SECTION 10. Exemptions and Exclusions

(a) Lands actually, directly and exclusively used for parks, wildlife, forest reserves, reforestation, fish sanctuaries and breeding grounds, watersheds and mangroves shall be exempt from the coverage of this Act.

(b) Private lands actually, directly and exclusively used for prawn farms and fishponds shall be exempt from the coverage of this Act: Provided, That said prawn farms and fishponds have not been distributed and Certificate of Land Ownership Award (CLOA) issued under the Agrarian Reform Program.

In cases where the fishponds or prawn farms have been subjected to the Comprehensive Agrarian Reform Law, by voluntary offer to sell, or commercial farms deferment or notices of compulsory acquisition, a simple and absolute majority of the actual regular workers or tenants must consent to the exemption within one (1) year from the effectivity of this Act.  When the workers or tenants do not agree to this exemption, the fishponds or prawn farms shall be distributed collectively to the worker-beneficiaries or tenants who shall form cooperative or association to manage the same.

In cases where the fishponds or prawn farms have not been subjected to the Comprehensive Agrarian Reform Law, the consent of the farmworkers shall no longer be necessary; however, the provision of Section 32-A hereof on incentives shall apply.

(c) Lands actually, directly and exclusively used and found to be necessary for national defense, school sites and campuses, including experimental farm stations operated by public or private schools for educational purposes, seeds and seedlings research and pilot production center, church sites and convents appurtenant thereto, mosque sites and Islamic centers appurtenant thereto, communal burial grounds and cemeteries, penal colonies and penal farms actually worked by the inmates, government and private research and quarantine centers and all lands with eighteen percent (18%) slope and over, except those already developed, shall be exempt from the coverage of this Act.(As amended by R. A. 7881)

In addition to the exclusion provided for in section 10, it has been held that also Lands devoted to raising of livestock, swine and poultry are excluded from the coverage of CARP. Before its amendment by RA 7881, Sec. 3(b)

of RA 6657 included in its definition of agricultural activity the "raising of livestock, poultry or fish". Likewise, the original Sec. 11 of RA 6657on commercial farming provided that "lands devoted to commercial livestock, poultry and swine raising shall be subject to compulsory acquisition within ten (10) years from the effectivity of the Act."

However, the Supreme Court in Luz Farms vs. Secretary of Agrarian Reform, supra, held that Sec. 3 (b) and Sec. 11 of RA 6657(along with Sec. 13and 32) are unconstitutional in far as they include the raising of livestock and swine in the coverage of CARP. LUZ FARMS CASE

Facts: Petitioner Luz Farms is a corporation engaged in livestock and poultry business. It seeks to nullify Sec. 3 (b) and Sec. 11 of RA6657 in so far as they apply to livestock and poultry business. Held: Sec. 3 (b) and Sec. 11 of RA 6657 are unconstitutional in so far as they include lands devoted to raising livestock, swine and poultry within its coverage. The use of land is incidental to but not the principal factor or consideration of productivity in this industry. The Supreme Court held that: The transcripts of deliberations of the Constitutional Commission of 1986 on the meaning of the word "agricultural," clearly show that it was never the intention of the framers of the Constitution to include livestock and poultry industry in the coverage of the constitutionally-mandated agrarian reform program of the government. The Committee adopted the definition of "agricultural land" as defined under Section 166 of RA 3844, as land devoted to any growth, including but not limited to crop lands, saltbeds, fishponds,idle and abandoned land (Record, CONCOM, August 7, 1986, Vol.III, p. 11). The Supreme Court noted that the intention of the Committee to limit the application of the word "agriculture" is further shown by the proposal of Commissioner Jamir to insert the word "arable" to distinguish this kind of agricultural land from such lands as commercial and industrial lands and residential properties. The proposal, however, was not considered because the Committee contemplated that agricultural lands are limited to arable and suitable agricultural lands and therefore, do not include commercial, industrial and residential lands (Record, CONCOM, 7 August 1986,Vol. III, p. 30).Moreover, in his answer to Commissioner Regalado's interpellation, Commissioner Tadeo clarified that the term "farmworker" was used instead of "agricultural worker" in order to exclude

therein piggery, poultry and livestock workers (Record, CONCOM, August 2, 1986,Vol. II, p. 621). DAR AO 9 (1993)imposes two (2) conditions in order that these lands may be exempted: (a) that the land or portion thereof is exclusively, directly, or actually used for livestock, poultry and swine raising as of 15 June 1988; and(b) the farm must satisfy the ratios of land, livestock, poultry and swine

As for paragraph B of section 10, Fishponds and prawn ponds

With the amendment of Sec. 3 (c), 10 and 11 of RA 6657 by RA 7881,fishponds and prawn ponds are also exempted from the coverage of CARP, provided that said lands have not been distributed to ARBs and no CLOA shave been issued. To be exempted, the agricultural land must have been actually, directly and exclusively used for prawn farms and fishponds as of 12 March 1995, the date of effectivity of RA 7881. To avail of the exemption, a landowner or his authorized representative still has to file a written application for land exemption/exclusion with the DAR Provincial Office (DAR Adm. O. No. 3[1995]). In cases where the fishponds or prawn farms have been subjected to CARP, by voluntary offer to sell, commercial farms deferment or notice of compulsory acquisition, they can be exempt from CARP if a simple and absolute majority of the actual regular workers or tenants consent to the exemption within one (1) year from the effectivity of RA 7881or on 12 March 1995. In cases where the fishponds or prawn ponds have not been subjected to CARP, the consent of the farm workers shall no longer be necessary (Rep. Act No. 6657[1988], sec.10[b], as amended). Sec. 4 of RA 7881also amended RA 6657by introducing a new provision mandating the introduction of an incentive plan for employees of all fishponds and prawn farms. Operators and entities owning or operating fishponds and prawn farms are directed to execute within six (6) months from its effectivity an incentive plan with their regular fishpond or prawn farm worker's organization, if any, whereby seven point five percent (7.5%) of net profits before tax from the operation of the fishpond or prawn farms are distributed within sixty (60) days at the end of the fiscal year as compensation to regular and other pond workers over and above their current compensation. This incentive plan requirement, however, does not apply to agricultural lands subsequently converted to fishponds or prawn farms provided that the size of the land converted does not exceed the retention limit of the landowner.

As for paragraph C of section 10,

• QUESTIONS:

1.. May a state college claim that part of its property being cultivated by farmers cannot be covered under CARP because it is reserved for the future expansion of the campus? Yes, that area being cultivated by farmers can still be exempted from the CARP coverage. It has been held in Central Mindanao University vs. DARAB, the university has the prerogative to determine whether a particular part of the school property is necessary for educational purposes.

Central Mindanao University vs. Department of Agrarian Reform Adjudication Board  215 SCRA 86 (1992) Facts: On 16 January 1958, President Carlos Garcia issued Proclamation No. 467 reserving for the Mindanao Agricultural College, now the CMU, a piece of land to be used as its future campus. In 1984, CMU embarked on a project titled "Kilusang Sariling Sikap" wherein parcels of land were leased to its faculty members and employees. Under the terms of the program, CMU will assist faculty members and employee groups through the extension of technical know-how, training and other kinds of assistance. In turn, they paid the CMU a service fee for use of the land. The agreement explicitly provided that there will be no tenancy relationship between the lessees and the CMU. When the program was terminated, a case was filed by the participants of the "Kilusang Sariling Sikap" for declaration of status as tenants under the CARP. In its resolution, DARAB, ordered, among others, the segregation of 400 hectares of the land for distribution under CARP. The land was subjected to coverage on the basis of DAR's determination that the lands do not meet the condition for exemption, that is, it is not "actually, directly, and exclusively used" for educational purposes. Issue:  Is the CMU land covered by CARP? Who determines whether lands reserved for public use by presidential proclamation is no longer actually, directly and exclusively used and necessary for the purposefor which they are reserved? Held: 

The land is exempted from CARP. CMU is in the best position to resolve and answer the question of when and what lands are found necessary for its use. The Court also chided the DARAB for resolving this issue of exemption on the basis of "CMU's present needs." The Court stated that the DARAB decision stating that for the land to be exempt it must be "presently, actively exploited and utilized by the university in carrying out its present educational program with its present student population and academic faculty" overlooked the very significant factor of growth of the university in the years to come.

Is application of exemption the same as an application for retention? No, there are different in the sense that they have different requisites. In the case of DAEZ vs. CA. it stated that under PD 27, which implemented that operation land transfer program covers tenanted rice or corn lands. The requisites for coverage under OLT are: 1) land must be a system of share crop or lease tenancy obtaining therein. If either requisite is absent , a landowner may apply for exemption . If either of these requisite , the land Is not covered under OLT . Hence, a landowner need not apply for retention where his ownership over the entire landholding is intact and undisturbed. PD 27 grants each tenant of covered land 5 hectares lot or in case the land is irrigated, a 3 hectare lot constituting a family size farm, however, said law allows a covered landowner to retain not more than 7 hectares of his land if his aggregate landholding does not exceed 24 hectares. Otherwise, his entire landholding is covered without him being entitled to any retention right.

On the other hand, the requisites for the exercise by the landowner of his right of retention are: 1) the land must de voted to rice or corn crops. There must be a system of share crop or lease tenancy obtaining therein..and 3) the size of the landholding must not exceed 24 hectares or it could be more than 24 hectares provided that atleast 7 hectares thereof are covered lands and more than 7 hectares of it consists of other agricultural lands

SEC. 11. Commercial Farming. - Commercial farms which are private agricultural lands devoted to salt beds, fruit farms, orchards, vegetable and cut-flower farms, and cacao, coffee and rubber plantations, shall be subject to immediate compulsory acquisition and distribution after ten (10) years from the effectivity of this Act.  In the case of new farms, the ten-year period shall begin from the first year of commercial production and operation, as determined by the DAR. During the ten-year period, the Government shall initiate steps necessary to acquire these lands, upon payment of just compensation for the land and the improvements thereon, preferably in favor of organized cooperatives or associations, which shall thereafter

manage the said lands for the workers-beneficiaries.(As amended by R. A. 7881)

This definition excludes private agricultural lands devoted to commercial livestock, poultry, and swine raising. Such lands are not covered by the agrarian reform law (Luz Farms vs. Secretary of DAR)

There are alternative methods available to commercial farms other than distributions of land most commercial farms are the most modern mechanized farms with processing plants. Such farms pay the highest wages. Hence, The workers themselves prefer to remain as employees as it would be uneconomic to dismantle the farming operation. Thus, the DAR, under its AO No.9 series of 1998, allows commercial farms certain options subject to approval by DAR and workers. Such as: 1) joint venture, 2) lease-back, 3) growership arrangements and 4) direct payment scheme. These are aside from the usual voluntary offer sale and compulsory coverage. In general, therefore, the DAR encourages the workers or farmer-beneficiaries to keep intact the commercial farm by organizing themselves into cooperatives which will hold the collective CLOA to the land. Further, it will finance and operate the commercial farm. However, if it is economically viable or feasible as determined by DAR/DA, they will allow partition of the commercial farm if a majority of the workers prefer physical partition. In case of portion, the DAR requires a minimum of 1 hectare and maximum of 3 hectares for each worker.

• ADMISTRATIVE POLICIES COVERING EXPIRATION OF DEFERMENTS OF COMMERCIAL FARMS

* all commercial farms whose deferment expired last June 15, 1998 are subject to immediate acquisition and distribution under the CARP.

* Deferments have yet to expire will be acquired and distributed only upon expiration of their respective deferment periods.

GENERAL RULE: Acquired commercial farms shall be distributed to qualified beneficiaries based on the order of priority prescribed under section 22 of RA 6657. Those who have worked longest on the land shall be given preference.

* landowner, whether individual or corporate, shall have the right to retention pursuant to section 6 of RA 6657. all infrastructure facilities and improvements including buildings, roads, machinery receptacles, instruments or implements permanently attached to the land, which are

necessary and beneficial to the operations of the farm as determined by the DAR, shall be subject to acquisition upon the recommendation of the agrarian reform beneficiaries

Portion of lands devoted to livestock covered by DAR’s compulsory acquisition are not include in the definition of agricultural lands. In the case of DAR vs. SUTTON, it was held that the constitutionality of DAR AO No.9, series of 1993, which prescribes a maximum retention limit for owners of land devoted to livestock raising was raised. Pursuant to such AO, DAR exempted 1,200 hectares for grazing and a maximum of 102, 5635 hectares for infrastructures while the rest was subject to compulsory acquisition. The Supreme Court said that DAR has no power to regulate livestock farms which have been exempted by the constitution from the coverage of agrarian reform. Moreover, lands devoted to livestock, poultry and swine have been classified as industrial and not agricultural lands and thus exempt from agrarian reform.

MODES ACQUISITION OF COMMERCIAL FARMS

*Voluntary offer to sell-in order that acquisition of deferred commercial farm through voluntary offer to sell may be allowed, the offer to sell must have been submitted before the expiration of the deferment period, otherwise, the property shall be placed under compulsory acquisition.

* Compulsory Acquisition

* Direct Payment Scheme-upon mutual agreement of both the land owner and the majority of all qualified agrarian reform beneficiaries and approved by the DAR direct payment of deferred commercial farms placed under CARP coverage may be allowed.

Likewise, the area of the land to be transferred to the beneficiaries shall not be less than the area which the government would otherwise acquire for redistribution through CA or VOS.

The terms and conditions of the DPS shall include the immediate transfer of possession and ownership of the land in favor of the identified beneficiaries. The CLOAs shall be issued to the individual ARBs, or their cooperative or association, as may be appropriate, with proper annotations.

TYPES OF AGIBUSINESS VENTURES ALLOWED BY DAR

* Joint Venture Arrangement- agribusiness venture whereby a company is organized and co-owned by an investor and the agrarian reform beneficiaries through their cooperatives through their associations. The investor may provide the management and marketing skills, technology infrastructure and capital while the ARBs’ contribution/participation in the joint venture includes labor, the usufructuary rights to the land, and capital infusion, if available.(Textbook on Agrarian and Taxation, De Leon,2000 Edition)

* Lease Arrangement- agribusiness scheme whereby the ARBs’ through their cooperatives of farmworkers’ association, enter into a contract of lease with the landowner/investor. The lessee shall have farm control and operations within an agreed period of time but not to exceed 10 years, subject to extension upon mutual agreement of both parties. The lease rental shall not be less than the amortization to be paid by the ARBs to the Land Bank of the Philippines pursuant to DAR AO No.6, series of 1998, and other pertinent laws, rules and regulation. .(Textbook on Agrarian and Taxation, De Leon,2000 Edition)

* Contract Growing/Growership Arrangement- ARBs own the land and commit, either collectively through their cooperative or individually, to produce certain crops for an investor or agribusiness firm that contracts to buy the produce at pre-arranged terms. .(Textbook on Agrarian and Taxation, De Leon,2000 Edition)

* Management Contract- arrangement whereby the ARBs, or their cooperative/organization, hire the services of the landowner or an investor to manage and operate the farm in exchange for fixed wages or commission.(Textbook on Agrarian and Taxation, De Leon,2000 Edition).

* Build-Operate-Transfer Scheme- contractual agreement entered into pursuant to R.A No.6957, as amended, whereby the project proponent undertakes the construction, including financing of a given infrastructure facility and the operation and maintenance thereof for an agreed period of time but not to exceed 25 years, subject to extension. .(Textbook on Agrarian and Taxation, De Leon,2000 Edition)

Qualified ARBs or their cooperative/association may also opt for the combination of two or more of the above schemes they may choose in collaboration with the proposed investor. Lease arrangement shall be the least preferred scheme.

ESSENTIAL ELEMENTS OF AGRIBUSINESS VENTURE ARRANGEMENTS

* only qualified ARBs who have been awarded title to distribute area subject of the agribusiness venture arrangement.

* any qualified investor or former landowner may enter into an agribusiness venture provided, that they are able to prove their financial and technical capacity to meet ties and obligations under the proposed arrangement as evidenced by the relevant financial and income statements and further that the former landowner of the commercial farm shall be given priority.

* qualified investor may be any individual, partnership, or corporation with established financial and technical capabilities duly registered with the SEC.

* in joint ventures, the contract shall provide only for the usufructuary rights on the land but not the transfer of ownership of the land itself, valued at the prevailing market rates, but not lower than the amortization cost thereof.

FORMULAS FOR JOINT VENTURES, LEASE BACK AND CONTRACT GROWERSHIP ARRANGEMENTS

* Joint Venture agreement scheme must be approved by the DAR and by the majority farmer-beneficiaries. In this case, it is required that the title be ultimately be transferred to the workers.

* Lease-back arrangements shall be approved only when after the issuance of the CLOAs to the workers either individually or collectively to a cooperative. Lease may not exceed 10 years subject to extension by mutual agreement and rental should not be less than the amortization to be paid by the workers.

* Contract Growership shall be approved after the issuance of the CLOAs and the workers farm the land and agree to pre-sell their produce, individually or collectively to any party including the former landowner who may have all the equipment and processing plant.

* In direct payment scheme, DAR allows the landowner and workers to negotiate the sale of the land and/or equipment. The contract must be

approved by the DAR and majority of its workers. Also, DAR requires that the CLOAs be issued collectively.