Bangsamoro: The quest for inclusive growth

With the Bangsamoro Peace Framework Agreement between the Moro Islamic Liberation Front (MILF) and the government having been signed, a Transition Commission will be drafting the bill for Congress.  The 40-year war hopefully will end and could mean recouping many lost opportunities in Mindanao

I have a personal stake on this development as I was born in Mindanao.

Peace in Bangsamoro, without inclusive development, will be elusive.  The Autonomous Region of Muslim Mindanao (ARMM) has the highest poverty incidence among the 17 regions with an estimated poverty threshold of about P8,500 per family per month, according to the National Statistical Coordination Board (NSCB).

ARMM has a poverty incidence of 55.8 percent for all families in 2012 as compared to 25.2 percent for the whole country.  Its two largest provinces in terms of  population, Maguindanao and Lanao del Sur, have poverty incidences of 63.7 percent and 73.8 percent, respectively.  Outside of Mindanao, only Eastern Samar is in the league at 63.7 percent. Altogether, there were about 1.85 million poor people in ARMM.

The poverty incidence in ARMM  increased from 30.5 percent in 1991 to 55.8 percent in 2012, a 25.3 percentage-points increase, based on NSCB data. All the other 16 regions, except Zamboanga Peninsula, posted declines, ranging from a low of 4.8 percentage-points for Eastern Visayas to a high of 20.7 percentage points in Cagayan Valley and 19.9 percentage points in the Cordillera Autonomous Region.

For businessmen, this is not a positive development for selling consumer and investment goods when half of the population has little purchasing power.

The Whys.  The direct causes of high poverty are complex. As in other poorer communities, poverty stems from low-farm productivity, limited diversification and lack of nonfarm jobs, and equally important,  weak institutions and exploitative elite. The reasons for all these will be partially discussed below excluding sociological and political factors.

Farm Areas. In 2002, the latest year of agriculture census, ARMM had 248,500 farms and a total farm  area of 533,400 hectares. The average farm size was  2.15 hectares, about the same size as the national  average.

In terms of harvested areas in 2012, ARMM had 18 percent of Mindanao palay, 21 percent of corn, 18 percent of coconut,  71 percent of cassava,  18 percent of rubber, and 17 percent of coffee.  ARMM’s contribution to the Mindanao and national output is shown below:

Yield comparison. In 2012, ARMM had lower yields in seven major crops compared to Mindanao. Yield levels in Mindanao are better than the Philippine averages, but are far lower than comparator countries such as Vietnam for rice, coffee and rubber; Malaysia for oil palm and rubber;  Thailand for cassava, corn, rubber; and Indonesia for corn, coffee, and rubber (UA&P Center for Food and Agri Business data bank).

The private sector is severely underdeveloped in Bangsamoro.  Thus, the Bangsamoro Entity must look outside for partners to jumpstart inclusive growth in the rich, but impoverished region. As former agriculture secretary and agribusiness multinational executive Senen Bacani said:  “It cannot be peace first, and then development; or vice versa.  They must come hand-in-hand.”   It is good that Mr. Bacani, who is now a Bangsamoro investor, is a member of the government negotiating panel. He knows the sector baselines, the extent of poverty, the resources and the implementation constraints.

There is a need to forge partnerships between the Bangsamoro stakeholders and the external investors.  This is where a deeper understanding of management comes in. There must be private sector initiatives like La Frutera, Unifrutti and Agumil. There is also a strategic need to explore Islamic and similar financing for long-gestating crops.

There are also several development models across Asia that need to be considered in a region where private entrepreneurship and corporate farming are limited. Each will have different ingredients and time frame for fruition for a competitive agriculture.

First, while there are good small farms with access to the four factors of production— land, labor, capital and management— they are few and far between, especially capital and management. Most of the small farms are subsistence farms. Efficient small farms need a very good extension service, research and credit system as in Taiwan, Thailand and Vietnam.

Second, contract farming (CF) is a tried-and-tested system in many countries. It has found success in Cavendish bananas and pineapple in Mindanao.  CF needs a good value chain coordinator, represented by a processor/exporter. The small farmers provide the land and labor, while the company, the market and technical advice. The latter also facilitates credit access. For this scheme to succeed, it needs trust and contractual commitment from both parties.

Third, nucleus estate-outgrowers scheme found success in many places, especially in oil palm in Indonesia.  The nucleus (a plantation company) runs its own plantation that can provide 50 to 80 percent of the raw materials for its mill; the rest are provided by growers.  The relationship between the company and farms are similar to CF.

Fourth, a centrally managed scheme is similar to the Malaysian Federal Land Consolidation and Rehabilitation Authority (Felcra). Felcra consolidates in behalf of the government small farms under one central management. The farmers get dividends in proportion to their land contribution, and get wages if they work in the plantation. The farmers retain ownership of their land, but sign off a usufruct arrangement over the life of the project.

Fifth, a develop-maintain-transfer scheme is one where an experienced company will develop and maintain the plantation for smallholders to achieve world plantation standards. Management will be transferred to the smallholders after an agreed transition period. The company will be paid a management fee.  A foreign or local firm with track record can be hired for the purpose with government or official development assistance grant.

Lastly, a joint venture arrangement, which is yet untested in a wider scale. The investor provides capital and management; the small farmers, the land and labor. The farmers retain ownership of the land but have to sign a usufruct arrangement for say, 10 years or so. An equity sharing is agreed based on the land and investments.

Further, a key ingredient for sustainable development is a competent bureaucracy.  The Bangsamoro Entity must not follow the Philippine model of fractured, politically-ridden bureaucracy where there is a  lack of continuity and where connections (palakasan) matter.  It must create a Public Service Department patterned after the Malaysian or Singaporean model.

I have worked in agriculture and rural projects in Malaysia in the 1980s, and witnessed first-hand the meritocracy in Malaysia. This is not going to be easy.  The tribal clannishness is a factor. This feudal system will discourage the bright Muslims, Lumads and Christians from joining the government.

In the final analysis, for inclusive growth to be reached, stakeholders must understand the convergence of good strategy, resources and capabilities.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is the 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>)