Focus on the Philippines

by Chris Lyddon
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The Philippines has a rapidly growing population and an expanding economy that’s making the switch from a largely rural economy to an industrial one. Even so, more than one-third of its workforce is still in agriculture and concerns over malnutrition remain. Dramatic weather events, including typhoons, floods and droughts have had a severe effect on food production in recent years.

According to the International Grains Council (IGC), total grains production, all of which is maize (corn), in the Philippines was 6.8 million tonnes for 2010, compared with 6.3 million in 2009. Total grain imports are put at 3.1 million tonnes, up from 3 million. Of that, 2.9 million were wheat.

The staple food in the Philippines is rice. The IGC puts its 2010 production at 10.7 million tonnes, up from 10.6 million in 2009. Rice imports for 2011 are forecast at 2.1 million tonnes, down from 2.5 million in 2010.

However, the National Food Authority has been reported as saying that it wants 2011 imports down under 1 million tonnes. According to the Business World website, the authorities have also decided to let the private sector bring in 65% of the volume.

NFA Administrator Angelito T. Banayo said that the reduction was because of record imports last year and the expectation of a good harvest. “The Department of Agriculture estimates a bumper crop this summer,” he said. The country is also a major coconut oil producer, producing, according to the USDA, around 1.6 million tonnes a year. According to the USDA attaché in Manila, higher grain consumption in 2010-11 is being driven by wheat demand, resulting from an improved supply.

“The Philippine Association of Flour Millers (PAFMIL) reportedly expects a 10% rise in this year’s flour output and, as a result, expects stable flour prices this year,” the attaché said in an annual report on the sector. “According to PAFMIL, however, prices may increase should there be an abrupt increase in petroleum prices, a drastic change in global weather conditions and/or if China’s demand for wheat imports increases.”

The government has moved to increase the availability of wheat. According to the IGC, the president announced on Jan. 13, 2011 that a duty of 3% previously applied to wheat imports would be suspended to cushion the impact of rising prices. Its removal would be effective for a period of six months.

In a separate report, the attaché said that corn production in 2010-11 had been adversely affected by typhoons as well as by an El Nino episode in the first half of calendar 2010. Demand for corn for feed is expected to remain weak during 2010-11.

“The domestic poultry industry is growing only in minimal terms, and the local hog industry (the dominant feed-consuming sector) continues to face disease-related problems,” it said. “The weather abnormalities have also likely constrained any substantial growth of both industries.”

U.S. exports of red and poultry meat to the Philippines have grown substantially, which means weak demand for feed, while local corn faces competition from imported feed wheat, which has displaced imports of corn.

High rice prices are an important issue in the Philippines where, according to the attaché, about 80% of all families devote at least half their spending to food.

“Exacerbated by rising fuel prices, the ‘rice crisis’ forced the Philippine government to extend food subsidy to the poor,” the attaché said. “Subsidized rice had to be rationed and poor consumers had to line up for hours to gain access to it.”

“The Asian Development Bank (ADB) in May 2008 estimated that a 10 percent increase in the price of rice would force an additional 660,000 people in the Philippines into poverty, while a 10 percent increase in fuel prices would result in an additional 160,000 poor people,” the attaché said.

Record rice imports in the following year help reinforce stock levels.

“This helped cushion the impact of weather-related production problems during the period,” the attaché said. “Successive typhoons in late 2009 resulted in a major flood in Luzon Island, isolating several provinces from major urban centers. Approximately two million additional Filipinos joined the ranks of the poor as a result of the floods.”

The El Nino episode in early 2010 added to the problem by creating extreme dryness. “Both reduced rural incomes considerably,” the attaché said.

Rice consumption contracted and rice production suffered.

According to information supplied by Ricardo M. Pinca, the executive director of PAFMIL, flour milling in the Philippines started in the 17th century when Spanish missionaries introduced it for making Eucharistic wafers. The first flour milling company established in the Philippines was Republic Flour Mill (RFM), which was established in 1958.

There are, according to Pinca, 12 companies engaged in the manufacturing of wheat flour. Seven of them are members of PAFMIL. They are RFM Foods Corporation, Liberty Flour Mills, Wellington Flour Mills, Pilmico Foods Corp., General Milling Corp., Universal Robina Corp. and Philippine Flour Mills. There are also four companies in the Chamber of Philippine Flour Millers (CHAMFLOUR). They are San Miguel Mills, Phil. Foremost Milling Corp., Morning Star Milling Corp. and Delta Milling Corp.

In addition to those companies, the Monde Nissin Corporation produces flour for its own use in food products.

All of the wheat processed in the Philippines is imported, with the U.S., Canada and Australia being the biggest suppliers. PAFMIL puts the total processing capacity of the industry at 13,360 tonnes per day wheat equivalent, or 4.008 million tonnes annually, on the basis of a 300-day year. With annual wheat imports at around 2 million tonnes a year, the industry is running at 50% capacity.

Flour millers in the Philippines are supplying a largely small-scale processing industry.

“Most Philippine bakeries are small in scale and family owned, with only an estimated 20 percent having mechanized operations,” the attaché said. “The rest still use manual labor in mixing dough.” The millers are taking action to improve the industry’s efficiency. “The PAFMIL intends to pursue educational programs on the use of wheat flour it produces through targeting the country’s small bakeries,” the attaché said.

The Philippines also imports flour, with 150,000 tonnes predicted to enter the country in 2010-11, according to the IGC. Much of this flour comes from Turkey, and millers in the Philippines have complained that they have to compete against undervalued imports, a charge rejected by Turkish exporters. PAFMIL is reportedly planning to ask the government for a duty to protect the industry from these imports.

A law of 2007, the Biofuels Act, mandated a minimum 1% biodiesel blend into all diesel fuels within three months from the effectivity of the law, to increase to a 2% blend two years later. There was, according to the attaché, a smooth transition from the 1% to 2% blend in 2009.

“For the transport sector, diesel is the dominant fuel used, and compliance with the mandated biodiesel blend since 2007 has been relatively smooth using locally produced biodiesel,” the attaché said in a report on the sector. “Local feedstock supply (coconut methyl ester or CME) is sufficient for the adequate number of refineries/capacities. A higher mandated biodiesel blend in 2011 is possible, although the appropriate standards have yet to be established.”

Ethanol production has been insufficient to meet the government’s targets, because of a lack of investment, held back by price volatility. The government is stopping ethanol imports.

“As a result, the mandated ethanol blend will likely be adjusted to that level which local production can supply,” the attaché said.