Hurdling the Leap

8/8/2019 Hurdling the Leap

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HURDLING THE LEAP TOWARDS

RECOVERY OF THE MULTI-BILLION COCO LEVY FUNDS

The Second Year Farmer Directors Report

Joey Faustino, Executive Director, COIR

INTRODUCTION

Hardly was the coconut industry talked about in the public arena some six

years back. It was painstaking in the early nineties thinking how a multi-billion

thievery such as the coco levy scam and the predicament of the impoverished

coconut farmers can be overlooked by the government or simply ignored by

the media and the public.

Luckily there are Davids who until now had not given up the arduous battle

with Goliath; the likes of Oscar Santos and Virgilio David, who had greatly

inspired organized groups to persist in advocating for the recovery of the

coconut levy and its ultimate utilization for the development of the coconut

farmers and the industry.

It is indeed providential that today the coconut industry and the plight of the

small coconut farmers are being looked into with special interest by theexecutive and judicial branches of government and the public at large. This

condition is largely due to the fact that the industry had been tied up with a

decades-old legal controversy that is the coco levy an issue well exploited by

the organized coco farmer sector and coco levy recovery advocates in the past

few years. After decades of struggle, the configuration of the issue appears to


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RECOVERY OF THE MULTI-BILLION COCO LEVY FUNDSThe Second Year Farmer Directors Report

COCONUT INDUSTRY REFORM MOVEMENT, INC. 2

have tilted in favor of the small coconut farmers as the following indicators

would show.

A) SUCCESSES IN PUBLIC OPINION FORMATION

The issue had from time to time and for prolonged periods attained

a high level of recognition by media and the public. True enough the

coco levy issue had landed in the front pages of major dailies, covered

even by international newspapers (i.e., Wall Street Journal, The London

Times, Nikkei Japan) and had been a controversial subject of

discussion in broadcast media.1

Administrations of Fidel Ramos, Joseph Estrada and Gloria Macapagal-

Arroyo had to address the issue one way or the other. Ramos issued

two executive orders (E.O. Nos. 277 & 481) on the coco levy for

whatever it was worth. Estrada engaged the coconut farmer groups in

more than a year of negotiations to make acceptable a version of the

executive order (E.O. No. 313) favoring Cojuangco, his ally. GMA,

merely two days after taking over the reins of government, announced

through Secretary Alberto Romulo the suspension of the former

Presidents E.O. No. 313.

At its peak in the 4th

quarter of 2001 the issue was widely captured by

various major dailies with more than 250 articles only for the monthof December. The issue stayed on the front page of the Philippine Daily

Inquirer that time for almost two weeks with as much as three articles

on the same front page.

1COIR monitor of 19 major dailies reveals over 200 published / printed articles on the coco

levy issue every year since 1999 capturing essential sections such as the front page, straight

news, sidebar story, boxed news, letter to the editor, opinion, editorial, regular column,business / economy, feature story and pictures / cartoons.


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B) COURT BATTLE VICTORIES

The issue peaked with a major decision of the Supreme Court in

December 14, 2001 in favor of the recovery efforts. Incidentally this

Supreme Court decision of 14 December 2001 also silenced a major

public debate spurred by compromise initiatives by some elements of

civil society affiliated with former DAR Secretary Horacio Morales in

19982 and the PKSMMN in 20013.

The 2001 Supreme Court decision later paved the way for two other

favorable decisions by the Sandiganbayan affecting the three (out of

eight) most important coco levy cases handled by the anti-graft Court

since 1987. These are Civil Case Nos. 0033 A, B and F re:

Anomalous purchase and use of First United Bank, now United

Coconut Planters Bank; Creation of Companies out of coco levy funds;

and Acquisition of San Miguel Corporation shares, respectively. Just

recently (16 August 2004) the Supreme Court again ruled to pursue

criminal investigation against Cojuangco et al. on the case of

UNICOM, reversing an earlier decision by the then Ombudsman

2 In 1998 Eraps DAR Secretary, Horacio Morales, and his allies in civil society offered to set

up a negotiation panel between government and the coco farmers for a speedy resolution to the

coco levy controversy the issuance of an executive order to free up 27% SMC-CIIF shares

for the establishment of a trust fund to develop the ailing coconut industry. In the latter part of

the negotiation, it became evident that Estrada, Morales and their civil society allies acted asmouthpieces for Cojuangco towards an out-of-court settlement on the SMC-CIIF shares.

3In 2001 PKSMMN, with the assistance of Bishop Fernando Capalla, met with Danding

Cojuangco, Dante Ang, Ramon Ang and Ma. Clara Lobregat in Davao City. The group signed

a Mutual Agreement of Coconut Farmer Organizations to speed up the resolution of the case

involving some 31% CIIF shares in San Miguel Corporation. The Mutual Agreement was

further publicized through a 30-page paid advertisement in the Philippine Daily Inquirer,

Manila Times and Kabayan a week later. What made the ad lengthy was the inclusion of some

10,000 signatures of farmers as lifted from attendance sheets of various PKSMMN

consultations held earlier in several provinces. The ad was designed to make it appear thatthere was clamor from the farmer sector calling for government to compromise with

Cojuangco.


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Aniano Desierto. Clearly, the cases are moving but still not as fast as

farmers and advocates would want it.

C) COJUANGCO ON THE DEFENSIVE

The developments in the judiciary had put Danding Cojuangco legally

on the defensive. It is logical to assume that Cojuangco and his lawyers

had foreseen such decisions to ultimately come out into the open once

the cases seriously progresses. Such is the impelling reason why

Cojuangco continually needs to resort to political backing (allies within

any administration) or stage-manage a public clamor for an out-of-court

settlement. Without both Cojuangco is left to resort to only one option:

the strong economic clout and control he obtains from chairing San

Miguel Corporation, the biggest food and beverage conglomerate in the

country.

It would be interesting to note that in 2001 Cojuangco tried both the

political backdoor and the social clamor angle prior to the decision by

the Supreme Court. Just months after the ouster of his erstwhile

political ally, President Erap Estrada, Cojuangco and his political party

(NPC) expressed allegiance to Gloria Macapagal-Arroyo. Soon after

the agreement signing with the coconut farmers took place in Davao

with matching media hype. But even while doing both, Cojuangcomade sure to maneuver his business interests to maintain a status quo.

The Arroyo Administration miserably failed on its first attempt to take

over the sequestered UCPB CIIF group of Companies. Cojuangco

and Maria Clara Lobregat physically barred the newly appointed Board


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of Directors (first batch)4

from entering the boardroom on the 15th

floor

of the UCPB Building in Makati. Truckloads of coconut farmers

bearing stock certificates were brought into the building to physically

secure it. Inside information revealed that even the regular employees

were instructed to change their attires from business to casual so they

can pose as coconut farmers. Cojuangco then (inside the UCPB

building) was quoted to have said, Walang puwedeng pumasok dito

kung walang dalang stock certificate. Kung hindi rin lang tayo ang

makikinabang sa UCPB ay wala nang iba. [No one without stock

certificates must be allowed to enter the building. If UCPB is not ours

then no one else can have it.] To prevent a possible confrontation the

new appointees decided to retreat.

Then again, merely two hours before the December 14 Supreme Court

decision officially came out, Cojuangco held a press conference to

announce the entry of KIRIN investments to San Miguel Corporation.

The entry of KIRIN into SMC was a badly needed foreign investment

for the country. Therefore, government was strained to accept the entry

of KIRIN even as it increased Cojuangcos control over SMC. KIRIN

came in buying newly issued SMC shares with a shareholders

agreement to vote accordingly with the Cojuangco block. While the

government sequestered / controlled shares diminished with the

issuance of new shares, Cojuangcos control was practically boosted bythe shareholders agreement KIRIN carried.

It was only in February 2002 that the government was able to take

control of the UCPB CIIF group of Companies after that December

4The first batch of UCPB board appointees by President Arroyo included only two farmer

representatives, namely: Oscar Santos and Efren Villaseor. Oscar Santos declined the

appointment while Villaseor was later taken out of the list.


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14 Supreme Court decision became final and executory. It was also

finally able to seat its own nominees in the board of SMC. But in order

to do so, the government entered into an interim agreement with

Cojuangco. Cojuangco did not lose chairmanship of SMC and was

granted minority seats in the boards of the UCPB CIIF group of

Companies.

However, with the issuance of decisions by the Sandiganbayan

regarding the cases of UCPB and SMC, Cojuangco is finding himself

substantially more defensive. The economic clout may also wane when

the decisions again become final and executory they are currently on

appeal. In addition to this Cojuangco may have to worry about the

criminal cases filed alongside the civil cases.

In such a situation, Cojuangco is again badly in need of a political way

out. This explains why in 2003 he publicly announced his intention to

run for president. He even featured thereafter in a television paid

advertisement of SMC endorsing the popularly and highly recognized

beverage of the Barangay Ginebra so that the product in return can

endorse him. But when public pressure on the coco levy issue became

too much of a burden to his intended candidacy, he shifted his sights to

the Courts and utilized his political party in Congress to launch an

impeachment process against the Chief Justice Hilario Davide, Jr. ofthe Supreme Court. But the move again backfired as the impeachment

issue became a question of law for the Court itself to settle. Again,

coconut farmers and advocates were swift in drawing the gun against

Cojuangco and the impeachment effort linking it to his failing bid on

the coco levy cases in court.


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It is obvious that the coco levy recovery campaign has significantly advanced

from that of the 90s. However, the coconut farmers and the industry are still

bereft of the benefits due them from the coco levy. It is, therefore, of utmost

importance that the current situation is assessed in order to generate points that

would further advance and hasten the process of recovering the coco levy

for the ultimate use and benefit of the coconut farmers and the industry.

GAINS in the JUDICIAL BATTLE

In the last three years there have been a string of victories by government in

the courts. Ably represented by the Office of the Solicitor General and the

Philippine Commission on Good Government, approaches on the cases and

subsequently the pleadings submitted for decisions have substantially changed

gears.

Under the Gloria Macapagal Administration, PCGG Chair Haydee Yorac and

(former) OSG Chief Sonny Marcelo collaborated with coconut farmer groups

and advocates to get the full details of the coco levy scam and decide on how

best to approach the cases. Such was a first of its kind in the long years that

government was handling the cases.

In mid-2001 the OSG and the PCGG jointly conducted with the Coconut

Industry Reform Movement a series of workshops on JudicialComplementation to Coco Levy Recovery in Luzon and Mindanao. The

workshops generated actual information from elderly coconut farmers (which

were translated into affidavits for legal purposes) on the depth and modus

operandi of the scam. The information gathered from the series of workshops

ultimately contributed to forming the framework from which the cases were to

be approached. Thus, the pleadings and replies submitted by government to the


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courts strongly contained the major advocacy lines that used to be delivered

only by coconut farmer groups and advocates: that THE COCONUT

FARMERS SHOULDERED THE BRUNT OF THE EXACTIONS; and that

COCONUT LEVY FUNDS ARE PUBLIC FUNDS HELD IN TRUST BY

GOVERNMENT FOR THE DEVELOPMENT OF THE COCONUT FARMERS

AND THE INDUSTRY.

A closer look into the actual decisions and notations by the Courts would

confirm that what used to be mere advocacy lines are now considered as

standardlegal parlance in regards to the coco levy-related cases.

1. The December 14, 2001 Supreme Court decision

The Supreme Court decision of 14 December 2001 (Republic of the

Philippines versus Cocofed, et. al., G.R. Nos. 147062-64) gave way to a more

favorable and explicit interpretation of the coconut farmers battle to recover

the multi-billion coco levy funded assets. According to Gen. Virgilio David, a

witness to the scam and prime mover for recovery, the SC decision takes care

of 60% of the coconut farmers uphill battle. The legal implications of the

decision directly affect the resolution of three (3) major civil cases pending in

the Sandiganbayan, the anti-graft Court: Civil Case Nos. 0033 A, B and F.

Compared to the SC decision of October 2, 1989 the coco levy funds areclearly affected with public interest the 2001 decision clearly identifies the

nature of the coconut levies asprima facie public. The Court, expressing the

intent to be more categorical, made the following specific assertions:


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a. That the voting rights to the sequestered (coco levy funded) assets rest

lawfully with the Philippine Commission on Good Government and not

with those appearing in the stockholders list;

b. That the coco levy funds were collected for a specific purpose for

which it should be utilized (dispelling misinformation that the funds,

once recovered, may be subjected to general appropriations by

Congress);

c. That the burden of proof to show that they are private funds lies with

Cojuangco, Cocofed et.al. and not government; and,

d. That the Sandiganbayan shall determine true ownership of the

sequestered (coco levy funded) assets within 6 months following the

SC decision.

Note that the SC did not rule on the actual ownership issue but was explicit on

the issue of who has the rightful voting rights to the corporations. Whether the

said assets were bought using coco levy funds or private funds from Cojuangco

et. al. is a question of fact that falls within the jurisdiction of the

Sandiganbayan. This same decision, however, also denied the petition for

intervention of coconut farmer groups since government is already

representing the farmers.

The 6-month period was originally supposed to take effect from January to

June of 2002. However, Cojuangco and Cocofed filed separate Motions for

Reconsideration on January 16 & 18 respectively. These Motions for

Reconsideration were denied on February 26, 2002. This effectively moved the

timeframe from March to August of the same year. However, in the process,


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the Supreme Court suspended Sandiganbayan Justice Francis Garchitorena for

failing to resolve too many cases within the 1st

Division (same Division

handling the coco levy cases). With that the SC gave another 6 months for the

Sandiganbayan to resolve the coco levy cases but is actually taking longer due

to various legal maneuverings and political considerations.

2. The July 11, 2003 Sandiganbayan decision

The Sandiganbayan ruled in favor of government and farmers recovery efforts

in Civil Case No. 0033 A. In an 84-page decision on a Partial Summary

Judgment pleading, the Sandiganbayan noted and ruled the following on some

72% shares of UCPB:

a. That Cojuangco did not spend any single centavo to acquire his

shares in the bank;

b. That the distribution of shares of the bank lacked just basis and,

therefore, nullified;

c. That certain sections of PD No. 755 that declared shares to be

owned in private capacities are unconstitutional and inconsistent

with the mandate to which coco levy was collected;

d. That the bank was acquired with coco levy funds and, therefore,

declared government as the beneficial owner of UCPB.

Skeptic farmer leaders, mostly those who signed with Cojuangco in Davao

(PKSMMN), warned that only government will benefit from this decision of

the Sandiganbayan and not the real farmers. However, based on the previous


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2001 SC ruling that the coco levy funds were collected for a specific purpose

for which it should be utilized, we deemed the decision as greatly favorable to

the farmers.

3. The May 7, 2004 Sandiganbayan decision

In another decision on a Partial Summary Judgment involving Civil Case No.

0033 F, specifically dealing with 27% SMC-CIIF shares, the Sandiganbayan

ruled:

a. That the CIIF Companies (SOLCOM, CAGOIL, ILICOCO, SPMC,

GRANEX, LEGOIL);

b. That the 14 Holding Companies;

c. And the CIIF Block of San Miguel Corporation (SMC) shares of stock

totaling 33,133,266 shares as of 1983, together with all dividends

declared, paid and issued thereon as well as any increments thereto

arising from, but not limited to, exercise of pre-emptive rights;

ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST

FOR ALL THE COCONUT FARMERS AND ORDERED

RECONVEYED TO GOVERNMENT.

This particular decision on Civil Case No. 0033 F, in effect, decided as well

on the subject assets of 0033 B, the CIIF Companies.


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OPPORTUNITIES & THREATS in the EXECUTIVE FRONT

Government today has been handling the said cases quite well and differently

from that of the previous administrations. This is most especially true during

the time of Solicitor General Sonny Marcelo (now Ombudsman) as he

involved the organized groups in brainstorming the cases. PCGG Chair Haydee

Yorac and Commissioner Ruben Carranza substantially add more to that faith

in government. It was only during this period that coconut farmer groups were

(and still) allowed access to information and involved in the actual

development of the cases by the PCGG. In fact, legal developments were

inputted to determine extralegal actions by the coconut farmer groups and

vice versa.

Former administrations did not in anyway recognize the farmers groups in

relation to the cases. Estradas PCGG was worst! Only after EDSA 2 was it

discovered that the ERAP PCGG filed aMotion to Withdraw the case against

Cojuangco on SMC. Fortunately the GMA PCGG was still able to file a

Motion to Withdraw the Motion to Withdraw just in time. The string of

victories that followed in the courts simply speaks for itself.

In addition, also attributable to the opportunity given the farmers groups is the

appreciation on the issue of reform-minded officials in the Executive Branch

right after EDSA 2, mainly the Executive Secretary, the Presidential LegalAdviser, the PCGG Commissioners, the PCA Administrator, the Secretary of

the National Anti-Poverty Commission, and the then Chief of the Presidential

Management Staff. But there is also a section that supports the idea of

compromising with Cojuangco for political reasons. There are elements inside

Malacaang peddling some deals with Cojuangco which are kept under wraps

and out of the publics eye.


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So when confronted with the forceful advocacy of the coconut farmer groups

and a loud public opinion to recover the assets as a reaction to the compromise

deal being peddled by Cojuangco and his cohort group of farmers, the

government thru PCGG gave way to the nomination of a considerable number

of farmer-directors to the United Coconut Planters Bank Coconut Industry

Investment Funds (UCPB-CIIF) Group of Companies.

Instead of the traditional practice of having an interlocking directorate

whoever sits in the board of UCPB automatically composes all the other

boards the PCGG opted to treat each board separately with different

nominees.

As a result, some 30 farmer-directors5

(farmer leaders and advocates) were

nominated and elected into the UCPB-CIIF Group of Companies in

particular; UCPB (bank), GRANEX (oil mill), CAGOIL (oil mill), LEGOIL

(oil mill), SOLCOM (oil mill), SPMC (oil mill), COCOHEM (oleochemical

plant), COCOLIFE (insurance company), and UCPB General Insurance

(subsidiary of COCOLIFE). But also not to leave out ECJ in the whole

process, Malacaang made sure that half of the appointed farmer-directors

belonged to those who signed an agreement with Cojuangco in Davao. The

seats were separate and distinct from the minority seats that Cojuangco himself

negotiated under an interim agreement on the turnover of the sequesteredcompanies.

5Initial list contained 31 farmer-director nominees. But one of the nominees, Romulo Tapayan

(KAMMPIL), declined the seat thru a letter to PCGG dated February 27, 2002 saying that after

a thorough evaluation with the organization they have found the nomination to be anomalous

and a farcical design of the government to dupe the coconut farmers and farmworkers. The

next day his fellow KAMMPIL officer, Nilo Suante, lands in the newspaper complaining aboutgovernment appointing a number of non-farmer advocates to the boards instead of bonafide

farmers only. The PCGG accepted Tapayans letter to decline as well.


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In May of 2002 the PCA initiated the Farmer-Directors Advancement

Reorientation Seminar (FARM-DARES) in Davao. The seminar oriented the

farmer-directors on the nature of the respective companies and their

interrelation. Despite serious criticisms on the manner in which the seminar

was conducted by the PCA, the farmer-directors ended the seminar with a firm

resolve and unity to access resources for coconut farmer programs, in general.

FARMERS & ADVOCATES IN A NEW ARENA:

THE CORPORATE BATTLE

As mentioned in the First Year Farmer Directors Report, since the turnover

of the UCPB-CIIF Group of Companies to (GMA) PCGG there have been

small wins (definitely not enough) gained by the coconut farmers [This

section was lifted from the 1st

Year Report with the inclusion of necessary

updates]:

A) First-hand access to essential information on the business segment of

the industry.

A.1) Access to business information and industry statistics normally

not divulged to real farmers and copra producers are now within reach

(most probably still not all) of farmer-directors.

For example: Since 2003 copra prices have stabilized at a fairer

price (P10 P12 per kilo). Apart from the favorable trading

price of coconut oil (CNO) in the international market, the

presence of farmer-directors at the least lessens the chances

of exploitation of the farmers by the oil mills. In the year 2001

the CIIF Oil Mills declared a gross profit of P900 million while


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copra prices at the farmgate plummeted to an all-time low of

P2.50 to P3.00 per kilo during the last quarter. This year (2004)

copra prices increased significantly due to problems

encountered by the soya bean oil supply of the United States.

Demand for coconut oil has increased in the international

market. The effects trickled down to the coconut barangays

such that copra prices at the farm gate is within the range of P20

and above per kilo. If not for the presence of farmer-directors

the mills could have opted to exploit the situation and profit

enormously out of it by keeping copra prices at the farm gate at

2003 levels.

A.2) Understanding the nature of the businesses from the governance

aspect gives the farmer-directors more opportunities to see and suggest

how coconut farmers may either benefit from the services offered by

the companies or from proceeds / profits generated.

For example: While COCOLIFE was established thru an

investment from the Coconut Industry Investment Fund (part of

the coco levy), the company caters more to the competitive

insurance market than the coconut farmers (90:10). Ergo, a

valuable justification to lobby for an increase in the number of

individual farmers covered by life insurance. This is easy to sayand advocate when premiums to pay for the farmers insurance

coverage are available. But while the coco levy cases are still

pending in the courts, the sources of money to pay the

premiums are a major concern of a farmer-director in

COCOLIFE.


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For example: The loan of the Oil Mills from the bank for the

purchase of the 33 million SMC shares in 1983 had been fully

paid (principal and interest) in 2002. Currently the number of

shares in the block is pegged at 750 million of Class A & B

shares. This block had now yielded fresh cash dividends for the

14 holding Companies owned by the CIIF Oil Mills which, in

turn, is jointly owned by the whole UCPB-CIIF Group of

Companies. The cash dividends held by the 14 Holding

Companies currently stands at P1.4 billion (Table 1.). The

amount is now being eyed by the PCA to fund their programs

and also eyed by the UCPB to add into its tier 1 capital. The

farmer-directors should be able to position themselves in order

to push for additional farmer programs from the said dividends.

However, there needs to be an in-depth review of the webbed

structure of the Group of Companies in order to free up the cash

dividends. This is a major concern for the farmer-directors in

the UCPB and the CIIF Oil Mills.

Table 1. SMC CASH DIVIDENDS with the CIIF 14 HOLDING COMPANIESAmounts in thousand

DateCollected

CoveringQtr. Ending

AmountCollected

Paid toUCPB

Balance

P 2,415

24-Jan-2003 4

t

Qtr. 2002 217,561 (60,883) 159,09312-May-2003 1st

Qtr. 2003 217,561 0 376,65411-Aug-2003 2

nQtr. 2003 217,561 0 376,654

10-Nov-2003 3r

Qtr. 2003 253,821 0 594,21526-Jan-2004 4

tQtr. 2003 253,821 0 848,036

10-May-2004 1st

Qtr. 2004 253,821 0 1,101,857

Add: Interest Income 65,961

Cash in Bank, June 30, 2004 1,421,639


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A.3) Finally, access to internal information on how the group of

companies were established and managed through the years greatly

improves the overall recovery effort and the pending cases in court.

For example: So far only UCPB had undergone a complete

financial audit since 1983 to the present. The audit yielded more

astonishing information related to how Cojuangco and his

cohorts had cashed in on the bank practically making it a

wellspring for his dummy companies. The CIIF Oil Mills have

also been subjected to case-to-case audits. Results also show

how Cojuangco had taken advantage of the firms for his

personal benefit. COCOLIFE and COCOCHEM should follow.

B) Upgrade of life insurance of coco farmers from P5,000 to P10,000 with

additional 300,000 farmer individuals to be covered.

With marching orders from the administration, the board of

COCOLIFE approved the allocation of more than P80 million in order

to upgrade the existing life insurance coverage of 900,000 individuals

from P5,000 to P10,000. The allocation also paves the way for the

inclusion of 300,000 more individual farmers in the roster.

Coverage of the additional 300,000 farmers is on-going. The PhilippineCoconut Authority had been tapped as the traditional practice to

disseminate the registration forms to the coco farmers in accordance

with the PCA Governing Boards resolution defining the coconut

farmer. The forms are distributed for free regardless of affiliation.

Implementation experiences sporadic snags in some coco-producing

provinces where the PCA accepts only those who are listed members of


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the PCA-initiated Small Coconut Farmers Organization (SCFO) or

when used by private individuals / organizations for self benefit. Apart

from the snags lies the unpleasant fact that a farmer will have to die

first in order to benefit from the insurance in the amount of P10,000.

C) P700 million investment on coco farmers.

Investment had been the keyword in the release of the P700 million

funds6

as it is essentially a corporate decision by the Board of the CIIF

Oil Mills with the concurrence of the UCPB as the Administrator of the

CIIF. As in any investment a profit is expected to be derived, minimal

as it may be. The P700 M was assigned to the UCPB CIIF Finance

and Development Corporation (Coco Finance), the conduit of the bank

for lending to the coconut farmers.

Established in 1995 with a starting equity of P175 million (care of

Cocochem) the Coco Finance carried on the mandate which should

have been UCPBs in the first place. UCPB added a capital of P100

million during the period of 1997 to 1998, thus increasing the Coco

Finances equity to P275 million. This amount was managed and used

to provide loans to some 11,000 farmers nationwide. However, the

loans then were packaged with heavy and stringent requirements

allowing only cooperatives with a considerable 3-year track record toavail of the loans.

6In 1987 the CIIF Oil Mills issued redeemable shares. In order to secure a loan from the

Coconut Industry Investment Funds (CIIF), UCPB bought the redeemable shares from the Oil

Mills with a redemption price of almost double in 20 years time (until 2007). It was agreed by

the current management, therefore, to buy back the shares even before the term expires to saveon the purchase. So the UCPB Board accepted the buyback as Administrator of the CIIF and

assigned the amount for investment to the coconut farmers.


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The current management simply added P700 M more to this from the

CIIF Oil Mills. But this time around it was emphasized that the P700 M

should cater to those coco farmer individuals and groups who were not

able to meet the stringent requirements of the windows made available

by the first P275 million. Requirements such as the 3-year track record

and financial audit were waived in order to accommodate more coconut

farmer individuals and groups.

Prior to the board meetings of the CIIF Oil Mills and the UCPB which

included the release of the P700 M in the agenda, COCOFED and some

PKSMMN elements tried to thwart the effort by implying that any

director who signifies approval thereof shall be charged with plunder or

large-scale estafa. Maria Clara Lobregat wrote each director of the

Mills and UCPB on this note. Consequently, then UCPB Chairperson

Edward Go cancelled one board meeting that intended to discuss the

matter.

Despite the maneuverings, obviously of those sympathetic to the ECJ

camp, the board decisions were finally made in June and July of 2002.

Months after, UCPB Chairman Go again issued a memorandum to Ms.

Alice Bacani, OIC Trust Banking Division, to hold on to the P700

million and to make sure that no disbursements are made from it. The

memorandum was based on an Urgent Motion filed by Cocofed withthe Sandiganbayan, a Motion that was never acted upon by the Court.

Malacaang was able to compose the board of the Coco Finance only

in October. For a time the PCA was interested in receiving a portion of

the allocation for its related programs. However, the OSG issued an

official opinion that while the cases have not been resolved with


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finality, no allocation from the Group of Companies may be made to

PCA. President GMA later announced the formal acceptance of the

funds by Coco Finance in January 2003 with the corresponding farmer

programs (Table 2.).

Table 2. Published Malacaang press release on P700 million

In actual practice, the allocation of P700 million essentially allowed the

implementation of two basic programs for coconut farmers:

Microlending and Direct Copra Marketing (DCM). Apart from these

two which had direct allocation, the mere situation of engaging in

coconut farmer programs also paved the way for yet other possible

schemes deemed as beneficial to the farmers.

C.1) Microlending

As of today P400 out of the P700 M funds have been laid down

on the table for implementation. This includes micro financing for

the BUKO Program (Grameen for women [wife or daughter] in

PROGRAMBENEFICIARIES ALLOCATION

TARGET INDIVIDUAL PROGRAM INDIVIDUAL

Buklod-UnladProgram (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 CopraMarketing

Cooperatives 56,000100M

1,785.71

TOTAL 164,000 700M

P 4,268.29 /beneficiary


21/49




coco farm households) and the Magsasaka Tungo sa Tunay na

Pag-unlad (MaTuTuPad) Program, a relending program for a

minimum group of 100 coco farmers with a capital of P500 each.

The equity build-up of P50,000 (minimum) shall be entitled to a

P200,000 loan from the Coco Finance. In cases when

cooperatives or associations have mixed membership, the

minimum number of coco farmers must be at least 80%. The

scheme offers an annual interest rate of 12%.

Both programs are coupled with capability building components

where the organized farmer groups and NGOs may participate.

C.2) Direct Copra Marketing

P300 million of the P700 million is intended to fund Direct Copra

Marketing. Direct Copra Marketing (farmer to mill) had been the

steady and consistent recommendation of a good number of

farmer-directors before and since they started moving in. While it

is accepted that direct copra marketing is not the ultimate solution

to the poverty of the small coco farmers, it maintains to be the

immediate pressing need of the small copra producer.

The CIIF Oil Mills management had, in concept, agreed toinitially pilot direct copra marketing schemes in some 16 areas /

provinces in accordance with existing policies (e.g. 80% cash

advances for deposited copra volume, subsidy on transportation

cost) or practices (e.g. express lane, toll crushing arrangement) on

copra / oil trading. A common requirement asked by the mills is


22/49




to be able to train three (3) key persons to operate a copra buying

unit (CBU) and turn them into traders.

As of June 2004, the Niyog Trading Center, Inc., a subsidiary

established by the CIIF Oil Mills to handle DCM sites, includes

in its reports some 70 direct copra marketing (DCM) sites.

Individual Oil Mills management in local areas offer as well

specific case-to-case arrangements for direct copra buying i.e.

spot sales and express lanes. Some local oil mills management do

area work to visit coconut farmer groups and orient them on the

opportunities ahead. While efforts such as these are commendable

for the advantages given the coconut farmers, it should be noted

that it is equally beneficial to the companies themselves. The (5)

CIIF Oil Mills has the combined crushing capacity of 40% of the

total copra production in the country. Some of the mills are

currently underutilized or mothballed and DCM will definitely

add some more to the mills copra volume.

C.3) Integrated Processing Concepts

Then there is the concept of providing local integrated processing

plants (still in the works) in pilot areas, a one-stop center thatprocesses coconut water, meat, shell and husk. The center is

envisioned to buy whole nuts from the farmer not just copra

thereby commanding a higher value at the farmgate. Coming from

an incredibly costly concept of the Coconut Exchange Center

(CEC), the Oil Mills will soon be testing the Nut Trading Center

scheme.


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As of today the details of the integrated processing plant is

continuously being rehashed for costing purposes.

C.4) Toll Crushing Agreement

A Toll Crushing Agreement was made by and between the CIIF

Oil Mills and the Liga ng Magniniyog. The scheme called for the

delivery by the farmers group of a considerable volume of copra

to be crushed in the Arimbay (Bicol) oil mill of LEGOIL, a mill

that had been mothballed for years. As the label of the agreement

so aptly imply, the oil mills responsibility is to crush copra and

charge a fee for the services P1 per kilo of copra while the

farmers group assures the delivery of copra for a premium of

P0.35 from the fee with an end-in-view of making profits to

later fund and organize farmer cooperatives in Bicol for direct

copra marketing.

The scheme provided for an unorthodox approach to direct copra

marketing as an end-in-view. It involved other industry

stakeholders, the traders who are commonly perceived to be part

and parcel of the exploitation of coconut farmers. However, in

this particular case, the participating trader who paid the P1 / kilocopra toll fees, in turn, allowed for a premium no different from

a brokers fee to be given to Liga Magniniyog. At first glance it

appears that the trader would have practically financed his future

extinction as a trader since the premium he had agreed to shoulder

would later foster a direct farm-to-mill trading of copra that

would no more require his services and capital.


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INITIAL VIEWS ON EXISTING PROGRAMS & SCHEMES

1. Microlending

Microlending is the major activity of Coco Finance, a subsidiary of the

UCPB which had been assigned to cover up UCPBs inability to perform

its mandate7. 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 it is subject to limitations as per BSP

rulings with profits as a major consideration for continued existence.

Coco Finances operations are nothing different to other microlending

institutions such as the Quedancor and the Philippine Credit and Finance

Corporation. The only perceived difference is the concentration on coconut

farmers as a clientele. Unfortunately, what seems to be overlooked is the

fact that the funds handled by Coco Finance originated from the coco

levy and ultimately the farmers. The nature of the institution itself,

therefore, limits it from catering to the lot of other needs of the coconut

farmers.

The Grameen for women had already been tested by Coco Finance even

before the allocation of P100 million / P700 million was made. So

confident was the companys management on the project since the

experience in Sogod, Leyte reflected a rate of 100% repayment. Therecords of Coco Finance may indeed reflect such figure. However, where

the group of women sourced out the funds for repayment is not quite

established. Payments made have not been determined to have come from

income earned out of the project or merely borrowed from another source.

7Presidential Decree No. 755 (issued 1975), ordering the acquisition of a bank for and in

behalf of the coconut farmers reflects the intent to solve the perennial credit problems of the

coconut farmers.


25/49




In addition, this project dedicated for the women in coconut communities,

ironically, has a built-in provision requiring a husbands consent.

The biggest allocation under Coco Finances microlending program is

currently with the MaTuTuPad Program P300 million of the P700

million initial fund release of UCPB and the CIIF Oil Mills in 2002.

MaTuTuPad is an acronym for Magsasaka Tungo sa Tunay na Pag-

unlad, as if to imply that microlending is indeed the solution towards

farmers real development. The issue is not exactly the name attached to

the program but delves more on a perception of policy-makers on the role

of microfinancing programs for the coconut farmers.

Ka Oscar Santos, a former board member of the UCPB during the Ramos

Administration, fought a lone battle to bring about the creation of the Coco

Finance in 1994. Ka Oca was again called on by the President to serve as

board member of Coco Finance in 20028. In 2004 he tendered his

resignation as board member of Coco Finance citing the following:

On the matter of utilizationOn the matter of utilizationOn the matter of utilizationOn the matter of utilization. Ours is basically loan programs. We encourage

the farmers to borrow but require them to pay what they borrowed plus

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

8Oscar Santos also served as Cocochem director and Governing Board member of the PCA

under the Arroyo Administration. He resigned from the board of Cocohem earlier as he deeply

felt that the company was operating with no cause for the coconut farmers. Later he resignedfrom Coco Finance and the PCA as he felt that programs of both institutions were not enough

to concretely help the coconut farmers.


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P819 M IMA investmentsP819 M IMA investmentsP819 M IMA investmentsP819 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 the

year which ended April 30, 2004, Cocofinance has loaned out only P181 M

out 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 of

the following:

Many coco farmers cannot accept why they have to pay interest on loans

from the funds they painfully contributed to.

They do not find our loan programs attractive, despite our roadshows and

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 other

competing agencies like the Landbank and Quedancor. Chances are we are

covering the same areas already being served by them.

Loan not suited for the really poorLoan not suited for the really poorLoan not suited for the really poorLoan not suited for the really poor. Grant of loans will not necessarily

benefit 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 of


27/49




Examination as of May 31, 2003). Thus, we found it necessary to engage theservices of collection lawyers to recover unpaid loans.

UCPB Director Royandoyan affirms that loans may work well for rich

farmers but not to the really poor borrowers, the vast majority of whom

usually find themselves sunk in debt unable to return borrowed money plus

interest. For them, other forms of meaningfulmeaningfulmeaningfulmeaningful assistanceassistanceassistanceassistance should be thought of,

not loansnot loansnot loansnot loans.

Perhaps the following basic points would be of some help if and when our

existing programs are reviewed:

The coconut farmers themselves should be allowed to determine how

best the levy funds taken from them should be utilized. They wouldThey wouldThey wouldThey would

surely know what they need better than we do.surely know what they need better than we do.surely know what they need better than we do.surely know what they need better than we do.

The coco producing provinces are not similarly situated. That beingso, each province would vary in how best to utilize its share of the

levy funds for its constituents.

Second lookSecond lookSecond lookSecond look. Review of our programs has become even more necessary

especially since some P2B SMC dividends may soon be made available.

Our programs to help uplift the coco farmers, were not intended to be

inflexible. Adjustments or even changes may be made if they do not serve the

purpose for which they were conceived, namely, to assist and beneto assist and beneto assist and beneto assist and benefitfitfitfit

meaningfully as many coco farmers as possible with the least possible expensemeaningfully as many coco farmers as possible with the least possible expensemeaningfully as many coco farmers as possible with the least possible expensemeaningfully as many coco farmers as possible with the least possible expense.

The key word is meaningfully.

Obviously Ka Oca was coming from a direction of wanting to be able to

impact the impoverished lives of the coconut farmers other than just


28/49




providing microfinancing. The arm of Coco Finance is tied up in such a

limitation. After almost two years of operations for the MaTuTuPad

Program with the expansion of staff and vehicles for the program (meaning

more administrative expenses), Coco Finance has rolled out P100 million

of the P300 million allocation. The company might practically be earning

more from the unutilized funds (P819 Investment Managemant Account

handled by the UCPB Trust Department) which earn 8-9 % interest

annually than with interest coming from loan receivables to the farmer

cooperatives.

The issue at hand does not necessarily put to question the performance of

Coco Finance or whether or not to expand its loan packages. Coco Finance

or the UCPB CIIF Finance and Development Corporation has a twin

company the UCPB CIIF Foundation. Both companies have the same

board of directors, officers and staff. This company, like any other

foundation set up by a private business entity, would have far more

flexibility in choosing its socio-civic programs and activities that would

qualify the UCPB CIIF Group of Companies to avail of tax exemptions.

The Foundation has diminutive resources compared to that of Coco

Finance. The Board of Directors meets more often as the Coco Finance

than as the Foundation. Necessarily it follows that operations and staffing

also reflect the same condition.

The Foundation has had a history of conducting programs such as Piso

kada araw and a reforestation project. The Piso kada araw Project was

intended to generate funds to build coconut nurseries. There is only one

reported taker of the project, the Pangasinan State College.


29/49




It has had a string of relief operations and medical missions: Pangasinan

and Pampanga (1995) with contributions from LEGOIL and COCOLIFE;

North Cotabato and Maguindanao (1997) with the assistance of UCPB

branches in Cotabato and Kidapawan; South Cotabato (1998) with the

UCPB Marbel Branch; Pangasinan Pampanga Cainta Marikina

(1999) with the support of UCPB Rural Bank and UCPB Savings Bank;

North Cotabato & Antipolo City (2000); and, Batangas (2001).

A major undertaking of the Foundation was its Reforestation Project that

earned it two recognition awards. The Foundation recently accepted the top

Asia Corporate Responsibility Award during an Annual Asian Forum in

Kuala Lumpur, Malaysia. While the feat is definitely laudable from the

environmental point of view, it would also be worthwhile to site that the

project does not in any way relate to the industry and the farmers the

reforestation was done in Antipolo, Rizal.

Today, the Foundation extends financial assistance to PCA for a survey of

coconut farmers, the acquisition of books and bookshelves for an

elementary school in a coconut community, and offers a scholarship

program for children of coconut farmers. Scholarships were also offered on

caregiver courses.

The Foundation also recently launched its UCPB-CIIF GOVERNSprogram, the UCPB-CIIF Groups Employee-Volunteer Initiatives. The

program encourages the Groups employees to volunteer their services for

organizational capability-building of coco farmers: Accounting &

Bookkeeping; Financial Analysis & Management; Enterprise Development

& Management; Organizational Diagnosis & Development; Strategic


30/49




Development Planning; etc. However, the technology and 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 its

subsidiaries which should, in the first place, cater to the coconut farmers as

mandated by the coco levy collections. If microfinancing is to be perceived

as only one among the various needs of the coconut farmers, then it would

be logical to maximize the elbow room the Foundation can provide and

expand its services on projects that would meaningfully serve the farmers

and their communities. Especially considering that the subsidiaries are

offsprings of UCPB, the parent company that owes its roots to the coconut

farmers themselves via the coconut levy.

Thus Ka Oca Santos, in his same letter of resignation, offered other

sensible alternatives:

Part of the funds may perhaps be allotted to any, some, or all of the following

as our resources would allow:

seriously pursue the MOU with China where the latter proposes to

extend a loan of US100M worth of machineries and equipment to

process coco husks rotting in the countryside, payable by export value

of geotextile and other processed coco products. This is significantsignificantsignificantsignificantsince coco farmers nationwidenationwidenationwidenationwide stand 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.


31/49




support continuing research on the curative qualities of monolariun.

2. Direct Copra Marketing

Conceptually, Direct Copra Marketing (farm-to-mill) offers a good vehicle

to rid the coconut farmers of indebtedness to the traders and assure them of

optimizing the actual price of copra. This scheme is not entirely new to the

CIIF Oil Mills. A limited number of cooperatives have availed of this

program through the PCA and the CIIF Oil Mills during the Ramos

Administration. The only difference under the current administration is the

extra effort of the Oil Mills to expand the, so called, DCM sites in line with

the Presidents response to the clamor of coconut farmer 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 farmers and said, give us three people to train for the buying

station and I assure you that by the time they finish the training, they will

no more think like farmers but traders. The statement does reflect the

confidence of the officer in passing such trading skills to the farmer groups.

However, it also puts in a tinge of resentment when perceived in an angle

that coconut farming and trading are totally unrelated and irreconcilableskills. The statement, to some degree, is closely reflective of the 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 to sixty (60) and seventy (70). Now in order to manage the


32/49




growing number of DCM sites, the board (including farmer-directors) and

management of the Mills established the Niyog Trading Center, Inc.

(NTC). The NTC is a new and separate entity tasked and organized to

manage nut / copra / other products buying operations by the CIIF Oil

Mills. Available documents on the NTC concept express 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

copra marketing? The NTC reflects the integrated processing scheme

where other value-added products such as coco coir fiber and coco shell is

processed alongside the traditional copra. DCM sites are viewed to

graduate into integrated processing sites in the near future. The Mills,

through the NTC, shall buy whole nuts instead of simply copra. The big

question so far is how to go about pricing the whole nut. Previous board

meetings of the CIIF Mills discussed the possibility of 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 farmer groups.

Copra currently sells at more than P20 per kilo. It takes three to four nuts to

make a kilo of copra. So based on the current price of copra alone, a nut

should be able to garner a price of at least P5 each even when the

decreased cost of labor and drying is inputted. The nut simply just has to

command a higher price than that of copra for its mere added marketpotentials.

Better yet, to foster a clearer and more directional discussion on the NTC

scheme, the performance and impact of the existing DCM sites be

thoroughly assessed and reviewed first.


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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

by the NTC, Inc.:

How many of the operational DCM sites are profiting / losing?

What factors lead to profits / losses?

How many are strategically located with or without the presence

of competing 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 beforea DCM site can graduate into an NTC site. Without a thorough study on the

impact DCM is creating on the coconut farmers, only the perceived

practices will come into fore.


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So far, some grassroots level feedback point to the following:

1. There is no strict uniformity and / or compliance in the implementation

of the 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 a typewriter that hardly functions

while another coop in Mindanao is accorded a fax machine.

2. DCMs were conceptually designed to be a partnership between the

CIIF Oil Mills and the farmer coops. There exists no MoA or MoU

explicitly stating the responsibilities of both parties for all the 70 or so

DCM sites.

3. Managers and staff trained for DCM functions not under the authority

of the partner coops but directly under the authority of the Oil Mills.

4. PCA was made part of the screening and accreditation of candidate

farmer cooperatives for DCM implementation. In some areas the PCA

officials would only cater to farmers who have been organized by the

agency under the Small Coco Farmers Organization (SCFO). Non-

SCFO members but are as well bonafide coconut farmer organizations

have a hard time getting the accreditation.5. When prices of copra drops, the DCM coops may not take a position on

whether to trade or not a great advantage that traders can practice.

6. A number of DCM staff has been offered the retailership of Minola

Cooking Oil on an individual basis.


35/49




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

extension arms / 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 face economic and, to a certain extent, political limitations.

Commonly like other business entities, the target of the Oil Mills is to

profit from its operations whether it profits out of efficient processing

and world market trading 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 be evident, though, is the fact that the Mills would

still have to deal more with the traders rather than with the farmers and

their DCM sites in order to get the volume of copra needed to sustain its

operations.

Based on the data provided by the NTC, Inc., the current volume of copra

delivered by the DCMs hardly counts. It does provide additional volume

but not substantial. 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 copra volume will still be microscopic compared to the volume a single

trader can actually deliver. The Oil Mills today is said to be operating onlyat 35% - 40% of its capacity. Ergo, it would be more practical to deal with

a few traders delivering a huge amount of copra volume rather than with a

great number of DCMs that deliver a small volume. In short, the farmer

coops still have yet to prove to the Oil Mills the economic power they can

muster before they can expect to get certain privileges enjoyed by the

traders.


36/49




On the political side, the controversial CIIF Oil Mills is one of the biggest

subjects of the coco levy cases pending in the courts. During the Marcos

Dictatorship the companies was under the control of Danding Cojuangco as

a monopoly where traders rule. After the fall of the dictatorship subsequent

administrations took over the sequestered UCPB-CIIF Companies and ran

it mainly for profits and profit-sharing. Cojuangco came back during the

short-lived Estrada presidency and once 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 been practiced this and the

other companies within the group had never been ran mainly for the

farmers interests. While under sequestration the companys leadership and

workforce only react to the changing wishes of administration after

administration.

Fortunately enough it is less difficult today to push for farmer programs

within the Oil Mills because the current management leadership recognizes

the origin of the companies and its mandate from the coco levy.

3. Toll Crushing Agreement

The scheme would have been an interesting subject for study if only the

agreement had been implemented to the letter by the individual partiesconcerned and reflected on by the participating institutions coupled with a

high degree of delicadeza and transparency. At first glance the scheme

appeared to strike a balance between the interests of the Mills, the traders

and the farmer groups:


37/49




Advantages of LEGOIL Advantages of Trader Advantages of FarmersMothballed Arimbay Millbecame operational withan assured delivery ofcopra for crushing.

Assured of storagefacilities for coconut oilextracted from deliveredcopra. Trader retainedownership of the oil to bemarketed.

The brokers fee offered apromising and veritablesource of funds toorganize coconut farmersin Bicol.

It would have been an interesting subject for a case study to see how the

balance of interests would end up. However, the details of the deal were

known only to a few individuals / officials of the Oil Mills, the trader and

the Liga Magniniyog President.

After three months of operations with an accumulated premium of P7

million, legal and ethical questions started to burst open the shaded deal. It

turned out that the concerned individuals who entered the Toll Crushing

Agreement did not have institutional backing from both the Oil Mills and

the Liga Magniniyog. The Oil Mills Board and Ligas Council were

inaccurately informed of the operational details. Thus, governing bodies of

both institutions lacked the necessary formal resolutions to back up the

project.

Lacking in accurate information on the actual operational scheme

prevented the respective governing bodies to install safety features for

monitoring and measuring success or failure. Operational difficulties were

solely handled by the individuals who made the agreement.

Difficulties Encountered Solutions Applied Remarks

The farmers party lackedresources to set up contactsand networks where copravolume is to be sourced fromto supply the Arimbay Mill.

The Mills party provides cashadvances in two tranches ofP500 thousand eachdeposited to the LigaMagniniyog account.

No budget was prepared andagreed on as basis on howthe cash advances were tobe utilized how to beliquidated, much less. By itsrules and practice, the Millsmay only provide cashadvances for copradeliveries.


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Difficulties Encountered Solutions Applied Remarks

Liga Magniniyog is a non-stock, non-profit organizationand cannot, therefore, dealbusiness.

Upon the Mills partysuggestion, a business entitywas set up to fill in the gap.The COCO INVEST,otherwise referred to as theeconomic arm of Liga, wasestablished.

COCO INVEST, apartnership, was hastilyestablished without thebenefit of an understandingbetween and among theLigas Council. COCOINVEST reflected a businesspartnership between the LigaPresident and PRO with60:40 sharing, respectively.Liga, the President used tosay, will just have to presenta proposal to COCO INVESTwhenever it needs money.

A check issued by the Mills toLiga for payment of thepremium from copra crushedwas tampered (payeechanged) upon deposit. Thebank alarms the Mills.

After negotiations betweenthe individual partiesconcerned, the Millscancelled the tamperedcheck and issues another this time payable to COCOINVEST.

The Mills accepted thisarrangement without anyquestion or verification at all.Checks that followed wereissued to COCO INVEST.

Exhausting all sources ofcopra in Luzon, the farmersparty started expanding itspurchases in the Visayas.Having its own distinct pricingsystem, the Mills complainedof price speculation affectingthe Mills own pricing system.

None known.

The farmers party claimedthat the exercise is actuallycausing an increase in copraprices which, in turn, benefitthe small coconut farmers.

The total amount transferredby the Mills to the Liga &COCO INVEST accountsreached P7 million by thetime the Oil Mills Board andLigas Council startedquestioning the projectsdetails.

COCO INVEST, in a CIIF OilMill board meeting, presenteda statement of expensesamounting to some P6.8million, duly signed by COCOINVESTs accountant andcertified to be true andcorrect by two members ofLigas EXCOM.

Amounts contained in thestatement of expenses wereall rounded to thousands,hundreds or tens nocentavos. The statement wasnot accompanied bysupporting schedules ordocuments. Noticeably largefigures were spent forgasoline, representation andbonuses. This led one of theMills farmer-directors to ask:Why the huge gasolineexpenses? What vehicle

were you using?

Even granting the benefit of any doubt and assuming that noble intentions

were behind the conceptualization of the project, the fact is that it was kept

under wraps and the details were not made known until people started

inquiring. No recorded concrete losses were suffered by the Mills. The

farmers, however, ended up on the losing side:


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Not one farmers cooperative in Bicol ever benefited from the

vowed objective of the agreement;

Liga Magniniyog, as the original party stipulated in the agreement,

never got control of the income from premiums released by the

CIIF Oil Mills. Liga benefited only by way of office furnitures /

supplies and funding for its congress in 2002.

The Liga President who at the same time was a director of the Oil

Mills and partner in COCO INVEST was taken out of the Mills

board by the PCGG;

So was another director, one of the Liga EXCOM members who

certified the statement of expenses;

The biggest loss hovers until today a split in Liga Magniniyogs

ranks, greatly lacking of any closure on the issue.

The project halted when the other farmer-directors of the CIIF Oil Mills

board raised questions. A committee, with a farmer-director as member,

was composed by the Oil Mills to investigate the matter and present

recommendations to management. Even UCPB, as administrator of CIIF,

composed its own committee (also with farmer-directors) to investigate the

matter. Both investigations yielded serious negative findings against the

individuals who entered into the Toll Crushing Agreement.

The abovementioned are but initial views on existing programs and schemesthat were originally intended to benefit the coconut farmers to a limited extent.

Testing out these programs and schemes may do well in preparation for the

bigger task ahead. The Supreme Court, in its decision, pointed out that the

farmers, as a class, should benefit from the coco levy funds. If and when the

coco levy funds are indeed recovered, programs and schemes for the

development of both the farmers and the industry would form the most crucial


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substance of governments concern. Ergo, there is great need to study and

review the existing programs in the framework of continuing and developing

further schemes with real and meaningful benefits to the coconut farmers and

the industry. It will not be sufficient to merely assess the performance of

current programs for purposes of reporting to the President and the public.

FARMER-DIRECTORS IN THE UCPB CIIF GROUP:

RATIONALIZING THE APPOINTMENTS

Among the UCPB CIIF Group of Companies where farmers and advocates

sit as board members, some do have potentially direct or indirect benefits to

offer the coconut farmers and the industry while some do not.

Table No. 3: Number of farmer-directors in coco levy companies.

Companies /Subsidiaries

# of Farmer-Directors

seatsCurrent role/s taken for

2002 2004 farmers industry

UCPB 5 4 Administrator CIIF Minimal loans tococo-related businesssegment

Coco Finance / Foundation 3 1 Microlending Grassroots contact

CIIF Oil Mills 14 12 DCM / Minolaretailership

Coco oil supply /exportation

Cocolife 4 4 Life insurance None

UCPB Gen 5 5 None None

Cocochem 2 1 None OleochemicalmanufacturingTotal seats 33* 27*

* includes dual directorship

The UCPB-CIIF Group of Companies is a set of business companies acquired

or invested into with the use of the coco levy fund collections via PD 276

during the Marcos dictatorial regime. Via PD 755 (1975) the First United Bank

owned by the Cojuangcos (Jose) was purchased as investment for the coconut


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farmers and named United Coconut Planters Bank. Serving as the financial

arm for the coconut industry and depository of the multi-billion coco levy fund

collections, the UCPB later acquired / established other companies to

monopolize the coconut industry from hauling, transport, shipping,

processing, milling, trading (local and international), marketing, and exporting.

It also invested into a major block of the San Miguel Corporation, the biggest

food and beverage conglomerate in the country even when the company is in

no way related to the industry. All were done in the name of the poor coconut

farmers. But in reality these companies were never run strictly for the

purposes for which they were established.

Company Role / Performance forfarmers and industry

UCPB - The bank wears two hats: 1) auniversal bank with fiduciaryresponsibilities towards its private clients;and, 2) Administrator of the coco levyfunds, particularly the Coconut Industry

Investment Fund (CIIF) from which allacquisitions and investments originated.This had made the bank the parentcompany which invested in other majorcompanies to form the coconut industrymonopoly.

In its almost thirty years of operations as theUCPB, the banks loan portfolio had catered toother businesses having no connection to theindustry at all (sugar mill operations, mining,real estate, etc.) or the business segment ofthe coconut industry (mostly those who areconnected / related to ECJ). More than half ofthe 178 branches are located within MetroManila.

It has a subsidiary, the UCPB Rural Bank,which today primarily caters to teachers loansfrom the Department of Education. Majority ofthe Rural Banks branches are located withincoconut provinces.

Agri loans comprise 29% of the Rural Banksloan portfolio but these are mostly loans toagri-coconut planters, rural based workers,salaried employees engaged in agricultural

activities. The Rural Bank does not have anyspecific loan program intended for coconutindustry development or for coconut farmers.

9

UCPBs only link to coconut farmers and theindustry is made through its other subsidiary,the Coco Finance.

CIIF Oil Mills a group of oil mills withcrushing capacity of 40% of the totalcopra production in the country:

Granexport Manufacturing Corp.

As the biggest buyer / exporter of copra andcoconut oil in the country, the CIIF Oil Millspractically commands the buying price ofcopra. The company normally buys coprarates cheaper than other smaller private oil

9UCPB Rural Bank, Inc., Agricultural Loan Portfolio as of August 31, 2004.


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Company Role / Performance forfarmers and industry(operating)

Legaspi Oil Co., Inc. (operating)Cagayan de Oro Oil Mills

(operating)

Southern Luzon Coconut OilMills (mothballed)

San Pablo ManufacturingCompany (Minola cooking oilprocessing)

mills.

Currently runs the DCM projects under itsnewly created subsidiary, the Niyog TradingCenter, Inc.

COCOCHEM an oleochemical plant inBatangas where coco oil is further

processed to produce coco fatty acids foruse as surfactants. The company is a

joint venture owned by a minority ofprivate stockholders (6% Philholdings)and a majority of the UCPB Group (94%CIIF).

The company produces non-traditional andvalue-added products from coconuts for

export. Known to gain profits of P500 P700million annually. There is no record of anytransaction / program with coconut farmersexcept for contributions to the UCPB CIIFFoundation.

COCOLIFE a life insurance companyoriginally put up with coco levy funds tocover life insurance of coconut farmers.

The company is now well into the competitivecommercial marketing of insurance for privateclients. 90% of its portfolio is into the privateclients. One of the top-ranking insurancecompanies in the country.

The companys subsidiaries does not in anyway relate to the farmers and the industry.

Through the years most of these major companies have increased their

shareholdings and expanded into other services through subsidiaries:

Parent / Major company Subsidiary/ies

UCPB

UCPB Savings; UCPB Rural Bank; UCPB Leasing andFinance Corp.; UCPB Properties, Inc.; United ForeignExchange Corp.; UCPB Securities; UCPB-CIIFFoundation & UCPB-CIIF Finance & DevelopmentCorp.

5 CIIF Oil Mills

14 Holding Companies (investment into SMC); CIIF

Research & Development FoundationLEGOIL ILICOCO; LEG International

GRANEX GRANEX USA

SPMC Minola; Silahis

COCOLIFEUCPB General Insurance Co.; Cocoplans, Inc.; UltraSecurity Services, Inc.; United Fund, Inc.

Interestingly, while the UCPB the parent company invested to acquire /

establish the other companies, each company put in investments as well into


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each other. Thus making the whole UCPB-CIIF Group of Companies a web of

cross-shareholdings between and among all the companies that comprise the

Group.

The farmer-directors, at least most of them, share a common view of making

this particular group of companies address its mandate. As far as the farmer-

directors are concerned, there is hardly any doubt as to the origin of these

companies and the mandate that they should serve. Oscar Santos, in a letter to

the boards of the said companies in August 2002, cited the following:

Having met three times as a board, it is obvious that senior management and our

colleagues in the board are seasoned managers and/or entrepreneurs

knowledgeable in management, banking, corporate matters and business and

commercial activities in general.

Allow me, however, to touch on the social mandate we in management and board

should ever be mindful of.

State Policy and MandateState Policy and MandateState Policy and MandateState Policy and Mandate: P.D. 232 dated July 1, 1973 creating the Philippine

Coconut Authority, declares that it shall be the policy of the State to promote

accelerated growth and development of the coconut and other palm oil industry sosososo

that the benefits of such growth shall accrue to the greatest numberthat the benefits of such growth shall accrue to the greatest numberthat the benefits of such growth shall accrue to the greatest numberthat the benefits of such growth shall accrue to the greatest number, and to

provide continued leadership and support in the integrated development of the

industry. [Section 1.]

P.D. 232 proceeds to specify the following objective: To achieve vertical

integration of the coconut industry so that coconut farmers become participants inso that coconut farmers become participants inso that coconut farmers become participants inso that coconut farmers become participants in

and beneficiarieand beneficiarieand beneficiarieand beneficiaries of development and growth of the coconut industrys of development and growth of the coconut industrys of development and growth of the coconut industrys of development and growth of the coconut industry. [Section

2.]


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This mandated policy is reiterated in at least three Presidential Decrees, oneExecutive Order, three Letters of Instruction and a PCA Resolution:

PD 961 - July 14, 1976EO 490 - November 27, 1977PD 1468 - June 11, 1978LOI 926 - September 3, 1979PD 1644 - October 4, 1979LOI 939 - October 4, 1979LOI 940 - October 4, 1979

PCA Res. 34-75 - May 21, 1975

The statement or declaration of policy is the heart and soul of a particular piece

of legislation. It sets out the goal or objective sought to be accomplished by that

legislation.

The specific provisions of the coco levy-related decrees and issuances all state the

purpose of the levy collections was to fund concerns, activities and commercial

investments for the benefit of the coconut farmersfor the benefit of the coconut farmersfor the benefit of the coconut farmersfor the benefit of the coconut farmers.10One who may be minded to

go over those decrees and issuances will find that the phrase for the benefit of the

coconut farmers was repeated at least 82 times in the text of 6 Presidential

Decrees, 3 Executive Orders, 4 Letters of Instruction, and, 11 PCA Resolutions.

But while the abovementioned facts govern the general framework and

mindset of the organized farmer groups and their farmer-directors, they had

little knowledge of the companies at the time of their appointments. More

importantly, they had no control over the appointments made by Malacaang

as farmer representation is in no way institutionalized. All the farmers had was

an active and highly visible public campaign that required immediate political

attention. Thus, t

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