Big agribusiness companies and inclusive growth



On December 6, I was invited to make a presentation before a forum on agripreneurship at Isabela State University (ISU) attended by 1,200 students, and I thank its president Dr. Ricmar Aquino, a very respected colleague of mine, for giving me the opportunity to share my thoughts on how to create an entrepreneurial ecosystem for agriculture. Thanks also to the university’s vice president for Research, Development, Extension and Training, Dr. William Medrano, for coordinating the said event.

From my observation, Isabela can be the anchor for creating more wealth from the agriculture sector of the Cagayan Valley and beyond, the same way Benguet can take the farming sector of the Cordillera region to a higher level.

Isabela’s agriculture sector, however, still remains very traditional or the planting of rice and corn dominating the sector with very little value adding. While there are developments in the Cagayan Valley toward other crops and its fishery industry (like eels), much has to be done to make the region’s agriculture sector modern and industrialized.

So what must be done?

I have always advocated for the application of the Inclusive Market-Oriented Development (IMOD) framework to establish inclusive agribusiness. IMOD builds on four powerful principles: Inclusiveness ensures the poor benefit; innovation accelerates growth; markets motivate growth; and resiliency sustains growth.

As the term implies, inclusive agribusiness should be inclusive and that means the smallholder farmers and fisher folk must also become viable partners with the big players in the value chain. The models to initiate inclusive agribusiness include: Inclusive contract arrangements; corporatives (partnerships between big business and smallholder farmers/fishers/growers); and cooperatives/farmers associations that are managed by the farmers themselves.

We are very familiar on how cooperatives could get smallholder farmers into the value chain; cooperatives facilitate block farming to achieve economies of scale, and can allow farmers to bargain for better prices from traders. Banks also would rather lend to cooperatives than to smallholder farmers.

More importantly, by organizing themselves into cooperatives, smallholder farmers can negotiate and enter into mutually beneficial agreements with large agro-industrial companies.

Many decades ago, the idea of large agribusiness companies entering into mutually beneficial agreements with smallholder farmers was almost alien, as big companies were more interested in getting raw inputs from mostly smallholders at the lowest possible prices. This type of arrangement was not sustainable, because it trapped smallholder farmers into perpetual poverty. Eventually, the sons and daughters of the poor farmers lose interest in farming, resulting in the reduction of farms that could supply the raw materials of large agribusiness companies.

Farmers as partners

Also, if the large agribusiness companies wanted a sustained supply of raw materials at a price that would also benefit smallholder farmers, they have to assist their growers or raw material suppliers. By assisting their smallholder partners, yields per hectare could increase resulting in more earnings for the farmer-partners and a stable supply of raw materials for the agribusiness company.

When Prasad Seeds Philippines Inc. (PSPI) was formed nearly two years ago with yours truly tapped as strategic adviser, the company no longer thought twice on entering into a mutually beneficial agreements with smallholder corn growers who were assured of gaining from the value chain.

Under its agreement with its partner-farmers, PSPI has the following responsibilities: Provide the grower with farm inputs like fertilizers and labor budget as loan necessary for proper crop maintenance; provide a Package of Technology (POT) and recommendations through its field agronomists; and buy the harvested seeds in cobs at an agreed price per kilo.

Also, PSPI after the harvest period shall deduct the advances made by the farmer from the gross income, and pay the farmer the net proceeds.

The responsibilities of the partner-farmers of PSPI are: provide land suitable for hybrid corn seed production, and possess or have access to necessary farm facilities and equipment including source of irrigation; provide labor (planting, fertilization, pesticide application and irrigation) that shall serve as his equity equivalent to about 18 percent of the total cost of production; and maintain and manage the crop in accordance to the POT and recommendations from PSPI field agronomists.

And finally, the contracted seed grower should sell the harvested seeds solely to PSPI at a jointly agreed upon competitive price per kilo.

Besides educating its partner-farmers on growing corn more efficiently using the latest technologies, PSPI also educates its seed growers on agripreneurship and financial literacy.

Other models

There are other major agribusiness companies that have entered into mutually beneficial agreements with smallholder farmers/growers like San Miguel Purefoods, Dole, Del Monte, Sumifru, Nestle Philippines, Kennemer Foods International, Philip Morris and SL Agritech.

San Miguel Purefoods, which supplies chicken broilers and layers, provides building plans (design and specifications) for the facilities of its growers, feeds and nutrition (medicines and vaccines), technical support and info/recording materials, and delivery and hauling services. The company also provides a competitive payment scheme for its growers.

Dole, Del Monte and Sumifru, which export bananas, pineapples and papayas, provide for its farmer-partners technical assistance and free planting materials, and allows full participation of growers from production to harvest.

For its part, Nestle Philippines supplies superior coffee clones at cost, provides extension support, and buys back the coffee beans at prevailing world market prices.

Kennemer Foods, which is into producing cacao-based products, provides credit assistance for smallholder growers with Land Bank of the Philippines, supplies high-yielding planting materials, provides extension support, and guarantees secure market for cacao beans produced.

Philip Morris also has a program for its partners in the form of financial support through cash advances, and provision of input and extension support.

Hybrid rice grower SL Agritech provides extension support, advances fertilizers and pesticides to farmers short of cash, and buys back palay (unmilled rice) at P2 to P3 per kilogram higher than prevailing market prices.

From the abovementioned models, large agribusiness companies can also take part in creating an entrepreneurial ecosystem in agriculture by making smallholders farmers or growers their partners who have a reasonable or equitable share from the fruits of production.

In this regard, ISU can take the lead in helping smallholder farmers forge partnerships with large agribusiness companies, and even provide initial training for the tillers of the land. The university can also perform a monitoring function over the partnerships formed between smallholder farmers and large agribusiness companies, to make sure the arrangements result in equitable sharing from the fruits of production.

I also believe other state colleges and universities can perform the roles I just mentioned, and be among the prime movers in helping agripreneurship take root in the Philippines.


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