Agricultural Land Grabbing through Agribusiness Venture Arrangements with ARBs: Summary of Hijo Agrarian Reform Beneficiaries Cooperative (HARBCO) Case

HARBCO à composed of 724 agrarian reform beneficiaries (ARBs) who were awarded under the Comprehensive Agrarian Reform Program (CARP) a collective CLOA for 579 hectares of the 1,469-hectare property of the Hijo Plantation, Inc. (HPI)

HPI à former landowner of 1,469 has. of land located in Tagum, Davao del Norte. The property is primarily devoted to the production of export quality (Cavendish) bananas.

1995à HPI offered the land for coverage under CARP through the Voluntary Offer to Sell (VOS) scheme.  The Courts awarded HPI a valuation of P1.03 million per hectare.

28 October 1996 à All identified and qualified ARBs for the said property held a general assembly and resolved to organize themselves into three cooperatives, namely: HARBCO, HEARBCO-1 and HEARBCO-2.

03 December 1998 à HARBCO executed a 10-year a Banana Sales and Marketing Agreement (BSMA) with the former landowner, HPI.  The entry into the said contract-agreement, however, divided HARBCO into two factions: those willing to enter into the BSMA with HPI and those who were not. The two factions occasionally got entangled in violent clashes and confrontations.

10 December 1996 à HARBCO acquired legal personality through registration with the Cooperative Development Authority (CDA)

April 1999 àA reconciliation process between the two factions was undertaken with some of those who were against the BSMA with HPI re-joined the main group.

July 1999 à HPI assigned its rights over the BSMA to Lapanday Foods Corporation (LAPANDAY) which is owned and ran by the Lorenzo family in Davao.

10 August 1999 à most violent clash of the two factions occurred wherein 2 HPI employees were killed and some 30 ARBs were injured

From 2000-2003 à HARBCO experienced growth until 2004 when an alleged aerial spraying sabotage was discovered. The said sabotage led to decreasing farm production and increasing liabilities to LAPANDAY in the succeeding years.

18 December 2008 à LAPANDAY took over the operations of the cooperative’s farm and HARBCO at that time had an outstanding account of Php 115 million with LAPANDAY.

“takeover” à it was initiated on the basis of Article X Paragraph 1 of the BSMA which granted LAPANDAY the right to take over and handle the farm operations of HARBCO if it deemed that “the success of the crop is endangered” by HARBCO’s failure to follow LAPANDAY’s “prescribed cultural practices.”

The “takeover” was to be for a period of 2 years – subject to extension if there were still unpaid accounts owed by HARBCO to LFC at the end of the 2-year period.

However, up to this day, HARBCO’s farm has remained under the control of LAPANDAY as the former’s debt to the latter has remained unpaid and has even ballooned to Php 290.8 million (as of 15 July 2012)

General Framework on Farm Handling (GFFH)  à In line with LAPANDAY’s take-over of the operations of HARBCO’s farm, a second contract, the GFFH, was executed by the cooperative and LAPANDAY. This contract established the “guidelines” to be followed in LAPANDAY’s takeover of the cooperative’s farm operations.

The “contractà The main cause for current dire situation of HARBCO can be traced back to their signing of the grossly disadvantageous BSMA/contract with the former landowner (i.e. HPI) of the land awarded to them.

Said contract provided for the following controversial provisions:

  1. Section 1: HARBCO could not reduce their farm area without “prior clearance” from HPI/LAPANDAY and, if the former expanded their farm, HPI/LAPANDAY would have right of first refusal to the produce of the expansion area;
  2. Section 3 A.1: Set the buying price for bananas produced for the Japan market at U.S. $ 2.10 per 13 kg. (net) box;
  3. Section 3 A.2: All outstanding accounts and compensation due to HARBCO and loans guaranteed by HPI/LAPANDAY shall be first deducted from the gross sales proceeds before payment and that HPI/LAPANDAY shall have first lien over HARBCO’s sales proceeds including subsequent ones until HARBCO’s account is fully paid;
  4. Section 3 A.4: Conduct of a price review at least every two years or sooner should there be an increase of 5% in the price of imported inputs;
  5. Section 4.1: HARBCO cannot sell, dispose of, transfer, assign or lease in favor of any third party the land including the crops planted on it and permanent improvements introduced by HPI/LAPANDAY without the prior written consent of the latter;
  6. Section 4.2: HARBCO cannot mortgage or encumber the land without the prior written consent of HPI/LAPANDAY;
  7. Section 4.4: If ever HARBCO decides to sell or dispose of the land, HPI/LAPANDAY or its nominees shall have the right of first refusal, pre-emption and redemption;
  8. Section 4.5.d: HARBCO shall allow HPI/LAPANDAY or its agent to carry out aerial leaf disease control activities charged to the cooperative’s account;
  9. Section 4.5.g: HARBCO cannot inter-crop between the banana hills without the prior written authorization from HPI/LAPANDAY;
  10. Section 4.5.j: HPI/LAPANDAY shall be the only exporter of the bananas of HARBCO and, if HARBCO sells their banana to another party, it shall pay HPI/LAPANDAY U.S. $ 2.10 per 13 kg. (net) box sold to such third party;
  11. Section 4.5.j & k:  HPI/LAPANDAY shall have the right to reject any time prior to its loading to their cargo trucks all bananas that do not meet their quality and grade standard.  However, bananas rejected by the foreign buyers shall be replaced and the cost of the replacement bananas shall be charged to HARBCO;
  12. Section 4.5.l: HPI/LAPANDAY shall have the first option to purchase rejected bananas;
  13. Section 4.5.m: HARBCO cannot sell or dispose of banana seeds and seedlings from the far, without prior clearance from HPI/LAPANDAY;
  14. Section 5.d: Upon expiration of the agreement, HPI/LAPANDAY shall still have the “right of first refusal over matters that concerns the purchase and marketing of Cavendish bananas” of the cooperative;
  15. Section 6: HPI/LAPANDAY shall provide the technology/technical services necessary for growing the bananas but it shall not be liable for any loss or damage to the farm that may be deemed to have resulted in the technical advice given or services rendered;
  16. Section 9: HPI/LAPANDAY shall have the right to assign the said agreement to other parties with the written approval of HARBCO; and,
  17. Section 10.1: On the other hand, HPI/LAPANDAY shall have the right to handle the operation of HARBCO’s farm if in HPII/LAPANDAY’s “opinion” that the “success of the crop is endangered” due to HARBCO’s failure to follow HPI/LAPANDAY’s “prescribed cultural practices.”

 

Fixed low buying price à As stated in the BSMA, the buying price was set at $2.10 per 13 kg. box.  HARBCO claimed that in spite of the provision for the conduct of a “price review” every two years the buying price was never adjusted.  Worse was that the buying price remained the same for ten years even as the cost of production had already significantly increased through the years.

Replacement of rejected bananas at the foreign port charged to HARBCO à Also provided in the BSMA was the provision for the charging to HARBCO of replacement bananas for those rejected at the foreign port.  With HARBCO already losing money with the very low buying price of LAPANDAY, the cooperative further lost more money whenever bananas that LAPANDAY already bought and shipped to the importing country (i.e. Japan) were rejected at the port of destination.  The cost of replacement bananas, which were bought in the country of destination, was at around $8.50 per 13 kg. box.  Thus, HARBCO was charged the difference between LAPANDAY’s buying price of $2.10 and the cost of the replacement bananas (i.e. $8.50).

 The “chemical scam” à Officers of HARBCO also claimed that some ARB members of the other cooperatives in the Hijo plantations were involved in sabotaging the aerial spraying operations for the plantations.  They, claimed that the mixture of the aerial sprays were diluted resulting in poor production which eventually resulted in the eventual takeover by LAPANDAY of the HARBCO farm.  They claimed that the said scam resulted in an opportunity lost of some P78 million.

2011 Operations Review of HARBCO done by LBP à the review showed that the coop’s losses are due to:

  1. uncompetitive and unvarying contracted buying price versus prevailing price; and,
  2.  “under-application of right dosage” of chemical fertilizer, which resulted to an estimate of Php 78 million-opportunity lost;

 

Other constraints:

  1. The situation of HARBCO can also be attributed to the ARBs’ lack of capacity and experience in evaluating business contracts and therefore did not realize at that time the implications of the provisions of the contract they signed.
  2. No social preparation, capacity-building and assistance were given by the DAR, to the ARBs to better equip them in the negotiation for and evaluation of the agreement, as provided in DAR  AO 09-2006[1].
  3. Another key factor would be that former members of the HPI management, who were also identified as CARP beneficiaries, participated in the negotiations for the contract.  Being former employees of HPI, said staff may have been beholden to the former landowner and facilitated or, at least did not properly advice the inexperienced officers of the newly established cooperative.
  4. Officials of the HARBCO, being farm workers may have had no capacity and experience in evaluating business contracts and therefore did not realize at that time the implications of the provisions of the contract they signed.
  5. The existence of pro-BSMA and anti-BSMA factions may also indicate that the majority of the ARBs/farmworkers (who comprised the pro-BSMA faction) were pro-HPI and may have also been beholden to their former landowner/employer.

Reference:

AR Now! (2013). “Agricultural Land Grabbing through Agribusiness Venture Arrangements with ARBs” Quezon City, Philippines



[1] Department of Agrarian Reform Administrative Order No. 9, Series of 2006: Revised Rules and Regulations Governing Agribusiness Venture Arrangements (AVAs) in Agrarian Reform Areas

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