First, a bit of an explanatory note: It usually seems to surprise the casual observers among our audience that those of us in the AP galaxy do not, as a matter of fact, completely agree on everything. This topic, land reform, is one such subject; in the larger sense, it’s probably safe to say that as a group we do agree on the basics, but the devil is in the details. This is an article I originally posted earlier on my own site, Bad Manners Gun Club, and I’m posting it again here to encourage those with differing points of view to have their say and provide you, our valued readers, with the widest possible perspective on an issue of critical importance to this country’s development. After all, the strength of solutions is directly proportional to the amount of critical thinking, discussion, and ideas that can be brought to bear on them.
The advocacy behind land reform in the Philippines, as in every place the effort has been attempted, is that it is the means with the highest utility to reduce or eliminate rural poverty and encourage overall agricultural development and food security. Complicating any rational debate about the possible benefits or drawbacks of land reform is a fundamental philosophical problem: Underpinning the advocacy for land reform is the presumption that land ownership above a certain limit is immoral, and that justice can only be represented by the concept of “land to the tiller.” At the opposite end of the philosophical spectrum is the belief that justice is best represented by the defense of property rights.
Being matters of belief, the divergent points of view defy empirical judgment and thus we will try to avoid that debate as much as possible. What does not defy empirical judgment, however, is the epic failure of more than two decades of land reform in the Philippines under the Comprehensive Agrarian Reform Program (CARP) initiated by the first President Aquino, and the attempt to keep the program on life support (CARP Extended with Reforms, or CARPER) passed by the Legislature in mid-2009.
In 2004, with the original CARP’s expiration on the horizon, the Department of Agrarian Reform commissioned a study by the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ), a sustainability consulting firm owned by the German government, to assess the results of CARP and recommend improvements. The joint DAR/GTZ report was released in December 2007, and pointed out several key failures in the country’s agrarian reform efforts:
- Out of about four million recipients of farm land under CARP, fully three-fourths have not received any support services, resulting in
- About 26% of the recipients nationwide giving up their lands, either through sale, lease back to the original landowners, or simply abandoning it. Figures from selected provinces were given to highlight the problem: 26% in Quezon, 35% in Iloilo, 40% in Negros Occidental, 41% in Nueva Ecija, 53% in Laguna. The DAR/GTZ study cited earlier studies which estimated that throughout Central and Southern Luzon, three out of five recipients of certificates of land ownership or emancipation patents have either sold their lands or mortgaged and later abandoned them without paying.
- Without government enterprise or credit support, CARP beneficiaries who seek to make their holdings productive are forced to borrow for seed and equipment at interest rates up to 24.7%.
- The entire program has been underfunded by at least 50% by the government; Landbank of the Philippines, the financial arm of the program, was forced to borrow over $80 million beyond its World Bank credit line to keep the program afloat.
- Complicated the funding issues is the bloated and inefficient structure of the DAR, with over 15,000 employees and a ratio between personnel and operating costs of 60:40 – the exact opposite of the 40:60 ratio it should be. Compounding this problem is the poor distribution of DAR personnel; provincial offices are appropriately-staffed, while the most-needed positions at the municipal and technical facilitator levels are undermanned. Frequent changes in leadership and management in the responsible agencies (DAR, the Department of Environment and Natural Resources, and others) also hampers the smooth implementation and completion of the program.
- Collection of amortization payments for the land received by beneficiaries was, through 2005 at least, less than 18% of the outstanding collectibles. This contributed the Landbank’s refusal to make agricultural loans to CARP beneficiaries. To add insult to injury, high transaction costs and a poorly-conceived program structure mean that setting up an efficient system to collect amortization payments would cost more than the amount outstanding.
- The five-hectare limit on agricultural land holdings further discourages banks from lending to the agricultural sector, for two reasons: First, the economy of scale is missing, in that the number of crops that can be profitable enough on just five hectares to make extending credit a good business decision is limited. Second, the small size of the properties makes them difficult to dispose of in case of default, and thus poor collateral from the banks’ point of view.
- As of 2008, agriculture accounted for 35% of the nation’s workforce but only contributed 14.7% to the GDP. By comparison, the industrial sector employs 15% of the workforce and contributes 31.6% of the gross domestic product.
- And perhaps most damning, in the two decades since CARP was developed the Philippines has deteriorated from a net agricultural exporter to a net agricultural importer.
Can Land Reform Work?
As a means to develop an agricultural sector that produces a significant export surplus, the simple answer is no. Economy of scale, which requires large areas of land under single-crop cultivation, is required to achieve that goal. The only way in which economy of scale can be reached in a small-holding setting that results from the typical land reform paradigm is through cooperatives. Cooperatives, however, have a natural life cycle which at its most beneficial results in consolidation of the sector, which ultimately works at cross-purposes to the land reform objective.
The dairy industry in the United States is a perfect example of this pattern. Almost all dairy farms in the US are members of a cooperative, the largest of which is the National Dairy Farmers, with a membership of about 18,000 farms. In 1970, there were 648,000 dairy farmers in the US; today there are about 75,000. Yet while the dairy industry has ostensibly contracted by nearly 90%, it still produces a surplus for a population which has grown by 50% in the same amount of time. In physical terms – the number of cows producing milk – the industry has grown, but technical advances and more efficient processes have eliminated much of the labor required, and partly as a consequence of that, membership in the NDF and most other co-ops is now closed; shares in the co-op are only traded among existing members, and invariably it is the larger, more successful ones who are buying out the smaller ones. In the absence of this consolidation mechanism, the agricultural sector represented by the cooperative remains labor-intensive – in other words, a co-op of 100 members each with 5 hectares of land will produce exactly the same amount as a single 500-hectare farm, but at an exponentially higher labor cost.
The solution to that problem is to pursue a focus on industrialization to shift the labor away from the agricultural sector. Of all the countries which have pursued land reform programs, even the concept’s proponents admit that only three – Japan, Korea, and Taiwan – have been successful, and rapid, large-scale industrialization proceeding in tandem with land reform has been the key to their success. In the case of Korea and Taiwan, the legal and rights issues complicating land redistribution (in Korea following World War II, and in Taiwan following the retreat of the Nationalist government from the mainland) were partly relieved by the fact that a significant part of the lands subject to the programs were holdings of those countries’ former Japanese occupiers. Japan, by comparison, has pursued land reform in two phases: the first phase, the chisokaisei (Land Tax Reform), was carried out beginning in 1873 as part of the rapid modernization of Japan under the Meiji Restoration, the centerpiece of which was massive industrialization. The second phase, the Nōchi-kaihō (emancipation of farm lands), occurred under the American occupation at the end of World War II, a period in which Japan was focused on quickly rebuilding its war-shattered industries.
In all three countries, prioritizing industrialization has drawn labor away from the agricultural sector. Besides providing better job opportunities in industry for a significant part of the formerly poor rural population, the sectoral competition for labor has raised the working standards for the farm workers remaining behind, and has encouraged technical developments in farming to make up for the human “shortfall.” As a result, the agricultural sectors of all three countries are now gradually moving back the other direction into consolidation, allowing Japan to become a rice and beef exporter, and minimizing the need for imports in Korea and Taiwan (two countries which are not, as it happens, particularly blessed with geography suitable for large-scale farming).
The Unavoidable Conclusion: Carp is a trash fish. Throw it back in the water.
The three successful land reform programs in Korea, Japan, and Taiwan were completed in five years or less; the Philippines has been pursuing land reform for four times as long, and has achieved nothing except to make all the problems it hoped to solve worse. Continuing CARP is throwing more good money after bad, and given the depth of poverty and lack of development of the Philippines’ rapidly-expanding population, it should not take another 20 years for the country’s leadership to figure that out. As I stated at the outset, debating whether or not land reform should take place at all is a moral and philosophical issue I do not intend to tackle; accepting, for the moment, that some variety of agrarian reform in the Philippines is a given, here are a few recommendations that might help to salvage two decades’ worth of wasted time and resources:
1. Disband the existing DAR and its bloated and inefficient staff and reorganize it as the leanest possible agency. The administrative costs for the management of funds for agrarian reform should represent a minimal attenuation of the budget, not its largest expense.
2. Reexamine the classification of lands potentially subject to reform, and prevent the conversion of lands to residential or commercial property to avoid distribution. A large part of the food security problem in the country can probably be traced to the flagrant misuse of land that should be under cultivation.
3. Raise the ceiling on land holdings. The five-hectare limit is simply not economically viable.
4. Farm workers work as hard as anyone else, and there is no justification for there being much lower wage, working conditions, and benefit standards for them. Comprehensive and meaningful labor reform to make farm labor dignified and provide living wages will go a long way towards increasing productivity and reducing poverty and overall discontent.
5. Encourage foreign investment, if not in farm lands and operations themselves, then in micro-finance and support services. The country seems unable or unwilling to fund these vital components anyway, to the detriment of the entire program. Relying on foreign aid dole-outs has not nearly addressed the financial shortfall, and does not encourage innovation or efficiency.
6. Spend at least as much on support services as is spent on administering the redistribution of lands. Giving a family a parcel of land and then withholding the credit, training, and market access support they need to make it useful is pointless.
7. Above all, prioritize economic liberalization and industrial and commercial development. The “successful” land reform of Taiwan, Korea, and Japan is, after all, a minor complement to those countries having turned themselves into industrial powerhouses. Opening up the economy to foreign investors and pursuing long-overdue financial and administrative reforms to broaden domestic investment is the only way the critical industrialization component that gives land reform a chance to work can happen.