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8/8/2019 Addressing Poverty Through...Revised Intro
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ADDRESSING POVERTY THROUGH GOOD GOVERNANCE
IN THE AGRICULTURAL SECTOR
A Research Paper
Submitted to the Institute of Economics
University of Asia and the Pacific
In Partial Fulfilment
of the Requirements for the Course
Basic Economics (FOS101)
ACB 501 D
(15:00 17:00)
Dy, Alexander John M
18 May 2007, Friday
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I. INTRODUCTION
The Philippines is rich, in terms of its natural resources, specifically the
agricultural sector. This God-given feature lets the Filipinos enjoy a rich and wide
supply of crops, livestock and poultry, fishery, forestry, and farm products that
are not only used for the countrys utilisation and consumption, but also as a
source of the large percentage of our countrys revenues1, accounting for about
an average growth rate of 14.6 percent of our GDP (Gross Domestic Product)
and an average growth rate of 4.6 percent of our GVA (Gross Value Added) 2.
Among the Philippines top agricultural exports include: coconut (oil and other by-
products) topping the list, followed by fresh bananas, corn, pineapple, and
sugarcane products3. However, since the agricultural sector is the most abundant
part of out country, why is that it has also the most number of people living in
poverty? According to Villegas (2005), one of the roots of Philippine poverty is
poor governance: corruption and bureaucracy and the neglect in the agricultural
development. These two reasons are directly related - referring to the poor
management of the policy people whose interest have gone and continuously
going beyond their responsibilities; thus, neglecting the agricultural industry
(Fink, 2005). This poor management in agriculture has resulted to low levels of
productivity that consequently accounts for the increasing rates of unemployment
in the agricultural industry4. Unemployment triggers increasing incidences of
poverty which constitutes the majority of the poor. This phenomenon is due to
flawed economic policies mandated by bad governance by officials, who,
unfortunately, pursue their personal agendas while they are in government posts.
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Objectives of this paper:
This study endeavours to explain how the agricultural industry can be
maximised to reach its maximum potential capacity, if bad governance, through
anti-corruption is reduced, thereby alleviating poverty.
Significance of this Study
Initial studies have been conducted to alleviate poverty through improving
the quality of education and the maximisation of the agribusiness sector, which
are all promising. However, these studies, although having stressed the factor of
bad governance (i.e. poor management, graft and corruption, etc.), in one way or
another, have missed to stress the strategies and/or solutions in fighting
corruption in the agricultural sector - which is the Philippines major asset as a
developing country6. Hence, this study shows an underlying message as
supported by Villegas (2005) that high level of corruption, which is about 30% to
50% of funds bided for government projects, act as a deterrent not only to
economic growth but also the projects aimed at alleviating poverty. Thus, [] no
matter how hard and persevering efforts of both public and private sectors try:
(i.e. the investors, the not-for-profit organisations (NGOs), and other helping
hands of the society) to alleviate poverty by means of improvements in the
quality of education, overseas Filipino workers (OFWs) high dollar remittances,
maximisation of the agribusiness, and so on, such efforts would just be a futile
exercise if the problem of corruption is not rightfully addressed, especially in the
agricultural sector7. Thus, the findings of this study hope to contribute on how the
root cause of poverty in the agricultural sector can be addressed.
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Scope and Limitation
This study focuses on describing how poverty in the agricultural sector can
be possibly alleviated through anti-corruption strategies (study on Fighting
Corruption in Agriculture) that have been applied in other developing economies.
Moreover, this initial study also covered some minimal information regarding
corruption in the other sectors of society (education, taxes, etc.) In addition, only
Rodney Finks study was cited and used in providing anti-corruption strategies in
the agriculture. Lastly, this study is limited in alleviating poverty agricultural
sectors which constitute the rural poor accounting for the majority of the people
living in poverty, excluding the urban.
________
1United States Library of Congress. The Philippines Agricultural Geography. Accessed 9 May
2007. Avail. from http://countrystudies.us/philippines/60.htm
2Villegas, B. M. Filipinos as the Ultimate Resource. The Philippine Advantage, UA&P. 2001. 83
85
3Department of Agriculture (D.A.). D.A. to Tap Emerging Organic Food Market to Help Boost
Farmers Incomes. Accessed 23 April 2007. Avail. fromhttp://www.doa.gov.ph/.ihdel;Internet
4Villegas, B. M. Filipinos as the Ultimate Resource. The Philippine Advantage, UA&P. 2001. 92
5Villegas, B. M. Philippine Civil Society: Main Agent for Alleviating Poverty. The Philippine
Advantage, UA&P. 2001. 105-115
6See for further reading: Fink, R.J. Agriculture. Fighting Corruption in Developing Countries:
Strategies and Analysis, Edited by Bertram I Spector, USA: Kumarian Press, Inc. 2005. 145-152.
7Refer to this for further reading: Frank-Jrgen Richter and Pamela C.M. Mar, Asias New Crisis:
Renewal through Total Ethical Management, John Wiley & Sons, Singapore. 2004.
5
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II. Review of Related Literature
For all the magnificent testimonies to mans superior skill and intellect in
producing todays level of cultural development, he still has to find solution to
mass poverty (Villegas, 1998). It is very disappointing to our sensibilities to find
the poor coexisting with the rich. That is why, there is a call to empower the poor
for three main reasons: for a development change, for the common good, and to
promote the dignity of the human person (Villegas, 2005). However, there are
factors why the Philippines have increasing rates of poverty. Before we deal to
that, we need to know what poverty means.
According to Corbett (2005), poverty is a condition of having insufficient
resources or income. In its most extreme form, poverty is a lack of basic human
needs, such as adequate and nutritious food, clothing, housing, clean water, and
health services. Another definition is that poverty is clearly multidimensional in
nature. It encompasses not only material deprivation in terms of income or
consumption levels, but also the deprivation arising form illiteracy, malnutrition,
bad health, poor access to water and sanitation, vulnerability to economic shock,
and lack of political freedom (ADB, 2003).
Where and who are the poor?
The poor are categorised under the following: tribal communities, upland
farmers, landless (tenant) farmers, coastal/marginal fishermen, small farm
cultivators, the urban poor that includes scavengers, contractual workers,
minimum wage earners and micro0entrepreneurs (Balisacan & Pernia, 2002).
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Causes of Poverty
There are four roots of Philippine poverty as stated by Villegas (2005) in
The Philippine Advantage 2nd Ed. Presentation, they are as follow: flawed
economic policies that ignored competitive advantage of the Philippines in
labour-intensive exports, the pro-longed emphasis on inward-looking
industrialisation, the neglect of agricultural development, and poor governance:
corruption and bureaucracy. Representative Rene M Velarde of the Buhay Party-
list (2005), says [] all these causes of poverty are interrelated with bad
governance, due to corruption and bureaucracy, representing as the head.
Good governance
Good [corporate] governance is the role of the board of directors to
oversee the generally accepted set of institutional guidelines that are deemed
necessary for the direction and performance of corporations [or any particular
sector, i.e. government, etc.]. The principles of [good governance ensure the
protection and equitable treatment of shareholders, enforce disclosure and
transparency of financial performance, establish independence from
management, stipulate accountability to shareholders and outline responsibilities
of the board of directors (Sun, 2004). Sun (Corporate Governance, 2004), adds
that, bad governance is just entirely the opposite of the good.
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Effects of bad governance in the agricultural sector of the Philippines
A study by the National Statistical Coordination Board (NCSB, 2000
revised Poverty Incidence) has shown that 60 to 80 percent of the population live
a hand-to-mouth existence in peasant agriculture. Sun (2004) says that this
situation is primarily due to flawed economic policies and self-centred interests;
thus, neglecting the management [agricultural sector] and worsening the
condition of the poor. From the survey of the National Statistics Office and
estimation of Villegas (2005), from the observed large difference between the
actual growth rate per capita gross domestic product (GDP) and the forecasted
or estimated trend line from the period 1971 to 1992 in Figure 5 (See Annex), we
can pinpoint that misguided macroeconomic policies failed to maximise the use
of our labour and capital resources [agricultural industry]. With the wrong and
misguided policy mix on interest rates and the peso-dollar exchange rates,
economic incentives resulted into a bias against the agricultural sector. The bias
against the agricultural sector resulted into underinvestment (i.e. both public and
private), into the agricultural sector thereby resulting into very low productivity
rates, measured by output per worker(Villegas, 2005) (emphasis added).
The policy bias consequently resulted into the slow and ill-progressive
development of the Philippine agriculture. [T]his misguided policy was critical for
Philippine development as our growth was solely dependent on the productivity
of our labour force, and, at least 40% of the employed labour force is directly
dependent on the agricultural sector for income or wages. The high level of
poverty in the Philippines is attributed to the low productivity of the agricultural
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sector due to misguided policies (emphasis added).In fact, 49% to 52% of poor
households1 source their income from the labour-intensive agricultural sector.
(Villegas, 2005). The economic development literature cites the vicious cycle of
poverty: low investments lead to low productivity, then to low output and low
income which ultimately lead to low savings. Low savings lead to low
investments. The case of Philippine agriculture is, perhaps, a classic case of
vicious cycle (Dy, 2000). Thus, to attribute the increase in the number of poor
households to family size (Arenas, 2003) may be fallacious (Villegas, 2005).
According again to Villegas (2005), there is a closely-linked relationship
between household poverty incidence and the percentage of households with
agriculture as major occupation. According to him, the capital-intensive fiscal
policy bias from the 70s to 80s led to the mediocre performance of the
agricultural sector, disenabling agricultural households to earn enough for their
sustenance (see Figure 6 in the Annex).
By looking at Table 3 (see Annex, where funds and tax evasion can be
spent on), by focusing only in FOOD and AGRICULTURE, a total of
135,431,680,000 pesos is needed when a total of 313,700,000,000 is lost
annually through tax evasion and corruption. This huge money could go a long
way in enhancing low levels of agricultural investments in the past that have
resulted into its poor current performance so as to fund projects aimed at
alleviating poverty in rural areas (agricultural sector).
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Corruption Vulnerabilities in the Agricultural Sector
Agriculture in developing countries employs a large percentage of the
population and, for the most part as reiterated, a very impoverished segment.
Farms in these countries tend to be small: in Africa, using Finks (2005) example,
more than 90 percent of the farms are in the hands of the small landholders. In
transitioning economies [like the Philippines] by contrast, the agricultural sector
employs than a third of the labour force, and the average farm size is large (Fink,
2005). According again to Fink (2005), for both groups of countries, corruption
issues and vulnerabilities affect land title and use, credit availability, quality of
supplies, water allocation, product standards and certification, marketing, and the
development of agribusiness. Applied anti-corruption strategies are in table 10.2
(refer to annex). By these organised anti-corruption strategies and vulnerabilities,
it is very evident how malignant the worsening problem in corruption in the
agricultural sector is due to big budget and revenues allotted in the agricultural
industry; thus, corrupt people took advantage of it.
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III. Conceptual Model
Explanation of the Conceptual Model:
P
overty is lack of basic human needs, such as adequate and nutritious
food, clothing, housing, clean water, and health services (Corbett, 2006). Tracing
the majority of whom and where poverty is are the people in the agricultural
sector, namely: the upland farmers, landless (tenant) farmers, small farm
cultivators, coastal/marginal fishermen.
The agricultural sector of the Philippines is rich teeming with all the export
qualities of the resources (coconut, banana, pineapple, sugarcane, etc.) the
Filipinos could ever ask for, so should the people living there supposedly, since
the rich agricultural sector is their source of living. However, they remain in
poverty. Worsening rates of poverty has long been a problem in the agricultural
1
Anti Corruption
Interventions
Decrease inPoverty in
Rural Areas
BadGovernance
CausingFlawed
EconomicPolices
Increase inPoverty in
RuralAreas
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sector because of bad governance. The neglect in agricultural development
because of people in positions or the policy makers became vulnerability to
corruption to some factors, namely: land title and use, credit availability, quality of
supplies, water allocation, product standards and certification, marketing, and the
development of agribusiness. With their time and energy focused on self-serving
interests, they promote bad governance, thereby, mismanaging resources and
wrong allocation of funds needed for the agricultural industry to develop. Huge
amounts of money are lost in corruption annually amounting to
313,700,000,000Php (from tax evasion and corruption) (see table 10.3 in the
annex), which could have been used to generate jobs for the majority of the poor
who solely depend on the agricultural industry for their bread and butter. Thus,
the vicious cycle of poverty starts (see annex diagram 0.1): The neglect in
agricultural development would trigger low investments due to producing poor
quality of goods. With low investments comes high unemployment rates due lack
of funds to pay labour fees and other maintenances; thus, decreasing the output,
then the income, and lastly the savings. When savings have been used up
triggering the incapability of eating less than three times a day, poverty then
starts to increase.
This paper hypothesises that anti-corruption strategies is a possible
solution to bad governance in alleviating poverty in the agricultural sector. These
anti-corruption strategies drafted and ratified by the Presidential Anti-Graft
Corruption Study (PAGCS, 2006) for the Department of Agriculture. They are as
follow: 1.) the evaluation of corruption by sector by starting at the market and
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working backwards to production (warehousing, transportation, licenses, grading,
etc.) 2.) The exploring of the possibilities for the processor in granting credit to
the farmer/s where commodity chains are shortened. 3.) The promotion of
development of a land market by eliminating corruption in the registration and
titling process. 4.) The continuous encouragement of the farmers entry into
competition with emerging private sectors where marketing fails to be effective.
5.) Promotion of quality controls and improvement centres. 6) The promotion of
over sightedness of private sector groups. 7) Consistent pursuance on
developing projects with producers groups involving stakeholders. 8) The
avoidance of projects that allow rent seeking via hidden subsidies. Assuming
these anti-corruption strategies will all be materialised, poverty may be alleviated
while developing the agribusiness industry, thus, empowering the poor. This is
because of the following: if funds, transactions, productions, transportations are
strictly monitored by vigilant and honest people, and so the rest of anti-corruption
strategies, the agricultural sector then would be developed due to proper
management of people and allocation of budget, thus, there would be an
increase in demand for employment, and others would be given loans to start
their own small farms. If this happens, there would be an increase in investment,
then increase in productivity due to increasing employment. Then this
corresponds to an increase in output, then also an increase in income, increase
in savings and consumption good for the economy; thus, alleviating poverty in
a corruption-free environ with good governance or leadership as the atmosphere.
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IV. Research Question:
What are the possible anti-corruption interventions that can court BAD
governance that is the cause of poverty in the agricultural sector of the
Philippines? (similar answers can also be found in the second paragraph in the
explanation of the conceptual model)
The anti-corruption strategies drafted and ratified by the Presidential Anti-
Graft Corruption Study (PAGCS, 2006) for the Department of Agriculture are as
follow:
The evaluation of corruption by sector by starting at the market and working
backwards to production (warehousing, transportation, licenses, grading, etc.)
By joining private and government sources to remove impediments such
as road inspection points and replaces them with effective not-rent-seeking
methods; build the case for the government to monitor the problem areas while
privatizing as many the steps as possible will be a good practice of evaluation of
corruption by sector. Shortening the commodity chain from the producer to the
market by introducing contract arrangements between the cocoa farmers (for
example) and the ultimate processor of the product will be some initial practices
to see some corruption signs in the production.
The exploring of the possibilities for the processor in granting credit to the
farmer/s where commodity chains are shortened
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This can be done by developing creative approaches for solving the
problem and the supply chain simultaneously. A good monitoring of the credit
granting is advisable.
The promotion of development of a land market by eliminating corruption in the
registration and titling process
Facilitating simple and inexpensive procedures for transferring land title
will also help enhance involvement of the private sector in land survey, titling,
and real estate sales. Remove the legal and regulatory restraints to private
ownership.
The continuous encouragement of the farmers entry into competition with
emerging private sectors where marketing fails to be effective
This is a good indicator of corruption. Because if the morale of the farmers
are boosted, encouraging to join the competition along with private sectors, the
private sectors will be threatened in the business; thus, ending up giving bribes to
the farmers not to join. Once they give bribes, they can be filed with bribery or
other cases regarding graft and corruption.
Promotion of quality controls and improvement centres
By working with private and public groups to facilitate standards, grading,
and certification, the promotion of quality controls and improvement centres will
be hastened.
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The promotion of over- sightedness of private sector groups
It is good to promote over-sightedness of the private sectors so as to
attract them to invest in farms and other agricultural business; thus, opening jobs
for other unemployed farmers. This can be a start of a god monitoring of good
governance in the perspective of the private sector.
Consistent pursuance on developing projects with producers groups involving
stakeholders
It is advisable to involve the producers groups and the stakeholders in
developing new projects so that they will be aware of what is happening in their
investment, thereby also, supervising their tenants and workers.
The avoidance of projects that allow rent seeking via hidden subsidies
Hidden subsidies are risky. They can be sometimes illegal or may have
some other business other than agricultural; thus, choosing to lease projects
using them as facades.
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V. Discussion and Analysis
Further analysis and discussion will be presented in this section on how
the agricultural sector can be affected by bad governance worsening poverty. It
will also be presented here how to bring back the life in the agricultural sector if
good governance had taken place; thus, alleviating poverty.
Poverty in the agricultural sector is mainly caused by crooked policy
makers who are in-charge in the industry. It will be helpful to quote Villegas
(2005) in uprooting and eliminating corruption (see table 3 in the annex). He said
that the high level of corruption, which is about 30% to 50% of finds, bided for
government projects, acts as deterrent not only to economic growth but also to
projects aimed at alleviating poverty. He also stated the estimated amount is
120.0 billion (Office of the Ombudsman, 1997). These funds, when properly
accounted for, could be used to either embark on projects which could improve
the countrys food sufficiency and/or lessen the number of families living below
the food subsistence level. Using Villegas (2005) example, these funds can be
used as additional investments for capital formation in the agricultural sector.
These investments are needed in order to improve the productivity of our farm
lands. An improvement in the productivity of our farm lands can help bring down
the cost of food (Villegas, 2005). Moreover, assuming there is good achievement
rates of food sufficiency and food subsistence that, improvement in farm
productivity would help decrease the countrys high food cost. As additional
investments in the agricultural sector would indeed be a stimulus for productivity,
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as it will allow farmers to produce more at limited hectare, or limited, fishery,
livestock or poultry breeding stocks. When the costs of the capital invest is
spread across a high production level, then average production cost decreases.
It is through this mechanism that food costs would decrease allowing more
families to afford three meals a day. Hopefully, the mechanism in increasing
capital investments in agriculture would help decrease the number of families
living below the subsistence level (indicator of the minimum demand for food of
each individual). (Villegas, 2005).
The wonderful thing about increased investments in agriculture capital
formation is that it also allows the country to reach food sufficiency (an indicator
of food supply). For example, with improved agricultural activity farmers can
produce more. The country is not very far from achieving food sufficiency. In as
fact as of 2003, the Philippines is already exporting sugar. In the next 5 years,
the country is targeted to be rice sufficient. This means that we are currently
reaching at least 90& self sufficiency in rice (interview with Dy, R.B., UA&P in
Villegas, 2005).
Capital investments in agriculture can also go a long way. According to
Villegas (2005), an additional of P14.5 billion results into a 32% increase which is
three times the average 9.3% compounded annual growth rate from 1991 to
1997 capital formation (uses gross domestic capital formation in nominal terms)
devoted to agriculture. Low levels of agricultural investments in the past have
resulted poorly in current performance. Therefore, it is recommended that the
poor performance of agriculture can better analysed under an agribusiness
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system framework from input supply subsystem to production, marketing, and
processing subsystems (i.e. via logistic services). Inefficiencies in the input
subsystem will affect the efficiency of the production system. Using Villegas
(2005) example, low or inefficient usage of fertilizer nutrients will reduce
production levels which, in turn, reduce the raw materials for processing and/or
marketing. This systems inefficiency will also affect the competitiveness or scale
economies of a processing plant or supply chain due to or cascade of link effects.
It is that the overall system of efficiency that counts (Dy, 2000) (Villegas, 2005).
These restrictions are all too obvious in many agricultural sub-sectors and
agribusiness industries such as food and beverage manufacturing, wholesale
and retail. This sectors inefficiency also results into the inefficiency of about 40%
of workers directly employed by the agricultural sector. An improvement in this
subsystem via an increase in investments would definitely improve the efficiency
of the entire agribusiness system (Villegas, 2005).
By eradicating tax evasion and corruption, more funds will be generated
for projects for the provision of basic needs. In table 3 (see annex), an overview
of where such funds could have been assuming a corruption-free and tax
evasion-free society. In addition, these possible projects stress that poverty are
not caused by overpopulation. Lest, by poor policies, tax evasion, corruption in
short, bad governance. Because of 20 years of heavy corruption, money outflows
would definitely been used to reduce the incidence of extreme poverty.
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VI. Summary
Poverty is the state of experiencing low quality of life, deprived of both the
material and non-material requirements that allows person to like a human being.
This is the reason why it is important to empower the poor, chiefly because of
three reasons, a development challenge, for the common good, and to promote
and uplift the dignity of the human person. People in the agricultural sector
covers majority of the poor. Although our country enjoys a rich supply of natural
resources, due to bad governance, flawed economic policies are implemented;
thus, neglecting the development of the agricultural industry. This is turn, triggers
low investments high unemployment in the agricultural sector low output
low income low savings then low investments again. This is called the vicious
cycle of poverty. When all these happen, farmers and all other agricultural people
will start to get poorer due to lack of money to support their needs, since the
agriculture, which is their source of their living, is neglected due to bad
governance, thus, increasing poverty rates.
With the huge amount of money that is lost annually due to corruptions
and tax evasions, such funds could have been used to address the different
needs of education, wages, food, and especially, the development of the
agricultural sector where the majority of the poor are situated.
However, by eradicating tax evasion, uprooting and eliminating corruption,
achievement of food sufficiency and food subsistence, and with recommended
and proven anti-corruption strategies, the agricultural sector can be developed;
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thus, increasing productivity, employment, income and output, and savings
reducing poverty incidence.
VII. Conclusions and Recommendations
It is recommended that efforts to fight corruption in the agricultural sector
should emphasise transparency, public awareness, accountability, prevention,
and enforcement.
In this study, it is also further rec know and understand the cause of
poverty in the urban areas. Because the cause of poverty in both rural and urban
share some similarities, although only a small percentage does the urban poor
share in the total rate of poverty. Lastly, it is also important to give, if any, proven
anti-corruption strategies to the other sectors of the society, since corruption is
already a spreading disease or cancer of the Filipino society.
Bad governance, as said by Villegas (1998), is very particular not on the
leadership itself, but in the graft and corruption and bureaucracy. We have good
and credible leaders and policy makers. The only problem is that they are all
vulnerable, in one way or another, to be corrupted (Klitgaard, Robert).
Corruption in the agricultural sector can be reduced since; being corrupt is
a two-fold task. First, is the one who is corrupt who accepts the bribe, and the
other is the one who gives the bribe. Corruption only exists if two parties agreed
to scratch each others back. But, if only one party resists and tells it to the
official who are not corrupt, then corruption ceases. By practising accountability
2
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and honesty, corruption in the agriculture, and the country as a whole, can be
removed.
ANNEXES
Table 10.2. Corruption Prevention Measures at the Khutsula Poultry CooperativeProject (Applicable to Philippines)
Action Taken How It Was Done Outcome
2
Those women who had aninterest signed on.
Members were enthusiasticand wanted to participate.
All coop members knew theirresponsibilities and acceptedthe conditions.
There were no secrets in theaccounting process.
Children of illiterate parentsdid books.
Well received by all. Goodparticipation.
Ministry representative gavetechnical support.
Successful project and goodorganisational and workingprocedures were followed.
1. Donor identified players.
2. The operating documentfor the cop was prepared.
3. Seed money was identifiedand payback set.
4. Accounting of centralbusiness.
5. Individual accountability.
6. Cooperative meetings.
7. Government meetings.
8. Did it work?
Initial meetings wereconducted and theprogramme described.
Meetings were held (under abig tree) with the 100-plus
women who becamecooperative members.
Donor agency presentedtheir financing potential and abusiness plan was adopted.
A simple accounting systemwas designed and wasavailable.
Each member maintained
books and provided amonthly report.
Held on a regular basis(under the same tree).
Yes, the ministry ofagriculture was informed andhelped.
Yes. Major effort to provide aquality product and viablemarkets open. Goodcommunication andinvolvement.
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Diagram 0.1
2
Investments
UnemploymentLow Savings
OutputIncome
ViciousCycle ofPoverty
POVERTY
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2
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