Time to let go—or not?

Yesterday, Raul Fabella of the University of the Philippines School of Economics and the National Academy of Science and Technology gave a lecture titled “Comprehensive Agrarian Reform Program (CARP): Time to Let Go.” Note that it wasn’t a question, but a statement. And coming from him, that is music to the ears of landowners who have not yet been CARPed. Also to big businessmen who want to “consolidate” land into huge holdings, because Fabella gives them aid and comfort by saying (or implying very strongly) that the inverse farm size-productivity relationship which some economists call an “empirical regularity” has no longer held since the late 1980s. But it is a sour note to the farmers, who are still waiting for their land.

Because this column’s deadline came before the lecture, I will not be able to relate how Fabella’s lecture was received until next week. But because his lecture is based on a discussion paper (he wrote it in February), I have a copy of it. I also have a copy of a subsequent discussion paper titled “Time to Let Go of CARP? Not so Fast” authored by Toby C. Monsod (associate professor, UPSE), my daughter, and Sharon F. Piza (consultant, Asian Development Bank), who beg to disagree.

Who is correct? It looks like the start of a knock-down-drag-out academic battle. Note that in all these, the farmers’ views have not been sought.

Why does Fabella say it is Time to Let Go? Because, he says, “CARP fell short of its economic welfare mission,” or “[t]he cumulative weight of evidence suggests that the hypothesis that in economic terms CARP is a government failure has not been rejected,” or, using plain language, “farm productivity and the enhancement of quality of life is where CARP messed up,” creating a new class of farmers, “the landed poor.” Great sound bites.

What evidence? He cites studies (ALDA, APPC, IARDS) showing that farm productivity figures for crops coming under land reform are “chilling” (in the sense that yield per hectare has decreased); that the beneficiaries of CARP have become poorer (the “landed poor”); that landownership under CARP is an inferior type of ownership because the per capita income of these landowners has not increased; that if the total money spent on Agrarian Reform Communities (ARCs) had just been directly given as cash equivalent grants to members, the members would have been better off (P1,340 vs P1,619); and that the difference in net profits between those of Agrarian Reform Beneficiaries (ARBs) and non-ARBs in ARCs (about 10 percent higher) is illusory, because ARBs have 30-percent-larger plots than non-ARBs.

Wow. No wonder it is Time to Let Go.

But wait. What do Monsod and Piza say? They examine the very same studies that Fabella uses, and argue that he has either “misread” or made “uncritical” use of findings from the cited references. They then proceed to point out where “missteps” and “misinterpretations” were made.

For example, with respect to “chilling” productivity results, Monsod and Piza ask why Fabella considers the figures chilling when “two out of the four crops—rice and corn, which represent 62 percent of the area planted in ARCs—demonstrate yields that are higher than the national averages (10 percent higher for rice, 50 percent higher for corn).” They also show that “average yields in ARCs improved relative to national averages for all crops between 2005 and 2011: from 6 percent to 10 percent higher than the national average for palay; 23 percent to 50 percent higher for corn; 72 percent to 40 percent lower for coconut; 16 percent to 8 percent lower for sugar. This is not chilling.”

Fabella’s finding that the ARBs in ARCs have become poorer (landed poor—36 percent in 2009 to 54 percent in 2011) stems from his comparing apples and oranges. Monsod and Piza also point out that a methodologically correct approach is given by the APPC study, which estimates that between 1990 and 2000, poverty incidence decreased from 40 percent to 25 percent, and estimates of changes in poverty can be extended another 10 years once the public use files for the 2010 Census are released.

And so on. The third charge, that CARP ownership is an inferior land ownership because incomes of landowners has not increased, turns out to be based on the misreading of the APPC study. There was an increase. Land ownership matters.

Fabella’s fourth finding, that it would have been better to just give cash grants instead of using the ARC concept, was based on his comparison of the wrong figures. If the right numbers were compared, he would have found that “at just 38 percent of the level of spending in non-ARCs, the ARC strategy produced a greater per capita income increase for its households than the mainstream strategy did for non-ARC households.”

And finally, the net profits of ARBs are higher than those of non-ARBs. They are already compared on a per hectare basis.

So, the conclusion of Monsod and Piza is: Based on a rereading of the evidence that Fabella uses, a case for concluding that CARP has “messed up” or is a failure in economic terms has not been made.

If so (and I can’t find anything wrong with their analysis), it is not Time to Let Go. No use to go to the other parts of Fabella’s paper. But the Coase Theorem, and more importantly his views on the land retention limits of both landowner and beneficiary and on the optimum size of land, should be worth looking into. More on this next Saturday.