EFFECTS OF LAND-USE CONVERSION ON LOCAL AGRICULTURE :

For years, the Philippines’ bid toward NIChood has been invariably transformingthe once serene rural landscape into a bustling hub of human activity, inducing themassive conversion of hundreds of hectares of productive farmlands into various

urbanuses. Unexpectedly, the process has brought about mixed results spawning a

seriousdebate on the real merits of agricultural land conversion. Thus, the significance of

thecurrent level of farmland conversion relative to local agriculture and rural

communitieswas examined.

Based on the results of the study, there were some 856 land conversion petitionsfiled in Phillippines from 1986 to 1994 covering nearly 12,414 ha. Of this number,

about 698petitions consisting of some 9,963 ha were either approved or exempted. Assumingthen that the majority of those applications under process would also be eventually

approved or exempted, then the total size of agricultural land that may have already

been lost to urban uses could amount to approximately 12,060 ha over the past nine

years. However, while this loss of agricultural land may be regarded as sizable, it was

not as serious and critical as widely perceived considering that it accounted for nearly

10 percent of the total stock of agricultural land in Philippines in 1986. Moreover, of the total

area of farmlands converted, a greater part of it (95 %) were composed mainly of the

rainfed areas, of which some 30 percent were made up principally of idle lands. Further

data analysis also showed that of the total area petitioned for agricultural landconversion, 45 percent were exclusively for residential purposes, whereas industrial

areas, mixed-uses, and recreational/commercial/institutional/service areas eachaccounted for only 16, 21, and 6 percent, respectively.

The study also revealed that aside from the direct loss of productive capacity, thesuccessive land conversions that have taken place in the past has also negativelyinfluenced whatever little agriculture remained. These externalities were generallyreported to have taken several forms which imposed additional burdens on existing

farming conditions even if the remaining agricultural lands were not physically altered in

any major way. On the other hand, results of the cost-benefit analysis indicated thatagricultural land conversion were both financially and economically justified. Even

whenthe results were evaluated using different discount rates, time horizons, and varying

combinations of different agricultural lands converted, the winners have consistently

gained more than what the losers lost; and there were substantial positive net gains for

society as a whole. Thus, in general, results of the study bared that the positive side of

land conversion could substantially offset its obvious disadvantages.

INTRODUCTION

For years, the Philippines’ bid toward NIC status has been invariably transforming the

once serene rural landscape into a bustling hub of human activity. Spurred by the constant

urge to attract foreign investments, generate more employment opportunities, and decongest

major population centers, the government tolerated the rampant conversion of hundreds of

hectares of productive farmlands across the country to various urban uses. Unexpectedly,

the process has brought about both mixed results engendering a serious debate on the real

value of agricultural land conversion. Hence, the significance of the current level offarmland conversion relative to local agriculture and rural communities was

examined.The study was restricted to Cavite which was then the country’s leading province in

terms of agricultural land conversions. consisted of collecting both primary and secondary data on the existing institutional arrangements, status, extent, and

nature of farmland conversions in Cavite from the DAR,HLURB, and the provincial Assessor's Office. Based on the results of Phase I, a rapid

ruralappraisal on the effects of land conversion on different members of the local

community was undertaken using key informants from seven selected barangays which were

most severely affected by land conversion, on the other hand, delved on thefinancial and economic analysis of agricultural land conversion.To achieve greater

confidence on the findings of the study, results of the economic analysis were further subjected to sensitivity analysis.

RESULTS AND DISCUSSIONStatus of Agricultural Land-Use Conversion

Of this number, about 698 petitions consisting of some 9,963 ha were either approved or exempted. Assuming then that the majority of those applications under

process would also be eventually approved or exempted, then the total size of agricultural lands that may have already been lost to urban uses could amount to approximately 12,060 ha over the past nine years. Collectively, this accounts for

nearly 97 percent of the aggregate agricultural already earmarked for conversion to nonagricultural purposes.

Ironically, of the total area favorably considered for conversion, about 5,418 ha orslightly more than half were granted exemptions by DAR based on the DOJ Opinion

No. 44,Series of 1990. Thus, this legal interpretation of the law significantly shackled DAR’s

effortsto effectively regulate land conversions and eventually hastened the process of

land-useshift. As a consequence, a negative impression on DAR’s institutional ability to

control thewidespread practice of agricultural land conversion was created among some

sectors.

Table 1. Status of agricultural land conversion

Extent and Nature of Agricultural Land Conversion

Prior to 1991, there were just 90 land conversion applications filed representing about

14 percent of the total area converted between 1986 and 1994.In general, the actual sizes of farmlands converted ranged from a 0.01-ha plot to

250-ha estates (Table 2). However, although the majority (54%) of the lands converted

belongedto landholdings of 5 ha or less, a higher proportion or 65 percent of the area

covered in theconversion applications consisted of larger landholdings (more than 25 ha each).

In terms of the geographical incidence of land conversion, the top four towns ranked in

terms of total land converted were Dasmarinas, General Trias, Bacoor, and Imus Collectively, these four municipalities accounted for nearly three-fifths of the

aggregate landconversions. This highly skewed distribution in the area affected by land conversion

could be attributed to the many

barangays in these towns that had become increasingly appealing to investors because of

their proximity to Metro Manila, the presence of good infrastructure facilities, and the

availability of cheap land for development. This suggests that as a resource, land in these

areas may have taken on the characteristics of a “financial asset” and its use as a production

input has become less important to its owners.The study also found that of the 12,060 ha of land converted in 1986-1994, the

biggestloss (37 percent) of private land had occurred on previously active agricultural lands

coveringa total area of 4,412 ha (Fig. 2). Of this figure, about 2,557 ha were primarily

devoted to theproduction of food commodities, while another I,855 ha were formerly devoted to

keycommercial crops. The second largest type of agricultural lands most widely

converted werethe idle lands with an aggregate area of 3,573 ha. On the surface, while this type of

land usedid not directly contribute to any significant reduction in productive capacity, it

could stillaggravate the current situation by reducing the scope of reserve agricultural lands

availablein the future since the conversion of any farmland to other uses is generally

irreversible. Ofthe total area petitioned for agricultural land conversion in 1986-1994, 45 percent

wereexclusively for residential purposes, whereas industrial areas, mix-uses, and

recreational /commercial / institutional / service areas each accounted for only 16, 21, and 6

percent,respectively.

When measured against the agricultural land inventory, the loss of 8,215 ha ofpreviously classified agricultural land out of the 12,060 ha of converted farmlands

was notoverly alarming and critical considering that it represented nearly 10 percent of the

total stockof agricultural lands in Cavite in 1986 .In comparison with the approved provincial

general land-use plan, the study also found that the past pattern of land-use change has not

been shifting toward the desired future land allocation scenario. For instance, built-up areas,

particularly residential areas, industrial estates, and golf courses have risen much faster than

earlier expected at the expense of agricultural lands which exhibited a steady decline.

Of the total previously active agricultural and idle lands subjected to land conversion,

croplands accounted for only 4,171 ha or 36 percent. Of this figure, a mere 5 percent or 195

ha represented the converted irrigated areas. This finding suggests that irrigatedzones or the “prime agricultural lands” have remained relatively untouched by the

process ofland conversion. Furthermore, the study did not find ample evidence that could

corroboratethe widespread allegations by many cause-oriented groups that many of the

agricultural

lands were indiscriminately converted to nonagricultural uses since the depletion effects of

land conversion on different agricultural lands varied across commodities and locations.

Effects of Land Conversion on Rural Communities

As far as the effect on local agriculture was concerned, data showed that in terms ofthe asset value forgone, livestock, mango, and coconut together with their numerousintercrops were the current agricultural land uses/commodities most adversely affected byland conversion, accounting for about 83 percent of the net present value of total productivecapacity lost due to conversion (Table 7). However, aside from the loss of productivecapacity, land conversion also influenced whatever little agriculture that remained. Thesesecondary effects were reported to have taken three possible forms.Firstly, the migration of a large proportion of nonfarming population has generallyreduced the overall profitability of farming by restricting certain farming operations. Theseconflicts were often generated by the nearness of various activities running along vastlydifferent lines such that each type interfered with the others. Secondly, the reduction infarmlands has caused a decline in supporting businesses and forced some farms to remaininefficiently small. Lastly, the task of farming has also reportedly been made more difficult bysuch urban disamenities as air and water pollution and the lack of adequate irrigation watersupply. At a glance, these effects may lead to a reduction in farm net income, rather thangross output, by imposing additional burden on existing operations. However, these trendscould seriously degrade existing farming conditions which could inevitably lead to a decline inagricultural productivity. Thus, remaining farms could not be readily expected to just simply

expand their level of operations to meet increasing demands, while economic developmentactivity steadily raises the threshold of viability. Hence, in the end, rising inefficiency andincreased production costs could have some profound impact on the economics of farming,even if the remaining agricultural lands are not physically altered in any major way.Unfortunately, data on these reported externalities were incomplete to be subjected to furtherquantitative analysis.

farming considered themselves as worse off after land conversion. Unexpectedly, thelandowners who obviously obtained most of the benefits from land conversion were dividedas to their true sentiments on the impact of land conversion. Thus, on the aggregate, theeffects of land conversion on local agriculture and rural communities varied across locations,commodities, stakeholders, and by type of effects indicating that certain areas, commodities,and segments of society have become more vulnerable to land-use change than others.

Benefit-Cost Analysis of Agricultural Land Conversion

Based on the results of the financial analysis, transaction expenses accounted for

nearly three-fourths of the total cost of land conversion. Normally, these consisted of theattorney’s fee, broker’s fee or real estate agent’s commission (if the land was sold thru the helpof a third party), capital gains tax, documentary stamps, disturbance compensation (if the landis tenanted at the time of sale), adjusted real estate tax on reclassified real property, and othermiscellaneous expenses. Usually, these were paid out from the proceeds of the land saleand represented a significant and real cash outflow for most sellers accounting for nearly 28percent of their expected gross income. Among the common items of transaction costsnormally incurred by the landowner/seller, the payment of disturbance compensation todisplaced tenants (29 %), miscellaneous expenses (22 %), attorney’s and broker’s fees (17% each) made up the bulk (85 %) of the average transaction costs, while taxes accounted foronly I5 percent ( Fig. 3).In contrast, the second type of costs in any land conversion deal was that of theopportunity cost of different agricultural lands. Unlike transaction costs, the opportunity costof different agricultural land or its asset value was not a real cash outflow, but more of apsychological loss on the part of landowners. Nonetheless, its total value, when alsoconsidered, could still be quite sizable accounting for almost a fourth of the total costs of landconversion and nearly 10 percent of the estimated gross income.In general, landowners obtained a substantial windfall net profit from land conversiontotaling to about P 17.48 B in constant 1995 prices, representing nearly 62 percent of thetotal estimated gross income received (Table 9). But, more importantly, total private netbenefits exceeded the total asset value forgone by more than six-fold. This flow of largely citymoney on a rather huge scale is certain to have some effects on the rural economy, theimpact of which, however, was less understood.On a per hectare basis, bangus fishpond owners benefited the most from landconversion earning an average net profit of about P 2.11 M/ha (Table 10).

1st Quarter Economic Project

Position Paper

Topic:

“Conversion of Agricultural Lands into Residential”

Submitted to: Ms. SerraSubmitted by: Group 6

Aissa MateosAlvin Cañete 

Rolando Epistola Jerrmy Young