‘Owned by gov’t in trust for coco farmers’

The attempt of the government, particularly the Department of Finance and the Presidential Commission on Good Government, to sell and privatize the United Coconut Planters Bank (UCPB) is not in harmony with the coconut industry plan and in clear violation of Presidential Decree No. 755 (July 1975).

The UCPB was acquired by virtue of PD 755, titled “Approving the Credit Policy for the Coconut Industry as Recommended by the Philippine Coconut Authority…” through the so-called “Agreement for Acquisition of the Commercial Bank for the Benefit of the Coconut Farmers.” The acquisition of the First United Bank and its renaming to UCPB clearly showed that the intention of acquiring a bank was to provide credit support to the coconut farmers and industry.

The rationale behind the acquisition of the bank was that the absence of credit support to perennially capital-short and cash-strapped coconut farmers hindered the “growth and development of the coconut industry.” According to PD 755, acquiring a bank—i.e., a commercial bank—can provide a permanent solution at preferential rates to the coconut farmers’ perennial credit problems.

Moreover, PD 755 made it clear that: “all collections under the Coconut Consumers’ Stabilization Fund Levy and fifty percent (50%) of the collections under the Coconut Industry Development Fund shall be deposited, interest-free, with said bank of the coconut farmers, and such deposits shall not be withdrawn until the Board of Directors of the said bank and the Governing Board of the Philippine Coconut Authority shall have jointly ascertained that the bank has sufficient equity capital to be in a financial position to service in full the credit requirements of the coconut farmers…”

That the UCPB shares are the subject of privatization violates the express provision of PD 755 stating that the shares shall be distributed for free to coconut farmers and not to the government or to investors, if privatized. The obvious intent is for the coconut farmers to directly benefit from the bank’s profitable operations and its investments (oil mills) by way of dividends. They have a direct stake and they do not need to wait for government projects and initiatives. They have passive investments that earn.

If the state privatizes the oil mills, the benefits derived by the coconut farmers as UCPB shareholders will be greatly compromised; they will even be made dependent on private investors who have interests different from theirs. The oil mills can be shelved and the coconut farmers may be deprived of derivative income. So the basic question is: How integral are the oil mills to the overall plan for the coconut farmers? Can the mills be profitably operated, or is a sale more beneficial? More importantly, how will the coconut farmers benefit if these assets are privatized?

The government cannot unilaterally decide on what to do with the UCPB or, for that matter, all the assets funded by the coconut levy (e.g., oil mills, coco chemical, and coco insurance). The government should observe the character of the coconut levy fund and assets—“owned by the government in trust for the coconut farmers”—and PD 755 mandates the adoption of credit policies affecting coconut production, marketing and processing.

In short, the coconut farmers, through their organizations, have the right to the fund and assets, and therefore they should be part of the whole decision-making process. The Supreme Court ruling cannot just be dismissed as a strictly government affair. The ruling acquired the character of stakeholder-shareholder governance ownership—a social contract with the coconut farmers. Any decision regarding the administration of the UCPB should be codetermined and jointly managed and administered by the government and the coconut farmers as shareholders.

The UCPB as an instrument in providing credit support to coconut farmers at preferential rates should be seen as part of the whole integral plan to democratize and modernize the coconut industry—i.e., from seed to self: from raising of primary productivity of the coconut tree, intensive sustainable multiple canopy coconut farming, full utilization of coconut oil and vegetative parts by conversion into various products, to downstream integration with oleo-chemicals production (Dr. Emil Javier, “Modernization of Coconut Industry”).

Modernizing the industry and putting more value to the coconut farmers’ creative endeavors will require not just microfinancing support but also a bank dedicated to service them, by exercising and enforcing PD 755.

Stakeholder-shareholder corporate governance is nothing new. The German experience proves that it is possible and has benefited the government, the shareholders, and the larger community. A study by Katherine V. Jackson concludes: “The German corporate governance regime, which imbeds stakeholder representation into corporate governance, demonstrates that growth and effective corporate management are possible, even if non-shareholder stakeholders, in the form of creditors and workers, help run the firm. In fact, such representation promotes stable, sustainable and long-term growth.”

The UCPB should be refashioned to comply with the coconut farmers’ credit requirements. Privatization is not in compliance with the mandate of PD 755.

Omi C. Royandoyan ([email protected]) is the executive director of Centro Saka Inc., and a member of Alyansa Agrikultura.