On Nov. 7, during the Atlas Network’s Freedom Dinner at the Intrepid Sea, Air, and Space Museum in New York City, the Foundation for Economic Freedom, of which I’m President and co-Founder, received the prestigious Templeton Freedom Award. The Award was given in recognition of the Foundation’s work advocating and successfully pushing for legislation removing Commonwealth-era restrictions on agricultural patents, thereby immediately benefiting 2.5 million farmers and energizing the rural land market.
Atlas Network’s Templeton Freedom Award is given annually after an international competition among think tanks and public policy organizations among Atlas Network’s partner organizations worldwide. It’s named after the late billionaire philanthropist John Templeton and supported by his foundation, the Templeton Religion Trust. As Atlas Network puts it, “This prestigious prize honors Sir John’s legacy by recognizing Atlas Network’s partner organizations for exceptional and innovative contributions to the understanding of free enterprise and the advancement of public policies that encourage prosperity, innovation, and human fulfilment.” The prize carries a $100,000 cash award.
The Foundation was one of six finalists in this year’s competition, which included one from Lebanon, one from Burundi, and three from the United States.
What are agricultural patents and why is the reform so momentous?
Agricultural patents are titles on lands from the alienable public domain given to farmers who have lived in and tilled the land for at least 30 years. They are different from Certificate of Land Ownership Awards (CLOAs), which are titles given to former peasants from private lands acquired by the government under the Comprehensive Agrarian Reform Program. Agricultural patent holders are, therefore, farmer entrepreneurs while CLOAs holders are former peasants who had tilled the land for a landlord. There are about 2.5 million agricultural patents versus 3.5 to 4.5 million CLOAs, the majority of which are collective CLOAs (i.e. not individually titled).
These agricultural patents were awarded on the basis of the Commonwealth-era Public Land Act of 1936. These patents carried three major restrictions (Section 44, Sections 118, 119, 121) which made them toxic to banks and investors and lowered their market value: 1. They can’t be sold or mortgaged within the first five years of the grant of the patent; 2. The patent holder or farmer beneficiary and his/her heirs have a perpetual right to buy back the property within five years from the date of sale or alienation; and 3. They are prohibited from being sold to a corporation.
The perpetual buy-back option made these patents unacceptable as loan collateral to banks, particularly rural banks, because they must be held for five years. As an illiquid asset, the value of the land would be charged against the rural bank’s capital. Moreover, due to the prohibition of ownership of agricultural patents by corporations, there was the legal uncertainty whether banks are allowed to foreclose them at all.
As for investors, why would they purchase the land to improve it if at the end of five years, the original owner or his/her heirs may buy back the improved property? The result was that these agricultural lands became “dead capital.”
The prohibition on corporations buying agricultural patents further diminished the market and therefore the value of these lands. Corporations couldn’t buy and develop them.
On the other hand, the removal of these restrictions would enable the land to go to “the highest and best use,” and, therefore, increase economic efficiency. It will spawn the extension of agricultural credit and promote investments in rural land. More than economic efficiency, however, the farmer will gain economic liberty and will have the option to pursue his best possible self.
Recognizing these punitive restrictions on property rights of farmers and their negative impact on the rural land market, inspired by the ideas of Nobel Laureate Ronald Coase on property rights and free markets, the Foundation for Economic Freedom advocated for the removal of these restrictions. It partnered with the Rural Bankers Association of the Philippines to advocate for a simple two-page bill that would remove these restrictions. Prominent agricultural economists, such as Dr. Rolando Dy, Dr. Ramon Clarete, Dr. Bruce Tolentino, and National Scientist Dr. Raul Fabella wrote to Congress expressing their support.
Fortunately, legislative champions emerged in the House and the Senate. The most ardent champion in the Senate was Senator Richard Gordon. Senator Gordon is a known supporter of strong property rights. As Senate Justice Committee Chairman, he swiftly conducted hearings on the bill and steered its passage in the Senate ahead of the Lower House.
In the House, Congressmen Joey Salceda, Kit Belmonte, LRay Villafuerte Jr., Reynaldo Umali, Romero Quimbo, Ferdinand Hernandez, Monsour del Rosario, Art Yap, and the Agri Party List solons, Orestes Salon and Delphine Lee, filed sponsorship bills. Former Speaker Gloria Macapagal-Arroyo and former House Justice Committee Chairman Doy Leachon prioritized its passage.
As a result, on Feb. 22, President Duterte signed into law Republic Act 11231, which liberated farmers from these onerous restrictions. It was Economic Freedom Day for farmer-beneficiaries of agricultural patents.
Upon receiving the award for the Foundation during the Freedom Dinner in New York, I gave the following response: “Thank you to the Templeton Religion Trust and to Atlas Network for this great honor in recognition of our work to help remove restrictions on agricultural patents, thereby benefiting 2.5 million farmers and energizing the rural land market. In the Philippines, the face of poverty is rural, and giving back to our farmers the right to do with their land as they see fit, is a giant step toward eliminating rural poverty and assuring rural prosperity. It will also, as a consequence, hopefully strengthen democracy, because economic freedoms are very much tied to political freedoms.
“I’m receiving this award and thanking you in behalf of the Foundation for Economic Freedom of the Philippines, our coalition partners who helped support and shepherded the landmark legislation into law, and most of all, in behalf of the most vulnerable sectors in our society, who are suffering from a lack of economic freedoms.
“If you trace the arc of Philippine economic history, from the time it was the second richest country in Asia after Japan in the 1950s to the economy’s nadir in the early 1980s, when it was considered the “sick man of Asia,” and then up to now, when the economy has regained its footing and seems headed toward fast, sustainable growth, you can rightly conclude that its economic fortunes fell with the decline in economic freedoms and rose when it started pushing back the boundaries for economic freedom.
“For us, the lesson is clear. The way forward is to strengthen property rights and promote economic liberty. The road is not always straightforward, especially in a democracy where vested interests can use their powers to throttle economic freedoms. However, this award can only inspire us to exert greater efforts. The end goal is to eliminate poverty, assure shared prosperity, strengthen democracy, and achieve peace and stability in our society.”
Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.