February 15, 2021 | 6:48 pm
MAP Insights | By Rolando T. Dy
Friends ask me: Where do we invest post-COVID-19?
Despite potential, agricultural export is stuck at around $7 billion. But agricultural imports are near $11 billion or a trade deficit of $4 billion. The Philippines lags its ASEAN peers, most of which have trade surpluses.
There is no magic wand to reverse this disadvantage. But we have to start somewhere. It’s a mix of medium-term and long-term.
There are two aspects of agricultural trade: import substitution and export promotion.
IMPORT SUBSTITUTION
This strategy focuses on boosting domestic production to be able to substitute for imports. Let us discuss five commodities, namely: coffee, cacao, pepper, avocado, and rice.Advertisement
Coffee: Coffee consumption is about 100,000 tons of bean equivalent. A large part is supplied by imports from Vietnam and Indonesia (sachets). Local supply is only around 30%.
Model: Nestlé 4C certification with price premium. 4C works towards sustainable coffee production and processing.
Cacao: Cacao bean imports are small but processed (paste) are quite big for use in local chocolates. Local cacao, especially from Davao, is processed into dark chocolates. Philippine dark chocolate bars (“from bean to bar”) have won international awards pioneered by Malagos and lately, Auro Chocolate. Malagos and Auro are Filipino bean-to-bar companies that produce fine cacao and chocolate made from beans directly sourced from farmers.
Model: Single origin dark chocolate. Modern planting methods which cut gestation to two years with high yield (by North Cotabato entrepreneur Jack Sandique).
Pepper: Black pepper import is small. But global demand in 2018 was almost $4 billion. The Philippines imports some $16 million worth of pepper annually.
Model: Coconut intercrop with farm consolidation.
Rice: Imports supply some 5% or at least 1 million tons. There is scope for increasing yield and quality. At competitive cost, sufficiency is within reach.
Model: Farm consolidation with the local government unit or private sector engagement.
EXPORT PROMOTION
This strategy is designed to enhance exports.
Coconut products: For decades, coconut oil has been the mainstay of the country’s traditional export. The Philippines, as the global leader, accounted for 49% of total exports in 2018, followed by Indonesia with a 25% share, according to a global trade magazine.
Fortunately, exports are now diversified into non-traditional products, such as coconut water, milk, milk powder, cream, etc., mainly in response to the growing consumer preference for organic and healthy products.
The export possibilities are vast. Coconut water is now one of the fastest growing beverage categories in the global market. Volume is seen to reach 1,331.2 million liters by 2021, up by about 27% from 2016 levels, according to market research company Technavio. Philippine companies Axelum Resources Corp., Century Pacific Agricultural Ventures, and Franklin Baker are among the key suppliers of Vita Coco, the global leader in coconut water.
Coconut milk shows promise as an alternative coffee creamer in the United States. Gluten and dairy-free coconut milk are a growing and acceptable substitute to cow’s milk for lactose-intolerant consumers. Local company Axelum is now packing and selling the product in the United States.
Coconut milk powder exports are posting substantial double digit-growth rates.
Virgin coconut oil (VCO) is projected to reach $780 million by 2025, according to the August 2018 Professional Survey Report.
Desiccated coconut, which is already among the country’s top agricultural exports, is expected to grow by almost 9% annually from 2019-2023.
Model: Open market and some contract growing.
Banana: Cavendish banana ranks second at over $1 billion a year. As the world’s second largest exporter, the Philippines accounted for 20% of global banana production and 90% of total exports to Asia, according to a report from the Food and Agriculture Organization.
A key challenge is Fungus fusarium, a deadly virus, which must be managed well. Contiguous land for cultivation is also getting scarce.
Model: Contact farming.
Pineapple and pineapple products: Exports averaged about $585 million annually during the last five years. The export-oriented pineapple plantations are located in Bukidnon and South Cotabato.
Model: Corporate core with land lease and contract growing.
AREAS OF CONCERN
Domestic production is crucial to make both import substitution and export promotion strategies to work. Areas of concern are farm scale (mainly to achieve economies of scale), product quality, supply reliability and competitive price.
The Philippines’ export products are private-sector led. The government’s role is to ensure that enabling policies are in place to encourage new and further investments, not just for exports but for import substitution as well. n
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.)
Source: https://www.bworldonline.com/pushing-the-agribusiness-trade/