Agri Econ 9: On Agrarian Reform and Agri Credit

Below are some exchanges that I and some friends made last January 18-20, 2013 in my facebook wall. Posting their comments with their permission.
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Tibs Filbert Arsenal Arceño Hi noy, for me one main factor why local harvested rice have higher prices compared to other asian countries is land ownership. As practiced, most land planted w/ rice are being owned by absentee landowners. Since these lands are cultivated by tenants, workers or renters—a portion of price of produces are considered before taking into account the base price for the market. While in Vietnam majority of rice farmers are landowners. So we end up paying absentee landowners a part of the rice we eat even though they do not take part of the actual production. i believe that agrarian reform is still key to development in the countryside. 

Nonoy Oplas Not really Tibs. Local rice production simply cannot keep pace with rising population (1.7 million a year net of death and migration). Rising rice prices -- along with prices of tilapia, chicken, galunggong, pork, house rental, school tuition fees, etc. -- are natural. Rice farmers themselves want higher price for their palay too as they have rising needs for their households. What is objectionable is using more tax money for agri cronyism like what the NFA is doing.

On agrarian reform, it is among the main sources of agri business instability. You develop an ugly, marginal, cogonal land into a mango orchard or banana, pineapple, rambutan, etc., and when you succeed in making that land productive, DAR people will come to you to say that they will forcibly redistribute your land to your workers. You will not be happy when that happens, so many agri business ventures are postponed, or kept at low key levels.

Shakaru Macht Well, Nonoy, Tibs has a point. For more information, please read Henry George. He has an elegant book entitled Progress and Poverty. Its premises explain how poverty exists despite economic growth. Inequality of access, possession and ownership of natural resources - in particular land is emphasized here.

By the way, I fully agree with you not having forced land transfers, nor practicing the agri-cronyism done by the SUPER-REGULATORY BUREAUCRACIES of our government, who are given virtually divine powers who uses or benefits to what. It's not only inefficient - but also gives undue advantage to the special interests like the big farms and haciendas...

Tibs Filbert Arsenal Arceño yet it could be an additional income for the rice farmers if they own the land. just imagine about 15-25% of the income goes to the absentee landowner.

noy how about a discussion on the rise of the bombay/turko sector and its effect on our economy especially on our SME's. one day you see a turko collecting 5/6 among market stall owners riding a motorcycle. after 5 months he's already using a brand new adventure or a vios. after another 5 months, he is now riding a high-end hi-lux pick-up. how come they end up successful in their business? how come that turkos----who cannot speak our dialect and are oftentimes held-up--- succeed?

Nonoy Oplas Some absentee landlords extract exorbitant rents, some simply lose their lands to land grabbers, rich and poor alike. Squatting for instance, is land grabbing. If a land owner is seldom seen in his property, chances are that farmers won't pay the regular rent while other people will start building houses, other structures in the land.

About the Bombay/Turko lending, they fill up certain sectors of the credit market. In formal sectors like banks, borrowers like those in palengke must go to them, fill up certain forms, present a collateral, convince the bank officers that they have the capacity to pay back, do transactions only on weekdays and non-holidays. In the Bombay system, it's the entire opposite: the lenders go to the borrowers, do not require loan application form, do not require collateral, only word of mouth recommendation from other borrowers, do transactions 7 days a week incl holidays. The bank officers are holed up in air-con, fully guarded place, the Bombay endure heat, dust, rain, traffic, muggers and hold uppers. The admin cost of lending and collecting to each small borrower is high. I am not justifying that their 20% per month interest rate is good, it's just how the lenders would value their effort and risks endured. Which also reflects the failure of the government banking regulation system that force the formal lenders like banks to become extra careful, resulting in their inability to serve the micro but numerous borrowers.

Business Bureaucracy 3: Their Rules and Life

I tweeted these "bureaucracy rules". Now I will elaborate or give examples on them. Bureaucracy here means government bureaucracy.

1. Once a bureaucracy is created, its 1st act is to perpetuate itself. It has no allowance for self-destruction someday.

2. When one coalition of governments and bureaucracies don't work to one's advantage or agenda, create a new one.

3. If threatened w/ abolition, bureaucracy's main defense is counting d no. of bureaucrats who'll lose job, social tension.

4. Before the main mandate is accomplished, create new functions, prgrams and "needs" to perpetuate itself forever.

5. Create one admin or regulations order, monitor how ineffective it is, create a revised regulations order, monitor...
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On #1, this is a universal rule of the bureaucracy in possibly all countries and governments. And this largely explains why many bureaucracies, from local to national governments, to multilateral and inter-governmental bodies, keep expanding.

On #2, good examples are the new US government initiatives, the Partnership for Growth (PFG) and the Trans-Pacific Strategic Economic Partnership (TPP). Many if not all countries invited for this new economic coalition are also members of the Asia Pacific Economic Cooperation (APEC). Since the US does not get all its demands and economic agenda from APEC, then it created a new coalition where member-countries and governments will be indebted to it for such new "initiative" and thus, agree to a number of US government demands and political-economic agenda.

On #3, many agencies, departments and bureaus whose mandate has been outdated or irrelevant, cannot be abolished because they have already packed those offices with many employees and directors. Abolishing the office would means several dozens, if not hundreds or thousands, of bureaucrats who will be displaced.

On #4, one option for the bureaucracies whose original mandate has become outdated, is to expand its mandate so that it will remain "relevant and needed." One good example is the Department of Agrarian Reform. The Comprehensive Agrarian Reform (CARP) was enacted in 1988 and was given 10 years to be implemented. DAR is supposed to evaporate once CARP has been fully implemented. Then CARP was not fully implemented for various reasons, so it was extended for another 10 years, to end in 2008. Then it was not fully implemented again, extended again for another 5 years, until 2013. It is safe to assume that there will be another 5 years (or longer) extension as DAR has created more programs like "urban land reform" and there is no limit to those urban land redistribution.

On #5, this is how various Administrative Orders (AOs), Executive Orders (EOs), Republic Acts (RAs) and other laws and regulations keep expanding. The previous regulations allow certain loopholes for the regulated sectors and businesses, so the next administration and officials create new regulations and orders to amend and revised the previous ones. And another change of administration and officials would mean new changes and revisions to recent revisions.
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I wrote this last December 16, 2009:

Unemployment and Statism

The National Statistics Office (NSO) released yesterday its October 2009 Labor Force Survey (LFS), http://census.gov.ph/data/pressrelease/2009/lf0904tx.html.

One ugly result is this: Out of 45.08 million Filipinos in the labor force, 2.72 million were unemployed, and 6.88 million were underemployed (have jobs but need additional work, mainly to augment current small income).

That's a total of 9.6 million Filipinos were either jobless and poor, or have jobs but feel poor enough and look for additional work and additional income. They constituted 21.3 percent of those in the labor force.

Now, there are also people who can be economically productive, but are not looking for a job, mainly because they think they can't find a job anyway. Or they may find a job but not at a salary that they wish to receive. So either they become idle ("tambay"), or pursue new studies to acquire new skills. Say an engineering graduate who cannot be hired as an engineer, so he studied BS Nursing to be hired as a nurse abroad someday, where expected income is a lot higher than local jobs.

For this group of people, they are not part of the labor force at the time of the survey. And this has the tendency of not worsening the already bad unemployment situation.

Who hire workers? The entrepreneurs, the investors, the capitalists. Local or foreign, corporations or single proprietors (or partnerships). They are the main job creators.

"Wait, wait, we are also job creators!" Say government. Oh Yes, thousands of government agencies and bureaucracies, national and local, also hire people. My estimate is that there are almost 4 million Filipinos who are working in government, both national and local government units.

But government hire people not as food producers or transporter of people, food, and other commodities. But mainly as politicians and their staff; as regulators and tax inspectors and collectors. The people who oftentimes give the entrepreneurs and private sector job creators a hard time.

So in a period of high unemployment and high underemployment, the best policy tool is to relax or abolish certain regulations and taxes that discourage the entrepreneurs, the capitalists and job creators. More job creation by private entrepreneurs in exchange for less bureaucracies and less taxes. But this is not happening. Rather, there is more bureaucratism, more regulation, more taxation.

Statism and heavy State intervention in business is a scourge. It drives millions of people to poverty and hopelessness.

I hope more people and voters will realize it in this coming national and local elections on May 2010. Then they will demand for a team of less interventionist candidates who will minimize and reduce the scourge of statism.

* See also:
Business Bureaucracy 1: Avoiding government: Egyptian experience, March 12, 2007
Business Bureaucracy 2: We don't need a new DICT bureaucracy, July 13, 2010
Welfarism 11: Bureaucratizing Entrepreneurs, April 11, 2011

Agri Econ 5: Land Reform Without Timetable is Wrong

A number of people commented on the new Philippine President's inauguration address that he did not mention about land reform, that land reform is mandatory for social and economic development.

I countered that land reform with no timetable is junk. Land reform in the Philippines was first initiated by the government in the 60s. Then a "new" land reform was implemented in the early 70s during the Martial Law period. Then another "new" land reform was implemented in 1988 when the new government took over from the dictatorship that ruled the country for 20 years.

The 1988 land/agrarian reform law, or the Comprehensive Agrarian Reform Law (CARL) has a timetable, that land redistribution should be over by 1998. By 1998, under another administration, the law was extended to end by 2008. By 2008, another extension was made. There is only extension to an extension.


The land socialists do not realize it. Try developing even 10 hectares of idle and grassland into a productive fruit orchard. After several years, when the land has become productive and you begin harvesting the fruits to recoup your effort, time and money, some bureaucrats from the Department of Agrarian Reform (DAR) will come to say, "we will redistribute your land to landless workers." It happened to a number of my friends. That is why land reform without timetable is formula for uncertainty. Land reform should have final-final timetable, zero extension.

Land socialists think it is a crime to own an agricultural land even 5 or 10 hectares out of their hard work and years of savings. That is why they believe that the government should confiscate those lands and give to the landless. They really believe that it is wrong and a crime to own some productive "means of production."

Japan, Korea and Taiwan land reform was successful because it was done in one sweep. Just a few years and it's over. Not 30 or 50 years as in the case of the Philippines, and still no real timetable.

See also:
Agri Econ 1: Food Prices and Government, April 13, 2008

Agri Econ 2: Rice Laissez Faire vs. Subsidies, May 06, 2008

Agri Econ 3: Dr. Samran Sombatpanit and WASWC, July 03, 2008 

Agri Econ 4: Government Agricultural Interventions, October 21, 2008