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RECOVERY OF THE MULTI-BILLION COCO LEVY FUNDS
The Second Year Farmer Directors Report
Joey Faustino, Executive Director, COIR
INTRODUCTION
Hardly was the coconut industry talked about in the public arena some six
years back. It was painstaking in the early nineties thinking how a multi-billion
thievery such as the coco levy scam and the predicament of the impoverished
coconut farmers can be overlooked by the government or simply ignored by
the media and the public.
Luckily there are Davids who until now had not given up the arduous battle
with Goliath; the likes of Oscar Santos and Virgilio David, who had greatly
inspired organized groups to persist in advocating for the recovery of the
coconut levy and its ultimate utilization for the development of the coconut
farmers and the industry.
It is indeed providential that today the coconut industry and the plight of the
small coconut farmers are being looked into with special interest by theexecutive and judicial branches of government and the public at large. This
condition is largely due to the fact that the industry had been tied up with a
decades-old legal controversy that is the coco levy an issue well exploited by
the organized coco farmer sector and coco levy recovery advocates in the past
few years. After decades of struggle, the configuration of the issue appears to
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have tilted in favor of the small coconut farmers as the following indicators
would show.
A) SUCCESSES IN PUBLIC OPINION FORMATION
The issue had from time to time and for prolonged periods attained
a high level of recognition by media and the public. True enough the
coco levy issue had landed in the front pages of major dailies, covered
even by international newspapers (i.e., Wall Street Journal, The London
Times, Nikkei Japan) and had been a controversial subject of
discussion in broadcast media.1
Administrations of Fidel Ramos, Joseph Estrada and Gloria Macapagal-
Arroyo had to address the issue one way or the other. Ramos issued
two executive orders (E.O. Nos. 277 & 481) on the coco levy for
whatever it was worth. Estrada engaged the coconut farmer groups in
more than a year of negotiations to make acceptable a version of the
executive order (E.O. No. 313) favoring Cojuangco, his ally. GMA,
merely two days after taking over the reins of government, announced
through Secretary Alberto Romulo the suspension of the former
Presidents E.O. No. 313.
At its peak in the 4th
quarter of 2001 the issue was widely captured by
various major dailies with more than 250 articles only for the monthof December. The issue stayed on the front page of the Philippine Daily
Inquirer that time for almost two weeks with as much as three articles
on the same front page.
1COIR monitor of 19 major dailies reveals over 200 published / printed articles on the coco
levy issue every year since 1999 capturing essential sections such as the front page, straight
news, sidebar story, boxed news, letter to the editor, opinion, editorial, regular column,business / economy, feature story and pictures / cartoons.
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B) COURT BATTLE VICTORIES
The issue peaked with a major decision of the Supreme Court in
December 14, 2001 in favor of the recovery efforts. Incidentally this
Supreme Court decision of 14 December 2001 also silenced a major
public debate spurred by compromise initiatives by some elements of
civil society affiliated with former DAR Secretary Horacio Morales in
19982 and the PKSMMN in 20013.
The 2001 Supreme Court decision later paved the way for two other
favorable decisions by the Sandiganbayan affecting the three (out of
eight) most important coco levy cases handled by the anti-graft Court
since 1987. These are Civil Case Nos. 0033 A, B and F re:
Anomalous purchase and use of First United Bank, now United
Coconut Planters Bank; Creation of Companies out of coco levy funds;
and Acquisition of San Miguel Corporation shares, respectively. Just
recently (16 August 2004) the Supreme Court again ruled to pursue
criminal investigation against Cojuangco et al. on the case of
UNICOM, reversing an earlier decision by the then Ombudsman
2 In 1998 Eraps DAR Secretary, Horacio Morales, and his allies in civil society offered to set
up a negotiation panel between government and the coco farmers for a speedy resolution to the
coco levy controversy the issuance of an executive order to free up 27% SMC-CIIF shares
for the establishment of a trust fund to develop the ailing coconut industry. In the latter part of
the negotiation, it became evident that Estrada, Morales and their civil society allies acted asmouthpieces for Cojuangco towards an out-of-court settlement on the SMC-CIIF shares.
3In 2001 PKSMMN, with the assistance of Bishop Fernando Capalla, met with Danding
Cojuangco, Dante Ang, Ramon Ang and Ma. Clara Lobregat in Davao City. The group signed
a Mutual Agreement of Coconut Farmer Organizations to speed up the resolution of the case
involving some 31% CIIF shares in San Miguel Corporation. The Mutual Agreement was
further publicized through a 30-page paid advertisement in the Philippine Daily Inquirer,
Manila Times and Kabayan a week later. What made the ad lengthy was the inclusion of some
10,000 signatures of farmers as lifted from attendance sheets of various PKSMMN
consultations held earlier in several provinces. The ad was designed to make it appear thatthere was clamor from the farmer sector calling for government to compromise with
Cojuangco.
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Aniano Desierto. Clearly, the cases are moving but still not as fast as
farmers and advocates would want it.
C) COJUANGCO ON THE DEFENSIVE
The developments in the judiciary had put Danding Cojuangco legally
on the defensive. It is logical to assume that Cojuangco and his lawyers
had foreseen such decisions to ultimately come out into the open once
the cases seriously progresses. Such is the impelling reason why
Cojuangco continually needs to resort to political backing (allies within
any administration) or stage-manage a public clamor for an out-of-court
settlement. Without both Cojuangco is left to resort to only one option:
the strong economic clout and control he obtains from chairing San
Miguel Corporation, the biggest food and beverage conglomerate in the
country.
It would be interesting to note that in 2001 Cojuangco tried both the
political backdoor and the social clamor angle prior to the decision by
the Supreme Court. Just months after the ouster of his erstwhile
political ally, President Erap Estrada, Cojuangco and his political party
(NPC) expressed allegiance to Gloria Macapagal-Arroyo. Soon after
the agreement signing with the coconut farmers took place in Davao
with matching media hype. But even while doing both, Cojuangcomade sure to maneuver his business interests to maintain a status quo.
The Arroyo Administration miserably failed on its first attempt to take
over the sequestered UCPB CIIF group of Companies. Cojuangco
and Maria Clara Lobregat physically barred the newly appointed Board
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of Directors (first batch)4
from entering the boardroom on the 15th
floor
of the UCPB Building in Makati. Truckloads of coconut farmers
bearing stock certificates were brought into the building to physically
secure it. Inside information revealed that even the regular employees
were instructed to change their attires from business to casual so they
can pose as coconut farmers. Cojuangco then (inside the UCPB
building) was quoted to have said, Walang puwedeng pumasok dito
kung walang dalang stock certificate. Kung hindi rin lang tayo ang
makikinabang sa UCPB ay wala nang iba. [No one without stock
certificates must be allowed to enter the building. If UCPB is not ours
then no one else can have it.] To prevent a possible confrontation the
new appointees decided to retreat.
Then again, merely two hours before the December 14 Supreme Court
decision officially came out, Cojuangco held a press conference to
announce the entry of KIRIN investments to San Miguel Corporation.
The entry of KIRIN into SMC was a badly needed foreign investment
for the country. Therefore, government was strained to accept the entry
of KIRIN even as it increased Cojuangcos control over SMC. KIRIN
came in buying newly issued SMC shares with a shareholders
agreement to vote accordingly with the Cojuangco block. While the
government sequestered / controlled shares diminished with the
issuance of new shares, Cojuangcos control was practically boosted bythe shareholders agreement KIRIN carried.
It was only in February 2002 that the government was able to take
control of the UCPB CIIF group of Companies after that December
4The first batch of UCPB board appointees by President Arroyo included only two farmer
representatives, namely: Oscar Santos and Efren Villaseor. Oscar Santos declined the
appointment while Villaseor was later taken out of the list.
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14 Supreme Court decision became final and executory. It was also
finally able to seat its own nominees in the board of SMC. But in order
to do so, the government entered into an interim agreement with
Cojuangco. Cojuangco did not lose chairmanship of SMC and was
granted minority seats in the boards of the UCPB CIIF group of
Companies.
However, with the issuance of decisions by the Sandiganbayan
regarding the cases of UCPB and SMC, Cojuangco is finding himself
substantially more defensive. The economic clout may also wane when
the decisions again become final and executory they are currently on
appeal. In addition to this Cojuangco may have to worry about the
criminal cases filed alongside the civil cases.
In such a situation, Cojuangco is again badly in need of a political way
out. This explains why in 2003 he publicly announced his intention to
run for president. He even featured thereafter in a television paid
advertisement of SMC endorsing the popularly and highly recognized
beverage of the Barangay Ginebra so that the product in return can
endorse him. But when public pressure on the coco levy issue became
too much of a burden to his intended candidacy, he shifted his sights to
the Courts and utilized his political party in Congress to launch an
impeachment process against the Chief Justice Hilario Davide, Jr. ofthe Supreme Court. But the move again backfired as the impeachment
issue became a question of law for the Court itself to settle. Again,
coconut farmers and advocates were swift in drawing the gun against
Cojuangco and the impeachment effort linking it to his failing bid on
the coco levy cases in court.
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It is obvious that the coco levy recovery campaign has significantly advanced
from that of the 90s. However, the coconut farmers and the industry are still
bereft of the benefits due them from the coco levy. It is, therefore, of utmost
importance that the current situation is assessed in order to generate points that
would further advance and hasten the process of recovering the coco levy
for the ultimate use and benefit of the coconut farmers and the industry.
GAINS in the JUDICIAL BATTLE
In the last three years there have been a string of victories by government in
the courts. Ably represented by the Office of the Solicitor General and the
Philippine Commission on Good Government, approaches on the cases and
subsequently the pleadings submitted for decisions have substantially changed
gears.
Under the Gloria Macapagal Administration, PCGG Chair Haydee Yorac and
(former) OSG Chief Sonny Marcelo collaborated with coconut farmer groups
and advocates to get the full details of the coco levy scam and decide on how
best to approach the cases. Such was a first of its kind in the long years that
government was handling the cases.
In mid-2001 the OSG and the PCGG jointly conducted with the Coconut
Industry Reform Movement a series of workshops on JudicialComplementation to Coco Levy Recovery in Luzon and Mindanao. The
workshops generated actual information from elderly coconut farmers (which
were translated into affidavits for legal purposes) on the depth and modus
operandi of the scam. The information gathered from the series of workshops
ultimately contributed to forming the framework from which the cases were to
be approached. Thus, the pleadings and replies submitted by government to the
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courts strongly contained the major advocacy lines that used to be delivered
only by coconut farmer groups and advocates: that THE COCONUT
FARMERS SHOULDERED THE BRUNT OF THE EXACTIONS; and that
COCONUT LEVY FUNDS ARE PUBLIC FUNDS HELD IN TRUST BY
GOVERNMENT FOR THE DEVELOPMENT OF THE COCONUT FARMERS
AND THE INDUSTRY.
A closer look into the actual decisions and notations by the Courts would
confirm that what used to be mere advocacy lines are now considered as
standardlegal parlance in regards to the coco levy-related cases.
1. The December 14, 2001 Supreme Court decision
The Supreme Court decision of 14 December 2001 (Republic of the
Philippines versus Cocofed, et. al., G.R. Nos. 147062-64) gave way to a more
favorable and explicit interpretation of the coconut farmers battle to recover
the multi-billion coco levy funded assets. According to Gen. Virgilio David, a
witness to the scam and prime mover for recovery, the SC decision takes care
of 60% of the coconut farmers uphill battle. The legal implications of the
decision directly affect the resolution of three (3) major civil cases pending in
the Sandiganbayan, the anti-graft Court: Civil Case Nos. 0033 A, B and F.
Compared to the SC decision of October 2, 1989 the coco levy funds areclearly affected with public interest the 2001 decision clearly identifies the
nature of the coconut levies asprima facie public. The Court, expressing the
intent to be more categorical, made the following specific assertions:
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a. That the voting rights to the sequestered (coco levy funded) assets rest
lawfully with the Philippine Commission on Good Government and not
with those appearing in the stockholders list;
b. That the coco levy funds were collected for a specific purpose for
which it should be utilized (dispelling misinformation that the funds,
once recovered, may be subjected to general appropriations by
Congress);
c. That the burden of proof to show that they are private funds lies with
Cojuangco, Cocofed et.al. and not government; and,
d. That the Sandiganbayan shall determine true ownership of the
sequestered (coco levy funded) assets within 6 months following the
SC decision.
Note that the SC did not rule on the actual ownership issue but was explicit on
the issue of who has the rightful voting rights to the corporations. Whether the
said assets were bought using coco levy funds or private funds from Cojuangco
et. al. is a question of fact that falls within the jurisdiction of the
Sandiganbayan. This same decision, however, also denied the petition for
intervention of coconut farmer groups since government is already
representing the farmers.
The 6-month period was originally supposed to take effect from January to
June of 2002. However, Cojuangco and Cocofed filed separate Motions for
Reconsideration on January 16 & 18 respectively. These Motions for
Reconsideration were denied on February 26, 2002. This effectively moved the
timeframe from March to August of the same year. However, in the process,
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the Supreme Court suspended Sandiganbayan Justice Francis Garchitorena for
failing to resolve too many cases within the 1st
Division (same Division
handling the coco levy cases). With that the SC gave another 6 months for the
Sandiganbayan to resolve the coco levy cases but is actually taking longer due
to various legal maneuverings and political considerations.
2. The July 11, 2003 Sandiganbayan decision
The Sandiganbayan ruled in favor of government and farmers recovery efforts
in Civil Case No. 0033 A. In an 84-page decision on a Partial Summary
Judgment pleading, the Sandiganbayan noted and ruled the following on some
72% shares of UCPB:
a. That Cojuangco did not spend any single centavo to acquire his
shares in the bank;
b. That the distribution of shares of the bank lacked just basis and,
therefore, nullified;
c. That certain sections of PD No. 755 that declared shares to be
owned in private capacities are unconstitutional and inconsistent
with the mandate to which coco levy was collected;
d. That the bank was acquired with coco levy funds and, therefore,
declared government as the beneficial owner of UCPB.
Skeptic farmer leaders, mostly those who signed with Cojuangco in Davao
(PKSMMN), warned that only government will benefit from this decision of
the Sandiganbayan and not the real farmers. However, based on the previous
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2001 SC ruling that the coco levy funds were collected for a specific purpose
for which it should be utilized, we deemed the decision as greatly favorable to
the farmers.
3. The May 7, 2004 Sandiganbayan decision
In another decision on a Partial Summary Judgment involving Civil Case No.
0033 F, specifically dealing with 27% SMC-CIIF shares, the Sandiganbayan
ruled:
a. That the CIIF Companies (SOLCOM, CAGOIL, ILICOCO, SPMC,
GRANEX, LEGOIL);
b. That the 14 Holding Companies;
c. And the CIIF Block of San Miguel Corporation (SMC) shares of stock
totaling 33,133,266 shares as of 1983, together with all dividends
declared, paid and issued thereon as well as any increments thereto
arising from, but not limited to, exercise of pre-emptive rights;
ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST
FOR ALL THE COCONUT FARMERS AND ORDERED
RECONVEYED TO GOVERNMENT.
This particular decision on Civil Case No. 0033 F, in effect, decided as well
on the subject assets of 0033 B, the CIIF Companies.
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OPPORTUNITIES & THREATS in the EXECUTIVE FRONT
Government today has been handling the said cases quite well and differently
from that of the previous administrations. This is most especially true during
the time of Solicitor General Sonny Marcelo (now Ombudsman) as he
involved the organized groups in brainstorming the cases. PCGG Chair Haydee
Yorac and Commissioner Ruben Carranza substantially add more to that faith
in government. It was only during this period that coconut farmer groups were
(and still) allowed access to information and involved in the actual
development of the cases by the PCGG. In fact, legal developments were
inputted to determine extralegal actions by the coconut farmer groups and
vice versa.
Former administrations did not in anyway recognize the farmers groups in
relation to the cases. Estradas PCGG was worst! Only after EDSA 2 was it
discovered that the ERAP PCGG filed aMotion to Withdraw the case against
Cojuangco on SMC. Fortunately the GMA PCGG was still able to file a
Motion to Withdraw the Motion to Withdraw just in time. The string of
victories that followed in the courts simply speaks for itself.
In addition, also attributable to the opportunity given the farmers groups is the
appreciation on the issue of reform-minded officials in the Executive Branch
right after EDSA 2, mainly the Executive Secretary, the Presidential LegalAdviser, the PCGG Commissioners, the PCA Administrator, the Secretary of
the National Anti-Poverty Commission, and the then Chief of the Presidential
Management Staff. But there is also a section that supports the idea of
compromising with Cojuangco for political reasons. There are elements inside
Malacaang peddling some deals with Cojuangco which are kept under wraps
and out of the publics eye.
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So when confronted with the forceful advocacy of the coconut farmer groups
and a loud public opinion to recover the assets as a reaction to the compromise
deal being peddled by Cojuangco and his cohort group of farmers, the
government thru PCGG gave way to the nomination of a considerable number
of farmer-directors to the United Coconut Planters Bank Coconut Industry
Investment Funds (UCPB-CIIF) Group of Companies.
Instead of the traditional practice of having an interlocking directorate
whoever sits in the board of UCPB automatically composes all the other
boards the PCGG opted to treat each board separately with different
nominees.
As a result, some 30 farmer-directors5
(farmer leaders and advocates) were
nominated and elected into the UCPB-CIIF Group of Companies in
particular; UCPB (bank), GRANEX (oil mill), CAGOIL (oil mill), LEGOIL
(oil mill), SOLCOM (oil mill), SPMC (oil mill), COCOHEM (oleochemical
plant), COCOLIFE (insurance company), and UCPB General Insurance
(subsidiary of COCOLIFE). But also not to leave out ECJ in the whole
process, Malacaang made sure that half of the appointed farmer-directors
belonged to those who signed an agreement with Cojuangco in Davao. The
seats were separate and distinct from the minority seats that Cojuangco himself
negotiated under an interim agreement on the turnover of the sequesteredcompanies.
5Initial list contained 31 farmer-director nominees. But one of the nominees, Romulo Tapayan
(KAMMPIL), declined the seat thru a letter to PCGG dated February 27, 2002 saying that after
a thorough evaluation with the organization they have found the nomination to be anomalous
and a farcical design of the government to dupe the coconut farmers and farmworkers. The
next day his fellow KAMMPIL officer, Nilo Suante, lands in the newspaper complaining aboutgovernment appointing a number of non-farmer advocates to the boards instead of bonafide
farmers only. The PCGG accepted Tapayans letter to decline as well.
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In May of 2002 the PCA initiated the Farmer-Directors Advancement
Reorientation Seminar (FARM-DARES) in Davao. The seminar oriented the
farmer-directors on the nature of the respective companies and their
interrelation. Despite serious criticisms on the manner in which the seminar
was conducted by the PCA, the farmer-directors ended the seminar with a firm
resolve and unity to access resources for coconut farmer programs, in general.
FARMERS & ADVOCATES IN A NEW ARENA:
THE CORPORATE BATTLE
As mentioned in the First Year Farmer Directors Report, since the turnover
of the UCPB-CIIF Group of Companies to (GMA) PCGG there have been
small wins (definitely not enough) gained by the coconut farmers [This
section was lifted from the 1st
Year Report with the inclusion of necessary
updates]:
A) First-hand access to essential information on the business segment of
the industry.
A.1) Access to business information and industry statistics normally
not divulged to real farmers and copra producers are now within reach
(most probably still not all) of farmer-directors.
For example: Since 2003 copra prices have stabilized at a fairer
price (P10 P12 per kilo). Apart from the favorable trading
price of coconut oil (CNO) in the international market, the
presence of farmer-directors at the least lessens the chances
of exploitation of the farmers by the oil mills. In the year 2001
the CIIF Oil Mills declared a gross profit of P900 million while
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copra prices at the farmgate plummeted to an all-time low of
P2.50 to P3.00 per kilo during the last quarter. This year (2004)
copra prices increased significantly due to problems
encountered by the soya bean oil supply of the United States.
Demand for coconut oil has increased in the international
market. The effects trickled down to the coconut barangays
such that copra prices at the farm gate is within the range of P20
and above per kilo. If not for the presence of farmer-directors
the mills could have opted to exploit the situation and profit
enormously out of it by keeping copra prices at the farm gate at
2003 levels.
A.2) Understanding the nature of the businesses from the governance
aspect gives the farmer-directors more opportunities to see and suggest
how coconut farmers may either benefit from the services offered by
the companies or from proceeds / profits generated.
For example: While COCOLIFE was established thru an
investment from the Coconut Industry Investment Fund (part of
the coco levy), the company caters more to the competitive
insurance market than the coconut farmers (90:10). Ergo, a
valuable justification to lobby for an increase in the number of
individual farmers covered by life insurance. This is easy to sayand advocate when premiums to pay for the farmers insurance
coverage are available. But while the coco levy cases are still
pending in the courts, the sources of money to pay the
premiums are a major concern of a farmer-director in
COCOLIFE.
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For example: The loan of the Oil Mills from the bank for the
purchase of the 33 million SMC shares in 1983 had been fully
paid (principal and interest) in 2002. Currently the number of
shares in the block is pegged at 750 million of Class A & B
shares. This block had now yielded fresh cash dividends for the
14 holding Companies owned by the CIIF Oil Mills which, in
turn, is jointly owned by the whole UCPB-CIIF Group of
Companies. The cash dividends held by the 14 Holding
Companies currently stands at P1.4 billion (Table 1.). The
amount is now being eyed by the PCA to fund their programs
and also eyed by the UCPB to add into its tier 1 capital. The
farmer-directors should be able to position themselves in order
to push for additional farmer programs from the said dividends.
However, there needs to be an in-depth review of the webbed
structure of the Group of Companies in order to free up the cash
dividends. This is a major concern for the farmer-directors in
the UCPB and the CIIF Oil Mills.
Table 1. SMC CASH DIVIDENDS with the CIIF 14 HOLDING COMPANIESAmounts in thousand
DateCollected
CoveringQtr. Ending
AmountCollected
Paid toUCPB
Balance
P 2,415
24-Jan-2003 4
t
Qtr. 2002 217,561 (60,883) 159,09312-May-2003 1st
Qtr. 2003 217,561 0 376,65411-Aug-2003 2
nQtr. 2003 217,561 0 376,654
10-Nov-2003 3r
Qtr. 2003 253,821 0 594,21526-Jan-2004 4
tQtr. 2003 253,821 0 848,036
10-May-2004 1st
Qtr. 2004 253,821 0 1,101,857
Add: Interest Income 65,961
Cash in Bank, June 30, 2004 1,421,639
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A.3) Finally, access to internal information on how the group of
companies were established and managed through the years greatly
improves the overall recovery effort and the pending cases in court.
For example: So far only UCPB had undergone a complete
financial audit since 1983 to the present. The audit yielded more
astonishing information related to how Cojuangco and his
cohorts had cashed in on the bank practically making it a
wellspring for his dummy companies. The CIIF Oil Mills have
also been subjected to case-to-case audits. Results also show
how Cojuangco had taken advantage of the firms for his
personal benefit. COCOLIFE and COCOCHEM should follow.
B) Upgrade of life insurance of coco farmers from P5,000 to P10,000 with
additional 300,000 farmer individuals to be covered.
With marching orders from the administration, the board of
COCOLIFE approved the allocation of more than P80 million in order
to upgrade the existing life insurance coverage of 900,000 individuals
from P5,000 to P10,000. The allocation also paves the way for the
inclusion of 300,000 more individual farmers in the roster.
Coverage of the additional 300,000 farmers is on-going. The PhilippineCoconut Authority had been tapped as the traditional practice to
disseminate the registration forms to the coco farmers in accordance
with the PCA Governing Boards resolution defining the coconut
farmer. The forms are distributed for free regardless of affiliation.
Implementation experiences sporadic snags in some coco-producing
provinces where the PCA accepts only those who are listed members of
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the PCA-initiated Small Coconut Farmers Organization (SCFO) or
when used by private individuals / organizations for self benefit. Apart
from the snags lies the unpleasant fact that a farmer will have to die
first in order to benefit from the insurance in the amount of P10,000.
C) P700 million investment on coco farmers.
Investment had been the keyword in the release of the P700 million
funds6
as it is essentially a corporate decision by the Board of the CIIF
Oil Mills with the concurrence of the UCPB as the Administrator of the
CIIF. As in any investment a profit is expected to be derived, minimal
as it may be. The P700 M was assigned to the UCPB CIIF Finance
and Development Corporation (Coco Finance), the conduit of the bank
for lending to the coconut farmers.
Established in 1995 with a starting equity of P175 million (care of
Cocochem) the Coco Finance carried on the mandate which should
have been UCPBs in the first place. UCPB added a capital of P100
million during the period of 1997 to 1998, thus increasing the Coco
Finances equity to P275 million. This amount was managed and used
to provide loans to some 11,000 farmers nationwide. However, the
loans then were packaged with heavy and stringent requirements
allowing only cooperatives with a considerable 3-year track record toavail of the loans.
6In 1987 the CIIF Oil Mills issued redeemable shares. In order to secure a loan from the
Coconut Industry Investment Funds (CIIF), UCPB bought the redeemable shares from the Oil
Mills with a redemption price of almost double in 20 years time (until 2007). It was agreed by
the current management, therefore, to buy back the shares even before the term expires to saveon the purchase. So the UCPB Board accepted the buyback as Administrator of the CIIF and
assigned the amount for investment to the coconut farmers.
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The current management simply added P700 M more to this from the
CIIF Oil Mills. But this time around it was emphasized that the P700 M
should cater to those coco farmer individuals and groups who were not
able to meet the stringent requirements of the windows made available
by the first P275 million. Requirements such as the 3-year track record
and financial audit were waived in order to accommodate more coconut
farmer individuals and groups.
Prior to the board meetings of the CIIF Oil Mills and the UCPB which
included the release of the P700 M in the agenda, COCOFED and some
PKSMMN elements tried to thwart the effort by implying that any
director who signifies approval thereof shall be charged with plunder or
large-scale estafa. Maria Clara Lobregat wrote each director of the
Mills and UCPB on this note. Consequently, then UCPB Chairperson
Edward Go cancelled one board meeting that intended to discuss the
matter.
Despite the maneuverings, obviously of those sympathetic to the ECJ
camp, the board decisions were finally made in June and July of 2002.
Months after, UCPB Chairman Go again issued a memorandum to Ms.
Alice Bacani, OIC Trust Banking Division, to hold on to the P700
million and to make sure that no disbursements are made from it. The
memorandum was based on an Urgent Motion filed by Cocofed withthe Sandiganbayan, a Motion that was never acted upon by the Court.
Malacaang was able to compose the board of the Coco Finance only
in October. For a time the PCA was interested in receiving a portion of
the allocation for its related programs. However, the OSG issued an
official opinion that while the cases have not been resolved with
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finality, no allocation from the Group of Companies may be made to
PCA. President GMA later announced the formal acceptance of the
funds by Coco Finance in January 2003 with the corresponding farmer
programs (Table 2.).
Table 2. Published Malacaang press release on P700 million
In actual practice, the allocation of P700 million essentially allowed the
implementation of two basic programs for coconut farmers:
Microlending and Direct Copra Marketing (DCM). Apart from these
two which had direct allocation, the mere situation of engaging in
coconut farmer programs also paved the way for yet other possible
schemes deemed as beneficial to the farmers.
C.1) Microlending
As of today P400 out of the P700 M funds have been laid down
on the table for implementation. This includes micro financing for
the BUKO Program (Grameen for women [wife or daughter] in
PROGRAMBENEFICIARIES ALLOCATION
TARGET INDIVIDUAL PROGRAM INDIVIDUAL
Buklod-UnladProgram (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 CopraMarketing
Cooperatives 56,000100M
1,785.71
TOTAL 164,000 700M
P 4,268.29 /beneficiary
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coco farm households) and the Magsasaka Tungo sa Tunay na
Pag-unlad (MaTuTuPad) Program, a relending program for a
minimum group of 100 coco farmers with a capital of P500 each.
The equity build-up of P50,000 (minimum) shall be entitled to a
P200,000 loan from the Coco Finance. In cases when
cooperatives or associations have mixed membership, the
minimum number of coco farmers must be at least 80%. The
scheme offers an annual interest rate of 12%.
Both programs are coupled with capability building components
where the organized farmer groups and NGOs may participate.
C.2) Direct Copra Marketing
P300 million of the P700 million is intended to fund Direct Copra
Marketing. Direct Copra Marketing (farmer to mill) had been the
steady and consistent recommendation of a good number of
farmer-directors before and since they started moving in. While it
is accepted that direct copra marketing is not the ultimate solution
to the poverty of the small coco farmers, it maintains to be the
immediate pressing need of the small copra producer.
The CIIF Oil Mills management had, in concept, agreed toinitially pilot direct copra marketing schemes in some 16 areas /
provinces in accordance with existing policies (e.g. 80% cash
advances for deposited copra volume, subsidy on transportation
cost) or practices (e.g. express lane, toll crushing arrangement) on
copra / oil trading. A common requirement asked by the mills is
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to be able to train three (3) key persons to operate a copra buying
unit (CBU) and turn them into traders.
As of June 2004, the Niyog Trading Center, Inc., a subsidiary
established by the CIIF Oil Mills to handle DCM sites, includes
in its reports some 70 direct copra marketing (DCM) sites.
Individual Oil Mills management in local areas offer as well
specific case-to-case arrangements for direct copra buying i.e.
spot sales and express lanes. Some local oil mills management do
area work to visit coconut farmer groups and orient them on the
opportunities ahead. While efforts such as these are commendable
for the advantages given the coconut farmers, it should be noted
that it is equally beneficial to the companies themselves. The (5)
CIIF Oil Mills has the combined crushing capacity of 40% of the
total copra production in the country. Some of the mills are
currently underutilized or mothballed and DCM will definitely
add some more to the mills copra volume.
C.3) Integrated Processing Concepts
Then there is the concept of providing local integrated processing
plants (still in the works) in pilot areas, a one-stop center thatprocesses coconut water, meat, shell and husk. The center is
envisioned to buy whole nuts from the farmer not just copra
thereby commanding a higher value at the farmgate. Coming from
an incredibly costly concept of the Coconut Exchange Center
(CEC), the Oil Mills will soon be testing the Nut Trading Center
scheme.
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As of today the details of the integrated processing plant is
continuously being rehashed for costing purposes.
C.4) Toll Crushing Agreement
A Toll Crushing Agreement was made by and between the CIIF
Oil Mills and the Liga ng Magniniyog. The scheme called for the
delivery by the farmers group of a considerable volume of copra
to be crushed in the Arimbay (Bicol) oil mill of LEGOIL, a mill
that had been mothballed for years. As the label of the agreement
so aptly imply, the oil mills responsibility is to crush copra and
charge a fee for the services P1 per kilo of copra while the
farmers group assures the delivery of copra for a premium of
P0.35 from the fee with an end-in-view of making profits to
later fund and organize farmer cooperatives in Bicol for direct
copra marketing.
The scheme provided for an unorthodox approach to direct copra
marketing as an end-in-view. It involved other industry
stakeholders, the traders who are commonly perceived to be part
and parcel of the exploitation of coconut farmers. However, in
this particular case, the participating trader who paid the P1 / kilocopra toll fees, in turn, allowed for a premium no different from
a brokers fee to be given to Liga Magniniyog. At first glance it
appears that the trader would have practically financed his future
extinction as a trader since the premium he had agreed to shoulder
would later foster a direct farm-to-mill trading of copra that
would no more require his services and capital.
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INITIAL VIEWS ON EXISTING PROGRAMS & SCHEMES
1. Microlending
Microlending is the major activity of Coco Finance, a subsidiary of the
UCPB which had been assigned to cover up UCPBs inability to perform
its mandate7. 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 it is subject to limitations as per BSP
rulings with profits as a major consideration for continued existence.
Coco Finances operations are nothing different to other microlending
institutions such as the Quedancor and the Philippine Credit and Finance
Corporation. The only perceived difference is the concentration on coconut
farmers as a clientele. Unfortunately, what seems to be overlooked is the
fact that the funds handled by Coco Finance originated from the coco
levy and ultimately the farmers. The nature of the institution itself,
therefore, limits it from catering to the lot of other needs of the coconut
farmers.
The Grameen for women had already been tested by Coco Finance even
before the allocation of P100 million / P700 million was made. So
confident was the companys management on the project since the
experience in Sogod, Leyte reflected a rate of 100% repayment. Therecords of Coco Finance may indeed reflect such figure. However, where
the group of women sourced out the funds for repayment is not quite
established. Payments made have not been determined to have come from
income earned out of the project or merely borrowed from another source.
7Presidential Decree No. 755 (issued 1975), ordering the acquisition of a bank for and in
behalf of the coconut farmers reflects the intent to solve the perennial credit problems of the
coconut farmers.
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In addition, this project dedicated for the women in coconut communities,
ironically, has a built-in provision requiring a husbands consent.
The biggest allocation under Coco Finances microlending program is
currently with the MaTuTuPad Program P300 million of the P700
million initial fund release of UCPB and the CIIF Oil Mills in 2002.
MaTuTuPad is an acronym for Magsasaka Tungo sa Tunay na Pag-
unlad, as if to imply that microlending is indeed the solution towards
farmers real development. The issue is not exactly the name attached to
the program but delves more on a perception of policy-makers on the role
of microfinancing programs for the coconut farmers.
Ka Oscar Santos, a former board member of the UCPB during the Ramos
Administration, fought a lone battle to bring about the creation of the Coco
Finance in 1994. Ka Oca was again called on by the President to serve as
board member of Coco Finance in 20028. In 2004 he tendered his
resignation as board member of Coco Finance citing the following:
On the matter of utilizationOn the matter of utilizationOn the matter of utilizationOn the matter of utilization. Ours is basically loan programs. We encourage
the farmers to borrow but require them to pay what they borrowed plus
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
8Oscar Santos also served as Cocochem director and Governing Board member of the PCA
under the Arroyo Administration. He resigned from the board of Cocohem earlier as he deeply
felt that the company was operating with no cause for the coconut farmers. Later he resignedfrom Coco Finance and the PCA as he felt that programs of both institutions were not enough
to concretely help the coconut farmers.
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P819 M IMA investmentsP819 M IMA investmentsP819 M IMA investmentsP819 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 the
year which ended April 30, 2004, Cocofinance has loaned out only P181 M
out 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 of
the following:
Many coco farmers cannot accept why they have to pay interest on loans
from the funds they painfully contributed to.
They do not find our loan programs attractive, despite our roadshows and
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 other
competing agencies like the Landbank and Quedancor. Chances are we are
covering the same areas already being served by them.
Loan not suited for the really poorLoan not suited for the really poorLoan not suited for the really poorLoan not suited for the really poor. Grant of loans will not necessarily
benefit 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 of
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Examination as of May 31, 2003). Thus, we found it necessary to engage theservices of collection lawyers to recover unpaid loans.
UCPB Director Royandoyan affirms that loans may work well for rich
farmers but not to the really poor borrowers, the vast majority of whom
usually find themselves sunk in debt unable to return borrowed money plus
interest. For them, other forms of meaningfulmeaningfulmeaningfulmeaningful assistanceassistanceassistanceassistance should be thought of,
not loansnot loansnot loansnot loans.
Perhaps the following basic points would be of some help if and when our
existing programs are reviewed:
The coconut farmers themselves should be allowed to determine how
best the levy funds taken from them should be utilized. They wouldThey wouldThey wouldThey would
surely know what they need better than we do.surely know what they need better than we do.surely know what they need better than we do.surely know what they need better than we do.
The coco producing provinces are not similarly situated. That beingso, each province would vary in how best to utilize its share of the
levy funds for its constituents.
Second lookSecond lookSecond lookSecond look. Review of our programs has become even more necessary
especially since some P2B SMC dividends may soon be made available.
Our programs to help uplift the coco farmers, were not intended to be
inflexible. Adjustments or even changes may be made if they do not serve the
purpose for which they were conceived, namely, to assist and beneto assist and beneto assist and beneto assist and benefitfitfitfit
meaningfully as many coco farmers as possible with the least possible expensemeaningfully as many coco farmers as possible with the least possible expensemeaningfully as many coco farmers as possible with the least possible expensemeaningfully as many coco farmers as possible with the least possible expense.
The key word is meaningfully.
Obviously Ka Oca was coming from a direction of wanting to be able to
impact the impoverished lives of the coconut farmers other than just
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providing microfinancing. The arm of Coco Finance is tied up in such a
limitation. After almost two years of operations for the MaTuTuPad
Program with the expansion of staff and vehicles for the program (meaning
more administrative expenses), Coco Finance has rolled out P100 million
of the P300 million allocation. The company might practically be earning
more from the unutilized funds (P819 Investment Managemant Account
handled by the UCPB Trust Department) which earn 8-9 % interest
annually than with interest coming from loan receivables to the farmer
cooperatives.
The issue at hand does not necessarily put to question the performance of
Coco Finance or whether or not to expand its loan packages. Coco Finance
or the UCPB CIIF Finance and Development Corporation has a twin
company the UCPB CIIF Foundation. Both companies have the same
board of directors, officers and staff. This company, like any other
foundation set up by a private business entity, would have far more
flexibility in choosing its socio-civic programs and activities that would
qualify the UCPB CIIF Group of Companies to avail of tax exemptions.
The Foundation has diminutive resources compared to that of Coco
Finance. The Board of Directors meets more often as the Coco Finance
than as the Foundation. Necessarily it follows that operations and staffing
also reflect the same condition.
The Foundation has had a history of conducting programs such as Piso
kada araw and a reforestation project. The Piso kada araw Project was
intended to generate funds to build coconut nurseries. There is only one
reported taker of the project, the Pangasinan State College.
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It has had a string of relief operations and medical missions: Pangasinan
and Pampanga (1995) with contributions from LEGOIL and COCOLIFE;
North Cotabato and Maguindanao (1997) with the assistance of UCPB
branches in Cotabato and Kidapawan; South Cotabato (1998) with the
UCPB Marbel Branch; Pangasinan Pampanga Cainta Marikina
(1999) with the support of UCPB Rural Bank and UCPB Savings Bank;
North Cotabato & Antipolo City (2000); and, Batangas (2001).
A major undertaking of the Foundation was its Reforestation Project that
earned it two recognition awards. The Foundation recently accepted the top
Asia Corporate Responsibility Award during an Annual Asian Forum in
Kuala Lumpur, Malaysia. While the feat is definitely laudable from the
environmental point of view, it would also be worthwhile to site that the
project does not in any way relate to the industry and the farmers the
reforestation was done in Antipolo, Rizal.
Today, the Foundation extends financial assistance to PCA for a survey of
coconut farmers, the acquisition of books and bookshelves for an
elementary school in a coconut community, and offers a scholarship
program for children of coconut farmers. Scholarships were also offered on
caregiver courses.
The Foundation also recently launched its UCPB-CIIF GOVERNSprogram, the UCPB-CIIF Groups Employee-Volunteer Initiatives. The
program encourages the Groups employees to volunteer their services for
organizational capability-building of coco farmers: Accounting &
Bookkeeping; Financial Analysis & Management; Enterprise Development
& Management; Organizational Diagnosis & Development; Strategic
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Development Planning; etc. However, the technology and 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 its
subsidiaries which should, in the first place, cater to the coconut farmers as
mandated by the coco levy collections. If microfinancing is to be perceived
as only one among the various needs of the coconut farmers, then it would
be logical to maximize the elbow room the Foundation can provide and
expand its services on projects that would meaningfully serve the farmers
and their communities. Especially considering that the subsidiaries are
offsprings of UCPB, the parent company that owes its roots to the coconut
farmers themselves via the coconut levy.
Thus Ka Oca Santos, in his same letter of resignation, offered other
sensible alternatives:
Part of the funds may perhaps be allotted to any, some, or all of the following
as our resources would allow:
seriously pursue the MOU with China where the latter proposes to
extend a loan of US100M worth of machineries and equipment to
process coco husks rotting in the countryside, payable by export value
of geotextile and other processed coco products. This is significantsignificantsignificantsignificantsince coco farmers nationwidenationwidenationwidenationwide stand 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.
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support continuing research on the curative qualities of monolariun.
2. Direct Copra Marketing
Conceptually, Direct Copra Marketing (farm-to-mill) offers a good vehicle
to rid the coconut farmers of indebtedness to the traders and assure them of
optimizing the actual price of copra. This scheme is not entirely new to the
CIIF Oil Mills. A limited number of cooperatives have availed of this
program through the PCA and the CIIF Oil Mills during the Ramos
Administration. The only difference under the current administration is the
extra effort of the Oil Mills to expand the, so called, DCM sites in line with
the Presidents response to the clamor of coconut farmer 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 farmers and said, give us three people to train for the buying
station and I assure you that by the time they finish the training, they will
no more think like farmers but traders. The statement does reflect the
confidence of the officer in passing such trading skills to the farmer groups.
However, it also puts in a tinge of resentment when perceived in an angle
that coconut farming and trading are totally unrelated and irreconcilableskills. The statement, to some degree, is closely reflective of the 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 to sixty (60) and seventy (70). Now in order to manage the
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growing number of DCM sites, the board (including farmer-directors) and
management of the Mills established the Niyog Trading Center, Inc.
(NTC). The NTC is a new and separate entity tasked and organized to
manage nut / copra / other products buying operations by the CIIF Oil
Mills. Available documents on the NTC concept express 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
copra marketing? The NTC reflects the integrated processing scheme
where other value-added products such as coco coir fiber and coco shell is
processed alongside the traditional copra. DCM sites are viewed to
graduate into integrated processing sites in the near future. The Mills,
through the NTC, shall buy whole nuts instead of simply copra. The big
question so far is how to go about pricing the whole nut. Previous board
meetings of the CIIF Mills discussed the possibility of 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 farmer groups.
Copra currently sells at more than P20 per kilo. It takes three to four nuts to
make a kilo of copra. So based on the current price of copra alone, a nut
should be able to garner a price of at least P5 each even when the
decreased cost of labor and drying is inputted. The nut simply just has to
command a higher price than that of copra for its mere added marketpotentials.
Better yet, to foster a clearer and more directional discussion on the NTC
scheme, the performance and impact of the existing DCM sites be
thoroughly assessed and reviewed first.
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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
by the NTC, Inc.:
How many of the operational DCM sites are profiting / losing?
What factors lead to profits / losses?
How many are strategically located with or without the presence
of competing 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 beforea DCM site can graduate into an NTC site. Without a thorough study on the
impact DCM is creating on the coconut farmers, only the perceived
practices will come into fore.
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So far, some grassroots level feedback point to the following:
1. There is no strict uniformity and / or compliance in the implementation
of the 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 a typewriter that hardly functions
while another coop in Mindanao is accorded a fax machine.
2. DCMs were conceptually designed to be a partnership between the
CIIF Oil Mills and the farmer coops. There exists no MoA or MoU
explicitly stating the responsibilities of both parties for all the 70 or so
DCM sites.
3. Managers and staff trained for DCM functions not under the authority
of the partner coops but directly under the authority of the Oil Mills.
4. PCA was made part of the screening and accreditation of candidate
farmer cooperatives for DCM implementation. In some areas the PCA
officials would only cater to farmers who have been organized by the
agency under the Small Coco Farmers Organization (SCFO). Non-
SCFO members but are as well bonafide coconut farmer organizations
have a hard time getting the accreditation.5. When prices of copra drops, the DCM coops may not take a position on
whether to trade or not a great advantage that traders can practice.
6. A number of DCM staff has been offered the retailership of Minola
Cooking Oil on an individual basis.
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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
extension arms / 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 face economic and, to a certain extent, political limitations.
Commonly like other business entities, the target of the Oil Mills is to
profit from its operations whether it profits out of efficient processing
and world market trading 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 be evident, though, is the fact that the Mills would
still have to deal more with the traders rather than with the farmers and
their DCM sites in order to get the volume of copra needed to sustain its
operations.
Based on the data provided by the NTC, Inc., the current volume of copra
delivered by the DCMs hardly counts. It does provide additional volume
but not substantial. 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 copra volume will still be microscopic compared to the volume a single
trader can actually deliver. The Oil Mills today is said to be operating onlyat 35% - 40% of its capacity. Ergo, it would be more practical to deal with
a few traders delivering a huge amount of copra volume rather than with a
great number of DCMs that deliver a small volume. In short, the farmer
coops still have yet to prove to the Oil Mills the economic power they can
muster before they can expect to get certain privileges enjoyed by the
traders.
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On the political side, the controversial CIIF Oil Mills is one of the biggest
subjects of the coco levy cases pending in the courts. During the Marcos
Dictatorship the companies was under the control of Danding Cojuangco as
a monopoly where traders rule. After the fall of the dictatorship subsequent
administrations took over the sequestered UCPB-CIIF Companies and ran
it mainly for profits and profit-sharing. Cojuangco came back during the
short-lived Estrada presidency and once 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 been practiced this and the
other companies within the group had never been ran mainly for the
farmers interests. While under sequestration the companys leadership and
workforce only react to the changing wishes of administration after
administration.
Fortunately enough it is less difficult today to push for farmer programs
within the Oil Mills because the current management leadership recognizes
the origin of the companies and its mandate from the coco levy.
3. Toll Crushing Agreement
The scheme would have been an interesting subject for study if only the
agreement had been implemented to the letter by the individual partiesconcerned and reflected on by the participating institutions coupled with a
high degree of delicadeza and transparency. At first glance the scheme
appeared to strike a balance between the interests of the Mills, the traders
and the farmer groups:
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Advantages of LEGOIL Advantages of Trader Advantages of FarmersMothballed Arimbay Millbecame operational withan assured delivery ofcopra for crushing.
Assured of storagefacilities for coconut oilextracted from deliveredcopra. Trader retainedownership of the oil to bemarketed.
The brokers fee offered apromising and veritablesource of funds toorganize coconut farmersin Bicol.
It would have been an interesting subject for a case study to see how the
balance of interests would end up. However, the details of the deal were
known only to a few individuals / officials of the Oil Mills, the trader and
the Liga Magniniyog President.
After three months of operations with an accumulated premium of P7
million, legal and ethical questions started to burst open the shaded deal. It
turned out that the concerned individuals who entered the Toll Crushing
Agreement did not have institutional backing from both the Oil Mills and
the Liga Magniniyog. The Oil Mills Board and Ligas Council were
inaccurately informed of the operational details. Thus, governing bodies of
both institutions lacked the necessary formal resolutions to back up the
project.
Lacking in accurate information on the actual operational scheme
prevented the respective governing bodies to install safety features for
monitoring and measuring success or failure. Operational difficulties were
solely handled by the individuals who made the agreement.
Difficulties Encountered Solutions Applied Remarks
The farmers party lackedresources to set up contactsand networks where copravolume is to be sourced fromto supply the Arimbay Mill.
The Mills party provides cashadvances in two tranches ofP500 thousand eachdeposited to the LigaMagniniyog account.
No budget was prepared andagreed on as basis on howthe cash advances were tobe utilized how to beliquidated, much less. By itsrules and practice, the Millsmay only provide cashadvances for copradeliveries.
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Difficulties Encountered Solutions Applied Remarks
Liga Magniniyog is a non-stock, non-profit organizationand cannot, therefore, dealbusiness.
Upon the Mills partysuggestion, a business entitywas set up to fill in the gap.The COCO INVEST,otherwise referred to as theeconomic arm of Liga, wasestablished.
COCO INVEST, apartnership, was hastilyestablished without thebenefit of an understandingbetween and among theLigas Council. COCOINVEST reflected a businesspartnership between the LigaPresident and PRO with60:40 sharing, respectively.Liga, the President used tosay, will just have to presenta proposal to COCO INVESTwhenever it needs money.
A check issued by the Mills toLiga for payment of thepremium from copra crushedwas tampered (payeechanged) upon deposit. Thebank alarms the Mills.
After negotiations betweenthe individual partiesconcerned, the Millscancelled the tamperedcheck and issues another this time payable to COCOINVEST.
The Mills accepted thisarrangement without anyquestion or verification at all.Checks that followed wereissued to COCO INVEST.
Exhausting all sources ofcopra in Luzon, the farmersparty started expanding itspurchases in the Visayas.Having its own distinct pricingsystem, the Mills complainedof price speculation affectingthe Mills own pricing system.
None known.
The farmers party claimedthat the exercise is actuallycausing an increase in copraprices which, in turn, benefitthe small coconut farmers.
The total amount transferredby the Mills to the Liga &COCO INVEST accountsreached P7 million by thetime the Oil Mills Board andLigas Council startedquestioning the projectsdetails.
COCO INVEST, in a CIIF OilMill board meeting, presenteda statement of expensesamounting to some P6.8million, duly signed by COCOINVESTs accountant andcertified to be true andcorrect by two members ofLigas EXCOM.
Amounts contained in thestatement of expenses wereall rounded to thousands,hundreds or tens nocentavos. The statement wasnot accompanied bysupporting schedules ordocuments. Noticeably largefigures were spent forgasoline, representation andbonuses. This led one of theMills farmer-directors to ask:Why the huge gasolineexpenses? What vehicle
were you using?
Even granting the benefit of any doubt and assuming that noble intentions
were behind the conceptualization of the project, the fact is that it was kept
under wraps and the details were not made known until people started
inquiring. No recorded concrete losses were suffered by the Mills. The
farmers, however, ended up on the losing side:
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Not one farmers cooperative in Bicol ever benefited from the
vowed objective of the agreement;
Liga Magniniyog, as the original party stipulated in the agreement,
never got control of the income from premiums released by the
CIIF Oil Mills. Liga benefited only by way of office furnitures /
supplies and funding for its congress in 2002.
The Liga President who at the same time was a director of the Oil
Mills and partner in COCO INVEST was taken out of the Mills
board by the PCGG;
So was another director, one of the Liga EXCOM members who
certified the statement of expenses;
The biggest loss hovers until today a split in Liga Magniniyogs
ranks, greatly lacking of any closure on the issue.
The project halted when the other farmer-directors of the CIIF Oil Mills
board raised questions. A committee, with a farmer-director as member,
was composed by the Oil Mills to investigate the matter and present
recommendations to management. Even UCPB, as administrator of CIIF,
composed its own committee (also with farmer-directors) to investigate the
matter. Both investigations yielded serious negative findings against the
individuals who entered into the Toll Crushing Agreement.
The abovementioned are but initial views on existing programs and schemesthat were originally intended to benefit the coconut farmers to a limited extent.
Testing out these programs and schemes may do well in preparation for the
bigger task ahead. The Supreme Court, in its decision, pointed out that the
farmers, as a class, should benefit from the coco levy funds. If and when the
coco levy funds are indeed recovered, programs and schemes for the
development of both the farmers and the industry would form the most crucial
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substance of governments concern. Ergo, there is great need to study and
review the existing programs in the framework of continuing and developing
further schemes with real and meaningful benefits to the coconut farmers and
the industry. It will not be sufficient to merely assess the performance of
current programs for purposes of reporting to the President and the public.
FARMER-DIRECTORS IN THE UCPB CIIF GROUP:
RATIONALIZING THE APPOINTMENTS
Among the UCPB CIIF Group of Companies where farmers and advocates
sit as board members, some do have potentially direct or indirect benefits to
offer the coconut farmers and the industry while some do not.
Table No. 3: Number of farmer-directors in coco levy companies.
Companies /Subsidiaries
# of Farmer-Directors
seatsCurrent role/s taken for
2002 2004 farmers industry
UCPB 5 4 Administrator CIIF Minimal loans tococo-related businesssegment
Coco Finance / Foundation 3 1 Microlending Grassroots contact
CIIF Oil Mills 14 12 DCM / Minolaretailership
Coco oil supply /exportation
Cocolife 4 4 Life insurance None
UCPB Gen 5 5 None None
Cocochem 2 1 None OleochemicalmanufacturingTotal seats 33* 27*
* includes dual directorship
The UCPB-CIIF Group of Companies is a set of business companies acquired
or invested into with the use of the coco levy fund collections via PD 276
during the Marcos dictatorial regime. Via PD 755 (1975) the First United Bank
owned by the Cojuangcos (Jose) was purchased as investment for the coconut
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farmers and named United Coconut Planters Bank. Serving as the financial
arm for the coconut industry and depository of the multi-billion coco levy fund
collections, the UCPB later acquired / established other companies to
monopolize the coconut industry from hauling, transport, shipping,
processing, milling, trading (local and international), marketing, and exporting.
It also invested into a major block of the San Miguel Corporation, the biggest
food and beverage conglomerate in the country even when the company is in
no way related to the industry. All were done in the name of the poor coconut
farmers. But in reality these companies were never run strictly for the
purposes for which they were established.
Company Role / Performance forfarmers and industry
UCPB - The bank wears two hats: 1) auniversal bank with fiduciaryresponsibilities towards its private clients;and, 2) Administrator of the coco levyfunds, particularly the Coconut Industry
Investment Fund (CIIF) from which allacquisitions and investments originated.This had made the bank the parentcompany which invested in other majorcompanies to form the coconut industrymonopoly.
In its almost thirty years of operations as theUCPB, the banks loan portfolio had catered toother businesses having no connection to theindustry at all (sugar mill operations, mining,real estate, etc.) or the business segment ofthe coconut industry (mostly those who areconnected / related to ECJ). More than half ofthe 178 branches are located within MetroManila.
It has a subsidiary, the UCPB Rural Bank,which today primarily caters to teachers loansfrom the Department of Education. Majority ofthe Rural Banks branches are located withincoconut provinces.
Agri loans comprise 29% of the Rural Banksloan portfolio but these are mostly loans toagri-coconut planters, rural based workers,salaried employees engaged in agricultural
activities. The Rural Bank does not have anyspecific loan program intended for coconutindustry development or for coconut farmers.
9
UCPBs only link to coconut farmers and theindustry is made through its other subsidiary,the Coco Finance.
CIIF Oil Mills a group of oil mills withcrushing capacity of 40% of the totalcopra production in the country:
Granexport Manufacturing Corp.
As the biggest buyer / exporter of copra andcoconut oil in the country, the CIIF Oil Millspractically commands the buying price ofcopra. The company normally buys coprarates cheaper than other smaller private oil
9UCPB Rural Bank, Inc., Agricultural Loan Portfolio as of August 31, 2004.
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Company Role / Performance forfarmers and industry(operating)
Legaspi Oil Co., Inc. (operating)Cagayan de Oro Oil Mills
(operating)
Southern Luzon Coconut OilMills (mothballed)
San Pablo ManufacturingCompany (Minola cooking oilprocessing)
mills.
Currently runs the DCM projects under itsnewly created subsidiary, the Niyog TradingCenter, Inc.
COCOCHEM an oleochemical plant inBatangas where coco oil is further
processed to produce coco fatty acids foruse as surfactants. The company is a
joint venture owned by a minority ofprivate stockholders (6% Philholdings)and a majority of the UCPB Group (94%CIIF).
The company produces non-traditional andvalue-added products from coconuts for
export. Known to gain profits of P500 P700million annually. There is no record of anytransaction / program with coconut farmersexcept for contributions to the UCPB CIIFFoundation.
COCOLIFE a life insurance companyoriginally put up with coco levy funds tocover life insurance of coconut farmers.
The company is now well into the competitivecommercial marketing of insurance for privateclients. 90% of its portfolio is into the privateclients. One of the top-ranking insurancecompanies in the country.
The companys subsidiaries does not in anyway relate to the farmers and the industry.
Through the years most of these major companies have increased their
shareholdings and expanded into other services through subsidiaries:
Parent / Major company Subsidiary/ies
UCPB
UCPB Savings; UCPB Rural Bank; UCPB Leasing andFinance Corp.; UCPB Properties, Inc.; United ForeignExchange Corp.; UCPB Securities; UCPB-CIIFFoundation & UCPB-CIIF Finance & DevelopmentCorp.
5 CIIF Oil Mills
14 Holding Companies (investment into SMC); CIIF
Research & Development FoundationLEGOIL ILICOCO; LEG International
GRANEX GRANEX USA
SPMC Minola; Silahis
COCOLIFEUCPB General Insurance Co.; Cocoplans, Inc.; UltraSecurity Services, Inc.; United Fund, Inc.
Interestingly, while the UCPB the parent company invested to acquire /
establish the other companies, each company put in investments as well into
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each other. Thus making the whole UCPB-CIIF Group of Companies a web of
cross-shareholdings between and among all the companies that comprise the
Group.
The farmer-directors, at least most of them, share a common view of making
this particular group of companies address its mandate. As far as the farmer-
directors are concerned, there is hardly any doubt as to the origin of these
companies and the mandate that they should serve. Oscar Santos, in a letter to
the boards of the said companies in August 2002, cited the following:
Having met three times as a board, it is obvious that senior management and our
colleagues in the board are seasoned managers and/or entrepreneurs
knowledgeable in management, banking, corporate matters and business and
commercial activities in general.
Allow me, however, to touch on the social mandate we in management and board
should ever be mindful of.
State Policy and MandateState Policy and MandateState Policy and MandateState Policy and Mandate: P.D. 232 dated July 1, 1973 creating the Philippine
Coconut Authority, declares that it shall be the policy of the State to promote
accelerated growth and development of the coconut and other palm oil industry sosososo
that the benefits of such growth shall accrue to the greatest numberthat the benefits of such growth shall accrue to the greatest numberthat the benefits of such growth shall accrue to the greatest numberthat the benefits of such growth shall accrue to the greatest number, and to
provide continued leadership and support in the integrated development of the
industry. [Section 1.]
P.D. 232 proceeds to specify the following objective: To achieve vertical
integration of the coconut industry so that coconut farmers become participants inso that coconut farmers become participants inso that coconut farmers become participants inso that coconut farmers become participants in
and beneficiarieand beneficiarieand beneficiarieand beneficiaries of development and growth of the coconut industrys of development and growth of the coconut industrys of development and growth of the coconut industrys of development and growth of the coconut industry. [Section
2.]
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This mandated policy is reiterated in at least three Presidential Decrees, oneExecutive Order, three Letters of Instruction and a PCA Resolution:
PD 961 - July 14, 1976EO 490 - November 27, 1977PD 1468 - June 11, 1978LOI 926 - September 3, 1979PD 1644 - October 4, 1979LOI 939 - October 4, 1979LOI 940 - October 4, 1979
PCA Res. 34-75 - May 21, 1975
The statement or declaration of policy is the heart and soul of a particular piece
of legislation. It sets out the goal or objective sought to be accomplished by that
legislation.
The specific provisions of the coco levy-related decrees and issuances all state the
purpose of the levy collections was to fund concerns, activities and commercial
investments for the benefit of the coconut farmersfor the benefit of the coconut farmersfor the benefit of the coconut farmersfor the benefit of the coconut farmers.10One who may be minded to
go over those decrees and issuances will find that the phrase for the benefit of the
coconut farmers was repeated at least 82 times in the text of 6 Presidential
Decrees, 3 Executive Orders, 4 Letters of Instruction, and, 11 PCA Resolutions.
But while the abovementioned facts govern the general framework and
mindset of the organized farmer groups and their farmer-directors, they had
little knowledge of the companies at the time of their appointments. More
importantly, they had no control over the appointments made by Malacaang
as farmer representation is in no way institutionalized. All the farmers had was
an active and highly visible public campaign that required immediate political
attention. Thus, t