The Coconut Conundrum

Cases are sprouting left and right with no hope of getting covered up by the government. In the advent of the five-week break of the impeachment trial of the Chief Justice, several other issues quickly made themselves known, one of them being Pacquiao’s major beef with the Bureau of Internal Revenue. However, a more important issue is slowly regaining recognition; the age-long pleas of the farmers against their olden oppressors; the oligarchs of the Philippines.

Recently, deputy presidential spokesperson Abigail Valte made a statement concerning the relationship between President Benigno “Noynoy” Aquino III and the estranged farmers.

“Every action that the President has taken is really for the people. That’s the reason why P-Noy (Aquino) is there,” said deputy presidential spokesperson Abigail Valte, dismissing allegations by a farmers’ group that Mr. Aquino was poised to enter into a compromise agreement with his uncle, businessman Eduardo “Danding” Cojuangco, over the disputed funds and the assets that were acquired with them.

“Many such stories have been coming out but rest assured, the government will do what is right for the people,” Valte told state-run dzRB radio.

“The President will always do what is right for the people,” she said.

(Source: Link)

Meanwhile, the farmers aren’t convinced one bit. The Kilusang Magbubukid ng Pilipinas (Philippine Farmers’ Movement), or KMP, dared the President to publicly disclose his plans for the coconut levy funds. The said funds were used to purchase the 24% block of shares owned by the San Miguel Corporation. The challenge became of crucial importance to the farmers, since two major entities have imposed a P15-billion claim on the shares; United Coconut Planters Bank (UCPB) and United Coconut Planters Life Assurance Corp.

The claim was due to the fact that this particular block was sequestered by the Philippine Commission on Good Governance (PCGG) on 1986.

The 24-percent block of SMC shares—originally 27 percent but later diluted because of the SMC equity increase—is part of a bigger block of 47 percent SMC shares that the Presidential Commission on Good Government (PCGG) sequestered in 1986 for allegedly having been acquired illegally through the use of coco levy funds by the late dictator Ferdinand Marcos’ cronies, principally Cojuangco who was made administrator of the levy by the dictator.

Moreover, Eduardo “Danding” Cojuangco asserts that he personally owns the remaining 20% of the shares, which the PCGG objected to in court.

The PCGG claimed that Cojuangco and his associates had used the levy funds to acquire the UCPB, which became a depositary of the levy funds, buy the shares in SMC, create the Coconut Industry Investment Fund (CIIF) and 14 holding companies, acquire six oil mills, among many alleged schemes.

Petitioner PCGG claimed that Cojuangco, in violation of fiduciary trust, borrowed funds from UCPB, of which he was the president, and the six oil mills to purchase 20 percent of the SMC stocks in 1983.

The initial ruling of the Supreme Court was to put the 24% SMC block to government custody with the intention of giving it to the farmers. But to the farmers’ chagrin, the Supreme Court granted Cojuangco the other 20%, stating that;

1. Cojuangco wasn’t a Marcos crony.
2. Cojuangco didn’t use the coco levy funds to purchase his shares.

The issue of the coco levy funds stretch back to the presidency of Ferdinand Marcos in the seventies to the eighties. The whole puzzle began with the implementation of the Coconut Investment Act (Republic Act No. 6260)

The said act aimed at the development of the coconut industry by providing assistance to the coconut farmers of our country. Section 4 of the Coconut Investment Act explicitly states its objectives.

Sec. 4. Purposes and objectives. The Company shall have the following purposes and objectives:
(a) To fully tap the potential of the coconut planters in order to maximize their production and give them greater responsibility in directing and developing the coconut industry;
(b) To accelerate the growth of the coconut industry and other related coconut products from the raw material stage to the semi-finished and finally, the finished product stage;
(c) To improve, develop and expand the marketing system; and,
(d) To ensure stable and better incomes for coconut farmers.

(Source: Link)

Section 8 discloses the central point of the current issue; the manner of accumulation of the levy funds.

Sec. 8. The Coconut Investment Fund. There shall be levied on the coconut farmer a sum equivalent to fifty-five centavos (P0.55) on the first domestic sale of every one hundred kilograms of copra, or its equivalent in terms of other coconut products, for which he shall be issued a receipt which shall be converted into shares of stock of the Company upon its incorporation as a private entity in accordance with Sec. seven hereof. For every fifty-five centavos (P0.55) so collected, fifty centavos (P0.50) shall be set aside to constitute a special fund, to be known as the Coconut Investment Fund, which shall be used exclusively to pay the subscription by the Philippine Government for and in behalf of the coconut farmers to the capital stock of said Company: Provided, That this levy shall be imposed until the one hundred million pesos authorized capital stock is fully paid, but collection of said levy shall not continue longer than ten years from the start thereof: Provided, further, That the Philippine Coconut Administration (PHILCOA) shall, in consultation with the recognized national association of coconut producers with the largest number of membership as determined by the Philippine Coconut Administration, prescribe and promulgate the necessary rules, regulations and procedures for the collection of such levy and issuance of the corresponding receipts: Provided, still further, That the receipts and/or certificates shall be non-transferable except to coconut farmers only and to the company: Provided, furthermore, That operational expenses of the Company shall be limited to and charged against the earnings and/or profits of the Fund: Provided, finally, That one-tenth of such earnings of the fund for each year shall be used to finance technical and economic research studies, promotional programs, scholarships grants and industrial manpower development programs for the coconut industry.

Basically, Section 8 explains the procedures regarding the reimbursement of the investment. The Coconut Investment Fund will be used to repay the investment on this project by technically taxing the farmers for their sales. Furthermore, a fraction of the investment fund is intended to be used for research to improve the coconut industry and the livelihood of the farmers. The Act constitutes an elaborate system of how things would work for the benefit of everyone; that is, until the allegations arose that this very system is being exploited by the powers that be.

Accusations have arisen from aggravated parties that the funds that were intended for the repayment of the investment plus the development of the industry were turned into nothing but a profiteering scheme for the oligarchs, most notably Danding Cojuangco himself. The argument of the farmers was that they were exploited by their very benefactors that orchestrated this project.

The People’s Consultative Assembly (PCA) on November 5, 2011 made a summary of the transition of ownership of the shares throughout the years, which can be read here: Link

The PCA ended their paper with their official stand regarding the decades-long dilemma:

The People’s Consultative Assembly supports the stand of the genuine coconut farmers that the Supreme Court declare the coco levy funds as public funds immediately. It further asks Pres. Gloria Arroyo to issue an executive order as in the time of Pres. Ramos declaring the coco levy funds as public funds immediately and thereby repealing EO 313 of ousted President Estrada.

This brings us back to the immediate issue at hand; where exactly did the coco levy funds go? Does the 24% block of SMC shares really comprise the coco levy funds that were originally intended for the farmers? Was it purchased with the coco levy funds to begin with?

Perhaps it’s time to examine the contents of the G.R. No. 166859, which discloses the decision of Supreme Court regarding the nature of the shares Cojuangco claims to personally own.

IV. Republic’s burden to establish by preponderance of evidence that respondents’ SMC shares had been illegally acquired with coconut-levy funds was not discharged

Madame Justice Carpio Morales argues in her dissent that although the contested SMC shares could be inescapably treated as fruits of funds that are prima facie public in character, Cojuangco, et al. abstained from presenting countervailing evidence; and that with the Republic having shown that the SMC shares came into fruition from coco levy funds that are prima facie public funds, Cojuangco, et al. had to go forward with contradicting evidence, but did not.

The Court disagrees. We cannot reverse the decision of November 28, 2007 on the basis alone of judicial pronouncements to the effect that the coconut levy funds were prima facie public funds,[125] but without any competent evidence linking the acquisition of the block of SMC shares by Cojuangco, et al. to the coconut levy funds.

V. No violation of the DOSRI and Single Borrower’s Limit restrictions

The Republic’s lack of proof on the source of the funds by which Cojuangco, et al. had acquired their block of SMC shares has made it shift its position, that it now suggests that Cojuangco had been enabled to obtain the loans by the issuance of LOI 926 exempting the UCPB from the DOSRI and the Single Borrower’s Limit restrictions.

We reject the Republic’s suggestion.

Firstly, as earlier pointed out, the Republic adduced no evidence on the significant particulars of the supposed loan, like the amount, the actual borrower, the approving official, etc. It did not also establish whether or not the loans were DOSRI[126] or issued in violation of the Single Borrower’s Limit. Secondly, the Republic could not outrightly assume that President Marcos had issued LOI 926 for the purpose of allowing the loans by the UCPB in favor of Cojuangco. There must be competent evidence to that effect. And, finally, the loans, assuming that they were of a DOSRI nature or without the benefit of the required approvals or in excess of the Single Borrower’s Limit, would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of the DOSRI loan would be subject only to sanctions under the law.[127]

Finally, to quote an excerpt on the SC ruling regarding Cojuangco’s alleged breach of fiduciary duties:

The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first laid out in appropriate judicial proceedings. Hence, concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable.

(Source: Link)

In retrospect, the reason why the Court decided to grant Cojuangco the 20% SMC shares was the trait the Republic (represented by the PCGG) possessed, which, interestingly, the prosecution panel on Corona’s trial possesses as well; negligence of competent evidence. The only reason Cojuangco won back the shares was because no one was able to prove that those shares weren’t his to begin with. This does not answer the exact location of the coco levy funds, but this does open the possibility of a retrial, since the case was not closed with conclusive evidence.

However, to demand for a retrial, let alone win it, would require more than a bunch of letters to the Supreme Court. Bayan Muna house party-list member Neri Colmenares urged the farmers to convince the high court via petition letters to intervene in the decision regarding the ownership of the dubious SMC shares. However, this might prove to be a fruitless endeavour.

And for a simple reason; what is the incentive of the Supreme Court to reopen the case, anyway? So far, the only ammunition the farmers have against the big businessman is a bunch of hearsay, petition letters and mass protests. This is not to say that I am against the endeavour of the farmers; I am merely stressing the fact that having a retrial is a long shot unless they come up with strong evidence that can implicate Cojuangco.

But then, searching for this kind of evidence would be one herculean auditing task. The farmers would have to continue what the PCGG left unfinished. They would have to trace the flow of the levy funds from its point of origin to its possible locations. For this to happen, they would have to investigate:

1. The financial statements of the properties acquired by Cojuangco and friends. The farmers’ organizations would have to dig some dirt about the properties purchased by their opponent by examining their financial statements, donning a keen eye for possible discrepancies and shady transactions.

2. PHILCOA and the government-owned banks. Section 9 of the Coconut Investment Act states that the Philippine Coconut Authority would be responsible for the collection of levies and deposit on government-owned banks like the Development Bank of the Philippines.

Section 9. PHILCOA as Collection Agent and Trustee of the Fund. The PHILCOA shall collect the levy and immediately thereafter deposit the proceeds thereof in an interest-earning account with the Development Bank of the Philippines or any other government-owned or controlled banking institution to the credit of the Fund:

Such institutions would then require a thorough investigation to ascertain whether the funds were at their right place, or whether they went somewhere they weren’t supposed to be.

3. Their own fellows. Not even the leaders and key officials in their movement are exempt from suspicion. The farmers would also have to put themselves under extensive investigation to make sure nobody’s hogging the funds for themselves at the expense of their fellow farmers.

This colossally difficult task is unarguably too much for the farmers’ abilities and influence, and yet, given their dismal state, they just can’t let the possibility of a retrial slip by. It seems the farmers are alone and defenceless in this endeavour; or should they?

Hey, PNoy. What was it that you said in your campaign? Kayo ang boss ko (You are my boss). Well, this is your golden opportunity to show what you’re made of, right? Why not continue the legacy of PCGG which your mother established? Why not assist the farmers in their quest to seek justice from potentially exploitative oligarchs, instead of dilly-dallying with impeachment trials to satisfy your personal grudge against your predecessor? Oh wait, I forgot. You’re an oligarch too.

Might be another zarzuela

It is important to note that our President, who pledged to uphold the welfare of the farmers, is related to Danding Cojuangco; he’s his uncle. This automatically raises, and for a good reason, the possibility that this whole thing might just be another play; a comedy for the elite, a tragedy for the poor. Furthermore, PNoy is yet to announce publicly his definite plans for the still unsettled conundrum of the coco levy funds. On top of all that, the resistance noted several suspicious activities of our President. Quoting an excerpt from the Inquirer article mentioned earlier:

Marbella noted Aquino’s controversial appointments of Jeronimo Kilayko as chief executive officer of UCPB; Francis Jardeleza as Solicitor General; and the creation of the Presidential Task Force Coco Levy.

Kilayko and Jardeleza were both associated with SMC which is chaired by Cojuangco. Jardeleza was the former SMC senior vice president and general counsel while Kilayko once headed the SMC real estate unit and vice chairman of Bank of Commerce when the SMC group took over a controlling stake in the bank.

Marbella said they also believed that the creation of the Task Force Coco Levy, which includes the National Anti-Poverty Commission (NAPC), was meant to make use of the coco funds for government programs like the conditional cash transfers.

“The NAPC has no business over the coco levy funds unless they are up to something against the will of the real owners of the funds,” Marbella said.

Given the current setup of our politics, there is a profound possibility that PNoy is just not siding with the pleas of the citizens, especially when the oligarchs are involved. This is what’s exactly happening at Hacienda Luisita. The government chose to put pressure on a Chief Justice to divert public attention away from the succession of massacres occurring at the Aquinos’ backyard. And now, another blast from the past haunts society; in all likelihood, however, the administration will just come up with another cover-up to kill attention on this issue, just like Hacienda Luisita.

Truly, losing your coconuts… it’s more fun in the Philippines.

'Trust me on this one. It’s like playing hide-and-seek. I mean, even I don’t know where my coconut went.'


About Arche

I'm just throwing ideas around. I also love coffee.

Post Author: Arche

I'm just throwing ideas around. I also love coffee.

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25 Comments on "The Coconut Conundrum"

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Vincenzo B. Arellano

PbyaAn nlang ntn is Tito Noy. SinaBi nya namang he will do what is riGht for the people. Hwag n ntn sya guluhin upang mpbilis ang usad ng ating pag unlad

Dyed Moroz

Reminds me of a song I used to hear when I was a kid

The coconut nut is a giant nut
If you eat too much you get very fat

But seriously, PNoy cannot serve two masters at the same time and expect to get away with it. He’s actually more afraid of the elder Cojuangcos making him palo in the pwet than he is of the angry mob of farmers that his clan has ignored for the longest time

Hyden Toro

I just don’t believe what Noynoy Aquino says…he lost his credibility already. He says one thing, and does the other thing….the Hacienda Luisita issue is a good example…he is a good deceiver of people…

Joe America
Thank you for the technical details and references. This is a nice introduction, for me, to a complex subject. I see parallels to the Corona case in that the information that should be available to sort out responsibilities is not available, possibly by intent. Same same. Let me see if I have this correct; I confess to being a bit confused. Farmers were taxed with the aim that the taxes would buy a share of the corporation for whom they worked, with certain expenses deducted. Cojuangco was a trust manager of the fund and borrowed against the fund to buy… Read more »