Investing in our farms

If we do things right henceforth, agriculture could well be the game changer for the Philippines’ post-pandemic economic future. After all, it was the only major economic sector that defied the economic downturn, posting positive growth while the overall economy went on a steep dive. More remarkable is the fact that for many years, it has been the sector that consistently dragged overall economic growth as industry and services far outpaced it. What the pandemic experience has shown is that agriculture possesses an innate strength not seen in the other two sectors, and this has led me to describe it as our economy’s ultimate backbone. Now I’m even more convinced that agriculture is our key to a more inclusive and sustainable economic future, even as we should continue tapping the wide opportunities for wealth and job creation in industry and services.

But this prognosis hangs on one word: productivity. This means the ability to obtain more output from a given amount of input(s). This is critical now that available land, the most prominent input to farming, is on the decline with inevitable land conversions. There’s a sobering contrast in how labor productivity and total factor productivity in Philippine farms have relatively stagnated since the 1980s, but rose for our neighbors Indonesia, Malaysia, Thailand, and Vietnam (see “Agricultural Productivity in Asia: Measures and Perspectives 2019” published by the Asian Productivity Organization). What this lack of productivity improvement reflects is inadequate investment, whether by government, or by farmers themselves. In short, our agriculture sector has been held back all these decades by lack of investment, and various researches have pointed to how we stifled it in various ways.

The top culprit appears to have been agrarian reform, or more accurately, how we failed to properly pursue it. A 2002 study I was part of found that slow implementation of the Comprehensive Agrarian Reform Program (CARP) had led owners of “CARPable” lands to withhold investments on their land due to their uncertain future. But CARP-complied landowners farming their legally retained lands were found to have invested significantly more per hectare of land farmed. As for agrarian reform beneficiaries, countless studies have already shown how willingness and ability to invest in higher productivity of their lands had been hampered by lack of access to formal credit and weak support services in general. No amount of improved technologies in seeds, machinery, and other inputs would be applied by farmers unless they had the financing to gain access to these.

The irony is that our agrarian reform, particularly land redistribution, was actually expected to lead to higher productivity on our farms, on two key propositions: (1) smaller landholdings tend to be farmed more intensively, hence more productively, than large tracts of land where area can make up for productivity, (2) ownership of the land by erstwhile tenants would give them a bankable asset with which to access credit from the banks. Both propositions failed because banks subsequently refused to accept farm lands as collateral (because agrarian reform had effectively immobilized rural land markets; at the same time, they also risked being “CARPable” if they accumulated too much land from loan defaults). Thus, the second argument failed to materialize, in turn negating fulfillment of the first argument.

A recent study by Ivory Myka Galang from government think tank Philippine Institute for Development Studies also found that issuance of collective Certificates of Land Ownership (CCLOA) has “discouraged many farmers from making long-term investment decisions on their land, thereby resulting in lower productivity.” This arises from various problems arising from the collective arrangement, such as boundary issues and disputes with other collective members. For this reason, parcelization of the CCLOA is considered urgent, even as farm clustering is also a key imperative.

Our challenge, then, is to clear the barriers to greater investment in farms, large or small alike. I will tackle how to do it in a later piece.