Bernardo M. Villegas
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How Agribusiness Can Eradicate Poverty (Part 2)

          Whatever we do to improve the infrastructures for the urban centers of the Philippines through the Build Build Build program, such as building modern airports, subways, rapid trains, and tollroads, we will not make any significant dent on mass poverty because poverty is fundamentally a rural phenomenon in our country.  Development has to happen in the countryside, and especially in the agricultural sector.  It is providential that Malaysia is now in the news because of the recent dramatic return of the oldest head of state in the world today in the person of Prime Minister Mahathir who is over 90 years of age.  It is the example of Malaysia that can inspire us to implement one of the most effective solutions to rural poverty that the agribusiness sector can offer.  Dr. Rolando Dy describes in great detail this outstanding example of an agribusiness model that helped Malaysia reduce poverty from the high of 52.4 percent in 1970 to practically zero today.  How did they do it?  Let me summarize Dr. Dy’s article entitled “The Dramatic Transformation of Rural Malaysia.”

         Before we zero in on the Malaysian success story, let me refer to one of the articles in Dr. Dy’s book on Agribusiness and Rural Progress entitled “DMT: Key To Inclusive Growth.”  D stands for Develop which refers to a management group—be it a private company or a professional management group—that assumes the responsibility for land development and crop establishment of an agribusiness project.  This will ensure proper area selection, consolidation, land preparation, drainage and irrigation and choice of the crop.  The group will hire workers in the area who can be the farmers themselves or children of the farmers.  M stands for Maintain.  The same group will guarantee that good agricultural practice (GAP) is applied on the crop or crops for  planting during  the first few years of harvest. They will teach and supervise the farmers and workers on proper crop maintenance.  Finally, T stands for Transfer, i.e. the group will transfer operations management to the individual farmers or farmers’ cooperatives after a period long enough for the farmers to be trained in GAP.

         Malaysia, under an enlightened government, perfected DMT to an art.  First the Malaysian Government established the Federal Land Development Authority (FELDA) in 1956 under the stewardship of Malaysia’s second Prime Minister Tun Abdul Razak.  FELDA’s policy statement was ominous:  “No need to be poor.”  In 1957, the first scheme was to plant rubber and in 1961, the first oil palm scheme was launched.  The rest is history.  Malaysia became for a long time the biggest producer of palm oil in the world.  But more importantly, it reduced the poverty incidence to the lowest ever achieved in Asia, or for that matter in the world. 

         Settlers were chosen from landless rural Malays.  State lands, mostly forest lands, were cleared for development, using private contractors under FELDA supervision.  Settlers were given at least four hectares of land planted to rubber or oil palm.  All of them were required to reside with their families at the settlement itself and were allotted 1,000 square meter lots in a township or planned village. Basic facilities were readily provided, such as water supply, electricity, schools, health centers and mosques.   At the start, FELDA schemes were designed as “cooperatives” in which instead of each settler owning a defined piece of land, each settler held an equal share in the ownership of the scheme.  Many settlers, however, were not happy with this arrangement because the lazy workers who did not tend to their land properly were obtaining the same benefits as the hard working ones.

         The response of the Government was to introduce a three-phase plan in which, in the first phase, the cooperative remained as a mechanism for the settlers to learn how to farm.  In the second phase, each settler was given a specific plot of land on which to work and, in the third phase, he was given the land title to the plot he has worked on.  There was a condition, however, that the settler could not sell the land without the permission from FELDA.  The costs of land development were financed by loans made to the settlers.  The amortization of the loans was deducted from the settlers’ income over a period of 15 years.  In developing the land and managing the settlers, FELDA was guided by two basic principles “Giving opportunities to the landless” and “The best land for the right people.”  FELDA developed 811,000 hectares (89 percent oil palm and 10 percent rubber) for 112,635 settlers, or 1.6 million people.  Each scheme covered over 2,500 hectares with around 600 farmers each.  The average family income in 2010 was MR 3,047 monthly or an equivalent of P40,000 monthly.  No wonder, the poverty incidence was cut drastically through this scheme.

         Parallel to the creation of FELDA, the government established the Federal Land Consolidation and Rehabilitation Authority (FELCRA).  This was in response to the need for making productive more than 200,000 hectares of public lands that were given to farmers under the Group Settlement Act.  Some 1.2 to 3.2 hectares each were given to participants who were landless or with very small landholdings.  After the land transfer, unfortunately, little assistance was given to the farmers leading to the failure of the scheme.  To make matters worse, on some areas, productivity suffered more because of land fragmentation under the inheritance rights.  Thus in 1964, a working group was formed to create an autonomous land agency with the following functions:  (1) rehabilitate and develop fragmented land holdings plus other areas; (2) develop such holdings into efficient production units; and (3) advice and assist landholders after rehabilitation to ensure efficient agriculture practices. 

         FELCRA’s operation was funded by grants from the Federal government.  For land development, low-interest loans were granted with a long grace period, interest capitalized and repayment over 25 years.  The smallholder agreed to a long-term usufruct arrangement.  FELCRA employed three profit schemes: (1) landowners have the right to revenues according to their land sizes; (2) 80 percent of the revenue goes to the participants and 20 percent for loan repayment; and (3) all participants as shareholders are entitled to profit sharing. There is a town in Quezon province in which the FELCRA model may be replicated.   Public lands had been granted to rebel returnees who became coconut farmers.  A professional management group plans to help the farmers through the DMT scheme. The group will lease the lands from the farmers and redesign the total area so that in addition to coconuts, other crops like sweet sorghum (for animal feed), fruit trees, dairy cattle, and livestock will be grown in the consolidated area.  The ageing coconut trees will be replaced with seedlings.  The management group will put up processing facilities that will maximize the commercialization of the multiple products from the coconut trees, such as coconut water, nata de coco, coconut oil, coir, husks, etc. The families of the farmers will be resettled in a township where each household will be allotted 1,000 square meters each that will provide space for a backyard garden for growing vegetables and fruits for home consumption.  A similar business model has already been established in a town in Palawan also for small coconut farmers whose lands have been consolidated by another management group.  A feature of this DMC project is the grouping of the farmers into a workers’ cooperative that will partner with the management group in the training of the farmers and workers in good agricultural practice (GAP).

         To spread this business model, Dr.  Dy recommends a study by the appropriate government agency that will determine which lands can be covered:  agrarian reform lands, ancestral domains, integrated forest management agreements, pasture and fishpond leases and mariculture parks.  A possible government body that can implement the DMT is the National Anti-Poverty Commission (NAPC) which can lead a cluster of government agencies.  He recommends that the DMT budget be within NAPC because a new agency would be a fiscal drain.  He thinks that a one-stop shop like the Philippine Economic Zone Authority (PEZA) for DMT proponents would be imperative.    It would be ideal if the President himself would be the champion for this anti-poverty scheme.  Private funding can be obtained but an exit mechanism should be defined.  The Land Bank of the Philippines, now under the leadership of one of the most successful rural bankers in Mindanao, could fund the transfer from the management group or private developer to the smallholders or cooperatives once the prescribed gestation period is attained.  Given his focus on poverty eradication, President Duterte should give the mandate to both the Secretary of Agriculture and Secretary of Agrarian Reform to give the highest priority to implementing this model that had worked wonders in Malaysia and Indonesia.  (To be continued).