, the guarantee system will not be attractive.
The quedan system should be revived with a revitalized Quedancor. Small farmers selling onions for P16 per kilo during peak season can fetch a price of P60 per kilo during off-season with a quedan system. Without this system, traders buy from the small farmers at P16 per kilo and get all the profit from the seasonal sale.
We have seen significant changes in the war against drugs. We must now see similar significant changes in the war against rural poverty, which is at 40 percent today. Unless the government institutes significant agriculture credit changes, the government’s war against poverty may sound empty.
The author is Agriwatch chair, former Secretary of Presidential Programs and Projects, and former Undersecretary of DA and DTI. Contact the author through [email protected].
