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AGRIBUSINESS MANAGEMENT DEVELOPMENT
IN THE PRESENT PHILIPPINE CONTEXT

Manuel Q. Lim, Jr.,
Management Association of the Philippines

 

I. LIMITS OF AGRIBUSINESS

Agribusiness here encompasses primary production, upstream economic activities related to the production and distribution of all inputs and services used in on-farm production, and downstream industries involving all of processing, manufacturing, transportation, and related services involved in transforming raw agricultural produce into finished products for domestic consumption or export.

II. SOME EXIGENCIES IN AGRICULTURAL PRODUCTION

1)

In the Philippines, this is mainly the Comprehensive Agrarian Reform Law. The basic law was enacted in 1988 authorizing the government to acquire by purchase all agricultural lands in excess of five hectares per landowner plus three hectares per landowner’s qualified dependent, for distribution by sale to tenants, farm workers, and other qualified landless individuals. Later amendments exempted lands used for livestock production and aquaculture, and encouraged private parties to take part in the programme through Agribusiness Venture Agreements, “Build-Operate-Transfer” Schemes, and other arrangements.

The programme obviously affected the commercial farms when transferring ownership and management of many farming enterprises to relatively inexperienced and ill-prepared farmworkers. Investments were also drastically reduced in these cases. Where commercial farmers were still lined up for acquisition, investments were understandably reduced. In some cases, there was even divestment.

These disruptive effects were attenuated only where the acquired and distributed lands were leased back to the former owners or entrepreneurs, or where the farm workers opted for equity participation in the existing corporations. Still, there were cost increases.

Another factor is the Food Security Programme. This has placed production of staple crops on high priority, mainly rice and white corn. For these crops, the objective is not only adequacy but sufficiency -- at affordable prices. This could create tension between following a high priority government programme and higher returns in other crops.

2. Internationally, the Philippines acceded to the World Trade Organization and the ASEAN Free Trade Agreement. In addition there are the Brunei-Indonesia-Malaysia- Philippines East ASEAN Growth Area and the Asia Pacific Economic Cooperation.

The main end result of these agreements is a borderless economy. For agriculture and agro-industrial products this obviously calls for global competitiveness, in a few years. For the Philippines, it means even as the new agricultural entrepreneurs are quickly learning to walk, they have to run -- TO EVEN SURVIVE.

III. SOME RESULTING IMPERATIVES

1) Economically, agricultural enterprise has to attain better profitability to stay in business, both at home as well as abroad. But agriculture has to run faster than just to stand still, otherwise it would weigh down on the country’s growth. To attain this higher profitability, the government will certainly have to invest more in terms of roads, irrigation, communications, power, and other agricultural infrastructure, as well as in research and development and in extension. But private business will also have to come in with its own investments in enterprise and human resources development. This will include market and product development in a farming system environment.

2) Socially, this forward movement has to take place in an environment of smallholder farmers. The first, and time-consuming, task is organization development. While agriculture does not necessarily enjoy economies of scale -- in many cases smallholdings have exhibited yields exceeding those of larger commercial farms -- there are aspects which are inherently communal (e.g., irrigation, roads, pest and disease control, market development, etc.). Moreover, community-based management is indispensable in optimizing resource use under a farming system since it includes human resource development and integrates operations all the way to supply and other downstream agreements.

3) Underneath all these difficulties and threats lie opportunities. These are found most brightly in agribusiness ventures linking smallholders and business firms. These could range from contract growing to joint ventures. Moreover, there are many probable business partners, particularly among former landowners or agricultural managers, who have not lost their inclination towards agriculture, and who retain or can regain resources, particularly capital, technology, markets, and management which are sorely lacking in many of the nouveau enterprises.

IV. A NEW ROLE FOR AGRIBUSINESS MANAGEMENT

To accelerate enterprise development for smallholder farmers through linkages with business firms, such as contract growing and joint ventures.

Even if the opportunities for profitable agricultural enterprises exist and there are willing partners, the linkage will not take place on its own. Because of initial shyness, timidity, or even suspicion on the part of the prospective partners, arising from diffidence and inequality in the past or even bad experience, there will probably be a need to competently and professionally broker this union. Owing to exigent time pressure, this will be a pressing need and meeting this need is the new role of agribusiness management.

V. THE MANAGEMENT TASKS

1.  Organization Development

This is the first task, and it needs to be done for both prospective partners: The business firm for it is taking on a new role as a landless equal partner; and the smallholders for they are also taking on a new role as entrepreneurs and as landed equal partners.

a) The business firm, if previously operating a commercial farm, needs to learn how to co-decide.
b) The smallholders, whether organized or not, need to learn single-minded entrepreneurship and clear delineation of rights and duties of its leaders and members, as distinguished from the more diffused workings of most cooperatives.

The work of organization development must clearly follow the path of:
Ÿ Value formation
Ÿ Skills development
Ÿ Community-based resource management
Ÿ Institution-building
Ÿ Community development

The value formation must be focused on:
Ÿ Commitment Business purpose
Ÿ Accountability Business agreement
Ÿ Responsibility Entrepreneurship
Ÿ Trust between Partners or CART for short.

The other component which bears some explanation is the management of community resources. The basic resources are usually taken as land, labor, capital and technology, and the usual approach is to identify constraints to their use. But for joint venture purposes the approach should be to look for better opportunities for their use so that the general target is improvement.

2. Design of Partnership Package

There are several, but the basic building block is the smallholder farm. These may be “stand alone” or organized into cooperative farms either through the functional consolidation of the smallholder farms or by the assignment, without transfer, of the land to the cooperative which centrally manages it.

The cooperative farm, then, is the prospective agribusiness partner of the business firm. The partnership between the cooperative farm and the business firm may take different forms:

a) Contract growing could be a simple arrangement where the cooperative farm agrees to supply a given volume of specified farm produce to the business firm following a schedule at pre-agreed prices or according to some formula for pricing. A more complex arrangement would have the firm supplying technology to include planting materials, fertilizers and chemicals; cultural practices such as crop establishment, plant and fruit care, harvest and postharvest including processing; and even financing. The arrangement could go all the way to lease of the land, but this is officially discouraged.

b) Joint ventures between the cooperative farm and the business firm are currently receiving much attention. These have a number of variations.

Ÿ Variety of commodities. This could be a single commodity or the range of commodities that could be commercially produced by the farm. For single commodities, a contract growing arrangement may be adequate.

Ÿ Enterprise gestation period. Joint ventures are more appropriate for long gestations.

Ÿ Level of integration. This is further subdivided into:

- joint venture only at downstream level, for example, at grading, processing, and/or marketing; and
- joint venture from primary production downstream.

c)  “Build-Operate-Transfer” is where a business firm undertakes the financing and construction of some infrastructure facility. The firm operates the facility for a period sufficient to recover the investment and earn a reasonable return. This package does not come under this study because it does not truly link the stakeholders, unless it eventually leads to a joint venture. If so, the builder will most probably be the business firm partner.

d) Cooperative farms may also enter into management contracts with outside parties, if this expertise is lacking. These are not included either for the same lack of linkage between the stakeholders, unless it is part of a joint venture. If so, the management expertise would most probably be supplied by the business firm partner.

e) Land leasing is the last package but it is not included either for the same reason, unless it is the initial phase of a joint venture.

From the immediately preceding discussion, it is evident that the packages need to be custom-fit. Aside from the strictly business relations that must be spelled out, there are financial “cookie jars” which may be picked. Furthermore, there are social acceptances which must be satisfied, not the least of which is the degree of “comfort” between the prospective partners, without which no union can work.

VI. THE MANAGEMENT DEVELOPMENT TASK

As mentioned in Section 4 above, a catalyst is needed to bring about the transit of opportunity into enterprise, and that this catalytic action is the new role of agribusiness management. But it was also seen that this new role is very diversified: economist, business and financial architect, politician, and sociologist, but -- the products are animate.

The science of this kind of management is still being formulated, but the art is already being practiced. The need for this kind of management is pressing, or is it brokerage? Management education has to catch up.

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