Introduction
At the international arena, a recognized critical task at hand is to create financial risk-transfer and risk-sharing mechanisms that can help developing countries to reduce their vulnerability to the impacts of climate change.
At the local level, the task remains the same and becomes even more pressing. It is essential that financial mechanisms that facilitate the management of risks to include insurance for risk-transfer and credit schemes for risk-sharing, are developed to enable communities to reduce their vulnerability to climate change.
Climate-related disasters represent a major source of risks for the poor, particularly farmers who are dependent on “good weather” for their survival and livelihood. Climate change and the changing weather patterns it brings, resulting in increasing frequency and intensity of extreme weather events such as floods, droughts and typhoons, affects a wide range of sectors, spanning the urban and the rural; and a wide range of assets to include not only human and physical. Rural farming communities and their agricultural assets are particularly vulnerable. Climate change affects agricultural harvests, livestock, infrastructure as well as other essential intangible assets like public services; support service and not to forget, lives.
While it can be argued that costs and impacts of climate change can be significantly reduced by “risk-reduction measures” like the building of flood control structures; or by “resilience-building and climate change adaptation measures” like setting-up of information systems and diversification of plantation crops, residual risks remain. Risks which present heavy burden particularly on the poor.
Climate change presents additional burden to poor farming households, who often depend solely on their harvests for “consumption and basic needs”. Climate change presents another hurdle to surmount for poor farming communities, who do not have ready capital set aside to use to replant after typhoons, floods or droughts devastated their crops. Add into the equation of their economic condition, the fact that most farmers lack of access to the financial resources.
It is important to note that the household’s economic condition along with the availability of and access to financial and productive resources determine their ability to cope with risks brought by climate change. Farmers already have a very low level of ability to cope with the risks brought about by climate change.
It is equally important to note however that most farmers may remain unable to benefit from financial and productive resources even when already made accessible to them. Studies have shown that measures to provide access to “market-based” and “formal financial instruments” often fail as they do not address the core problem: the poor just could not afford them.
Take the case of the farmers in Agusan del Norte in the Caraga Region. With its economy primarily based on Agriculture, the province is the region’s leading rice producer. It has a total land area of 273,024 hectares and a population of 314,027 (2007 Census).
More than half of its households, 55.6 percent or 31,913 households live below poverty line. A great majority of which, are rural households and households dependent on farming as the main source of income. While there are a number of formal financial institutions operating in the area, availment of financial services through these institutions remains very low, with the majority, obtaining support through informal lenders or “traders”. Moreover, enrollment to crop insurance is even much lower although it is available for both borrowing and self-financed farmers.
The farming communities baseline study conducted in 2009 under MDG-F 1656 Climate Change Adaptation Joint Programme’s Outcome 3.4 Demonstration Project, along with the Market Research for Viable Climate Change Adaptation Options conducted in 2010, confirmed that farmers in the province of Agusan del Norte, similar to a majority of the farmers in the country, possess the following characteristics: First, they generally lack access to credit information; Second, they lack the acceptable collateral required by formal financial institutions; Third, their income and cash flow is unstable; Fourth, as a logical consequence to the preceding, they have very low paying capacity; and Fifth, even when financing for alternative enterprises is made available, they could not fully benefit from this given limited business experience.
Indeed, financial mechanism could play a major role in strengthened adaptation response to climate change risks. This is where community schemes such as “ microfinance and micro insurance” and even “mutual scheme” come into revelance. Informal and community schemes offer great potential for “financial inclusion” of low-income communities such as farmers, who otherwise could not access formal schemes of banks and private insurers. These together with “savings” another financial mechanisms, which can also be organized in less formal means, such as through community-based organizations, can help reduce vulnerability of communities as they facilitate quick access to emergency financing and even pooling of resources to set-up community facilities in support of their livelihood such as grain and seed banks.
In the MDG-F 1656 Climate Change Adaptation Joint Programme Outcome 3.4 Demonstration Project, work towards developing and testing of financial mechanisms that facilitate risk transfer (insurance) and risk sharing (credit) is ongoing. The work includes the testing of three (3) models of a credit delivery system bundled in it savings, social protection and more affordable crop insurance along with technology and organizational support to farmers.
One scheme stands out in that, it emanated from a local government unit initiative, a successful LGU facility, which goes beyond the typical expected action ny LGUs, of providing humanitarian assistance, relief and emergency subsidies following disasters, but proactively providing constituents access to affordable financing, building their resilience to climate change, as it aims to protect the environment and achieve sustainable development.
This is the case of the Municipality of Remedios T. Romualdez, the Rice Granary of the Province of Agusan del Norte and one of the four priority sites of the Demonstration Project.
The Remedios T. Romualdez – Innovative Financing Scheme
RTR is a Municipality found 18 kilometers north of Butuan City. It has an agricultural area of 4,962 hectares. 1,742 hectares of which are devoted to its main crop rice; 1,723 hectares, to coconut, followed by 3rd major crop: Banana which covers 814 hectares. Around 70 percent of its households live below the poverty threshold [of approximately Php 11,000.]Greater than 92 percent of its population is engaged in farming.
The municipality of RTR, places on top of its priorities the provision of services relating to agriculture. The commitment to which, is clearly expressed in the municipality’s, Comprehensive Development Plan and Executive and Legislative Agenda. A core approach, taken towards sustainable municipal development, is the promotion of organic farming, and the recognition of agriculture, as a key municipal economic enterprise. In 2005, the leadership of the municipality, cognizant of the need to protect the environment, if sustainable development is to be achieved, has established the “Sustainable Organic Farming Technology Systems or SOFTS. SOFTS’ primary goal, is to optimize utilization, of human and natural resources, in promoting sustainable agriculture and development, through organic farming system approach. It seeks, to empower its community and/or rural based organizations, and to establish strong partnership between them and the local government unit, to ensure a sustained collaborative implementing mechanism for SOFTS. As RTR aims to be leading organic rice producer in the Caraga Region by 2015, through SOFTS, it works to achieve zero chemical usage, in at last 75 percent of its agricultural area. More importantly, through SOFTS, RTR intensified its efforts to increase farmers’ income and productivity, by lowering production cost to at least 60 percent within 2010-2015.
A key strategy of the municipality in SOFTS, is to incentivize the adoption of organic farming, by providing crop production assistance. This crop production assistance in RTR, popularly known as the “RTR One Town One Product (OTOP) Rice Loan Facility”, is a scheme not so “usual” in so many respects:
First and foremost, it is not a dole-out scheme, as many LGU financing schemes are often seen, it provides the assistance in the form of loan, at very low interest (5 percent per cropping or 0.83 percent per month).
Second, it comes bundled with relevant training services, optimizing the delivery of functions, of the municipal agriculture office, and coordination with concerned national agencies, and programmes covering the conduct of “Farmers Field School”.
Third, it provides further support to farmers, by ensuring access to affordable, and readily-available organic farm inputs, such as fertilizers and pesticides.
Fourth, to protect the farmers’ production and income, these loans also came with a requirement to take out crop insurance.
Fifth, it encourages income diversification, among its farmers as it provides the loan assistance to farmers, who are willing to engage in alternative livelihood activities, initially focused on livestock and vegetables.
The beginnings of the scheme: The credit delivery scheme, started in 2006 following the establishment of SOFTS and the passage of local legislation declaring “Rice” as the municipality’s “One Product” aligned with the Department of Trade and Industry’s (DTI) One Town One Product (OTOP) Programme. The municipality allocated from its own funds a start-up provision of Php350,000.00 which our Office managed to provide loans to 35 test farmers each receiving Php10,000.00 assistance per hectare of rice. To access the loans, the farmer borrowers simply needed to meet the following criteria:
1. The farmer shall commit to plant varieties with good eating quality;
2. The farmer shall commit and by heart use organic fertilizer and adopt organic agriculture on his/her farm every cropping [not only during the period when loan is provided];
3. The farmer shall attend Farmers’ Field School; and
4. The farmers shall attend monthly meetings and whatever important gatherings.
The delivery of bundled services; To ensure that the technology support package bundled with the loan assistance is provided effectively, the LGU sent its Municipal Agricultural Officers to training at national and international levels. The Municipal Agriculturist along with the Agricultural Technicians (all four of them) have undergone Training of Trainers on Rice Production, Organic Agriculture, Vermiculture and Vermicomposting and Understanding standars well before the start of the loan facility and through the course of the implementation. Moreover, in keeping with its thrust to ensure a sustained collaborative implementation mechanism, it created partnerships with the Department of Agriculture, Agricultural Training Institute for the Farmers’ Field School, the National Integrated Pest Management (IPM) Programme, the National Irrigation Administration and PhilRice.
Likewise, it facilitated the registration with the Department of Labor and Employment its Municipal Agri-Fishery Council and Rural-based Organizations to include the Barangay Farmers Associations, Rural Improvement Clubs; 4-H Clubs and Irrigators Association.
To ensure that the farmers will have ready source for their organic fertilizers, the LGU established the ‘RTR Organic Fertilizer Mass Production Plant” making use of the otherwise, underutilized building in the municipality. This plant, which workers come from the farmers themselves, has been able to produce3,500 to 4,500 bags of organic fertilizer every cropping season. These are sold, at a very affordable price of Php150.00 per bag. In addition, Vermicast, Vermicompost and Vermi Tea are also being produced. Farmers however, are given the option to produce their own organic fertilizers, or to obtain these from the LGU Plant. If it is the first option, the LGU trains the farmers to produce their own fertilizers. Moreover, each farming household produces their own “Guso/Seaweed Organic Foliar Fertilizer”.
The growth of the scheme: Defying low expectations for sustainability, the RTR OTOP Rice Loan Facility, has now been ongoing for more than five years. It enjoys a record 99.98 percent repayment. From the Php350,000.00 LGU funds, it started with in 2006, the Php 1million grant accessed from the National Economic and Development Authority (NEDA)- KR2, and the additional Php100,000.00 LGU funds placed as counterpart, both in 2007, and more importantly, from its proceeds in the sale of the organic fertilizers, from its local LGU-run organic fertilizer plant, the RTR OTOP Rice Loan portfolio, has now grown, to more than than Php 5million pesos, covering more than 350 farming households. From the initial maximum loanable amount of Php10,000 per hectare, loanable amount has also increased to Php 12,500 to 15,000 hectare.
Its high repayment scheme and sustained operation could be viewed as resulting from the following key features of the implementation:
1. LGU Leadership, with strong political will, and staunch resolve to risk even popularity in the polls, by collecting on farmers loans, to the extent of using the Police Force and other instrumentalities, as well as authorizing no subsequent loans, to all farmers in Barangays with even one “defaulting farmer”
2. The simplified process flow for fund release and loan repayment. The scheme offers the farmers easy to follow procedure, which do not require much from them in terms of their time, documentary requirements and as such resources. The facility is right there in the municipality, one which cannot be said of banks and other financing institutions.
3. The operation of the Facility, as a business [though not in terms of interest], but in terms of giving value, for effort of the all the LGU functionaries involved in its operation, as well as ready-availability of operational funds, for the processing of loans, as well as provision of services. For one, the monetary incentives received by agricultural extensions workers, at the end of each cropping cycle, contingent, on the collection of loan repayments, and profits from the organic fertilizer production, serve as a very good motivation for effective service delivery. For another, the Php625.00 interest earning per hectare per cropping has been designated solely, for use of the Municipal Agriculture Office for the RTR Loan Facility, to cover costs pertaining to training of farmers, monitoring and evaluation as well as plowed back into the loan funds.
4. The bundling of technology, which help ensures productivity, but equally important, the requirement for crop insurance, in addition to credit-life insurance. While the uptake rate of crop insurance, in the province, was in the low of 2 to 5 percent only, all RTR farmers, availing of the facility’s assistance ,were required to take out crop insurance package as already mentioned. The crop insurance taken up along with the ‘synchronous planting”,practiced by the farmers in the municipality served to cushion, the farmers against losses, from livestock/crop damages caused by torrential rains, flooding and drought increasingly being experienced in the municipality.
Additionally, while not an original integral part of the RTR OTOP Loan Facility, around 90% of the farmers in the area belong to a “neighborhood dayong” – a mutual system which affords farmers additional source of assistance during medical emergencies and deaths.
RTR and Vulnerability to Climate Change
Climate Change may not yet be in the consciousness, of the local government unit of RTR, when the Sustainable Organic Farming Technology System (SOFTS) and the RTR OTOP Rice Loan Facility was started in 2005 and 2006. The financing scheme, and its bundled services however, have turned out to be a key resilience-building and anticipatory adaptation strategy of the municipality. The Vulnerability and Adaptation (V & A) Assessment, conducted last year in RTR [ along with three other municipalities in Agusan del Norte] speaks well in this regard. The mapping and characterization of hazards, past and current adaptation strategies, showed RTR is on the right track – anticipating and preparing for climate change.
RTR though not directly located the typhoon path, suffers yearly from floods, particularly, in its western part, covering at least five of its eight barangays. These floods result from continuous rains often occurring during the months of November to January as past data show. It is important to note however, that in the recent years, torrential rains have been observed, even in February to March, likely affecting rice cropping. Fortunately, the synchronous planting being promoted, and made possible, through readily available funds for their cropping inputs as accessed from the LGU Facility, served as to lessen possible negative impact of the floods. In addition to floods, reported hazards include incidence of pest infestations, soil erosion and salt water intrusion. While there had been reported droughts for some years, during the current decade, RTR with its almost 100 percent irrigated farms, is able to minimize impact of this climatic risk on farmers. This condition and availability of irrigation, has been facilitated through partnerships established under SOFTS, as well as to a certain extent to the availability of public funds having been freed up, and made available for infrastructure, as a result of successful operation of the LGU Facility.
THANK YOU…
This experience in Remedios T. Romualdez has provided inspiration to the MDG-F 1656 Climate Change Adaptation Joint Programme’s Outcome 3.4 Demonstration Project which is now conducting not only an enhanced expanded run in RTR but also a test implementation in two other municipalities of the province. Insights and learnings of this RTR experience along with the results of the other test implementations shall form the basis for guidelines for innovative financing-LGU model.
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