The issue of food security is in the headlines these days because of the attention the new administration is giving it and the fact that the new president, Ferdinand Marcos Jr., has positioned himself as head of the Department of Agriculture (DA).
I have been living and working in the Philippines for 20 years, and in that period, various administrations promised self-sufficiency and independence from imports–and always failed. It is time to ask why all the billions of pesos invested by the DA in introducing high-yielding rice varieties, improving mechanization, and subsidizing fertilizers have had no effect on the sector.
In fact, farming in the Philippines is declining. The average age of farmers is rising; these farmers’ children do not want to continue to suffer the poverty associated with their parents’ occupation and are moving to cities to look for a better life.
In addition, more and more agricultural lands are being developed for housing and industry.
Farming appears to be bad business. It requires substantial investment, hard work for land preparation, and payments for land use, seeds, fertilizer, pesticides and extra labor. It is only after several months (some four months for rice and corn) that crops can be harvested and sold to cover the expenses.
To make this work, farmers need credit, which they typically get from input suppliers, traders or millers, or informal lenders. When crops are harvested, the lenders demand immediate payment, often with part of the produce at very low prices. The risk of default is high and the interest rates charged are exorbitant, way above the commercial bank rates.
Thus, at the end of a growing cycle, the farmer is left with hardly any money to support his family, and will enter the next cycle as poor as when he started.
Why do farmers not borrow from banks? The Bangko Sentral ng Pilipinas has acknowledged this problem and, in fact, compels banks to spend 15% of their loan portfolio on agriculture under pain of penalties for noncompliance.
Are the banks doing it? No. They would rather pay the penalty than enter the risky business of lending to the agricultural sector.
The most essential problem of Philippine agriculture is that farmers do not benefit from good market prices for their crops and have no access to credit with reasonable terms. A good market price for palay and corn usually comes up several months after harvest—or a difference of 30% to 50%—yet no farmer can afford to hold on to his crops that long because of lack of proper storage facilities, lack of money, and the risk of spoilage.
A farmer is not considered “bankable” or “creditworthy” by the banks because he lacks hard collateral for a loan. In many cases, he does not own the land he tills, and his house is without collateral value. The one thing he has to shore up a loan is his harvest.
Efforts by previous administrations to deal with this through government-led initiatives all failed: Quedancor (Quedan and Rural Credit Guarantee Corp.) and Nabcor (National Agribusiness Corp.) were financial and operational failures, ending up in lawsuits and the loss of millions of pesos in taxpayer money.
But it does not have to be this way.
In many countries, private-sector entities accept crops in “collateral warehouses,” working within the framework of appropriate legislation. India, for example, has a national network of warehouses that accept crops as “collateral.”
When a farmer brings his crop to such facilities, he obtains a certificate—or a “warehouse receipt”—stating the quantity and quality of deposit. He can encash the receipt at a bank, which will commonly provide 50% or more of the deposited value. Depending on how sophisticated the trade is organized in a country, the farmer can decide whether to finally sell his crop when the market prices are optimal or sell his “certificate” or “warehouse receipt.”
Many countries have commodity exchanges in which these receipts can be traded. The overall effect is stable prices for farmers and for consumers.
The Philippines has no private collateral warehouses and no grain exchange. Grain is traded on the “spot market” where usually the big traders and processors are the winners, and the farmers are always on the losing end.
While it is common to think that the government should take a lead role in this situation by setting prices or subsidizing, it should not. The government’s role should be to regulate and not to operate warehouses or control pricing.
By creating access to credit for farmers, farming becomes a more attractive enterprise, expanding and producing more, drawing younger generations to engage in a profession not linked to poverty.
Ultimately, that will lead to food security.
Dutch Israeli entrepreneur Tom de Bruin ([email protected]) has been living in the Philippines since 2002. His company in Subic Freeport is involved in inventing, manufacturing and marketing postharvest solutions of Israeli origin. He co-owns a manufacturing plant in Ghana and is a freelance consultant on postharvest technology and food security. —Ed.
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