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AGRO-INDUSTRY MODERNIZATION CREDIT AND FINANCING PROGRAM

The Agro-Industry Modernization Credit and Financing Program (AMCFP) is based from the Agriculture and Fisheries Modernization Act (AFMA) of 1997 (www.acpc.gov.ph). AMCFP was developed by the Agricultural Credit Policy Council (ACPC) to more efficiently service the financing needs of farmers and fisher folks by passing the responsibility of extending credit to the rural sector from the non-financial agencies of the government to the financial institutions which possess the relevant experience, expertise and resources and therefore should be more efficient than the former.

The AMCFP differs from the past government credit programs in certain aspects. Firstly, the program is not limited to a single commodity. It covers a wide range of rural activities. Secondly, as already stated in the preceding paragraph, the government is not directly involved in the credit extension process. The government merely acts as the provider of the funds to be lent. It is the job of the accredited private banks to distribute these funds to the farmers and fisher folks. Lastly, because it is already the private banks that distribute funds; the interest rates imposed on the borrowers are now market-determined unlike in the past when the government subsidized the interest rates (www.acpc.gov.ph).

Program Administration

The ACPC monitors and evaluates the performance of the AMCFP to come up with policy recommendations. It oversees all directed credit programs (DCPs) in agriculture. The ACPC ensures that loans released under these DCPs are collected and the funds are transferred to the AMCFP. This is to ascertain increased credit access of its intended beneficiaries as well as ensure the program's sustainability (www.acpc.gov.ph).

In support of the AMCFP, the ACPC implements two other programs that are equally crucial to the success of the local credit system. One is the development and pilot testing of "innovative financing schemes" (or IFS) that address the inability of farmers and fisherfolk to meet the collateral and other requirements imposed by banks. The second is "institution capacity building" (or ICB), through which the ACPC provides grassroots and rural finance institutions funding assistance for institutional strengthening in order that they may become effective and efficient lending and collection entities in the countryside(www.acpc.gov.ph).

Program Beneficiaries The eligible end-borrowers/beneficiaries of the AMCFP are the (1) small farmers and fisherfolk;

Program Beneficiaries

The eligible end-borrowers/beneficiaries of the AMCFP are the (1) small farmers and fisherfolk; (2) rural women engaged in production, processing and/or trading of agriculture and fisheries products; and (3) Agri/fishery based small and medium enterprises (SMEs). According to Section 23 of AFMA the funds being lent to the beneficiaries should be used in the following purposes:

1. Agriculture and fisheries production including processing of fisheries and agri-based products and farm inputs;

2. Acquisition of work animals, farm and fishery equipment and machinery;

4.

Procurement of agriculture and fisheries products for storage, trading, processing and distribution;

5. Acquisition of water pumps and installation of tube wells for irrigation;

6. Construction, acquisition and repair of facilities for production, processing, storage, transportation, communication, marketing and such other facilities in support of agriculture and fisheries;

7. Working capital for agriculture and fisheries graduates to enable them to engage in agriculture and fisheries-related economic activities;

8. Agribusiness activities which support soil and water conservation and ecology-enhancing activities;

9. Privately-funded and LGU-funded irrigation systems that are designed to protect the watershed;

10. Working capital for long-gestating projects; and

11. Credit guarantees on uncollateralized loans to farmers and fisherfolk.

Aside from the projects listed above, the AMCFP can also finance the following:

1. Projects that adopt or showcase new / modern technology that enhances yield and/or quality of produce;

2. Acquisition of modern machinery / equipment and/or adoption of new methodologies that improve productivity and quality of processed or traded agriculture and fishery products;

3. Acquisition of modern machinery / equipment and/or adoption of new methodologies that improve productivity and quality of processed or traded agriculture and fishery products;

4. Projects that adopt diversification, including non-farm or off-farm economic activities, particularly in the case of marginalized or subsistence farmers and fisherfolk.

The interest rate to be paid by the beneficiaries depends on the policy of the private financial institutions. However, to promote efficiency and discourage "excessive" charging, the Technical Review Team shall recommend an interest rate spread for participating PFIs for which shall be reviewed periodically based on the actual spread interest rates charged by the PFIs.

Eligible Fund Wholesalers and Retailers (www.acpc.gov.ph)

Government financial institutions serve as the eligible fund wholesalers. Private financial institutions which may qualify as fund retailers are:

1. Private banks such as cooperative banks, rural banks, thrift banks;

2. Cooperatives duly registered with the Cooperative Development Authority;

3. Non-Government Organizations (NGOs) and People's Organizations (POs) with juridical personalities.

The Fund Wholesalers shall charge interest rates to the Fund Retailers, regardless of financing mode adopted, as follows:

1. For short term loans: 91-day Treasury Bill Weighted Average Interest Rate (WAIR) plus spread;

2. For term loans: WAIR on government bonds / securities of equivalent maturity plus spread for fixed rate or if a variable rate is adopted, the loan will be repriced quarterly equivalent to the 91-day Treasury Bill WAIR plus spread.

The spread shall be set by the Fund Wholesalers taking into account the associated risk which shall range from one percent (1%) per annum for secured notes/loans and two percent (2%) for unsecured notes / loans.

Loans Granted

According to the annual report of the ACPC in 2009, the AMCFP had generated about P1.54 billion in loans which were availed by 33,000 farmers and fisherfolk (Table 1). These loans were provided by the various lending institutions under AMFCP which are the Cooperative Banks Agri-Lending Program (CBAP), Agricultural Microfinance Program (AMP) with the People’s Credit and Finance Corporation (PCFC), Agri-Fishery Microfinance Program (AFMP) with LandBank, Fisheries Financing Program (FFP), AMCFP Tobacco/Rice Lending Program in coordination with the National Tobacco Administration (NTA), AMCFP Tomato Lending Program in coordination with the Northern Food Corporation (NFC), and Agricultural Guarantee Fund Pool (AGFP). Cumulative loans granted through these lending facilities at the end of 2009 amounted to almost P2.14 billion, which benefits 50, 753 farmers and fisherfolks.

The ACPC also reported that AMCFP has successfully encouraged private banks as well as government banks to allocate more of their funds for lending to agriculture and fisheries sector.

private banks as well as government banks to allocate more of their funds for lending to

Accomplishments under AMCFP Lending Facilities

1. Cooperative Banks Agricultural Lending Program (CBAP)

The Cooperative Banks Agricultural Lending Program (CBAP) was launched during the National Food Summit held on April 04, 2008. The main objective of the program is to encourage cooperative banks to lend money to small farmers and fisherfolk households so that the government credit funds will increase. For the year 2009, the amount of loans that CBAP released had reached P1.41 billion which benefits 22, 291 small farmer and fisherfolks borrowers (Table 2). Since the program started in 2008, its initial funds amounting to P400 million has been leveraged by almost five times already. It is able to generate P1.83 billion to 29, 885 small farmers and fisherfolk.

P1.83 billion to 29, 885 small farmers and fisherfolk. The funds of the program are track

The funds of the program are track via the wholesaler cooperative banks which involves risk coverage or sharing mechanism between the wholesaler and CBAP. If unsecured, loans that will be granted to small farmers should not exceed P30,000 per hectare, with a maximum ceiling of 7 hectares per borrower or a total maximum loan of P210,000 per borrower. The interest rate that the wholesalers may charge should not exceed to 7 percent per annum, payable quarterly.

borrower. The interest rate that the wholesalers may charge should not exceed to 7 percent per

Overall, the program exhibited high repayment rates from the end-beneficiary level up to the program fund level. Loan repayment rate stood at 92.5% from end-beneficiaries to retailers; 100% from wholesalers to retailers; and 100% from wholesalers to the CBAP Fund (Table 3).

and 100% from wholesalers to the CBAP Fund (Table 3). During the early part of year

During the early part of year 2009, a conference was held for planning a strategy to meet a P1.5 billion target amount of loan. CBAP almost reach this target since at the end of 2009, the amount of loan being provided is P1.41 billion.

2. Agri-Microfinance Program (AMP) with the People’s Credit and Finance Corporation (PCFC)

In April 2009, the ACPC forged an agreement with the PCFC for the implementation of a microfinance program for agriculture with an initial credit fund of P100 million. At the end of the year, P102.3 million loans released to MFIs for re-lending and P61 million of the P102 million was released to 5,873 farmer/fisherfolk borrowers (Table 5).

to MFIs for re-lending and P61 million of the P102 million was released to 5,873 farmer/fisherfolk

Forty-three percent (43%) of participating MFIs have fully released program funds to end-borrowers while 57% will be re-lending the remaining funds upon processing and evaluation of their end borrowers’ eligibility under the program.

3. Agri-Fishery Microfinance Program (AFMP)

The Agri-Fishery Microfinance Program (AFMP) is a microfinance lending facility for small farmers and fisherfolk with the following features: non-requirement of collateral; cash flow-based repayment scheme; and risk and income diversification via financing of farm, off- farm, and non-farm projects.

In 2009, four (4) farmer cooperatives in Laguna, Quezon and Camarines Sur availed themselves of trust fund coverage amounting to P16.3 million which generated P7.5 million in loans from 303 farmer members. As of end-2009, total loans generated by the AFMP amounted to P18.3 million, benefiting 2,246 farmer borrowers.

4. Fisheries Financing Program (FFP)

The Fisheries Financing Program (FFP) is a joint undertaking of DA-ACPC, LandBank, and the Bureau of Fisheries and Aquatic Resources (BFAR). It is patterned after the AFMP but designed to provide loans to fisheries subsector that are also in need of credit support.

So far, the FFP had already generated P3.5 million amounts of loans for 222 fisherfolks in Oriental Mindoro, Batangas and Guimaras for financing seaweeds production and processing, and tilapia growing.

5. Tobacco/Rice Contract Growing System with NTA\

Under the tobacco/rice growing contract system, the AMCFP provides loans to tobacco farmers while the National Tobacco Association (NTA) provides training and technical assistance, as needed. Monitoring is conducted by both the ACPC and NTA regularly.

For 2009, the AMCFP had released more than P25 million in loans to 1,926 tobacco farmers to finance production requirements for tobacco and rice. Since the start of its implementation in 2007, the program has been able to release more than P96 million in loans to 8,057 farmers. The program has also been successful in instilling credit discipline among its borrowers, posting a 100% loan repayment rate.

6. Tomato Production and Paste Processing System with NFC

The system is similar to the tobacco contract growing system wherein the AMCFP provides the credit needs of tomato farmers while the Northern Foods Corporation (NFC) and ACPC provide training and technical assistance, and conduct regular monitoring. Since the start

of its implementation in 2007, the program has been able to release more than P125 million in loans to 4,470 farmers. The program also exhibits a 100% loan repayment rate.

7. Agricultural Guarantee Fund Pool (AGFP)

The AGFP provides guarantee coverage to unsecured loans extended by financial institutions to small farmers engaged in rice and/or food production projects/activities. The program covers all types of risks of default including nonpayment due to weather, pest and diseases, and other fortuitous events, except those arising from willful default and/or fraud. To be able to avail of guarantee, the participating lender shall pay a guarantee fee of 2% per annum of the outstanding loan amount.

Table 6 shows the amount of loan being covered by AGFP and the number of farmers who borrowed guarantee loans.

AGFP and the number of farmers who borrowed guarantee loans. Overall, total AMCFP collection for 2009

Overall, total AMCFP collection for 2009 reached P256 million. This amount represents collection from consolidated DCPs of P52 million and from AMCFP on-going projects of P204 million. To date, the ACPC has collected some P1.28 billion past due loans from DCPs that would have been written-off as bad debts if not for ACPC’s tremendous effort in recovering these funds. This amount represents 21% of about P 6 billion loan receivables from consolidated DCPs, leaving some P4.8 billion loans that ACPC will again strive to collect in succeeding years to sustain funding of AMCFP projects/facilities (Table 6).

Target Subsectors and Desired Results The Agricultural Credit Policy Council (ACPC) adopted the recommendation of

Target Subsectors and Desired Results

The

Agricultural

Credit

Policy

Council

(ACPC)

adopted

the

recommendation

of

Agriculture and Fisheries (AF) 25 to formulate a strategic plan on agriculture and fisheries credit. AF 25 proposed the conduct of a multi-stakeholder conference that is focusing on credit. The goal for the agriculture and fisheries credit sector is to increase access of small farmers and fishers to credit particularly formal credit.

The target of the AF 25 is to increase the proportion of borrowing farmers and fishermen from formal sources from 57% to 85% by the end of the planning period or an increase of 28% in the incidence of formal borrowing among small farming and fishing household borrowers. In terms of the number of small farmers and fishers, the goal is to increase credit outreach by more than 800,000 farmers and fishing households.

Source: ACPC Agriculture and Fisheries Credit Summit Proceedings

COMPREHENSIVE AGRICULTURAL LOAN FUND

The EO 113, entitled Establishing the Comprehensive Agricultural Loan Fund (CALF), creating the Agricultural Credit Policy Council and for other purposes, put a stop to government’s commodity-specific lending programs and directed the use of those program funds for the Comprehensive Agricultural Loan Fund (CALF). The CALF was used as a loan guarantee fund to encourage private banks to lend to agriculture by offering to cover as much as 85 percent of their credit risks in providing loans to small agricultural borrowers and enterprises.

According to Section 4 of EO 113, the Ministry of Agriculture and Food (now the Department of Agriculture) should lend the money to the private banks, and not directly to the end-users. Exceptions to this rule are the Guarantee Fund for Small and Medium Enterprises (GFSME) and the Quedan Guarantee Fund Board (QGFB). Any Comprehensive Agricultural Loan Fund (CALF) earning may be utilized by the Department of Agriculture for Agriculture projects and agriculture-related activities.

In the pursuant of the Department of Agrarian Reform Administrative Order No. 10-01 last June 18, 2001, the cash resources and receivables under CALF and other credit programs administered by the ACPC were transferred to Quedan and Rural Credit Guarantee Corportaion (QUEDANCOR).

The following are the conditions under DAR A. O. No. 10-01:

1. ACPC shall effect the transfer of outstanding receivables of on-going and

terminated lending programs under the CALF and other lending programs sourced from the General Appropriations Act (GAA) as listed in the attached "Annex A", as well as the outstanding receivables under the guarantee schemes funded out of the CALF as listed in the attached "Annex B", to QUEDANCOR starting upon approval of this order and to be completed not later than ninety days thereof. ACPC shall turnover to QUEDANCOR the schedule of receivables, all records and documents pertaining to such receivables.

2. The responsibility and authority to collect these receivables including but not

limited to, the authority to initiate legal action, file cases in court and to negotiate, enter

into and sign restructuring, compromise, settlement, amnesty and condonation agreements are deemed endowed to QUEDANCOR for and in behalf of the DA and/or ACPC, provided however, that such agreements shall conform to the guidelines approved by the Secretary of the DA. QUEDANCOR shall be entitled to administrative fees and other charges, including attorney's fees in accordance with said guidelines.

3. QUEDANCOR shall open and maintain a separate trust account with a government

bank for the collections, with the following sub-accounts, namely: (a) DA-QUEDANCOR- CALF for collections from lending programs under CALF, (b) AMCFP-GAA for collections from lending programs sourced from GAA, and (c) AFCGF for collections from receivables of the CALF funded guarantee schemes. All collections from the principal, interest and other charges, net of administrative fees and other charges including

attorney's fees, shall be deposited within a reasonable period by QUEDANCOR to the above-mentioned accounts. Likewise, QUEDANCOR shall issue Official Receipts to the account payors. All collections under the DA-QUEDANCOR-CALF shall augment the credit fund of GMA-CARES. The signatory for withdrawals against the trust accounts, except the AFCGF, shall be the Secretary of the DA. QUEDANCOR shall maintain separate books of accounts for the deposited funds and shall render a quarterly report on the status of the deposited funds to the DA and furnish a copy to ACPC. AIaDcH

4. ACPC shall continue to assume the responsibility of collection of the receivables

due from the government institutions listed in the attached "Annex C". In case of the

equity investment of the DA-CALF to the QUEDANCOR by virtue of the DA and QUEDANCOR Memorandum of Agreement (MOA) dated September 17, 1993 in the amount of Php 130,326,502.78, such shall be treated and booked by QUEDANCOR, upon effectivity of this Order, as part of AFCGF.

5. Out of the cash balances of the CALF, which are led in trust by the DA, the amount

of FOUR HUNDRED MILLION PESOS (Php 400,000,000.00) shall be transferred to QUEDANCOR upon effectivity thereof, for the following purposes: (a) the amount of THREE HUNDRED MILLION PESOS shall be utilized by QUEDANCOR as the credit fund for the GMA-CARES; (b) the amount of ONE HUNDRED MILLION PESOS representing the capital of the guarantee fund allocated for Guarantee Fund for Small and Medium Scale Enterprises (GFSME) CALF shall become part of the AFCGF. Provided however, that upon transfer of the guarantee fund, QUEDANCOR shall from thereon assume administration of the fund and answer for the liability of such fund pursuant to the agreement between the DA-ACPC and the GFSME. The DA and ACPC shall notify GFSME that by virtue of this Order QUEDANCOR becomes the successor-in-interest of the ACPC. QUEDANCOR shall maintain separate bank accounts for the two transferred funds.

6. Out of the remaining cash balances of the CALF, TWO HUNDRED MILLION

PESOS (Php 200,000,000.00) shall be retained at the Treasury of Bangko Sentral ng Pilipinas (BSP) as a trust fund for the ACPC, the interest earnings of which shall be used to fund the following activities: policy and action research projects; institution-building (IB) projects including joint IB activities with QUEDANCOR; training and other activities of the ACPC. Utilization of the interest earnings shall be subject to the approval of the

Annual Work and Financial Plan by the DA Secretary.

7. To ensure smooth turnover of collection and credit fund administration

responsibility, the contractual personnel of the CALF Management Office of the ACPC shall be transferred to QUEDANCOR. Upon this transfer, an initial one year budget covering the salaries and operating costs of that office shall be drawn from the interest earnings of the CALF. The proposed budget, to be released to QUEDANCOR, shall be jointly prepared by ACPC and QUEDANCOR for approval by the Secretary of the DA.

For the succeeding years' budget, QUEDANCOR will incorporate such requirements in its annual corporate budget.

8.

Utilization of the collected amounts, including earnings thereof, pooled in the

AMCFP and AFCGF accounts shall be subject to the approved guidelines, rules and regulations promulgated or issued by appropriate government authorities pertaining to these funds.

LIST OF OUTSTANDING RECEIVABLES OF LENDING PROGRAMS UNDER CALF AND GAA

As of March 31, 2001

I. Sourced from CALF

P497,557,209.04

1. BSP-GPEP with Coopbanks

2,400,000.00

2. Rehabilitation Projects with Coopbanks

45,000,000.00

3. DAPCOPO with Cooperatives/Federations

2,156,543.62

4. CBFAP with Coopbanks

603,235.63

5. LBP-GPEP/Expanded CBAP with Coopbanks

23,788,395.09

6. LBP-Gintong Ani II On-Lending with Coopbanks

32,166,665.67

7. LBP-Micro Credit Programs with Coopbanks

6,955,369.03

8. Terminated and Consolidated under EO 113

384,487,000.00

II. Sourced from GAA

P292,599,333.32

1. Gintong Ani II On-lending with Coopbanks

157,991,500.10

2. Gintong Ani II Marketing Rehab

88,515,346.05

3. Gintong Ani II Coopbanks Rehab

21,846,153.85

4. DAPCOPO with Marketing Coops

3,933,333.32

5. CIA Micro Credit Programs with NGOs/Coops

8,653,000.00

6. RCBFS Rural Bank (Mindanao area)

11,660,000.00

TOTAL

P790,156,542.36

ANNEX B

LIST OF OUTSTANDING RECEIVABLES UNDER THE GUARANTEE SCHEMES FUNDED OUT OF THE CALF

As of March 31, 2001

1. PCIC Guarantee Program

P167,966,959.08

a. Receivables 106,952,511.25

b. Guarantee Claims Paid

61,014,447.83

2. GFSME Guarantee Claims Paid

27,446,541.09

3. QUEDANCOR Guarantee Claims Paid

50,850,864.49

4. TLRC BPnB Guarantee Claims Paid

2,142,000.00

5. Fishery Loan Guarantee Fund under the Terminated and Consolidated

Programs per E.O. 113

15,348,591.59

TOTAL

P263,754,956.25

ANNEX C

OUTSTANDING RECEIVABLES DUE FROM GOVERNMENT INSTITUTIONS

As of March 31, 2001

I. Charged from CALF

P374,881,660.12

1. LBP-Fixed Asset Acquisition

10,000,000.00

2. LBP-IRF

333,092,681.75

3. QUEDANCOR CCAP

16,688,978.37

4. QUEDANCOR DAPCOPO

15,100,000.00

II. Charged from GAA

P1,187,438,055.14

1. LBP-GPEP

37,800,000.00

2. LBP-FSP

330,457,700.00

3. DBP-FSP

259,555,400.00

4. QUEDANCOR GPEP

5,453,511.42

5. QUEDANCOR-PAF-DAF

67,636,724.00

6. QUEDANCOR-CIA Micro Credit Program

15,434,719.72

7. QUEDANCOR-FSP

73,600,000.00

8. QUEDANCOR-RCBFS-IFS

123,922,184.24

9. PCIC-Gintong Ani II RCBFS

76,077,815.76

10. PCIC-FSP

54,350,000.00

11. GFSME-RCBFS

100,000,000.00

12. GFSME-FSP

750,000.00

13. NDA-EDDN

42,400,000.00

TOTAL

P1,562,319,715.26

There are many studies, policy notes, discussion papers and the like being made to assess or evaluate the performance of the different credit programs in the Philippines. One of those programs is the Comprehensive Agricultural Loan Fund.

Evaluation of the Comprehensive Agricultural Loan Fund (CALF) Credit Guarantee Programs in the Philippines, 1986-2000 (Zamora, 2000)

Problems encountered during the implementation of CALF Credit Guarantee Programs 1. In the Philippine Crop Insurance Corporation (PCIC), guarantee programs represents only 20% of their total operation in the corporation, since their main program focuses on the crop insurance given to farmers, particularly rice and corn farmers.

2. Despite having an increasing number of financial institutions participating in the Guarantee Fund for Small and Medium Enterprises (GFSME), there are still only few areas that are receiving the services being provided by the program. Hence, it is only concentrated to some areas of the country.

3. Information dissemination remained to be poor for both the PCIC and GFSME CALF. According to the result of the study of Zamora (2000), PCIC registered 41.84% in terms of the level of awareness of the farmers about the program, and GFSME registered only at 6.67%.

4. During the early years of the Quedancor program, the portion of the loan size does not directly cater to small agricultural activities. This leads to the issue of whether a guarantee program is still necessary. Also, there were only small numbers of rural financial institutions participating in the program.

Loan Guarantee Programs for Small Scale Borrowers: Are they Working? (Llanto, G. M. and Orbeta, A. C. Jr., 1999)

Previous Assessment of Loan Guarantee Programs

1. In the study of Llanto, Casuga and Magno (1991), the result of the findings are the following:

- The total number of loans given on the strength of a loan guarantee was small.

- Other forms of collateral secured many of the loans covered by the loan guarantee.

- Private bank participation in the loan guarantee programs was low.

- Guarantee fees paid covered only a small fraction of the cost of operating these programs.

- Time-consuming procedures in the programs contributed to a high transaction cost of borrowing.

2. In the study of Llanto and Magno (1993), concluded that:

- There is little difference in the characteristics and transaction costs between borrowers with loan guarantees and those without.

- Loan guarantees failed to substitute for traditional forms of collateral.

Conclusion

The Comprehensive Agrarian Loan Fund has been operating since 1987. Since then, it has helped small farmers and fisher folks in financial capital problems. Although a variety of problems have been arising, the ACPC and the government do not fail to address each difficulty. Problems regarding low involvement of banks and corporations in the lending process have been

solved as shown in the increase of private and cooperative banks that participate in the different programs of ACPC. Low rate of return of loans to farmers has also been solved in the past few years. In fact, the return of loans in the recent years shows almost 100% rates. The problem on the number of beneficiaries has been addressed through the increase of the types of loans. For example, from two specific loans of the IMCFP in 2007, there are now seven kinds of loans that farmers and fishermen can avail. Based on these improvements, it is considerable that the credit support in our country gives significant benefits to the small farmers and fishermen.

References:

ACPC 2009 Annual Report

Corpuz, et. al. Undated.The Agricultural Credit Policy Council (ACPC) and credit support for agriculture in the Philippines.

Llanto, G. M. and Orbeta, A. C. Jr., 1999. Loan guarantee programs for small scale borrowers:

are they working?. PIDS Policy Notes.

Zamora, R. P. 2000. Evaluation of the Comprehensive Agricultural Loan Fund (CALF) credit guarantee programs in the Philippines, 1986-2000. Unpublished Undergraduate Thesis. UPLB.