Friday, 27 April 2012

What the Luisita farmers could be worth


JOHN MANGUN
OUTSIDE THE BOX  
Business Mirror
http://www.businessmirror.com.ph/home/opinion/26300-what-the-luisita-farmers-could-be-worth

A COUPLE walked into my office in 1998, introducing themselves as being from Negros Occidental. They were leaving for abroad for good but wanted to share their story about land reform.
During the prior three years, their “hacienda” had been distributed to tenant farmers through the Department of Agrarian Reform (DAR). This property had been in the family for three generations, purchased for the family by the American married to the gentleman’s grandmother.

Granted that their view was biased, there was no anger but a profound sense of disappointment. The government had not paid them for their land in cash but had given them a promissory note, which would be honored over time.

Being law-abiding citizens, they complied with all of the legal requirements that the government laid down.

However, there was a deep sadness about the lands and the farms that were passed down to them and the responsibility that they felt toward the agricultural heritage they had been given.

The family had built and funded over long years a medical clinic as well as recreational and educational facilities for the tenant farmers. Of course, this was a good business decision, perhaps more than good social behavior. But already that infrastructure had fallen into disrepair because there were no funds for maintenance and repair.

The farmlands produced a variety of crops. The economy of scale of large production allowed for a continuing profitable operation as production could be changed as prices and weather conditions changed. The gentleman was most upset that hectares of copra-producing coconut palms, many over 50 years old, were cut down for lumber because the new landowners needed quick money to survive. He knew that these would never be replaced.

The global performance of agrarian-land reform in the last 100 years is not good. It is difficult to find a single example of land distribution to the landless that has achieved large-scale success. However, the successes have come in those countries where the clear and stated purpose was to benefit the nation’s economy as a whole, rather than to benefit the landless. While much of Taiwan’s land reform was the distribution of lands owned or taken by the Japanese during the occupation, it was more of a success because the purpose was to get under-used economic assets into production.

Large landowners were given compensation that could only be used in Taiwan. Many were given, in return, for their land. Japanese built factories that then produced goods. Any cash paid had to be kept in the country and invested in local business.

The Hacienda Luisita decision marks a Philippine agrarian-reform program milestone. And in sense, shows all that is right and wrong with this decades-old policy.

While the tenants cheer their success in gaining land distribution, it is unlikely that more than a few will become rich or that agricultural production will significantly improve, benefiting the nation.

However, if anyone writing or implementing the land-reform laws had known anything about the capital markets, all of the current Luisita farmers could be millionaires today.

The stock-option plan could have provided for 500,000,000 shares to be listed on the Philippine Stock Exchange in 1989. With the value of the land at P196 million, each share would have had a value of P0.40. If the land’s fair market value was P5 billion in 2006, each share would have been worth P10. Or if the land was worth P10 billion, each would have been priced at P20.

Assuming 80 percent of the total shares were distributed to 6,000 tenants, each would have received 64,000 shares, which by 2006 would be worth at least P640,000.

In 1989 the government could have paid the hacienda owners 20 percent of the shares in lieu of P196 million, which would have been backed by the farmers’ stock. But that 20 percent would have been worth P1 billion in 2006 and more than paid off the farmers’ acquisition debt.

Had the Luisita shares performed in the stock market even as well at Cojuangco listed sugar mill Central Azucarera de Tarlac, each farmer’s 64,000 shares would now be worth at least P1.3 million or worth P3 million or more, depending on the land value and stock price.

Further, the benefits of a majority ownership of a public company whose land assets would have been available for full development since 1989 are immense. Neither group—farmers or landowners—has fully benefited from that underdeveloped asset.

The phrase “just compensation” is being used to describe the recent legal decision. Nonsense. Each farmer gets a three-hectare piece of a property that could hold and perhaps be worth the equivalent of one city of Makati, plus 60 Malls of Asia, all of which might have been built over the years at Hacienda Luisita.




E-mail to mangun@gmail.com, Website is www.mangunonmarkets.com and Twitter @mangunonmarkets. PSE stock market information and technical analysis tools provided by COL Financial Group Inc.

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