Land for food or for shelter? Consequences of prohibiting conversion of agricultural landof prohibiting conversion of agricultural land

Roehlano M. Briones, Ph.D. Research FellowPhilippine Institute for Development Studies

PRESENTED TO THE SUBDIVISION AND HOUSING DEVELOPERS PRESENTED TO THE SUBDIVISION AND HOUSING DEVELOPERS ASSOCIATION, INC. (SHDA) 13 SEPTEMBER 2018

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Issues•Estimated housing backlog : 5.7 million units (2016)

•Scarcity of land contributes to the high cost of housing and dampens investments in expanding socialized and low-cost housing.

•However: land has other uses, most prominently, as input to food production.

•Recall (2016): DAR – draft EO for the President’s signature, 2-year •Recall (2016): DAR – draft EO for the President’s signature, 2-year moratorium on land use conversion (LUC) to ensure food security

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Objectives• Compile official data on land conversion (most recent available);

• Examine the impact of land conversion on the following: Annual area harvested of rice, using statistical analysis;

Physical rice farm area, using statistical analysis;

Food security variables such as consumption and production of food, especially rice, using scenario modeling;

Comparison of benefits from food (rice) production and housing, one assuming horizontal structure, another assuming vertical structure; horizontal structure, another assuming vertical structure;

• Evaluation of policies for the protection of agricultural land and the consistency of land conversion moratorium with these policies.

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CONTEXT

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Previous studiesPrevious studies highlight the debate on the pros and cons of agricultural land conversion, with economic studies typically on the agricultural land conversion, with economic studies typically on the positive side.

Kelly (1998)Political science perspective – official data underestimates actual LUC

nearly half; irrigated rice land accounts for almost all the total conversion

Local politicians exert considerable control over land conversionLocal politicians exert considerable control over land conversionLandowners are able to persuade tenants to relinquish their

tenancy rights mainly through disturbance compensation.

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Previous studiesCardenas (1998) Legal conversion - 10 percent of the total stock of agricultural lands in Cavite;

most of the conversion (95 percent) occurred in rainfed areas

Benefit-cost analysis – LUC financially and economically justified

Briones (2008) annual area harvested (1987 – 2007) unaffected by LUC

moratorium will have negligible benefits for rice farming and food security, moratorium will have negligible benefits for rice farming and food security, will have a much larger adverse impacts in terms of foregone benefits from expansion of low cost and socialized housing

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Trends in housing developmentEstimated cumulative housing need, 2016 (in ‘000; total 5.7 M)

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Trends in housing developmentSHDA:

cumulative backlog of 6.23 million housing units by 2030cumulative backlog of 6.23 million housing units by 2030

of this backlog, 41.2% are for low cost housing; 48.8% are for socialized housing

The country faces a massive and worsening housing backlog especially among low income households.

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Trends in land conversionCumulative area of approved LUC, haLUC, ha

Area of approved land conversion has reached a total of 152 thousand ha by 2015; growth of LUC approvals was fastest in the 1990s, slowing down in the 2000s, with only gradual increase since 2010. since 2010.

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Cumulative approved LUC, by region, 2015

The great bulk of LUC has occurred in CALABARZON, equivalent to nearly 119 thousand ha of total approved conversionsconversions

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LAND USE CONVERSION POLICIES

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Relevant laws• Comprehensive Agrarian Reform Law (RA 6657) - allows for LUC approval based on economic criterionbased on economic criterion

• Local Government Code (RA 7160) – power of LGUs to reclassify (up to a ceiling) based on economic criterion

• NIPAS Act (RA 7856) – 357,000 ha total

• AFMA (RA 8453) – Identify NPAAAD; within NPAAAD, delineate SAFDZ (~10.6 million ha!!!). After 2003: allow LUC in SAFDZ, “subject to existing (~10.6 million ha!!!). After 2003: allow LUC in SAFDZ, “subject to existing laws, rules, regulations, executive orders, and issuances, and administrative orders”

• CARPER (RA 9700) – prohibition on all irrigated and irrigable lands

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Executive branch policies• DAR AO 1(2002) lays down the comprehensive rules for land use conversion: conversion: • It promulgated the principle of protection of prime agricultural lands to

ensure food security (Article I, Section 1.1).

• Prime agricultural lands are those that can be used for agriculture, and can provide optimum and sustainable yield with minimum inputs and development costs, as determined by DA.

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Executive branch policiesThe AO introduces permanent prohibitions for LUC re: ◦ Protected areas under NIPAS; ◦ Protected areas under NIPAS;

◦ All irrigated areas, even those without water but programmed for rehabilitation; all lands with irrigation facilities, and all irrigable lands already covered by irrigation projects with firm funding commitments.

Introduces a category of lands that are “highly restricted” from conversion, such as irrigable lands (with no firm funding conversion, such as irrigable lands (with no firm funding commitments). ◦ must obtain approval from the Presidential Agrarian Reform Council

◦ except below 5 ha, and for housing projects under E.O. 45(2001).

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Executive branch policiesThe AO - formalizes the technical requirements to evaluate the economic justification for LUC, namely: economic justification for LUC, namely: ◦ Project feasibility study – an investigation of the market, technical,

financial, economic, and operational viability of the project; involves examination of alternatives

◦ Socio-economic benefit-cost study – the assessment of the project’s net contribution to the national economic and social welfare, done through a comparison of the economic and social benefits expected to be a comparison of the economic and social benefits expected to be generated from the project with the social and economic costs of its implementation and operation.

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Executive branch policiesEO 770(2008): Providing the Institutional Framework for National Land Use PlanningLand Use Planning

Establishes under the NEDA Board the National Land Use Committee (NB-NLUC) as country’s highest policy-making body on land use. The NLUC is chaired by the Socio-Economic Planning Secretary with Secretaries of DENR, DA, DAR, DTI, DPWH, DOTC, DOT, DILG, DOJ, DOST, and DOE as members, together with two private sector DOST, and DOE as members, together with two private sector representatives; the chairpersons of the HUDCC, HLURB, and NCIP; and the Presidents of the Leagues of Municipalities, Cities, and Provinces.

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TORs of NB-NLUCAdvise the President on matters concerning land use and physical planning;

Formulate a national physical framework plan and other inter-sectoral policies and programs that guide the rational utilization and management of the country’s land and other physical resources, and the preparation of sub-national physical framework plans.

Promote the integration of land use and physical planning policies, plans and programs, including disaster risk management, into national socio-economic plans and programs;

Decide and resolve land use policy conflicts among agencies of the national government;

Establish and maintain, in conjunction with the various appropriate government agencies, a Establish and maintain, in conjunction with the various appropriate government agencies, a database system which would identify and classify the present and possible uses of specific land areas, public and private, comprising the total land resources of the nation; and

Provide policy directions to the Regional Land Use Committees in the performance of their physical planning functions.

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(In)consistency of moratorium with existing laws• Granted – market forces and policy distortions excessive LUC

• The existing legal and regulatory framework, combined with a functional and competent regulation, offers adequate safeguards against excessive land use conversion.

• A moratorium appears to be within the legal ambit of the Executive branch; however such a policy complicates its attainment of other equally pressing legal obligations: equally pressing legal obligations:

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(In)consistency of moratorium with existing laws• Balanced agro-industrial development (Philippine Constitution);

• Various declarations 1992 Urban Development and Housing Act (RA 7279):

• Optimization of the use and productivity of land and urban resources;

• Development of urban areas conducive to commercial and industrial activities which can generate more economic opportunities for the people; people;

• Access to land and housing by the underprivileged and homeless citizens;

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(In)consistency of moratorium with existing lawsWhat about a temporary moratorium? ◦ Draft moratorium excludes idle lands (not otherwise covered under ◦ Draft moratorium excludes idle lands (not otherwise covered under

other conditions, i.e. land under NOC, irrigated and irrigable, etc.) ◦ As administrative measure, can be justified◦ But not without consequence – delays in key investments◦ Bigger problem – policy flip-flopping worsens investment climate in the

countryDiscussions on LUC moratorium should be studied and discussed in Discussions on LUC moratorium should be studied and discussed in length within existing institutional frameworks where multiple stakeholders are able to provide their inputs: NB-NLUC

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IMPACT OF LAND USE CONVERSION

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Understanding the impact of LUC• Two contrasting models of the impact of land conversion are the displacement model and the re-allocation model.Two contrasting models of the impact of land conversion are the

displacement model and the re-allocation model.

• If displacement model is true: ◦ LUC will be related negatively to food production area, on one-for-one

basis;

◦ LUC will be related negatively to food production area harvested, on one-for-one basis, adjusted for CI; one-for-one basis, adjusted for CI;

◦ LUC will cause food production to decline, equivalent to the loss in area harvested valued at the average yield.

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Trends in food production and consumptionArea harvested, in ‘000 ha:

2.7 M ?

3.9 M ?

1.7 M ?

1990 1995 2000 2005 2010 2015

Palay 3,319 3,759 4,038 4,070 4,354 4,656

Coconut 3,112 3,095 3,144 3,243 3,576 3,518

Corn 3,820 2,692 2,510 2,442 2,499 2,562

Others 1,749 1,896 1,981 2,102 2,235 2,362

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3.2 M ?

2.7 M ?Others 1,749 1,896 1,981 2,102 2,235 2,362

Total 11,999 11,441 11,674 11,858 12,665 13,098

Trends in food production and consumptionArea of arable land and Area of arable land and permanent crops

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Trends in food production and consumptionSelf sufficiency ratios:

1990 2000 2010 2011 2012 2013 2014

Rice 91 93 81 94 92 97 92

Corn 93 91 99 99 98 96 93

Coconut 100 100 100 100 100 100 100

Sugarcane 100 100 100 100 100 100 100

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• The country’s food production area has been increasing since the late 1980s.• Though rice production has been increasing, self-sufficiency has declined.

Testing the hypotheses:

• Strongest case of displacement can • Strongest case of displacement can made in CALABARZON, which accounts for the bulk of LUC area, but only a minority of production area

• At the regional level, statistical analysis fails to confirm the analysis fails to confirm the displacement model; results appear more consistent with the re-allocation model.

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Testing the hypothesis: case of irrigated land

• Contrary to the displacement • Contrary to the displacement model, land use conversion is associated with increases in both area and output from irrigated rice land.

• Statistical analysis fails to support the displacement model support the displacement model while providing moderate support for the re-allocation model.

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National level impact: simulation analysis• Assumptions of the simulation

Total backlog: 5,700,000 units

Housing density: 100/ha

Hectares of land needed: 57,000 ha

Area harvested decline: 114,000 ha (= 57,000 ha x 2 CI)

Note: last two estimates biased in favor of displacement model

• According to the displacement model: • According to the displacement model: • Area harvested for rice declines by 114,000 ha ;

• Output of palay declines by 445,740 tons (= 114,000 ha x 3.91 tons/ha; )

• Consumption of milled rice declines by 291,514 tons ( = 445,740 tons x 65.4%).

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National level impact: simulation analysis Base year value With shock Change Change (%)

Area (ha) Area (ha) Rice 4,725,238 4,672,810 -52,428 -1.1

Corn 2,589,631 2,566,239 -23,392 -0.9

Sugarcane 434,132 428,995 -5,137 -1.2

Coconut 3,542,103 3,521,553 -20,550 -0.6

Output (tons) Rice 18,479,885 18,404,201 -75,684 -0.4

Corn 7,518,169 7,509,454 -8,715 -0.1

Sugarcane 25,336,864 25,188,886 -147,978 -0.6

Coconut 15,303,961 15,342,189 38,228 0.2

Food consumption (tons)

negative but minimal impact of land use conversion on food production and consumption.

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Food consumption (tons) Rice 11,411,667 11,368,461 -43,206 -0.4

Corn (white) 2,118,305 2,113,529 -4,776 -0.2

Sugarcane 2,139,275 2,125,902 -13,373 -0.6

BENEFITS AND COSTS OF LAND USE CONVERSION

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Assumptions• The land being evaluated is in urban and peri-urban areas and is suitable for low cost and socialized housing development. suitable for low cost and socialized housing development.

• Currently the area is being used for production of palay yielding the national average of 3.91 tons/ha per cropping. The area is irrigated with cropping intensity = 2.

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AssumptionsThe discount rate is approximated from the bank average lending rate (High) obtained from BSP data (= 6%). The time horizon is sixty rate (High) obtained from BSP data (= 6%). The time horizon is sixty years.

A total of 100 families are provided low cost and socialized housing in one ha.

Society’s gross benefit from housing is valued at the imputed average rental for low cost and socialized housing. Rental imputed at P4,500 per month (net of maintenance cost)average rental for low cost and socialized housing. Rental imputed at P4,500 per month (net of maintenance cost)

[N.B. Assumptions are biased in favor of food production]

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AssumptionsSociety’s cost of housing is the cost of construction (assumed to be incurred within one year). incurred within one year).

The assumed lifetime of a house is 60 years

Average selling price is estimated by assuming P750,000 per unit, with mark-up over construction cost = discount rate. (Developer’s mark-up is excluded from society’s benefit).

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AssumptionsSociety’s cost of production for food is assumed to be the production cost incurred by farmers. On per ton basis, PSA (2016) data imply cost incurred by farmers. On per ton basis, PSA (2016) data imply average palay production cost of P11,040 per ton (1,000 pesos rental cost of land omitted).

Society’s gross benefit from palay production is valued at the price of palay. Two alternatives are available for imputing the price: 1. Market price, farmgate2. Shadow farmgate price - given the import policy of government, 2. Shadow farmgate price - given the import policy of government,

market price is distorted - approximated from the farmgate prices in rice exporting countries

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ResultsUnder the equivalence method, one hectare of urban or peri-urban land converted to housing is justified as it meets the needs of 100 land converted to housing is justified as it meets the needs of 100 families a year whereas keeping the land for food production meets the needs of only 9 families.

A family consists of five members, consuming a total of 561.3 kg rice per year (= 112.26 kg rice

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A family consists of five members, consuming a total of 561.3 kg rice per year (= 112.26 kg rice per head per year x 5 heads). This is obtained from 858.26 kg of palay per year (=561.3 kg rice per year x 1 kg palay/0.654 kg milled rice). Dividing 7,820 kg by this figure and rounding off obtains the 9 families estimate.

ResultsUnder the economic value criterion, the net benefit to society from converting a ha of land for socialized housing is far larger than for maintaining the land for rice of land for socialized housing is far larger than for maintaining the land for rice production.

Housing

(a) Food, market price

(b) Food, shadow price

(c)

Benefits 87,271,710 1,977,343 1,543,857

Costs 70,754,717 1,481,594 1,481,594

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Costs 70,754,717 1,481,594 1,481,594

Net 16,516,993 495,749 62,263

Subtract (a) -16,021,243 -16,454,729

To conclude:• Reiterates, updates, and reinforces the recommendation of Briones (2008) against a moratorium on land use conversion. against a moratorium on land use conversion.

• On the other hand, society incurs net loss from a blanket disapproval of all LUC.

• The alternative to a blanket disapproval of all LUC is individual, case-by-case evaluation, which is the system already in place. This system though is in need of strengthening in terms of its ability to evaluate the technical merits of any proposed project requiring LUC.

• Government should activate and capacitate its existing institutions for reconciling the unavoidable trade-off between food and non-food uses of land in its pursuit of inclusive and sustainable development.

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