In this interview with The Worldfolio, Alex Buenaventura, President and CEO of Landbank of the Philippines, discusses the policies and initiatives of President Rodrigo Duterte, regional integration, and expanding access to financial services to those in rural areas, particularly small farmers
The new Philippine leadership represented by President Duterte sets its objectives to play a more crucial role within the region. The Philippine economy was a top performer in South-east Asia in 2016, due to factors such as its growing middle class and an expansionary fiscal policy that emphasises on public infrastructure. GDP growth reached 6.8% in 2016, up from the 5.9% posted in 2015. Now the government wants to make sure that this growth is sustainable and inclusive. What is your expectation on the new administration’s initiatives such as the 10-point economic agenda and the effects on socioeconomic development?
The ten-point socioeconomic agenda is excellent. It focuses on infrastructure development and that addresses the basic requirements for inclusive growth. The government’s main objective is to improve or reduce poverty, and the infrastructure development that will be done extensively will impact tremendously on investments in the countryside especially in agriculture. When you can move agricultural products more cost-efficiently, there will be more incentive for investors to go into investments in the rural areas. That is particularly interesting for LANDBANK (LBP), because we are focused on promoting investments in the countryside, and these are mainly agri-industrial investments.
The Philippines is currently refocusing its energies towards a deeper regional integration. This shift in policy has already resulted in ODA worth over $19 bn from China and Japan alone. Additionally, according to the latest BoI and BSP reports the first two months of this year have resulted in an 11% growth rate of FDI, amounting to $1.05bn and investment pledges have risen with China and Japan pledging a $1.7bn and $3.9bn investment respectively. What impact do you expect to see from deeper regional integration on an ASEAN level?
Regional integration will have a big impact on investments in the Philippines, and Philippine companies can also go to other ASEAN countries. Cross investments will be facilitated and promoted. The advantages of some foreign companies would be, for instance, in agricultural investment. On the other hand, other companies that have big food chains can put up malls, investments in other countries, and many others. All the ASEAN countries will enjoy a higher level of cross investments. The foreign direct investments are the prime source of investments in these countries. We hope that the ASEAN integration will further increase the FDI that the Philippines is enjoying.
What does more integration do to the competitiveness of the Philippines?
With ASEAN integration, we have a technical disadvantage now, because our infrastructure situation is not as good as our ASEAN neighbours. That is why we must build a lot of it to level the playing field. In attracting tourists, we do not have enough infrastructure. In farming, we also do not have the infrastructure or right tools. We must catch up. The government is on the right track of identifying infrastructure development as the key flagship program.
Agriculture accounts for more than 10% of GDP and is the second largest employer. More importantly, this sector is the primary source of income for rural and poorly accessible areas. Nevertheless, many farmers are still fighting for survival due to lack of financial support which dampens economic development of the entire country. Local banks rather pay a fine for not complying to loan distribution laws than risking non-performing loans which account to 80% under farmers. How can the “Agri Agra” law be made more effective and how can FDI complement the efforts?
That is precisely the mission given to me by Secretary Dominguez for my appointment in LBP – to provide and revive access of small farmers to credit banks. Over the last ten years, P1.8 billion of loans to farmer cooperatives were written-off by LBP. Right now, we have become very stringent in its illegibility for farmers’ cooperatives to qualify for loans. LBP requires three years of profitability to become eligible to loan. We will now introduce a corporate approach of lending to the small farmers. The farmers will be allowed to participate here and have access by way of signing an individual farm management agreement in partnership with big agriculture companies.
These companies will manage the individual farms of the farmers. Most of them were already blacklisted by LBP. We will lend to these farmers’ corporations not only for production or land development, but also for the putting up of a processing plant. This will be a complete value chain company from production to processing and marketing. Since the farmers will be owning shares of these corporations, they will also enjoy dividends. Out of the dividends, they will be able to pay restructured loans, because they should restructure the loans that they have not paid before. Moreover, they will be earning regular monthly salaries from the corporations, because they will be hired as laborers.
This corporate approach of lending to small farmers is a hybrid between a corporation and a cooperative. That is why I called the program the “corporative” development program. We are excited about this, and there are many potential areas, with each being 10,000 hectares. We are talking to and inviting big agriculture companies involved especially in palm oil, rubber, coconut, coffee, and cacao production and processing. In short, we have this ambition of creating an alternative way of lending to the farmers, because LBP failed in its lending to farmers’ cooperatives. We must develop a new approach, because the existing approach is not working anymore.
What role would international investors play in this context?
Let us take Kikkoman as an example. The company can be the joint venture partner corporation of the farmers in putting up a soy bean production and processing plant. The final product can be Kikkoman. What we can do for that investor is to find the needed track of land. The LBP’s “corporative” development program will identify an area of whatever size required to supply the requirements of that Kikkoman processing plant. Anything that involves the production of agricultural crops is applicable for our program. If they are interested in investing here in the Philippines, we will look for the area suitable for them – the right size, soil, elevation, rainfall, and many other factors. We will take care of the difficult part and that is the consolidation of big tracks of land for them.
Focusing on revitalizing rural areas and contributing to the efforts of decentralization, you have set up the HARVEST program together with JICA. Can you tell me more about it?
What I described to you is essentially the lending strategy for the JICA loan of 1.7 billion pesos. That is the JICA loan for the benefit of the Autonomous Region for Muslim Mindanao (ARMM) and conflict-stricken areas in Mindanao. We are already talking to one group which I am not privy to reveal now, because this is one of the groups there that are undergoing a process of peace and negotiation with the government. It is quite interesting. We are looking at a 10,000-hectare area for palm oil or rubber. That is the situation on JICA. In short, the corporate approach of lending to small farmers is the design of the JICA harvest program. As I earlier described, the only unique feature of JICA is that it is targeted within the ARMM and conflict-stricken areas in Mindanao. That is what we will do. The investors in palm oil or rubber or coconut are welcome to talk to us and be the partners of this group.
We already know the mandate of LBP and what you are trying to achieve with the whole organization. However, what is it that you personally want to achieve in your position as President and CEO of LANDBANK?
I want to succeed in the “corporative” lending approach, which I tried to implement in 1988. Back then, I created a rice mill corporation for the rice farmers to whom my family’s rural bank in Davao Del Norte lent. The approach provided the marketing strategy and collection point for loan payment, because they are supposed to deliver their harvests and produce to their own rice mill. They own 70 percent of the rice mill. However, I failed, because 20 percent of the farmers in 1988 did not deliver to their own rice mill to avoid paying their loan to my family’s rural bank. In other words, they “pole-vaulted.”
I told Secretary Dominguez that my main interest is to make the “corporative” approach succeed by reengineering it. The “corporative” must manage the farms. It will no longer be the small farmers who will manage, because if they do, they do not pay the bank. That is the inspiration of this “corporative” development program. That is my lifetime legacy and challenge – that I want to make something I did in 1988 succeed this time. This time, the “corporative” will manage the farms.