Enabling Landbank

My last article on the misplaced scolding of the Land Bank of the Philippines (LBP) by the President elicited mostly affirmative but also some nuanced reactions, including from Finance Secretary and ex-officio LBP chair Carlos “Sonny” Dominguez III himself. He called to inform me that the national government has actually reinvested some P25.6 billion in the bank, and got only P1 billion from it for the national treasury. That’s good to know, even as I’ve argued that the bank need not even be expected to remit any profits to the government at all, if we want it to more widely service farmers’ needs.

As it is, the 22 percent of its loan portfolio reportedly going to farmers, exceeding the minimum required by the agri-agra law by 2 percentage points, is still miniscule relative to the total needs. With little over one-fifth of its loans going to agriculture, it still doesn’t quite earn its name as the country’s landbank, and acts no differently from a commercial bank — which is what earned it the tongue-lashing from the President to begin with. Still, Secretary Dominguez rightly points out that a single bank cannot possibly meet the huge needs of the sector, and the banking industry as a whole — from commercial banks to rural banks — needs to respond to the need much more widely.

Everyone thus agrees that the ultimate solution is to make farmers bankable — not the least Secretary Dominguez himself, who served with distinction as agriculture secretary early in the Cory Aquino administration. Only then would commercial banks willingly extend them loans, rather than prefer, as they currently do, to pay the fine for noncompliance with the minimum loan allocations required by the agri-agra law.

There’s a classic chicken and egg problem here. Making farmers bankable means making farming profitable. That last phrase was in fact Domiguez’s mantra as former agriculture secretary, and he had it right. But everyone knows that profitability entails higher income, higher income entails higher productivity, and higher productivity entails more and better inputs. One needs superior seeds, fertile soil, effective pest control and efficient farm operation, including mechanization, to get more out of a given farmland. All these cost money, making farm credit to finance working capital a crucial need of the farmer.

But rather than focus on this critical linchpin for higher farm productivity and incomes, the Department of Agriculture (DA) has traditionally chosen to go downstream, pouring huge sums to directly provide the seeds, fertilizer and other inputs to farmers. What’s wrong with that? First, such direct input subsidies distort the markets for these commodities, leading to costly inefficiencies elsewhere in the system.

Agricultural economists have long argued that the DA would best spend taxpayer money on critical public goods like rural transport and information systems, irrigation facilities, and postharvest facilities—not on private goods best handled by private markets. Second, these input subsidy schemes have historically been fraught with corruption. In the name of economies of scale (though one suspects it’s more to provide opportunities for wholesale graft), input subsidy programs were done through centralized large-scale procurement of fertilizers and seeds that were not always suitable (or even needed) in all farm areas.

To my mind, fixing long-standing problems with rural credit could very well be the most strategic intervention that can be made in the farm and fisheries sector. Apart from improving farmers’ access to inputs according to their particular needs, it would free them from bondage to traders who have historically been their main financiers, for lack of other options, and thus give them more choices at harvest time.

Monetary Board member Bruce Tolentino, himself a former undersecretary to Dominguez at the DA, assures me that the Bangko Sentral understands the missionary nature of Landbank, but needs legal support to be able to treat it differently from a commercial bank.

Like I said, President Duterte was right; there is something for Congress to do — not to “penalize” Landbank, but to enable it to be more effective.

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