Most of the country's agricultural land is located on two islands, Luzon and Mindanao. Most farms are smaller than 10 hectares.
Agricultural policy. The government's policy generally is market orientated, and the private processing and wholesale/retail food industries operate freely. But the government, through the National Food Authority, is actively involved in markets for the staple rice and maize crops.
Government policy for those crops remains one of self-sufficiency, and programs are designed to protect Filipino farmers. The N.F.A. provides price supports, maintains buffer stocks and strictly limits rice and coarse grain imports, which the government arranges only if it decides a shortage exists.
But steady production gains have failed to keep pace with the burgeoning domestic demand of recent years. Buffer supplies gradually have eroded, resulting in skyrocketing domestic prices and complaints from users, particularly in the feed industry.
In January, after the wet season maize harvest but before the March-April dry harvest, the price of maize in Manila shot up to U.S.$330 a tonne, about three times world price levels at that time. In response, the N.F.A. agreed to import 30,000 tonnes of barley immediately and 100,000 tonnes of maize in April-June, after the dry harvest.
The rice stocks position is less severe, but supplies at the end of the marketing year in June are expected to fall below 1 million tonnes for the first time in 10 years. In January 1995, metro Manila rice prices stood at about U.S.$600 a tonne, more than double the world price and 47% higher than Manila prices the previous January.
Over the longer term, it is unclear whether the government will continue with its restrictive import policies. The farm lobby is quite strong, but demand for coarse grains in particular is expected to continue to surge, based on consumers' increasing affluence and the rising demand for meat. The government also wants to keep inflation in check.
The Uruguay Round trade agreement, to which the Philippines is a signatory, may or may not spur a significant increase in imports. The agreement's first-year import amounts for rice and maize —— 60,000 and 130,000 tonnes, respectively — are nominal, increasing to only 239,000 for rice and 217,000 for maize by 2004. The longer term situation may depend more on domestic and world price developments.
For instance, maize in excess of the 130,000 tonne amount may be imported in the first year at a higher tariff of 100%. Given current domestic maize prices, imports could be extremely attractive, even at the 100% tariff level.
Flour milling. The Philippines has a sophisticated flour milling industry that grew steadily from 1959, when the first mill was established, through mid-1994. The country has 12 milling companies with a total of 15 mills. Annual rated milling capacity for all is 2,691,000 tonnes, wheat equivalent, based on 300 operating days.
The mills are members of one of two industry associations. The Philippine Association of Flour Mills (PAFMIL) is the oldest, representing eight companies with 11 mills and more than 75% of total annual capacity. The Chamber of Philippine Flour Millers (CHAMP) was formed in 1991 and represents the remaining four mills.
Since the N.F.A. gave up control of the wheat market in 1986, Philippine flour mills have been responsible for their own wheat imports. PAFMIL and CHAMP import wheat in multi-mill shiplots for nine of the 12 companies; the three largest companies have production and storage capacity sufficient to import wheat independently.
Based on a near doubling of demand, Filipino flour mills expanded capacity significantly in the early 1990s. Per capita flour consumption in 1992-1993 was 32.8 kg, wheat equivalent, compared with just 17 kg in 1990. Actual flour production in 1992-93 was 1.65 million tonnes, wheat equivalent, on an extraction of 75%.
Fierce competition marks the milling industry. The primary end use remains bread and biscuit production, although instant wheat noodles and pasta have been the biggest growth sectors in recent years. The fast food market for flour also continues to expand beyond urban areas.
Feed industry. A growing economy has increased consumer demand for meat, and demand for processed feed has been growing by 5% to 10% a year. Maize is the primary feed ingredient, and the tight maize supply situation is by far the biggest issue facing the feed industry.
After the government banned all maize imports in 1991, the industry began to divert food-grade wheat to feed processing. The feed industry is based on Luzon, far from the main maize growing areas on Mindanao, and high domestic freight rates added to economic incentives to switch to imported wheat.
To protect maize farmers from this wheat competition, the government in 1993 banned "feed wheat" imports. Even so, feed millers have been able to use imported wheat; unless the originating country's official export certificate specifies the wheat as not fit for human consumption, the import inspection system classifies the wheat as milling quality and the ban does not apply. Wheat will remain attractive as long as maize imports are restricted.