DA mulls bond float

The Department of Agriculture (DA) plans to undertake a bond flotation program this year to finance its farm-to-market roads (FMR) and farm mechanization projects aimed at improving the productivity of the sector.

Agriculture Secretary Emmanuel Piñol said he proposed to Finance Secretary Carlos Dominguez and Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla the bond flotation to fund the backlog of 13,000 kilometers of FMRs, as well as its farm modernization program.

“In the proposal, it is recommended that the government will float bonds to be sold to private and commercial banks to finance the construction and completion of critical farm to market roads which would connect food and agricultural production areas to the national highways and later railway loading depots en route to the market,” Piñol said.

“They both welcomed it and said the measure would utilize the vast resources of private and commercial banks who are required by law to lend 25 percent of their loan funds to the agriculture and fisheries sector,” he added.

Espenilla, for his part, said the BSP has supported in principle the plan for government to issue a bond that will be eligible for agri-agra compliance by banks.

“It should be a win-win proposition since bond proceeds will go to agri-agra sector development and banks will have another channel to deploy their funds prudently while complying with mandatory credit allocation requirements. We are awaiting details of the proposal,” Espenilla said.

According to Piñol, around P140 billion is needed over the next four years to finance road network construction which is expected to lower the cost of basic commodities.

Another P60 billion in bonds is also eyed to be floated for DA’s mechanization program which will involve the acquisition of farm machinery and equipment and postharvest facilities.

However, an economist, who refused to be named, said the proposed bond flotation may be a big challenge since government has to sell the bonds.

“For it to be sold, the bond coupon rate might be higher than normal. Plus we have to consider the tight timeline, government approval process and competing bonds of private and the government,” the economist said.

The agri chief said DA’s technical team is now preparing the documents to be presented to the National Treasury and is targeted to be implemented within the year.

To recall, the DA failed to get its proposed budget this year of over P120 billion and just settled for half of it or P60.6 billion.

The department originally allotted roughly P20 billion for its FMRs and mechanization, but only less than P5 billion was approved, thus its move to look for other options to finance its projects.

Approximately 16 percent of the country’s grains harvest is being lost due to the lack of post-harvest facilities, while 40 percent of fish catch is spoiled due to the absence of cold storage facilities.

Under the mechanization program, proceeds from the bond flotation will be used in a mechanization loan program to farmers associations to be managed by DA-attached agency Agricultural Credit Policy Council.

The DA already started the program with an initial P400 million fund which offers loans to farmer groups at a six percent annual interest without collaterals and a repayment period of five to eight years.

Under the Agri-Agra Reform Credit Act of 2009 or the Agri-Agra Law, private and commercial banks are required to earmark 25 percent of their loan funds for projects in the agriculture and fisheries sector.

“Over the years, however, banks have opted to pay the hefty fines for their failure to comply with the law rather than lend to the agriculture and fisheries sector which they consider as ‘high risk’ borrowers,” Piñol said.