Strengthening value chains and crop diversification key to agriculture development plans in the Philippines

Despite the accelerated growth of other industries in recent decades, agriculture remains a pillar of the Philippine economy, providing employment for 27% of the labour force in 2016, according to the most recent data from the Philippine Statistics Authority (PSA). Although the sector’s contribution to GDP has declined in recent decades, falling from over 30% in the 1970s to 9.65% in 2016, there have been recent signs of revitalisation. The previously sluggish sector grew by 6.2% in the second quarter of 2017, with gross output increasing by 3.95% throughout the year, on the back of improved performances in palay, corn, sugar cane, poultry, agricultural services and forestry.

While challenges persist, particularly due to climate change and the need for improved supply chain integration, the Department of Agriculture (DA) and local and international companies, as well as a variety of other stakeholders are working to strengthen the foundation of the sector and derive more value from the country’s considerable resources.

Structure & Policy

Sector policy is set by the DA, currently led by Emmanuel Piñol, secretary of agriculture, through its Agricultural Credit and Policy Council, and Department of Trade and Industry (DTI), in cooperation with the Fisheries Development Authority. A top government priority is domestic food security, particularly with regard to the provision of staples like rice for the country’s population of 106.5m in 2018. According to The Economist’s 2017 Global Food Security Index, which weighs issues such as affordability, availability and quality of food, the Philippines ranked 79th out of 113 countries, behind other regional economies such as Indonesia at 69th and Vietnam at 65th. Meanwhile, a study released in early 2017 by the Manila-based Food and Nutrition Research Institute noted that 26% of children two years old and under suffer from chronic malnutrition. The UN Food and Agriculture Organisation (FAO) has also highlighted food security as a priority for the country. The Philippines has ample fertile land available to increase production volumes in pursuit of its food security objectives, with agricultural The government has proposed an array of policies to improve the issue, such as measures to promote self-sufficiency in rice. “Food security remains one of our key challenges and this administration is working to set realistic targets, proposing to achieve high enough levels of sufficiency, while taking into account the volatile global rice market,” Segfredo Serrano, the DA undersecretary for policy and planning, told OBG.

The DA has publicly advocated for the use of hybrid seeds to increase the rice yield, with the goal of planting 1m ha with hybrid rice at an estimated cost of P15bn ($296.3m) by 2020. The use of genetic modification to create more resilient crop varieties has also garnered support from the business community. “Genetically modified crops are a way of improving productivity in the agricultural sector. If the right variety of seeds is used to target certain crops, self-sufficiency can be achieved effectively,” Edwin H Hernandez, president The focus on increased rice yields has spurred other promising initiatives, including efforts to enhance irrigation systems, farm-to-market roads and post-harvesting facilities. Speaking to local media in March 2018, Piñol said the DA was hoping for a record budget allocation in 2019, funded in part by the floating of P200bn ($3.95bn) worth of DA bonds, to help finance its farm-to-market roads, farming mechanisation and ATTENTION ON EXPORTS: Another major focus is improving the sector’s trade balance, which is currently heavily weighted towards imports. According to a 2017 report by the US Agency for International Development, two agricultural categories, coconut oils and edible fruits, such as bananas and pineapples, are regularly included in the country’s top 15 exports. However, imports of agricultural products far outstrip exports, which is the case for basic staples such as wheat and soybean. A 2017 report by Dutch investment firm Larive International noted that imported agricultural products increased from $8.2bn in 2012 to $12.5bn in 2016 to meet rising demand.

To close this gap, the DTI, as the department responsible for investment and trade promotion, has launched a roadmap to promote the export of higher-value products, such as bananas, cacao and mangoes. This strategy is backed by a 2017 report by the OECD, which makes a case for the Philippines to diversify production away from rice, considering that the growth rate of the value of Philippine agriculture was slower than most South-east Asian countries from 1990 to 2012, despite a 61% increase in output.

According to Benigno Peczon, president of the Coalition for Agriculture Modernisation in the Philippines, the country has roughly 12m ha available for farming to meet the needs of the population, which equates to around 1140 sq metres per person. Since many crops, including rice and corn, can be harvested in less than four months, the cropping intensity should exceed two crops per year, but the national average is less than 1.4. “One solution is to focus on high-value coconuts, which have relatively small crowns, allowing other high-value crops such as coffee and cacao to be raised under coconut crops,” Peczon told OBG.

So far, there appears to be some success on this front. As reported by the PSA, exports of agro-based products grew by 6% in 2017, from $3.99bn in 2016, to reach $4.23bn. The most promising commodities include coconut, pineapple concentrates and mango: a significant 43.11%, or $1.82bn, of the sector’s export revenues came from coconut products in 2017, a 26.8% rise from $1.44bn in 2016; while earnings from pineapple concentrates climbed to $83.14m, representing a 320% boost from $19.71m in 2016; and mango exports reached $21.91m, an increase of 64.5% from approximately $13.32m a year earlier.

Halal Promise

One particular segment with highgrowth potential is halal consumables, products permissible by Islamic law. Mindanao, the second-largest island in the country and home to its largest Muslim community, produces over 40% of the country’s food and supplies more than 30% of national food trade, according to the FAO, making it a promising source for this commodity. With the value of the global halal food industry predicted by Thomson Reuters to reach almost $2trn by 2021, the opportunity to tap into this growing demand is substantial.

In April 2017 Abul Khayr Alonto, chairman of Mindanao Development Authority, announced that the Philippines expects to begin exporting Islamic food products to some of the world’s largest markets in the coming years, with the authority working to educate local businesses on the production and certification of their foods for export to predominantly Muslim countries. The recently created Philippine Halal Export Development and Promotion Programme will also allow for the formal accreditation and certification of halal food producers, providing greater confidence in the product’s authenticity. At an international halal convention in Malaysia in May 2018, the certification scheme was announced alongside a proclamation of readiness to participate in this global market.

Climate Change 

A 2013 World Bank report highlighted that the Philippines is the third-most-vulnerable country to extreme weather events, including typhoons, floods and droughts, with the annual damage to agriculture from such events estimated to have reached P12bn ($233.4m), or 3% of total production, at the time of the report. A 2016 paper by the International Food Policy Research Institute forecasts an overall 1.7% reduction in total crop production in the country by 2050 due to extreme weather, including output declines of 6.1% in cereal and 0.9% in meat. Another issue is the projected 30-cm sea-level rise by 2040, which is expected to further damage coral reefs that serve as important feeding grounds for many species. “Climate change is the sector’s biggest challenge. With over 7000 islands facing the increasing violence of extreme events, we are the most vulnerable regular-sized developing country,” Serrano told OBG. “It used to be that losing 50,000 tonnes of rice to these types of events in a year was notable; now we are losing 300,000 to 600,000 tonnes.” In December 2017 tropical storm Urduja caused damage and losses to the sector of approximately P1bn ($19.8m), with the total volume of production loss estimated around 23,800 tonnes, with impacts on commodities such as rice, corn, livestock, poultry and fish.

Mitigating Efforts

Efforts to improve the capacity to mitigate the effects of climate change on agriculture are ongoing and tied to other government priorities, such as diversifying and enhancing the resilience of crops. In 2009 the country established the Climate Change Commission (CCC) to oversee related policies and investigate potential adaptation strategies, including investment in heat-tolerant varieties of rice and corn. The medium-term strategy of the CCC is laid out in the National Climate Change Action Plan, running from 2011 to 2028, which highlights the importance of helping communities adapt to the realities of these changes, balancing the economic value of natural resources with conservation goals and understanding the competitive advantages involved. Food and water security are the top two strategic priorities, both of which are under climate change-related threat. “The DA has instituted mainstreaming of climate change adaptation in all facets of its policies, programmes and projects, as well as the manner in which it operates as a government developmental agency, instilling resiliency for the sector most vulnerable to climate change in one of the most vulnerable countries,” Serrano said. “The task is to adapt so we can still attain our development targets in spite of it, so we need to figure out how we design our programmes accordingly.”

Policy is guided by the Adaptation and Mitigation Initiative in Agriculture (AMIA), which was originally adopted in 2013. As of May 2018, AMIA projects in 10 provinces were on target to be completed by the end of the year, according to the DA. The activities were characterised as piloting the adoption of Climate Resilient Agriculture techniques and alternative livelihoods, as well as capacity building among partners and the utilisation of local climate information services.

Fruits & Vegetables

As noted in the 2017 Larive International report, over 13m ha planted support the horticulture sector, with fruits as the major export crops; however, about 1m ha is likely attributed to multiple crops planted in succession. According to the PSA, in the final quarter of 2017 the highest-value fruits with regard to production were banana, coconut and pineapple, generating P39.3bn ($776.4m), P32.7bn ($646m) and P6.8bn ($134.3m), respectively. Both the government and private sector have noted the strong export potential of this subsector. In January 2018 the DTI initiated negotiations with Japan, South Korea and Australia for higher volumes of banana exports and lower tariffs. In addition to this, in September 2017 the Philippines requested improved market access for fruit exports to South Korea when ASEAN’s economic ministers met in Manila, while China began importing Philippine pineapples in February 2018.

Critics argue the long-standing rice subsidies discourage a shift towards more high-value commodities, which could ultimately boost rural incomes and improve the national trade balance. “We have advocated a move away from these types of distortive subsidies. Last year we spent P5bn-7bn ($98.9m-$138.3m) on direct input subsidies,” Serrano told OBG. The recommendation to remove subsidies is based on the rationale that lengthy government procurement procedures do not allow for agility in the timely delivery of inputs of sufficient quality and quantity needed by farmers. Serrano added that the DA is hoping to replace subsidies with a system that allows farmers more flexibility to choose the kinds of inputs and technology they want to utilise.

Notable investments also have come from business and non-profit entities, particularly when it comes to cultivating produce variants that are more resistant to disease. Dole, Chiquita International and Del Monte remain prominent forces in the banana and pineapple sectors. In February 2018 Del Monte Philippines announced plans to raise up to $324m in the coming year in what would be the country’s largest initial public offering in the food and beverage sector to date.

Cereals

Cereal yields have risen steadily over the last 40 years from a figure of 1354 kg/ha in 1976 to about 3529 kg/ha in 2016, according to latest World Bank data. Production of rice, which is the most prevalent crop and the focus of food security discussions, is estimated to rise 1.63% in the first half of 2018 to 8.71m tonnes from the 2017 record of 8.57m tonnes in the same period, according to the PSA. At the same time, corn output in the first six months of 2018 is projected to increase by 2.25% to 3.78m tonnes, over 3.7m tonnes by June 2017. While cereal production is rising, one key area requiring improvement is post-harvest handling.

“In the local market, limited post-harvest facilities for rice and corn have a huge impact on losses, specifically the lack of drying facilities. Most farmers still rely on exposing the harvest to sunshine for drying using provincial roads. With this, 5-7% is lost on the actual harvest,” Jaynor Dangan, vice-president for technical at Leads Agricultural Products Corporation, told OBG.

Poultry & Livestock

The growing middle class and its rising urbanisation has driven an increase in demand for poultry and meat products in recent years, a trend that appears to be continuing with regard to domestic production and international imports. As reported by the PSA in January 2018, the livestock subsector comprised 17.78% of total agricultural production in the fourth quarter of 2017, increasing 14.39% over the same period in 2016 to earn a gross value of production at constant prices of P85.5bn ($1.7bn). Livestock production has shown an upward trend over the past few years, rising from 2.63m tonnes in 2015 to 2.75m tonnes in 2016 and reaching 2.78m tonnes in 2017, a figure driven by a high output of 2.27m tonnes of pork. Similarly, poultry production rose from 1.69m tonnes in 2015 to 1.71m tonnes in 2016, coming to 2.31m tonnes in 2017, the bulk, 1.75m tonnes, comprising of chicken.

Since the domestic industry is unable to meet demand, the country depends on imports, largely from the US, Germany and the Netherlands. Annual meat imports in 2017 rose by nearly 7% to 691,000 tonnes, according to the Bureau of Animal Industry, while pork imports in 2017 grew by 10.65% to 305,000 tonnes, from the 2016 record of 276,000 tonnes. Chicken imports in 2017 were up by nearly 4% to 244,000 tonnes, from the previous year’s 235,000 tonnes.

Rising consumption levels represent opportunities for investment as increased domestic capacity for feed production, poultry and livestock housing, slaughterhouses and dairy production will be required. The Philippines consumes approximately 1.8m tonnes of dairy products per year, amounting to 15.2 kg per person, with around 99% of all of the commodity shipped into the country at a total value of $700m. By 2025 some estimates indicate that consumer demand will be closer to 17.4 kg per person per year, reaching a total consumption volume of approximately 2.5m tonnes.

Fisheries

With more 7000 islands, the fishing industry remains vital for many communities in the country. Aquaculture makes up the largest portion of output in the subsector and is seen as an important contributor to food security. “The future of fisheries will be driven by aquaculture. This will definitely play a role within the broader self-sufficiency goals the country has in place,” Eduardo B Gongona, director of the Bureau of Fisheries and Aquatic Resources, told OBG. According to PSA data, underwater cultivation comprised 51.91% of total fisheries production in 2017, producing 2.24m tonnes, an increase of 1.68% over 2016 as a result of favourable weather conditions for seaweed. At the same time, production by municipal fisheries declined 1.05% to 1.13m tonnes in 2017, while the volume of commercial fisheries dipped by 6.89% to 947,000 tonnes. Among the top species harvested, round scad and tiger prawn showed a decrease of 11.89% and 6.29%, respectively, though milkfish, tilapia, skipjack and yellowfin tuna saw increases in 2017. As noted by Larive International, Filipinos eat on average 40.3 kg per person of fish and fisheries products annually, which is among the highest in the Asia-Pacific region. Sardines, mackerel and milkfish are the most popularly consumed.

Looking to the future, the Philippines, like other countries in the region, remains at risk from overfishing, as well as the use of harmful and illegal methods like fish poisoning or blast fishing. The government has taken measures to ensure long-term sustainability of marine resources, such as in 2012 when it imposed closed fishing seasons for sardines. In April 2018 the government announced that it would abide by key FAO agreements that work to combat illegal fishing.

Outlook

With abundant natural resources, a growing domestic market and an increasing number of international agreements in place, the Philippines has strong potential for a return to steady growth in the agricultural sector. However, this also comes with the challenge of developing long-term adaptation strategies for climate change, the revision of input subsidies and commitment to the strengthening of value chains.