The Agricultural Free Patent Reform Act President Rodrigo Duterte is now set to sign shortly, is expected to “deliver a huge and immediate impact on the economy, on investments in the countryside and on inclusive growth” from the agriculture sector.
Principally authored by Albay Rep. Joey Sarte Salceda in the House, HB 8078 was merged with Senate Bill 1454 and hurdled the legislature’s bicameral conference committee recently. It will remove major restrictions provided under Commonwealth Act No. 141 governing the land patent program, easing up certain prohibitions in granting public farmlands to qualified beneficiaries.
Salceda said the new law will now empower qualified farmland beneficiaries to legally manage and improve the land as a viable source of livelihood. “For a country that has its roots on agriculture it is sad to note that agriculture only contributes 8.5% to the Gross Domestic Product in 2017, “ Salceda said. He and Sen. Richard Gordon, who authored the Senate version, agree that the new law “is a game-changer.”
The Commonwealth Public Land Act prohibits landowners to sell and mortgage the land within the first five years of the patent grant and gives the option to the original owner to buy back the property within five years from the date of sale. The restrictions have made agricultural patents unbankable since banks do not want to hold a property for five years before its disposition.
Salceda said these restrictions have given poor farmers limited options to obtain funds to modernize and hike farm productivity and investing in their improvement. Among the culprits in the government’s failure to maximize farm production, he noted, are the lack of modernization and inadequate or improper use of inputs to increase production and make farms as viable sources of economic growth for farmers, the community and the country as a whole.
“Obtaining funds for capitalization by farmers to become farmer-entrepreneurs is very difficult,” and “access to credit has always been problematic for the poor,” he pointed out, adding that “without new funds, Filipino farmers will remain stagnant with little hope of crossing over to the other side of the poverty line.”
Banks and financial institutions require borrowers to secure loans with collaterals but farmers almost always have no assets to use as collateral other than the lands they till.” This situation, Salceda noted, is reflected in the poor compliance by banks to the Agri-Agra Reform Credit Act of 2009, with banks only allocating 1.05% of their loan portfolio for agrarian reform credit vs. the 10% required compliance and 12.83% allocation for agricultural credit.
The Public Land Act of 1936 remains as the applicable statute on the grant of public lands to qualified beneficiaries, which prohibits them to “to sell, convey or mortgage the land except to government financial institutions for five years after the grant.” There are about 2.5 to 3 million of these agricultural patents covered by this restriction, or nearly 25% of the 12 million registered patents, that cannot be mortgaged or sold, except in the informal markets where their value remains depressed.
This provision, Salceda said, unduly restricts farmer beneficiaries’ access to credit to infuse much-needed capital, and they “are not free to decide on the future of their farmlands as the restrictions hamper their source of capital.” This is further compounded by the right granted to heirs of the original landowner to repurchase the property within five years.
These restrictions, he noted, tend to increase transaction costs and deter investments, but once removed, the power of freer land markets is unleashed and credit will now be made more freely available to farmer beneficiaries. Bankers, particularly rural bankers and thrift bankers, who heretofore could not extend credit because of the prohibition of lending without secure collateral, will welcome an increase in the number of unrestricted properties as collateral for loans, he pointed out.
“If we remove these Commonwealth-era restrictions, a tremendous amount of capital can be unleashed providing farmers with much-needed funds to improve their farms. The state will benefit from the increase in lending activities and documentary taxes and other taxes related to credit growth; and, from the increase in land transactions and related taxes,” he said.
Salceda said the new measure will empower farmers and give them options on what they can do with the land, such as borrowing with the land to develop it or selling the land to a more productive farmer.