Bernardo M. Villegas
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A Tribute To Rolando Dy (Part 2)

               The late agribusiness expert, Dr. Rolando Dy, did not consider agribusiness excellence as an end in itself.  He always related it to what we now call inclusive growth.  Growth, in whatever sector of the economy, is meaningless if it does not lead to the eradication of mass poverty.  In his article entitled “Closing the productivity gap to reduce poverty,” published in 2019, he lamented that the Philippine national poverty incidence was very high at 21.6 percent of the population in 2015 (today it lower at 13 percent but still too high).  In fact, as he added, it was even higher for rural poverty at 30 percent then.  The most unfortunate were the farmers and fisherfolks a 34 percent.  Always equipped with comparative data, Rolly then referred to the low of 1.6 percent of Malaysia and the high of Vietnam at 18.8 percent then (today Vietnam’s poverty incidence is already single digit).

              To Rolly, the key to obtaining inclusive growth is increased productivity.  He cited the well- known “vicious circle of poverty.”  Low productivity leads to low income which leads to low savings leading to low investment which finally explains low productivity.  It is clear that especially in the rural areas, the source of poverty is the low productivity of the agricultural sector.  The vicious circle of poverty concept was introduced by Ragnar Nurske, an Estonian development economist in the first half of the 20th century. Another way to look at this vicious circle is to consider the effect of low income on the physical health of both children and adults.  A poor farmer with limited income will be under-nourished.  Under-nourishment makes him susceptible to sickness which limits his ability to earn more because of his poor health.  Add to this handicap the limited education because of low income, limiting further farm knowledge and skills and job options.  Even more tragic is the effect of under- and malnutrition on the children of farmers.  Children who are undernourished suffer from brain damage which will limit their ability to benefit from education as they grow older.    It is malnutrition and undernourishment which explain a great part of the reason why Filipino youth perform very poorly in international academic achievement tests.

              How do we then measure productivity in the agricultural sector?  Rolly, as an educator par excellence, gets down to brass tacks.  He brings up the concept of Total Factor Productivity (TFP) which is the most informative measure of long-term agricultural productivity.  TFP annual growth covers land, labor, capital, and material resources used in production and compared to total agricultural output.  The data for the period 2001 to 2013 showed the Philippines trailing behind its ASEAN peers in TFP.  The annual growth in TFP for Malaysia was 2.85 percent; Indonesia, 2.65 percent; Vietnam, 2.53 percent; Thailand, 2.22 percent and the Philippines, 1.87 percent.

              What did Rolly suggest are the means of improving Philippine TFP in agriculture.  The first step is to make more people invest in agriculture. It is a good sign that we are now witnessing the awakening of large investors like the First Metro Group, the Benguet Corporation group, the DMCI holdings group and a few other commercial and industrial conglomerates to the opportunities of investing in agriculture. These are the business groups that have the sufficient long-term capital, especially if complemented by Foreign Direct Investments (FDIs), who can significantly improve the productivity of agriculture by consolidating the small farm units into larger corporate farms to attain economies of scale in such crops as coconut, cocoa, coffee, mangoes, avocado, durian, cashew, pili,  and other tree crops as Malaysia did through the so-called nucleus estate model that made it a global power in palm oil and rubber. 

              According to Rolly, Malaysia in its initial stages of agricultural development opened public lands, and later on, small farms to achieve economies of scale and applied high standards of management.  Indonesia used the nucleus-plasm model.  The nucleus is  a large corporate farms while the plasm consists of smallholders who are assisted through credit, technology and marketing.  Vietnam, in turn, adopted the “small plots,large field” schemes.  Taiwan  with ageing farmers promoted the “small farms, large tenants” scheme.  Thailand reached high levels of productivity in sugar farming by moving to mechanized sugarcane on farms leased by an entrepreneur who introduced irrigation and full inputs to attain high farm yields.  Thailand also resorted to well-developed contract farming systems aided by open pricing, advanced extension service, and efficient rural infrastructures such as farm to market roads and irrigation systems. In the age of global competition, the consolidation of small farm units is the key to efficient  input procurement, production scheduling, processing and marketing, and quality control 

              Rolly left room for small-scale farming, especially in such crops as rice, corn, vegetables and selected livestock.  While small farms can be efficient, this assumes access to full inputs, extensive extension services provided by government agencies, and rational product-market choices.  Small farms have their roles to play in supplying localized markets,  and in global markets with private-led agribusiness coordination.  An example of this is the coconut processing company called Axelum that purchases its coconut raw materials from small coconut farmers and cooperatives and then process these materials into high-value food products like coconut water, coconut sugar and VCO.

              Rolly has some constructive criticism of the Comprehensive Agrarian Reform Program.  He observed that as farms in the Philippines get smaller and smaller as a result of inheritance laws and urban migration of young workers, he advised the government to revisit its strategy of transforming agrarian reform beneficiaries (ARBs) into entrepreneurs and limiting land access.  Asking a rhetorical question:  Can ARBs make it individually? If they wish to consolidate, who will manage?  He advocated for a free land market to bring new blood, new knowledge into the countryside through entrepreneurs-investors and managers.  The farm productivity record since 1986 did not speak well of the land” model in Malaysia and Indonesia, the Land Bank model can lead to inclusive growth.   The lands of the Agrarian Reform Beneficiaries (ARBs) will be managed by a private business entity.  Farmers will receive rentals on their lands and enjoy fair pricing, wages for members of their families who will be employed and other benefits such as housing and health insurance, as in the case of the Malaysian model.  The high productivity will help the ARBs to pay for the land amortization guaranteeing final ownership of their lands.  Meanwhile, Land Bank will lend to the private entity at preferential rate. It is a win-win situation for all, as amply demonstrated by the Malaysians, enabling their country to achieve a rare feat of reducing their poverty incidence to zero percent.   To be continued.