COMMENTARY

Utilizing the coco levy funds

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IT has been reported in the press that officials of alleged coconut farmer organizations, which have flowered of late, are demanding that the government turn over the proceeds of the coconut levy fund to them. This was actually the ploy of COCOFED in martial-law days and, with the complicity of the government, it actually succeeded in taking over the funds for the benefit of its officialdom.

As a result, the levies, which were clearly public funds as envisioned by the presidential decrees, were diverted into projects unrelated to the original provisions that were designed to rehabilitate coconut farms, provide seed gardens as well as give farmer access to credit. Instead, the levies were used to buy insurance companies, commercial banks and oil mills, which were managed by the COCOFED officials and their allies for their own benefit. The profits derived from such activities never really trickled down to the farmers, who today are the most marginalized members of the agriculture sector.

Incidentally, when the levy fund deposited in government financial institutions befitting public funds were deposited in a commercial bank owned by the Cojuangco family, President Marcos, who signed the decree enabling the transfer, allowed the same under the stipulation that the levies remain as government funds, which should have been owned, managed and operated by the government instead of COCOFED, with its claim to represent the 1 million-plus coconut farmers whose membership in the organization was never proven!

Now come the NEOCOCOFED groups claiming to represent the farmers who by implication will now own, operate and manage the humongous proceeds of the coconut levy goods—forbid that history will repeat itself!


All of us are batting for the coconut farmers. As former chairman of the Philippine Coconut Authority (PCA) during the Cory administration, I took it upon myself to organize 3,000 small coconut farmer organizations to the chagrin of COCOFED, which looked upon it as a rival organization. It could never have been since these organizations were directly managed by the PCA with its meager budget. Today these SCFOs are still to be found in the countryside. They have no links at all with COCOFED and continue to be managed by the PCA.

The optimal utilization of the levy funds lie in the coconut trust fund bill, which I had the honor to help craft together with Rep. Sharon Garin and which, unfortunately, was stalled in the upper chamber. It is our hope that given the pro-farmer ideology of the Duterte administration and the hands-on experience of Secretary Piñol in farming that it will take upon itself the obligation to certify the house bill as urgent for the sake of poorest of the poor in the farming sector, namely, the coconut farmers. Properly implemented, the levies could be used to increase levels of productivity, incomes and employment in the 3 million hectares comprising the coconut industry spread out in some 70 provinces. By rehabilitating and intercropping coconut lands, some 3 million new jobs could easily be generated, thus, cutting the unemployment figures by half.

The Supreme Court has declared that the coco levy funds are public in nature. This means that the funds now revert to the government. Before this decision, the funds were treated as private funds to be managed by the farmers through the UCPB, which served as the depository of said funds. Some of the levy funds were allotted to and managed by the COCOFED. The bulk was utilized in the acquisition of subsidiaries (i.e., oil mills, Cocochem, Cocolife, etc.).

If said funds were satisfactorily managed by the UCPB and subsidiaries, the levels of productivity, income and employment of the coconut farmers had left much to be desired. There is a stark contrast in the seeming liquidity of coco levy-funded institutions and the dire poverty of the coconut farmers. A universal bank, the UCPB was saddled with a multitude of banking chores and could not give maximum concentration to the needs of the millions of coconut farmers spread all over the archipelago. It is even doubtful whether it could attend to the number of coconut levy-funded corporations, ranging from coconut oil mills to insurance companies, and the 14 holding companies that own the San Miguel shares.

Needles to say, the business of banking is a full-time job and with the cutthroat competition going on, it is believed that it is best that the bank concentrate on maximizing earnings so that it could optimize its contribution to farmer welfare through its earnings deposited in a trust fund.

The bulk of the levy was utilized not only to purchase the bank but to buy and build subsidiaries such as oil mills, a coco-chemical plant, insurance companies, and other fixed and financial assets. In the process, the productivity of coconut farms suffered.

The “vertical integration” of the industry favored by the UCPB/CIFF management, which was supposed to favor the farmers, actually led to an adversarial situation which pitted the defenseless farmers against the CIIF coconut oil mills and made them (farmers) pay commercial borrowing rates for their UCPB loans.

For purposes of preserving the integrity of coconut levy-fund assets and for the sake of greater transparency, the following processes should be observed:

Let the UCPB concentrate on its banking activities. Its income should be channeled to a trust fund, which will concentrate on the enhancement of the “coconut pie” (coconut productivity, income and employment).

Create a holding company from the present CIIF that will concentrate on overseeing the operations of coco levy-funded subsidiaries such as the oil mills, Cocochem, and the insurance companies. The dividends accruing from the operations of the subsidiaries should go into the trust fund.

Create a Perpetual Trust Fund Company, which will manage the levy fund. The initial capitalization of the company will come from the CIFF’s San Miguel shares. The trust company will concentrate on developing the coconut industry in cooperation with an inter-agency committee led by PCA, which will implement a master plan.

This way there will be division of labor. It will also avoid a conflict of interest that was experienced in the past when the management of the coco levy-funded companies placed their interests above those of the beneficial owners of the fund, namely, the coconut farmers.

For the proper accounting of the assets of the coco levy fund, the following procedures should be followed:

The list of assets, accounts receivables and unliquidated advances out of the Coco Levy Fund should be accounted for by the PCGG.

The immediate audit by COA is a must.

A parallel review should be conducted by the government as a management audit.
The government must immediately turn over identified and cleared assets to the Trust Fund.

After its organization, the trust company becomes the depository of all coco levy-funded earnings. This will enable it to reformulate and redirect the investment objectives of the fund. A program for the sale and liquidation/privatization of the non-persistent assets is also necessary.

The investment of the cash proceeds of the Fund could be placed in “A Special Government Bond for the Coco Levy Funds,” tentatively at prevailing bond market, to safeguard the principal of the fund and match the needs of the industry with its interest earnings.

The trust fund is to use the interest earnings of the government bonds plus other earnings and funds in implementing the basic core program and projects for the development of the Philippine coconut industry development, such as:

A social fund for the farmers that should include insurance coverage, scholarship funds and social security concerns of the farmers.

A development fund, which can underwrite the productivity income and employment drive of the government.

A marketing fund that will organize the farmer marketing and SME cooperatives nationwide as well as the organization of market promotion activities here and abroad.
An R&D fund accelerates the implementation of value-adding activities and full value recovery of the coconut sector.

A price stabilization fund that will undertake strategic stockpiling or buffer stocking as the market situation warrants.

In sum, the CIIF should be transformed into an Investment Holding Company, under which all the assets of the coco levy fund will be placed as part of a Trust Fund Arrangement.

Among the points to be incorporated in the proposed order are the following:
The key non-coconut pertinent assets, i.e., the San Miguel Shares and the UCPB, should be sold and the proceeds invested in government bonds to form the corpus of a Trust Fund.

Only the interest earnings are to be used by the CIIF for its operations.

The PCGG should be in charge of the selling/auction of these assets and not the CIIF.

The task of the new CIIF is to help in the restricting and rationalization of the coconut industry with all its implications and complications, using the earnings of the principal of the coco levy fund, encompassing and not limited to the following:

A program of national strategic stockpiling of CNO and copra meal under a price stabilization program.

The strategic dispersal of oil mills and the formation of Nucleus Estates.

The promotion of intensive intercrop production and marketing under a program of vertical farm integration and horizontal diversification.

The promotion of livestock production in coconut farms and the necessary infrastructure of processing, packaging and marketing of products, under a coconut-based farm system.
Appropriate social and educational programs.

Transforming the PCA

The problem with the PCA is that as structured today, it is more of a regulatory rather than a developmental institution, which explains the niggardly funding from the government.

The events following the passage of the coconut levies effectively marginalized the PCA and transferred to the “private sector,” proxied by the COCOFED, the control and influence over the industry to the UCPB under the vertical integration program of the industry favored by the COCOFED leadership.

To restore policy direction and industrial restructuring, government will require the following actions:

Policy shifts and industrial restructuring can only occur if there is a single institution with ample powers to implement the above with a very clear mandate. It is, therefore, recommended that the following bill be considered which could do the work.

For the coconut industry to take off, it is important to give the PCA this clear and unequivocal mandate to lead the industry’s development.

This mandate must be backed up by adequate funding, which clearly should be the proceeds of the coconut levy funds.

Moreover, the management of the industry must be placed in the hands of professionals with expertise in management, research, finance, and marketing, given that the solution to the industry’s long-term challenges call for an inter-disciplinary approach.

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