Monday, January 01, 2007

The transformation of Negros

Last month I visited Negros island, in West-Central Philippines, the country's "sugar bowl". The west part especially (Negros Occidental) is covered with vast sugarcane areas, previously organized into haciendas, large estates under one landowner. Here enormously rich hacenderos accumulated enormous wealth, while poor resident workers lived on their vast estates. These workers grew to depend on the hacendero for their daily needs, depending on the vale (cash advance) for medical emergencies and other consumption needs. Sometimes the workers formed communities (complete with church and school) right on the hacienda. Meanwhile the hacendero class grew to wield great political power, entrenched itself at the forefront of the traditional elite of the country. It was a textbook example of modern-day feudalism, alive and kicking in the developing world.

In 1988, the Philippines embarked on its last and most extensive program of land reform, the Comprehensive Agrarian Reform Program (CARP). The CARP implements a law imposing a five hectare limit to total agricultural landholdings, with the excess to be distributed - with compensation - to tenants and other qualified beneficiaries. Unlike previous programs, the CARP would cover everything - including the hitherto untouchable haciendas.

The modern feudal lords have battled the redistribution program. Negros Occidental, which has the country's largest potential area for land reform (over 280,000 ha), has the lowest redistribution accomplishment (about 55%). Yet land reform has gone farther than most had expected in the late 1980s, forever transforming the face of the Negros countryside.

Not always for the better. First, land reform prohibits the transfer of land from beneficiaries to other parties (except by inheritance), for ten years after award of the land. In the medium term this has taken land away from enterprises with access to working capital (the haciendas) to enterprises without such access (the beneficiaries' farms). Sugarcane yields have reportedly dropped, as ideal input intensity cannot be achieved in the beneficiaries' farms. Second, the miscellaneous consumption financing offered by traditional sugarcane landlords did serve a useful function - which is completely disabled by land redistribution. Post-feudal forms of finance (i.e. the commercial banking system) has so far failed to deliver adequate financing to the new class of landowners.

But has land reform been a complete catastrophe? Far from it. Sugarcane yields do not seem to have seriously suffered owing to land reform. Check out the following graph, which shows the average yield in tons of cane per ha per year in the Philippines. Despite all the problems, somehow the sugarcane industry, post-CARP, is still doing well. That means the new landowners are probably enjoying a higher standard of living than without the program – they receive the profits from the land, rather than just wages. I am getting much of this information from my land markets study, a sub-component of a bigger study assessing the impact of agrarian reform in the Philippines. I can confirm that many of the new landowners do lease out their lands to big sugarcane planters, and end up earning wages from the leased out land. Despite the apparent irony of the situation, it is clear that they are better off than before the program, because they receive lease rental in addition to wage. Furthermore, most who practice this do not in fact lease out all their land, and seldom is this practiced on a permanent basis.

So are the sugarcane workers better off with than without the Program? I wouldn’t know the answer to that – yet. But I do know that a lot of distortions is poisoning the discussion about the future of land reform. The last thing this country needs is policymaking by hyperbole.


Amadeo said...

“I can confirm that many of the new landowners do lease out their lands to big sugarcane planters, and end up earning wages from the leased out land.” (or rentals, maybe?)

This definitely is one aspect of land re-distribution that truly needs serious attention, not just for sugar areas but for all those covered under the scope of land reform.

From our own anecdotal experiences, we find that this is a big influencing factor in how agri-lands are today being developed.

Over a span of several years, we acquired some idle agri-lands that were originally distributed to the local indigenous residents by strong man Marcos in the 80s. Nothing was essentially done to these lands after acquisition, until people like us came looking for lands to plant. While the lease option was available, it was found to be disadvantageous for both lessor and lessee. For one thing, the lease rates were too low to support a non-working owner. So purchase was the better opition for which the owners were only too glad to oblige. In turn the previous owners as leverage exacted from the new owners the promise that they would be hired to help develop the land.

Now, is this arrangement overall giving the appearance that land reform is working, because productivity appears to be holding?

The biggest land developer in the province, Del Monte, over time has doubled the area that it plants, most of the new areas covered by customized lease agreements with the landowners, whereby the latter essentially become contract growers.

Has this improved considerably the lot of the landowners?

Overall stats in Mindanao do not appear encouraging.

Econblogger said...

Happy New Year Amadeo,

Thanks for the story based on first-hand experience! The leasehold explanation for yield maintenance is a viable one, but we need to get good survey information on how prevalent this is. Another sub-component of the impact assessment study is collecting this info, so we should be getting it by mid-year.

Offhand the lessors would be better off than without land reform, because they earn both lease and wage. Whether they are significantly better off, as you ask, is another question. If not, this suggests that land, at the margin, is not that valuable to an agri-enterprise, compared to capital.

From a more dynamic perspective, the question becomes: does ownership of land enable the former tenant to climb up the ladder of development? For example, from mere ownership of land, to agri-enterprises with more value added than contract farming (e.g. livestock and poultry). Or by a more pedestrian route, from ownership to better educated children who then earn higher incomes outside farming. Experience and some data suggest that this has happened and is happening.