PAICORA CORPORATIVE OF RICE FARMERS

The Pro-Active Role of One Network Rural Bank in Southern Philippines

in Empowering Small Farmers to InvestIn Processing Infrastructure

presented by:

Alex V. Buenaventura“ FINANCING THE AGRICULTURAL VALUE CHAIN “ CONFERENCE

Organized by: UNCTAD, FAO, MCX India, State Bank of India Grand Hyatt Hotel, Mumbai, 15-17 March, 2007

PRESENTATION OUTLINE

I. WHAT IS A CORPORATIVE ? II. CHALLENGES FOR SUSTAINABILITYIII. FARMERS PRODUCTIVITY: A NEGLECTED INGREDIENT

FOR SUSTAINABILITYIV. INTEGRATED AGRI-FINANCE STRATEGYV. ONE RICE PROGRAMVI. ONE BANANA PROGRAMVII. ONE SUGAR PROGRAMVIII. HOW TO REPLICATE INTEGRATED AGRI-FINANCE

SCHEMESIX. REPLICATIONS UNDERGOING NEGOTIATIONS

WHAT IS A CORPORATIVE ?A CORPORATIVE IS A PRIVATE STOCK FOR-PROFIT CORPORATION

ORGANIZED AND CONTROLLED BY A CREDITOR BANK/INSTITUTION

IN PARTNERSHIP WITH ITS SMALL BORROWERS/PRODUCERS FOR NEEDED BUT CAPITAL INTENSIVE SUPPORT FACILITIES

LIKE A VENTURE CAPITALIST, THE CREDITOR BANK THROUGH TIME DILUTES OR DIVESTS MAJORITY CONTROL IN FAVOR OF ITS PARTNER BORROWERS AND

ULTIMATELY, THE CORPORATION IS CONVERTED INTO A COOPERATIVE

PAICOR: The 1st CORPORATIVE PANABO AGRO-INDUSTRIAL CORPORATION, INC. PRINCIPAL PURPOSE: RICE TRADING/MILLING REGISTERED ON FEBRUARY 1986 INITIAL CAPITAL STRUCTURE: SUBSCRIBED PAID-UP 1 BANK (RBP*) 40 % $ 7,143 $ 7,143 43 BANK OWNERS 15 % $ 2,679 $ 714 185 RICE FARMERS 45 % $ 8,036 $ 357 TOTAL 100 % $17,858 $ 8,214** *RURAL BANK OF PANABO (now consolidated with One Network Bank)

**EXCHANGE RATE: PhP 56 : US$ 1

BECAME PAICOP, A COOP, ON APRIL 22, 1992

PAICOR BENEFITS FOR FARMERS “INSTANT” RICE MILLING COMPLEX PROFESSIONAL MANAGEMENT (BANK) TIMELY/ADEQUATE LOANS ASSURED MARKET LOWER COST OF INPUTS YEAR END DIVIDENDS ASSURED OWNERSHIP INCREASE

PAICOR BENEFITS FOR THE BANK MORE PRODUCTION LOANS MORE FIXED ASSET LOANS MORE WORKING CAPITAL LOANS COLLECTION-IN-KIND CAPABILITY YEAR END DIVIDENDS

CORPO FOUNDATION CORPORATIVE SYSTEMS

FOUNDATION,INC. A NON-STOCK, NON-PROFIT

CORPORATION Registered in January 7, 2000 ORGANIZED BY ONE NETWORK BANK ( a

consolidation of 3 banks: Rural Bank of Panabo, Network Rural Bank & ProBank

TO REPLICATE PAICOR CORPO soon created DASURAICOR

DASURAICOR: The 2nd PAICOR DAVAO DEL SUR AGRO-INDUSTRIAL CORPORATION, INC.

Registered on March 8, 2000

INITIAL CAPITAL STRUCTURE: SUBSCRIBED PAID-UP 1 BANK (ONB*) 59 % $ 211,340 $ 211,340 1 LAND BANK** 40 % $ 142,857 $ 142,857 182 RICE FARMERS 1 % $ 2,946 $ 2,946 TOTAL 100 % $ 357,143 $ 357,143 * One Network Bank ** LAND BANK “ACCESS “ PROGRAM (a special venture capital facility ) CORPORATE BY LAWS PROVIDE FOR AUTO DIVESTMENT OF COMMON

EQUITY SHARES INITIALLY BY LAND BANK AND THEN BY ONB IN FAVOR OF FARMERS

TO DATE, DASURAICOR HAS NOT BEEN CONVERTED TO A COOP YET SINCE FARMERS EQUITY IS STILL MINORITY

CHALLENGES FOR SUSTAINABILITY ACTUAL # # NET INCOME PERFORMANCE FARMERS HECTARES AFTER TAX PAICOR: 1986 229 354 ( $ 49 ) AVE: 1987-1990 227 350 $ 2,539 1991 222 335 ( $ 4,379 )PAICOP: 1992 274 393 $ 4,089 1993 275 394 $ 4,988 AVE:1994-1998 274 410 $18,034 AVE:1999-2002 270 440 ( $21,223 )* 2003 239 421 $ 4,277 2004 225 170 ( $19,089 )* 2005 176 104** $ 9,294 DASURAICOR:2000 182 321 $15,831 2001 192 378 $ 279 2002 207 385 ( $28,515 )* 2003 102 226 ( $19,956 )* 2004 141 248 ( $12,375 )* 2005 218 565*** ( $15,882 )*

*NET LOSSES IN OPERATIONS OF BOTH PAICOP AND DASURAICOR

**71 % DROP IN PAICOP FARMERS’ RICE PLANTED HECTARAGE ***76 % INCREASE IN DASURAICOR FARMERS’ RICE PLANTED HECTARAGE

SOLUTIONS TO NET LOSSES IN OPERATIONS LOSSES DUE TO PADDY SPOILAGE

(2001-2005) IS NOW SOLVED BY SHIFTING AWAY FROM “SOLAR PAVEMENT” TO “ RICE HULL FED MECHANICAL “ DRYERS

LOSSES DUE TO DEPRESSED MARKET PRICES (2001-2003 ) IS NOW MINIMAL WITH THE DROP IN REPORTED SMUGGLING OF RICE

WHY 71 % DROP IN NUMBER OF PAICOP FARMERS’ HECTARAGE ? BECAUSE OF UNPROFITABILITY OF RICE

FARMING CAUSED BY PERENIAL CROP FAILURES & LOW PRODUCTIVITY!!!

AS A CONSEQUENCE THERE IS MIGRATION TO A MORE PROFITABLE CROP (CAVENDISH BANANA)

FARMERS PRODUCTIVITY:A NEGLECTED INGREDIENT FOR SUSTAINABILITY INSPITE OF FULL FINANCING SUPPORT FROM THE BANK INSPITE OF MARKETING SUPPORT FROM THE

CORPORATIVE RICE MILLS PARTNER FARMERS REMAINED POOR BECAUSE THEIR

PRODUCTION LEVELS REMAINED LOW !!! THE SOLUTION: ONE RICE PROGRAM or “ORP” --- A

SUPERVISED PRODUCTION- CUM-CREDIT SYSTEM WHERE FARMERS ARE UNDER GROWERS CONTRACT TO ADOPT BEST PRACTICES AS PRECRIBED BY BANK AGRI TECHNICIANS AND TO PRODUCE A MINIMUM OF 6 TONS PER HECTARE EACH HARVEST OTHERWISE BE EXPELLED FROM ORP

WHY 76 % INCREASE IN NUMBER OF DASURAICOR FARMERS’ HECTARAGE?BECAUSE RICE FARMING IS NOW MADE PROFITABLE BY THE ONE RICE PROGRAM—A SUPERVISED PRODUCTION TECHNOLOGY THAT IS: RISK FREE ( STEMBORER PROBLEM IS ELIMINATED BY

TIMING PANICLE EMERGENCE DURING THE LAST QUARTER MOON WHEN THE NIGHT IS TOO DARK AND THE NOCTURNAL STEMBORERS CANNOT MATE AND MULTIPLY); AND

HIGH-YIELD (CURRENT AVERAGE IS 7.2 TONS PER HECTARE PER HARVEST VS. PREVIOUS AVERAGE OF ONLY 4.4 TONS; TARGET IS 8.3 TONS); AND

LOW COST ( HARDLY ANY USE OF PESTICIDES )

INTEGRATED AGRI-FINANCE STRATEGYONB WILL PROVIDE CREDIT TO SMALL FARMERS EVEN WITHOUT SOLID COLLATERALS PROVIDEDTHEIR PROFITABILITY IS ASSURED BY THEFOLLOWING CRITICAL VALUE CHAIN FACTORS:

PRODUCTION TECHNOLOGY IS RISK FREE AND GLOBALLY COMPETITIVE IN TERMS OF YIELD PRODUCT HAS AN ASSURED LONG-TERM BUYER PROCESSING INFRASTRUCTURE IF NEEDED, IS

PUT UP AND CO-OWNED BY THE FINANCED FARMERS THE “CORPORATIVE” WAY

One Rice Program PRODUCTION -STANDARD: 8 TONS PER HARVEST/HECTARE -TECHNOLOGY: ORP TECHNOLOGY DEVELOPED BY CORPO FOUNDATION

LONG-TERM BUYER: DASURAICOR CORPORATIVE @ PREVAILING MARKET PRICES QUADTRI-PARTITE CONTRACT: FARMER-CORPO FOUNDATION- DASURAICOR-ONB

COLLECTION SYSTEM: DASURAICOR PAYS FARMERS TRU ONB

FARMER’S NET INCOME/YR: $ 1,894* PER HECTARE ( $ 947/HA/HARVEST X 2/YR ) *at actual ave yield of 6.9 tons/ha/harvest $ 2,434**PER HECTARE ( 1,217/HA/HARVEST X 2/YR ) **targetted yield of 8.3 tons/ha/harvest

ONE BANANA PROGRAM

PRODUCTION -STANDARD: 5,000 CLASS-A BOXES(13.5 KGS/BOX) PER HA/YR

-TECHNOLOGY: MATURED CAVENDISH BANANA GROWING TECHNOLOGY DEVELOPED BY ONB-ACCREDITED

MULTINATIONAL BUYERS/EXPORTERS

LONG-TERM BUYERS: ONB-ACCREDITED BUYERS: STANFILCO/DOLE GLOBAL FRUITS CORP UNIFRUTTI @ US$ 2.40 PER BOX (FIXED FOR 10-15 YEARS) TRI-PARTITE AGREEMENT: FARMER – BUYER – ONB (MOA + Banana Production & Purchase Agreement) COLLECTION SYSTEM: BUYER PAYS FARMERS THROUGH ONB

FARMER’S NET INCOME/YR: $ 3,600 ACTUAL AVE PER HECTARE ( MONTHLY NET INCOME RANGES FROM $ 150 TO $ 500 PER HA)

One Sugar Program

UNDER PILOT TESTPRODUCTION -STANDARD: 100 TONS CANE PER HA/YR (MIN LSTC= 2)

-TECHNOLOGY: DEEP-PLOWING TECHNOLOGY ( VERSUS OLD SHALLOW-PLOWING PRACTICE THAT YIELDS ONLY 60 TONS CANE PER HA/YR) DEVELOPED BY ONB-ACCREDITTED

SUGAR MILL/BUYER

LONG-TERM BUYER: COTABATO SUGAR CENTRAL COMPANY @ PREVAILING MARKET PRICES TRI-PARTITE AGREEMENT: FARMER - BUYER – ONB (MOA+Milling Contract)

COLLECTION SYSTEM: BUYER PAYS FARMERS THROUGH ONB

FARMER’S NET INCOME: $1,370 PER HECTARE PER YEAR

HOW TO REPLICATE INTEGRATED AGRI-FINANCE SCHEMES LOOK FOR A LONG-TERM BUYER VALIDATE IF PRODUCTION TECHNOLOGY IS MATURE &

RISK-FREE ESTABLISH WITH LONG-TERM BUYER WHAT PRODUCTION

VOLUME STANDARD SHOULD BE COMPUTE IF FARMERS WILL MAKE GOOD MONEY ORGANIZE FARMERS & CREATE A CORPORATIVE

PROCESSING FOR THEM IF NEEDED BANK DEPLOYS A LOAN OFFICER WHO IS AN AGRI

TECHNICIAN MAINLY RESPONSIBLE FOR FARMERS ACHIEVING PRODUCTION VOLUME STANDARDS RATHER THAN PURELY SCREENING & PROCESSING LOANS

MAKE A WELL CRAFTED MULTI-PARTITE AGREEMENT BETWEEN FARMER, BUYER, CORPORATIVE PROCESSOR & BANK

UNDER NEGOTIATIONONE PINEAPPLE PROGRAM LONG-TERM BUYER : DOLE PHILIPPINES MATURE & RISK-FREE TECHNOLOGY PRODUCTION & INCOME STANDARD/HA:

90 M. TONS & $ 1,800/HA-PLANT CROP

65 M. TONS & $ 1,240/HA-RATOON CROP

UNDER NEGOTIATIONONE CASSAVA PROGRAM LONG-TERM BUYER : SAN MIGUEL

FOODS, INC. MATURE & RISK-FREE TECHNOLOGY PRODUCTION STANDARD/HA/YR: 51 M. TONS NET INCOME/HA/YR: $ 1,080

END OF PRESENTATION