July 21, 1999
DAR-LBP JOINT MEMORANDUM CIRCULAR NO. 15-99
TO : Department of Agrarian Reform and Land Bank of the Philippines Concerned
Personnel
SUBJECT : Valuation Guidelines for Lands Planted to Sugarcane
I. PREFATORY STATEMENT
The valuation of sugar cane lands is based on either the verified and validated production data of the landowner (LO) or the Average Gross Production (AGP) data secured from the Sugar Regulatory Administration (SRA) in cases where the former is not available or could not be validated. The net income from sugar to be capitalized at twelve percent (12%) rate is determined by multiplying the gross income derived using the AGP sourced above by the assumed Net Income Rate (NIR) of 20%, if NIR is not susceptible to verification. This is provided for under Department of Agrarian Reform (DAR) Administrative Order (A.O.) No. 5, Series of 1998.
There are some landowners, however, who requested that the effect of ratooning be considered in the valuation of sugar lands. On the basis of this request, the DAR and the Land Bank of the Philippines (LBP) Technical Working Group (TWG) conducted a study on sugar with the involvement and active participation of the Technical Research Department of the SRA. This is in line with Item II.B.2 of DAR A.O. No. 5, Series of 1998, which provides that DAR and LBP may conduct an industry study on specific crop/s which will be used in determining the production, cost and net income of landholdings.
The study aimed to determine whether the income derived by sugar planters from ratooning would affect the value of sugar lands. The following are the highlights of the results of the study:
a. Ratooning as a means of reducing inputs in production by eliminating costs of land preparation, seedpieces and planting is widely practiced by sugar planters in almost all sugar-producing regions nationwide. Majority of respondent sugar planters, however, mentioned that they practice only up to two (2) ratoons;
b. The practice of ratooning reduces the level of sugar production by only 5% to 15% compared with the production of original plant crop. On the other hand, eliminating the costs of land preparation, seedpieces and planting would reduce the cost of production by as much as 15% to 30%, which will more than compensate for the decrease in production;
c. The average NIR for ratoon crop/s is/are higher than that of the original plant crop. The combined NIR of plant and ratoon crops, on the other hand, is higher than the assumed NIR of 20%, and
d. The Selling Price (SP) of sugar is no longer regulated by the SRA but is now dictated by market forces.
The foregoing considered, these valuation guidelines for sugar plantations are hereby issued.
II. COVERAGE
These guidelines shall cover all lands planted to sugar cane whose valuations are in process and not yet covered by Memorandum of Valuation (MOV) as of the date of signing of this Joint Memorandum Circular (JMC). Specific procedures are herein prescribed for uniform application in the computation of the Capitalized Net Income (CNI) factor.
III. VALUATION PROCEDURES
In cases where the statement of net income is submitted by the landowner (LO) and duly validated by DAR and LBP field personnel, the valuation procedures provided under Item III.A shall apply. In cases where the LO's statement of net income is not submitted or cannot be verified, the valuation procedures provided under Item III.B shall be followed. The 20% NIR as prescribed in DAR A.O. No. 5., Series of 1998, shall no longer apply to sugar lands.
A. STATEMENT OF NET INCOME SUBMITTED BY LANDOWNER
1. As provided under Item II.B.2 of DAR A.O. No. 5, Series of 1998, production and cost data submitted by the LO shall have to be validated by DAR and LBP personnel. The suggested methodology in the validation and verification of LO's production and cost data is as follows:
a. Average Gross Production (AGP)
a.1. Check LO's plant and ratoon AGP data for sugar and molasses against his farm records. The AGP of sugar is expressed in terms of LKG per hectare (1 LKG = 50 Kgs. bag of sugar) while the AGP of molasses is expressed in terms of Metric Tons (MT) per hectare. (Picul is the old standard unit of measurement for bag of sugar. To convert picul into its LKG equivalent, multiply picul sugar by a constant factor of 1.265.);
a.2. Secure from SRA Mill District Office (MDO) the average sugar and molasses production data for plant and ratoon crops in the area where the property is located;
a.3 Compare LO's production data with the MDO's data. If the LO's data does not exceed the average MDO production data for sugar and molasses (plant and ratoon) by 5%, adopt LO's data; and
a.4 If LO's production exceeds the average MDO production data for sugar and molasses by more than 5%, a certification shall be secured from the MDO as to the attainability of LO's data in the particular area where the property is located. However, if the MDO cannot issue a certification for whatever reason, the valuation procedure under Item III.B of these guidelines shall apply.
b. Selling Price (SP)
The LO's SP for sugar and molasses shall be verified against the 12-months' average SPs from the SRA MDO.
c. Cost of Operation (CO)
The LO's CO shall have to be verified against the LO's records (book of accounts, ledgers, purchase/delivery receipts, etc.)
The operation costs to be verified are: (a) land preparation; (b) planting; (c) fertilizer and chemical application; (d) irrigation; (e) harvesting; and (f) milling. The only cost that is attributable to molasses production is the milling cost. The milling cost for sugar and molasses refers to the milling share as agreed upon by the planter and the Sugar Central.
The validation of AGP, SP and CO data shall be for one (1) complete production cycle. In determining what constitute one (1) complete production cycle, the period from the beginning of the plant crop (pc) up to the end of the last ratoon crop (rc) shall be considered. Expressed in formula:
AGP(pc) + [AGP(rcl) + AGP (rc2) +... + AGP (rcn)]
AGP = ——————————————————————
1 + Number of ratoon (n)
The abovecited definition shall be used for valuation purposes and will not in any way be construed as similar to the definition of Standing Crops as defined in R.A. No. 6657.
2. If the LO's production and cost data are verified and duly validated, the CNI shall be computed thru the following procedures.
a. Determine the Average NIR of sugar for one complete production cycle using the following formulae:
a.1 Compute for the Average Gross Income (AGI)
[(AGP(pc) x SP(pc)) + (AGP(rcl) x SP(rcl)) + ...
AGI(sugar) = _ _+ (AGP(rcn) x SP(rcn)]
———————————————————
1 + Number of Ratoons (n)
a.2 Compute for the Average Cost of Operation (ACO)
CO(pc) + CO(rcl) + ... + CO(rcn)
ACO(sugar) = —————————————————
1 + Number of Ratoons (n)
a.3 Compute for the Net Income Rate (NIR)
AGI(sugar) - ACO(sugar)
NIR(sugar) = —————————————————
AGI (sugar)
where:
AGP(pc) sugar AGP of plant crop
AGP(rcl) sugar AGP of first ratoon crop
AGP(rcn) sugar AGP of nth ratoon crop
SP(pc) average selling price of sugar for the crop
year when the plant crop was harvested
SP(rcl) average selling price of sugar for the crop year
when the first ratoon crop was harvested
SP(rcn) average selling price of sugar for the crop
year when the nth ratoon crop was harvested
CO(pc) sugar CO of plant crop
CO(rcl) sugar CO of first ratoon crop
CO(rcn) sugar CO of the nth ratoon crop
n Number of ratoon crops
b. Determine the Average NIR of molasses for one complete production cycle using the following formulae:
b.1. Compute for the Average Gross Income (AGI)
[(AGP(pc) x SP(pc)) + (AGP(rcl) x SP(rcl)) + ...
AGI(molasses) = + (AGP(rcn) x Sp(rcn))]
———————————————————
1 + Number of Ratoons (n)
b.2 Compute for the Average Cost of Operation (ACO)
CO(pc) + CO(rcl) + ... + CO(rcn)
ACO(molasses) = ——————————————————
1 + Number of Ratoons (n)
b.3 Compute for the Net Income Rate (NIR)
AGI(molasses) - ACO(molasses)
NIR(molasses) = ——————————————————
AGI (molasses)
where:
AGP(pc) molasses AGP of plant crop
AGP(rcl) molasses AGP of first ratoon crop
AGP(rcn) molasses AGP of nth ratoon crop
SP(pc) average selling price of molasses for the crop year when the plant crop was harvested
SP(rcl) average selling price of molasses for the crop year when the first ratoon crop was harvested
SP(rcn) average selling price of molasses for the crop year when the nth ratoon crop was harvested
CO(pc) molasses CO of plant crop
CO(rcl) molasses CO of first ratoon crop
CO(rcn) molasses CO of the nth ratoon crop
n Number of ratoon crops
c. Determine the AGP of sugar and molasses for one (1) complete production cycle using the following formulae:
AGP(pc) + AGP(rcl) + ...+ AGP(rcn)
AGP(sugar) = ————————————————————
1 + Number of Ratoons (n)
AGP(pc) + AGP(rcl) + ...+ AGP(rcn)
AGP(molasses) = ——————————————————
1 + Number of Ratoons (n)
d. Determine the average of the latest available 12-months selling price of sugar and molasses from the SRA (Annex A) prior to the date of receipt of the Claim Folders (CF) by LBP for processing.
e. Compute for the sugar and molasses CNI of the property using the following formulae:
AGP(sugar) x SP(sugar) x NIR(sugar)
CNI(sugar) = ———————————————————
0.12
where:
AGP(sugar) the AGP of sugar determined under Item III.A.2.c
SP(sugar) the SP of sugar determined under Item III.A.2.d
NIR(sugar) the NIR of sugar determined under Item III.A.2.a.3
AGP(molasses) x SP(molasses) x NIR(molasses)
CNI(molasses) = ——————————————————————
0.12
where:
AGP(molasses) the AGP of molasses determined under Item III.A.2.c
SP(molasses) the SP of molasses determined under Item III.A.2.d
NIR(molasses) the NIR of molasses determined under Item III.A.2.b.3
f. Compute for the total CNI of the property:
CNI(property) = CNI(sugar) + CNI(molasses)
g. Apply the computed CNI of the property in the applicable Land Value (LV) formula under DAR A.O. No. 5, Series of 1998.
B. LO's STATEMENT OF NET INCOME NOT AVAILABLE OR PRODUCTION AND COST DATA COULD NOT BE VERIFIED/VALIDATED
1. Average Gross Production (AGP)
a. If the AGP of a particular sugar farm/plantation is not available or the AGP data submitted by the LO could not be verified or validated, the AGP shall be secured from the SRA-MDO.
In order to have a common source of information on the AGP of sugar, an agreement was made between DAR/LBP and SRA whereby the latter shall provide a standardized form containing the production data for plant and ratoon crops and other related information for each MDO (See Annex B). Under each MDO are Extension Workers who are responsible for the monitoring of the production and expenses of sugarcane in the barangays/municipalities assigned to them. These barangays/municipalities are grouped together as Extension Work Areas (EWAs). The AGP for plant and ratoon crops for the particular EWA where the property is located shall be used. The said document shall be secured from the MDO or from the SRA Central Office.
b. There are Sugar Centrals which keep track of the individual planter's sugar production and molasses output. There are cases, however, where some of the sugar planters who want to avail of: (a) the higher planter's share offered by other Sugar Centrals; (b) better milling efficiency; and/or (c) the timely milling of their canes, would bring some or all of their canes to another Sugar Central. The additional tonnage of sugar which is credited to the Sugar Central, would result in a higher production output per hectare for that Central.
The DAR and LBP field staff should therefore exercise caution and diligence in the gathering of the actual sugar production of the specific LO for the property under valuation. cACHSE
c. In the absence of specific data on the AGP of molasses, the following approaches may be adopted in estimating the AGP for molasses:
c.1 Where Ton Cane Sugar is Available
Ton Cane Sugar x Kg. Molasses per Ton Cane
AGP(molasses) = ——————————————————
1,000
c.2 Where LKG Sugar is Available
The molasses conversion factor (kg. molasses per Ton Cane) and the average LKG sugar per Ton Cane (LKG/TC) for a sample EWA is shown in Annex B.
2. Selling Price (SP)
a. For purposes of uniformity, the SRA shall serve as the only source of data for sugar. Attached is a monthly composite mill site price of sugar of a sample MDO for Crop Year (CY) 1997-1998 up to CY 1998-1999 provided by the SRA Central Office (See Annex A). SP data for the succeeding CYs shall be requested from the SRA Central Office.
b. The SP of molasses, on the other hand, may be secured from the sugar planter's cooperatives/associations in the area.
3. Net Income Rate (NIR)
a. The prescribed NIR for sugar and molasses for each region is shown in Annex C.
b. The computation of the prescribed NIR for sugar for each region already considers the effect of the increase in the net income of the planter/LO from ratoon crops.
c. The NIR of molasses would vary from one Sugar Central to another, depending on the existing planter/miller sharing arrangement.
Any significant increase in the computed land value vis-a-vis the prevailing Fair Market Value (FMV) brought about by an abnormal increase in the selling price of sugar may warrant a review of the Net Income Rates (NIRs) prescribed under these Guidelines.
4. Capitalized Net Income (CNI)
Using the AGP, SP and NIR of sugar and molasses gathered under Items III.B.1, III.B.2, and III.B.3, respectively, compute for the CNI of the property using the following formulae:
a. Compute for the CNI of sugar and molasses
AGP(sugar) x SP(sugar) x NIR(sugar)
CNI(sugar) = —————————————————
0.12
AGP(molasses) x SP(molasses) x NIR(molasses)
CNI(molasses) = ——————————————————————
0.12
b. Compute for the total CNI of the property
CNI(property) = CNI(sugar) + CNI(molasses)
5. Apply the computed CNI of the property in the applicable Land Value (LV) formula under DAR A.O. No. 5, Series of 1998.
IV. ILLUSTRATIVE EXAMPLES
Annexes D and E illustrate the application of the valuation concepts/principles presented in these Guidelines.
V. TRANSITORY PROVISION
These Guidelines shall also apply to claims whose valuations have been rejected by the landowners and/or pending with the DAR Adjudication Board (DARAB) as of the effectivity of this Memorandum Circular. No petitions or requests for revaluation on the basis of these Guidelines shall be entertained for cases that have already been resolved.
VI. REPEALING CLAUSE
All orders, circulars, rules and regulations inconsistent herewith are hereby revoked, amended, or modified as the case may be.
VII. EFFECTIVITY
This Joint DAR-LBP Memorandum Circular shall take effect ten (10) days after its publication in two (2) national newspapers of general circulation, pursuant to Section 49 of R.A. No. 6657.
(SGD.) HORACIO R. MORALES, JR.
Secretary
Department of Agrarian Reform
(SGD.) FLORIDO P. CASUELA
President and CEO
Land Bank of the Philippines
Published in two (2) national newspapers
of general circulation:
1. MANILA STANDARD
2. MALAYA
Date of Publication — July 23, 1999
ANNEX C
SUMMARY OF NET INCOME RATES
| REGION | SUGAR | MOLASSES 1/ | |
| II | 27% | 60% | |
| III | 22% | 65% | |
| IV | 23% | 65% | |
| V | 21% | 60% | |
| VI | 19% | 62% | |
| VI-A 2/ | 26% | 67% | |
| VII 3/ | 23% | 60% | |
| VII-A4/ | 24% | 67% | |
| VIII | 19% | 65% | |
| X | 26% | 62% | |
| XI-XII | 17% | 60% | |
| ———— | ———— | ———— |
1/ The NIR for molasses is equivalent to the planter's share based on the existing planter-miller sharing arrangement in the area.
2/ Negros Occidental
3/ Cebu
4/ Negros Oriental
ANNEX D
ILLUSTRATIVE EXAMPLE I
LO's STATEMENT OF INCOME SUBMITTED AND DULY VALIDATED
I. GIVEN
1. Basic Information:
| Name of LO | : | LIGAYA Sugar Plantation, Inc. | |
| Property Location | : | Sta. Lucia, Bais, Negros Oriental | |
| Area | : | 100 hectares | |
| Date of FI | : | Sep-98 | |
| Date of CF Receipt | : | 12-Feb-99 | |
| Cropping Practice | : | 1 Plant Crop, 2 Ratoon Crops | |
| Crop Status as of the | |||
| date of FI | : | 2nd Ratoon | |
| Average SP of | |||
| molasses | : | P1,750/Metric Ton 1/ | |
| (12 months prior to the date of CF Receipt) |
2. Validated LO's Production Income and Cost Data
| AGP | SP | CO | |||||
| CY | Sugar | Molasses | Sugar | Molasses | Sugar 2/ | Molasses | |
| 1997-1998 | |||||||
| 1st ratoon | 95 LKG | 1.14 MT | P720/LKG | P1,880/ | P48,000/ | 3/ | |
| LKG | Ha. | ||||||
| 1996-1997 | |||||||
| plant crop | 102 LKG | 1.22 MT | P700/LKG | P1,700/ | P60,000/ | 3/ | |
| LKG | Ha. | ||||||
| 1995-1996 | |||||||
| 2nd ratoon | 90 LKG | 1.08 MT | P660/LKG | P1,500/ | P37,440/ | 3/ |
II. REQUIRED
Compute for the CNI per hectare of the property.
III. SOLUTION
1. Compute for the average NIR of sugar for one (1) complete production cycle.
a. Average Gross Income (AGI)
[(AGP(pc) x SP(pc) + (AGP(rcl) x SP(rcl)) + ...
+ (AGP(rcn) x SP(rcn))]
AGI(sugar) = —————————————————————
1 + 2
= [(102 LKG x P700/LKG + (95LKG x P720/LKG) +
(90LKG x P660/LKG)]
——————————————————————
3
= P66,400/Ha.
b. Average Cost of Operation (ACO)
CO(pc) + CO(rcl) + ... + CO(rcn)
ACO(sugar) = ——————————————
1 + 2
= P60,000 + P48,000 + P37,440
——————————————
3
c. Net Income Rate (NIR)
NIR(sugar) = AGI(sugar) - ACO(sugar)
—————————————————
AGI (sugar)
P66,400 - P48,480
= ———————————
P66,400
= 26.99 %
2. Compute for the average NIR of molasses for one (1) complete production cycle.
a. Average Gross Income (AGI)
[(AGP(pc) x SP(pc) + (AGP(rcl) x SP(rcl)) + ...
+ (AGP(rcn) x SP(rcn))]
AGI(molasses) = ————————————————————
1 + 2
= [(1.22MT x P1,700/MT) + (1.14 x P1,880/MT) +
(1.08 x P1,500/MT)]
————————————————————
3
AGI(molasses) = P1,946/Ha.
b. Average Cost of Operation (ACO) 1/
CO(pc) + CO(rcl) + ... + CO(rcn)
ACO(molasses) = ————————————————————
1 + 2
= [(1.22 x 1,700) + (1.14 x 1,880) + (1.08 x 1,500)] x 0.33
—————————————————————————
3
= P642
c. Net Income Rate (NIR)
AGI(molasses) – ACO(molasses)
NIR(molasses) = ———————————————————
AGI (molasses)
= P1,946 – P642
————————————
P1,946
= 67.01%
3. Determine the average AGP of sugar and molasses for one (1) complete production cycle
AGP(pc) + AGP(rcl) + ... + AGP(rcn)
ACP(sugar) = —————————————————
1 + 2
= 102 + 95 + 90
————————
3
= 95.67 LKG/Ha.
AGP(pc) + AGP(rcl) + ... + AGP(rcn)
AGP(molasses) = ———————————————
1 + 2
= 1.22 + 1.14 x + 1.08
—————————
3
= 1.15 MT/Ha.
4. Referring to Annex A, the 12th-months (February 1998 to January 1999)
SP for sugar are as follows:
January 1999 - P850
December 1998 - P840
November 1998 - P820
October 1999 - P750
September 1998 - P750
August 1998 - P720
July 1998 - P705
June 1998 - P700
May 1998 - P700
April 1998 - P695
March 1998 - P690
February 1998 - P680
—————————————————
Average - P742/LKG
Average SP of molasses for CY 1997-1998 is P1,750/MT
5. Compute for the CNI of sugar and molasses
AGP(sugar) x SP(sugar) x NIR(sugar)
CNI(sugar) = ——————————————————
0.12
95.67 LKG/Ha. x P742/LKG x 26.99%
= —————————————————
0.12
= P 159,662/Ha.
AGP(molasses) x SP(molasses) x NIR(molasses)
CNI(molasses) = ——————————————————————
0.12
1.15 MT/Ha. x P1,750/MT x 67.01%
= ———————————————
0.12
= P 11,238/Ha.
6. Compute for the total CNI of the property
CNI(property) = CNI (sugar) + CNI (molasses)
= P159,662 + P11,238
= P170,900 per Ha.
=============
1/ Since there is no available industry data on the SP of molasses, the 12-months average selling price of molasses gathered from molasses traders was used instead.
2/ CO of sugar includes production cost, milling cost, Quedan liens and association dues.
3/ The prevailing planter-miller sharing scheme in the area is 67%-33%.
ANNEX E
ILLUSTRATIVE EXAMPLE 2
LO's STATEMENT OF NET INCOME IS NOT AVAILABLE OR SUBMITTED BUT COULD NOT BE VALIDATED
I. GIVEN
1. Basic Information:
| Name of LO | : | LIGAYA Sugar Plantation, Inc. | |
| Location of Property | : | Sta. Alicia, Bais, Negros Oriental | |
| Area | : | 100 hectares | |
| Date of FI | : | Sep-98 | |
| Date of CF Receipt | : | 12-Feb-99 | |
| Cropping Practice | : | Plant Crop, 2 Ratoon Crops | |
| Crop Status as of the | |||
| date of FI | : | 2nd Ratoon | |
| Average SP of molasses | |||
| : | P1,750/Metric Ton 1/ | ||
| (12 months prior to the date of CF Receipt) |
II. REQUIRED
Compute for the CNI per hectare of the property.
III. SOLUTION
1. Determine the applicable AGP for sugar and molasses.
a. In accordance with Item B.1.a, the sugar AGP for plant and ratoon crops for EWA # 007 (See Annex B), covering the area of Sta. Alicia, Bais, Negros Oriental are shown below:
AGP(plant) = 98 LKG/Ha. x 30% = 29.4 LKG/Ha.
AGP(ratoon) = 90 LKG/Ha. x 70% = 63.0 LKG/Ha.
—————————————————
AGP (sugar) = 92.4 LKG/Ha.
b. Using the molasses conversion factor for EWA # 007 shown in Annex B, compute for the molasses AGP:
LKG Sugar Kg.
—————— x Molasses
Ave. LKG Sugar
AGP(molasses) = Per Ton Cane per Ton Cane
—————————————————
1,000
92.4 LKG 21.6 Kg/molasses/
——————— x Ton Cane
1.8 LKG/Ton Cane
——————————————
1,000
= 1.11 MT molasses/Ha.
2. Referring to Annex A, the 12-months (February 1998 to January 1999) SP for sugar are as follows:
January 1999 - P850
December 1998 - P840
November 1998 - P820
October 1998 - P750
September 1998 - P750
August 1998 - P720
July 1998 - P705
June 1998 - P700
May 1998 - P700
April 1998 - P695
March 1998 - P690
February 1998 - P680
———————————————————
Average - P742/LKG
3. The prescribed NIR for sugar and molasses for Region VII-A (See Annex C) are as follows:
NIR (sugar) = 24%
NIR (molasses) = 67%
4. Using the AGP, SP and NIR for sugar and molasses determined in Items 1, 2 and 3, above, the CNI for sugar and molasses is computed below:
AGP(sugar) x SP(sugar) x NIR(sugar)
CNI(sugar) = ————————————————
0.12
92.4 LKG/Ha. x P742/LKG x 24%
= ——————————————
0.12
= P137,122/Ha.
AGP(molasses) x SP(molasses) x NIR(molasses)
CNI(molasses) = ——————————————————————
0.12
1.11 MT/Ha. x P1,750/MT x 67%
= ———————————————
0.12
= P10,846/Ha.
5. Compute for the total CNI of the property
CNI(property) = CNI (sugar) + CNI(molasses)
= P137,122 + P10,846
= P147,968 per Ha.
==============
1/ Since there is no available industry data on the SP of molasses, the 12-months average selling price of molasses gathered from molasses traders was used instead.