Focus on the Philippines

by Melissa Alexander
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Country focuses on modernization on path to achieving food security

by Mario Sequeira

Agriculture plays a vital role in the Philippine economy. In 2004, it accounted for 15% of the country’s Gross Domestic Product – a drop of nearly 5% over the five-year period from 1999 – and employed about 11 million people, representing 36.6% of the working population.

The country occupies a total land area of about 30 million hectares (ha), of which about 32% or 9.7 million ha is currently farmed to food grains, food crops and industrial crops. Prime agricultural land is located around the main urban and densely populated areas.

Food grains are grown on about 6.5 million ha of this agricultural land. The major food grains are maize, which accounts for about 2.5 million ha, and rice, which takes up about 4 million ha.

In the 2004-05 year, rice and maize production achieved records. The rice harvest was estimated at 14.5 million tonnes, beating the previous high of 14.1 million tonnes reached in 2003-04. Maize production was put at 5.4 million tonnes, surpassing the 4.89 million tonnes produced in 1998-99.

Coconut and sugarcane are the major food crops. The country’s farmers also grow fruit, vegetables and industrial crops and raise livestock, mainly pigs, cattle, and poultry.

Agriculture is characterized by a mixture of small, medium and large farms. The most recent Census of Agriculture (CA) in 2002 recorded a total of 4.5 million farms. Most of these are small, averaging about 2 ha, and are devoted to crops, fruit trees, livestock, poultry and some other agricultural activity. They are owned by single families, ranging from subsistence to commercial production.

In 1988, 85% of all farms were no larger than 5 ha. Since then, the proportion of small farms has been expanding. Under an agricultural reform program carried out in the 1990s, the government acquired and distributed about 4.1 million ha of land.

The Department of Agriculture is the agency principally responsible for the promotion of agricultural development. It provides the policy framework, helps direct public investment and provides support services.

The agriculture department is the lead government agency helping implement the Agriculture and Fisheries Modernization Act (AFMA), which came out in 1998 and set targets for the period 1999 to 2004. The AFMA aims to modernize the agriculture and fishery sectors and achieve food security and food self-sufficiency.

There also have been other development initiatives. The Medium Term Philippine Development Plan, which runs through 2010, has set two goals: developing at least two million ha of new land for agriculture and creating two million jobs by 2010.

The day-to-day business of ensuring the country’s food security is undertaken by the National Food Authority (NFA). Its aim is to maintain stability in the supply and price of rice, the country’s staple. It procures paddies from farmers and farm organizations at support prices and makes them available to low-income people at affordable prices. It is involved with the storing, processing and distribution of paddy and milled rice to its warehouses and shops, and also maintains stocks.

Over the past five years, the government has been looking into the possibility of restructuring, streamlining or privatizing the NFA or parts of its activities.

According to the National Statistical Coordinating Board, the Philippines’ annual GDP rate of growth was 6.1% in 2004, with agricultural output growing by 4.9% compared to 3.8% in 2003. This was due to higher production in key crops such as rice and maize and also in the aquaculture sector.

In 2005, private analysts predict economic growth to slow to a 5% rate because of the significant budget deficit. The farm sector is also expected to experience slower growth of about 4%.

The Philippines does not produce any wheat and is totally dependent on imports to meet domestic milling requirements.

Over the past five years, annual wheat imports have been averaging nearly 3 million tonnes. About 70% of this is bought from the United States and the rest from Canada, Australia and other countries.

Two types of wheat are imported. The dominant type is hard spring wheat, which is used to make bread flour and accounts for 75% of imports. The other type is soft wheat, which is used to make flour for pasta, including noodles and cakes.

Food habits have changed considerably over the past decade. Wheat-based products such as bread, noodles, cakes, biscuits and pastries are now a big part of the Filipino diet, resulting in a high demand for these products. Rice is no longer such a dominant part of the diet.

There are 13 flour milling companies in the Philippines, two of which own two mills each. Many of these companies are diversified businesses, involved also in processed meats, animal feeds, restaurants and food service supplies.

They produce more than 2.5 million tonnes of flour annually, operating at a capacity of about 60%.

Among the biggest millers are General Milling Corporation, Republic Flour Mills, Pure Foods Corporation and Pilmico-Aboitiz.

Two industry associations, the Philippine Association of Flour Millers (PAFMIL) and the Chamber of Philippine Flour Millers (CHAMP), procure wheat for their members.

The baking industry is fragmented. Small and home-based bakeries dominate the industry, comprising about 90% of the 30,000 operators in the industry. Many do not have the capital to invest in modern equipment.

However, large bakeries have invested in equipment to make their production more efficient. In these operations, bread-making is highly mechanized to meet increasing demand. Among the big and technologically advanced bakeries are Goldilocks Bakeshop, which has more than 100 outlets nationwide, Red Ribbon Bakeshop, Joni’s Cakes & Pastries and Julie’s Bakeshop.

According to one study of the Philippine wheat and wheat flour market, wheat consumption is predicted to grow at a slow pace of about 2% to 3% annually.

The industry imports very small amounts of wheat flour. The most recent statistics available suggest wheat flour imports in the region of 4,000 to 5,000 tonnes annually.

Filipinos prefer pork to other meat sources, including beef and chicken, and so hog production makes up 80% of the total Philippine livestock industry. Cattle accounts for the remaining 20%.

About 75% of hog production and 90% of cattle production takes place on small farms, referred to as backyard operations. Pork production is about 1.2 million tonnes annually and generally meets domestic requirements. Beef and veal production is about 240,000 tonnes annually, with about 120,000 tonnes imported each year.

Chicken meat continues to be popular among Filipinos as it is one of the least expensive forms of protein. Annual production is about 650,000 tonnes.

The livestock industry is estimated to have grown by 3% in 2004, led by the hog industry. Growth is forecast to continue to feed demand spurred by an annual population growth of just over 2%.

The feed industry consumes about 4.3 million tonnes of maize and wheat annually. Most of it comes from backyard operators and the rest by the feed milling industry, which produces about 8 million tonnes of feed per year.

There are about 400 commercial feed mills in the country, most of them on the main island of Luzon. The biggest sector of the industry, however, comprises the 590 home-mix feed producers.

The Philippine Association of Feed Millers (PAFMI) has predicted the feed milling industry will grow by at least 7% annually in the next few years to meet increased demand from the livestock, poultry and aquaculture industries. But the PAFMI said mills had to modernize if they were to survive, considering the increased competition in the industry as a result of market liberalization.

The association was referring to one of the industry’s major challenges: underutilization of mill capacity. PAFMI observed that the industry’s average mill utililization rate worked out to 47%, based on the numbers that 51% of feed output originated from 7.7% of all feed mills. About 34% of feed mills produce less than 20 tonnes per eight-hour shift, PAFMI said. WG