Raise the land ownership retention ceiling

Raising the land ownership retention ceiling to at least 25 hectares.

This was pegged at 5 hectares for a married couple tilling the land and 3 hectares for an individual under the Comprehensive Agrarian Reform Law (CARL) of 1988. Note that the low land retention ceiling was intended to break up vast tracts of land under the ownership of a single individual or a family.

Agrarian reform advocates at that time said that this was meant to dismantle the monopoly hold of big landlords over local economies and politics, which had resulted in severe inequality and the exploitation of tenants and agricultural laborers.

So oppressive was the situation then that it led to a number of uprisings in the countryside, led by the communist insurgency. Hence, agrarian reform became an anti-insurgency instrument by successive political administrations.

There was the added argument, provided by liberal economists, that agrarian reform would result in greater productivity. They theorized that if the owners of the land were now the actual cultivators, there would be greater incentive to become efficient. No longer would the tillers have to share their harvests with their landlords.

Fast forward or nearly four decades after the CARL was passed, what were the results?

Undeniably, land ownership became more equitable as the average agricultural land holding is currently just a hectare. Now, one can hardly hear complaints about an evil landlord owning vast tracts of land and exercising the power of life and death over tenants.

As such, the anti-insurgency aim of the reform measure was successful. The communist movement never took over as a political power. Currently, its armed component has almost been decimated even in areas where they used to have effective control.

However, it is in the productivity or efficiency side that agrarian reform fared poorly. Overall, agricultural productivity is stagnant, averaging an annual growth of only 1 percent. It has not been able to keep pace with population growth, which has averaged 1.3-1.5 percent. Expectedly, our agricultural and food imports have kept on increasing.

Not surprisingly, agrarian reform advocates blame the government for this. They argue that the lack of government assistance is the reason why agrarian reform beneficiaries fail to significantly raise their productivity.

The argument is quite egregious. If the law wanted to turn our cultivators into farmer-entrepreneurs, why make them perpetually dependent on government assistance or subsidies to become successful? Isn't it the mark of a successful entrepreneur that of being innovative and resourceful? Don't real entrepreneurs value their independence as they find government regulation stifling to growth?

Unfortunately, one of the unintended consequences of the protracted implementation of the CARL is that it destroyed the middle-class farmers who could have transformed themselves into real agricultural entrepreneurs. The main reason is the low land ownership retention ceiling.

With the fragmentation of farm lands into miniscule sizes, there is no way that an agricultural venture can enjoy economies of scale and earn a decent income. A study by the late and revered friend Dr. Rolando Dy of the University of Asia and the Pacific's Center for Food and Agribusiness revealed that the economically viable land size for most crops is around 25 hectares (smaller for vegetables but larger for sugar).

Raising the land retention ceiling to 25 hectares will undoubtedly attract middle-class individuals to invest in agriculture as they have the means to buy the land, are educated enough to decide on the best agri-ventures to engage in, invest in technology to improve productivity and access greater markets for their products using e-commerce platforms.

It is a stylized fact in economic literature that investment is a function of savings and that growth is a function of investment. There are mainly two sources of investment for the agricultural sector: government and the private sector.

A study by another late colleague, Dr. Ramon Yedra, showed that there was little private sector investment in agriculture over the past three decades. There were hardly any new huge investments by big agribusiness corporations during that period, which coincided with the implementation of the CARL. This accounts for agriculture's stagnation as government resources are not enough to support the needs of various economic sectors.

There is a need to actively attract investments from the private sector, but until we are able to lift the low land ownership retention ceiling, this will remain an elusive goal.

But what about the government's farm clustering and consolidation effort so that economies of scale can be enjoyed by farms owned and operated by the small farmers? I am not too hopeful about it given the rigid and inflexible nature of our bureaucracy. Actually, the idea of farm clustering and consolidation started during the term of former Agriculture secretary William Dar.

After nearly four years since its introduction, nothing much has been attained. In other words, if we rely on the government to implement much-needed structural reforms to achieve an efficient, productive and competitive agricultural sector, it will take ages to happen without the guarantee that one will achieve the desired effect.

Just look at various government infrastructure projects: airports, a subway, reviving our rail system and now the EDSA upgrading. By the time these are completed, they will already be considered obsolete because they no longer meet the needs of their users, who have dramatically grown in size over the period the project was being constructed.

The best course of action is to rely on market forces, but this can only happen if we have the right policy framework that will be conducive for the private sector to participate in the agricultural economy to a greater degree. Absent that understanding from our agricultural policy makers, the sector will continue to be in deep trouble.

Source: Manila Times