June 22, 2007

JOINT DAR-LBP MEMORANDUM CIRCULAR NO. 06-07

TO                :     All Concerned Officials and Employee of DAR and LBP

SUBJECT    :     Guidelines in the Determination of Valuation Inputs for Landholdings Planted to Cavendish Banana

I.          Prefatory Statement

Item II.B.2 of DAR Administrative Order (AO) No. 5, Series of 1998 states that:    DaTEIc

"B.2  The landowner shall submit a statement of net income derived from the land subject of acquisition. This shall include, among others:

•        total production and cost of operations on a per crop basis;

•        selling price/s (farm gate); and

•        such other data as may be required.

These data shall be validated/verified by the Department of Agrarian Reform and Land Bank of the Philippines field personnel. The actual tenants/farmworkers of the subject property will be the primary source of information for purposes of verification or, if not available, the tenants/farmworkers of adjoining property.

In case of failure by the landowner to submit the statement within fifteen (15) days from the date of receipt of letter-request as certified by the Municipal Agrarian Reform Office (MARO) or the data stated therein cannot be verified/validated, DAR and LBP may adopt any applicable industry data or, in the absence thereof, conduct an industry study on the specific crop which will be used in determining the production, cost and net income of the subject landholding."(Emphasis supplied)

Since there is no specific government agency overseeing the banana industry, no industry study can be validly undertaken, hence, these guidelines provides only for the procedures in the determination of applicable inputs to be adopted in the valuation of landholdings planted to cavendish banana such as annual gross production, selling price and cost of operations.    DCcTHa

II.        Coverage

These guidelines shall cover lands planted to cavendish banana where:

A.        Landowner submitted BIR-filed audited financial statements which could be verified and validated;

B.        Landowner submitted BIR-filed audited financial statements but could not be verified and validated; and

C.        Landowner did not submit BIR-filed audited financial statements.

III.       Valuation Guidelines

A.     Landowner Submitted BIR-Filed Audited Financial Statements which Could be Verified and Validated

The Capitalized Net Income (CNI) of the landholding shall be determined using the formula:

                  (AGP x SP) - CO

CNI   =   –––––––––––––––

                             0.12

Where:    AHCETa

AGP = Annual Gross Production, in boxes per hectare

SP = Selling Price, in pesos per box

CO = Cost of Operation, in pesos per hectare

1.         Annual Gross Production

            Refers to the LO's 12-months production per hectare immediately preceding the date of Field Investigation (FI) which could be derived from the audited financial statements and shall be verified against:

•           industry production data for the applicable period;

•           interviews with farmworkers;

•           LO's accounting records (subsidiary ledgers, daily production reports, sales/delivery receipts, billings, etc.); and

•           farm management practices, topography and soil characteristic of the landholding.

2.         Selling Price    cITCAa

            Refers to 12-months average selling price prior to the date of Claim Folder (CF) receipt by LBP from DAR which could be derived from the audited financial statements and shall be verified against:

•           industry average selling prices; and

•           LO's sales records (sales invoices, billing reports, etc.)

3.         Cost of Operations

            Refers to the total cost of operation during the 12-months period prior to the date of FI.

a.         Shall include direct and indirect costs that are related to production and marketing of cavendish banana, depending on the point of sale.

       A list of applicable cost of operations is shown in Annex A.

b.         Shall be verified and validated against:

•           LO's accounting records (i.e., subsidiary ledgers, official receipts, purchase/delivery receipts, billings, etc.); and    CSTHca

•           industry's generally accepted cost of operations per hectare.

B.     Landowner Submitted BIR-Filed Financial Statements but Could Not Be Verified and Validated or Landowner Did Not Submit BIR-Filed Audited Financial Statements

The Capitalized Net Income (CNI) of the landholding shall be determined using the formula:

                   (AGP x SP) - CO

CNI   =   –––––––––––––––

                              0.12

Where:

AGP = Annual Gross Production, in boxes per hectare

SP = Selling Price, in pesos per box

CO = Cost of Operation, in pesos per hectare

1.         Annual Gross Production

            Refers to the 12-months production per hectare of the particular landholding immediately preceding the date of FI which shall be determined using the formula:    THESAD

            AGP = DPH x TR x BSR

            Where:

            AGP = Annual Gross Production per hectare

            DPH = Density per hectare

            TR = Turnover Ratio

            BSR = Box-Stem Ratio

a.         The DPH shall be determined based on actual measurement of plant and row distances and shall be computed using the formula:

               10,000 sq.m.

DPH  =  ––––––––––

                   RD x PD

            Where:

            RD = Row Distance, in meters

            PD = Plant Distance, in meters

            10,000 = Equivalent of one hectare area in square meters    TEDaAc

b.         The TR and BSR shall also be determined based on actual field investigation of the particular landholding and may be validated with the farmworkers thereat.

c.         The AGP shall be based on fruit classes (Class A, Class B, etc.) actually sold to the buyer/contractor.

2.         Selling Price

            Refers to the average of the latest available 12-months' selling prices prior to the date of receipt of the CF by LBP from DAR.

a.         The applicable SP shall be determined based on the existing contract of the landowner with the contractor/buyer.

            In cases where the copy of the contract is not available, the applicable SP shall be determined and validated against the contract of adjacent/adjoining landholdings under the same contractor/buyer.

            If the contract of adjacent/adjoining landholdings under the same contractor/buyer is also not available, the prevailing selling pace in the barangay or municipality where the property is situated shall be used provided that the variety/quality of banana is comparable with that of the subject landholding.    CDHSac

b.         The SP shall be measured at the point of sale (ex-patio, ex-packing house or ex-wharf) as stipulated in the contract.

3.         Cost of Operations

a.         The actual CO per hectare shall be determined using the generally accepted cost of operation per hectare for small and large plantation shown in Annex B as guide.

            Small banana plantations are those plantations with less than 20 hectares while large banana plantations are those plantations with area of 20 hectares and above.

b.         If there is/are farming activity/ies found not being undertaken in the particular landholding, exclude such item/s from the list of cost items in Annex B-1 in coming up with the actual CO per hectare.

            On the other hand, if the LO undertakes other farming activities not included in the generally accepted cost of operation in Annex B-1, include/consider the same in coming up with the actual CO per hectare.    EDIaSH

            Provided, however, that the inclusion or exclusion of the said farming activities is duly supported with the necessary documentary evidences and justifications.

c.         If the actual CO per hectare of the particular landholding established at the time of FI is higher than the generally accepted CO per hectare in Annex B, adopt the actual CO per hectare in the determination of the property's CNI.

            If the actual CO per hectare of the particular landholding established at the time of FI is lower than the generally accepted CO per hectare in Annex B, adopt the actual CO per hectare in the determination of the property's CNI provided that the same could be supported with documentary evidences and justifications. Else, adopt the generally accepted CO per hectare in Annex B in the determination of the property's CNI.

d.         All applicable direct and indirect costs identified by the AOC shall be presented in the Field Investigation Report (FIR) duly supported with the necessary documentary evidences and justifications.

IV.       Transitory Provision

These guidelines shall apply to lands planted to cavensish banana whose valuation is in process and not yet covered by Memorandum of Valuation (MOV) and whose valuation is rejected by the landowner. In the case of the latter, the use of these guidelines shall only be applied when so ordered by the Court.    HEDSCc

No petition or requests for revaluation on the basis of these guidelines shall be entertained in cases where the LO has already accepted the DAR/LBP valuation, whether the LO has already been paid or not.

V.        Repealing Clause and Effectivity

All orders, circulars, rules and regulations inconsistent herewith are hereby revoked, amended or modified as the case may be.

This Joint Memorandum Circular shall take effect ten (10) days after its publication in two (2) national newspapers of general circulation pursuant to Section 49 of RA 6657.

Quezon City, June 22, 2007.

(SGD.) NASSER C. PANGANDAMAN

OIC-Secretary

Department of Agrarian Reform

(SGD.) GILDA E. PICO

President and CEO

Land Bank of the Philippines

Published in the Malaya and The Philippine Star on July 2, 2007.

ANNEX A

List of Applicable Cost of Operations

One (1) Hectare Banana Plantation

I.          Direct Costs

Fieldwork Costs

Plant Care

Fruit Care

Fertilizer & Chemical Application

Harvesting and Packing Costs

Cutting and Hauling

Packing & Stacking

Quality Inspection

Banana Sales Costs

Box Hauling to Wharf

Stevedoring & Arrastre

Other Costs at Dock

II.        Indirect Costs

   ANNEX B

Generally Accepted Cost of Operation (CO) 1/

One (1) Hectare Banana Plantation

1/         See Annex B-1 for the specific cost items.

2/         Equivalent to 20% of the sum of field labor and material inputs.

3/         Based on the average indirect of farm overhead costs of AMS Farms which more or less representative of the different banana plantations in Region XI.

ANNEX B-1

Standard Cost of Operation

One (1) Hectare Banana Plantation

I.          Field Labor

II.         Material Inputs