Still the country’s largest single employer, the Philippines’ agriculture sector continues to play a pivotal role in the economy, even as the government looks to develop other modern industries to lead the way in the future. Directly employing more than one-quarter of all workers in non-services industries, more than 11m Filipinos relied on agriculture for their livelihood in 2013, according to the Philippines Statistics Authority (PSA). Whatever the sector’s importance to the population at large, the efficiency of production in the Philippines still lags that of many regional competitors due to the diffuse nature of its archipelagic geography; small average plot sizes that limit economies of scale; a comparative lack of flat, arable farmland; and susceptibility to unfavourable weather events like typhoons. Agriculture, forestry and fisheries contributed 10.4% of GDP in 2013, with the sector posting modest growth of 1.1%, down from 2.8% in 2012.
Despite these limitations, recent public and private efforts to boost output and efficiency have led to promising improvements across several segments, including a drive for self-sufficiency in the staple crops of rice and corn, an expansion of the sugar industry ( including new downstream applications in biofuels and biomass power generation), and continued investment and growth in export-oriented cash crops.
SNAPSHOT: The growth of the palay (unhusked rice), poultry and livestock industries were the primary drivers in 2013. The segments continued to perform well in the first half of 2014 as the agriculture sector overall grew by another 1.81% and grossed P776.5bn ($17.5bn) at current prices through June, according to PSA data. In late 2013 typhoons did considerable damage, but they relented in the first six months of 2014, allowing the crop segment to recover. The segment expanded by 3.68%, contributing 52.72% of total agricultural production. The largest gainers within the segment were palay and corn, which increased output by 4.78% and 4.7%, respectively. Production increases were also recorded for sugarcane, pineapple, mango, banana and tobacco as the crop segment’s gross production value rose 18.31% to P443.9bn ($10bn).
Led by higher output from hog and dairy farms the livestock sector increased by 0.94% to contribute 15.39% of total agriculture output with gross earnings registering P118.9bn ($2.7bn) through the first six months of 2014. Poultry production similarly increased by 0.73%, good for 14.44% of agriculture production with a gross value of P91.7bn ($2.1bn). By contrast, the fisheries segment contracted by 1.9% over the same time period, with the industry grossing P122bn ($2.7bn) and accounting for 17.45% of agriculture output.
SELF-SUFFICIENCY: Part of “rice-producing Asia”, which accounts for some 90% of the world’s rice production and stretches from Pakistan in the west to Japan in the east, the Philippines ranks among the top-10 rice producers in the world. Nevertheless, it still produces less than half the annual average of the dominant regional mainland producers of Thailand, Vietnam, Myanmar, Cambodia and Lao, and it still relies on imports to supplement domestic supplies in order to meet demand. Rice provides 45% of the caloric intake of Filipinos and accounts for 20% of the typical household’s budget, according to the Department of Agriculture (DoA). As a result, the country continues to import 4m-5m kg of rice each year, generating a total import bill that has reached as high as $2.88bn in 2008.
To boost domestic supplies and reduce reliance on imports, which led to rice shortages and food inflation in 2008, the DoA rolled out its Food Self-Sufficiency Programme (FSSP) in 2012. In addition to the primary staple of rice, other foods are included in the plan such as white corn and banana as well as root crops like cassava and sweet potato. To reduce its reliance on potentially volatile imports (only five primary exporters account for around 80% of global rice exports) while also bolstering domestic employment and capacity, the FSSP takes a multipronged approach, targeting all stages of the value chain. This begins with local procurement of stocks by boosting output through front-loading investment in infrastructure such as irrigation, wells, small farm reservoirs, farm-to-market roads, as well as increasing research efforts and expanding dissemination of flood- and drought-tolerant crop strains and improved farming systems, including ways to reduce input costs through organic farming. Other cross-agency efforts will target areas such as production credit, loan guarantees, crop insurance and encouraging the expansion of farm mechanisation and postharvest facilities. Demand-side challenges are also being addressed through consumer education programmes to reduce wastage and diversify local diets to include more of other staples such as white corn and cassava.
YIELDING RESULTS: Early indications are showing promising signs of production increases across the staples segment as rice and corn farms continue to register slow but steady growth. Irrigation projects are boosting output in new areas, allowing farmers to add an additional harvest cycle every two years, while the introduction of new hybrid rice strains that are more resistant to flooding, salinity, drought and pests is also expected to double yields from around 4 tonnes per ha to at least 8 tonnes per ha. Although the more efficient (and more expensive) hybrid seeds produce substantially more rice, their use has so far been limited to only around 10% of total rice crops planted.
Palay production has increased in each of the past four years, rising from 15.78m tonnes in 2010 to a high of 18.44m tonnes in 2013, according to PSA data. Corn output has increased over the same time period from 6.38m tonnes to 7.38m tonnes. This trend continued into the first half of 2014, when an increase in cultivation areas and yield improvements in Ilocos Region, Cagayan Valley, Central Luzon and SOCCSKSARGEN helped to drive up palay production to 8.38m tonnes, an increase of 4.78% year-on-year. Other contributing factors to this growth were the availability of irrigation water during planting time and favourable pricing that encouraged farmers to intensify growing of palay ( particularly in Central Luzon and Ilocos Region).
Corn production also recorded a nearly identical 4.7% increase in production to 3.48m tonnes in the first half of 2014. Better prices and early cropping as a recovery measure from the damage caused by Typhoon Pablo contributed to the substantial increases in production in Cagayan Valley, Central Luzon, Ilocos Region, Davao Region and Caraga, along with other factors such as a greater availability of seeds and financial assistance, as well as adequate soil moisture, lower incidence of corn borer pests, increased application of fertiliser and usage of seeds of high-yielding varieties.
In spite of these gains, the administration of President Benigno Aquino III announced in March 2014 that rice imports would likely continue until at least 2017. The explanation given for abandoning the target deadline of 2014 was that typhoons had depleted the reserves held by the National Food Authority (NFA), which were tapped for emergency food aid for the victims, leaving buffer stocks generally used to stabilise prices at below-average levels. Since 2010, national rice stockpiles have been in decline, with NFA supplies dwindling to just 452,810 tonnes in September 2014 after registering 1.38m tonnes in 2011. Rice stockpiles have also been halved from a two-decade high of 3.03m tonnes in September 2010 to 1.49m tonnes in 2014.
Other entities, including the International Rice Research Institute (IRRI), located in the province of Laguna, some 100 km south of Manila, have voiced scepticism that the Philippines or other island nations can feasibly attain complete self-sufficiency in the long run. In a study released in 2014, IRRI researchers noted that the current and historical rice exporting countries of Thailand, Vietnam, Myanmar and Cambodia all benefit from large, contiguous landmasses that contain large floodplains more suitable to rice cultivation and higher land per capita ratios compared to the water-bound nations of the Indonesia, the Philippines, Japan, Sri Lanka and Malaysia, which have all been importers of rice for much of the past century. With less arable land and more varied landscapes better suited to the cultivation of other crops, such as palm oil, bananas, corn and coconuts (not to mention fisheries), each of these countries has imported rice to supplement domestic production. From 1996 to 2003 the Philippines relied on imports for 12% of its consumption, followed by Sri Lanka with 8%, Japan (6%) and Indonesia (5%).
HEDGING ITS BETS: In spite of efforts to make the sector more competitive internationally and provide ample supplies of staple foods for the population, inclement weather continues to wreak havoc on the industry, causing billions of dollars in damage to infrastructure and equipment and wiping out entire crops. In order to mitigate some of these losses, the government has been expanding its heavily subsidised crop insurance programmes. “The Philippines is one of the most vulnerable countries in the world in terms of negative effects of climate change. Even medium and large commercial farms are now buying insurance from us across a growing number of sectors,” Norman Cajucom, acting senior vice-president of the Philippine Crop Insurance Corporation (PCIC), told OBG. “Forestry plantations, livestock such as pig and poultry farms, palm oil plantations and banana plantations are all asking for special coverage, including typhoon and flood insurance. Demand is also growing right now because of the increase of government premium subsidies and provision of subsidies to additional agricultural insurance lines, such as high-value commercial crops, livestock, fisheries/aquaculture and non-crop agricultural assets, rather than just rice or corn crops as originally offered.”
After seeing its budget for premium subsidies balloon from P183m ($4.1m) in 2011 to P1.18bn ($26.6m) in 2013 (excluding the addition of a special allocation to support subsistence farmers in 2013), the PCIC received the same amount in 2014. The majority of these funds have been used to subsidise crop insurance for some of the country’s poorest farmers, who would otherwise be unable to afford the safety net. The additional funding is being used in many cases to subsidise 100% of the insurance cost, rather than the 55% the PCIC was able to provide previously to a much smaller pool of recipients. The programme is a component of the Agrarian Reform Plan, which targets beneficiaries growing rice, corn, select cash crops, livestock and fisheries, as well as non-crop assets. As of October 2014, the penetration rate for crop insurance stood at 8.51% for rice, 2.31% for corn and less than 1% for other segments, according to the PCIC. Efforts to boost funding further are being made via a number of different avenues, including a bill to allocate a one-time P10bn ($225m) payment to the PCIC that is under review in the Senate, as well as a separate initiative to further increase the PCIC’s annual budget.
TYPHOONS: One of the strongest typhoons to hit the country in 2013 was Typhoon Haiyan, which caused significant property damage. Fortunately, much of the harvesting had already taken place by that point in the season, resulting in relatively minimal crop damage claims, although non-crop asset insurance (NCI) claims, including for fishing fleets, were significant. Due to these losses the PCIC board of directors approved a 100% subsidy for those in affected areas, supported by a P100m ($2.3m) technical and financial assistance mandate from the president’s office in October 2014, roughly half of which (P50m, $1.1m) went to NCI. “We expect a substantial increase in leverage for the fisheries sector because of the Registry System for Basic Sectors in Agriculture’s (RSBSA) focus on poor farmers, including fishermen. The Bureau of Fisheries and Aquatic Resources has identified 150,000 fishermen qualified for the RSBSA,” said Cajucom. “We expect more coverage before the end of 2014 and into next year.” Many of the fisheries allocations include NCI policies that are used to insure capital expenditures and property, such as fishing vessels and gear.
TRADE: The country remains a net importer of agricultural products. Imports totalled $7.93bn in 2013 compared to $6.4bn in exports, according to PSA statistics. However, positive trends have been emerging over the past five years that point to a significant narrowing of this gap, in spite of the weather-related damage that has negatively affected production. While imports decreased from $8.17bn in 2012 and have averaged $7.48bn since 2009, exports have more than doubled over the same four-year period, growing from $3.14bn to $6.4bn. Although the importation of many commodities is slowly increasing in step with growing domestic consumption, demand for Philippine-cultivated products continues to outpace imports.
Much of this increased trade is due to the ASEAN Economic Community, which is gradually reducing trade tariffs as member countries move closer to full compliance in 2015. “Full ASEAN integration will be good for our exports, but will also bring more competition on the domestic market,” Larry Lacson, vice-president of AgriNurture, told OBG. "Given production costs and competition for rice and corn, it will be difficult for these industries, but this is also an opportunity for more established industries like banana and pineapple, as I think we are ahead here in terms of technology and acreage within ASEAN.”
While the Philippines has a competitive edge in some commodities due to its favourable climate and harvesting techniques, products that require larger amounts of flat, arable land, which is scarcer in the Philippines than in its mainland ASEAN competitors, put the country at a decided disadvantage. “The Philippines is not yet competitive enough in agriculture compared to Thailand, Vietnam and Indonesia, which produce rice and all the other crops in a much cheaper way,” Takashi Sumi, CEO of Atlas Fertiliser Corporation, told OBG. “ASEAN integration thus brings concerns about the ability of the domestic market to subsist in the face of cheaper agricultural imports.” Higher transport and energy costs, lack of mechanisation, and small farm size all contribute to higher costs of production for many commodities, making it difficult for local producers to not only compete in global markets, but also to defend their home turf against larger quantities of less-expensive imports, such as sugar, cooking oil or rice.
SUGAR: The sugar industry continues to climb back towards its all-time peak output achieved in the 2010/11 bumper crop year as incremental increases in yields and acreage continue to push up production. Cane production has increased in each of the last three cropping seasons from 23.88m tonnes in 2011/12 to 24.86m tonnes the following season to 25.09m tonnes for 2013/14 (through August 2014), according to data from the Sugar Regulatory Authority (SRA). The amount of raw sugar derived from the cane has also increased in recent years due largely to greater milling efficiency and improved cane quality as a curtailing of government subsidies for sugar farmers has led to a decline in active sugar cane area from 424,132 ha in 2012/13 to 423,036 the following year. Gains in the first half of 2014 were attributed to the efficient use of fertilisers in two major sugarcane-producing provinces, Negros Oriental and Negros Occidental, along with the expansion of harvested area in Capiz, Cebu, Kalinga and Sultan Kudarat. Consumption of Philippine sugar is focused almost exclusively on the domestic market (apart from a trade quota deal with the US) as production costs remain higher than other regional competitors, while downstream applications for sugar, including its use in energy, provide ample latent demand.
More important than the overall increase in output, however, is the increased efficiency displayed over the past three harvest seasons, during which sugar output has risen from 5.31 to 5.82 tonnes per ha (reflecting an increase in yield), while the number of 50-kg bags of sugar per tonne of cane has also increased from 1.88 to 1.96 (reflecting an increase in mill efficiency and cane quality). These encouraging trends bode well for the sector’s long-term outlook as the sugar industry looks to make itself more competitive with its international rivals. According the SRA’s industry road map for 2011-16, the sector is looking to increase sugarcane area from 400,000 ha to 470,000 ha (423,036 ha as of August 2014); boost farm productivity from 55 tonnes of cane per ha to 75 (it was 59.31 tonnes per ha as of August 2014); and boost sugar yield from 1.80 50-kg bag per tonne of cane to 2.1 (it was 1.96 as of August 2014).
The road map outlines several strategies to achieve these targets, many of which are being implemented. On the supply side output is being improved by increasing acreage and boosting yields though a number of techniques, including expanding mill capacity closer to 100% (compared to around 60% in 2011); improving research, development and extension services; bolstering infrastructure such as irrigation and farm-to-mill roads; mechanising farms; and consolidating small farms into larger, more efficient block farms. “The business model for agriculture in the Philippines needs to be centred on organising the farmers into associations or cooperatives to then teach them to enhance their products and build added value through processing,” Cynthia Villar, Chair of the Senate Committee on Agriculture and Food, told OBG. “This can only effectively occur if there are economies of scale.”
Carried out in cooperation with the DoA and the Department of Agrarian Reform (DAR), the block farm scheme seeks to consolidate numerous contiguous small farms into a larger, aggregated farm of 30-50 ha in order to take advantage of plantation-scale production (economies of scale) while also providing education of best practices and financial assistance. The project took a step forward in 2013, when 22 block farms were operational compared to just six the previous year, with a total of 39 planned in the first two phases of development, according to the DAR. Early reports from the SRA indicate favourable results in 2013, with a number of participating farms experiencing increased yields, including Lucban (yields up 1.27 tonnes per ha), Kamahari (5.72 tonnes per ha), Damba (4.42 tonnes per ha) and Prenza (5 tonnes per ha).
BLOCK FARM SCHEME: By increasing efficiency and taking advantage of greater economies of scale, it is hoped that Philippine sugar can be more competitive on the international market. Imports are still P200P300 ($4.50-6.75) per bag cheaper than domestically produced sugar, with a further reduction of tariffs to just 5% expected for 2015. In spite of the initial success of consolidation and the increased output measured in the initial year of implementation, the jury is still out on the actual effectiveness of the programme. Only after a period of at least three years will the sample size be large enough to conclude if the block farm scheme is successful. Demand-side solutions include diversifying the customer base through usage in more downstream applications, such as processed and prepackaged foods and beverages, as well as biomassfuelled power plants and the use of sugarcane and molasses as feedstock for bioethanol use. “A major factor which influenced investor interest was the passage of the renewable energy policy in 2008 and the policy issued by the DOE which mandated the optimisation of locally produced bioethanol starting in 2011,” Rosemarie Gumera, the manager of the SRA’s Planning and Policy Department, told OBG.
These compulsory blending requirements have moved incrementally upwards since their inception, starting from a minimum 1% biodiesel blend (B1) and 5% bioethanol (E5) blend by volume in all diesel and petrol fuels, respectively, being distributed and sold in the country. Biodiesel blending was originally scheduled to by upped to 5% (B5) by 2015, although the move is likely to be delayed pending a study on the potential price impacts of the move, while the 10% ethanol (E10) requirements have been fully implemented since 2012.
In order to ensure this biofuel supply benefits domestic farmers, the government has also stipulated that oil distributors are barred from purchasing foreign bio-fuel unless the domestic market cannot produce an adequate supply to meet the mandate. These directives, combined with the gradual lowering of trade tariffs as mandated by ASEAN framework, have also resulted in the conversion of existing potable ethanol factories from producing distilled sugar-based spirits to bioethanol as the price of imported alcohol began undercutting the local market. With a captive domestic market guaranteeing off-take and the price of sugar declining, companies are making significant progress in terms of boosting capacity. Four distilleries were operational in 2013 with a total combined capacity of 117m litres per annum, according to SRA data.
Annual output for the year tallied around 72m litres, up from 32m litres the previous year, putting capacity utilisation at 61.5%. Another two distilleries began operating in 2014, boosting national capacity to 193m litres. Capacity will be further bolstered in 2015 when five more plants are projected to come on-line.
OUTLOOK: Although agriculture’s contribution to the Philippines will likely be greater socially in terms of employment and feeding the domestic market than economically in terms of its GDP and export contributions, a number of segments are showing considerable promise for future development. One area that is expected to remain a concern is the prevalence of inclement and often devastating weather, which has an obvious negative impact on the sector as a whole, as well as on countless individual farmers. Determining the most effective means of countering the effects of weather will be a key concern going forward. Initiatives to boost yields of staples such as rice and corn should reduce the country’s food import bills in the future, even if the stated goal of full rice self-sufficiency is not achieved. The flourishing fisheries and fruits and vegetables segment is likely to continue to be profitable as well, as international demand still significantly outpaces the supply of Philippines-cultivated produce and seafood.
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