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8/8/2019 Facing the Challenges of the Philippine Coconut Industry
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FACING THE CHALLENGES OF THE PHILIPPINE COCONUT
INDUSTRY: THE LIFEBLOOD OF 3.4 MILLION COCONUT FARMERS
AND FARM WORKERS
EXECUTIVE SUMMARY
The state of the Philippine coconut industry is that of an enormous
paradox an irony of incessant proportions.
While the industry is a major contributor to the national economy,
government hardly appropriates enough for its development. Perennial
problems had been left ignored for decades, thus, pushing the industry
from bad to worse. The continuous decline in copra production, for
example, had long been expected as the rate of senile and nutrient
deficient trees increase every year but hardly can the Philippine Coconut
Authority attune its programs with the meager budget it obtains.
Copra trading have proven to be a vast source of wealth for the
industrys stakeholders but some 3.4 million small coconut farmers and
farm workers live in dire poverty. Big companies and individual dealers
find copra trading to be very profitable but a coconut farmer with one
hectare can hardly cope with an average earning of Php 30 per day at a
relatively decent price of Php 17 per kilo at the farm gate.
With barely two years left for the completion of the Comprehensive
Agrarian Reform Program (until 2008) coconut lands, comprising twenty-
five percent of the countrys total agricultural area, constitute the biggest
balance (estimated 60%) of undistributed lands by the Department of
Agrarian Reform.
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Executive Director
Coconut Industry Reform Movement, Inc.
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Coconut had always been the countrys top agricultural export. Eighty
percent (80%) of the countrys total copra production sees its way into the
export market while twenty percent (20%) is consumed locally. But
coconut lands are not regarded as prime agricultural lands by the
Agricultural and Fisheries Modernization Act (AFMA) since these lands
are usually not irrigated.
The Coconut Preservation Act of 1995 was passed into law to abate
indiscriminate cutting of coconut trees as it might prove to be detrimentalto the dollar-earning industry but the same had been the source of
rampant cutting in its implementation. More over, the Philippine Coconut
Authority estimates the ratio of replanting at 1:23, 1 seed nut planted for
every 23 cut.
One hundred to a hundred and fifty coconut trees are normally planted
to a hectare. The actual space occupied by the trees covers only twenty
percent (20%) of the land area but the remaining eighty percent (80%) is
seldom optimized by the farmers. Two-thirds of 3.2 million hectares
devoted to coconuts are monocropped.
Tons of research papers on the industry grow on desks of government
and private institutions. Various technologies for coconut processing have
been made but only very few reach the actual production areas. Until
today the farmers burn the higher value coconut husks / shell to dry the
lower value output that is copra.
In 1996 the Philippine Coconut Authority launched the Small Coconut
Farmers Development Program and distributed chemical fertilizers to the
farmers for free through the government-initiated Small Coconut Farmers
Organizations (SCFOs). The program, though, was a US$ 121 million loan
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Executive Director
Coconut Industry Reform Movement, Inc.
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from the World Bank. Most of the farmers did not use the fertilizers for
their coconuts but for some other purpose. Some reported sightings of
fertilizer bags in huge quantities ending up in warehouses.
Coconut oil offers a great deal of health, wellness and ecological
qualities but the American Soybean Association lobbies rigidly to brand it
as saturated animal fat for obvious reasons of trade protectionism.
The Tree of Life in reference to its numerous uses remains to be
an insignificant label as the country had largely limited itself to producingtraditional products such as copra and coconut oil. Stiff competition for
lauric and vegetable oils in the international market has yet to affect the
industrys dependence on traditional exports.
Practically thriving on its own with very minimal intervention from
government, a levy was imposed on the first sale of copra to generate
huge sums of money that may be used to develop the industry and uplift
the lives of the coconut farmers. But under Martial Rule the coconut
farmers found themselves beholden to a monopoly set up from their own
contributions by a handful of cronies. The coco levies ended up in the
names of private persons and entities.
The irony also comes with a positive tenor. Bleak as it appears the
coconut industry is yet facing a rebirth with recent events that should be
beneficial enough to drive government and the stakeholders to nourish the
potentials of the once robust industry.
The qualities of coconuts are gaining fast recognition from both local
and abroad. Last November 2005 Dr. Justino Arboledas coconet (coconut
geotextile) won the First World Challenge Contest sponsored by
Newsweek Magazine and the London-based British Broadcasting
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Joey T. Faustino EPRA Paper/
Executive Director
Coconut Industry Reform Movement, Inc.
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Corporation (BBC). The contest included entrepreneurs worldwide whose
projects are environmental friendly and helpful to communities.
The virgin coco oil is taking both local and foreign markets by storm for
its health benefits and the clean air biodiesel (a.k.a. coco methyl ester)
emerged in the middle of a fuel crisis caused by soaring global prices of
petroleum products.
The Executive Branch had already supported such developments with
favorable policies. Malacaang issued Memorandum Circular No. 25directing the Department of Public Works and Highways to use the
coconet to prevent and control soil erosion. The President had also issued
Memorandum Circular No. 55 directing all departments, bureaus and
offices to incorporate the use of one percent (1%) by volume coconut
methyl ester in governments diesel requirements. Cities of Marikina,
Davao, Baguio and Makati had adopted the use of coco-biodiesel. As for
the virgin coco oil, quality standards1 have been set and the product is
now carried by no less than a multinational company.
Cash-strapped as it is government always considered itself to be
incapable of financing programs to develop the coconut industry.
However, since 2001 a series of positive decisions on the coco levy cases
were handed down by the Supreme Court and the Sandiganbayan. The
decisions favored government and the coconut farmers in the recovery of
sequestered assets bought with the use of coco levy funds. The Supreme
Court categorically declared coconut levy funds as prima faciepublic
funds. This ended the long years of legal debate on the nature of the said
funds. Private interests led by Eduardo Cojuangco, Jr. claim ownership of
the assets in lieu of a Presidential Decree (PD No. 1468) issued by
Ferdinand Marcos under a dictatorship.
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Executive Director
Coconut Industry Reform Movement, Inc.
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Yorac in the PCGG had been sidelined by her successor Camilo Sabio a
simple case of the winning party initiating the amicable settlement.
Various reactions hound the PCGG today for coming up with such a
skewed position. Informed coconut farmer groups are calling for the
resignation of Chair Camilo Sabio. Former Senator and first PCGG
Chairperson Jovito Salonga opined that entering into a compromise with
Cojuangco at this point would be sheer irresponsibility bordering on
ignorance. But whether the outcome is that of a Writ of Execution granted
by the Sandiganbayan or an amicable settlement if at all to be allowedby the Courts government is certain to lay hands on a very substantial
amount of recovered coco levy assets.
What then is to be done with it remains to be seen as a variety of
political poles and business interests, within and outside of the industry,
can be expected to lock into an intense tug-of-war to wrestle control over
the huge funds. But what should ultimately serve as bases for the next
step is a serious look into the condition of the coconut industry and the
millions of impoverished farmers and farm workers as reaffirmed by the
series of court decisions on the coconut levy cases.
In the words of the Sandiganbayan in denying Cojuangcos Motion for
Reconsideration on December 28, 2004:
It is high time that the real beneficiaries of the coconut levy funds, the
coconut farmers who contributed to it, and the entire coconut industry be
given a chance to reap the benefits that are due them.
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Joey T. Faustino EPRA Paper/
Executive Director
Coconut Industry Reform Movement, Inc.
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I. BASIC FACTS ON THE COCONUT INDUSTRY
The coconut industry traces its roots to the 17th century. Since the
Spanish Colonial period, the industry had been a cheap source of oils for
world trade. Under Spanish Colonial rule selected villages were required
to plant coconut trees, the purpose of which was to supply the galleon
trade. Then again under American rule coconut oil was stockpiled as a
source of glycerine for the First World War.
After the declaration of Philippine independence governmentintervention in the industry was nowhere found until shortly before Martial
rule and largely during Ferdinand Marcos dictatorship. Common to all
these government interventions was the exploitation of the coconut
industry and its farmers. In fact, much of the events that transpired under
Martial Rule had influenced the state of the coconut industry. A coconut
monopoly that exists until today was set up with the use of taxes and
levies.
The following facts reflect a long-time state of the coconut industry:
A) THE EXPORT-ORIENTED INDUSTRY IS A MAJOR CONTRIBUTOR
TO THE NATIONAL ECONOMY.
The coconut industry substantially contributes to the countrys yearly
income. This is why the industry is often referred to as a dollar earner
and export winner. Up to the present, 80% of raw materials coming
from coconuts are exported and the remaining 20% are processed
domestically.
Export earnings from coconut usually fall within the top-three or top-
five dollar earners. It currently ranks fifth in overall merchandize export
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Executive Director
Coconut Industry Reform Movement, Inc.
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receipts2. But more importantly, the export earnings from coconuts
require no import cost unlike that of other dollar earners.
Exported traditional coconut products, coco chemicals and other non-
traditional products generate a gross average of US$ 690.5 million per
year (2000-2004). The biggest earning yet was registered in 1996 at
US$ 1 billion. Coconut products and by-products reached 114 country
destinations in 2004.
B) THE EXPORT EARNINGS ARE LARGELY LIMITED TOTRADITIONAL PRODUCTS AND BY-PRODUCTS SUCH AS
COCONUT OIL (CNO) AND COPRA.
Most of the earnings merely come from export of traditional coconut
products and by-products such as copra, copra meal, coconut oil and
desiccated coconut.
Total Revenue 2004USD 841 M
Coconut Oil,
67.30%
Desiccated
Coconut,
11.70%
Others,
9.70%
Oleochem,
5.70%
Copra Meal,
3.60%
Copra, 2.00%
Source: Philippine Coconut Authority
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Executive Director
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Coconut oil rakes in the larger part of the income. Coconut oil usually
captures close to 60 - 65% of the world market. However, the
increased coconut production in other countries and growing
competition from other lauric oils pose serious threats. Malaysia is
trying to penetrate the world market by introducing oil palm plantations
in different countries, the Philippines included.
Of the more than two million metric tons coconut production of the
country, 91% is processed into copra while the other 9% is used for
desiccated coconut, coconut cream, nata de coco, virgin coconut oil,and bukayo. Practically all copra is crushed and largely exported as
crude oil. Cochin oil, semi-refined oil and edible oil (RBD) compose but
a small part of the exported coconut oil.
In the international market coconut oil competes with sixteen (16) other
oils and fats led by soybean, palm kernel oil, rapeseed, sunflower seed
and cottonseed oil. Palm kernel oil (PKO) is the closest competitor.
Just like coconut oil it also contains lauric fatty acid that is not present
in any other oil. There lies only a small difference in the short chain
and long chain fatty acids but practically interchangeable in almost all
uses. PKO can normally demand a lower price than coconut oil in
international trade because the oil palm can produce more quantities
than coconuts when compared on a hectare to hectare basis. Thus
making coconut oil a high-end lauric oil. This is precisely the reason
why even the Philippines imports certain quantities of PKO.
Table 1. Philippine Exports of Coconut Oil (CNO)
YEARVOLUME
(MT)VALUE
(Million US$)PRICE
(US$/MT)2000 1,036,922 464.562 4482001 1,417,975 417.549 2942002 944,662 352.625 3732003 1,184,105 504.860 4262004 959,151 577.790 602
Source: Philippine Coconut Authority
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Executive Director
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The potential for non-traditional products from coconuts (activated
carbon, coco chemicals, virgin coco oil, geotextiles, nutriceuticals) is
immense but the Philippines produces so little of these as of present.
Table 2. Export of Non-Traditional Coco By-products2003 2004
CommodityVolume
(MT)Value
(USD FOB)Volume
(MT)Value
(USD FOB)Glycerine 11,948 12,165,653 15,683 12,589,237Alkanolamide 3,833 4,111,798 3,560 3,909,901Acid Oil 513 233,893 250 167,784Fresh Coconuts 846 215,336 3,254 669,145Nata de Coco 5,903 4,684,132 7,509 5,421,704Ubod 1 704 2 2,460
Coco Flour 394 223,693 816 511,393Coco MilkPowder
1,003 2,638,958 1,140 2,856,708
Liquid Coco Milk 1,956 2,340,486 2,056 2,722,311Makapuno 1,200 2,500,656 930 1,842,998Bukayo 0 43 - -Frozen CocoMeat
200 308,308 235 379,611
Coconut Chips 1,000 1,167,358 513 646,655Coco Jam 34 27,749 39 35,837Coco Water(liters)
617,343 463,289 427,085 293,115
Coco WaterConcentrate
5 31,239 10 22,078
Coco Liquor 9 8,825 - -Coconut Vinegar 220 170,149 226 196,119Coir Fiber 896 537,474 5,260 1,181,718Coir Fiber Waste 2,037 225,160 1,619 217,822Coconut Husk 480 12,000 - -Coco ShellPowder
44 7,500 - -
Shampoo 626 2,488,860 1,275 3,578,663Toilet/Bath Soap 2,194 6,168,496 1,636 5,298,925Laundry Soap 188 114,369 8 25,284Paring Oil 17 27,850 26 11,050Margarine - - 2 3,774Virgin CoconutOil
- - 177 553,469
Coco Handicrafts Unspecified 1,650,550 Unspecified 1,621,456TOTAL VALUE 42,524,528 44,759,217Source: Philippine Coconut Authority
Geotextiles are synthetic permeable textile materials used with soil,
rock, or any other geotechnical engineering related material. Also
known as geosynthetics, geotextiles are generally associated with
high-standard, all-season roads but can also be used in low-standard
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Executive Director
Coconut Industry Reform Movement, Inc.
11
logging roads. Geotextiles are highly effective in preventing soil
erosion.
Nutriceuticals is a term used for a mix of food and medicinal values
which coconut oil derivatives best exemplify. The medium-chain
monoglyceride (MCM), a derivative of coconut oil, has a broad range of
anti-microbial properties which is potentially effective for the treatment
of a variety of ailments including the capacity to prevent the assembly
of HIV particles.
C) THE COUNTRYS COCONUT PRODUCTION IS DECLINING.
Coconut production peaked in 1976, 1986 and 1995. All the other
years saw decreased production. At present the average productivity
has gone down drastically to 38 40 nuts per tree / year (840 kg/ha
copra equivalent) from the ideal 75 nuts per tree / year.
Mindanaos share was formerly pegged at 52% of the total coconut
production. Today it has risen to almost 60% -- not because of
increased production in the south but rather due to the steadily
decreasing production in the Visayas and Luzon areas where senile
trees abound. Estimates show that of the more than three million
hectares devoted to coconuts, there are 750,000 hectares planted to
senile trees and 490,000 hectares to nutrient deficient trees.
It is the unstable trend in production coupled with fluctuating world
market prices that lead others to view the industry as a sunset industry
-- that which will eventually die down and cease to bring income to
those who depend on it.
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Executive Director
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The Philippine Coconut Authority reports that coconut production in
2004 reached 2.4 Million Metric Tons, an eight percent (8%) decline
from the previous years output. Best farm yield is pegged at 2.5 tons
per hectare but the existing average yield per hectare is at 0.8 ton.
Table 3. Philippine Coconut Production
YearProduction
(in 000 MT, Copra Terms)1985 1989 Ave. 2,2041990 1994 Ave. 2,2801995 1999 Ave. 2,212
2000 2,5442001 2,8282002 2,308
2003 2,6312004 2,410
2005/f 2,354 /f Forecast
Source: Philippine Coconut Authority
If rehabilitation is not done at the soonest moment the industrys end-
users (mills and processing units) will stand to lose drastically from its
operations.
Table 4. RP Processing CapacityNO. OF MILLS ANNUAL CAPACITY
Oil milling 73 4.990 Million MT CopraRefining 46 1.593 Million MT RB/RBD OilDesiccated Coconut 10 132,709 MT DCN productOleochemicals 7 150,000 MT CNO throughput
Source: Philippine Coconut Authority
It should be further noted that a big part of the industrial segment is
composed of companies established with the use of coconut levy funds
during the Marcos dictatorship. The CIIF Oil Mills (LegOil, Granex,CagOil, SPMC, SOLCOM) is the biggest oil milling group in the
country. Its combined copra crushing capacity is 40% of the countrys
total copra production. Cocochem, the oleochemical plant in Batangas,
was also set up by the coco levy funds.
D) COCO LANDS IN THE COUNTRY ARE SHRINKING DUE TO
COCONUT TREE CUTTING AND LAND CONVERSION.
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Executive Director
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Coco Lands are known to comprise almost a third of the whole
Philippine agricultural area at 3.2 million hectares. Coco lands are
spread in more than 68 of the 79 provinces in the country.
However, available statistics show that the countrys share for total
world hectare for coconut has gone down from 28.3% in 1988 to 25.5%
in 1993. Indonesia, on the other hand, upped its share from 24% in
1988 to 26.3% in 1993. Today Indonesia leads over the Philippines in
coconut production but applies an exact opposite marketing strategy,20% export and 80% local use the only reason why the Philippines
remains to be the lead exporter of coconuts.
Massive coconut tree cutting and land conversion have drastically
reduced the coconut lands. While there is no specific data on how
much of the coconut lands have been subject to conversion, one may
get a rough idea from regional industrial centers set up by government
such as the CALABARZON and the Cagayan-Iligan Corridor -- most
areas were highly devoted to coconuts but are now industrial parks
and world-class golf courses.
In the meantime, a 1996 PCA report cited the ratio of replanting vis--
vis cutting is 1:23. This figure was based only with the monitored
cutting permits issued by the Authority in the implementation of R.A.
8048, The Coconut Preservation Act of 1995.
E) SMALL COCONUT FARMERS AND FARM WORKERS HAVE BEEN
THE LIFE AND BLOOD OF THE INDUSTRY BUT PERISH FROM IT.
There are some 3.4 million coconut farmers and farm workers (1.5
million farmers and 1.9 million farm workers). Along with their families,
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Executive Director
Coconut Industry Reform Movement, Inc.
14
they constitute more than 20 million people -- directly and indirectly
dependent on the coconut industry.
Coco Farmers / Farm workers PopulationClose to a third of the Filipino population is directly and indirectly dependent
on the coconut industry.
Coconut Farmers/ Farm Workers
Ave. Membersper Family
Total Total FilipinoPopulation
Percent
3.4 M (1.5 / 1.9) 6 20.4 M 84 M 24.2
The coconut farmers (small owners and tenants) and the farm workers
constitute 92% of the coconut industrys workforce. This workforce
directly depends on coconut farming for income. The rest are spreadin the manufacturing sector which include oil milling, refining,
desiccating and other coconutrelated enterprises.
Socio-EconomicStructure in the Coconut Industry
The Coconut Farmers and Farm Workers constitute more than 90% of the industrys workforce.
Wage FarmWorkers
Tenant Farmers Small OwnerFarmers
Traders /IndustrialWorkers
Landlords
52% 24% 16% 4% 4%
92% 8%Source: Philippine Peasant Institute
For decades these farmers and farm workers labored and tilled the
coconut farms that delivered the goods to government coffers and
business individuals, accounting for over 40% of the value of
agricultural exports.
However, they have remained gravely marginalized. Studies in 1999show that a farmer who relies on copra production alone gets some
P10,000 annually (with copra priced at P17 P18 per kilo) from a
hectare. Computed on a daily basis, a small coco farmer earns some
P25 - P30 for a family of six. A majority of the small farmers do depend
on copra alone. Statistics show that 2.1 million hectares of the more
than 3 million hectares planted to coconut are not intercropped.
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Coconut Industry Reform Movement, Inc.
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1. Twenty-five percent (25%) of coconut bearing trees are senile
or over sixty (60) years,
2. More than ninety-eight (98%) of total land planted is planted to
talls which bear fruits after seven (7) years and yield
approximately one-half (1/2) that of hybrids,
3. Absence of fertilizer application especially in nutritionally
deficient coconut land,
4. Improper harvesting and post-harvest practices resulting in
poor copra quality, and,
5. Inadequate intercropping in coconut lands (less than 40% ofcoconut farmers practice intercropping).
Low Farmgate Price. Past administrations (prior to 1992) cite the
fluctuating world market prices as the main culprit for low farm gate
prices. It was only recently that the problem was viewed as the result
of the many layers of middlemen, expensive transport and handling
cost and cartelized pricing from coconut processors / exporters.
Low Utilization Value of the Coconut. Oil, by far, is the only product
of value from the coconut. Most parts are considered wastes with the
exception of the shell that is used as fuel in the process of drying
coconut meat for copra production.
Lack of Infrastructure Support. There is need for some building
facilities, feeder roads and irrigation support to coconut farmers.
Funds are needed for these.
Lack of Research and Development. Basically due to a lack in
funds, aggressive research and development has stayed in the
backseat. The bulk of the coconut products are exported in practically
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Executive Director
Coconut Industry Reform Movement, Inc.
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raw form as crude coconut oil, copra meal, copra, desiccated coconut
and young coconuts.
Past administrations saw no need to diversify as products and by-
products from coconuts in its raw form delivered the income. Recently
due to the serious competition of lauric and vegetable oils in the world
market government is slowly realizing the need for the production of
non-traditional products and by-products from coconuts.
There are existing researches in the Philippine coconut authority. Butsomehow the researches serve more the industrial sector than the
primary producers.
Lack of Funds. For decades government has allocated limited funds
to develop the coconut industry due to lack of financial resources and
the ever-growing domestic budget deficit. The same reason prompted
the collection of coconut levies during the Marcos Dictatorship. The
huge collection from the coconut levies, however, benefited only the
few privileged individuals close to the dictator.
Until today, the coco levies are subject to various cases filed in the
Supreme Court and the Sandiganbayan. Coconut-related corporations
established with the use of the levies were put under sequestration
after the fall of the dictatorship. As of today certain coco levy related
cases have been decided on by the Courts.
Poverty of the coconut farmers. About 90% of coconut farmers and
farm workers live below poverty line -- such a huge irony considering
the industrys contribution to the countrys economy.
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Both government and industry leaders have centered on low
productivity as the main barrier to the industrys development.
Low productivity is tantamount to low income. Standard solutions,
therefore, are being applied such as fertilization, replanting programs
and reproduction of hybrid varieties to achieve greater yield the
greater copra yield, the higher income for the country.
In line with this the Philippine Coconut Authority had undertaken the
Small Coconut Farmers Development Program (SCFDP) in 1996, a
fertilization project funded by the World Bank with US $121.8 million.The project terminated just recently. PCA reports show that the use of
chemical fertilizers do increase coconut yield after constant application
in a certain period of years.
The private sector -- mostly big landlords, manufacturers, processors
and exporters -- share similar views and depend on government as
well to put a solution to the problems as they normally did during the
Marcos era. During that time there was no clear distinction among the
two.
As to the farmers poverty, livelihood projects are the only solution. But
time and again the coconut farmers were branded as non-bankable
and could not easily avail of loans from neither rural banks nor the
United Coconut Planters Bank itself, which was set up with the use of
the coco levy funds and mandated to solve the perennial credit
problems of the coconut farmers.
G) THE SMALL COCONUT FARMERS AND FARM WORKERS
SUFFER FROM FAR MORE SERIOUS STRUCTURAL PROBLEMS
OTHER THAN THOSE CONSIDERED BY GOVERNMENT.
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Executive Director
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To the millions of small coconut farmers and farm workers there are
more serious problems that plague the industry and cause misery to
their lives.
Land Problems. The basic lack of control and ownership of the land
bring about their continuing poverty. Low productivity and income may
be seen to emanate from this structural problem as well.
Tied up with an onerous sharing of the fruits of the land and their labor,
small coconut farmers hardly find an incentive to develop the land theytill. Any extra income generated will be hardly be theirs anyway.
Despite the inclusion of coconut lands in the Comprehensive Agrarian
Reform Law (RA 6657) in 1988, a great majority of the 3.4 million small
coconut farmers and farm workers do not have control or ownership of
the land they till.
RA 6657 also mandates the abolition of agricultural share tenancy in
coconut lands. The agricultural leasehold should be applied instead.
The leasehold system allows the tenant / tiller to pay the landowner a
fixed rent at a ratio of 75:25 in favor of the farmer. This had been
hardly implemented as well for various reasons.
The Department of Agrarian Reform recognizes its biggest Land
Acquisition and Distribution balance to be coconut landholdings (750 T
hectares). In the past, these landholdings were merely categorized as
problematic areas and were, therefore, never prioritized for
distribution. During the incumbency of Secretary Horacio Morales in
DAR, other modes of acquisition such as the Corporative and the
Market Assisted Land Reform schemes sprouted. However, strong
apprehensions were raised against these schemes for they were
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largely viewed to favor the big landlords and businesspeople rather
than the farmers themselves. It was also during this time that Eduardo
Danding Cojuangco Jr. was proclaimed as Godfather of Agrarian
Reform.
In 1998 CARP was extended for another ten years through the
enactment of R.A. 8532. This extension, however, was not prioritized
during deliberations of the yearly General Appropriations Act.
Congress centered on a provision which provides that all ill-gotten
wealth recovered by government shall go to CARP. Soon theDepartment of Agrarian Reform found itself operating solely using
some Php 30 billion recovered from the Marcoses. Without any other
budget allocation for the Agrarian Reform Fund (ARF) from Congress
the amount was utilized largely for the administrative needs of the
department. A portion of this fund got entangled as well to the alleged
Fertilizer Fund Scam that occurred briefly before the 2004 presidential
elections.
Monopoly in the Industry. During the Marcos Regime, a coconut
monopoly was set up primarily using coco levy fund collections.
From trading to hauling, processing and milling, marketing and export -
- all these were run by a few privileged business interests identified
with Marcos.
Today even with Marcos gone, the monopoly still has a stranglehold on
the industry. Traders feast on hapless farmers who are never left with
any choice but to follow their dictated prices on copra. With a long line
of traders to end-users and exporters, the poor producer, the small
farmer is virtually left with only a small percentage of the real income.
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Even with the sequestration of the Coconut Industry Investment Fund
(CIIF) Oil Mills and other enterprises funded by the coco levy, the
group of companies continues its hold on the trading of principal
coconut products for domestic and foreign markets as if they were
private entities. In 2001 the CIIF Oil Mills amassed a gross profit of
P900 million while copra prices at the farm gate plummeted to an all-
time low of P2.50 to P3.00 per kilo during the last quarter4.
The monopoly can easily pass on the burden of any shift in the market
to the farmers.
Limited Participation in Policy and Decision-making Processes.
Considering the massive number of small coconut farmers and farm
workers, participation and representation in coconut-related agencies
is very limited.
During the Marcos Regime, the Coconut Producers Federation
(COCOFED) was the only government-recognized national
organization of coconut farmers. This farmer organization though
was led and controlled solely by big landlords and businesspeople.
COCOFED was made a regular member of the board of PCA. And so
with all the other coco-related institutions. COCOFED officials formed
part of the interlocking directorate that monopolized the industry and
figured in the huge coco levy controversy.
Under the Aquino Administration the PCA organized the National
Federation of Small Coconut Farmers Organizations (NFSCFO). The
federation became the conduit for the distribution of free chemical
fertilizers from the WB-funded Project. During that time, PCA related
only to farmer-members of the NFSCFO. Other legitimate farmers
were ostracized by PCA officials.
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During the Ramos Administration representatives of the farmers were
given token representation in some of the coco-related agencies.
Three board members of COIR were appointed to the boards of the
United Coconut Planters Bank (1) and the Philippine Coconut Authority
(2).
Upon the assumption of Estrada as President, representation reverted
to zero. The two small farmer representatives in PCA were replaced
with COCOFED officers.
Coconut farmers started to gain substantial access to policy-making
bodies upon the assumption of President Arroyo. The Supreme Court
decision of December 14, 2001 practically gave way to such an
opportunity. With the PCGG gaining inherent voting rights to the
sequestered coco levy funded companies, then PCGG Chair Haydee
Yorac moved to appoint some thirty (30) farmer representatives and
coco levy recovery advocates in the boards of the UCPB-CIIF Group of
Companies. The appointments, though, were politically driven rather
than institutional. Thus, representation changes as soon as political
considerations shift. When Haydee Yorac left the PCGG policies
regarding the coco levy cases reversed. Such is the case at present
where farmer-directors not inclined to compromise with Cojuangco
were booted out of the boards and replaced with appointees beholden
to Cojuangco.
Foreign market control and disadvantageous international trade
policies. Foreign market control is established by stipulations (copra:
sanitary and phytosanitary measures, CNO: transport/storage) set by
other countries to protect their own produce from potential competition
or to simply be able to have command of price rates. It may also be
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manifested by the anti-tropical oils campaigns to discredit competition
e.g. American Soybean Association smear campaign on coconut oil.
The latest moveby the U.S., effective January 1, 2006, is to subject
tropical oils to food labeling regulations and categorized with saturated
animal fats.
Government analysts conclude that the coconut industry will benefit
from the GATT-WTO due to the lifting of subsidies particularly on lauric
/ vegetable oils in other countries. But certain quarters believe
otherwise. Import duty on Philippine coco nut oil to China is 10% asagainst 5% for Indonesian coconut oil. India imposes a 42% duty on
coconut oil.
The removal of tariff barriers (Asean Free Trade Area) may
disadvantage coconut oil in the local market since it is more expensive
than palm oil. More over, the existing internal problems of the industry
will render the country less competitive with that of other lauric oil
producers. The GATT-WTO is as well expected to further burden the
industry on a domestic scale. In July 1987, President Aquino issued
EO 259 requiring the progressive use of cocochemicals as
components of soaps, shampoos and detergents in order to increase
local demand for coconut oil. GATT-WTO had rendered this issuance
useless to allow free entry of other lauric oils into the domestic market.
Worse, there are apprehensions that patents to certain coconut
processing technologies developed here in the country have been
applied for by foreigners. Thus when the principle of Intellectual
Property Rights is applied, the country cannot benefit as much as it
can from the technologies we, ourselves, have developed from our
very own resources.
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II. INDUSTRY & FARMER DEVELOPMENT INITIATIVES OF
GOVERNMENT
Since the coconut industry is one of the major industries supporting the
national economy, it is the States concern to make it a strong and secure
source not only of the livelihood of a significant segment of the population
but also of export earnings, the sustained growth of which is one of the
imperatives of economic stability.5
By the sheer degree to which the coconut industry affects the national
economy government ought to be greatly concerned with the development
of the industry and its workforce. Government intervention, though, must
be strategically positioned in order to make the industry sustainable.
During martial rule the Cojuangco-led monopoly coined the so called
Vertical and Horizontal Integration of the coconut industry. The conceptwas to expand upstream and downstream industries and corner the
international market of coconut oil. Laws were codified to fuse together
government and business initiatives to ensure copra supply, processing
and marketing. While the presidential decrees were supposedly aimed at
developing the industry and uplifting the conditions of the coconut farmers,
the vertical and horizontal integration simply manifested into a giant
monopoly. It was actually the fruits of the industry that was vertically and
horizontally integrated into the hands of a few cronies.
This period set in motion the political trend in interventions by
government in the industry. Succeeding administrations based its actions
primarily on gaining control of the coconut monopoly from Cojuangco and
his associates. The Estrada Administration, on the other hand, handed it
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back to Cojuangco on a silver platter. All the time minimal interventions
were carried out such as organizing the SCFOs (Aquino period),
fertilization project (Ramos period), and the small farms development
project (Estrada period).
Upon the assumption of President Arroyo, after the ouster of Estrada,
the appointed farmer-directors in the boards of the UCPB-CIIF Group of
Companies pushed for the Direct Copra Marketing scheme as an
immediate response to the needs of the coconut farmers. Soon enough
the UCPB and CIIF Oil Mills boards resolved to provide some Php 700
million for initial programs to help the coconut farmers. Malacaang took
the cue and President Arroyo announced that government shall allocate
the funds to provide micro-finance and direct copra marketing services for
the coconut farmers6.
In real terms, the allocation of P700 million essentially allowed the
implementation of two basic programs for coconut farmers by the UCPB-
CIIF Group of Companies: Microlending (Php 400 M) and Direct Copra
Marketing (Php 300 M). The programs were designed to be merely initial
but immediate. The total amount was small compared to the general
Table 5. Malacaang press release on Php 700 M fund allocation
PROGRAM BENEFICIARIES ALLOCATIONTARGET INDIVIDUAL PROGRAM INDIVIDUAL
Buklod-Unlad Program(BUKO)
Women incocohouseholds
18,000 100M 5,555.55
MaTuTuPad LendingProgram
Organizedcoco farmergroups / Coops
30,000300M 10,000.00
Farm DiversificationProgram
Individualfarmers
60,000200M
3,333.33
Direct Copra Marketing Cooperatives 56,000100M
1,785.71
TOTAL 164,000 700MP 4,268.29 /
beneficiary
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needs of the lot of coconut farmers but the mere situation of government
engaging in coconut farmer programs was a welcome note for most coco
farmer groups. A certain section of the coco farmers, the Pambansang
Koalisyon ng mga Magsasaka at Manggagawa sa Niyugan (PKSMMN),
opposed the Php 700 M release and instead suggested that an amicable
settlement be made with Cojuangco on the CIIF- San Miguel Corporation
block in order to generate bigger funds7.
The Coconut Industry Reform Movement, Inc. in 2004 undertook initial
studies on the impact of both micro-finance and direct copra marketingprograms:
1. Micro-finance
Microlending is the major activity of Coco Finance, a subsidiary of the UCPBwhich had been assigned to cover up UCPBs inability to perform its mandate
8.
Coco Finance is governed by existing rules of the Bangko Sentral ng Pilipinas(Central Bank of the Philippines). It functions, therefore, like the small bank that itis subject to limitations as per BSP rulings with profits as a majorconsideration for continued existence. Coco Finances operations are nothing
different to other microlending institutions such as the Quedancor and thePhilippine Credit and Finance Corporation. The only perceived difference is theconcentration on coconut farmers as a clientele. The nature of the institutionitself, therefore, limits it from catering to the lot of other needs of the coconutfarmers.
The Grameen for women had already been tested by Coco Finance even beforethe allocation of P100 million / P700 million was made. So confident was thecompanys management on the project since the experience in Sogod, Leytereflected a rate of 100% repayment. The records of Coco Finance may indeedreflect such figure. However, where the group of women sourced out the fundsfor repayment is not quite established. Payments made have not beendetermined to have come from income earned out of the project or merelyborrowed from another source. In addition, this project dedicated for the womenin coconut communities, ironically, has a built-in provision requiring a husbandsconsent.
The biggest allocation under Coco Finances microlending program is currentlywith the MaTuTuPad Program P300 million of the P700 million initial fundrelease of UCPB and the CIIF Oil Mills in 2002. MaTuTuPad is an acronym forMagsasaka Tungo sa Tunay na Pag-unlad, as if to imply that microlending isindeed the solution towards farmers real development. The issue is not exactlythe name attached to the program but delves more on a perception of policy-makers on the role of microfinancing programs for the coconut farmers.
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Ka Oscar Santos, a former board member of the UCPB during the RamosAdministration, fought a lone battle to bring about the creation of the CocoFinance in 1994. Ka Oca was again called on by the President to serve as board
member of Coco Finance in 2002. In 2004 he tendered his resignation as boardmember of Coco Finance citing the following:
On the matter of utilization. Ours is basically loan programs. Weencourage the farmers to borrow but require them to pay what they borrowedplus interest. The question is: are our loan programs working?
We were furnished copy of Cocofinance Balance Sheet as of April 30, 2004.Note that as of April 30, 2004, year to date, Cocofinance has:
P181 M loan receivables P819 M IMA investments P54 M deposits in banks P30 M total interest income P7 M interest income on loans P16 M total expenses P9 M net income
From a laymans point of view, these figures could only mean that: For theyear which ended April 30, 2004, Cocofinance has loaned out only P181 Mout of its P871 M loanable funds (P52 M bank deposits plus P819 M IMA).
The figures indicate that availment is too slow either because of any or all ofthe following:
Many coco farmers cannot accept why they have to pay interest on loansfrom the funds they painfully contributed to.
They do not find our loan programs attractive, despite our roadshowsand publicity.
They find difficulty complying with our requirements. They find our interest rates high. They may be willing to pay interest but not at present rates and terms. They shy away from loans, scared of their inability to repay.
Then too, loan facilities similar to ours are also being extended by othercompeting agencies like the Landbank and Quedancor. Chances are we arecovering the same areas already being served by them.
Loan not suited for the really poor. Grant of loans will not necessarilybenefit the farmer. It could even prove to be a burden as may be indicated in
the increase in our volume of past due loans. (p. 2, BSP Report ofExamination as of May 31, 2003). Thus, we found it necessary to engagethe services of collection lawyers to recover unpaid loans.
UCPB Director Royandoyan affirms that loans may work well for richfarmers but not to the really poor borrowers, the vast majority of whomusually find themselves sunk in debt unable to return borrowed money plusinterest. For them, other forms ofmeaningfulassistanceshould be thoughtof, not loans.
Perhaps the following basic points would be of some help if and when ourexisting programs are reviewed:
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view, it would also be worthwhile to site that the project does not in any wayrelate to the industry and the farmers the reforestation was done in Antipolo,Rizal.
Today, the Foundation extends financial assistance to PCA for a survey ofcoconut farmers, the acquisition of books and bookshelves for an elementaryschool in a coconut community, and offers a scholarship program for children ofcoconut farmers. Scholarships were also offered on caregiver courses.
The Foundation also recently launched its UCPB-CIIF GOVERNS program, theUCPB-CIIF Groups Employee-Volunteer Initiatives. The program encourages theGroups employees to volunteer their services for organizational capability-building of coco farmers: Accounting & Bookkeeping; Financial Analysis &Management; Enterprise Development & Management; Organizational Diagnosis& Development; Strategic Development Planning; etc. However, the technologyand mechanism to be used to pass on the skills to the farmers is not quite clear.
The situation clearly shows a gap in prioritization of the UCPB and itssubsidiaries which should, in the first place, cater to the coconut farmers asmandated by the coco levy collections. If microfinancing is to be perceived asonly one among the various needs of the coconut farmers, then it would belogical to maximize the elbow room the Foundation can provide and expand itsservices on projects that would meaningfully serve the farmers and theircommunities. Especially considering that the subsidiaries are offsprings ofUCPB, the parent company that owes its roots to the coconut farmersthemselves via the coconut levy.
Thus Ka Oca Santos, in his same letter of resignation, offered other sensiblealternatives:
Part of the funds may perhaps be allotted to any, some, or all of the followingas our resources would allow:
seriously pursue the MOU with China where the latter proposes toextend a loan of US100M worth of machineries and equipment toprocess coco husks rotting in the countryside, payable by exportvalue of geotextile and other processed coco products. This issignificantsince coco farmersnationwidestand to benefit.
initiate and pursue similar arrangements. consider funding Philhealth programs for the coco farmers. fund more scholarship arrangements similar to that arranged by
Director Lim. promote production and marketing of such coco products as
biodeisel, virgin oil, coco husks, coir etc. support continuing research on the curative qualities of monolaurin.
2. Direct Copra Marketing
Conceptually, Direct Copra Marketing (farm-to-mill) offers a good vehicle to ridthe coconut farmers of indebtedness to the traders and assure them of optimizingthe actual price of copra. This scheme is not entirely new to the CIIF Oil Mills. Alimited number of cooperatives have availed of this program through the PCAand the CIIF Oil Mills during the Ramos Administration. The only difference underthe current administration is the extra effort of the Oil Mills to expand the, so
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called, DCM sites in line with the Presidents response to the clamor of coconutfarmer groups and the persistent nagging of the farmer-directors.
Old-timers in the Mills would simply refer to DCM sites as Copra Buying Stations.In fact, the Chief Buying Officer of the Mills once addressed a group of farmersand said, give us three people to train for the buying station and I assure youthat by the time they finish the training, they will no more think like farmers buttraders. The statement does reflect the confidence of the officer in passing suchtrading skills to the farmer groups. However, it also puts in a tinge of resentmentwhen perceived in an angle that coconut farming and trading are totally unrelatedand irreconcilable skills. The statement, to some degree, is closely reflective ofthe way the DCM sites are operating.
The Oil Mills, under the leadership of Arroyo appointees, initiated some sixteen(16) DCM sites in 2002. It did not take long enough for the number to expand tosixty (60) and seventy (70). Now in order to manage the growing number of DCMsites, the board (including farmer-directors) and management of the Millsestablished the Niyog Trading Center, Inc. (NTC). The NTC is a new andseparate entity tasked and organized to manage nut / copra / other productsbuying operations by the CIIF Oil Mills. Available documents on the NTC conceptexpress the intent of the Mills to later on divest its shares to the farmers.
The move appears to be addressing the question: What then after direct copramarketing? The NTC reflects the integrated processing scheme where othervalue-added products such as coco coir fiber and coco shell is processedalongside the traditional copra. DCM sites are viewed to graduate into integratedprocessing sites in the near future. The Mills, through the NTC, shall buy wholenuts instead of simply copra. The big question so far is how to go about pricingthe whole nut. Previous board meetings of the CIIF Mills discussed the possibilityof offering the price range of P2 to P3 per nut. Apart from the buying capacity of
the Mills, there is no concrete basis presented as of yet to coconut farmergroups.
Copra currently sells at more than P20 per kilo. It takes three to four nuts tomake a kilo of copra. So based on the current price of copra alone, a nut shouldbe able to garner a price of at least P5 each even when the decreased cost oflabor and drying is inputted. The nut simply just has to command a higher pricethan that of copra for its mere added market potentials.
Better yet, to foster a clearer and more directional discussion on the NTCscheme, the performance and impact of the existing DCM sites be thoroughlyassessed and reviewed first.
As of June 1, 2004 the Niyog Trading Center, Inc. reported the following:
74 operational DCM nationwide with membership of 29,850 farmers. Latest weekly delivery of copra is 300 to 400 MT / YTD delivery is 4,954
MT. Another 60 more coops / scfos already trained for DCM. Number of DCM site is set for 200 by the end of the year.
Easily a series of questions will come to mind considering the data reported bythe NTC, Inc.:
How many of the operational DCM sites are profiting / losing? What factors lead to profits / losses?
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How many are strategically located with or without the presence ofcompeting buyers / private mills?
What level should be reached in terms of copra volume and number of
DCM sites in order for the Mills to sustain or profit from DCM? What are the concrete advantages and disadvantages of coconut
farmers (coop members and non-members) from DCM?
These and other relevant questions should be substantially answered before aDCM site can graduate into an NTC site. Without a thorough study on the impactDCM is creating on the coconut farmers, only the perceived practices will comeinto fore.
So far, some grassroots level feedback point to the following:
1. There is no strict uniformity and / or compliance in the implementation ofthe DCM scheme. Apart from the regular business-related differential (i.e.transport assistance, cash advance requirements, storage facility assistance),some DCM sites differ in privileges. One coop in the Visayas is accorded with atypewriter that hardly functions while another coop in Mindanao is accorded a faxmachine.
2. DCMs were conceptually designed to be a partnership between the CIIFOil Mills and the farmer coops. There exists no MoA or MoU explicitly stating theresponsibilities of both parties for all the 70 or so DCM sites.
3. Managers and staff trained for DCM functions not under the authority ofthe partner coops but directly under the authority of the Oil Mills.
4. PCA was made part of the screening and accreditation of candidatefarmer cooperatives for DCM implementation. In some areas the PCA officials
would only cater to farmers who have been organized by the agency under theSmall Coco Farmers Organization (SCFO). Non-SCFO members but are as wellbonafide coconut farmer organizations have a hard time getting the accreditation.
5. When prices of copra drops, the DCM coops may not take a position onwhether to trade or not a great advantage that traders can practice.
6. A number of DCM staff has been offered the retailership of MinolaCooking Oil on an individual basis.
Putting together the available feedback, in the absence of a thorough study,would indeed lead to a conclusion that the DCMs are treated merely as extensionarms / buying stations of the Oil Mills rather than a program for the coconut
farmers.
The deduction may not be far-fetched when one considers that the Oil Mills faceeconomic and, to a certain extent, political limitations.
Commonly like other business entities, the target of the Oil Mills is to profit fromits operations whether it profits out of efficient processing and world markettrading or merely out of exploiting the coconut farmers. The presence of farmer-directors may have affected the latter to a certain degree. What remains to beevident, though, is the fact that the Mills would still have to deal more with thetraders rather than with the farmers and their DCM sites in order to get thevolume of copra needed to sustain its operations.
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Based on the data provided by the NTC, Inc., the current volume of copradelivered by the DCMs hardly counts. It does provide additional volume but notsubstantial. With the existing average of the more than 70 DCM sites, even
granting that the target of 200 DCMs is established by year-end, the copravolume will still be microscopic compared to the volume a single trader canactually deliver. The Oil Mills today is said to be operating only at 35% - 40% ofits capacity. Ergo, it would be more practical to deal with a few traders deliveringa huge amount of copra volume rather than with a great number of DCMs thatdeliver a small volume. In short, the farmer coops still have yet to prove to the OilMills the economic power they can muster before they can expect to get certainprivileges enjoyed by the traders.
On the political side, the controversial CIIF Oil Mills is one of the biggest subjectsof the coco levy cases pending in the courts. During the Marcos Dictatorship thecompanies was under the control of Danding Cojuangco as a monopoly wheretraders rule. After the fall of the dictatorship subsequent administrations took overthe sequestered UCPB-CIIF Companies and ran it mainly for profits and profit-sharing. Cojuangco came back during the short-lived Estrada presidency andonce again ruled it just like it was part his private oil mills (POMs). The system,therefore, of having to serve the interests of the coconut farmers had never beenpracticed this and the other companies within the group had never been ranmainly for the farmers interests. While under sequestration the companysleadership and workforce only react to the changing wishes of administrationafter administration.
9
At present the micro-finance (MaTuTuPad) program of Coco Finance
had been slowed down due to an increase in past due accounts, currently
at 28%. The vision and mission of the company had also been revised toattune it with the 10-point agenda of the Arroyo Administration.
As of January 2006 there are 168 direct copra marketing sites being
operated by the CIIF Oil Mills. Eighty percent (80%) of the DCMs are
positioned in twelve provinces in Mindanao where the supply of copra is
most abundant. The DCMs are under the sponsorship of LegOil in Davao,
CagOil in Cagayan and Granex in Iligan. The CIIF Oil Mills report that 55%
of the operated DCMs are experiencing losses while a substantial part of
the remaining percentage is on the watch list. This has driven the
company to undertake an organizational diagnosis of the farmer
cooperatives operating the DCM sites.
The move of the CIIF Oil Mills is not only for the purpose of evaluating
the DCM scheme. The Mills are currently getting ready to launch another
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program with an integrated feature, the CIIF Coco Farm Development
Program.
The CIIF Coco Farm Development Program
This newly-hatched program of the CIIF Oil Mills primarily takes into
account the business of oil milling but is open as to how to benefit the
industrys workforce for a sustainable industry. It also considers the fact
that coconut farmers cannot live on mere copra production and would
eventually have to enter into semi-processing and processing of other by-
products from coconuts. The scheme is affected by the potentials in the
international market for nutriceuticals, geotextiles and biofuel.
The program targets 1.3 million hectares of coconut lands from 2006 to
2010 and plans to feed the oil mills with the much-needed copra supply.
Prioritization:Basis installed and planned capacity of CIIF Oil Mills
INSTALLED INSTALLED/YR PLANNED/D PLANNED/YRSOLCOMMulanay 100 MTD 34MTY 200MTD 68MTYLEGOILArimbay 350MTD 119MTY 600MTD 204MTYLEGOILDavao 700MTD 238MTY 800MTD 272MTYCAGOILCagayanDe Oro
450MTD 153MTY 650MTD 221MTY
GRANEXIligan 950MTD 232MTY 1,200MTD 408MTY
TOTAL 867MTY
Components:1. Planting, Replanting and Fertilization2. Strategic Crop Intercropping3. Harvesting/Copra processing4. Coconut By-Product Processing
Parties involved:
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For existing Farms1. CIIF Oil Mills Group2. Local Government Units3. Farmers Organizations/Individual Partners
4. National Government Agencies/PCA
For New Farmers1. CIIF Oil Mills Group2. Local Government Units3. Department of Environment and Natural Resources4. Farmers Organizations
Outcomes:1. Planting and Intercropping / Contribution to 1.3 hectares Agribusiness lands2. Planting and Replanting/ Increasing in copra production3. Intercropping and by product processing/ increasing in income
The CIIF Oil Mills want to assist coconut farmer cooperatives to
capture a steady supply of copra to operate its mills in maximum capacity,
thus increasing its profits as against overhead costs. It takes 17 to 24
hours to start up an oil mill and costs the oil mill P3.5 million overhead. If
utilized under its maximum capacity the overhead cost alone would eat up
profits.
So just like any other business the main motive of CIIF Oil Mills is to
maximize profit. However, considering that the program intends to involve
coconut farmer cooperatives, the companies may be well into the path of
establishing its corporate social responsibility (CSR) something that
had not been done in the past.
When prices of copra dropped to its lowest levels at the farm gates in
2001 (Php3 Php 3.50 per kilo), the CIIF Oil Mills then assured itself of
P900 million gross profits while the UCPB-owned trading company in
France (UCPI) profited more. On the other end, most of the small coconut
farmers stopped harvesting copra because at such a low price the cost of
labor (farm worker) would even exceed the income from selling the
harvested copra. Some landowners and farmers even decided to sell the
coconut trees as lumber getting as much as P500 P700 per tree.
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It was not only the farmers then who were at a losing end. If the trend
goes on, especially considering that 45% of the countrys coconut trees
are less productive or senile, the CIIF Oil Mills with a combined crushing
capacity of 40% of the countrys total copra production would not be able
to operate profitably in the coming years. Business will not be sustainable.
The decision of management to undertake such a program, therefore,
is timely and opportune for both the coconut farmers and the companies.
For whom the companies profit is another matter altogether even as the
CIIF Oil Mills had been declared by the Sandiganbayan (May 7, 2004) tobe owned by government in trust for all the coconut farmers. This is tied
up with policies of the ruling government.
The CIIF Coco Farm Development Program intends to put in place all
the four components:
a) Planting, replanting and fertilization
This program component aims to address the perennial problem
of declining copra production from 750,000 hectares of senile
trees and 490,000 hectares nutrient deficient. CIIF estimates a
cost of Php 12,000 per hectare. Danny Coronacion, CIIF Oil
Mills President, explains further that organic fertilizers (from
coco peat) can be utilized. PCA, through a Memorandum of
Understanding is assisting CIIF in identifying the areas to be
covered.
b) Strategic Crop Intercropping
The only intercrop the CIIF Oil Mills can profit from would be
other sources of biofuel that can be combined with coco methyl
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ester (CME) NOT agricultural crops. As of present the choice
intercrop for CIIF is jatropha (a.k.a. tuba-tuba, makasla). CIIF
shall offer assistance to the farmers in planting jatropha. CIIF
shall also take care of harvesting and processing. Other crops
for intercropping, Coronacion says, should be handled by the
Department of Agriculture.
c) Harvesting / Copra processing
Harvesting and copra processing shall be fully managed byCIIF. This is to ensure a uniform copra quality (free of aflatoxin
and other phytosanitary considerations) to avoid rejection or
discounting in the international market. These considerations
presently chop off a large amount from the countrys export
earnings in copra and coconut oil trade. Coconut farmers and
farm workers shall be hired for such purpose.
The formula for pricing, therefore, will be based on the nut and
not just copra alone (existing copra prices + cost of husk + cost
of shell + cost of water).
d) Coconut by-product processing
CIIF plans to establish small processing centers for other
coconut by-products (husk, shell, water). The centers are
estimated to take in coconuts from a radius of 2,000 hectares.
Like the previous concept of Nut Trading Center (NTC) it
considers the importance of having an integrated approach to
development. But unlike the previous NTC concept where CIIF
merely intended to dictate the price of nuts, the new plan is to
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set up profit-sharing schemes with coconut farmer cooperatives.
CIIF will be in charge of marketing.
The CIIF Oil Mills expect to achieve the results through cooperation
agreements with the farmer cooperatives and/or local government units.
Members shall be made to pledge their coconuts (per tree) to the
cooperative that in turn pledges it to CIIF. As an addition, CIIF is seriously
contemplating on providing for other loans needed by the coop members.
In short, CIIF is taking on the role of the traders. And in order to effect the
program, CIIF considers tapping the CIIF-SMC cash dividends of P1billion per year.
The matter on the cash dividends of the CIIF-SMC block is, in itself, a
very tricky and sensitive issue and may have legal implications as well. If
government is allowed to utilize the CIIF-SMC shares for such a purpose,
it might trigger the Cojuangco camp to utilize the other portion (ECJ-
managed) contested in court. Unfortunately, the farmers cannot rely on
the current PCGG to make a logical and legal study on the matter.
Somehow the steps to be made should be weighed with the maximum
benefits of the coconut farmers and the industry as the end in view and
based on the current developments in the coco levy recovery front.
III. THE COCO LEVY CONTROVERSY
Admittedly the virtual source of resources needed to develop the
coconut industry had been locked in for a long period in the coconut levy
controversy. More than two hundred civil and criminal cases, with 72
different respondents, have been filed by government in lieu of the efforts
to recover the huge wealth from Eduardo Cojuangco, Jr. and his
associates.
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The huge sum now runs over a hundred billion pesos worth of assets
and shares in companies where the coco levies were invested. Not only
are the companies important as a potential source of huge funds for
government but also because portions of the investments were in coconut
related firms that has a stronghold on the coconut industry.
Understanding the coco levy controversy, therefore, is an integral part
of any analysis that is to be made regarding the coconut industry.
A) THE CONTESTED COCONUT LEVY FUND ORIGINATED FROM
THE COCONUT CONSUMERS STABILIZATION FUND (CCSF)
From 1973 - 1982, under the Marcos dictatorship, a coconut levy
was imposed via Presidential Decree 276 as amended. P.D. 276
states that, a levy, initially, of P15 per 100 kilograms of copra
resecada or its equivalent in other coconut products, shall be imposed
on every first sale, effective August 20, 1973. This levy, called the
Coconut Consumer Stabilization Fund (CCSF), was initially intended to
subsidize domestic consumption of coconut-based commodities
premised on a crisis brought about by an abnormally high price in the
world market for fats and oils.
However, through succeeding presidential decrees, the original
purpose was soon amended to cover investments for coconut
farmers (Coconut Industry Investment Fund) and development of the
industry(Coconut Industry Development Fund). Later on the
investments were made to appear as private funds even though it
was exacted from the millions of coconut farmers.
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B) UTILIZATION OF THE CCSF
The CCSF was managed by four institutions that ruled the coconut
industry at the time: United Coconut Planters Bank (UCPB), Philippine
Coconut Authority (PCA), Philippine Coconut Producers Federation
(COCOFED) and the United Coconut Oil Mills (UNICOM). In 1986,
after the fall of the Marcos dictatorship, PCA Chief Oscar Santos
moved to have the UCPB and the CCSF audited. It took the audit team
two months to account for the total collection.1986 COA Report
Purpose Amount %UCPB 4,753,321,845.13 49.03
1) Coconut IndustryInvestment Fund (CIIF)
2,572,143,884.69 26.53
2) Insurance Fund 994,941,396.29 10.263) Debt Service Fund 38,970,509.40 0.404) Coconut Industry
Development Fund (CIDF)1,147,176,054.75 11.83
PCA 2,818,167,904.31 29.071) Subsidy 2,147,207,603.38 22.152) PCA Research &
Development242,892,132.30 2.51
3) Premium Duty 173,142,231.78 1.794) Additional Equity on UCPB 80,864,000.00 0.835) Fertilizer Distribution
Program52,521,977.03 0.54
6) Donation to ChildrensHospital
50,000,000.00 0.52
7) Ang Tahanang Maharlika 40,000,000.00 0.48) Acquisition Price of
Controlling Equity Interest28,880,000.00 0.30
9) Hagemaier AqueousCoconut Processing Project
2,659,959.82 0.03
COCOFED 905,528,789.29 9.341) Distn of Stock Cert of
UCPB to Coco Farmers694,833.81 0.01
2) Copra Price StabilizationFund (CPSF)
144,922,064.14 1.49
3) Development and Socio-Economic Projects forCoconut Farmers
759,911,891.34 7.84
Others 1,218,511,210.94 12.571) Census Committee 3 23,000,000.00 0.242) Coconut Industry
Rationalization Fund(UNICOM -Administered)
1,189,735,210.94 12.27
3) Subscription Deposit (PerPCA and COA Report)
5,776,000.00 0.06
Total 100
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Other findings were not necessarily in the interest of the coconut
farmers and the industry:
Other Expenditures AmountCoconut Palace Php 40,000,000Miss Universe Contest, World Chess Championship atbp 545,000Helicopter 7,550,000Bugsuk Hybrid Farm 900,000,000UNICOM Damages (Anti-Trust)* 184,000,000
C) UCPB, THE CIDF AND THE CIIF
The establishment of UCPB was made possible also through a
Marcos presidential decree. Pursuant to PD 755, Mr. Eduardo
Cojuangco, as director of the PCA Board, negotiated the purchase of
the First United Bank (FUB) of Don Jose Cojuangco. The bank was
bought using the coconut levy funds and was renamed United Coconut
Planters Bank (UCPB) with Mr. Eduardo Cojuangco Jr. as its
President. The UCPB acted as the financing arm entrusted with almost
half of levy funds mainly consisting of the the Coconut Industry
Development Fund (CIDF) and the Coconut Industry Investment Fund
(CIIF), both coming from the mother CCSF. In effect, farmers money
was deposited to UCPB interest free.
Census FundP0.03 B
Debt ServiceP0.04 B
InsuranceP0.99 B
CIDF(Replanting)
P 1.15 B
CIIFP2.57 B
Non-UCPB(PCA, Cocofed,
atbp.)P4 .919 B
CCSF Total:CCSF Total:CCSF Total:CCSF Total: Php 9.695 BillionPhp 9.695 BillionPhp 9.695 BillionPhp 9.695 Billion
Administered by:Administered by:Administered by:Administered by:
---- UCPBUCPBUCPBUCPB P 4.776 BP 4.776 BP 4.776 BP 4.776 B
---- NonNonNonNon----UCPBUCPBUCPBUCPB P 4.919 BP 4.919 BP 4.919 BP 4.919 B
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The mandated purpose of the presidential decree was to provide
permanent solution to the perennial credit problems of the coconut
farmers (PD 755). However, actual utilization of the funds revealed
otherwise.
PD 582: The Coconut Industry Development Fund (CIDF)
In the name of development, a contract was executed between
Cojuangco, as UCPB President and Administrator of the coco levyfund, and himself, as owner of the Agricultural Investment Inc. (A.I.I.) --
a small company then capitalized with only P100 T -- for the delivery of
100 million hybrid coconut seedlings to PCA/UCPB for a period of 5
years costing some P980 M from the coco levy fund. The coconut
seedlings were to be distributed to coconut farmers for free.
The contract stipulated that upon signing, P500 M shall be
advanced to A.I.I., interest free, and that in the event that UCPB stops
buying during the 5-year period, UCPB will be penalized to pay the
entire contracted amount as if everything was delivered.
After over three years, with barely 16 million seedlings delivered,
UCPB indicated that it could no longer continue buying and as so
stipulated, UCPB was penalized to pay the balance of the contracted
amount. Records show that over P 1.2 billion coco levy funds were
sunk into the Bugsuk Seed Garden Project of Cojuangco.
In 2005 a remaining balance of the CIDF was traced in UCPB in the
amount of Php 127 million.
PD 414: The Coconut Industry Investment Fund (CIIF)
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Utilizing the CIIF, UCPB was primarily responsible for the
acquisition of assets and corporations that paved the way for the
eventual monopoly of the coconut industry. UCPB was made
administrator of the CIIF by presidential decree as all collections from
the CCSF were to be deposited to the bank of the coconut farmers.
FIRMS BOUGHT WITH THE CIIFName of Firm Amount
United Coconut Chemicals Inc. (UNICHEM) 864 MUnited Coconut Planters International (UCPI) 147 M
OIL MILLS:United Coconut Oil Mills (UNICOM) 544 MGranexport Mfg. Corp. 246 MLegaspi Oil Company 210 MSan Pablo Manufacturing Corp. 43 M
Iligan Bay Express Corporation (Shipping) 9 MUnited Coconut Planters Life Assurance Corp. (COCOLIFE) 16 MUnited Cocoa Plantation, Inc. 90 MUnited Coconut Planters Management, Inc. 10 MCOPRA TRADING COMPANIES:
Mt. Bulusan Agricultural Commodities, Inc. 10 MLamitan Peak Agricultural Commodities, Inc. 10 MMt. Boribing Agricultural Commodities, Inc. 10 MSharp Peak Agricultural Commodities, Inc. 10 M
Mt. Tuayan Agricultural Commodities, Inc. 10 MLamon Bay Agricultural Commodities, Inc. 10 MMactan Agricultural Commodities, Inc. 10 MMaopay Agricultural Commodities, Inc. 10 MMalipayon Agricultural Commodities, Inc. 10 M
ADDITIONAL SIX TRADING FIRMSDavao Coconut Planters Trading, Inc. 34 MZamboanga Coconut Planters Trading, Inc. 25 MLeyte Coconut Planters Trading, Inc. 17 MVisayan Coconut Planters Trading, Inc. 12 MBicol Coconut Planters Trading, Inc. 25 M
Source: COA Report 1986
This gave way to yet another conglomerate, the United Coconut OilMills (UNICOM). UNICOM served well the purposes of those who
managed it but not the industry as a whole. Marcos later issued an
Executive Order11 allowing only UNICOM to export coconut oil. In
1983, another Presidential Decree granted sole rights to the
Cojuangco-owned UNICHEM to import petrochemical materials for use
in its products.
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The acquisitions made by UCPB consolidated the coconut
monopoly from hauling, transport and shipping, milling and processing,
marketing and international trading.
D) SAN MIGUEL CORPORATION AND THE CIIF
Acquisitions did not stop at completing the coconut monopoly. In
1983 the CIIF found its way into the San Miguel Corporation through
the 14 Holding Companies. The 14 Holding Companies are owned bythe 10 Copra Trading Companies, which are in turn owned by the CIIF
Oil Mills, which are owned by UCPB.
The Soriano Group in SMC decided to sell their 33,133,266 shares
at Php 50 per share in 1983. In order to acquire these the five CIIF Oil
Mills obtained a loan from UCPB in the amount of Php 976 million. Out
of the loan Php 276 million was invested in the equity stock of the 14
Holding Companies. The remaining Php 729 million was farmed out as
loan to the Holding Companies.
Having its own capital
structure from the CIIF Oil Mills,
the 14 Holding Companies
secured a loan directly from
UCPB in the amount of Php 680
million. Thus, availing
themselves of a total of Php
1.656 billion the exact amount
of the SMC shares for sale.
Notably a number of the
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corporate names of the 14 Holding Companies were patterned after
the initials of senior partners of the Angara, Concepcion, Cruz, Regala,
Abello (ACCRA) Law Firm.12
14 Holding Companies ACCRA Senior PartnersAnglo Ventures Corporation Avelino V. Cruz
Randy Allied Ventures Rogelio A. VinluanTe Deum Resources Teodoro D. Regala
Rock Steel Resources Raul S. RocoFirst Meridian Development Franklin M. Drilon
Franklin M. Drilon and Raul S. Roco admitted their involvement in
the sale of the 33.1 million shares of SMC in 1983 but claimed to have
no personal knowledge of and involvement in any of the transactions of
the said companies13.
Yet another block of SMC shares were purchased by 44 companies
through a loan from UCPB and
the CIIF Oil MIlls. The
companies are closely relatedto Eduardo Cojuangco, Jr. who
consequently was handed its
voting trust agreement for 18%
of the SMC shares.
As a result, Cojuangco had
majority control of SMC and
was, therefore, elected as
Chairman in 1983.
UCPBCIIF Oil Mills
44Companies
Loan Loan
Silver-leaf Plantations, Inc.Meadow-Lark Plantations, Inc.
Primavera Farms, Inc.Black Stallion Ranch, Inc.
Balete Ranch, Inc.Christensen Plantation Co.
18% SMC shares(ECJ-SMC Block)
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E) THE INTERLOCKING DIRECTORATE
Decisions and business transactions were easily undertaken
through an interlocking directorate that governed UCPB, PCA,
COCOFED and the UNICOM. The interlocking directorate was
implicitly provided for in the various presidential decrees that Marcos
issued in the process of integrating the industry.
THE INTERLOCKING DIRECTORATE
PCA COCOFED UCPB UNICOM
Chairperson
President
BoD
Enrile(1975)
dela Cuesta(1978)
CojuangcoLobregat
Enrile
Lobregat
dela CuestaEleazar
Enrile
Cojuangco
Lobregat
Eleazardela CuestaConcepcion
Enrile
Cojuangco
LobregatEleazar
Concepcion
All the other companies acquired with the use of the CIIF had the
same people as Board of Directors and officers. Cojuangco was
everywhere in the coconut scene. Cojuangco, as the sole end-user
UNICOM, remitted the levy collected from the farmers to PCA where
he was Director of the Board. The money collected by PCA was
deposited to UCPB where Cojuangco was President and Administrator
of the coco levies. UCPB, in turn, utilized the funds for investment and
development in SMC, UNICOM, UCPBs commercial banking, Bugsuk
Seed Garden and other business ventures where Cojuangco is head
or president.
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Under the control of Cojuangco, aided by the interlocking
directorate and legally backed by the Marcos presidential decrees,
public funds (levies and taxes) were transformed into private funds.
Such was the revelation of the Commission on Audit Report of 1986.
Upon inspection of the stockholders list, it was discovered that 77.9%
of UCPBs equity was named to only eleven (11) persons and entities,
the bulk of which were named to the ECJ Group. UCPB, being the
mother or parent company, substantially owns the CIIF Group.
77.9% UCPB EquityUCPB Stockholder No. of Shares
Eduardo M. Cojuangco Jr. 54,000,000+Balete Ranch Inc. (ECJ) Group 14,000,000+Christensen Plantation Co. (ECJ) Group 9,000,000+ECJ & Sons Agri-Enterprises 54,000,000+Jesus M. Pineda, Jr. (ECJ Group) 37,000,000+Narciso M. Pineda (ECJ Group) 37,000,000+Danilo Ursua (ECJ Group) 37,000,000+Kabangkalan Sugar (ECJ Group) 700,000+ACCRA Investments Corp. 14,000,000+JAKA Investments (Enrile) 7,000,000+Ma. Clara Lobregat 2,000,000+
Source: 1986 COA Report
F) LEVIES SUSPENDED AS THE MONOPOLY TOOK OVER
The levy was eventually lifted but copra prices in the farm gates
did not change at all. To placate the coconut farmers, Marcos and
Cojuangco shifted the legal obligation to pay the levy from the coconut
farmers to the millers and exporters. However, Marcos and Cojuangco
knew and saw to it that the market structure passed on the economic
burden of paying the tax back to the farmers.14
Marcos tried to cloak the coco levy from the ire of the coconut
farmers and the general public. In 1976, P.D. 961 worded the levy to
come from copra exporters, oil millers, dessicators, and other end-
users of copra.
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In 1980, due to growing protest from the coconut farmers, he
issued P.D. 1699 suspending the levy with respect to millers and
desiccators but continued the collection with respect to exporters.
However, the same PD imposed a substitute levy to continue the
governments developmental projects. Collected from 17 June 1980
to 09 September 1981, the money collected was used for price
support