I may sound like a broken record if I state it again (in this column) that farmers in the Philippines have been getting less and less of the wholesale prices for their produce. Let me cite again (as I have in my past columns) that rice farmers in the Philippines receive just 47 percent of the wholesale prices of their produce or palay (unmilled rice) directly from their farms, compared to 62 percent for their counterparts in India and 94 percent for farmers in China.
The reason is obvious: badly needing cash for the next cropping season and their family’s needs, rice farmers in the Philippines need to immediately sell their palay to middlemen who often dictate farm-gate prices. And can you expect private traders to offer the best prices to farmers?
This type of system creates a vicious cycle wherein the farmers, unable to buy enough fertilizers and quality seeds because they do not have enough cash or have to borrow at usurious rates, will not be able to produce optimum yields in the next cropping season. And with low yields in the next cropping season, they can never realize better incomes or are even sunk deeper into debt, unless dramatic interventions are made.
This was also the predicament of farmers in Burkina Faso, Mali and Niger in West Africa, until the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), which I was then heading, put into place a social cooperation system for the marketing of farm products and provision of credit/cash called “Warrantage” (in French). Warrantage, or the Inventory Credit System, has actually been a tradition in some Asian and European countries with good results.
Under the system, a farmer can store his harvest in a facility run by a cooperative, corporative or organization that in turn gives him a partial payment based on prevailing market prices, or from 25 to 35 percent. Essentially, the farmer gets a loan with his harvest as collateral.
With cash on hand, a farmer can buy enough inputs like fertilizer and seeds, which in turn enables him to adopt soil fertility restoration technologies that are taught by experts. Without enough cash to buy fertilizers and seeds, it is impossible for farmers to adopt soil restoration technologies that ICRISAT can make available immediately to farmers.
And once market prices for commodities improve, the farmer can sell the produce he stored with the cooperative and pay off his loan and still have more cash that when he first sold his produce.
From 2005 to 2007, the ICRISAT, in collaboration with other international agricultural research centers and national agricultural research and extension systems, promoted and evaluated the point or hill application of fertilizer alongside the warrantage system in Burkina Faso, Mali and Niger. Under the hill application system, small doses of fertilizers are applied in the planting hills of millet and sorghum.
The results of the study were dramatic, to say the least: on average, in all the three countries, grain yields of millet and sorghum increased by 44 to 120 percent while farmers’ incomes went up by 52 to 134 percent.
While the hill application of fertilizer was an important factor in increasing yields and incomes of farmers, the warrantage system improved the access of farmers to credit and cash, which eventually allowed them to buy enough inputs on time for the next cropping. And when farmers generate more income, they can invest in other income generating activities like fattening of small ruminants, horticulture, trading, nut oil extraction and even raising chickens.
Of course, the technical assistance extended to the farmers adopting the warrantage system was very important, because the best way to increase yields is to utilize science and not just expand land to plant.
In 2010, the Food and Agricultural Organization (FAO) said a warrantage project it implemented also in the Niger helped increased incomes of farmers by 19 and 113 percent and yields by 44 and 120 percent.
The good thing about the warrantage system is it eliminates the middlemen, or at the least, weakens the influence of the middleman. Also, loan sharks can be pushed out of business because farmers no longer have to borrow from them at usurious rates.
One factor that led to the success of the warrantage system in parts of Western Africa was the involvement of NGOs, local extension workers and, of course, ICRISAT experts. Also, organizing farmers to run the warrantage system and to be the recipients of farming technologies was of equal importance.
In the Philippines, I see no reason why the warrantage system cannot be applied because most farmers are exploited by traders denying them better earnings, and loan sharks continue to drive them into more debt.
Most smallholder farmers also remain fragmented or not organized, which makes them more dependent on traders and loan sharks.
To get the warrantage system off the ground in the Philippines, more farmers will need to be organized into cooperatives, corporatives, organizations, MSMEs or even corporations. And the agencies that can do that are already there: Department of Agriculture, Department of Agrarian Reform, and the Cooperative Development Authority.
Local government units and even NGOs that have been sincere in helping small farmers can also have a pivotal role in getting farmers organized and trained to adopt the warrantage system.
The national government should also initiate a program that will strongly support the development of various farmer organizations, and training them in management, accounting, marketing, human resources management and even international trade (for the very large ones). In countries like Japan, South Korea and Taiwan, farmers have their own banks, trading centers and even retail outlets.
But organizing more farmers into cooperatives and making the warrantage system take root in the Philippines is first good step in making smallholder farmers escape the clutches of traders and loan sharks.
The Warrantage system is not rocket science and there is no need for Harvard-trained PhDs for it to take root in the Philippines. The experience in West Africa proved that.