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Land reform has eroded economies of scale

"A tractor is not a sound-or bankable-proposition with the small holdings into which CARP has chopped up this countryís cultivable land."

 

In a show of concern for the economic situation of this country’s farmers, the proponents of the newly passed Rice Tariffication Act provided in that piece of legislation for the allocation of a fixed percentage of the derived revenues to a fund for financing farmers’ acquisition of mechanical equipment. Mentioned in the approved bill are tractors, threshers and driers.

The pro-tariffication legislators must be pleased with themselves, thinking that they have struck a mighty blow for the mechanization of Philippine agriculture. During the course of the debates on the proposed Tariffication Act, legislators often used the words “mechanize” and “mechanization” when speaking about the level of productive efficiency of Philippine farms. Giving Filipino farmers access to mechanical equipment like tractors, threshers and driers would, they said, help close the wide gap between the per-hectare yields of Philippine rice farms, which on the average produce only half as much rice per hectare as Thai farms. With the higher yields resulting from mechanized farming, inexpensive-rice shortages would become things of the past.

Unfortunately, in their professed desire to provide assistance to Filipino farmers, the representatives and senators forgot one very important fact: CARP (the Comprehensive Agrarian Reform Program) had chopped up the large- and medium-size farms of this country into lots of little pieces of agricultural land. In the process, the soundness of introducing mechanized farming and the prospect of achieving economies of scale—have been eroded.

Buying a tractor and employing other kinds of agricultural equipment is a sound business decision for a Filipino farmer who has (or had, in the pre-CARP era) a farm of, say, 50 hectares or more, but it makes no sense for a present-day farmer tilling, say, 10 hectares or less. The reason: Economies of scale are provided only with large-scale or medium-scale operations. The monthly amortization payments on a tractor or thresher cannot be covered by a small farm’s output. The cost of operating a tractor—fuel, maintenance cost and the salary of the operator—needs to be spread over many hectares; this is not possible with a small, CARP-allotted farm.

Moreover, a prospective lender to a mechanizing farmer—say, a rural or a development bank—will be reluctant to give credit to a small farmer for purchases of mechanical equipment, fearing that his small farm will not be able to generate income sufficient to cover the amortization payments. Because of the scale of his operation, the small farmer is a problematic borrower.

It is music to the ears hearing that Philippine farms should be mechanized. But that is not the reality on the ground. Agricultural mechanization must be capable of generating economies of scale if it is to be financially workable, and economies of scale are possible only from sufficiently large farms. A tractor is not a sound—or bankable—proposition with the small holdings into which CARP has chopped up this country’s cultivable land.

The reader should not get me wrong. I am not against long-time tenants being given, by law, the opportunity to gain ownership of the land that they have long tilled, not at all. All I am saying is that Philippine agricultural mechanization cannot just be wished, as many representatives and senators have been doing. The post-CARP realities on the ground have to be recognized. And those realities render the idea of mechanized Philippine agriculture unrealistic. 

Clearly, the Rice Tariffication Act’s proponents forgot about CARP when they spoke about agricultural mechanization.

Topics: Rice Tariffication Act , Philippine agriculture , Comprehensive Agrarian Reform Program , Agriculture

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