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PAICOR

PAICOR. A CORPORATIVE OF RICE FARMERS The Pro-Active Role of One Network Rural Bank in Southern Philippines in Empowering Small Farmers to Invest In Processing Infrastructure presented by: Alex V. Buenaventura “ FINANCING THE AGRICULTURAL VALUE CHAIN “ CONFERENCE

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PAICOR

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  1. PAICOR A CORPORATIVEOF RICE FARMERS The Pro-Active Role of One Network Rural Bank in Southern Philippines in Empowering Small Farmers to Invest In 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

  2. PRESENTATION OUTLINE • WHAT IS A CORPORATIVE ? • CHALLENGES FOR SUSTAINABILITY • FARMERS PRODUCTIVITY: A NEGLECTED INGREDIENT FOR SUSTAINABILITY • INTEGRATED AGRI-FINANCE STRATEGY • ONE RICE PROGRAM • ONE BANANA PROGRAM • ONE SUGAR PROGRAM • HOW TO REPLICATE INTEGRATED AGRI-FINANCE SCHEMES • REPLICATIONS UNDERGOING NEGOTIATIONS

  3. 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

  4. PAICOR: The 1stCORPORATIVE • 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

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

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

  7. 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 REPLICATEPAICOR • CORPO soon created DASURAICOR

  8. 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

  9. 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** $ 9,294 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

  10. 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

  11. 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)

  12. 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

  13. 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 )

  14. INTEGRATED AGRI-FINANCE STRATEGY ONB WILL PROVIDE CREDIT TO SMALL FARMERS EVEN WITHOUT SOLID COLLATERALS PROVIDED THEIR PROFITABILITY IS ASSURED BY THE FOLLOWING CRITICAL VALUE CHAIN FACTORS: • PRODUCTIONTECHNOLOGYIS 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

  15. 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

  16. 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)

  17. One Sugar Program UNDER PILOT TEST PRODUCTION -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

  18. 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

  19. 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

  20. 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

  21. END OF PRESENTATION

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