Every Peso Wisely Lent and Spent

For small Filipino farmers, access to financing is almost always non-existent because they are viewed by traditional creditors as high-risk. Sadly, even cooperatives, which are supposed to carry less risk as they are organized, have limited access to affordable financing sources. The Peace and Equity Foundation (PEF) heavily invests in agricultural social enterprises (SEs) as they can bring about meaningful improvements in the lives of the rural poor.

In years of taking calculated risks, PEF realized that appropriate financing for agricultural SEs requires a big investment—it has to be adequate, otherwise it would fail. Aside from being sufficient, funding should be timely. The release of funds must be done before the planting season for soil preparation and other pre-planting activities. It is also unwise to ask farmers to pay for loans before the harvest because most would not be able to pay to and end up unjustly penalized.

Sugarcane is a priority crop of PEF and bulk of the projects are in the Negros Island. In 2015, PEF allocated P13 million for cane sugar, representing 27 percent of C5 grants.2 In partnership with the Multi-Sectoral Alliance for Development-Negros (MUAD), PEF organized four farmer organizations that adopted Diversified Block Farming (DBF) practices: Crossing Ibos Farmers’ Cooperative, Dancalan Ilog Waterworks and Agro-Industrial Multipurpose Cooperative, Sampak Small Farmers Association, and Tabugon Livestock and Poultry Raisers Association. Each group received approximately P6 million pesos worth of assistance in the form of loans, grants and credit line. The fund covers four block farms totaling 220 hectares and involving 108 farmers. It aims to achieve improvements in four areas: professionalized farm management, diversified skills enhancement, integrated farming, and asset creation. The grant portion of the fund is used for coaching and mentoring on enterprise management, financial literacy, and technology demonstration on model farms.

By organizing small farmers into blocks, economies of scale will reduce production costs, increase production yield, and achieve better efficiencies. However, a sizable amount of investment is needed to move sugar cane SEs to a viable scale of 75 tons per hectare. These resources should be enough to cover human, technological, and business investments.

Each farmer-participant enrolls two to three hectares of farmland to the cooperative. When the total number of hectares reaches 55, a block farm is started. Each block farm, with 20 to 26 participants, signs an agreement with the cooperative to manage the land for three years.

The loan allocation and drawdown scheme are based on the sugarcane crop production cycle; thus, enabling farmers to meet their obligations, avoid loan penalties, and tap financing that otherwise would not be available for them. With financing schemes suitable to sugarcane farmers, production techniques can be significantly improved in both the immediate and long terms.

In the beginning, farmers’ organizations met difficulties and delays in loan disbursements due to their limited capacity to comply with financial and narrative reports and other PEF requirements. MUAD individually coached the farmers on how to prepare these reports. This also capacitates them so that they can do their reports independently in the future. This proved to be a time-consuming process, given that the reports are technical in nature.

Only one of the four block farms generated positive results and could receive another funding on their growth plan in 2015. The other three were tasked to prepare a remedial plan to complete the cropping cycle.

What went wrong? One major factor is pole vaulting, or trading of sugar cane outside the usual farmer-cooperative contracts. In hindsight, farmer groups attributed this problem as an internal weakness that could have been avoided during the selection of farmers to be included in each block. The farmer’s commitment and financial position must be carefully evaluated to minimize the tendency to pole vault. Another factor is the unavailability of labor and hauling trucks during planting and harvesting season. Also, the effects of the El Niño weather phenomenon in Negros drastically resulted to lower than expected yields.

With the project still underway and despite the setbacks, PEF hopes to achieve gradual but sustained improvements in the areas previously identified—institutional support, client development, asset creation, and technology demonstration. In social enterprise, patience is a virtue; stumbling blocks must be properly addressed and in doing so, something negative positively contributes to the learning process.

This article was originally published in “Attempts At Social Enterprise”. This book narrates the foundation’s strategic shift toward building and scaling up social enterprises. To download a copy, click here…