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The Paglas Corporation Experience

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The Mindanao region in Southern Philippines has suffered from violent conflicts for generations. Poverty, political exclusion and strife deter potential investors, particularly in the Muslim areas. Against the odds, a group of investors joined forces with a local Muslim leader and established a thriving agricultural activity in the middle of a war zone. This has not only created jobs and improved economic opportunities for the people in this area, the joint venture between Muslims and Christians has helped promote reconciliation and bring about peace in the communities. The Datu Paglas case renders validity to the notion that development is essential to achieve peace – a deviation from traditional thinking that development can only be achieved if there is peace.

"My hometown used to be a no man’s island. Transforming the war zone to economic zone seemed an impossible dream. But we made it."--Datu Ibrahim Paglas III, Chair & CEO, Paglas Group of Companies

Planting the Seeds of Peace

For many years, Datu Paglas, a town in Autonomous Region in Muslim Mindanao (ARMM),was characterized by crime, underemployment and inter-ethnic violence between Muslims and Christians. The town was known as a former case of the Moro National Liberation Front (MNLF). The Moro Islamic Liberation Front (MILF) has many recruits from the surrounding communities. Eight years ago, the town was considered a no-go zone. People would avoid passing through this town notorious for hold-ups and kidnaps. Even ice cream vendors would be lynched within minutes of entering the area.

Datu Paglas today provides a striking contrast. It is a peaceful place where children cycle to school, their parents queue to collect wages from the Rural Bank, several Sari-Sari (or general merchandise) stones inline the street and in the town centre sits a huge golden-domed mosque. Every few hours a lorry sets off for Davao Port, piled high with green bananas for export to Japan, China, Korea and Middle East.

In 1988, the old Datu (traditional Muslim leader) of Paglas was badly injured in an attack and forced to retire as Town Mayor. His young son, Datu Ibrahim or “Toto” Paglas took over as Mayor, determined to change the course of his town’s history. Toto warned both the criminal gangs and MILF guerillas that violence would no longer be tolerated in their town. Being the successor of the old and respected royal family of Maguindanao, his influence stretched far. His family ties to many of the MILF commanders meant that he was able to appeal directly to the leadership. By the mid 1990’s, peace and order situation in town had significantly improved. Toto then committed substantial family lands and persuaded a consortium of neighboring landowners to do the same. A total of 1,400 hectares was made ready as he began to actively seek investments for the development of a banana plantation. ARMM represents the largest area of development land in the Philippines. The soil of high quality and there is access to laborforce.

Toto invited a foreign investment consortium that had several investments in various Mindanao plantations, and sold the opportunity to expand their business. The investors were initially hesitant believing that operating in Datu Paglas was too risky. But intrigued by the description of the dynamic young Mayor, and the amount of land available, they agreed to make a commercial assessment. The huge potential was immediately apparent: limitless supply of fresh water, first-class soil quality and a ready supply of local labour. Perhaps most importantly, they saw a strong and inspiring leader in Toto Paglas who commanded the respect and loyalty of the people.

While may agreed to Datu Toto’s business plans, some actors in the community were critical and anxious. Endless dialogues and community meetings were conducted. The process of consultation was a unique experience for the people and clearly far departure from the traditional practice where Datus decision becomes a law, and his constituents are expected to obey.

The young Datu also relied wisdom and good counsel of his elders. The Ullamas and then MILF Chairman Hashim Salamat had three things to say to Toto: 1) protect the environment at any cost because this is all we have for the next generation, 2) do not abuse the workers, protect their rights and look after their welfare, safety, and last 3) provide education for the children.

La Frutera Inc. (LFI) was established with overseas investment from Italy, Saudi Arabia and the US (including Chiquita). An investment group from Manila managed the day-to-day operations of the plantation. Initial investment amounted to $26 million – the single largest investment ever in Muslim Mindanao’s history. Toto Paglas put up the Paglas Corporation (PagCorp) to provide labor, security and Muslim transport needs of the plantation.

Although the peace and order situation in the town has become fairly stable, the main road between Cotabato to Davao, was by no means secure. When La Frutera was first established, the late MILF Chairman Hashim Salamt gave his personal assurance that MILF soldiers would not enter the town of Datu Paglas, and that no personnel, equipment or transport vehicle of either La Frutera or the Paglas Corporation would be compromised. There has not been one incident of criminal activity against either company since its inception.

Guiding Principles of PagCorp’s CSR

1. Protect the environment at any cost because this is all we have for the next generation.

2. do not abuse the workers, protect their rights and look after their welfare and safety.

3. Provide Education for the children.

Cultivating Human Capital

Initially, Christian plantation workers were brought in a trainers and supervisors. Toto gave assurance that they would be under his personal protection, and even placed their accommodation close to his town. When asked if she was frightened to be working alongside former MILF combatants, Alicia, one of the Christians trainers from the packing warehouse, said: “Of course we were scared at first, but we trusted in God.. and in Toto Paglas.” Today, Muslims and Christians peacefully work together. Christians are no longer viewed as superiors or any more specialized than Muslim employees. The company organizes regular workshops to increase understanding and tolerance between the two cultures. Religious leaders from both sides gave seminars on Islam and Christianity. Christian workers avoid eating pork at lunchtime in front of their Muslim colleagues. Children from both communities attend a local school, the enrolment rate of which increases from 50% - 70% each year. Toto Paglas says, we all worship the same God, we just call him by different names”.

Commander “Spider”, an ex-MILF Company Commander, is now the most senior plantation supervisor Now that his children are in school and able to eat regular meals, he no longer considers rejoining the MILF. He says, “When man is hungry, he doe not fear to kill and he does not fear to die”. Spider now values greatly the chance to live a peaceful and productive life. He has sold his gun, has been promoted and awarded as number one supervisor of the plantation.

When the conflict between MILF and Government forces broke out again in early 2000, many of the former MILF rebels working in the plantation offered to resume their post. But the Chairman Salamat issued an official announcement that all plantation workers were to remain on their jobs. He is quoted as saying, “We will not have peace without development. The success of this plantation is critical to the peaceful future of the new generation of Muslims and of the entire Muslim Mindanao.” The investors stressed that no protection money has ever been paid, and absolutely no donations have been made by either company to the MILD, nor had there been any direct financial solicitations, from the MILF itself.

A Building World Class Business

“Word of honor” is an important virtue to the followers of Islam. To keep his promise to the town’s elders, Datu Paglas made sure that LFI and PagCorp adopt environmentally sound processes to minimize and mitigate the impact of the company’s operations to the environment and the communities. To reduce public health hazards to the communities surrounding the plantation and neighboring provinces, LFI adopted a state-of-the-art drip irrigation technology to distribute fertilizers and pesticides provided by an Israeli engineering firm as oppose to traditional air spray technique. At first, this plan encountered intense opposition from the community and the Ullamas. “There is no way that we will allow Israelis, the enemies of Islam to come to heartland of Maguindanao”, said one of the elders. However, understanding the tremendous benefit of the technology to the environment and people, Datu Paglas and company executives conducted community dialogue, countless consultations and education sessions until such time that the community was ready to make consensus or shared decision allowing the company to work with Israelis.

Once a Muslim has given his word it becomes a social contract and moral obligation, and he or she must see it through.

The Prophet, may peace be upon him, said, “the signs of a hypocrite are three (1) whenever he speaks, he tells a lie, (2) whenever he promises he always breaks it, (3) if you trust him, he proves to be dishonest (if you keep something as a trust with him, he will not return it)” (Sahih al-Bukhari no.132)

To protect the water systems surrounding the plantation, the company has invested in a multi-million modern waste-water treatment facility to ensure that only clean water goes out of the company’s pipelines. As result of all of these green processes, LFI has recently broke the world record (previously held by Costa Rica) for the heaviest bunch of bananas tipping the scale at 65 kilos compared to the average weight of 35-45 kilos. Another reward for good practices was the prestigious certification from Rainforest Alliance (RA) for sustainable banana farming. The company is the first commercial banana plantation in Asia to be certified under R.A. To date, the company is on the last leg of processing its ISO 14000 certification. Once they have completed the process, they will be the first banana plantation to secure IS) 14000 in the Philippines.

Also in the pipeline are the following certification processes: SA 8000; OHSAS 1800 (a French derivative of Occupational Health safety act); ISO 9000 for Quality Standards; HACCP Hazards Analysis of Critical Control Points; and Integrated Management Systems (IMS).

Harvesting Peace and Development

The plantation maybe considered young. It is only six years from it was first registered, but the business is booming. The investors are confident that in two to three years, the plantation could be one of the most profitable investment not only in Mindanao but in the Philippines. Over ten million tons of bananas have been produced to date and exported to Japan, China, Korea and the Middle East.

As of 2003, LFI has generated over $35M in export revenues. And the trends in the last three years chow that the company consistently doubles its sales per year.

Today, over 2,000 people, 85% are Muslims, are employed by Paglas Corporation and La Frutera Inc. Over the past seven years, the town has seen a dramatic increase in employment figures, income levels and an unparalleled decrease in violence. Records from the Philippine National Police (PNP) showed that Paglas town has 0% crime rate in the last 3 years.

Beyond raising the human index of the local population, the development of the plantation contributed to the mush-needed reconciliation and increased understanding between Muslim and Christian communities in the region. The company has successfully crafted and implemented its workplace diversity policy. Both Muslims and Christians are given the opportunity to learn both Koran and the Bible.

In direct terms, Paglas Corporation infuse over half a million dollars to the local economy per month in the form of salaries and wages, and payment of service suppliers in Paglas town alone. This does not include the economic value and impact created by the company to downstream industries in the neighboring towns and provinces as a result of increasing activities. As a matter of fact, the newly constructed town market building has full occupancy rate.

Outside the plantation, a multiplier effect is also evident. A rural bank was established on Toto’s initiative by infusing the seed funding in 1998. The Central Bank of the Philippines and Land Bank of the Philippines provided a loan portfolio of around $160,000. The bank has an expert on small business and has helped in starting up over 50 small enterprises in the past two years. It has more than 3,000 customers (serving the neighboring plantations as well) and currently sees 90% repayment rate on both majority of its customers have never held a bank accounts before, as working in the plantation has been their first experience as regularly paid employees.

Transporting the Economic Impact

Looking at the gains of the earlier efforts and leadership of Datu Paglas, other Datus in the ARMM and potential investors for that matter who may want to replicate the business model of Paglas-Chiquita-La Frutera partnership can look into the Paglas experience as a model that can be replicated.

In spite of the good returns generated by the company’s presence, many believed that the Paglas case cannot be replicated in other Muslim areas. But Datu Paglas was determined to spread the gains of investment beyond the sphere of his influence. Last year, he convinced his investors to expand the plantation in Lanao del Sur (in the towns of Wao and Bumbaran, Northern part of Mindanao over 150 kilometers away from Paglas) also characterized as areas of conflict. The expansion cost over $150 million and will cover at least 2,000 hectares of fertile rolling plants and projected. This new business venture will employ at least 3,000 people, During the recruitment, Datu Paglas made an appeal to rebels and MILF combatants to lay down their arms and take advantage of the employment offered by the company. He brought the most notorious MILF commanders from Paglas, one of them is the famous commander Spider, to provide their personal testimonies to the young combatants on how getting a decent job have changed their lives for the better.

Datu Paglas hoped that the new investment in these war-torn towns will take as many combatants away from killing fields of Mindanao. When this is achieved, Datu Toto believes that the company investments has already secured the future generation of young Muslims who are educated, employed, responsible, accountable and peace loving citizens of their communities.

Preparing the Seeds of Peace

Peace remains elusive in Mindanao. Inconsistencies in terms of the development framework, economic and political policies of the government as well as cultural and religious conflict of the warring Muslim clans continue to exacerbate conflict. Although the Mindanao problem cannot be solely attributed to economic issues, the high correlation between armed conflict and poverty is the area that should be given considerable weight in identifying both short and long term solutions. It is in the light that the private sector is regarded as strategic partner in peace and development effort. The Paglas case has demonstrated a powerful model on how investment hastens economic development.

Affirmative actions like those made in town of Paglas represent a very important progress in building trust, breaking down prejudice and promoting sustainable commercial investment. The PagCorp experience has clearly demonstrated the compatibility between business agenda and social as well as environmental bottomlines.

Many investors and business people have a strake in pushing for resolution to the conflict in Mindanao. The story of Datu Paglas proves that economic investment can promote long-term peace and political stability. It provides a model to tell external investors and local leaders in the region that investing in Mindanao viable and profitable.