The policy context of Vegetable-Agroforestry (VAF) in the Philippines and Vietnam:

Are there incentives for small farmers?

Delia C. Catacutan Dang Than Ha

Caroline Duque-Piñon Le Thanh Loan

Background Vegetable-Agroforestry (VAF) is a viable farming system

that provides multiple benefits, including provision of micronutrients to the diet of the rural community and enhancement of on-farm biodiversity and environmental sustainability.

The viability of VAF is constrained by various factors, including farmers’ inability to invest in the system, inadequate institutional structures to facilitate information flow, and lack of market incentives.

Policy incentives are needed to stimulate smallholder investments in VAF.

Why smallholders?

Agriculture, as basis for development in rapidly-transforming economies, e.g., Philippines and Vietnam requires both productivity revolution in smallholder farming, innovative policies, and political commitment.

(World Development Report 2008)

Small farm families in developing countries is about 80% of the world’s total farmer-groups.

Small farmers are most vulnerable to rapidly changing economic, social, political and environmental conditions.

Small farmers are often, marginalized because national governments concentrate on large farmers for addressing national food security and self-sufficiency issues, as they are assumed to have operational resources, easier to work with, and are more able to respond to suggestions.

As a result, assisting smallholders has become an effort for enhancing social welfare rather than for substantially increasing their contribution to national agricultural output.

Objectives:

1. To understand the policy context; and 2) develop policy options that stimulate smallholder investment in VAF.

Hypothesis:

Incentive-based policies and appropriate institutional mechanisms are essential requirements for wider adoption of VAF by smallholders in Southeast Asian watersheds.

Data collectionReview of national and local policies related to VAFLiterature reviewSurvey-interview with farmersSemi-structured interview with key informants Focus Group Discussions with farmers and policy-makers

Objective 1: QuestionsWhat national-level policy incentives exist to promote tree

growing and vegetable production? Are there locally-crafted policies that promote VAF

system?What are the policy perspectives of local stakeholders in

relation to VAF?

The Philippine Agrarian Law further defines smallholders as those cultivating in not more than 5 hectares, and 7 hectares for the stewardship scheme of the Forestry Code.

Who are the smallholders?

In the Philippines, RA 7607 provides the Magna Carta for small farmers, declaring that they are to be regarded as equal partners in development, and should be wholly supported in their economic endeavors. Small farmers are defined as natural persons dependent on small-scale subsistence farming as a primary source of income and whose sale, barter or exchange of agricultural products do not exceed a gross value of P180,000 per annum.

In the Philippines, small farmers (including fisherfolks) account to over 90% of all farmers and fisherfolks, which is around 21% of the total labor force.

In Vietnam.. The term “smallholder” is not commonly used Household farms are typically characterized by small, fragmented

land holdings, varying greatly across different regions and provinces and between crops planted.

Household farms are considered small, not necessarily in terms of size, but by the activity of the household.

Average farm size varies by region: 1.2 ha in the Mekong Delta Small farms typically comprise eight or nine non-continuous plots with about 200 to 500 m2 each in the Red River Delta.

Small farms vary by crop: A coffee farm of 1.5 hectares or less is classified a small farm A farm of low value vegetables planted to the same farm size can be considered a large farm.

What are incentives and disincentives? Motivates or stimulates people to act

Incites or induces actions

‘Signals’ that motivate action

‘Motivation’ and ‘reward’ in the context of project management

‘Bribes’ and ‘sweeteners’ in the context of development

‘Financial or non-financial factors’ that motivate action, in economics

In this study, incentives are elements of policy instruments that increase the comparative advantage of VAF, and thus, stimulate adoption and investment among small farmers.

Disincentives are elements of policy instruments that discourage or hinder positive actions/response

Types of Incentives (Enters et al. 2001)

Direct

Indirect

Goods and materialsInfrastructureGrantsTax relief/concessionsAccess to resourcesSubsidized loansCost-sharing arrangements, price guarantees

Land tenure and resource securityAccessibility and availability of basic inputsProducer support servicesMarket developmentCredit facilitiesResearch and developmentExtension, etc.

Variable

Enabling

Inputs and outputs pricesSpecific taxesTrade restrictions

Exchange ratesGeneral taxesInterest ratesFiscal and monetary

INCENTIVES

Common policy incentives in Philippines and VietnamKey policies Incentives

Philippines

Revised Forestry Code Integrated Social Forestry Integrated Social Forestry

Community Based Forest Mgt.

Agroforestry Development

Seed Industry Development

Crop Insurance

Agricultural Tarrification

Land tenure and resource rights Rights to sell, contract, convey or dispose forest productsDiscounts, exemption of feesTax exemptions and tax creditsTechnical and final assistanceCredit assistance, crop insurance, use of facilitiesExemption from export log banUnrestricted export of plantation productsPromotion and marketing Infrastructure supportTraining, capability buildingSubsidies, recognition, etc.

Vietnam

Forest Protection and Development Law

Land Law

GAP

Socio-economic development program in mountainous and remote communes with special difficulties

Land tenure, tax exemptions, technical assistanceCredit supportPromotion, market information and trade exportation insuranceInfrastructure investmentCommunity participation, educationFarming contracts, Subsidized transport and freight of goods for agricultural

production for households in communeAssistance in complying GAP processes and standards

VAF related policies in the PhilippinesPolicies related to tree

growingIncentives

1975

Revised Forestry Code of the Philippines (PD 705)

Ownership rights to planted trees and other productsRights to sell, contract, convey or dispose planted trees and

other productsDiscounted fees, rentals and forest chargesTax exemptions and tax creditsFree government technical assistanceAssured credit assistance & use of facilitiesExemption from export log banMarket assurance for timber productsUnrestricted export of plantation products

1982

Integrated Social Forestry Program (LOI 1260)

Grant of land tenureTechnical assistance in formulating farm plansPriority for wage-based employmentSettler census to control migrationExtension and information activitiesCommunity organizing to ensure participationResearch and development (R&D) support

Policies related to tree growing Incentives

1991

Additional incentives to ISF Program (DENR AO No. 04 )

All incomes derived from the land are given to the participantForest products are exempted from forest chargesProvision of government technical, legal, financial, marketing, credit and

other assistanceAssistance from government agencies, NGOs and private organizationsCompensation for permanent investmentsRetention of rights to avail subsequent arrangements over the land

1996

Community-Based Forestry Program (EO 263)

Security of tenureRight to use and manage the resources within the areaExemption from land use rentalExemption from forest chargesRight to be consulted on government projects in the areaAuthority to enter into contracts or agreementsPreferential access to assistance and informationRight to receive all income and proceeds of the areaRight to contract with private entitiesRight to contract with government entities

2005

Upland Agroforestry Program (DENR AO No. 25)

Promotes equitable opportunities and income in developing agroforestry systems

Policy incentives to tree growing evolved from direct to indirect. Direct incentives were common from 1970s to 1980s but beginning in late 1990s, this shifted to more indirect ones, such as comprehensive land and resource use rights through various land tenure instruments. Security of tenure is the most significant incentive provided to smallholders.

Creating an enabling environment

1970s 1980s 2000’s

Direct Incentives

Indirect Incentives

Government-led Private sector and civil society

Land grants

Concessionary loans

Tax concessions

Joint venture arrangements

Research and extension

1990s

Free farming inputs

Policies related to vegetable production

Incentives

1989

Crop Insurance Law (PD 1467)

Protect agricultural producers against loss of crops, livestock and agricultural assets on account of natural calamities, plant pests and disease, and other hazards

1992

Seed Industry Development Act

Technical assistance in seed technology, procurement & access to research results

Tax exemptions for imported equipment200% deduction of expenses from research, development & extension

Agricultural Tariffication (RA 8178) Provision of irrigation, farm-to-market roads, post-harvest facilities, credit, training and extension services, etc.

1997

Agricultural and Fisheries Modernization Act

Credit assistance to small farmers & fisherfolksPromotes R&DExtension servicesInformation & marketing support services

High Value Crops Development (RA 7900)

Policy reform, market development & promotionInfrastructure supportInvestment & financing Technology development, training, extension & communication supportProgram advocacy, information, networking & dissemination

Policies related to vegetable growing

Incentives

2005

Good Agricultural Practices

(DA AO No. 25)

Premium priceAccess to market/supply chainProduct differentiationStabilization of yield/revenueReduction in storage lossesReduction in wastageIncreased farm assetsProtection against market externalitiesSubsidiesSkills improvementRecognition

2005

Organic Agriculture (EO 481)

Promoted to put premium-value to organically-produced agricultural exports and local consumption products

For the vegetable sector, incentive policies are mostly market-driven, with national governments responding to global trade opportunities and regimes.

VAF-related policies in Vietnam

Policies related to tree growing Incentives

1991

Forest Protection and Development Law

Rights transferred from State to private ownersForest use and possession of commercial plantationsLong-term use of forest according to allocation or leasing durationPossession of production outputsCarry out scientific research, landscape businessGet compensation if government withdraw the forestGet farming technology guidance and support budget for forest

protectionState protection, legal rights and benefits

1992

National Programme for Upland Development (Prime Decision No. 327/CT) – Policies for the use of bare land, denuded hills, forests, alluvial flats and water bodies

Social infrastructureSocial and economic development

1993

Land Law

Instituted long-term, private land use rights that can be bought, sold, mortgaged, inherited and traded

Policies related to tree growing Incentives

1998

Objectives, duties, policies and implementing organizations of the 5MHRP (Prime Minister Decision No. 661/QD/TTg)

Forestry projects, education and direct involvement of local peopleEmployment, planting materials, extension and technology

transfer, credit fund for forest production and processing projectsInvestment and credit policy

1999

Regulation on forest protection and development in communities and villages (MARD Circular No. 561/TT/BNN-KL)

Policies on credit extension services for local people to participate in the management, protection and maintenance of forests

2001

Beneficiary rights and obligation of households and individuals who have forest and forestland allocated, leased and lent (Prime Minister Decision No. 129/QD/TTg)

Participate in managing special use, protection and production forest by being contracted with forest owners

Right to exploit forest and non-forest products under protection forests

Right to decide how to manage and operate their own plantations under production forests

Farmers planting in fallow and denuded areas are given preferential tax

Timbers sold from regenerative natural forests and plantations are not levied

2003

Regulation of the enforcement on reduction and exemption of agricultural land use tax

(Decree No. 129/2003/ND-CP)

Farmers engaged in forest rehabilitation were exempted or given reduction in agricultural tax

Commercial plantations were given 50% tax reduction

Policies related to vegetable production

Incentives

1. Export subsidy and financial support for exporting enterprises

Decision 195/1999/QD-TTg Established GoV’s export supporting Fund Provided rewards to exporting enterprises based on exportation

value of agricultural products, including vegetables and fruits

Decision 133/2001/QD-TTg Credit support with lowest interest rate

Decision 110/2002/QD-TTg Exportation insurance

2003-04 Exportation rewards on the annual increase in exportation value

Policies related to vegetable production

Incentives

2. Farming contract, national trade promotion program and other related policies

Decision 80/2002/QD-TTg

Circular 04/2003/TT-BTC

Circular 05/2002/TT-NHNN

Infrastructures investment (e.g. warehouse, electric system, market information system, wholesale market system)

Credit support

> Remote areas – 3% interest rate/year

> State-owned companies were provided 30% working capitalSupport on advanced technology, market information and trade

promotionNational development program for fruit and vegetable

exportation in 2001-2010

> Projects in seeds

> Post-harvest technology

> Plant protection

> Trade promotion

> Financial support National trade promotion program

> Supported 50% operation cost of the oversea trade promotion survey

Policies related to vegetable production

Incentives

3. Policies on extension activities

Decision 1838/2007/QD-BNN-KN – Devolution in extension services

MARD assigned the provincial DARD to monitor, adjust and change the extension models and programs in compliance of GoV’s policies

Joint Circular 30/2006/TTLT-BTC-BNN & PTNT-BTS

GoV provided funds to encourage extension services on:

> Dissemination

> Training

> Conducting experiments

> Communication

> Equipment, etc. GoV created coordination between MoT and Farm Association

for commercial development in rural areas (2007-2010)

> Conduct training for farmers to deal with commercial practices

> Disseminate GoV’s policies on rural commercial development

> Create linkage among farmers, traders and enterprises

> Build pilot cooperatives for rural commercial development

Policies related to vegetable production

Incentives

4. Other related policies and programs on rural and agricultural development

Decision 20/2007/QD-TTg – Hunger Eradication and Poverty Reduction

Joint Circular 102/TTLT-BTC-BLDTBXH – Financial Mechanism

Promote production and income generation through preferential credit, production land support, job training and infrastructure development

Enhance the poor household’s accessibility to social services (e.g. health, education, housing and water supply)

Increase the community’s communication and the cadre’s capacity

Decision 135/1998/QD-TTg – Socio-economic development program in mountainous and remote communes with special difficulties

Investment and credit policies

> Investment in infrastructure for agricultural and forestal production

> Subsidized price and transport freights of goods for agricultural production for households in commune

> Financial support (e.g. traffic network development, construction of power projects, building water supply, free health-care and medical treatment at State hospitals)

Human resource development policies

> Training and fostering cadres for mountainous and rural communes

> Textbooks and stationary, and exemption from school fees of pupils

> Training farmers for agricultural and forestal production

> Job training for income generation and improve living standard

Policies related to vegetable growing Incentives

5. Policies on safe vegetable production and Good Agricultural Practices

Decision 67/1998/QD-BNN-KHCN – Temporary regulations on safe vegetable production

Decision 04/2007/QD-BNN – GoV’s production administration and certification of safe vegetables

Voluntary to farmersAssist farmers to apply and implement GAP practices

Circular 257/2007/BNN-TT – GoV’s encouragement of safe vegetable production and consumption

Decision 106/2007QD-BNN – Regulation on production and trading administration for safe vegetables approaching GAP

Decision 379/2008/QD-BNN-KHCN – Issuance of GAP for fruits and vegetable production in Vietnam

Established VietGAP’s legal guideline for application and certification of fruit and vegetable industry in Vietnam

Circular 195/2008/TT-CLT Increase safe vegetable production through:Planning specialized area for safe vegetable productionEncouraging trading enterprises to invest in productionProposing the necessary supports in provinces

Disincentives and major policy gaps/constraints

Some disincentives Lack of market incentives to tree growing, including low timber prices Transaction costs involved in obtaining permits for cutting, transporting and processing timber. Lack of locally-available quality planting materials High costs in the vegetable value chain, lack of price regulation and control and commodity protection Dealing with non-tariff barriers, SPSS, product quality, and market shocks/failure

Major policy gap/constraints National policies have very general objectives, and are not able to adequately respond to local

variations/specificities Tend to undermine one sector over another—lack of tradeoff analysis of policies—inconsistency of

policies Subject to different interpretations, poorly communicated and disseminated at the local level. Weak implementation structure and inadequate funding (Ex. Crop Insurance Program)

In the Philippines

Some disincentives Transaction costs involved in marketing trees and tree products Unstable timber prices High costs in maintaining product quality Inadequate infrastructure (e.g.,FMR)

Major policy gap/constraints

Implementation of national policies is compulsory, but often, lacked technical guidelines.

Local officials lacked flexibility and creativity to take advantage of national government policies and programs, to overcome constraints faced by small farmers.

National policy incentives are more targeted to commercial producers, e.g. contract farming, limiting opportunities for communes—hence, their activities are limited at home gardens for home consumption and the local market.

In Vietnam

Stakeholders’ ranking on policy support for VAF

Policy area Philippines Vietnam

Promotion of sustainable farming technologies

1 2

Improving the marketing system

2 1

Improving extension work 3 3

Subsidies/tax concessions 4 8

Infrastructure 5 5

Credit assistance 6 4

Land use rights 7 7

Institutional arrangements 8 6

Financing or material assistance

9

Conclusion The policy environment in the Philippines and Vietnam is

generally supportive of VAF, with generic incentive packages to boost the forestry and vegetable sectors, but is insufficient in stimulating smallholder investments.

In the Philippines, large farmers benefit more from national policies than smallholders, as they have more access to information and have the resources to leverage policy implementation.

In Vietnam, forestry incentives have more to do with land allocation; for the fruit and vegetable sector, only commercial producers are actively involved in the growth of the sector, because national incentives are more directed to commercial producers in urban areas, than to small farmers in remote areas

• In both countries, promoting VAF system will require policy actions that address issues impeding the growth of the vegetable sector such as-- price regulation and control, commodity protection, cost reduction across the market value chain, removing tariff barriers, and global trading regimes; and transaction costs, land tenure and resource rights, and domestic and international market incentives for the forestry sector.

• Finally, the viability of VAF system depends on a whole set of policy environment that both national and local governments can provide – It is therefore a political imperative.

Distinctive difference exists between the policy development process in the Philippines and Vietnam.

In the Philippines, local governments have policy-making powers, enabling formulation of local policies that stimulate smallholder investment in VAF. Where the benefits of national level policies do not trickle down at the local level, local governments can offset this gap and provide adequate response.

In Vietnam, despite the participatory nature of policy-making processes, the impetus for policy change relies on the leadership of the central government through the national assembly.

Implications to scaling up the impacts of VAF In Vietnam, efforts to promote VAF through policy

incentives should emanate from the National Assembly, than from the province or commune level.

In the Philippines, without undermining the importance of national-level policies, efforts at the local level, particularly with local government units can be strengthened, to enable them to effectively provide adequate response to smallholders.

This research acknowledges the support of SANREM CRSP through the management of Virginia Polytechnic Institute and State University (Virginia Tech), and the North Carolina Agricultural and Technical State University (NCA&T). SANREM CRSP is generously supported by the American people through the United States Agency for International Development (USAID).