Facing the Challenges of the Philippine Coconut Industry

8/8/2019 Facing the Challenges of the Philippine Coconut Industry

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FACING THE CHALLENGES OF THE PHILIPPINE COCONUT

INDUSTRY: THE LIFEBLOOD OF 3.4 MILLION COCONUT FARMERS

AND FARM WORKERS

EXECUTIVE SUMMARY

The state of the Philippine coconut industry is that of an enormous

paradox an irony of incessant proportions.

While the industry is a major contributor to the national economy,

government hardly appropriates enough for its development. Perennial

problems had been left ignored for decades, thus, pushing the industry

from bad to worse. The continuous decline in copra production, for

example, had long been expected as the rate of senile and nutrient

deficient trees increase every year but hardly can the Philippine Coconut

Authority attune its programs with the meager budget it obtains.

Copra trading have proven to be a vast source of wealth for the

industrys stakeholders but some 3.4 million small coconut farmers and

farm workers live in dire poverty. Big companies and individual dealers

find copra trading to be very profitable but a coconut farmer with one

hectare can hardly cope with an average earning of Php 30 per day at a

relatively decent price of Php 17 per kilo at the farm gate.

With barely two years left for the completion of the Comprehensive

Agrarian Reform Program (until 2008) coconut lands, comprising twenty-

five percent of the countrys total agricultural area, constitute the biggest

balance (estimated 60%) of undistributed lands by the Department of

Agrarian Reform.


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Joey T. Faustino EPRA Paper/

Executive Director

Coconut Industry Reform Movement, Inc.

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Coconut had always been the countrys top agricultural export. Eighty

percent (80%) of the countrys total copra production sees its way into the

export market while twenty percent (20%) is consumed locally. But

coconut lands are not regarded as prime agricultural lands by the

Agricultural and Fisheries Modernization Act (AFMA) since these lands

are usually not irrigated.

The Coconut Preservation Act of 1995 was passed into law to abate

indiscriminate cutting of coconut trees as it might prove to be detrimentalto the dollar-earning industry but the same had been the source of

rampant cutting in its implementation. More over, the Philippine Coconut

Authority estimates the ratio of replanting at 1:23, 1 seed nut planted for

every 23 cut.

One hundred to a hundred and fifty coconut trees are normally planted

to a hectare. The actual space occupied by the trees covers only twenty

percent (20%) of the land area but the remaining eighty percent (80%) is

seldom optimized by the farmers. Two-thirds of 3.2 million hectares

devoted to coconuts are monocropped.

Tons of research papers on the industry grow on desks of government

and private institutions. Various technologies for coconut processing have

been made but only very few reach the actual production areas. Until

today the farmers burn the higher value coconut husks / shell to dry the

lower value output that is copra.

In 1996 the Philippine Coconut Authority launched the Small Coconut

Farmers Development Program and distributed chemical fertilizers to the

farmers for free through the government-initiated Small Coconut Farmers

Organizations (SCFOs). The program, though, was a US$ 121 million loan


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from the World Bank. Most of the farmers did not use the fertilizers for

their coconuts but for some other purpose. Some reported sightings of

fertilizer bags in huge quantities ending up in warehouses.

Coconut oil offers a great deal of health, wellness and ecological

qualities but the American Soybean Association lobbies rigidly to brand it

as saturated animal fat for obvious reasons of trade protectionism.

The Tree of Life in reference to its numerous uses remains to be

an insignificant label as the country had largely limited itself to producingtraditional products such as copra and coconut oil. Stiff competition for

lauric and vegetable oils in the international market has yet to affect the

industrys dependence on traditional exports.

Practically thriving on its own with very minimal intervention from

government, a levy was imposed on the first sale of copra to generate

huge sums of money that may be used to develop the industry and uplift

the lives of the coconut farmers. But under Martial Rule the coconut

farmers found themselves beholden to a monopoly set up from their own

contributions by a handful of cronies. The coco levies ended up in the

names of private persons and entities.

The irony also comes with a positive tenor. Bleak as it appears the

coconut industry is yet facing a rebirth with recent events that should be

beneficial enough to drive government and the stakeholders to nourish the

potentials of the once robust industry.

The qualities of coconuts are gaining fast recognition from both local

and abroad. Last November 2005 Dr. Justino Arboledas coconet (coconut

geotextile) won the First World Challenge Contest sponsored by

Newsweek Magazine and the London-based British Broadcasting


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Corporation (BBC). The contest included entrepreneurs worldwide whose

projects are environmental friendly and helpful to communities.

The virgin coco oil is taking both local and foreign markets by storm for

its health benefits and the clean air biodiesel (a.k.a. coco methyl ester)

emerged in the middle of a fuel crisis caused by soaring global prices of

petroleum products.

The Executive Branch had already supported such developments with

favorable policies. Malacaang issued Memorandum Circular No. 25directing the Department of Public Works and Highways to use the

coconet to prevent and control soil erosion. The President had also issued

Memorandum Circular No. 55 directing all departments, bureaus and

offices to incorporate the use of one percent (1%) by volume coconut

methyl ester in governments diesel requirements. Cities of Marikina,

Davao, Baguio and Makati had adopted the use of coco-biodiesel. As for

the virgin coco oil, quality standards1 have been set and the product is

now carried by no less than a multinational company.

Cash-strapped as it is government always considered itself to be

incapable of financing programs to develop the coconut industry.

However, since 2001 a series of positive decisions on the coco levy cases

were handed down by the Supreme Court and the Sandiganbayan. The

decisions favored government and the coconut farmers in the recovery of

sequestered assets bought with the use of coco levy funds. The Supreme

Court categorically declared coconut levy funds as prima faciepublic

funds. This ended the long years of legal debate on the nature of the said

funds. Private interests led by Eduardo Cojuangco, Jr. claim ownership of

the assets in lieu of a Presidential Decree (PD No. 1468) issued by

Ferdinand Marcos under a dictatorship.


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Yorac in the PCGG had been sidelined by her successor Camilo Sabio a

simple case of the winning party initiating the amicable settlement.

Various reactions hound the PCGG today for coming up with such a

skewed position. Informed coconut farmer groups are calling for the

resignation of Chair Camilo Sabio. Former Senator and first PCGG

Chairperson Jovito Salonga opined that entering into a compromise with

Cojuangco at this point would be sheer irresponsibility bordering on

ignorance. But whether the outcome is that of a Writ of Execution granted

by the Sandiganbayan or an amicable settlement if at all to be allowedby the Courts government is certain to lay hands on a very substantial

amount of recovered coco levy assets.

What then is to be done with it remains to be seen as a variety of

political poles and business interests, within and outside of the industry,

can be expected to lock into an intense tug-of-war to wrestle control over

the huge funds. But what should ultimately serve as bases for the next

step is a serious look into the condition of the coconut industry and the

millions of impoverished farmers and farm workers as reaffirmed by the

series of court decisions on the coconut levy cases.

In the words of the Sandiganbayan in denying Cojuangcos Motion for

Reconsideration on December 28, 2004:

It is high time that the real beneficiaries of the coconut levy funds, the

coconut farmers who contributed to it, and the entire coconut industry be

given a chance to reap the benefits that are due them.


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I. BASIC FACTS ON THE COCONUT INDUSTRY

The coconut industry traces its roots to the 17th century. Since the

Spanish Colonial period, the industry had been a cheap source of oils for

world trade. Under Spanish Colonial rule selected villages were required

to plant coconut trees, the purpose of which was to supply the galleon

trade. Then again under American rule coconut oil was stockpiled as a

source of glycerine for the First World War.

After the declaration of Philippine independence governmentintervention in the industry was nowhere found until shortly before Martial

rule and largely during Ferdinand Marcos dictatorship. Common to all

these government interventions was the exploitation of the coconut

industry and its farmers. In fact, much of the events that transpired under

Martial Rule had influenced the state of the coconut industry. A coconut

monopoly that exists until today was set up with the use of taxes and

levies.

The following facts reflect a long-time state of the coconut industry:

A) THE EXPORT-ORIENTED INDUSTRY IS A MAJOR CONTRIBUTOR

TO THE NATIONAL ECONOMY.

The coconut industry substantially contributes to the countrys yearly

income. This is why the industry is often referred to as a dollar earner

and export winner. Up to the present, 80% of raw materials coming

from coconuts are exported and the remaining 20% are processed

domestically.

Export earnings from coconut usually fall within the top-three or top-

five dollar earners. It currently ranks fifth in overall merchandize export


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receipts2. But more importantly, the export earnings from coconuts

require no import cost unlike that of other dollar earners.

Exported traditional coconut products, coco chemicals and other non-

traditional products generate a gross average of US$ 690.5 million per

year (2000-2004). The biggest earning yet was registered in 1996 at

US$ 1 billion. Coconut products and by-products reached 114 country

destinations in 2004.

B) THE EXPORT EARNINGS ARE LARGELY LIMITED TOTRADITIONAL PRODUCTS AND BY-PRODUCTS SUCH AS

COCONUT OIL (CNO) AND COPRA.

Most of the earnings merely come from export of traditional coconut

products and by-products such as copra, copra meal, coconut oil and

desiccated coconut.

Total Revenue 2004USD 841 M

Coconut Oil,

67.30%

Desiccated

Coconut,

11.70%

Others,

9.70%

Oleochem,

5.70%

Copra Meal,

3.60%

Copra, 2.00%

Source: Philippine Coconut Authority


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Coconut oil rakes in the larger part of the income. Coconut oil usually

captures close to 60 - 65% of the world market. However, the

increased coconut production in other countries and growing

competition from other lauric oils pose serious threats. Malaysia is

trying to penetrate the world market by introducing oil palm plantations

in different countries, the Philippines included.

Of the more than two million metric tons coconut production of the

country, 91% is processed into copra while the other 9% is used for

desiccated coconut, coconut cream, nata de coco, virgin coconut oil,and bukayo. Practically all copra is crushed and largely exported as

crude oil. Cochin oil, semi-refined oil and edible oil (RBD) compose but

a small part of the exported coconut oil.

In the international market coconut oil competes with sixteen (16) other

oils and fats led by soybean, palm kernel oil, rapeseed, sunflower seed

and cottonseed oil. Palm kernel oil (PKO) is the closest competitor.

Just like coconut oil it also contains lauric fatty acid that is not present

in any other oil. There lies only a small difference in the short chain

and long chain fatty acids but practically interchangeable in almost all

uses. PKO can normally demand a lower price than coconut oil in

international trade because the oil palm can produce more quantities

than coconuts when compared on a hectare to hectare basis. Thus

making coconut oil a high-end lauric oil. This is precisely the reason

why even the Philippines imports certain quantities of PKO.

Table 1. Philippine Exports of Coconut Oil (CNO)

YEARVOLUME

(MT)VALUE

(Million US$)PRICE

(US$/MT)2000 1,036,922 464.562 4482001 1,417,975 417.549 2942002 944,662 352.625 3732003 1,184,105 504.860 4262004 959,151 577.790 602



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The potential for non-traditional products from coconuts (activated

carbon, coco chemicals, virgin coco oil, geotextiles, nutriceuticals) is

immense but the Philippines produces so little of these as of present.

Table 2. Export of Non-Traditional Coco By-products2003 2004

CommodityVolume

(MT)Value

(USD FOB)Volume

(MT)Value

(USD FOB)Glycerine 11,948 12,165,653 15,683 12,589,237Alkanolamide 3,833 4,111,798 3,560 3,909,901Acid Oil 513 233,893 250 167,784Fresh Coconuts 846 215,336 3,254 669,145Nata de Coco 5,903 4,684,132 7,509 5,421,704Ubod 1 704 2 2,460

Coco Flour 394 223,693 816 511,393Coco MilkPowder

1,003 2,638,958 1,140 2,856,708

Liquid Coco Milk 1,956 2,340,486 2,056 2,722,311Makapuno 1,200 2,500,656 930 1,842,998Bukayo 0 43 - -Frozen CocoMeat

200 308,308 235 379,611

Coconut Chips 1,000 1,167,358 513 646,655Coco Jam 34 27,749 39 35,837Coco Water(liters)

617,343 463,289 427,085 293,115

Coco WaterConcentrate

5 31,239 10 22,078

Coco Liquor 9 8,825 - -Coconut Vinegar 220 170,149 226 196,119Coir Fiber 896 537,474 5,260 1,181,718Coir Fiber Waste 2,037 225,160 1,619 217,822Coconut Husk 480 12,000 - -Coco ShellPowder

44 7,500 - -

Shampoo 626 2,488,860 1,275 3,578,663Toilet/Bath Soap 2,194 6,168,496 1,636 5,298,925Laundry Soap 188 114,369 8 25,284Paring Oil 17 27,850 26 11,050Margarine - - 2 3,774Virgin CoconutOil

- - 177 553,469

Coco Handicrafts Unspecified 1,650,550 Unspecified 1,621,456TOTAL VALUE 42,524,528 44,759,217Source: Philippine Coconut Authority

Geotextiles are synthetic permeable textile materials used with soil,

rock, or any other geotechnical engineering related material. Also

known as geosynthetics, geotextiles are generally associated with

high-standard, all-season roads but can also be used in low-standard


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logging roads. Geotextiles are highly effective in preventing soil

erosion.

Nutriceuticals is a term used for a mix of food and medicinal values

which coconut oil derivatives best exemplify. The medium-chain

monoglyceride (MCM), a derivative of coconut oil, has a broad range of

anti-microbial properties which is potentially effective for the treatment

of a variety of ailments including the capacity to prevent the assembly

of HIV particles.

C) THE COUNTRYS COCONUT PRODUCTION IS DECLINING.

Coconut production peaked in 1976, 1986 and 1995. All the other

years saw decreased production. At present the average productivity

has gone down drastically to 38 40 nuts per tree / year (840 kg/ha

copra equivalent) from the ideal 75 nuts per tree / year.

Mindanaos share was formerly pegged at 52% of the total coconut

production. Today it has risen to almost 60% -- not because of

increased production in the south but rather due to the steadily

decreasing production in the Visayas and Luzon areas where senile

trees abound. Estimates show that of the more than three million

hectares devoted to coconuts, there are 750,000 hectares planted to

senile trees and 490,000 hectares to nutrient deficient trees.

It is the unstable trend in production coupled with fluctuating world

market prices that lead others to view the industry as a sunset industry

-- that which will eventually die down and cease to bring income to

those who depend on it.


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The Philippine Coconut Authority reports that coconut production in

2004 reached 2.4 Million Metric Tons, an eight percent (8%) decline

from the previous years output. Best farm yield is pegged at 2.5 tons

per hectare but the existing average yield per hectare is at 0.8 ton.

Table 3. Philippine Coconut Production

YearProduction

(in 000 MT, Copra Terms)1985 1989 Ave. 2,2041990 1994 Ave. 2,2801995 1999 Ave. 2,212

2000 2,5442001 2,8282002 2,308

2003 2,6312004 2,410

2005/f 2,354 /f Forecast


If rehabilitation is not done at the soonest moment the industrys end-

users (mills and processing units) will stand to lose drastically from its

operations.

Table 4. RP Processing CapacityNO. OF MILLS ANNUAL CAPACITY

Oil milling 73 4.990 Million MT CopraRefining 46 1.593 Million MT RB/RBD OilDesiccated Coconut 10 132,709 MT DCN productOleochemicals 7 150,000 MT CNO throughput


It should be further noted that a big part of the industrial segment is

composed of companies established with the use of coconut levy funds

during the Marcos dictatorship. The CIIF Oil Mills (LegOil, Granex,CagOil, SPMC, SOLCOM) is the biggest oil milling group in the

country. Its combined copra crushing capacity is 40% of the countrys

total copra production. Cocochem, the oleochemical plant in Batangas,

was also set up by the coco levy funds.

D) COCO LANDS IN THE COUNTRY ARE SHRINKING DUE TO

COCONUT TREE CUTTING AND LAND CONVERSION.


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Coco Lands are known to comprise almost a third of the whole

Philippine agricultural area at 3.2 million hectares. Coco lands are

spread in more than 68 of the 79 provinces in the country.

However, available statistics show that the countrys share for total

world hectare for coconut has gone down from 28.3% in 1988 to 25.5%

in 1993. Indonesia, on the other hand, upped its share from 24% in

1988 to 26.3% in 1993. Today Indonesia leads over the Philippines in

coconut production but applies an exact opposite marketing strategy,20% export and 80% local use the only reason why the Philippines

remains to be the lead exporter of coconuts.

Massive coconut tree cutting and land conversion have drastically

reduced the coconut lands. While there is no specific data on how

much of the coconut lands have been subject to conversion, one may

get a rough idea from regional industrial centers set up by government

such as the CALABARZON and the Cagayan-Iligan Corridor -- most

areas were highly devoted to coconuts but are now industrial parks

and world-class golf courses.

In the meantime, a 1996 PCA report cited the ratio of replanting vis--

vis cutting is 1:23. This figure was based only with the monitored

cutting permits issued by the Authority in the implementation of R.A.

8048, The Coconut Preservation Act of 1995.

E) SMALL COCONUT FARMERS AND FARM WORKERS HAVE BEEN

THE LIFE AND BLOOD OF THE INDUSTRY BUT PERISH FROM IT.

There are some 3.4 million coconut farmers and farm workers (1.5

million farmers and 1.9 million farm workers). Along with their families,


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they constitute more than 20 million people -- directly and indirectly

dependent on the coconut industry.

Coco Farmers / Farm workers PopulationClose to a third of the Filipino population is directly and indirectly dependent

on the coconut industry.

Coconut Farmers/ Farm Workers

Ave. Membersper Family

Total Total FilipinoPopulation

Percent

3.4 M (1.5 / 1.9) 6 20.4 M 84 M 24.2

The coconut farmers (small owners and tenants) and the farm workers

constitute 92% of the coconut industrys workforce. This workforce

directly depends on coconut farming for income. The rest are spreadin the manufacturing sector which include oil milling, refining,

desiccating and other coconutrelated enterprises.

Socio-EconomicStructure in the Coconut Industry

The Coconut Farmers and Farm Workers constitute more than 90% of the industrys workforce.

Wage FarmWorkers

Tenant Farmers Small OwnerFarmers

Traders /IndustrialWorkers

Landlords

52% 24% 16% 4% 4%

92% 8%Source: Philippine Peasant Institute

For decades these farmers and farm workers labored and tilled the

coconut farms that delivered the goods to government coffers and

business individuals, accounting for over 40% of the value of

agricultural exports.

However, they have remained gravely marginalized. Studies in 1999show that a farmer who relies on copra production alone gets some

P10,000 annually (with copra priced at P17 P18 per kilo) from a

hectare. Computed on a daily basis, a small coco farmer earns some

P25 - P30 for a family of six. A majority of the small farmers do depend

on copra alone. Statistics show that 2.1 million hectares of the more

than 3 million hectares planted to coconut are not intercropped.


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1. Twenty-five percent (25%) of coconut bearing trees are senile

or over sixty (60) years,

2. More than ninety-eight (98%) of total land planted is planted to

talls which bear fruits after seven (7) years and yield

approximately one-half (1/2) that of hybrids,

3. Absence of fertilizer application especially in nutritionally

deficient coconut land,

4. Improper harvesting and post-harvest practices resulting in

poor copra quality, and,

5. Inadequate intercropping in coconut lands (less than 40% ofcoconut farmers practice intercropping).

Low Farmgate Price. Past administrations (prior to 1992) cite the

fluctuating world market prices as the main culprit for low farm gate

prices. It was only recently that the problem was viewed as the result

of the many layers of middlemen, expensive transport and handling

cost and cartelized pricing from coconut processors / exporters.

Low Utilization Value of the Coconut. Oil, by far, is the only product

of value from the coconut. Most parts are considered wastes with the

exception of the shell that is used as fuel in the process of drying

coconut meat for copra production.

Lack of Infrastructure Support. There is need for some building

facilities, feeder roads and irrigation support to coconut farmers.

Funds are needed for these.

Lack of Research and Development. Basically due to a lack in

funds, aggressive research and development has stayed in the

backseat. The bulk of the coconut products are exported in practically


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raw form as crude coconut oil, copra meal, copra, desiccated coconut

and young coconuts.

Past administrations saw no need to diversify as products and by-

products from coconuts in its raw form delivered the income. Recently

due to the serious competition of lauric and vegetable oils in the world

market government is slowly realizing the need for the production of

non-traditional products and by-products from coconuts.

There are existing researches in the Philippine coconut authority. Butsomehow the researches serve more the industrial sector than the

primary producers.

Lack of Funds. For decades government has allocated limited funds

to develop the coconut industry due to lack of financial resources and

the ever-growing domestic budget deficit. The same reason prompted

the collection of coconut levies during the Marcos Dictatorship. The

huge collection from the coconut levies, however, benefited only the

few privileged individuals close to the dictator.

Until today, the coco levies are subject to various cases filed in the

Supreme Court and the Sandiganbayan. Coconut-related corporations

established with the use of the levies were put under sequestration

after the fall of the dictatorship. As of today certain coco levy related

cases have been decided on by the Courts.

Poverty of the coconut farmers. About 90% of coconut farmers and

farm workers live below poverty line -- such a huge irony considering

the industrys contribution to the countrys economy.


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Both government and industry leaders have centered on low

productivity as the main barrier to the industrys development.

Low productivity is tantamount to low income. Standard solutions,

therefore, are being applied such as fertilization, replanting programs

and reproduction of hybrid varieties to achieve greater yield the

greater copra yield, the higher income for the country.

In line with this the Philippine Coconut Authority had undertaken the

Small Coconut Farmers Development Program (SCFDP) in 1996, a

fertilization project funded by the World Bank with US $121.8 million.The project terminated just recently. PCA reports show that the use of

chemical fertilizers do increase coconut yield after constant application

in a certain period of years.

The private sector -- mostly big landlords, manufacturers, processors

and exporters -- share similar views and depend on government as

well to put a solution to the problems as they normally did during the

Marcos era. During that time there was no clear distinction among the

two.

As to the farmers poverty, livelihood projects are the only solution. But

time and again the coconut farmers were branded as non-bankable

and could not easily avail of loans from neither rural banks nor the

United Coconut Planters Bank itself, which was set up with the use of

the coco levy funds and mandated to solve the perennial credit

problems of the coconut farmers.

G) THE SMALL COCONUT FARMERS AND FARM WORKERS

SUFFER FROM FAR MORE SERIOUS STRUCTURAL PROBLEMS

OTHER THAN THOSE CONSIDERED BY GOVERNMENT.


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To the millions of small coconut farmers and farm workers there are

more serious problems that plague the industry and cause misery to

their lives.

Land Problems. The basic lack of control and ownership of the land

bring about their continuing poverty. Low productivity and income may

be seen to emanate from this structural problem as well.

Tied up with an onerous sharing of the fruits of the land and their labor,

small coconut farmers hardly find an incentive to develop the land theytill. Any extra income generated will be hardly be theirs anyway.

Despite the inclusion of coconut lands in the Comprehensive Agrarian

Reform Law (RA 6657) in 1988, a great majority of the 3.4 million small

coconut farmers and farm workers do not have control or ownership of

the land they till.

RA 6657 also mandates the abolition of agricultural share tenancy in

coconut lands. The agricultural leasehold should be applied instead.

The leasehold system allows the tenant / tiller to pay the landowner a

fixed rent at a ratio of 75:25 in favor of the farmer. This had been

hardly implemented as well for various reasons.

The Department of Agrarian Reform recognizes its biggest Land

Acquisition and Distribution balance to be coconut landholdings (750 T

hectares). In the past, these landholdings were merely categorized as

problematic areas and were, therefore, never prioritized for

distribution. During the incumbency of Secretary Horacio Morales in

DAR, other modes of acquisition such as the Corporative and the

Market Assisted Land Reform schemes sprouted. However, strong

apprehensions were raised against these schemes for they were


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largely viewed to favor the big landlords and businesspeople rather

than the farmers themselves. It was also during this time that Eduardo

Danding Cojuangco Jr. was proclaimed as Godfather of Agrarian

Reform.

In 1998 CARP was extended for another ten years through the

enactment of R.A. 8532. This extension, however, was not prioritized

during deliberations of the yearly General Appropriations Act.

Congress centered on a provision which provides that all ill-gotten

wealth recovered by government shall go to CARP. Soon theDepartment of Agrarian Reform found itself operating solely using

some Php 30 billion recovered from the Marcoses. Without any other

budget allocation for the Agrarian Reform Fund (ARF) from Congress

the amount was utilized largely for the administrative needs of the

department. A portion of this fund got entangled as well to the alleged

Fertilizer Fund Scam that occurred briefly before the 2004 presidential

elections.

Monopoly in the Industry. During the Marcos Regime, a coconut

monopoly was set up primarily using coco levy fund collections.

From trading to hauling, processing and milling, marketing and export -

- all these were run by a few privileged business interests identified

with Marcos.

Today even with Marcos gone, the monopoly still has a stranglehold on

the industry. Traders feast on hapless farmers who are never left with

any choice but to follow their dictated prices on copra. With a long line

of traders to end-users and exporters, the poor producer, the small

farmer is virtually left with only a small percentage of the real income.


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Even with the sequestration of the Coconut Industry Investment Fund

(CIIF) Oil Mills and other enterprises funded by the coco levy, the

group of companies continues its hold on the trading of principal

coconut products for domestic and foreign markets as if they were

private entities. In 2001 the CIIF Oil Mills amassed a gross profit of

P900 million while copra prices at the farm gate plummeted to an all-

time low of P2.50 to P3.00 per kilo during the last quarter4.

The monopoly can easily pass on the burden of any shift in the market

to the farmers.

Limited Participation in Policy and Decision-making Processes.

Considering the massive number of small coconut farmers and farm

workers, participation and representation in coconut-related agencies

is very limited.

During the Marcos Regime, the Coconut Producers Federation

(COCOFED) was the only government-recognized national

organization of coconut farmers. This farmer organization though

was led and controlled solely by big landlords and businesspeople.

COCOFED was made a regular member of the board of PCA. And so

with all the other coco-related institutions. COCOFED officials formed

part of the interlocking directorate that monopolized the industry and

figured in the huge coco levy controversy.

Under the Aquino Administration the PCA organized the National

Federation of Small Coconut Farmers Organizations (NFSCFO). The

federation became the conduit for the distribution of free chemical

fertilizers from the WB-funded Project. During that time, PCA related

only to farmer-members of the NFSCFO. Other legitimate farmers

were ostracized by PCA officials.


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During the Ramos Administration representatives of the farmers were

given token representation in some of the coco-related agencies.

Three board members of COIR were appointed to the boards of the

United Coconut Planters Bank (1) and the Philippine Coconut Authority

(2).

Upon the assumption of Estrada as President, representation reverted

to zero. The two small farmer representatives in PCA were replaced

with COCOFED officers.

Coconut farmers started to gain substantial access to policy-making

bodies upon the assumption of President Arroyo. The Supreme Court

decision of December 14, 2001 practically gave way to such an

opportunity. With the PCGG gaining inherent voting rights to the

sequestered coco levy funded companies, then PCGG Chair Haydee

Yorac moved to appoint some thirty (30) farmer representatives and

coco levy recovery advocates in the boards of the UCPB-CIIF Group of

Companies. The appointments, though, were politically driven rather

than institutional. Thus, representation changes as soon as political

considerations shift. When Haydee Yorac left the PCGG policies

regarding the coco levy cases reversed. Such is the case at present

where farmer-directors not inclined to compromise with Cojuangco

were booted out of the boards and replaced with appointees beholden

to Cojuangco.

Foreign market control and disadvantageous international trade

policies. Foreign market control is established by stipulations (copra:

sanitary and phytosanitary measures, CNO: transport/storage) set by

other countries to protect their own produce from potential competition

or to simply be able to have command of price rates. It may also be


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manifested by the anti-tropical oils campaigns to discredit competition

e.g. American Soybean Association smear campaign on coconut oil.

The latest moveby the U.S., effective January 1, 2006, is to subject

tropical oils to food labeling regulations and categorized with saturated

animal fats.

Government analysts conclude that the coconut industry will benefit

from the GATT-WTO due to the lifting of subsidies particularly on lauric

/ vegetable oils in other countries. But certain quarters believe

otherwise. Import duty on Philippine coco nut oil to China is 10% asagainst 5% for Indonesian coconut oil. India imposes a 42% duty on

coconut oil.

The removal of tariff barriers (Asean Free Trade Area) may

disadvantage coconut oil in the local market since it is more expensive

than palm oil. More over, the existing internal problems of the industry

will render the country less competitive with that of other lauric oil

producers. The GATT-WTO is as well expected to further burden the

industry on a domestic scale. In July 1987, President Aquino issued

EO 259 requiring the progressive use of cocochemicals as

components of soaps, shampoos and detergents in order to increase

local demand for coconut oil. GATT-WTO had rendered this issuance

useless to allow free entry of other lauric oils into the domestic market.

Worse, there are apprehensions that patents to certain coconut

processing technologies developed here in the country have been

applied for by foreigners. Thus when the principle of Intellectual

Property Rights is applied, the country cannot benefit as much as it

can from the technologies we, ourselves, have developed from our

very own resources.


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II. INDUSTRY & FARMER DEVELOPMENT INITIATIVES OF

GOVERNMENT

Since the coconut industry is one of the major industries supporting the

national economy, it is the States concern to make it a strong and secure

source not only of the livelihood of a significant segment of the population

but also of export earnings, the sustained growth of which is one of the

imperatives of economic stability.5

By the sheer degree to which the coconut industry affects the national

economy government ought to be greatly concerned with the development

of the industry and its workforce. Government intervention, though, must

be strategically positioned in order to make the industry sustainable.

During martial rule the Cojuangco-led monopoly coined the so called

Vertical and Horizontal Integration of the coconut industry. The conceptwas to expand upstream and downstream industries and corner the

international market of coconut oil. Laws were codified to fuse together

government and business initiatives to ensure copra supply, processing

and marketing. While the presidential decrees were supposedly aimed at

developing the industry and uplifting the conditions of the coconut farmers,

the vertical and horizontal integration simply manifested into a giant

monopoly. It was actually the fruits of the industry that was vertically and

horizontally integrated into the hands of a few cronies.

This period set in motion the political trend in interventions by

government in the industry. Succeeding administrations based its actions

primarily on gaining control of the coconut monopoly from Cojuangco and

his associates. The Estrada Administration, on the other hand, handed it


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back to Cojuangco on a silver platter. All the time minimal interventions

were carried out such as organizing the SCFOs (Aquino period),

fertilization project (Ramos period), and the small farms development

project (Estrada period).

Upon the assumption of President Arroyo, after the ouster of Estrada,

the appointed farmer-directors in the boards of the UCPB-CIIF Group of

Companies pushed for the Direct Copra Marketing scheme as an

immediate response to the needs of the coconut farmers. Soon enough

the UCPB and CIIF Oil Mills boards resolved to provide some Php 700

million for initial programs to help the coconut farmers. Malacaang took

the cue and President Arroyo announced that government shall allocate

the funds to provide micro-finance and direct copra marketing services for

the coconut farmers6.

In real terms, the allocation of P700 million essentially allowed the

implementation of two basic programs for coconut farmers by the UCPB-

CIIF Group of Companies: Microlending (Php 400 M) and Direct Copra

Marketing (Php 300 M). The programs were designed to be merely initial

but immediate. The total amount was small compared to the general

Table 5. Malacaang press release on Php 700 M fund allocation

PROGRAM BENEFICIARIES ALLOCATIONTARGET INDIVIDUAL PROGRAM INDIVIDUAL

Buklod-Unlad Program(BUKO)

Women incocohouseholds

18,000 100M 5,555.55

MaTuTuPad LendingProgram

Organizedcoco farmergroups / Coops

30,000300M 10,000.00

Farm DiversificationProgram

Individualfarmers

60,000200M

3,333.33

Direct Copra Marketing Cooperatives 56,000100M

1,785.71

TOTAL 164,000 700MP 4,268.29 /

beneficiary


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needs of the lot of coconut farmers but the mere situation of government

engaging in coconut farmer programs was a welcome note for most coco

farmer groups. A certain section of the coco farmers, the Pambansang

Koalisyon ng mga Magsasaka at Manggagawa sa Niyugan (PKSMMN),

opposed the Php 700 M release and instead suggested that an amicable

settlement be made with Cojuangco on the CIIF- San Miguel Corporation

block in order to generate bigger funds7.

The Coconut Industry Reform Movement, Inc. in 2004 undertook initial

studies on the impact of both micro-finance and direct copra marketingprograms:

1. Micro-finance

Microlending is the major activity of Coco Finance, a subsidiary of the UCPBwhich had been assigned to cover up UCPBs inability to perform its mandate

8.

Coco Finance is governed by existing rules of the Bangko Sentral ng Pilipinas(Central Bank of the Philippines). It functions, therefore, like the small bank that itis subject to limitations as per BSP rulings with profits as a majorconsideration for continued existence. Coco Finances operations are nothing

different to other microlending institutions such as the Quedancor and thePhilippine Credit and Finance Corporation. The only perceived difference is theconcentration on coconut farmers as a clientele. The nature of the institutionitself, therefore, limits it from catering to the lot of other needs of the coconutfarmers.

The Grameen for women had already been tested by Coco Finance even beforethe allocation of P100 million / P700 million was made. So confident was thecompanys management on the project since the experience in Sogod, Leytereflected a rate of 100% repayment. The records of Coco Finance may indeedreflect such figure. However, where the group of women sourced out the fundsfor repayment is not quite established. Payments made have not beendetermined to have come from income earned out of the project or merelyborrowed from another source. In addition, this project dedicated for the womenin coconut communities, ironically, has a built-in provision requiring a husbandsconsent.

The biggest allocation under Coco Finances microlending program is currentlywith the MaTuTuPad Program P300 million of the P700 million initial fundrelease of UCPB and the CIIF Oil Mills in 2002. MaTuTuPad is an acronym forMagsasaka Tungo sa Tunay na Pag-unlad, as if to imply that microlending isindeed the solution towards farmers real development. The issue is not exactlythe name attached to the program but delves more on a perception of policy-makers on the role of microfinancing programs for the coconut farmers.


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Ka Oscar Santos, a former board member of the UCPB during the RamosAdministration, fought a lone battle to bring about the creation of the CocoFinance in 1994. Ka Oca was again called on by the President to serve as board

member of Coco Finance in 2002. In 2004 he tendered his resignation as boardmember of Coco Finance citing the following:

On the matter of utilization. Ours is basically loan programs. Weencourage the farmers to borrow but require them to pay what they borrowedplus interest. The question is: are our loan programs working?

We were furnished copy of Cocofinance Balance Sheet as of April 30, 2004.Note that as of April 30, 2004, year to date, Cocofinance has:

P181 M loan receivables P819 M IMA investments P54 M deposits in banks P30 M total interest income P7 M interest income on loans P16 M total expenses P9 M net income

From a laymans point of view, these figures could only mean that: For theyear which ended April 30, 2004, Cocofinance has loaned out only P181 Mout of its P871 M loanable funds (P52 M bank deposits plus P819 M IMA).

The figures indicate that availment is too slow either because of any or all ofthe following:

Many coco farmers cannot accept why they have to pay interest on loansfrom the funds they painfully contributed to.

They do not find our loan programs attractive, despite our roadshowsand publicity.

They find difficulty complying with our requirements. They find our interest rates high. They may be willing to pay interest but not at present rates and terms. They shy away from loans, scared of their inability to repay.

Then too, loan facilities similar to ours are also being extended by othercompeting agencies like the Landbank and Quedancor. Chances are we arecovering the same areas already being served by them.

Loan not suited for the really poor. Grant of loans will not necessarilybenefit the farmer. It could even prove to be a burden as may be indicated in

the increase in our volume of past due loans. (p. 2, BSP Report ofExamination as of May 31, 2003). Thus, we found it necessary to engagethe services of collection lawyers to recover unpaid loans.

UCPB Director Royandoyan affirms that loans may work well for richfarmers but not to the really poor borrowers, the vast majority of whomusually find themselves sunk in debt unable to return borrowed money plusinterest. For them, other forms ofmeaningfulassistanceshould be thoughtof, not loans.

Perhaps the following basic points would be of some help if and when ourexisting programs are reviewed:


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view, it would also be worthwhile to site that the project does not in any wayrelate to the industry and the farmers the reforestation was done in Antipolo,Rizal.

Today, the Foundation extends financial assistance to PCA for a survey ofcoconut farmers, the acquisition of books and bookshelves for an elementaryschool in a coconut community, and offers a scholarship program for children ofcoconut farmers. Scholarships were also offered on caregiver courses.

The Foundation also recently launched its UCPB-CIIF GOVERNS program, theUCPB-CIIF Groups Employee-Volunteer Initiatives. The program encourages theGroups employees to volunteer their services for organizational capability-building of coco farmers: Accounting & Bookkeeping; Financial Analysis &Management; Enterprise Development & Management; Organizational Diagnosis& Development; Strategic Development Planning; etc. However, the technologyand mechanism to be used to pass on the skills to the farmers is not quite clear.

The situation clearly shows a gap in prioritization of the UCPB and itssubsidiaries which should, in the first place, cater to the coconut farmers asmandated by the coco levy collections. If microfinancing is to be perceived asonly one among the various needs of the coconut farmers, then it would belogical to maximize the elbow room the Foundation can provide and expand itsservices on projects that would meaningfully serve the farmers and theircommunities. Especially considering that the subsidiaries are offsprings ofUCPB, the parent company that owes its roots to the coconut farmersthemselves via the coconut levy.

Thus Ka Oca Santos, in his same letter of resignation, offered other sensiblealternatives:

Part of the funds may perhaps be allotted to any, some, or all of the followingas our resources would allow:

seriously pursue the MOU with China where the latter proposes toextend a loan of US100M worth of machineries and equipment toprocess coco husks rotting in the countryside, payable by exportvalue of geotextile and other processed coco products. This issignificantsince coco farmersnationwidestand to benefit.

initiate and pursue similar arrangements. consider funding Philhealth programs for the coco farmers. fund more scholarship arrangements similar to that arranged by

Director Lim. promote production and marketing of such coco products as

biodeisel, virgin oil, coco husks, coir etc. support continuing research on the curative qualities of monolaurin.

2. Direct Copra Marketing

Conceptually, Direct Copra Marketing (farm-to-mill) offers a good vehicle to ridthe coconut farmers of indebtedness to the traders and assure them of optimizingthe actual price of copra. This scheme is not entirely new to the CIIF Oil Mills. Alimited number of cooperatives have availed of this program through the PCAand the CIIF Oil Mills during the Ramos Administration. The only difference underthe current administration is the extra effort of the Oil Mills to expand the, so


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called, DCM sites in line with the Presidents response to the clamor of coconutfarmer groups and the persistent nagging of the farmer-directors.

Old-timers in the Mills would simply refer to DCM sites as Copra Buying Stations.In fact, the Chief Buying Officer of the Mills once addressed a group of farmersand said, give us three people to train for the buying station and I assure youthat by the time they finish the training, they will no more think like farmers buttraders. The statement does reflect the confidence of the officer in passing suchtrading skills to the farmer groups. However, it also puts in a tinge of resentmentwhen perceived in an angle that coconut farming and trading are totally unrelatedand irreconcilable skills. The statement, to some degree, is closely reflective ofthe way the DCM sites are operating.

The Oil Mills, under the leadership of Arroyo appointees, initiated some sixteen(16) DCM sites in 2002. It did not take long enough for the number to expand tosixty (60) and seventy (70). Now in order to manage the growing number of DCMsites, the board (including farmer-directors) and management of the Millsestablished the Niyog Trading Center, Inc. (NTC). The NTC is a new andseparate entity tasked and organized to manage nut / copra / other productsbuying operations by the CIIF Oil Mills. Available documents on the NTC conceptexpress the intent of the Mills to later on divest its shares to the farmers.

The move appears to be addressing the question: What then after direct copramarketing? The NTC reflects the integrated processing scheme where othervalue-added products such as coco coir fiber and coco shell is processedalongside the traditional copra. DCM sites are viewed to graduate into integratedprocessing sites in the near future. The Mills, through the NTC, shall buy wholenuts instead of simply copra. The big question so far is how to go about pricingthe whole nut. Previous board meetings of the CIIF Mills discussed the possibilityof offering the price range of P2 to P3 per nut. Apart from the buying capacity of

the Mills, there is no concrete basis presented as of yet to coconut farmergroups.

Copra currently sells at more than P20 per kilo. It takes three to four nuts tomake a kilo of copra. So based on the current price of copra alone, a nut shouldbe able to garner a price of at least P5 each even when the decreased cost oflabor and drying is inputted. The nut simply just has to command a higher pricethan that of copra for its mere added market potentials.

Better yet, to foster a clearer and more directional discussion on the NTCscheme, the performance and impact of the existing DCM sites be thoroughlyassessed and reviewed first.

As of June 1, 2004 the Niyog Trading Center, Inc. reported the following:

74 operational DCM nationwide with membership of 29,850 farmers. Latest weekly delivery of copra is 300 to 400 MT / YTD delivery is 4,954

MT. Another 60 more coops / scfos already trained for DCM. Number of DCM site is set for 200 by the end of the year.

Easily a series of questions will come to mind considering the data reported bythe NTC, Inc.:

How many of the operational DCM sites are profiting / losing? What factors lead to profits / losses?


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How many are strategically located with or without the presence ofcompeting buyers / private mills?

What level should be reached in terms of copra volume and number of

DCM sites in order for the Mills to sustain or profit from DCM? What are the concrete advantages and disadvantages of coconut

farmers (coop members and non-members) from DCM?

These and other relevant questions should be substantially answered before aDCM site can graduate into an NTC site. Without a thorough study on the impactDCM is creating on the coconut farmers, only the perceived practices will comeinto fore.

So far, some grassroots level feedback point to the following:

1. There is no strict uniformity and / or compliance in the implementation ofthe DCM scheme. Apart from the regular business-related differential (i.e.transport assistance, cash advance requirements, storage facility assistance),some DCM sites differ in privileges. One coop in the Visayas is accorded with atypewriter that hardly functions while another coop in Mindanao is accorded a faxmachine.

2. DCMs were conceptually designed to be a partnership between the CIIFOil Mills and the farmer coops. There exists no MoA or MoU explicitly stating theresponsibilities of both parties for all the 70 or so DCM sites.

3. Managers and staff trained for DCM functions not under the authority ofthe partner coops but directly under the authority of the Oil Mills.

4. PCA was made part of the screening and accreditation of candidatefarmer cooperatives for DCM implementation. In some areas the PCA officials

would only cater to farmers who have been organized by the agency under theSmall Coco Farmers Organization (SCFO). Non-SCFO members but are as wellbonafide coconut farmer organizations have a hard time getting the accreditation.

5. When prices of copra drops, the DCM coops may not take a position onwhether to trade or not a great advantage that traders can practice.

6. A number of DCM staff has been offered the retailership of MinolaCooking Oil on an individual basis.

Putting together the available feedback, in the absence of a thorough study,would indeed lead to a conclusion that the DCMs are treated merely as extensionarms / buying stations of the Oil Mills rather than a program for the coconut

farmers.

The deduction may not be far-fetched when one considers that the Oil Mills faceeconomic and, to a certain extent, political limitations.

Commonly like other business entities, the target of the Oil Mills is to profit fromits operations whether it profits out of efficient processing and world markettrading or merely out of exploiting the coconut farmers. The presence of farmer-directors may have affected the latter to a certain degree. What remains to beevident, though, is the fact that the Mills would still have to deal more with thetraders rather than with the farmers and their DCM sites in order to get thevolume of copra needed to sustain its operations.


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Based on the data provided by the NTC, Inc., the current volume of copradelivered by the DCMs hardly counts. It does provide additional volume but notsubstantial. With the existing average of the more than 70 DCM sites, even

granting that the target of 200 DCMs is established by year-end, the copravolume will still be microscopic compared to the volume a single trader canactually deliver. The Oil Mills today is said to be operating only at 35% - 40% ofits capacity. Ergo, it would be more practical to deal with a few traders deliveringa huge amount of copra volume rather than with a great number of DCMs thatdeliver a small volume. In short, the farmer coops still have yet to prove to the OilMills the economic power they can muster before they can expect to get certainprivileges enjoyed by the traders.

On the political side, the controversial CIIF Oil Mills is one of the biggest subjectsof the coco levy cases pending in the courts. During the Marcos Dictatorship thecompanies was under the control of Danding Cojuangco as a monopoly wheretraders rule. After the fall of the dictatorship subsequent administrations took overthe sequestered UCPB-CIIF Companies and ran it mainly for profits and profit-sharing. Cojuangco came back during the short-lived Estrada presidency andonce again ruled it just like it was part his private oil mills (POMs). The system,therefore, of having to serve the interests of the coconut farmers had never beenpracticed this and the other companies within the group had never been ranmainly for the farmers interests. While under sequestration the companysleadership and workforce only react to the changing wishes of administrationafter administration.

9

At present the micro-finance (MaTuTuPad) program of Coco Finance

had been slowed down due to an increase in past due accounts, currently

at 28%. The vision and mission of the company had also been revised toattune it with the 10-point agenda of the Arroyo Administration.

As of January 2006 there are 168 direct copra marketing sites being

operated by the CIIF Oil Mills. Eighty percent (80%) of the DCMs are

positioned in twelve provinces in Mindanao where the supply of copra is

most abundant. The DCMs are under the sponsorship of LegOil in Davao,

CagOil in Cagayan and Granex in Iligan. The CIIF Oil Mills report that 55%

of the operated DCMs are experiencing losses while a substantial part of

the remaining percentage is on the watch list. This has driven the

company to undertake an organizational diagnosis of the farmer

cooperatives operating the DCM sites.

The move of the CIIF Oil Mills is not only for the purpose of evaluating

the DCM scheme. The Mills are currently getting ready to launch another


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program with an integrated feature, the CIIF Coco Farm Development

Program.

The CIIF Coco Farm Development Program

This newly-hatched program of the CIIF Oil Mills primarily takes into

account the business of oil milling but is open as to how to benefit the

industrys workforce for a sustainable industry. It also considers the fact

that coconut farmers cannot live on mere copra production and would

eventually have to enter into semi-processing and processing of other by-

products from coconuts. The scheme is affected by the potentials in the

international market for nutriceuticals, geotextiles and biofuel.

The program targets 1.3 million hectares of coconut lands from 2006 to

2010 and plans to feed the oil mills with the much-needed copra supply.

Prioritization:Basis installed and planned capacity of CIIF Oil Mills

INSTALLED INSTALLED/YR PLANNED/D PLANNED/YRSOLCOMMulanay 100 MTD 34MTY 200MTD 68MTYLEGOILArimbay 350MTD 119MTY 600MTD 204MTYLEGOILDavao 700MTD 238MTY 800MTD 272MTYCAGOILCagayanDe Oro

450MTD 153MTY 650MTD 221MTY

GRANEXIligan 950MTD 232MTY 1,200MTD 408MTY

TOTAL 867MTY

Components:1. Planting, Replanting and Fertilization2. Strategic Crop Intercropping3. Harvesting/Copra processing4. Coconut By-Product Processing

Parties involved:


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For existing Farms1. CIIF Oil Mills Group2. Local Government Units3. Farmers Organizations/Individual Partners

4. National Government Agencies/PCA

For New Farmers1. CIIF Oil Mills Group2. Local Government Units3. Department of Environment and Natural Resources4. Farmers Organizations

Outcomes:1. Planting and Intercropping / Contribution to 1.3 hectares Agribusiness lands2. Planting and Replanting/ Increasing in copra production3. Intercropping and by product processing/ increasing in income

The CIIF Oil Mills want to assist coconut farmer cooperatives to

capture a steady supply of copra to operate its mills in maximum capacity,

thus increasing its profits as against overhead costs. It takes 17 to 24

hours to start up an oil mill and costs the oil mill P3.5 million overhead. If

utilized under its maximum capacity the overhead cost alone would eat up

profits.

So just like any other business the main motive of CIIF Oil Mills is to

maximize profit. However, considering that the program intends to involve

coconut farmer cooperatives, the companies may be well into the path of

establishing its corporate social responsibility (CSR) something that

had not been done in the past.

When prices of copra dropped to its lowest levels at the farm gates in

2001 (Php3 Php 3.50 per kilo), the CIIF Oil Mills then assured itself of

P900 million gross profits while the UCPB-owned trading company in

France (UCPI) profited more. On the other end, most of the small coconut

farmers stopped harvesting copra because at such a low price the cost of

labor (farm worker) would even exceed the income from selling the

harvested copra. Some landowners and farmers even decided to sell the

coconut trees as lumber getting as much as P500 P700 per tree.


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It was not only the farmers then who were at a losing end. If the trend

goes on, especially considering that 45% of the countrys coconut trees

are less productive or senile, the CIIF Oil Mills with a combined crushing

capacity of 40% of the countrys total copra production would not be able

to operate profitably in the coming years. Business will not be sustainable.

The decision of management to undertake such a program, therefore,

is timely and opportune for both the coconut farmers and the companies.

For whom the companies profit is another matter altogether even as the

CIIF Oil Mills had been declared by the Sandiganbayan (May 7, 2004) tobe owned by government in trust for all the coconut farmers. This is tied

up with policies of the ruling government.

The CIIF Coco Farm Development Program intends to put in place all

the four components:

a) Planting, replanting and fertilization

This program component aims to address the perennial problem

of declining copra production from 750,000 hectares of senile

trees and 490,000 hectares nutrient deficient. CIIF estimates a

cost of Php 12,000 per hectare. Danny Coronacion, CIIF Oil

Mills President, explains further that organic fertilizers (from

coco peat) can be utilized. PCA, through a Memorandum of

Understanding is assisting CIIF in identifying the areas to be

covered.

b) Strategic Crop Intercropping

The only intercrop the CIIF Oil Mills can profit from would be

other sources of biofuel that can be combined with coco methyl


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ester (CME) NOT agricultural crops. As of present the choice

intercrop for CIIF is jatropha (a.k.a. tuba-tuba, makasla). CIIF

shall offer assistance to the farmers in planting jatropha. CIIF

shall also take care of harvesting and processing. Other crops

for intercropping, Coronacion says, should be handled by the

Department of Agriculture.

c) Harvesting / Copra processing

Harvesting and copra processing shall be fully managed byCIIF. This is to ensure a uniform copra quality (free of aflatoxin

and other phytosanitary considerations) to avoid rejection or

discounting in the international market. These considerations

presently chop off a large amount from the countrys export

earnings in copra and coconut oil trade. Coconut farmers and

farm workers shall be hired for such purpose.

The formula for pricing, therefore, will be based on the nut and

not just copra alone (existing copra prices + cost of husk + cost

of shell + cost of water).

d) Coconut by-product processing

CIIF plans to establish small processing centers for other

coconut by-products (husk, shell, water). The centers are

estimated to take in coconuts from a radius of 2,000 hectares.

Like the previous concept of Nut Trading Center (NTC) it

considers the importance of having an integrated approach to

development. But unlike the previous NTC concept where CIIF

merely intended to dictate the price of nuts, the new plan is to


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set up profit-sharing schemes with coconut farmer cooperatives.

CIIF will be in charge of marketing.

The CIIF Oil Mills expect to achieve the results through cooperation

agreements with the farmer cooperatives and/or local government units.

Members shall be made to pledge their coconuts (per tree) to the

cooperative that in turn pledges it to CIIF. As an addition, CIIF is seriously

contemplating on providing for other loans needed by the coop members.

In short, CIIF is taking on the role of the traders. And in order to effect the

program, CIIF considers tapping the CIIF-SMC cash dividends of P1billion per year.

The matter on the cash dividends of the CIIF-SMC block is, in itself, a

very tricky and sensitive issue and may have legal implications as well. If

government is allowed to utilize the CIIF-SMC shares for such a purpose,

it might trigger the Cojuangco camp to utilize the other portion (ECJ-

managed) contested in court. Unfortunately, the farmers cannot rely on

the current PCGG to make a logical and legal study on the matter.

Somehow the steps to be made should be weighed with the maximum

benefits of the coconut farmers and the industry as the end in view and

based on the current developments in the coco levy recovery front.

III. THE COCO LEVY CONTROVERSY

Admittedly the virtual source of resources needed to develop the

coconut industry had been locked in for a long period in the coconut levy

controversy. More than two hundred civil and criminal cases, with 72

different respondents, have been filed by government in lieu of the efforts

to recover the huge wealth from Eduardo Cojuangco, Jr. and his

associates.


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The huge sum now runs over a hundred billion pesos worth of assets

and shares in companies where the coco levies were invested. Not only

are the companies important as a potential source of huge funds for

government but also because portions of the investments were in coconut

related firms that has a stronghold on the coconut industry.

Understanding the coco levy controversy, therefore, is an integral part

of any analysis that is to be made regarding the coconut industry.

A) THE CONTESTED COCONUT LEVY FUND ORIGINATED FROM

THE COCONUT CONSUMERS STABILIZATION FUND (CCSF)

From 1973 - 1982, under the Marcos dictatorship, a coconut levy

was imposed via Presidential Decree 276 as amended. P.D. 276

states that, a levy, initially, of P15 per 100 kilograms of copra

resecada or its equivalent in other coconut products, shall be imposed

on every first sale, effective August 20, 1973. This levy, called the

Coconut Consumer Stabilization Fund (CCSF), was initially intended to

subsidize domestic consumption of coconut-based commodities

premised on a crisis brought about by an abnormally high price in the

world market for fats and oils.

However, through succeeding presidential decrees, the original

purpose was soon amended to cover investments for coconut

farmers (Coconut Industry Investment Fund) and development of the

industry(Coconut Industry Development Fund). Later on the

investments were made to appear as private funds even though it

was exacted from the millions of coconut farmers.


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B) UTILIZATION OF THE CCSF

The CCSF was managed by four institutions that ruled the coconut

industry at the time: United Coconut Planters Bank (UCPB), Philippine

Coconut Authority (PCA), Philippine Coconut Producers Federation

(COCOFED) and the United Coconut Oil Mills (UNICOM). In 1986,

after the fall of the Marcos dictatorship, PCA Chief Oscar Santos

moved to have the UCPB and the CCSF audited. It took the audit team

two months to account for the total collection.1986 COA Report

Purpose Amount %UCPB 4,753,321,845.13 49.03

1) Coconut IndustryInvestment Fund (CIIF)

2,572,143,884.69 26.53

2) Insurance Fund 994,941,396.29 10.263) Debt Service Fund 38,970,509.40 0.404) Coconut Industry

Development Fund (CIDF)1,147,176,054.75 11.83

PCA 2,818,167,904.31 29.071) Subsidy 2,147,207,603.38 22.152) PCA Research &

Development242,892,132.30 2.51

3) Premium Duty 173,142,231.78 1.794) Additional Equity on UCPB 80,864,000.00 0.835) Fertilizer Distribution

Program52,521,977.03 0.54

6) Donation to ChildrensHospital

50,000,000.00 0.52

7) Ang Tahanang Maharlika 40,000,000.00 0.48) Acquisition Price of

Controlling Equity Interest28,880,000.00 0.30

9) Hagemaier AqueousCoconut Processing Project

2,659,959.82 0.03

COCOFED 905,528,789.29 9.341) Distn of Stock Cert of

UCPB to Coco Farmers694,833.81 0.01

2) Copra Price StabilizationFund (CPSF)

144,922,064.14 1.49

3) Development and Socio-Economic Projects forCoconut Farmers

759,911,891.34 7.84

Others 1,218,511,210.94 12.571) Census Committee 3 23,000,000.00 0.242) Coconut Industry

Rationalization Fund(UNICOM -Administered)

1,189,735,210.94 12.27

3) Subscription Deposit (PerPCA and COA Report)

5,776,000.00 0.06

Total 100


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Other findings were not necessarily in the interest of the coconut

farmers and the industry:

Other Expenditures AmountCoconut Palace Php 40,000,000Miss Universe Contest, World Chess Championship atbp 545,000Helicopter 7,550,000Bugsuk Hybrid Farm 900,000,000UNICOM Damages (Anti-Trust)* 184,000,000

C) UCPB, THE CIDF AND THE CIIF

The establishment of UCPB was made possible also through a

Marcos presidential decree. Pursuant to PD 755, Mr. Eduardo

Cojuangco, as director of the PCA Board, negotiated the purchase of

the First United Bank (FUB) of Don Jose Cojuangco. The bank was

bought using the coconut levy funds and was renamed United Coconut

Planters Bank (UCPB) with Mr. Eduardo Cojuangco Jr. as its

President. The UCPB acted as the financing arm entrusted with almost

half of levy funds mainly consisting of the the Coconut Industry

Development Fund (CIDF) and the Coconut Industry Investment Fund

(CIIF), both coming from the mother CCSF. In effect, farmers money

was deposited to UCPB interest free.

Census FundP0.03 B

Debt ServiceP0.04 B

InsuranceP0.99 B

CIDF(Replanting)

P 1.15 B

CIIFP2.57 B

Non-UCPB(PCA, Cocofed,

atbp.)P4 .919 B

CCSF Total:CCSF Total:CCSF Total:CCSF Total: Php 9.695 BillionPhp 9.695 BillionPhp 9.695 BillionPhp 9.695 Billion

Administered by:Administered by:Administered by:Administered by:

---- UCPBUCPBUCPBUCPB P 4.776 BP 4.776 BP 4.776 BP 4.776 B

---- NonNonNonNon----UCPBUCPBUCPBUCPB P 4.919 BP 4.919 BP 4.919 BP 4.919 B


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The mandated purpose of the presidential decree was to provide

permanent solution to the perennial credit problems of the coconut

farmers (PD 755). However, actual utilization of the funds revealed

otherwise.

PD 582: The Coconut Industry Development Fund (CIDF)

In the name of development, a contract was executed between

Cojuangco, as UCPB President and Administrator of the coco levyfund, and himself, as owner of the Agricultural Investment Inc. (A.I.I.) --

a small company then capitalized with only P100 T -- for the delivery of

100 million hybrid coconut seedlings to PCA/UCPB for a period of 5

years costing some P980 M from the coco levy fund. The coconut

seedlings were to be distributed to coconut farmers for free.

The contract stipulated that upon signing, P500 M shall be

advanced to A.I.I., interest free, and that in the event that UCPB stops

buying during the 5-year period, UCPB will be penalized to pay the

entire contracted amount as if everything was delivered.

After over three years, with barely 16 million seedlings delivered,

UCPB indicated that it could no longer continue buying and as so

stipulated, UCPB was penalized to pay the balance of the contracted

amount. Records show that over P 1.2 billion coco levy funds were

sunk into the Bugsuk Seed Garden Project of Cojuangco.

In 2005 a remaining balance of the CIDF was traced in UCPB in the

amount of Php 127 million.

PD 414: The Coconut Industry Investment Fund (CIIF)


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Utilizing the CIIF, UCPB was primarily responsible for the

acquisition of assets and corporations that paved the way for the

eventual monopoly of the coconut industry. UCPB was made

administrator of the CIIF by presidential decree as all collections from

the CCSF were to be deposited to the bank of the coconut farmers.

FIRMS BOUGHT WITH THE CIIFName of Firm Amount

United Coconut Chemicals Inc. (UNICHEM) 864 MUnited Coconut Planters International (UCPI) 147 M

OIL MILLS:United Coconut Oil Mills (UNICOM) 544 MGranexport Mfg. Corp. 246 MLegaspi Oil Company 210 MSan Pablo Manufacturing Corp. 43 M

Iligan Bay Express Corporation (Shipping) 9 MUnited Coconut Planters Life Assurance Corp. (COCOLIFE) 16 MUnited Cocoa Plantation, Inc. 90 MUnited Coconut Planters Management, Inc. 10 MCOPRA TRADING COMPANIES:

Mt. Bulusan Agricultural Commodities, Inc. 10 MLamitan Peak Agricultural Commodities, Inc. 10 MMt. Boribing Agricultural Commodities, Inc. 10 MSharp Peak Agricultural Commodities, Inc. 10 M

Mt. Tuayan Agricultural Commodities, Inc. 10 MLamon Bay Agricultural Commodities, Inc. 10 MMactan Agricultural Commodities, Inc. 10 MMaopay Agricultural Commodities, Inc. 10 MMalipayon Agricultural Commodities, Inc. 10 M

ADDITIONAL SIX TRADING FIRMSDavao Coconut Planters Trading, Inc. 34 MZamboanga Coconut Planters Trading, Inc. 25 MLeyte Coconut Planters Trading, Inc. 17 MVisayan Coconut Planters Trading, Inc. 12 MBicol Coconut Planters Trading, Inc. 25 M

Source: COA Report 1986

This gave way to yet another conglomerate, the United Coconut OilMills (UNICOM). UNICOM served well the purposes of those who

managed it but not the industry as a whole. Marcos later issued an

Executive Order11 allowing only UNICOM to export coconut oil. In

1983, another Presidential Decree granted sole rights to the

Cojuangco-owned UNICHEM to import petrochemical materials for use

in its products.


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The acquisitions made by UCPB consolidated the coconut

monopoly from hauling, transport and shipping, milling and processing,

marketing and international trading.

D) SAN MIGUEL CORPORATION AND THE CIIF

Acquisitions did not stop at completing the coconut monopoly. In

1983 the CIIF found its way into the San Miguel Corporation through

the 14 Holding Companies. The 14 Holding Companies are owned bythe 10 Copra Trading Companies, which are in turn owned by the CIIF

Oil Mills, which are owned by UCPB.

The Soriano Group in SMC decided to sell their 33,133,266 shares

at Php 50 per share in 1983. In order to acquire these the five CIIF Oil

Mills obtained a loan from UCPB in the amount of Php 976 million. Out

of the loan Php 276 million was invested in the equity stock of the 14

Holding Companies. The remaining Php 729 million was farmed out as

loan to the Holding Companies.

Having its own capital

structure from the CIIF Oil Mills,

the 14 Holding Companies

secured a loan directly from

UCPB in the amount of Php 680

million. Thus, availing

themselves of a total of Php

1.656 billion the exact amount

of the SMC shares for sale.

Notably a number of the


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corporate names of the 14 Holding Companies were patterned after

the initials of senior partners of the Angara, Concepcion, Cruz, Regala,

Abello (ACCRA) Law Firm.12

14 Holding Companies ACCRA Senior PartnersAnglo Ventures Corporation Avelino V. Cruz

Randy Allied Ventures Rogelio A. VinluanTe Deum Resources Teodoro D. Regala

Rock Steel Resources Raul S. RocoFirst Meridian Development Franklin M. Drilon

Franklin M. Drilon and Raul S. Roco admitted their involvement in

the sale of the 33.1 million shares of SMC in 1983 but claimed to have

no personal knowledge of and involvement in any of the transactions of

the said companies13.

Yet another block of SMC shares were purchased by 44 companies

through a loan from UCPB and

the CIIF Oil MIlls. The

companies are closely relatedto Eduardo Cojuangco, Jr. who

consequently was handed its

voting trust agreement for 18%

of the SMC shares.

As a result, Cojuangco had

majority control of SMC and

was, therefore, elected as

Chairman in 1983.

UCPBCIIF Oil Mills

44Companies

Loan Loan

Silver-leaf Plantations, Inc.Meadow-Lark Plantations, Inc.

Primavera Farms, Inc.Black Stallion Ranch, Inc.

Balete Ranch, Inc.Christensen Plantation Co.

18% SMC shares(ECJ-SMC Block)


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E) THE INTERLOCKING DIRECTORATE

Decisions and business transactions were easily undertaken

through an interlocking directorate that governed UCPB, PCA,

COCOFED and the UNICOM. The interlocking directorate was

implicitly provided for in the various presidential decrees that Marcos

issued in the process of integrating the industry.

THE INTERLOCKING DIRECTORATE

PCA COCOFED UCPB UNICOM

Chairperson

President

BoD

Enrile(1975)

dela Cuesta(1978)

CojuangcoLobregat

Enrile

Lobregat

dela CuestaEleazar

Enrile

Cojuangco

Lobregat

Eleazardela CuestaConcepcion

Enrile

Cojuangco

LobregatEleazar

Concepcion

All the other companies acquired with the use of the CIIF had the

same people as Board of Directors and officers. Cojuangco was

everywhere in the coconut scene. Cojuangco, as the sole end-user

UNICOM, remitted the levy collected from the farmers to PCA where

he was Director of the Board. The money collected by PCA was

deposited to UCPB where Cojuangco was President and Administrator

of the coco levies. UCPB, in turn, utilized the funds for investment and

development in SMC, UNICOM, UCPBs commercial banking, Bugsuk

Seed Garden and other business ventures where Cojuangco is head

or president.


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Under the control of Cojuangco, aided by the interlocking

directorate and legally backed by the Marcos presidential decrees,

public funds (levies and taxes) were transformed into private funds.

Such was the revelation of the Commission on Audit Report of 1986.

Upon inspection of the stockholders list, it was discovered that 77.9%

of UCPBs equity was named to only eleven (11) persons and entities,

the bulk of which were named to the ECJ Group. UCPB, being the

mother or parent company, substantially owns the CIIF Group.

77.9% UCPB EquityUCPB Stockholder No. of Shares

Eduardo M. Cojuangco Jr. 54,000,000+Balete Ranch Inc. (ECJ) Group 14,000,000+Christensen Plantation Co. (ECJ) Group 9,000,000+ECJ & Sons Agri-Enterprises 54,000,000+Jesus M. Pineda, Jr. (ECJ Group) 37,000,000+Narciso M. Pineda (ECJ Group) 37,000,000+Danilo Ursua (ECJ Group) 37,000,000+Kabangkalan Sugar (ECJ Group) 700,000+ACCRA Investments Corp. 14,000,000+JAKA Investments (Enrile) 7,000,000+Ma. Clara Lobregat 2,000,000+

Source: 1986 COA Report

F) LEVIES SUSPENDED AS THE MONOPOLY TOOK OVER

The levy was eventually lifted but copra prices in the farm gates

did not change at all. To placate the coconut farmers, Marcos and

Cojuangco shifted the legal obligation to pay the levy from the coconut

farmers to the millers and exporters. However, Marcos and Cojuangco

knew and saw to it that the market structure passed on the economic

burden of paying the tax back to the farmers.14

Marcos tried to cloak the coco levy from the ire of the coconut

farmers and the general public. In 1976, P.D. 961 worded the levy to

come from copra exporters, oil millers, dessicators, and other end-

users of copra.


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In 1980, due to growing protest from the coconut farmers, he

issued P.D. 1699 suspending the levy with respect to millers and

desiccators but continued the collection with respect to exporters.

However, the same PD imposed a substitute levy to continue the

governments developmental projects. Collected from 17 June 1980

to 09 September 1981, the money collected was used for price

support

Facing the Challenges of the Philippine Coconut Industry

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