Accessible credit key to agriculture development
Accessing agriculture credit is very difficult because we must fill a gap in our current agriculture lending system. It must be corrected by creating a special purpose vehicle that is attuned to the unique needs of our farmers, fisherfolk and agriculture stakeholders.
This is one of the three main recommendations that the Agri-Fisheries Alliance (AFA) is currently discussing with senior government officials.
AFA is composed of three major agriculture sectors: Alyansa Agrikultura for farmers and fisherfolk, Philippine Chamber of Agriculture and Food, Inc. for agribusiness and Coalition for Agriculture Modernization in the Philippines for science and academe.
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Three recommendations
The three recommendations are:
- Credit: Make credit more accessible to our agriculture stakeholders to increase food production;
- Tariffs: Adjust the too-low tariffs in the appropriate sectors (such as rice and pork) to protect our livelihoods and food security; and
- Smuggling: Support the groundbreaking private sector initiatives of Customs Commissioner Ariel Nepomuceno in data access and physical import inspection to reduce smuggling.
We will focus here on the first recommendation on improving agriculture credit access. The main finding is that agriculture loans from government sources follow a system that prioritizes profit over development. This is “Camels,” a rating system from the Bangko Sentral ng Pilipinas used on individual banks. It has six components: capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market niches.
This is a good system for overall evaluation. But when applied to agriculture loans with their inherent risk, many important developmental loans following this system may not be granted.
Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP) are subjected to the Camels rating system. But these banks are primarily development banks. For certain agriculture loans, they need a different set of criteria. Since the agriculture funds from government are pooled with the other loans and undergo the same Camels system, many agriculture loans with a certain risk factor are not given.
Government bank
Consider LBP. According to the 2024 Commission on Audit report, its total loan portfolio was P1.5 trillion. Another P1.3 trillion was allocated to low-risk government securities. Largely because of the Camels system, which discourages risky loans, only P267 billion (or 18 percent) out of P1.5-trillion loans went to agriculture.
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From a larger perspective that includes government securities, agriculture got only a 10-percent share. For DBP, out of its P916.1-billion loan portfolio, only P19.3 billion (or 20 percent) went to agriculture.
We must realize that LBP and DBP must provide a good return to their investors.
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Thankfully, there is a win-win solution. For the commercial side of their business, LBP and DBP should continue to use the Camels system.
But for funds coming from government sources, we should create a special purpose vehicle, such as a trust fund or some other form. This will have criteria different from Camels. These criteria must still ensure responsibility, but have more flexibility and emphasis on development, and therefore must allow greater risk. It will still be guided by LBP and DBP, but will not be subjected to the Camels system. This vehicle will be considered a separate entity from the main bank, but still under its guidance.
We must realize that the problem is not just credit accessibility, but the quality of borrowers, so that the funds are not wasted on unpaid loans. The new system must provide flexibility to support farmers and fisherfolk organization, education, capacity building, clustering and consolidation. Projects with economies of scale in mind should be advocated, such as shared processing facilities, storage, cold chain and even basic infrastructure.
Listing of funds
Here is a partial listing of funds sourced from government that should go to this special purpose vehicle:
- P3 billion from the Rice Comprehensive Economic Partnership
- P3 billion from the coco levy fund;
- P3 billion from the soon-to-be-released Livestock Fund; and
- penalties collected from bank noncompliance to the 25-percent required share for agriculture lending.
In addition, the Agriculture Guarantee Fund Pool should be returned to the Department of Agriculture for better fund utilization and management. This is especially important because only P1.7 billion out of the potential P45 billion (or 4 percent) in guarantee potential has been availed of.
It is time to improve our agriculture lending system so that our farmers and produce can produce more, not only for our food security, but also for their increased incomes and our increased agriculture development. INQ
The author is Agriwatch chair, former secretary of presidential flagship programs and projects and former undersecretary of the Department of Agriculture and the Department of Trade and Industry. Contact is agriwatch_phil@yahoo.com