What is the current state of coffee production in the Philippines, and what factors have led the country to its current situation?
PIERRE YVES COTE: The Philippine coffee industry has reached a state of supply crisis. From a top global exporter two centuries ago to a current net importer, the supply-demand gap in the country’s coffee industry continues to widen. Local demand for coffee – including all its variations, from fresh coffee beans to instant products – amounts to roughly 250m kg a year and is forecasted to grow at an annual average of 10%.
At the same time, domestic coffee production is declining at a rate of 5% per year, with this reduction in production capacity accelerating the degree to which the Philippines imports coffee to meet increasing demand. According to the Bureau of Agricultural Statistics, local supply of coffee is estimated at 20m kg per year – barely 10% of total demand – leaving the remaining 90% to be imported. As a result of this, around 220,000 farming jobs and close to P20bn ($423.1m) are lost to coffee imports from Vietnam.
Total domestic coffee production, however, could be less than the 20m kg recorded due to outdated data, and if one takes into consideration the trend that continues to shape the agricultural sector. Approximately 60% of coffee farmers in the Philippines are above 60 years old, and most of their children no longer want to be coffee farmers given the hard work required and meagre profits involved. As a result the common trend, not only for coffee production but for the agricultural sector as a whole in past years, has been for farmers to sell their land and stop producing, as their children opt to move to the cities in the lowlands.
How can the Philippines achieve coffee self-sufficiency?
COTE: To satisfy domestic demand for coffee there must be an understanding about the necessary land requirements. If one assumes that the world’s average coffee yield is 1000 kg per ha and that we have to reach 220m kg of production to attain coffee self-sufficiency, then the country would need 220,000 ha devoted to coffee farming.
For a five-year plan, the Philippines would need to grow 67,000 ha every year over the next half decade, and 35,000 ha every year subsequently, to keep up with increasing demand. Assuming a plantation size of 1000 ha, the country would need 67 plantations, which provides an idea of the scale of production required. If one plants 1500 trees per ha, then the industry would need to produce around 100m trees per year.
To achieve these numbers, however, one would first need to develop roughly 200 nurseries to produce the necessary seedlings, which the country currently does not have. Nurseries produce 500,000 trees per year on average, which means that 200 nurseries would be needed to develop 100m trees and bridge the supply-demand gap in the coffee industry.
In terms of investment, the Philippines needs to attract some $3.6bn to develop the coffee industry, including $1.3bn for plantation development, $1.9bn for fertiliser production, $387m for seedling production and $95m for nursery development.
How well positioned is the Philippines to take advantage of Arabica coffee production opportunities?
COTE: The Philippines offers tremendous business opportunities in the agriculture sector in general, and in the coffee industry in particular. The country has vast tracts of land in high-elevation mountains all around the country, from northern Luzon to southern Mindanao. Various land regimes allow foreign investors to sign contracts allowing them to use land for 25 years and renew their contracts for a further 25 years.
High-elevation mountains also host big populations of indigenous people, who need jobs and business opportunities. Most importantly, Filipinos drink more than 200m kg of coffee each year, and 90% of that is imported.
To capitalise on this business opportunity, the country needs to attract foreign investors, and to attract foreign investors the Philippine government needs to fix a number of problems rapidly.
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