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PAICOR

PAICOR. The “Corporative” Way of Providing Access to Post Harvest Infrastructure for Small Rice Farmers in Panabo, Southern Philippines An Option for Financial Institutions in Analyzing & Financing Value Chains presented by: Alex V. Buenaventura 3 rd AFRICAN MICROFINANCE CONFERENCE

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PAICOR

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  1. PAICOR The “Corporative” Way of Providing Access to Post Harvest Infrastructure for Small Rice Farmers in Panabo, Southern Philippines An Option for Financial Institutions in Analyzing & Financing Value Chains presented by: Alex V. Buenaventura 3rd AFRICAN MICROFINANCE CONFERENCE Hosted by AMFIU & Supported by The Ministry of Finance of Uganda Speke Resort Munyonyo, Kampala, Uganda, 20-23 August, 2007

  2. PRESENTATION OUTLINE • THE FIRST AGRI CREDIT STRATEGY: ACCESS TO A “CORPORATIVE” POST HARVEST • WHAT IS A “CORPORATIVE” ? • PAICOR: THE FIRST “CORPORATIVE” POST HARVEST • CORPO FOUNDATION: TO REPLICATE “CORPORATIVES” • DASURAICOR: THE SECOND “CORPORATIVE” • PRODUCTIVITY: A NEGLECTED INGREDIENT FOR FARMERS PROFITABILITY & SUSTAINABILITY • SUPERVISED PRODUCTION: ONB’s NEW AGRI CREDIT STRATEGY • ONE AGRI PROGRAMS OF ONB • HOW TO REPLICATE SUPERVISED AGRI- PRODUCTION FINANCING SCHEMES

  3. THE FIRST AGRI CREDIT STRATEGY:ACCESS TO “CORPORATIVE“ POST HARVEST TO COLLECT RICE PRODUCTION LOANS, THE RURAL BANK OF PANABO FELT THE NEED TO PROVIDE ACCESS TO A “FRIENDLY” POST HARVEST FACILITY TO ASSURE FINANCED FARMERS A READY MARKET FOR THEIR PRODUCE AND TO ENABLE THE BANK TO COLLECT IN KIND FROM THEIR FINANCED FARMERS (CIRCA MID 80’s)

  4. WHAT IS A CORPORATIVE ? A CORPORATIVEIS A • PRIVATE STOCK FOR-PROFIT CORPORATION • ORGANIZED AND CONTROLLED BY ACREDITOR BANK/INSTITUTION • IN PARTNERSHIP WITH ITSSMALL BORROWERS/PRODUCERS • FOR NEEDED BUT CAPITAL INTENSIVE SUPPORT FACILITIES • LIKEA VENTURE CAPITALIST, THE CREDITOR BANK THROUGH TIMEDILUTES OR DIVESTS MAJORITY CONTROLIN FAVOR OF ITS PARTNER BORROWERS; AND • ULTIMATELY, THECORPORATION IS CONVERTED INTO A COOPERATIVE

  5. PAICOR: The 1stCORPORATIVE • PANABO AGRO-INDUSTRIAL CORP., INC. • PRINCIPAL PURPOSE: RICE TRADING/MILLING • REGISTERED ON FEBRUARY 1986 • INITIAL CAPITAL STRUCTURE: SUBSCRIBED PAID-UP 1 BANK (RBP*) 40 % $ 8,696 $ 8,696 43 BANK OWNERS 15 % $ 3,261 $ 869 185 RICE FARMERS 45 % $ 9,783 $ 435 TOTAL 100 % $21,740** $ 10,000** *RURAL BANK OF PANABO (now One Network Rural Bank) **EXCHANGE RATE: PhP 46 : US$ 1 • BECAME PAICOP, A COOP, ON APRIL 22, 1992

  6. PAICOR BENEFITS FOR FARMERS • INSTANT ACCESS TO OWNED RICE MILLING COMPLEX • PROFESSIONAL MANAGEMENT BY BANK • TIMELY/ADEQUATE LOANS • ASSURED MARKET • LOWER COST OF INPUTS BOUGHT IN BULK • YEAR END DIVIDENDS • ASSURED OWNERSHIP INCREASE

  7. PAICORBENEFITS FOR THE BANK • MORE PRODUCTION LOANS • MORE FIXED ASSET LOANS • MORE WORKING CAPITAL LOANS • COLLECTION-IN-KIND CAPABILITY • YEAR END DIVIDENDS

  8. CORPO FOUNDATION: TO REPLICATE “CORPORATIVES” • 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 REPLICATEPAICOR • CORPO soon created DASURAICOR

  9. 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 % $ 257,283 $ 257,283 1 LAND BANK** 40 % $ 173,913 $ 173,913 182 RICE FARMERS 1 % $ 3,587 $ 3,587 TOTAL 100 % $ 434,783*** $ 434,783*** * One Network Bank ** LAND BANK “ACCESS “ PROGRAM: A Venture Capital Facility ***EXCHANGE RATE: PhP 46 : US$ 1 • 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

  10. CHALLENGES FOR SUSTAINABILITY ACTUAL # # NET INCOME PERFORMANCEFARMERS HECTARESAFTER 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** $ 9,2`94 2006 35 56** ( $22,214 )* 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 219 383 ( $15,882 )* 2006 257 444*** ( $34,545 )* *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

  11. 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

  12. 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)

  13. PRODUCTIVITY:A NEGLECTED INGREDIENT FOR FARMERS PROFITABITY & 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 PRESCRIBED BY BANK AGRI TECHNICIANS AND TO PRODUCE A MINIMUM OF 6 TONS PER HECTARE EACH HARVEST OTHERWISE BE EXPELT FROM ORP

  14. 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)

  15. SUPERVISED PRODUCTION: ONB’s NEW AGRI CREDIT STRATEGY ONB AGRI TECHNICIANS WILL SUPERVISE THE PRODUCTION PRACTICES OF FINANCED FARMERS TO ENSURE THEIR PROFITABILITY WITHIN THE FOLLOWING CRITICAL VALUE CHAIN FACTORS: • TECHNOLOGYIS RISK FREE • 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

  16. ONE AGRI PROGRAMS OF ONB • ONE RICE PROGRAM ------ EXISTING • ONE BANANA PROGRAM ---- EXISTING • ONE SUGAR PROGRAM ------ ON PILOT • ONE CASSAVA PROGRAM -- ON PILOT • ONE PINEAPPLE PROGRAM- FOR PILOT • ONE PALM OIL PROGRAM -- ON STUDY • ONE RUBBER PROGRAM --- ON STUDY

  17. One Rice Program EXISTING: • 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(ORPCMA:One Rice Purchase, Credit & Mktg Agreement) • COLLECTION SYSTEM: DASURAICOR PAYS FARMERS THRU ONB • FARMER’S NET INCOME/YR: $ 2,306* PER HECTARE ( $1,153/HA/HARVEST X 2/YR ) *at actual ave yield of 6.9 tons/ha/harvest $ 2,963**PER HECTARE ( $1,482/HA/HARVEST X 2/YR ) **targetted yield of 8.3 tons/ha/harvest

  18. One Banana Program EXISTING: • PRODUCTION -STANDARD: 5,000 CLASS-A BOXES(13.5 KGS/BOX) PER HA/YR -TECHNOLOGY: MATURED CAVENDISH BANANA GROWING TECHNOLOGY DEVELOPED OVER 35 YEARS BY LONG-TERM BUYERS • LONG-TERM BUYERS: ONB-ACCREDITED BUYERS: DOLE Del Monte/Lapanday SUMIFRU UNIFRUTTI @ US$ 2.40 PER BOX (FIXED FOR 10-15 YEARS) • TRI-PARTITE AGREEMENT: FARMER – BUYER – ONB (BPPA: 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)

  19. One Sugar Program UNDER PILOT TEST: PRODUCTION -STANDARD: 100 TONS CANE PER HA/YR (MIN LSTC= 2) -TECHNOLOGY: DEEP-PLOWING TECHNOLOGY DEVELOPED BY SUGAR MILL/BUYER • LONG-TERM BUYER: COTABATO SUGAR CENTRAL COMPANY @ PREVAILING MARKET PRICES • TRI-PARTITE AGREEMENT: FARMER - BUYER – ONB (OSPCMA: One Sugar Purchase, Credit & Marketing Agreement) • COLLECTION SYSTEM: BUYER PAYS FARMERS THROUGH ONB • FARMER’S NET INCOME: $1,370 AVE. PER HA. PER YR.

  20. One Cassava Program UNDER PILOT TEST: • LONG-TERM BUYER : SAN MIGUEL FOODS, INC. • MATURE & RISK-FREE TECHNOLOGY • PRODUCTION STANDARD: 51 M. TONS/10 MONTHS • AVE. NET INCOME/HA/YR: $ 1,080

  21. One Pineapple Program UNDER NEGOTIATION FOR PILOTTING: • LONG-TERM BUYER : DOLE & Del Monte • MATURE & RISK-FREE TECHNOLOGY • PRODUCTION & INCOME STANDARD/HA: 90 M. TONS & $ 1,800/HA-PLANT CROP 65 M. TONS & $ 1,240/HA-RATOON CROP

  22. OTHERONE AGRI PROGRAMS UNDER STUDY W/ LONG-TERM BUYERS: • ONE PALM OIL PROGRAM --- AGUMIL (A MALAYSIAN PALM OIL MILLER) • ONE RUBBER PROGRAM --- LOOKING FOR AN INTEREST LONG-TERM BUYER

  23. 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

  24. THANK YOU UGANDA END OF PRESENTATION

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