MAP Insights

Friends ask me: Where do we invest post-COVID?

Despite potential, agricultural export is stuck at around US$7 Billion (B). But agricultural imports are near US$11B or a trade deficit of US$4B. The Philippines I 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.

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 percent.

Model: Nestle 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.

Models: 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 US$4B. The Philippines imports some US$ 16 Million (M) worth of peppers annually.

Model: Coconut intercrop with farm consolidation

Rice: Imports supply some five percent or at least 1M 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 country’s traditional export. The Philippines, as the global leader, accounted for 49 percent of total exports in 2018, followed by Indonesia with 25 percent 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 1,331.2M liters by 2021, up by about 27 percent from 2016 levels, according to market research company Technavio. Philippine companies Axelum Resources Corporation, 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 is 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 US$780M 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 nine percent annually from 2019-2023.

Model: Open market and some contract growing

Banana: Cavendish banana ranks second at over US$1B a year. As the world’s second largest exporter, the Philippines accounted for 20 percent of global banana production and 90 percent 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 US$585M 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.

(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.)
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ROLANDO “Rolly” T. DY is the Co-Vice Chair of the MAP AgriBusiness Committee and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.
map@map.org.ph
rdyster@gmail.com
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