Access to credit, qualified borrowers key to agri dev’t
A country’s agriculture bank should address its agriculture needs. A critical need is for the Philippines to increase our exports. This means more jobs and less poverty, which are urgent challenges today.
Let us compare our agriculture exports to Thailand’s. Last year, they had six times our agriculture exports: $62.5 billion compared to our $9.3 billion. If only we produced a little bit more than half of what they did, we would not have needed the $39.6 billion in overseas remittances last year to support our economy.
The credit support we need for our export and other agriculture needs does not compare well with Thailand’s. Consider the record of our agriculture bank (Land Bank of the Philippines or Landbank) compared to Thailand’s (Bank of Agriculture and Agricultural Cooperatives or BAAC).
Landbank, recognized as an outstanding bank in Southeast Asia, surpasses BAAC in profitability. However, BAAC is more responsive to agriculture needs.
Landbank’s dual role as an agriculture and universal bank necessitates compliance with the central bank’s CAMELS rating system, which discourages high-risk agriculture loans.
A solution lies in Landbank establishing a special purpose vehicle (like a trust) to cover agriculture credit from government sources. This vehicle should prioritize development over profit and have a different rating system which puts development ahead of profit. Sources for agriculture from the government should fall under this system.
Examples of this credit include 10 percent of the P75-billion Coco Levy Fund, 10 percent of the P30-billion Rice Competitiveness Enhancement Fund, 15 percent of the P20-billion Animal Competitiveness Enhancement Fund and 65 percent of penalties from noncompliance with lending requirements under the Agri-Agra Law.
With this special purpose vehicle, Landbank can maintain its excellent commercial lending record, while addressing agriculture needs under a different rating system.
Qualified beneficiaries
But even if credit access improves, there must be qualified borrowers with financially feasible projects. Rolando Dy, in his article “Comparing Thai Agribank and Land Bank,” wrote: “Sound lending practices must assess markets, product standards, technology, financial health and managerial capacity of borrowers.” Acting individually, the average Filipino farmer cannot effectively address these factors. However, in a cluster set-up like a cooperative, this is possible.
In Thailand, its government agriculture arm is called the Ministry of Agriculture and Cooperatives. This emphasis on cooperatives enables agriculture credit proposals for financially feasible projects. That is why BAAC lends 88-90 percent of their loans to agriculture and still has an 8-percent ROE.
The Department of Agriculture has an important Farm and Fisheries Clustering and Consolidation Program. It acknowledges that our small segregated farms (averaging 0.8 hectare each) “cannot efficiently access technology, credit, marketing or large markets.’’ Today, there are 1,800 clusters covering 750,000 families in 937,000 hectares.
In the last few months, Agriculture Secretary Francisco Tiu Laurel and Undersecretary Philip Young have been leading a more comprehensive cluster approach for cacao and ube.
It involves organizing farmers into clusters so that their projects are financially feasible and, therefore, bankable. It includes elements such as nurseries for planting materials; production technology with soil, fertilizer and pesticide management; processing for value added; and marketing through different channels. This is done with competent management, with an extension system to respond quickly to problems and opportunities.
This approach is a model that should be replicated and modified for several other commodities.
It is this combination of qualified borrowers with financially feasible projects and increased credit access that can hasten our much needed agriculture development.
