Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

‘SIXTEENTH CONGRESS
‘Second Regular Session

House Bill Noo O85,

Introduced by Rep. Teddy Brawner Baguilat

EXPLANATORY NOTE

From February to April 2014, the House of Representatives Committee on Cooperatives
Development and the Committee on Agrarian Reform conducted joint hearings to investigate the
alleged onerous contract on the agri-business venture arrangement (AVA) between the Hijo
Agrarian Reform Beneficiaries Cooperative (HARBCO) and Lapanday Foods, Inc. in Davao
Oriental

The HARBCO members, Comprehensive Agrarian Reform Program (CARP) beneficiaries
managing their banana plantation, filed a petition with the two House Committees to recommend
the revocation of their AVA contract with Lapanday Foods, Inc. to the Presidential Agrarian
Reform Council (PARC). HARBCO reportedly incurred debts with Lapanday of at least Php 290
Million owing to controversial provisions in their AVA contract.

In 1998, HARBCO executed a 10-year Banana Sales and Marketing Agreement (BSMA) with its
former landowner, Hijo Plantations, Inc. (HPI). In 1999, HP! transferred its rights over the BSMA
to Lapanday. In 2008, Lapanday took over the operations of HARBCO on the basis of the BSMA.
At that time, HARBCO had debts of Php 115 million with Lapanday which eventually ballooned to
Php 290.8 million in 2012.

HARBCO's contract with HPl/Lapanday is similar with contracts of other ARBs with some local
agribusiness corporations in the Davao Region, such as the Marsman/MEP! vs, Davao Marsman
Agrarian Reform Beneficiaries Development Cooperative. Other ARBs, mostly banana growers
who are in a similar situation with HARBCO, also attended the congressional inquiry held in
Tagum, Davao Oriental and requested for the Congress’ and the Department of Agrarian
Reform's (DAR) intervention on their respective concerns.

The case of HARBCO reveals the plight of many ARBs who may still own the land awarded to
them on paper, but in actual practice, have lost control and access to it by the takeover of their
land's management by supposed partner agribusiness corporation.

In the midst of recurring calls to cease CARP implementation and give way to agricultural
investments by private corporations, there is mounting concern that ARBs must retain possession
and ownership of the lands awarded to them under the program and contribute to rural


development. The pressure comes from domestic and foreign agribusinesses, which are directly
leasing and/or managing agricultural lands at the risk of the ARBs losing control over their land,

The HARBCO case further validates the need to strengthen the existing policies on AVAs to
address and prevent similar cases that compromise the tenure security of ARBs from occurring
in the future.

The DAR originally initiated the amendment of their Administrative Order (AO) on AVAs, or AO 9,
series of 2008. However, DAR officials opined to the House Committee on Agrarian Reform that
they needed a stronger mandate to regulate the implementation of these agri-business ventures
and ensure that the rights and interests of ARBs are protected in these business transactions,

The advent of increasing interest on land investments in the Philippines fueled by the rising global
demand for food and raw materials for agro-fuel production, tourism and mining calls for a strong
regulatory mechanism to govern land investments. This is highlighted by the fact that in the last
5 years our government has been involved in numerous transactions involving the lease of large
tracts of land nationwide for the production of biofuel feedstocks, food crops and mariculture
investments. The influx of both local and foreign investments in our country has exposed the basic
sectors, particularly the farmers, fisher folk and indigenous peoples, to the threat of displacement
and loss of control, ownership and possession over their lands

itis in this regard that this bill is being proposed. It seeks to institutionalize the establishment and
implementation of AVAs, particularly in agrarian reform areas, to promote productive and
collaborative ventures between the private sector and the ARBs and transform them into farmer-
entrepreneurs as well as maximize distributed agrarian lands without compromising the famers’
tenure rights.

The provisions in this bill emphasize the principle of agrarian reform of providing “farmers and
farm workers with the opportunity to enhance their dignity and improve the quality of their lives
through greater productivity of agricultural lands.” AVAs should not be a threat to the ARBs’ land
rights but should give incentive to develop their lands and improve their productivity.

Moreover, the bill likewise ensures that there are social preparation, capacity building, and
assistance provided to ARBs to better equip them in the negotiation for and evaluation of the
agreement they are entering into.
In view of the foregoing, the immediate passage of the bill js farnestly sought

Representftive, Lone District of Ifugao


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

SEVENTEENTH CONGRESS
First Regular Session

House Bill No.,

Introduced by Rep. Teddy Brawner Baguilat

Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
Assembled:

An Act Regulating the Establishment and Implementation of
Agribusiness Ventures Arrangements (AVAs) in Agrarian Reform Lands

Section 1. This Act shall be entitled as Agribusiness Ventures Arrangements in Agrarian Reform
Lands Act.

Section 2. Governing Principles and Policies. The 1987 Constitution mandates that the State
shall promote social justice in all phases of national development, and guarantee full respect for
human rights.

Predicated on these overarching principles, the agrarian reform program is founded on the right
of farmers and regular farmworkers, who are landless, to own directly or collectively the lands
they till or, in the case of other farm workers, to receive a just share of the fruits thereof. The State
shall ensure that control over the lands awarded under the agrarian reform program shall remain
always with the agrarian reform beneficiaries so that they can plan, organize and manage their
farmlands independently and productively with adequate support services from the State and
investors

To provide support services to the ARBS, the State shall encourage the participation of the private
sector in order to enhance the development and productivity of the awarded lands under the
agrarian reform program. In providing such support services, the State shall take utmost
consideration of the following, to wit:

a. Ensure the security of ownership, tenure and income of all agrarian reform
beneficiaries;

Optimize the use of distributed lands for agricultural production;

Facilitate the development of ARBs or Cooperatives/Associations into viable
agricultural entrepreneurs or enterprises;

Encourage responsible private sector investments in developing agrarian reform areas;
Address the concems on food security of the Philippines;

Enhance and sustain the productivity and profitability of agrarian reform lands; and
Transform the local agriculture sector into a globally competitive industry.

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Section 3. Definition of Terms. For purposes of this Act, the following terms are hereunder

defined:
A

Agrarian Reform Beneficiaries (ARBs) refer to qualified individual beneficiaries under
Presidential Decree (P.D.) No. 27 or R.A. No. 6657, as amended, or their cooperative
of association duly registered with the Cooperative Development Authority (CDA), the
Securities and Exchange Commission (SEC) or the Bureau of Rural Workers (BRW) of
the Department of Labor and Employment (DOLE).

Agrarian Reform Lands refer to lands awarded under P.D. No. 27 and R.A. No. 6657,
and their amendments.

. Agribusiness Venture Arrangement (AVA) refers to the entrepreneurial collaboration

between ARBs and private investors in the implementation of an agriculturally-related
business venture involving lands distributed under CARP.

Arbitration is a voluntary dispute resolution process where the parties submit their
dispute to an arbitral committee who, in turn, conducts hearings and makes final
decisions binding upon the parties

Association refers to ARBs who voluntarily form a group duly recognized by the SEC or
DOLE, and organized for the purpose of, but not limited to, entering into an AVA with a
‘common investor.

Build-Operate-Transfer (BOT) is an AVA scheme where the investor builds,
rehabilitates or upgrades, at his own cost, capital assets, infrastructure and facilities
applied to the production, processing and marketing of agricultural products and
operates the same for a fixed period after which ownership thereof is conveyed to the
ARBs.

Contract Growing is an AVA scheme where the investor provides farm inputs and
technology at reasonable cost in exchange for the ARBs’ commitment to produce
certain crops at pre-arranged agreement involving volume, quality standards, selling
price, delivery and other terms and conditions.

Control refers to the power of ARBs to direct the whole operation of the farm

Cooperative refers to a group of ARBs, duly registered under R.A. No. 9520, otherwise
known as the "Philippine Cooperative Code of 2008", who have voluntarily (i) pooled
their land, human, technological, financial and/or economic resources to achieve social
and economic ends, (ii) made equitable contributions to the capital required and (ii)
accepted a fair share of the risks and benefits of the group's undertakings.

Equity is the value of the shares subscribed to and paid for by each party in relation to
the authorized capital stock of a joint venture corporation.

Growership is an AVA scheme where the investor supplies all the inputs and required
technology for the production of certain crops, with no cost to the ARBs, in exchange
for the latter's commitment to produce particular crops at pre-arranged agreement
involving volume, quality standards, growership fee, delivery and other terms and
conditions,


L. Investors refer to the former landowners, private individuals, corporations, non-
government organizations, ARB cooperatives/associations, government owned and/or
controlled corporations or any entity duly authorized by law, who are willing and able to
contribute their capital, equipment and facilities, technology, and/or management
services in an AVA.

M. Joint Venture Agreement (JVA) is an AVA scheme where the ARBs and investors form
a joint venture corporation (JVC) for the purpose of managing the farm operations.

N. Lease Agreement is an AVA scheme where the ARBs bind themselves to give the
investor general control over the use and management of the land for a certain amount
and for a definite period

©. Management Contract is an AVA scheme where the ARBs contract the services of an
individual, partnership or corporation in order to assist in the management and
operation of the farm in exchange for a fixed wage or commission.

P. Marketing Agreement is an AVA scheme where the ARBs engage the investor to
promote their produce in exchange for commission on actual sales.

Q. Mediation is a voluntary dispute resolution process where a neutral facilitator assists
the parties in reaching a settlement regarding a dispute.

R. Service Contract is an AVA scheme where the ARBs engage the services of a
contractor for mechanized land preparation, cultivation, harvesting, processing, post-
harvest operations and/or other farm activities for 2 fee.

S. Voluntary Dispute Resolution is a mode of resolving disputes other than by adjudication
of a presiding judge of a court or an officer of a government agency, in which a neutral
third party assists in the resolution of issues.

T. Take-over — is an act of the investor in controlling the operation of the farm and/or
assuming any of the responsibilities of the ARBs in an AVA.

U. Transfers the conveyance of the use and possession of CARP awarded lands from one
person or entity to another.

Section 4. Coverage. This Act shall apply to all awarded lands distributed under Republic Act
No, 6657, as amended, or the Comprehensive Agrarian Reform Program (CARP), and other
agrarian reform laws.

Former landowners (LO) with respect to their untenanted retained areas, and ARBs, who have
completely paid their land amortizations and tenants in certain cases, shall be covered should
they opt to place the said landholdings under this Act.

Section 5. Agribusiness Venture Arrangements. Individual ARBs and ARB cooperatives or
associations, who are bonafide holders of Emancipation Patent (EP), Certificate of Land
Ownership Award (CLOA) or similar tenurial instruments issued by the Department of Agrarian
Reform (DAR) or its predecessor may enter into any of the following Agribusiness Venture
Arrangements, namely:


Growership

Contract Growing

Marketing Contract

Management Contract

Service Contracts

Build-Operate-Transfer

Joint Venture Agreements

Lease Agreements; and

Any combination of the foregoing AVAs without violating any provisions of this Act.

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Section 6. Contracting Parties and their Qualifications. The parties to an agribusiness venture
agreement shall have the following qualifications, namely:

‘A. ARBs (whether individual or organized) should be holders of an Emancipation Patent
(EP), a Certificate of Land Ownership Award (CLOA) or similar tenurial instruments and
are in possession of their land. In no case shall potential ARBs be allowed to enter into
an AVA or any interim agreement prior to the award of such tenurial instrument and prior
to the actual possession of the land.

B. ARB cooperatives or associations shall have the legal personality to transact or enter
into any contract. For ARB cooperatives or associations with CLOAs in the name of the
organization, the Board of Directors/Trustees of such cooperative or association shall
secure the vote of approval by the general membership in accordance with their articles
of cooperation/association and by laws. In the absence thereof, a vote of approval of at
least 2/3 of the general membership shall be secured.

C. Prospective investors must have the following qualifications, namely:

4. Must be registered with the appropriate regulatory agencies, such as Securities
and Exchange Commission, Department of Trade and Industry.

Good financial standing for the past three (3) years;

Good track record in food and agribusiness;

Stable business relations;

Capable of managing and operating the AVA undertaking;

Shall not have violated any laws, rules and regulations, and contracts as the case
may be.

PARON

Section 7. Mandatory provisions of the AVAs. Agribusiness Venture Arrangements entered
into under this Act, being imbued with public interest, shall have the following mandatory
provisions, to wit:

‘A. The landholding subject of the AVA shall be used exclusively for agricultural purposes.
Only two thirds of the entire area shall be subjected to the AVA, the remaining one third
portion shall be exclusively controlled and used by the ARBs with full support from the
government;

B. The contract shall guarantee the participation of the ARB/s in the farm management
operations and shall include, among others, capacity building programs aimed to
facilitate transfer of technology and management techniques to the ARBs;


The AVA shall include provisions for workers’ productivity and quality incentives for the
employed ARBs over and above the compensation from the AVA.

For the duration of the contract, the investor shall provide funds necessary to ensure
ecological protection of the farm and safety of its workers, particularly for the conservation
and maintenance of land quality, proper handling, storage and disposal of hazardous
residues and waste products, and proper protective and acceptable safe methods of
application of fertilizers, pesticides and other chemicals; provided that decisions as to the
ecological protection of the farm and safety of workers, and the methods employed in the
application of fertilizers, pesticides and other chemicals, shall be mutually agreed upon by
the investor and the ARBs;

There shall be a periodic review and/or renegotiation of the terms of the contract by the
contracting parties to allow for some changes in the economic assumptions and/or the
prevailing economic conditions at the time of AVA application and processing as well as
changes on the physical attributes of the land.

The review and/or renegotiation shall also be undertaken upon request or petition of any
of the parties on any of the following grounds: (1) extraordinary increase of inflation rate
AS DECLARED BY THE BANGKO SENTRAL NG PILIPINAS (BSP); (2) drastic change
in price fluctuation on both input and output BY AT LEAST 20% FROM THE PREVIOUS
PRICE; (3) declaration BY THE EXECUTIVE DEPARTMENT OF GOVERNMENT OR
THE LOCAL GOVERNMENT UNIT of the area where the land is located as calamity or
disaster area; and (4) other meritorious grounds to be determined by the DAR Secretary

The AVAs shall be subject to the approval of the PARC Executive Committee
(EXECOM). Otherwise, it shall become void and unenforceable.

All renegotiated/renewed/extended contracts and their effectivity shall be subject to the
‘same process of review and approval by the PARC EXECOM in accordance with the
rules and regulations issued therefor.

The duration of the AVA shall be mutually agreed upon by all parties, but not more than
10 years subject to renewal. It shall take into consideration the following parameters: (i)
crop or production cycle; (ii) gestation period of the crop; (ii) economic lifespan of
existing major and essential facilities or infrastructure, and (iv) payback or recoup period
of investments. All AVA contracts must contain a provision allowing the ARB to rescind
the AVA, upon due notice to the investor

In addressing the food security concerns of the country, the parties should agree that, in
case of food shortage in the country, at least fifty percent (50%) of the produce in
investment involving staple crops will automatically be set aside for the domestic market.
For purposes of its enforcement, the DAR may invoke said provision, if and when
necessary.

The roles and responsibilities of DAR, the ARBs (individual or
cooperatives/associations) and the investor shall be clearly identified in the contract as
well as the expected output from each party. It must be clear that successors-in-interest
of both the investors and the ARBs are bound by the terms of the contract

Consent of the other party in cases of transfer of rights and responsibilities shall be
secured,


K. An alternative dispute resolution mechanism in resolving disputes between the parties
shall be established.

L. Terms and conditions of the AVA contract shall be made known to all parties. The
contract shall be translated to the language known to the ARBs.

M. Terms and conditions for pre-termination of contracts shall be clearly stipulated in the
AVA contract.

N. Incase of lease agreements, the rental shall be at least ten per cent (10%) of the gross
sales per harvest;

©. Where the AVA requires the employment of workers, the parties shall comply with labor
laws, rules and regulations particularly the prohibition on employment of children fifteen
years and below.

Section 8. Control over agrarian reform lands. in any AVA, control over the agrarian reform land
shall always remain with the agrarian reform beneficiaries. For this purpose, joint venture
agreements between agrarian reform beneficiaries and investors which result to a minority equity
of the agrarian reform beneficiaries shall not be allowed or approved by PARC EXECOM. Also,
any provision of permanent take-over in the AVAs that takes away the management of the
agricultural production in growership contract or contract growing agreement shall be void.

Temporary takeover may be allowed provided that all of the following conditions are present:

A. Upon mutual agreement of the parties;

B. The takeover shall only be for one (1) cropping cycle;

C. When both parties mutually determine that the agreed quantity and/or quality of production
cannot be delivered by the ARBs.

Temporary takeover shall not take place during the transition to a new production technology.

Section 9. Approval of Agribusiness Ventures Agreements. All AVAs entered into between ARBs
and any other person under this Act shall be approved by the PARC EXECOM as established
under Proclamation No. 129-A. For this purpose, the PARC EXECOM, through the DAR, shall
issue policies, rules and regulations relative to such approval taking into consideration of the
following, namely: a) economic viability; b) legal enforceability; c) ARB control over the land/or
business operation; d) ARB skill development; (e) ecological soundness; f) non-transferability of
ownership over the land to investor; and other considerations which PARC EXECOM may deem
proper under the circumstances.

Section 10. Resolution of Disputes. As a general rule, voluntary conciliation methods shall be
preferred in resolving disputes arising from the execution of AVA contracts. Any dispute arising
from the execution of the AVA contract shall be resolved first through mediation. If the parties
fail to arrive at an agreement through mediation, the parties shall/may submit their dispute for
arbitration in accordance with R.A. No. 876, also known as the "Arbitration Law,” as amended
by R.A. No. 9285 or the Alternative Dispute Resolution System Act of 2004 or other pertinent
arbitration laws, as the case may be. For this purpose, the AVA contract shall contain prior
consent by both parties to submit themselves to arbitration when the need arises. The contract
shall already identify the number of arbitrators to be appointed jointly by the parties as well as
the venue for the hearing.


The decision of the arbitral committee shall be final and binding. Judgment thereon may be
entered in any of the proper fora enumerated under Article 12 of this Act.

Section 11. Revocation of AVA Contracts by the PARC EXECOM. — Without prejudice to the
right of rescission by the investor and the ARBs, AVA contracts may be revoked by the PARC.
EXECOM based on the following grounds:

‘A. Gross violation or non-compliance of the terms and conditions of the contract such as, but
not limited to:

Non-implementation of the human resources development plan provisions;
Non-employment of the ARBs;

Concealment of the true financial status of the enterprise; and
‘Commission of fraud in the application or implementation of the AVA;
Other analogous cases.

ARON

B. When, without justifiable reasons, the AVA fails to provide benefits and incentives
stipulated in the approved AVA contracts, such as, but not limited to, dividends accruing
to ARB's equity shares, production and quality incentives. For this purpose, situations
beyond the control of the investor such as force majeure are considered justifiable
reasons;

C. When the AVA is no longer financially and economically viable:

D. When a portion of the commercial farm subject of the AVA is converted or fragmented into
non-agricultural use without prior written consent of the ARBs and the DAR;

E. Any action resulting to the transfer of ownership of the landholding subject of AVA to the
investors;

F. In cases of permanent take-over or temporary take over when the conditions set forth
under Article 8 are not present;

G. Acquisition or approval of AVA through fraud, intimidation, coercion, deceit, ete

H. Other analogous or meritorious grounds.

Section 12. Support Services for ARBs entering an AVA

The State shall establish an AVA Capacity Building Program with sufficient funding from the
General Appropriations Act. The purpose of the capacity building program is to strengthen the
farmer's ability to negotiate fairer terms for agribusiness contracts, deal with markets, hamess
local and international opportunities, and identify and act on onerous agreements to protect their
rights.

The program shall be formulated jointly by the DAR, DA, DTI, LBP and CDA within 60 days from
the enactment of this law. It shall include, but are not limited to, the following components:
acquisition and design of technology for production and packaging, access and management
of production credit, organizing of Business Unit like clustering and sugar blocks, registration of
juridical entity (cooperative, corporation or association), business ideation, Organizational


Development and Strengthening, Market linkages, Product development and value addition,
certification of products and processes of DAR, enterprise lawyering, and the review and
renegotiation of onerous agreements. The implementation of the capacity building program may
be outsourced from the private sector.

Section 13; Disaster and calamity relief and rehabilitation assistance. In the event of a disaster
or calamity affecting production, or where a State of Calamity has been declared in the province,
the contract may be temporarily suspended upon the request or petition of any of the parties and
the investor shall assist the ARBs in disaster relief and rehabilitation efforts. The existence of a
valid AVA shall not be used a precondition by government agencies in granting or denying
calamity loans or disaster relief funds.

Section 14. Jurisdiction. — The PARC EXECUTIVE COMMITTEE shall have primary and
exclusive jurisdiction over the approval and revocation of AVAS

The DAR Adjudication Board (DARAB) shall have jurisdiction over disputes involving the
interpretation and enforcement —of-~—agribusiness agreements or
agrarian disputes as defined in Sec. 3 (d) of RA. No. 6657;

The DAR Secretary, in his/her capacity as Chairperson of the PARC Executive Committee, may
issue orders, as may be appropriate, to maintain the status quo and preserve peace and order in
the farm subject of AVAs, particularly in the following cases pursuant to Sec. 5 (b) in relation to
Sec. 7 of E.0. No. 129-A:

‘A. Where there is clear and imminent threat to life or property;

B. Where the dispute will cause serious and irreparable damage to either party or to the
AVA; or

C. Where, in the Secretary's judgment, there is an urgent need to protect the national
interest

Section 15. Penal Provision. - Any act that wrests control over the agricultural land from agrarian
reform beneficiaries not constituting a temporary take-over as defined in this Act shall be
punishable by imprisonment of not less than three (3) years and one day but not more than six
(6) years.

Any act to impose undue pressure to the ARBs to enter into an AVA or renew an existing AVA or
agree to new terms of an existing AVA, including but not limited to threats, harassment, economic
coercion, denial of government support, and the like, shall be punishable by imprisonment of not
less than three (3) years and one day but not more than six (6) years.

Additional administrative sanctions will apply if the offender is a government employee.

Section 16. Repealing Clause. - All other laws, decrees, executive orders, issuances, rules and
regulations, or part thereof inconsistent with this Act are hereby likewise repealed or amended
accordingly.

Section 17. Separability Clause. ~ If, for any reason, any section or provisions of this Act is

declared unconstitutional or invalid, the other sections or provisions not affected thereby shall
remain in full force and effect.

10


Section 18. Transitory Provision. — All existing AVAs without PARC approval shall be subject for
review and approval of the PARC. Parties to existing AVAs shall submit their contracts to PARC.
within 60 days from the effectivity of this Act. Failure to comply with this requirement within the
given period shall render the AVAs void

Section 19: Effectivity Clause. — This Act shall take effect after fifteen (15) days upon publication
in at least two (2) newspapers of general circulation.

Approved,

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