Agri credit not enough

To help the small farmers, agriculture credit is not enough. Just as it “takes a village to raise a child,” it takes more than just credit to improve a farmer’s welfare. A joint effort must be made not only by government agencies, but also by banks, agribusiness, NGOs and other private sector potential partners.

Credit availability alone does not work. Banks cannot afford to lose money. Therefore, they must be given financially viable proposals, which are sorely lacking today.

Here are the facts. The Agri-Agra law mandates banks to lend 15 percent and 10 percent of their loans to agriculture and agrarian reform beneficiaries respectively. But with the very low penalty of one-half of 1 percent, only a few comply with the law. There are moves in Congress to increase the penalty. This may help. But without viable loan proposals, banks would rather pay a higher penalty than give out bad loans where they lose the whole amount.

The key is viable loans. Here is where we need a “village” of partners to make this work.

Today, extension workers are devolved to the Local Government Units (LGUs). While some are doing a commendable job in this area, others would rather use the extension workers for other priorities. An incentive system should be established for LGUs to reward those who do agriculture extension work effectively and penalizing those who do not.

While extension workers are capable in rice and corn, they need help in areas such as high value crops (HVCs). HVCs can significantly boost income. For two out of three million hectares of coconut lands with no intercropping, the average income of P20,000 per hectare rises to more than P200,000 with intercropping of HVCs. Since extension workers have little access to technology, markets and credit, these areas remain underutilized and idle.

Of course, there is the Agri-Agra law. But as Leo de Guzman, former Luzon Development Bank president and Coalition for Agriculture Modernization in the Philippines founder, wrote: “I was surprised to find out that banks opted to pay the penalty of P450 billion for not complying with the Agri-Agra law. If banks can be encouraged to fully comply with the AA law, we will have P450 billion available! At P50,000 loan per farmer, nine million farmers could have been served.”

There is available credit provided by the Agri-Agra law but there are few viable loan proposals. A former LBP vice president and member of the Philippine Chamber of Agriculture and Food Inc. said: “Landbank should organize satellite offices in the provinces. They must not only catalyze, but also work with technology experts, extension workers, agribusinessmen, contract growing companies, rural banks, government agencies and NGOs to identify and prepare viable loan proposals.”

This catalyst role can also be performed by the private sector. An example is the Kapampangan Development Foundation (KDF-09178403711) with Manuel Pangilinan as chair and Benigno Ricafort as president. They have identified and established the KDF 100 model farms made possible by a “village” of both private and public sector partners.

Each 1-hectare farm, some with nurseries, has 1,000 cacao seedlings, 200 hybrid coconuts and 100 high value crops. These viable model farms (with expected net income of P300,000 per hectare) will share their technology and financial expertise to neighboring farms and help prepare viable loan proposals.

The available credit is largely not accessible because of the dire lack of viable loan proposals. To do these loan proposals, it takes a village of public and private sector partners in a given community. This must be catalyzed by a bank, government agency, or a public or private partner.

With this joint effort, viable loan proposals can make the available credit released to the farmers. Only then can agriculture productivity and farmer welfare be significantly improved.