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Extending the Agricultural Competitiveness Enhancement Fund (ACEF)

SPONSORSHIP SPEECH Extending the Agricultural Competitiveness Enhancement Fund (ACEF) Senate President Pro-Tempore Ralph G. Recto 23 September 2015

Mr. President:

The Agricultural Competitiveness Enhancement Fund or ACEF traces its genesis to our ascension to the World Trade Organization.

When the gospel of globalization made the world flat, and the world started chanting," I believe in GATT, the treaty almighty, creator of wealth on earth," we also demonstrated our faith to the new world order by changing our laws to make our country GATT-compliant.

One of the laws we passed was Republic Act 8178, which replaced quantitative import restrictions on agricultural products, except rice, with tariffs, and putting all collections in the ACEF.

In short, protectionist walls would come tumbling down and what would come up are tariffs.

The general rule was that agricultural goods, for as long as they can hurdle health, sanitary and other rules, can come in for as long as they pay the tariffs we have set.

To use a simple analogy, we replaced the "Do not enter" sign on our borders with a "You may enter, provided you pay" notice.

The problem, however, with rolling out the red carpet for imported agriculture products is that they will pull the rug from under our farmers, who historically have been having a hard time standing on their own feet.

There are reasons why most of them are down on all fours most of the time: knocked down by typhoons, floored by costly inputs and indebtedness, which have kept them on the ropes for as long as they can remember.

RA 8178 mandated that all tariff collections on agriculture products covered by minimum access volume, principally rice and sugar, be plowed back to them.

No, Mr. President, tariffs were never envisioned to be distributed as dividends, CCT-style. Rather, they will be used to build, and let me quote from the law, "irrigation, farm-to-market roads, post-harvest equipment and facilities, credit, research and development."

Also covered are "marketing infrastructure, provision of market information, retraining, extension services, and other forms of assistance and support to the agricultural sector."

The idea was to use the very same taxes levied on imports to finance projects that would boost local agriculture and allow it to compete with imports.

Some labeled these as safety nets that would cushion the fall of farmers sideswiped by imports.

Others preferred to call them "ladders" that would allow farmers to climb out of the rut they are in.

And who shall earmark the funds?

Under RA 8178, it will neither be the Department of Agriculture nor the Palace, but Congress. We should remember that this law was enacted in 1996, when congressional power of the purse, was real and not illusory.

So when imported rice started to fill bodegas, as well as the pockets of importers, whose unli greed was matched only by our love for unli rice, the coffers of ACEF was getting filled too.

By May 2013, some P10.3 billion in MAV in-quota tariffs had been collected.

In addition, there was P1.2 billion raised from sugar conversion fees, plus P300 million in loan repayments and other collections, bringing the total to P11.8 billion.

This was the figure which stood two years ago.

But according to DA and farmers' groups there was some P10 billion more in MAV in-quota tariffs which was collected but was neither remitted to the Treasury nor booked as ACEF proceeds.

This shouldn't surprise us at all. If shiploads of smuggled rice can disappear without trace, collected tariffs on rice can easily evaporate too.

Of the P11.8 billion that was officially reckoned as ACEF collections up to the summer of 2013, some P8.9 billion was disbursed by ACEF Executive Committee.

The fund flow goes like this: Tariff collected is remitted to the Treasury, and it is the DBM which releases the money to the ACEF Execom upon its request.

ACEF Execom in turn released P2.6 billion as grants to local governments, government corporations and state colleges.

It also approved P5.9 billion worth of loans to 304 groups which, except for 10, were private corporations.

Subsequent audit reports on the ACEF, however, are littered with adverse findings like "dismally low repayment rate", "double recording of loan releases", and "loans without collateral."

Some grantees have pulled a Houdini and can no longer be found.

Some P2.5 billion worth of loans are covered by letters of confirmation, whose addressees could no longer be found.

They have flown the coop like migratory birds.

In one case, proponents of a P63 million loan have migrated to the Great Beyond, leaving P58 million in payables.

Of the 294 the private parties who were granted a total of P4.4 billion worth of loans, only 23 had fully paid as of December 2011.

Of the remaining 271 private borrowers, only 15, or 5 percent of the total, had no arrears.

As a result, P2.2 billion in loans was already due and demandable three years ago.

In all, outstanding arrears already hit P5.1 billion three years ago.

Actually, the figures given by Senator Villar painted a bleaker picture of a 7 percent repayment rate.

But not all defaulting debtors can't be found, and neither are they small farmers.

Some, according to reports, are government agencies like Quedancor which has an unpaid tab of P1 billion, and the National Agribusiness Corporation with an outstanding loan of P225 million.

While these two agencies have been abolished, their debts are not yet considered extinguished.

But unlike these two agencies whose demise is unlamented, it is not yet time to call for ACEF's interment.

First, ACEF still has an end of 2014 balance of P3.8 billion.

Second, and more importantly, the concept of earmarking tariffs for local development remains valid.

So what is needed is not to write the requiem for ACEF, but the law reforming it.

Which is exactly what Senator Cynthia has done. And with her experience in restructuring, no person is more qualified to write the prescriptions than her, as she has the head of a banker and the heart of a farmer.

Plus, there is the other urgent need to extend the current ACEF law, RA 9496, which will expire at the end of the year.

But the bill before us does not just extend the law but, above all, makes it more effective.

This new program for ACEF debugs it of its corrosive and corruptive viruses.

The overarching principle of this bill is that only legitimate farmers and fisherfolk must benefit from ACEF.

More stringent safeguards are being put in place. For example, there is a ceiling of P5 million per project. Gone is the era of megamillion unsecured loans.

Borrower participation is also being made mandatory. The counterpart fund should at least be 10 percent of total project cost.

This 10 percent can come in the form of capital outlay, land for the project site, equipment and wages. In other words, saliva equity is no longer accepted.

The menu of fundable projects is being narrowed down to the truly beneficial.

It is strictly limited to acquisition and establishment of agri-based production and post-production, and processing, machineries, equipment and facilities to achieve modern agricultural practices, and the like.

Anu-ano ang mga ito?

Isang halimbawa ay ang mababang farm mechanization rate natin na 2.31 horsepowers per hectare. Pwedeng gamitin ang ACEF upang makabili ng mga traktora, para may katuwang na si kalabaw.

O kaya upang magpatayo ng post-harvest facilities, kasi ngayon, isa sa bawat pitong kilo ng palay ang nasasayang dahil sa kakulangan ng bilaran o pag-iimbakan.

The membership of the ACEF Executive Committee will be revamped.

The chair of the Senate and House committee on agriculture shall no longer jointly-head the ACEF Execom. In fact they are yanked out of that body.

There is moral hazard in leading the body which you ought to oversee. Members of Congress are not supposed to serve as loan approval officers in a purely executive body.

In their stead, the President of the Land Bank of the Philippines and the Chairperson of CHED will be appointed.

The logic in placing them there can be explained this way. If loan evaluation has to undergo due diligence, then you need the LBP head there.

This is also pursuant to a provision in the bill designating Land Bank as the one which shall manage the credit facility out of the funds.

In this role, Landbank shall determine the eligibility of the borrower and evaluate the loan security or collateral.

As to the CHED head, his or her involvement can be justified by the fact that ACEF is also being tapped to finance the studies of students taking up agriculture courses.

Actually ACEF's mandate is not just to ramp up agriculture production, but also to produce graduates of agriculture courses.

On hindsight, the scholarship component of ACEF was one of its few bright spots. Loans for production capital may have been malversed but, by and large, tuition to train human capital was not.

Borrowers left debt notes. These scholars have diplomas as receipt of loans well spent.

Overall, ten percent of ACEF will fund a raft of scholarship offerings and assistance for students who are academically accredited for agriculture, forestry, fisheries, agriculture engineering and veterinary medicine courses.

Another ten percent will be used to bankroll agriculture research or upgrade research facilities of qualified SUCs. But like the ceiling on loans, each grant shall not exceed P5 million.

The bulk of the fund, or 80 percent, will constitute the loanable portfolio, for projects enumerated in a menu in this bill.

With these parameters, the danger--or the temptation--of the fund being used as a milking cow, or to feather private nest eggs, is being removed.

Mr. President:

Let me inject other element of urgency on why we must pass this bill ASAP.

Yes, the bill has an expiry date, and audits have opened a can of worms, but these are puny compared to challenges that lie on the horizon which ACEF can help us overcome.

ASEAN integration is just around the corner.

We need all the help we can get and all the resources we can tap on how to intensify the preparedness of Philippine agriculture.

The reason for which ACEF was created in another era, on how to make our agriculture competitive, remains valid and relevant in the challenging years ahead.

Let us pass this bill, Mr. President.


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