Bernardo M. Villegas
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Large Scale Investments In Agribusiness (Part 1)

             Now that what used to be called the Maharlika Investment Fund is  being crystallized as it passes through the eye of the needle in the Senate, there is agreement that it should be focused on financing large-scale infrastructure projects like airports, telecoms, data centers, railways and seaports for which there is no domestic long term capital, considering our abysmally low savings rate (10 % of GDP compared to East Asian averages of 25 to 35%).  There is no way we can continue the Build, Build, Build program that was started in an aggressive manner during the Duterte Administration unless we attract billions of dollars of Foreign Direct Investments.  Over and above these critical infrastructures for the country to transition to a First World status in the next decade or so, there are capital-intensive agribusiness projects that are indispensable in improving the productivity of our agricultural sector.  Small-scale farming may partly address the goal of eradicating poverty but it is impossible for us to attain food security unless we invest in large-scale corporate farms that take advantage of economies of scale to attain high productivity in food production.

            In this regard, in a trip to Palawan, my attention was called to a very successful model of large-scale coconut farming that followed the nucleus estate model made popular by the Malaysians in the production of palm oil and rubber.  I am referring to a  model farm started by a Dane-Norwegian entrepreneur by the name of  Christian Eyde Moeller, CEO and Co-Founder of Lionheart Farms.  No other than President Ferdinand Marcos Jr. has taken interest in this model and would like to replicate it in as many coconut regions as possible all over the Philippines.  As both President and Secretary of Agriculture, BBM has explicitly stated that “My dream is simple—that our farmers must have a profitable livelihood so that the next generation will be encouraged to continue the industry.”  This statement is pregnant with meaning.  The average age of a Filipino farmer is close to 60 years.    He is a vanishing breed since no one of his children wants to go into farming, having witnessed first-hand how Philippine society has both neglected and mishandled the agricultural sector, turning it into the weakest and most marginalized sector of the economy.

            Lionheart Farms, established in 2015 in the province of Rizal of Palawan, south of Puerto Princesa, may show the way to make agribusiness more attractive to the youth by making coconut farming more technically sophisticated and more importantly, more profitable.  By consolidating some 3,500 hectares of small coconut farms in the municipality of Rizal, Palawan through leasing land from small holders and employing members of their families as well as Indigenous People of Palawan, the owners and managers of Lionheart Farms have demonstrated that land consolidation of fragmented small farms is the key to addressing poverty in the many coconut regions all over the country.  The nucleus estate model applied to coconuts has made it possible for Lionheart Farms to produce high-value coconut products such as coconut water, coconut syrup, and coconut milk—highly valued by consumers all over the world—as well as such by-products as biofuel from coconut husk and shell that can be used for logistics and manufacturing machines to save energy and lessen carbon emission.  There is also coconut fiber that can be utilized as soil stabilizer against soil erosion, coconut peat as fertilizer and strongest quality geotextile. Coir helps save precious water resources and decreases the use of chemical.  It has always been known that all parts of the coconut can be turned into sustainable material resources.  Lionheart Farms, by developing an intricate but effective technological and management system, replicating the very successful nucleus estate model of the Malaysians,  has gone from theory to practice.  The significant improvement in the lives of the small holders and indigenous People of Palawan can be summarized into the casual remark of one of the participating small farmers: “What I am receiving from the rental income of my farm is bigger than the total income I used to receive from selling copra.”

            The rental is only the beginning.  Members of the farmer’s household are employed in the various phases of corporate farming and manufacturing, from producing the seedlings from the nuts, planting, composting, fertilizing, watering, harvesting, etc.  Household incomes have more than doubled in the last five years and various programs sponsored by Lionheart Farms have significantly improved the educational and health standards of the community, especially among the children.

            The relatively successful model of Lionheart Farms has prompted some top government officials as well as business leaders to encourage the owners of Lionheart Farms led by Christian Eyde Moeller to propose a Sustainable Transformation model that can be replicated as a start in at least five coconut regions in the country.  I would like to share highlights of this proposal as early as possible so that Local Government Officials, Filipino and foreign investors as well as banks like the Development Bank of the Philippines and the Land Bank can already start studying how they can help in one phase or another of the replication process.  With Lionheart Farms as the model, it is envisioned that five 20,000 hectare Nucleus Estates surrounded by smallholder farming communities in each estate will be established in five communities, each estate located in different coconut farming areas around the country.  From personal knowledge of interested investors, I am suggesting to Mr. Moeller the following five regions: another in Palawan, one in Quezon province, one in Leyte, one in Bicol and one in Davao.  I invite interested readers to suggest their own five regions with the final vetting to be done by President Marcos Jr. himself.  Each nucleus estate will involve the replanting of the surrounding smallholder coconut farms and centralized management and control over operations and the raw materials supply chain (logistics).  It is worth noting that the top coconut regions in the Philippines  in terms of volume of production are the Davao Region (13.5%), Northern Mindanao (12.%), Zamboanga Peninsula (12.0 %), CALABARZON (10.3%), and ARMM (9.3%).  The challenge of farm consolidation is much less in the island of Mindanao since farm lots there tend to be much larger and inhabitants are already used to the corporate farming model of the banana and pineapple plantations.  The active participation of small holders is much more crucial in regions like CALABARZON and the Bicol region in which agrarian reform was a more politically wrenching process.

            The objective of this exercise is to deliver sustainable transformation in all four pillars of Sustainability.  It will demonstrate that coconut farming is a financially viable occupation not only  at the level of the individual but also an investment grade opportunity  for the private sector, both domestic and foreign.  Long-term funds from the revised  “Maharlika” Investment Fund, in tandem with development-oriented government financial institutions like the Development Bank of the Philippines and the Land Bank, can also be invited to invest in these nucleus estate coconut farms.  For the one that will be located in Palawan, one of the most suitable for coconut farming, some 76,000 hectares are envisioned which are available for replanting.  It is assumed that of these total hectarages 50 % will join the consolidation program involving 24,000 registered coconut workers and farm owners who have been averaging 74 nuts/palm/year from 100 palms per hectare.  With the technical and management assistance of the people of Lionheart Farms, the envisioned nucleus estate of 20,000 hectares will attain an improved yield of 127 nuts/palm/year coming from 354 palms/ hectare.  To be continued.