All natural: Developing the organic segment in line with an expanding global market

With the Philippines’ government actively working to encourage its development, organic farming is an area ripe with opportunity for the agricultural investor. Indeed, while “going organic” may be a new and unfamiliar proposition for some of the country’s conventional farmers, proper support from the government and non-governmental organisations (NGOs) will help to develop the organic foods sector, which is now seen as a potential path for boosting high-value agricultural exports.

BUDGETARY SUPPORT: In November 2011 President Benigno Aquino III announced that he had instructed the Department of Agriculture (DA) to direct 2% of its annual funding allocation toward supporting programmes and policies that promote organic agriculture. With the DA’s 2012 budget allocation, organic food production is thus set to receive about P1.2bn ($27.2m) from the government this year.

President Aquino’s predecessor, Gloria Arroyo, first signed into law the legislation setting out the terms and conditions to assist organic farming with the Organic Agriculture Act, passed in April 2010. Yet the rules and regulations that govern the act and provide the bedrock for the movement and investors to build on only came into effect on January 31, 2012.

Federal and local government agencies are now expected to back organic production projects so the country can tap into the growing international market for chemical-free food commodities, as well as meet its domestic food requirements. To give the organic industry an initial boost, the DA’s budget for organic farming is earmarked to provide training, research and development (R&D), support services for packaging and marketing, as well as subsidies to farmers who make the change to sustainable organic agricultural methods.

AIMS AND INCENTIVES: The 2010 act established the National Organic Agriculture Programme (NOAP), which aims to promote, commercialise and cultivate organic farming methods through the education of farmers and consumers, and to provide assistance to local government units and community bodies, NGOs and other parties involved in the sector. The NOAP is also responsible for documenting and evaluating the programme.

The National Organic Agriculture Board (NOAB), the policy-making body of the entire organic agriculture programme in the country, was also established to provide direction and general guidelines for the implementation of the NOAP. The NOAB is attached to the DA and its members include the secretaries of Agriculture, Interior and Local Government, Science and Technology, Environment and Natural Resources, Education, Agrarian Reform, Trade and Industry, and Health, as well as three representatives from the small farmers’ community and one representative each from NGOs involved in sustainable agriculture, agricultural colleges and universities, and private sector or agribusiness firms.

In addition, the act provides for an array of incentives to stimulate organic farm production. These include a seven-year income tax holiday for organic farmers, support from the LandBank of the Philippines, subsidies for certification fees, support to facilitate organic accreditation, and duty-free importation of agricultural equipment, machinery and implements. The budget allocation for marketing, packaging and R&D will help the DA launch an across-the-board education campaign that includes encouraging consumers to make the move to an organic lifestyle. Urbanites will be the primary target of this campaign, as they purchase the majority of domestically grown agricultural products.

GLOBAL TRENDS: Global demand for organic food has shown brisk growth too, especially in developed economies such as Europe and North America. The global market for organic food and beverages is expected to have a compound annual growth rate (CAGR) of 12.8% between 2010 to 2015, reaching $104.5bn by 2015. Global organic sales reached $54.9bn in 2009, up from $50.9bn in 2008, according to international organic food industry marketing company Organic Monitor. The US, Germany and France were the largest organic food markets, while Denmark, Switzerland, and Austria recorded the highest per capita consumption of organic foods.

MARKING OUT THE LAND: It is so far unclear how much land will be devoted to organic farming in the Philippines. Local organic farming advocate organisations La Liga and GoOrganic! are pushing for at least 400,000 ha, or 10% of the country’s agricultural land currently devoted to rice production, to be converted into organic farm sites by 2016. These advocates would like to see every district set up organic zones where farmers would be able to produce their own organic fertilisers and pesticides to sustain organic crop production.

BARRIERS TO ENTRY: Issues including the cost of changing from conventional to organic farming, institutionalising organic accreditation and providing training to conventional farmers will all have to be addressed before producers and consumers alike embrace the organic market. In the short term, the shift from conventional to organic farming may result in lower crop yields. In the long term, however, improvements to soil quality are expected to reduce production costs and increase farmers’ incomes.

While organic products have traditionally been more costly than their conventional counterparts, that disparity is in part due to a current lack of economies of scale for organic produce. Once a larger volume of organic foods comes onto the market, however, prices will likely decrease to a more competitive level, the secretary of agriculture, Proceso Alcala, told local press in November 2011.

CERTIFICATION: Accreditation of regional organic certifying bodies will be the responsibility of the DA’s Bureau of Agriculture and Fisheries Product Standards. The bureau will also supply the bodies with the required organic accreditation rules and procedures. The DA is also providing funding for training schemes for conventional farmers. These month-long courses focus on producing organic fertiliser and cultivating organic rice, in particular. Additionally, information seminars targeted at conventional farmers are being held throughout the country to raise awareness of the benefits of organic farming.

Among the many advantages that the DA can point to in these seminars are the potential cost savings associated with organic production. As hydrocarbons prices escalate – in March 2012, Asian benchmark prices were around $105 a barrel for oil, while Brent crude was at $122, up from around $98 in August 2011 – the cost of petrochemicals-based fertilisers is also on the rise, along with the prices of many of the chemical pesticides used by Filipino farmers. With the price of hydrocarbons widely thought likely to continue to be high in Asia in 2012, agricultural producers could reduce their overheads by taking up organic cultivation methods that do not require chemical-based fertilisers or pesticides. These savings should become more evident as the sector begins to benefit from economies of scale, which will reduce the costs associated with the changeover from conventional to organic farming.

With the organic law now in place and the government putting significant emphasis on the campaign to go organic, it seems clear that the practice of agriculture in the Philippines is headed away from conventional farming. Indeed, the future of Philippine agriculture looks to be in the organic market.