Neda - Carp constrained flow of capital

LAST week, I shared with you excerpts from the article titled “Land reform failed to reduce poverty” written by Paul M. Icamina and published in the June 8, 2012 issue of the Malaya Business Insight.

In that article, National Economic Development Authority (Neda) Director-General Dr. Arsenio M. Balicasan was quoted as saying that land reform has not significantly reduced poverty in rural farms.

He issued the statement in his address to top managers of the Department of Agriculture during the recent Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA).

He pointed out that, after spending P236 billion on the Comprehensive Agrarian Reform Program (Carp) from 1988 to 2007, government has not made a dent in improving the lives of the agrarian reform beneficiaries.

Balicasan cited that there is only a one percent difference in the average per capita consumption of villagers in land reform areas compared with non- Carped areas. In other words, Carp has not increased the purchasing power of ARBs.

It’s a lot of money. And yet, the impact in terms of decreasing poverty is minimal. “If poverty reduction is the intention, where are the gains from the P236 billion in direct cost of the very costly program?” wondered the NEDA chief.

Among the reasons cited by Balicasan was the prohibition from selling and transferring (except through hereditary succession) the land awarded to the ARBs for 10 years.

“In rural areas, land is the best collateral, but because of this restriction, no banks would accept agrarian reform land as collateral,” he explained.

“The banks simply shied away from agriculture as a whole, even from big agricultural lands, fearful that these will also be covered by land reform and banks will be holding assets with no value from their point of view.

“That constrained the flow of credit to rural areas, making it very expensive to farmers. While the intention of the law is good, what was not understood was that land is an instrument tied to the credit market,” Balicasan explained.

Since ARBs cannot use their lands as collateral, their access to credit was severely limited. They ended up borrowing funds or leasing their lands in underground transactions at very unfavorable rates.

You reap what you sow, as the good old book says. With little or no capital at all for sowing, what can the government expect ARBs to reap?

Balicasan also scored Carp’s failure to issue individual titles to ARBs. You don’t need to be a lawyer or accountant to know that an individual land title is a must for collateral purposes.

The Neda chief cited a 2009 World Bank study indicating that “when they have collective titles, farmers in land reform areas are less able to access credit and diversify into higher value crops. Those holding individual titles have better access to credit.”

“You have to separate land ownership from production,” Balisacan argued. “Small farms can access markets in some other ways, for example, through contract farming when small farms are bundled together and turned into corporate farms.”

Balicasan underscored the need for the collective titles to be parcelized.

“The process of culling out and delineating boundaries will be very bloody, but it must be done,” he stressed, adding that it will be very costly, involving several billions of pesos, batteries of lawyers and special courts to disentangle the problem.

Is government up to the challenge?