Attending to agriculture

The agriculture sector has been the weakest link in ensuring high, sustainable economic growth for the country. For the past several years, it has hardly contributed to the overall economic growth story. It is urgent, then, that the government give more attention to why this is so, and find solutions to uplift the circumstances of farmers and fishermen and the sector as a whole.

The availability of financing for the sector, for instance, has long been a problem. Previous administrations attempted to improve agriculture’s access to formal financing, but banks have continually shied away from lending to what they consider a “risky” sector.

With no other recourse, farmers and fisherfolk have had to resort to informal lenders who charge them usurious rates. With the exorbitant costs of production and the lack of access to markets for their produce, farmers end up losing season after season from their operations. No wonder they remain among the most marginalized sectors of the economy.

There is actually a law — Republic Act No. 10000, or the Agri-Agra Reform Credit Act of 2009 — mandating that banks set aside 25 percent of their loanable funds for lending to agriculture and agrarian reform ventures.

The problem with that law is that it also incorporated a provision allowing banks to opt for other mechanisms to comply with the requirement, mainly through the purchase of eligible government securities instead of actually lending to farmers and fishermen.

The latest data from the Bangko Sentral ng Pilipinas show that, in the first quarter of 2019, banks continued to fall short of the mandated amount for agriculture and agrarian reform lending. The central bank said big banks or universal and commercial banks registered a compliance ratio of 13.27 percent, while thrift banks had a compliance rate of only 7.2 percent. Rural banks, given their proximity to agricultural areas, had a higher compliance rate of 23.36 percent.

Sen. Cynthia Villar has promised to spearhead in the Senate the revision of the agri-agra law, after President Duterte threatened in his last State of the Nation Address to abolish the state-owned lender Land Bank of the Philippines for allegedly failing to extend enough credit to farmers and fisherfolk.

The amendments, according to Villar, would ensure that enough funds are made available to the agriculture sector, though she offered no specifics as to what tweaks would be needed to force greater credit flow toward the sector.

The banks may not be entirely to blame. Managing director Benjamin Castillo of the Bankers Association of the Philippines said that compared to other industries, loan exposure in agriculture could easily be compromised by typhoons, drought and other natural disasters.

How then can the government help resolve this dilemma—to make agriculture lending a more viable proposition for banks?

It can, first of all, take the lead in helping make the work of farmers and fishermen viable. The government can build the necessary farm-to-market roads to bridge small-scale agricultural producers and end-buyers without the need for opportunistic middlemen. It can help finance grains warehouses or commercial freezers to increase the shelf life of agricultural and fishery products.

More importantly, the government should spearhead a move to organize farmers and fisherfolk to form cooperatives.

Individually, they may be high-risk borrowers. But collectively, farmers and fishermen can become viable by having economies of scale; they can buy, for example, fertilizers and seeds in bulk direct from suppliers, or secure transport services for their collective produce, at a lower cost.

The Duterte administration should also look into putting someone at the Department of Agriculture with the sole vision of uplifting farmers and fisherfolk, who can craft programs toward this objective and who has the ability to coordinate with other agencies like the Department of Public Works and Highways (to identify the needed farm-to-market road projects) and the cooperatives agency to effectively implement the necessary programs.

In the end, leadership remains an all-important key to finally help the vital but long-neglected agriculture sector escape the doldrums and become a vibrant contributor to the country’s economic life.