Slash the Coco Levy Gordian Knot | Inquirer Opinion

Slash the Coco Levy Gordian Knot

11:03 PM March 06, 2012

Few things illustrate more graphically the virulent symbiosis between elite rent-seeking and corporate greed than the outrage that is the coco levy scandal, a festering relic from the Marcos regime that continues to perpetuate economic violence to this day. As Secretary of Agrarian Reform during the Estrada administration, Horacio “Boy” Morales, whose recent passing was mourned by those who work in land rights and rural development, aggressively pushed for the recovery of the coco levy fund in order to channel its use to the farmers who need it most.

Morales’ approach might not have pleased all groups working to recover the coco levy,  but no one can question the fact that he had the welfare of our coconut farmers in mind.  It is indeed opportune that as we bid our farewell to a respected champion of the farmers, we find ourselves at a critical juncture in the coco levy saga.



In an impoverished coconut plantation of Samar during the 1970s, a coconut farmer finds himself having to pay 0.55 centavos for every 100 kilograms of copra harvested. It is explained to him that the taxes collected are designed to reinvigorate the coconut industry and create a buffer fund against global market shocks. He is issued receipts for every payment of the tax, such receipts carefully folded and kept away for the day they may be needed again.


In the boardrooms of Manila, Pedro Cojuangco decides to divest his shares in First United Bank (now UCPB). He transfers these shares to his nephew Danding Cojuangco, who then transfers these shares to the Philippine Coconut Authority, ostensibly for distribution to coconut farmers who are members of COCOFED, a self-proclaimed national federation of coconut farmers that, to quote the Supreme Court, is made up of “dubious claimants”. The Philippine Coconut Authority pays for the shares and is reimbursed from the coco levy money. With controlling interest in the UCPB, six oil mills under the Coconut Industry Investment Fund (CIIF) are acquired, and fourteen holding companies are then formed as subsidiaries. Using coco levy funds borrowed from UCPB that are allegedly owned by the farmers of COCOFED, the fourteen holding companies purchase shares of stock in San Miguel Corporation to the tune of PhP1.6 billion.

From today’s perspective, these perplexing series of transactions during the Marcos regime clearly come across as corporate sleight of hand designed to to steal from the poor to fatten the rich.


In the post-EDSA litigation that ensued for the return of the coco levy shares to the government so that it could finally be used for that weatherbeaten coconut farmer in Samar, the legal calisthenics became even more confusing and protracted. The government claim was divided into three blocs: 20% SMC shares, 24% (down from 27% as a result of dilution from the SMC-Kirin deal) and 4%. The government lost its claim on the 20% share last year and the 4% is still pending in court.

The 24 per cent

A resolution may be in sight for the coco levy saga comprising the 24% share. Early this year, the Supreme Court ruled that the coco levy funds comprising 24% of shares in San Miguel Corporation are “declared owned by the government to be used only for the benefit of all coconut farmers and for the development of the coconut industry.” The decision affirmed the Sandiganbayan decision, but with an important modification: it specified the sole and exclusive purpose of the funds, unlike the Sandiganbayan ruling which simply said that the funds are owned by the government held in trust for the farmers. How much money are we talking about?

At present, there are 753,848,312 shares. Multiplying the number of shares by seventy five pesos, which is the cost of each share of stock upon conversion from common to preferred, we are talking about PhP56,538,623,400.00. The earnings in escrow as of January 2012 amount to PhP8,883,489,246.48. Eight billion alone is close to the operational budget of the Department of Agrarian Reform for one year. This administration must realize that it is the first administration after Marcos that will be able to put the coco levy funds to meaningful use. It must not squander this golden opportunity  to not only make decisive strides towards rural poverty alleviation but, more importantly, to rectify historical wrongs. We must seize this moment and maximize the chance to do some real good.

The first order of business is for the Supreme Court to dismiss the motion for reconsideration of its decision filed by COCOFED, which is a discredited body that has long been exposed at inimical to the interest of small coconut farmers.

Then we must make sure that the money stays intact and does not leak to those who do not have the welfare of our farmers in mind.  In  this regard, there are a number of critical challenges.

Critical Questions at a Critical Juncture

First, where will the funds be reposed and who will determine its use and disposition? The shares of stock in San Miguel Corporation are in the name of the Coconut Industry Investment Fund (CIIF) – a government-sequestered entity marred by charges of patronage and corruption.  Will we leave the use and disposition of the funds to the administration of the CIIF, which was created by the very same people who were the architects of the coco levy scam?

Second, how do we ensure that the funds how do we ensure that the funds go directly to the coconut farmers and the coconut industry? The decision was categorical in its characterization of the coco levy fund, first as ill-gotten wealth, and second,  as a special fund for a special purpose. To my mind, this means that the funds, being vested with an extraordinary character, must be insulated from business and corporate interests and from claims from creditors who now want to cash in on a favourable Supreme Court decision.

Third, is there still time to correct the folly that is the conversion of the shares of stock from common to preferred, thus pegging the value of the share at PhP75 apiece, when a common share of SMC stock is now around PhP120? We can only hazard a guess as to why the PCGG during the past administration approved the conversion of the shares of stock from common to preferred, when such is so obviously detrimental to the interests of the Filipino people. San Miguel has a buy-back option on October 2012. If it exercises this option, it will be buying back grossly underpriced shares of stock.

Fourth, what about the other coco levy cases? The government lost its case on the 20% shares last year, and the Supreme Court had not touched upon the Danding Cojuangco SMC stock. Do we let sleeping dogs lie and be happy with 56 billion, or do we use the definitive declaration that the coco levy funds are ill-gotten wealth to revisit unholy alliances and spurious compromises made in the past?

There are things that need to be done both in the long term and in the short term. In the short term, it is necessary to create a trust fund or vehicle for the funds that will make sure the funds are insulated from the those who do not have the interests of the farmers in mind. A perpetual trust fund created by legislative fiat will ensure a permanent repository for the funds and will be the vehicle for the utilization and disposition of the levy money. A trust fund will ensure that the money is not reposed in only one agency, such as the CIIF or the Philippine Coconut Administration. Secondly, it should be non-negotiable that coconut farmers are included in the decision-making processes involved in the utilization of the money. At the heart of the coco levy scandal is the cynical use and invocation of the coconut farmers by powerful corporate and landed interests.  Now is the time to rectify this by making sure that genuine coconut farmers  are ensured meaningful representation and participation. Thirdly, there must be a comprehensive audit of all these mothballed and government-sequestered government entities that were created with the coco levy funds. Many of them are teetering precariously on the edge of bankruptcy. If they are to be rehabilitated, their rehabilitation must be consistent with the government’s reform agenda.  Fourth and finally, this administration must use its ascendancy to pursue the other coco levy cases and secure its just resolution in favour of the government. This administration should pursue the coco levy claims without the equivocation of administrations in the past, and be relentless in exacting accountability from those who have compromised the people’s interests.

We must take advantage of this present juncture to do some real good for our coconut farmers and our long benighted coconut industry. The coco levy scandal is a festering relic from a dark period in our history. This administration is given a unique opportunity to set things right. Given the glacial pace of agrarian reform in the country and the disappointing track record of agencies serving the rural poor, it cannot afford to squander this opportunity.

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By providing an email address. I agree to the Terms of Use and acknowledge that I have read the Privacy Policy. columnist Walden Bello is a member of the House of Representatives representing Akbayan.  He would like to thank Atty. Jae de la Cruz for her assistance.

TAGS: coco levy fund, Coconut Industry, Danding Cojuangco, Marcos regime, San Miguel Corp

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