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Mindanao Economic Policy Papers 3Priming the ARMM through Agribusiness Developmentby Rolando T. Dy

Mindanao Economic Policy PapersPRIMING THE ARMM THROUGH AGRIBUSINESS0DEVELOPMENT

By Rolando T. DyExecutive Director, Center for Food and Agribusiness, University of Asia and the Pacifi c

Copyright 2012 by Brain Trust: Knowledge and Options for Sustainable Development, Inc.. All rights reserved. No part of this book may be repro-duced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information and retrieval system, without permission from the publishers. Inquiries should be ad-dressed to the author c/o Brain Trust Inc., Unit 810 Medical Plaza Building, San Miguel Avenue, Ortigas Center, Pasig City 1605 (E-mail: [email protected]) .

This publication was made possible through the support of AusAID. The opinions expressed herein are those of the author and do not necessarily refl ect the views of AusAID.

The Mindanao Economic Policy Papers were prepared as part of the work led by Dr. Cielito F. Habito, AusAID Adviser for Mindanao Economic Development to examine constraints to investment and economic development in Mindanao, especially in Muslim Mind-anao, and determine appropriate ways to address them. Conduct and preparation of the studies were administered by Brain Trust: Knowledge and Options for Sustainable Development Inc., and undertaken between August 2011 and July 2012. Hence, any recent developments and changes subsequent to that period would not be refl ected in the policy papers.

Mindanao Economic Policy Papers

PRIMING THE ARMM THROUGH AGRIBUSINESS DEVELOPMENT

byRolando T. Dy

A publication of:

Australian Agency for International Development

Edited by Ma. Salve I. Duplito

v

General Overview 1

ASSESSMENT OF SPECIFIC AGRIBUSINESS OPPORTUNITIES 2Overview 2Farm Size 2Farm Productivity 3Diversification 4Production/Marketable Surplus 5Crop Selection Criteria 6The Choices 7

Individual Crop Analysis 7Coconut 7 Option 1: Common Salt Fertilization 10 Option 2: Multi-nutrient Fertilization 12Oil Palm 13Natural Rubber 16Coffee 19Cacao 20Seaweeds 22Project Financial Internal Rates of Return 23World Price Trends 24

The Business Models 25Crop Choice 25Preferred Management Schemes 25

INVESTMENT ENABLING MEASURES 33Key Issues for Investors 33Barriers to Investments and Proposals 33

REFERENCES 33

LIST OF ANNEXES

Selected Agricultural Statistics 36Financials 40Coconut 40Palm Oil 44Rubber 46 Coffee 49Cacao 51

Part I

Part II

ANNEX AANNEX BANNEX B1ANNEX B2ANNEX B3ANNEX B4ANNEX B5

Table Of Contents

vi

Table Of Contents

LIST OF TABLES

Poverty Incidence of Families in ARMM ProvincesAverage Farm Size by RegionAverage Farm Yields in ARMM and Mindanao RegionsProduction of Crop and Fish by RegionWorld Vegetable Oil Production and Export, 2000-2009Coconut Oil Mills, Desiccated Coconut Plants and Activated Carbon Plants in and around ARMMOption 1: Common Salt: Financials Option 2: MFN FinancialsPalm Oil Processing Plants in MindanaoRubber Harvested Areas: 2000 and 2009World Natural Rubber Production and Export, 2000-2010Selected Rubber Plantations, Processors, and TradersWorld Coffee Production and Export, 2000-2010World Cocoa Beans Production and Export, 2000-2010Average Costs and Returns of Seaweed Production Per HectareComparative FIRR and Sensitivity AnalysesCoconut Financials: Return to CostsWorld Commodity Price ProspectAdvantages and Constraints of Crop ChoiceAdvantages and Constraints of Various Schemes

LIST OF FIGURES

Commercial Plantation ModelContract GrowingNucleus Estate Centralized Management Scheme

LIST OF BOXES

Array of Possible Agribusiness Investments in ARMMPaglas Model: Players and RolesAgumil Oil Palm Model: Players and Roles

TABLE 1TABLE 2TABLE 3TABLE 4TABLE 5TABLE 6

TABLE 7TABLE 8TABLE 9TABLE 10TABLE 11TABLE 12TABLE 1 3TABLE 1 4TABLE 1 5TABLE 1 6TABLE 1 7TABLE 1 8TABLE 1 9TABLE 20

FIGURE 1FIGURE 2FIGURE 3FIGURE 4

BOX 1BOX 2BOX 3

1

General Overview

Much has already been said about the high poverty of ARMM residents. In 2009, 38.1% of the families were poor as compared with the 20.9% national average. Interestingly for policy makers, four of the country’s poorest provinces are outside ARMM. Maguindanao is the fifth poorest. Poverty rate has increased faster than that of the nation in these provinces, except one, during the decade.

Table 1. Poverty Incidence of Families in ARMM Provinces (Latest, Refined Methodology)

2003 2006 2009

Maguindanao 41.9 44.9 44.6

Sulu 20.3 36.7 39.3

Tawi Tawi 18.2 49.1 31.5

Lanao Sur 13.7 25.6 36.8

Basilan 20.7 21.4 23.0

ARMM 25.0 36.5 38.1

Memo items

Top 5 Poorest:

Zambo Norte 59.5 54.1 52.9

Agusan Sur 48.5 44.5 51.2

Surigao Norte 42.3 41.6 47.9

Eastern Samar 29.8 37.6 45.8

Maguindanao 41.9 44.9 44.6

Philippines 20.0 21.1 20.9Source: NCSB

ARMM contributes less than 5% of Mindanao’s GRDP (Minda, 2011). This is comparatively small compared to its share in the farmland of 13% (out of the total of about four million hectares) for Mindanao.

Since the region is heavily agricultural (and fishery), there is need to find the answers in the sector why poverty is high and persistent. This is to supplement related studies that indicate that other factors come into play: feudal structure, poor governance, and cycle of war and violence, etc.

2 Assessment of Specific Agribusiness Opportunities

PART I.ASSESSMENT OF SPECIFIC AGRIBUSINESS OPPORTUNITIES

Overview. ARMM is heavily agricultural. It has the highest employment in agriculture among the country’s 17 regions. Its agro-climatic conditions are favorable to agribusiness. Economic literature shows that increases in agriculture production lead to increases in output and employment in the chain provided the enabling elements exist. Agriculture and fishery development and the spillover effects on agro-industry and agro-services can solve high poverty incidence.

Non-agri-based manufacturing is a driver for job-creation, but for now, the region is not competitive because of distance from markets, scale economies, perceived risks, and cost of doing business.

Farm Size. The average farm size (2.1 hectares) in ARMM is slightly higher than the national average of less than two hectares (Table 2). It is only about 13% smaller than the levels of other Mindanao regions, but higher by a fifth than the averages of seven regions out of the 10 in the Visayas and Luzon.

Table 2. Average Farm Size by Region

Region Average Farm Size (ha) 2009 Family Poverty incidence

Ilocos 0.98 17.8

Cagayan 1.68 14.5

CAR 1.45 17.1

Central Luzon 1.58 12.0

Southern Luzon 2.06 10.3

Mimaropa 2.46 27.7

Bicol 2.31 26.0

Western 1.55 23.8

Central Visayas 1.21 30.2

Eastern Visayas 2.18 33.2

Western Mindanao 2.65 36.6

Northern Mindanao 2.30 32.8

Southern Mindanao 2.46 25.6

Soccsksargen 2.31 28.1

Caraga 2.46 39.8

ARMM 2.14 38.1

Philippines 1.95 20.9Source of Data: NSCB

Assessment of Specific Agribusiness Opportunities 3

Data shows that farm size alone would not be a solid cause for divergence in poverty incidence. The seven regions outside of Mindanao have lower average farm sizes, but they all have lower poverty rates. The other factors that must be explored are productivity, diversity of base, and level of production/marketable surplus.

Farm Productivity Let us take the major crops and compare their average yields. Among the six crops, ARMM trails the five Mindanao regions in rice and coconut (Table 3).

Table 3. Average Farm Yields in ARMM and Mindanao Regions, 2006-2010 (in tons/ha)

Product Rice Corn, white

Corn, yellow Coconut Coffee Cassava

Zamboanga 3.73 1.25 2.65 4.72 0.93 4.31

Northern Mindanao 3.94 1.86 4.11 5.57 0.48 21.04

Southern Mindanao 4.35 1.30 2.86 6.97 0.93 6.86

Soccksargen 3.57 1.99 3.03 5.04 1.13 16.58

ARMM 2.98 2.59 3.49 3.92 0.79 10.61

Caraga 3.22 1.71 3.84 4.54 0.69 6.07

Philippines 3.69 1.33 3.58 4.48 0.79 9.16Source: BAS

• Palay. ARMM yield is nearly 20% below the national average and the lowest in Mindanao.

• White Corn. ARMM yield is almost 60% higher than the national average, and higher than all the Mindanao regions. This number appears off-the-mark as white corn varieties have low yields.

• Yellow Corn. ARMM yield is almost at par with the national yield, and ranks third among the Mindanao regions.

• Coconut. ARMM yield is 12% lower than national average, and almost 30% below Mindanao average.

• Coffee. ARMM yield is at par with national average but ranks fourth among the Mindanao regions.

• Cassava. ARMM yield is 15% higher than national average and ranks third among the six Mindanao regions.

Among the three main crops (rice, corn and coconut), ARMM lags in the two main products - palay and coconut. The result for white corn appears surprising as most farmers use open-pollinated variety with poor provenance.


Diversification Compared to other Mindanao regions, ARMM, Caraga and Western Mindanao have the lowest agriculture and fishery output. Table 4 shows production of key products by region. Except for palay, corn, cassava and seaweeds, ARMM’s combined output lags other Mindanao regions. This is a similar situation for Caraga and Western Mindanao, the regions with the highest and third highest poverty rates in the country. ARMM has the second highest.

Table 4. Production of Crop and Fish by Region, 2010 (‘000 tons)

ARMM Caraga Western Northern Davao Socss

Palay 623 406 552 586 403 1,185White corn 633 49 164 373 166 246Yellow corn 223 45 31 780 36 818 Total Corn 856 94 195 1,153 202 1,064Coconut 1,255 974 1,713 1,757 2,636 864Coffee 11 2 1 6 23 28Sugarcane 49 .. . 2,549 256 506Banana 396 210 264 1,702 3,804 1.044- Cavendish 106 15 .. 1,117 2,927 432- Saba 131 114 144 269 579 321Pineapple 1 5 2 1,068 22 813Mango c, 2 11 56 35 27 44Rubber 33 15 171 10 16 150Cassava 1,009 41 31 472 15 35Oil palm 1 373 0 25 6 107

Cattle 14 1 14 34 11 18Chicken 6 12 25 119 61 34Chicken Eggs 4 2 10 34 21 9Hog 11 49 94 136 127 119Fisheries 904 101 757 161 69 282-Commercial 97 7 340 43 13 211-Municipal 111 69 136 43 28 46-Aquaculture 696 25 281 74 28 24=Seaweeds 686 21 258 44 3 …No of products in top three 4 1 4 13 8 12

Source: BAS


Production/Marketable Surplus

Economic literature indicates that producers explore other markets to sell production surpluses. This is a natural course of comparative advantage and specialization.

Mindanao’s main exports1--coconut oil, corn, bananas (Cavendish, cardava, and lakatan), pineapple, desiccated coconut, banana chips, palm oil, natural rubber, and fish--have part of its starting chains in ARMM.

• Copra is sold to buyers in ARMM and crushed into oil in nearby areas of Zamboanga, and General Santos. Sulu is an exception because it has an oil mill.

• White corn, where ARMM is dominant, is sold in Mindanao and Visayas.• Yellow corn, where ARMM ranks third, is mostly sold as feedstock in General

Santos and Cagayan de Oro. Some find their way to Cebu and Manila.• Cassava has two-thirds of Mindanao production accounted for by ARMMaccounts

for of cassava. Some are converted into chips for animal feed.• Banana, particularly the Cavendish variety for export, is grown on around 1,200

hectares in Paglas, 500 hectares in Buluan, Maguindanao, and probably another 500 hectares in Wao-Bumbaran, Lanao del Sur.2

• Pineapple is mostly confined to Socksargen, Northern Mindanao and the Davao region. There is little pineapple planting and processing in ARMM.

• Oil palm is a new crop in ARMM. About 3,000 hectares are now planted with this crop, about 7% of the total area for Mindanao. There is strong support from the Maguindanao LGU for this crop through seedling distribution.

• Despite large presence of rubber plantings in North Cotabato and Zamboanga, rubber has not taken roots in ARMM, except in Basilan where investors years ago brought the rubber culture. Most of the large estates have been subjected to the Comprehensive Agrarian Reform Program.

• Coffee has ample potential for expansion from its base of about 13,000 hectares in the ARMM.

• Fishing and processing are mostly based in Zamboanga City and General Santos City. Marine fishing in ARMM is mostly for subsistence.

Low productivity and limited diversification are among the main causes of poverty in ARMM. As in most regions, coconut is saddled by low productivity due to many causes: lack of fertilization by the impoverished farmers and farm workers, exacerbated by poor genetics, and limited replanting with new generation clones. New clones can yield four to five times under good management, compared with one ton per hectare average today. Similar conditions afflict other commodities.

1 Export to overseas markets (coconut oil, desiccated coconut, banana chips, Cavendish banana, frozen cardava, fresh pineapples, asparagus, canned pineapple solids, concentrates and juices, sashimi and canned tuna etc); and domestic exports (corn, palm oil, lakatan and cardava bananas, other fruits, canned pineapples, papaya, etc)

2 La Frutera is in Paglas, and Alip River Development is in Buluan. Unifrutti has projects in Wao and Bumbaran


Investment interests in other Mindanao regions can be brought to ARMM given its favorable climate as well as low land and labor costs. This has been the Paglas and Bumbaran experience of the Unifrutti Group, Alip River Development, and Agumil group.

Crop Selection Criteria

There is a wide array of commodities that can be farmed in ARMM because of its good agro-climatic endowment. Most of the products have localized (town to provincial) markets. While they can be marketed, they are limited because of perishability, scale, and competitiveness (i.e. distance from markets) unless there is a processing facility in the area or nearby areas.

This report will focus on high-impact commodities that will not only increase farm incomes, but will also generate employment across the value chains. To have major impact on rural poverty, crop choice should move outside the box. For example, the direct and indirect employment of the Cavendish banana industry is about 240,000 from the 70,000 hectares planted. For every 1.5 persons employed a hectare, there are around two persons employed in the backward and forward chains.

The crop choice must have, first and foremost, a large market. This captures many dimensions: size, segments, competition and growth prospects. The other factors will follow, especially land suitability and future incomes.

• Market Prospects• Agro-climatic suitability• Potential Income• Gestation period• Investment cost per hectare

Box 1: Array of Possible Agribusiness Investments in ARMM

Localized National For Export

Vegetables Corn Coconut oil

Native fruits Cassava chip Cavendish banana

Tilapia Natural rubber Natural rubber

Bangus Palm oil Palm oil

Goats Vegetables Pineapple, fresh

Coffee Desiccated coconut

Cacao Banana chips

Sugar Sugar


Also included will be the value chain and market linkage analyses; and financial risk analyses and consequent management strategies.

Rice and corn, while important, will not be the central focus of the report because of limited global market prospects. Rice is not export-competitive while corn is under threat from AFTA unless the average yield rises to five tons per hectare per crop.3 However, it is to be admitted that these crops can have potential gains if productivity and supply chain costs are addressed.

The Choices. A commodity must have a large global market whether for export or for the local market (import substitution). For the latter, export will be made when local demand has been satisfied. This applies to palm oil where crude palm oil can be shipped to the Palm Oil Industry Cluster in Lahad Datu, Sabah, Malaysia for downstream processing.

Land suitability is out of the question. Mindanao already grows these crops. Technology is available; and higher technology can be accessed, too. They include:

• Coconut (Existing) fertilization• Coconut Intercropping (coffee)• Oil palm (Emerging) expansion• Rubber (Existing) expansion• Coffee (Existing) expansion

Seaweeds (principally for Sulu and Tawi Tawi) will also be evaluated in the context of competitiveness to Indonesia and declining production.

There are many crops suggested in various reports. JICA undertook extensive listing by province in its recent study.4 However, the selected crops have greater chances of market sustainability and profitability. They also have potential to deliver competitive farm incomes above poverty line, provided planting standards and management are observed.

INDIVIDUAL CROP ANALYSESCOCONUT: Global and Local Markets

Coconut has multiple uses. Coconut oil (CNO), the main product, has food, industrial material and biofuel applications. Its fresh nuts are raw material for desiccated coconut, coconut milk, and coconut water. Its byproducts (geo-textiles, soil conditioners, activated charcoal) have growing markets. However, CNO is now a small segment of the world vegetable oil market because of decades of government neglect.5 The global market is dominated by palm oil, soybean soil and rapeseed oil. Total world production grew by 51 % from 92.4 million tons in 2000 to 139.6 million tons in 2009.

3 Findings from the World Bank/AusAid Maize Value Chain Study.

4 JICA (2010). Study on Infrastructure Development Plan for ARMM.

5 Dy, Rolando and Senen Reyes (2006). The Philippine Coconut Industry: Performance, Issues and Recommendations.


While the main products like palm oil, soybean oil and rapeseed oil output dramatically expanded by 106%, 40%, and 47% respectively, coconut was stagnant, principally because of anemic Philippine production. As a result, its global share shrank from 3.6% in 2000 to 2.3% in 2009. Meanwhile, world vegetable export expanded by 86% from 32 million tons to 59.4 million tons during the same period. Palm oil volume rose 141%, soybean oil 37%, sunflower oil 77%. Coconut export stagnated and its market share fell from over 6% to 3% in a decade. Meanwhile, palm kernel oil export (a close competitor of coconut) rose 150%.

Thus, for the coconut industry to retain its market share, production must increase through fertilization and replanting of good clones. There is large excess industrial capacity to absorb additional copra production without new investments. For farms, an additional impetus is intercropping of coconut lands to raise incomes.

Table 5. World Vegetable Oil Production and Export, 2000-2009 (million tons)2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Production

Palm Oil 21.9 24.0 25.4 28.3 31.3 34.0 37.3 38.8 43.3 45.1

Soybean oil 25.6 27.8 29.8 31.2 30.7 33.6 35.2 37.4 36.9 35.8

Rapeseed oil 14.5 13.7 13.3 12.7 15.1 16.3 18.5 18.7 19.9 21.3

Sunflower oil 9.7 8.2 7.6 8.9 9.4 9.7 11.2 10.9 10.9 13.0

Palm kernel oil 2.7 2.9 3.0 3.3 3.6 4.0 4.4 4.5 5.0 5.2

Cottonseed oil 3.8 4.0 4.2 4.0 4.4 5.0 4.9 5.0 5.0 4.7

Ground nut oil 4.5 5.1 5.2 4.5 4.7 4.5 4.4 4.2 4.2 4.1

Coconut oil 3.3 3.5 3.1 3.3 3.0 3.2 3.1 3.1 3.2 3.2

Others

All Veg Oils 92.4 96.0 98.4 103.0 109.2 117.5 126.1 130.0 135.8 139.6

Export

Palm Oil 15.0 17.6 19.4 21.9 24.2 26.5 30.0 29.9 33.7 35.2

Soybean oil 6.8 7.8 8.7 9.3 9.1 9.8 10.4 11.2 10.1 9.3

Rapeseed oil 1.8 1.2 1.2 1.0 1.5 1.4 2.1 2.1 2.4 2.6

Sunflower oil 3.0 2.3 2.3 2,6 2.8 3.1 4,5 4.3 4.0 5.3

Palm kernel oil 1.2 1.4 1.6 1.8 1.9 2.1 2.4 2.7 2.7 3.0

Coconut oil 2.0 2.1 1.8 2.0 1.8 2.3 2.0 2.0 1.9 1.9

Others

All Oils 32.0 34.4 37.0 40.6 43.6 47.6 53.8 54.4 57.1 59.4

Source: Oil World as provided by Malaysian Palm Oil Board

Individual Crop Analysis 9

Supply/Value Chain. The coconut chain is fairly extensive given its many sub-chains. Coconut is converted to copra on-farm and assembled and crushed into crude coconut oil for export. TThe marketing chain is long as farms are small, fragmented and unorganized. The land tenure system, in spite of agrarian reform, is complex compared to other major crops.6 Multi-level buyers transact from the village to town to the trade centers.

There are many oil mills in Mindanao, including Granex and SMC in Iligan City, Interco in Zamboanga City and Davao Oriental, and Cargill in General Santos. Within ARMM, there is one, BJ Coconut Oil Mill in Sulu. Most of the mills are under-used due to inadequate coconut supply. While coconut milling looks attractive to some parties, running a mill is challenging. Millers need to understand not only the physical aspect of processing, but also the intricacies of futures markets.

Table 6. Coconut Oil Mills, Desiccated Coconut Plants and Activated Carbon Plants in and around ARMM

Location Coconut oil mills Dessicated Plants Activated Carbon plants

Name Cap (a) Name Cap (b) Name Cap (c)

Zambo City Interco 600

PIDC 400

Unicab 150

Zambo Norte Wilmar 550

Misamis Or Wilmar 720 M u e n s t e r /Fiesta 1,500 Pacific AC 9,600

CDO mill 400

Limketkai 125

Misamis Occ Third Millenium 500

Osamco 220

Davao City Davao Bay 600 Superstar 1,500 D a v a o Central 10,000

Interco 525 Coco Davao 1,700 Phil-Japan 8,580

Legaspi 525 Franklin Baker 1,177 Premium AC 2,160

New Davao 300 Mindanao AC 1,675

Pacific 220 Philips 1,200

Far East 140

Davao Sur Coco Davao 30

Lanao Norte Granexport 900

Iligan Bay 600

6 There are three key actors in the farm: land owner (many of them absentee), the administrator (encargado), and the farmworkers.

10 Individual Crop Analysis

General Santos Cargill Phil 600

Sulu BJ Coco 175(a) Capacity in tons/day(b) Capacity in bags per day(c) Tons per yearNote: PIDC has an oleo-chemical plant in Zamboanga City with annual capacity of 30,000 tons; and Pilipinas Kao in CDO with115,485 tons capacity

Source: UCAP Coconut Industry Kit 2011

Desiccated coconut plants that buy nuts are in Davao del Sur and Misamis Oriental. The activated carbon plants in Davao City buy coconut shell charcoal for conversion into activated carbon, used as filters. The buyers of coconut fiber for geo-textiles, mulch and soil conditioners are less active due to the high cost of assembly. Virgin coconut oil is also gaining consumers in the global markets. An in-depth value chain study was made by ACDI/VOCA in 2010.7

Market linkage. Because of small production lots and weak producer organizations—all too common in the country—the marketing system for coconut is multi-layered. In addition, the poor state of farm to highway roads make logistics costs high, reducing farm prices, and increasing farm inputs. There are no quick solutions in sight. A key aspect is to organize the farmers to have economies of scale in copra marketing and in extracting value adding, among others, from coco fiber, coconut water and shell charcoal. However, this is a long process. Farming is a totally different occupation from industrial management.

Financials. There are two options for coconut fertilization, both being low-cost alternatives:

(a) Salt (common table salt –NaCl) (b) Multi-nutrient fertilizer (MNF) NPK (14-5-20)-Chloride-Sulfur-Boron

Option 1: Common Salt Fertilization

Without fertilization, the harvest per tree will be stagnant at 10 kg copra, or 1, 230 kg per hectare during the first five years, assuming there are 123 trees per hectare with 9 m x 9 m distance. With fertilization, the application of salt at the rate of 3 kg/tree in the first year, 2 kg/tree in the second year, and 1 kg in the third to fifth year, copra harvest will increase from 10 kg/tree from base year to 12.5 kg/tree in the first year, 15 kg/tree in the second to fifth years.

After one year, the additional returns will increase by 9% (Php3,000 per ha), and by 37-40% (Php 12,000 to PhP 13,000 per ha) thereafter.

7 Keats, Adam and Chrisitopher Root (2010). CocoPal Value Chain Analysis. A systemic overview of the coconut, rice and cacao value chains in Mindanao to design USDA CoCoPal program recommendations. ACDI/VOCA


Table 7. Option 1: Common Salt: Financials

Option/Item Base Year Year 1 Year 2 Year 3 Year 4 Year 5

With Fertilization

Yield (kg copra/tree) 10 12.5 15 15 15 15

Tree per ha 123

Copra per ha, kg 1,230 1,538 1,845 1,845 1,845 1,845

Price at P30 30

Gross Returns 36,900 46,125 55,350 55,350 55,350 55,350

Cost

Common Salt (NaCl, kg/tree) 0 2 2 2 1 1

Kg/ha 0 246 246 246 123 123

Price PhP7/kg 7

PhP/ha 0 1,722 1,722 1,722 1,722 1,722

Labor

Total and Other Cost 3,881 8,343 8,404 8,404 8,404 8.404

Total Cost 3,881 10,065 10,126 10,126 9,265 9,265

Net Return 33,019 36,060 45,224 45,224 46,085 46,085Without FertilizationYield (kg copra/tree) 10 10 10 10 10 10

Tree per ha 123

Copra per ha, kg 1,230 1,230 1,230 1,230 1,230 1,230

Price at P30 30

Gross Returns 33,019 36,900 36,900 36,900 36,900 36,900

Cost

Common Salt (NaCl, kg/tree) 0 0 0 0 0 0

Trees/ha 123

Kg/ha 0 0 0 0 0 0

Price PhP7/kg 7

PhP/ha 0 0 0 0 0 0

Labor and other Costs 3,881 3,881 3,881 3,881 3,881 3,881

Total Cost 3,881 3,881 3,881 3,881 3,881 3,881


Net Return 33,019 33,019 33,019 33,019 33,019 33,019

Incremental Returns 0 3,041 12,205 12,205 13,066 13,066

% Increase from base 0 9 37 37 40 40

Multiple from base case 1.00 1.09 1.37 1.37 1.40 1.40

Source: Magat and Canja (2009). Philippine Coconut Authority

Option 2: Multi-Nutrient Fertilization

The application and costs per tree and per hectare are shown below. Without fertilization, the harvest per tree will be stagnant at 10 kg copra, or 1,230 kg per hectare during the first five years. By contrast, by applying MFN at the rate of 3 kg in the first year, 2 kg in the second year, and 1 kg in the third to fifth years, the harvest will increase from 10 kg/tree from base year to 15 for the first year, 20 kg/tree for the second, 25 kg/tree for the third to fifth years.

After one year, the additional returns will increase by 20% (Php6,700 per ha) in the first year, 86% (Php26,400 per ha) in the second, and 152% (P50,200 per ha) in the third to fifth years. These increases are dramatic and short-gestating.

Table 8. Option 2: MFN Financials

Option/Item Base Year Year 1 Year 2 Year 3 Year 4 Year 5

With MFN Fertilization

Yield (kg copra/tree) 10 15 20 25 25 25

Tree per ha 123

Copra per ha, kg 1,230 1,845 2,460 3,075 3,075 3,075

Price at P30 30

Gross Returns 36,900 55,350 73,800 92,250 92,250 92,250

Cost

MFN( kg/tree) 0 3 2 1 1 1

Kg/ha 0 369 246 123 123 123

Price PhP27/kg 27

PhP/ha 0 9,963 6,642 3,321 3,321 3,321

Total and Other Cost 3,881 5,643 5,704 5,704 5,704 5,704

Total Cost 3,881 15,606 12,346 9,025 9,025 9,025

Net Return 33,019 39,744 61,454 83,225 83,225 83,225


Without Fertilization

Yield (kg copra/tree) 10 10 10 10 10 10

Tree per ha 123

Copra per ha, kg 1,230 1,230 1,230 1,230 1,230 1,230

Price at P30 30

Gross Returns 33,019 36,900 36,900 36,900 36,900 36,900

Cost

Fertilizer 0 0 0 0 0 0

Labor and other Costs 3,881 3,881 3,881 3,881 3,881 3,881

Total Cost 3,881 3,881 3,881 3,881 3,881 3,881

Net Return 33,019 33,019 33,019 33,019 33,019 33,019

Incremental Returns 0 6,725 28,435 50,206 50,206 50,206

% Increase 0 20 86 152 152 152

Multiple from base case 1.00 1.20 1.86 2.52 2.52 2.52Source: Magat and Canja (2009). Philippine Coconut Authority

Financial risk analyses. The major risks are inter-related: (a) that the right quantity of salt is not made available to the farmers; and (b) that the fertilizers are diverted to other crops.Management strategies. The key is that there is a local organization that ensures that fertilizers are delivered to the farms, the farmers are trained, and the progress is monitored. The engagement of an established NGO to work with farmers in project area identification, preparation and monitoring is imperative. It will also coordinate with PCA for technical and financial support. An NGO, Centro Saka, has undertaken a successful fertilization program with support from CIIF Foundation.

OIL PALM

Market. Palm oil is used for food, industrial use and bio-diesel (i.e. methyl ester). The Philippines imports up to 80% of palm oil for local consumption, principally for cooking. Local production from about 54,000 hectares (45,000 hectares in Mindanao) provides about 70,000 tons CPO; the rest are imported. According to a key industry player, households consume about 120,000 tons a year; food service, about 120,000 tons; and industrial (biscuits, noodles, milk, etc.) consume about 180,000 tons. Altogether, national demand amounts to about 400,000 tons annually. Most of the palm olein (processed palm oil for cooking) is unrecorded.

There is a big gap to fill in the growing domestic market. While the Philippines has only 54,000 ha, Indonesia has planted 7.5 million ha, Malaysia 4.8 million ha, and Thailand (a late comer compared to the Philippines), 700,000 ha.


A Palm Oil Research Institute of Malaysia team (now Malaysian Oil Palm Board) visited Mindanao in 1994, and it estimated a potential of 300,000 hectares in eight provinces. The Philippine Palm Oil Industry Development Council estimated a potential of nearly one million hectares in the whole region. Today, of the 45,000 hectares in Mindanao, some 3,000 hectares have been planted in Maguindanao, out of an ARMM potential of 100,000 hectares (Pamplona, 2011). Some quarters are concerned about two strategic issues: that palm oil will compete for coconut lands and that excess domestic supply will have to be disposed.

The first issue can readily be dismissed, inasmuch as there are ample idle pastures or corn lands in the region. On the second concern, the excess palm oil can be easily barged to the Palm Oil Industrial Cluster in Lahad Datu, Sabah, a large processing complex that needs crude palm oil supply.8

Value Chain. Fresh fruit bunches (FFB) are harvested every 10 to 14 days, after a gestation period of 26-30 months from field planting. The FFB are collected and brought to the mill. The mature palm can yield an average of 20-35 tons FFB a hectare during years five to 25. The latter are being achieved with new hybrids from PNG and Thailand.

There are five processing plants in Mindanao: two in Agusan del Sur (Agumil and Filipinas Palmoil), one in Bukidnon (ABERDI), one in Sultan Kudarat (Kenram), and one in Maguindanao (Buluan Palm Oil Mill). They buy FFB and produce crude palm oil (CPO) and palm kernel (PK).

Table 9. Palm Oil Processing Plants in MindanaoProvince Company Capacity (tons FFB/ha)

Agusan Sur Filipinas Palmoil 40

Agusan Plantations, Inc 20

Sultan Kudarat Kenram Industries 20

Maguindanao Buluan Palm Oil Mill 30

Bukidnon ABERDI 10 Source: Industry Players

8 Located in south-eastern Sabah, the Lahad Datu Palm Oil Industrial Cluster (POIC Lahad Datu) is the first dedicated industrial cluster of its kind in Malaysia. It is a model project that will entrench Malaysia’s global status in the palm oil industry. POIC Lahad Datu is strategically located in the oil palm belt of Sabah. Its proximity to major palm oil plantations in neighboring Indonesia’s Kalimantan Provinces (Malaysia and Indonesia combine to produce some 80% of the global palm oil output) and lauric oil production areas in the Southern Philippines makes it potentially the international focal point for vegetable oil-based industries. POIC Lahad Datu was established in 2005. The initial 1,150 acres in the first phase of the 5,000-acre cluster have received overwhelming responses especially from investors in biodiesel. Foreign and Malaysian investors are planning biodiesel plants with combined capacity of over 1 million tonnes per year. Some of these plants have begun production since 2007.POIC Lahad Datu is also aggressively promoting industries utilizing the large volume of biomass generated from the oil palm plantations in Sabah. http://www.poic.com.my/index.asp?p=aboutus-intro


Normally, a ton of FFB will produce 200-220 kg of CPO and 30 kg of PK. Most of the CPO is sold in Manila, mainly to refiners and mixers such as Oleofats. The main buyers supply food service outlets like Jollibee, McDonald’s and KFC. PK are either exported or crushed to form PKO and palm meal for feeds.

The FFB pricing is based on the average (15 to 30 days) daily CPO price quotes at the Kuala Lumpur Exchange. For example, if the KL price is US$1,000 per ton, the price at PhP43 to US$ is PhP43,000 per ton. Assuming the price of kernel is US$ 700/ton (PhP 30,100/ton), the weighted price is 20% of CPO price and 3% of PK price, or Php9,500 /ton. Deduct processing cost, margin, transport and taxes of about 30%, and the millgate price will be about PhP6,650. The farm-buying price in Mindanao is lower than in East Malaysia because of the high cost of fuel for transport, VAT of 12%, and the smaller size of the mills.

Market linkage. Oil palm is an easy crop to grow. A family can easily take care of a two-hectare farm. Men do the harvesting as each FFB can weigh up to 20 to 30 kg for a total of 350 kg per hectare every harvest cycle of about two weeks.

FFB must be processed within 24 hours to prevent quality deterioration of oil. Thus, a radius of 150-km from the mill is reasonable, making most of Maguindanao and Lanao del Sur within reach. Since the smallest mill is good for 2,000 hectares at 10 tons FFB per hour, expandable, oil palm can be grown in Basilan, Sulu and Tawi Tawi. In fact, the first palm oil mill in the country was established by Hanz Menzi in Basilan in the late 1950s. The CPO of Sulu and Tawi Tawi can be delivered by barge to Sabah,

A two-hectare farmer can allocate 0.5 to 1.0 hectare for oil palm to have an orderly shift and avoid the disruption of food production. Using a cluster system, small growers with 50 hectares in total can load 15-20 tons every two-week harvest. An important element is that the farms are served by relatively good gravel roads. (In Peru, the farmers use mules to move FFB from the farm to the assembly area.)

Financials

• Investment requirements. The cost of development per hectare over three years is about PhP140,000 per ha, including labor. Without labor, the cost is less than PhP120,000 per ha. New clones can have first harvest after 26-30 months from planting.

• Financial returns. Three scenarios were adopted: (a) base case, (b) crossover return of 15 %, and (b) high return. The cost and returns derived from key informants are considered base case.

• The palm can average 20-35 tons per hectare over 25 years. At today’s price of about PhP6,000 per ton, and average yield of 22 tons per hectare over 22 years, the average net cashflow, before loan repayment will be PhP75,000 per ha. An average of 25 to 35 tons per hectare will bring up net cashflow to PhP100,000 to PhP125, 000 per ha.


• Financial risk analyses. The major risk to the project is the low fertilization rate that would reduce yield and profits. While LGUs mean well with plant-now-pay-later schemes, the benefits will not be achieved without good technical assistance and adequate farm inputs.

• Management strategies. The strategies to reduce risks are: (a) the mill will provide technical advice to the out-growers; or (b) a developer will be employed to undertake a develop-maintain-transfer scheme for large areas to attain world-class plantation standards and crop establishment. Another option is for an NGO to organize the farm clusters of small producers. (See Annex C2.)

NATURAL RUBBER

Market. The fastest growing market in the world is China, India and ASEAN. ASEAN production and export9 have dramatically grown in the past decade. The growths of Indonesia and Vietnam have been noteworthy. Mindanao has only about 130,000 hectares compared to 2.9 million hectares in Indonesia, 1.86 million hectares in Thailand and almost 400,000 hectares in Vietnam.

Table 10. Rubber Harvested Areas: 2000 and 2009

Country 1990 2000 2009

Philippines 86,300 81,087 128,300

China 390,000 421,300 600,000

Indonesia 1,865,600 2,400,000 2,941,360

Malaysia 1,614,000 1,300,00 1,237,000

Thailand 1,400,000 1,424,00 1,856,070

Vietnam 88,100 231,500 399.100

Source: FAO

In the early 1980s, a World Bank official estimated that Mindanao alone has potential for at least 500,000 ha. The Philippines can be a global supplier given that Leyte, Negros, and Palawan also have suitable climate for rubber.

Meanwhile, Philippine export (34,000 tons dry rubber) has been minuscule at 0.3% market share. The agrarian reform program broke the back of plantation development and replanting in Mindanao. However, the rising prices in the last five years have spurred small landowners to plant.

9 Except Malaysia which has converted rubber lands into less labor-intensive oil palm.


Table 11. World Natural Rubber Production and Export, 2000-2010 (million tons)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Production

Thailand 2.38 2.56 2.63 2.86 3.01 2.98 3.07 3.02 3.17 3.09

Indonesia 1.50 1.61 1.63 1.79 2.07 2.27 2.63 2.76 2.92 2.79

Malaysia 0.93 0.88 0.89 0.99 1.17 1.13 1.14 1.02 0.92 0.70 0.90

India 0.63 0.63 0.65 0.71 0.75 0.80 0.85 0.82 0.86 0.82

Vietnam 0.29 0.31 0.30 0.36 0.42 0.48 0.56 0.61 0.66 0.72

China 0.48 0.48 0.,53 0.56 0.57 0.51 0.54 0.59 0.55 0.62

Cambodia 0.42 0.39 0.33 0.32 0.26 0.20 0.21 0.18 0.32 0.38

Philippines * * * * * * * * * * *

Others

All 6.76 7.33 7.33 8.00 8,74 8.90 9.71 9.83 10.04 9.66 10.29

Export:

Thailand 2.00 1.86 2.05 2.31 2.14 2.14 2.11 2.08 2.00

Indonesia 1.37 1.44 1.49 1.65 1.86 2.02 2.28 2.40 2.29

Malaysia 0.89 0.74 0.81 0.87 1.36 1.09 1.07 0.96 0.87

India nil Nil 0.04 0.04 0.03 0.05 0.04 0.04 0.03

Vietnam 0.27 0.31 0.35 0.34 0.51 0.35 0.25 0.25 0.19

Philippines 0.031 0.039 0.045 0.055 0.043 0.04 0.046 0.045 0.034

Others

All Exports 5.05 4.90 5.32 5.83 6,54 6.12 6.36 6.45 6.07

World Cons 7.34 7.33 7.56 7.95 8.72 9.20 9.689 10.14 10.17 9.39 10.67

Source: FAO and Malaysian Rubber Board

Value Chain

Rubber trading is well established in the traditional rubber areas of Basilan, Bukidnon, Cotabato, and Zamboanga. By and large, rubber cup lumps are harvested and delivered to traders and/or processors. They are converted into crumb rubber, normally Standard Philippine Rubber (SPR 20).

Among the key buyers are Pioneer Enterprises, MBH Trading, etc. There are agrarian reform beneficiaries (ARB) coops that arose out of the former rubber plantations of Menzi, UP Land Grant, Mindanao Rubber, Zamboanga Rubber and Philippine Rubber Project. Most have processing plants. There are six processing plants in the main rubber areas of North Cotabato. Sirawai Lumber and Plywood Company of the Dacon Group in Zamboanga-


Sibugay are the largest plantation-processors under corporate management today. These have pioneered rubber planting in Industrial Forest Management Agreement.

Table 12. Selected Rubber Plantations, Processors, and Traders

Site Plantation With Processing Plant

Pioneer Trading Yes

United Workers ARB Coop Basilan Yes Yes

Sta. Clara ARB Coop Basilan Yes Yes

Tumahubong ARB Coop Basilan Yes Yes

Mangal ARB Coop Basilan

Goodyear ARB Coop Z a m b o a n g a -Sibugay Yes Yes

Sulo ARB Coop Zambo-Sibugay Yes Yes

SLPC Zambo-Sibugay Yes Yes

LASRI Cotabato Yes Yes

Normally, tapping is S2/D2 (half spiral of the tree trunk every other day). The latex falls into the tapping cups and mixed with coagulant to harden the liquid. The cup lumps are harvested every day. They are collected and sold to traders or processors. The prevailing price is about PhP80 per kg. At the average yield of about 1,700 kg/ha, the gross sales is about PhP140,000 a year or PhP11,000 a month. The net income is at least PhP100,000. (See Annex C3)

Market linkage. Rubber is a labor-intensive crop. Given its poverty alleviation impact, smallholders can plant 0.5 hectare with modern methods and will have its first harvest in 3.5 years. A well-managed 0.5 hectare farm can generate a net profit of at least PhP80,000 a year at full development, sufficient to provide a level of income above the poverty line.

Financials• Investment requirements. The investment cost ranges from the traditional

system at PhP120,000 per hectare to the high yield system of PhP250,000/ha during gestation. The former will take six years before the first tapping; the latter only 3.5 years.

• Financial returns. Two scenarios were adopted: (a) base case with 15% IRR; and (b) good management which will generate 25% IRR. In many cases, the cost and returns from key informants showed far higher IRR than base case IRR.

• Financial risk analyses. The major risk is the low fertilization rate that would reduce yield and profits. Seedling selection is important for smallholder development.

• Management strategies. To reduce risks, the following strategies could be adopted: (a) for the accredited NGO or consultants to provide technical advice


to the growers; (b) a developer may be employed to undertake a develop-maintain-transfer scheme for large areas under clusters to attain world-class plantation standards and crop establishment. Another option is for an NGO to organize the farm clusters of small producers.

COFFEE

Market. The Philippines has been a net importer for many years. It was a significant exporter in the 1980s until the collapse of the International Coffee Agreement. Vietnam and Indonesia are the main sources. In 2010, of the 65,000 tons bean consumption, only about 20,000 tons were sourced locally; the rest were imported (Pacita Juan, Coffee Board, September 2011). Of the 20,000 tons, about half came from Mindanao.

Table 13. World Coffee Production and Export, 2000-2010 (million tons)2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Production

Brazil 1.88 1.88 2.91 1.73 2.36 1.98 2.55 2.16 2.76 2.37 2.89

Vietnam 0.89 0.79 0.69 0.92 0.86 0.83 1.16 0.99 1.11 1.09 1.11

Colombia 0.62 0.72 0.70 0.67 0.69 0.67 0.75 0.75 0.52 0.48 0.55

Indonesia 0.42 0.41 0.40 0.38 0.45 0.55 0.45 0.47 0.58 0.68 0.51

World 6.78 6.46 7.39 6.38 6.97 6.67 7.73 7.20 7.43 7.38 7.98

MemoPhilippines(‘000 tons)

20.,5 15.8 15.3 17.5 15.1 18.5 17.7 25.9 17.1 ? 23.0

Export

Brazil 1.08 1.39 1.68 1.54 1.59 1.57 1.64 1.69 1.77 1.82 1.98

Vietnam o.70 0.85 0.71 0.70 0.87 0.81 0.83 1.08 0.97 1.02 0.85

Colombia 0.55 0.60 0.62 0.61 0.61 0.65 0.66 0.68 0.68 0.47 0.47

Indonesia 0.33 0.26 0.26 0.31 0.34 0.40 0.32 0.25 0.34 0.47 0.33

World 5.37 5.45 5.33 5,18 5.40 5.25 5.50 5.77 5.85 5.77 5.80Source: ICO

Value chain

The coffee trading system is fairly well established. Coffee berries are harvested, de-pulped, and dried at the farm level. Some are sold as beans and others, dried cherries. Nestle buys about 80-90 % of total beans production. Other players like Universal Robina Corp., Commonwealth Foods, and smaller processors and grinders buy the balance.


Market linkage. Coffee can be used as coconut intercrop or as stand-alone crop. Most areas for expansion are presumed to be intercropped. Farmers can sell dried cherries, or fresh cherries depending on the contract arrangement. Many traders buy dried cherries of Robusta and process them into green beans. Rocky Mountain Coffee Inc. undertakes a contract scheme for Arabica and toll processes them for the smallholders. There are initiatives by Arabica coffee groups to undertake village-level roasting to gain value for the producers.10

Financials

• Investment requirements. The investment cost is about PhP50,000 per ha. It will take two years for the first harvest, which is minimal.

• Financial returns. Three scenarios were adopted: (a) base case, (b) crossover return of 15 %, and (b) high return. The cost and returns derived from key informants are considered base case.

• Yield can average 500 to 2,000 kilos dried beans per ha, depending on management.11 At today’s price of about PhP80 per kilo, and average yield of 900 kilos per hectare over seven years, the average net cashflow will be about PhP30,000 per ha.

• Financial risk analyses. The major risk to the project is the low fertilization rate and inadequate farm management that reduce yield and profits. The quality of seedlings and survival rate should be monitored.

• Management strategies. The strategies to reduce risk are: (a) technical advice to the farmers on proper cultural management practices; (b) strengthening and harmonizing the linkage of the coffee stakeholders; and (c) nursery development to sustain production. (See Annex C4)

CACAO

Market. The Philippines is an importer of cocoa beans. There is good potential for intercropping of coconut trees in many parts of ARMM. In 2009, the Philippines has harvested areas of only 9,500 hectares as compared to 1 million hectares for Indonesia, 128,000 hectares for PNG, and 21,000 hectares for Malaysia.

The Philippines consumes about 30,000 to 40,000 tons of beans equivalent, about eight times the local production of 5,000 to 7,000 tons. Some 90% of the imports come from Malaysia and Singapore. Because of its grinding capacity, the country exports the high value cocoa butter (ACDI/VOCA, 2010). The potential for intercropping of coconut areas is large. However, crop management of cacao is more challenging than coffee or oil palm because of pest and disease control.

Table 14. World Cocoa Beans Production and Export, 2000-2010 (‘000 tons)

10 The Philippine Coffee Alliance is one of the active groups.

11 Good coffee farmers yield 2,000 kilos per hectare of green beans.


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Production

Ivory coast 1401 1212 1265 1352 1407 1360 1272 1384 1382 1221 n.a.

Ghana 437 390 340 497 737 740 734 614 729 662

Indonesia 421 428 571 573 642 643 769 740 793 800

Phil 6.6 6.5 5.8 5.7 5.6 5.7 5.4 5.2 5.1 5.1

World 3371 3108 3271 3579 4019 4054 4272 4002 4034 4082

Export beans

Ivory coast 1111 1026 1004 948 1061 999 925 804 783

Ghana 363 336 311 347 640 535 589 506 475

Indonesia 334 303 366 266 275 367 471 380 380

Phil

Word Exp 2.55 2.26 2.26 2.69 2.80 3.12 3.16 3.17 3.04

WordConsumption 7.34 7.33 7.56 7.95 8.72 9.20 9.689 10.14 10.17 9.39 10.67

Source: ICCO

Value chain

Mindanao is the largest cacao producer. The pods are harvested, opened and placed in fermentation boxes. Fermented and dried beans are sold to traders. Grinders and processors such as Delfi Foods,12 Nestle Philippines, Commonwealth Foods, and smaller processors are the key buyers. Powder is used by local manufacturers while cocoa butter are exported. Tablea makers buy majority of the remaining beans.13

The key to a quality bean is fermentation. Since cocoa beans are a commodity, it is best to produce for specialized buyers or “direct” buyers. Askinosie Chocolate of Missouri buys direct from Davao at more than twice the world price. ACDI/VOCA conducted a value chain study in 2010.14

Market linkage. The cacao tree is a good intercrop under coconut trees. The fertilizer used will also benefit the coconut farmers. The marketing of cocoa beans can use the marketing channel of copra.

12 Delfi Foods, Inc. manufactures chocolates and food products. The company was formerly known as Goya, Inc. and is based Marikina City, Philippines. Delfi Foods, Inc. operates as a subsidiary of Petra Foods Ltd (Bloomberg)

13 ACDI/VOCA (2010). Cocopal Value Chain Analysis by Adam Keatts and Christopher Root

14 ACDI/VOCA (2010). Cocopal Value Chain Analysis by Adam Keatts and Christopher Root.


Financials• Investment requirements. The investment cost is about PhP35,000 per ha. It

will take two years for the first harvest, which is minimal.• Financial returns. Three scenarios were adopted: (a) base case, (b) crossover

return of 15%, and (b) high return. The cost and returns derived from key informants are considered base case.

• Yield can average 3.3 tons of wet beans per ha. The prevailing price is about P27,500 or P27.50 per kilo. At 3.6 tons yield level, it could generate PhP100,000 in revenues. The net income is at least PhP 35,000 per ha.

• Financial risk analyses. The major risk to the project is the occurrence of pests and diseases and the low fertilization rate that would reduce yield and profits.

• Management strategies. The strategies to reduce risk are: (a) technical advice to the farmers on proper cultural management practices; (b) strengthening and harmonizing the linkage of the farmers to the processors; and (c) nursery development to sustain production. (See Annex C5)

SEAWEEDS

Market. Tawi Tawi and Sulu account for more than half of national production of seaweeds. Most are sold dried. They are moved to Cebu and Zamboanga City for processing into pet food and food grain carrageenan. While the crop is important, it is losing competitiveness to Indonesia.

Value Chain. There are buying agents of dried seaweeds all over Mindanao, especially in Tawi Tawi, Sulu and Zamboanga City. Part is processed in Zamboanga, but most are shipped to Cebu where there are about ten processors. The main exports are Philippine Natural Grade carrageenan. Among the key buyers are: Marcel Trading, Shemberg Marketing, FMC Marine Colloid, and CP Kelco. Most of the products are exported as carageenan, which has wide food applications. The Philippines imports dried seaweeds from Indonesia because of lack of local supply.

Market linkage analyses. Seaweed trading system is fairly established in Western Mindanao. They benefit many coastal communities. The current problem is shortage of supply and unstable prices. As a result of the former, processors are importing from Indonesia, which has lower prices. The major constraint facing farmers is access to credit. Because of the sad experience of non-repayment and even polevaulting, very few traders (and more so banks) are willing to fund advances. The tight credit situation in the industry, which has been blamed for recent declines in the country’s overall seaweed production, calls for sustainable models for effective credit delivery to seaweed farmers..

Financials• Investment requirement. The cost per 45-day crop cycle is PhP 58,800, including

labor, and PhP39,600, excluding labor. • Financial returns. A crop cycle generates a return to total cost of nearly 60%.


• Financial risk analyses. There are several climatic and environmental risks in seaweed growing. Among these are: El Nino episode which raises sea temperature, water pollution, and strong waves which dramatically reduce yield and quality.

• Management strategies. A strong technical support is needed to address farm and post harvest practices.

Table 15. Average Costs and Returns of Seaweed Production Per Hectare (Mid-2011)

Particulars Quantity Unit Price (PhP)

Total (Php)

REVENUES

Production (kg, dried) 2,080

Total Revenues 45 93,600

COSTS

Seedlings (kg) 5,500 5 27,500

Labor (MD) 128 150 19,200

Supplies 8,000

Food expense 600

Repairs and improvements 3,500

Total Costs 58,800

NET RETURNS, before labor 54,000

NET RETURNS, after labor 34,800

Seaweed farming appears profitable but it needs continuous flow of credit to the farms.The low repayment rates have discouraged many traders.

PROJECT FINANCIAL INTERNAL RATES OF RETURN (FIRR)Each crop choice is subjected to financial return analysis and sensitivity analyses. The base case scenario data were provided by the following experts:

• Coconut: Dr. Severino Magat and Liberty Canja, PCA• Oil Palm: Mr. CK Chang, Agumil Group• Rubber: Antonio Jose and others (UA&P Center for Food and AgriBusiness)• Coffee: Joel Lumagbas, Agribusiness Consultant• Cacao: Josephine Ramos, Cocoa Foundation.

As much as possible, the data were updated near 2010-2011 prices.

Financial Rates of ReturnThe FIRR of the four crops ranged from 26 % to 48% at base case. Subjecting each project cash flow to cross-value value of 15% FIRR showed that the farm yield (or farm price) would have to fall by 22% (cacao) to 40% (rubber) before the project turns non-viable.


Table 16. Comparative FIRR and Sensitivity Analyses

Scenario Oil Palm Rubber Coffee Cacao

Base Case IRR, % 28 26 38 48

Sensitivity of IRR Changed in Yield or Farm Price, %

Hurdle Rate:

15% -33 -40 -22 -24

25% -8 -3 -13 -18

Memo item:Evaluation period, years 25 20 10 10

Coconut fertilization, given its short gestation period, is analyzed separately given its all-positive cashflow over a five-year evaluation period. Under common salt fertilization, the return to cost will increase from 258% in Year 1 to 397% in Year 2-5. Under the multi-nutrient fertilization, the return to cost will increase from 155% in Year 1 to 398% in Year 2, and 822% in Years 3-5. Coconut fertilization is a superior investment. In the medium-term coconut replanting will have to be considered.

Table 17. Coconut Financials: Return to Costs

Scenario Common Salt Fertilization Multi-nutrient Fertilization

Base Case

Return to Costs, %

After 1 year 258 155

After 2 years 347 398




WORLD PRICE TRENDS

World prices will continue to be strong as compared to 2000 levels and despite possible corrections from the peak of 2010-2011. The long-term price (2020) will be about 40 to 60% of the 2011 US$ prices, but still 50 to over 100% of 2000 levels. This makes investing in tree crops a viable and sustainable alternative for ARMM, provided crop management practices are observed.


Table 18. World Commodity Price Prospect (US$ cents per kilo, except coconut and palm oils, in $/ton, All in current $)

Product 2000 2009 2010 2011 (1-8) 2012 2015 2020

Coconut oil 450 725 1125 1,916 1,300 850 780

Palm oil 310 683 901 1,171 900 800 715

Rubber, TSR 20 67 192 365 531 300 240 220

Coffee, Arabica 192 317 432 620 450 330 280

Coffee, robusta 91 164 174 251 200 160 150

Cocoa 91 289 313 318 260 220 200Source: World Bank. Price Forecasts as of June 2011

BUSINESS MODELS

Crop Choice

Every community is free to choose which crop they prefer following evaluation of the market, technical, financial and management aspects. Table 19 lists the advantages and constraints of each crop.

Table 19. Advantages and Constraints of Crop ChoiceCrop Advantages Constraints Impact

Coconut replanting-saltQuick-yielding, short gestation (one year)Low investment

Delivery of fertilizersFertilizer applied Very large

Coconut replanting-MNF

Quick-yielding, short gestation(one year)Low investment

Delivery of fertilizersFertilizer applied Very large

Oil palm Medium (2 to 3 years)High investment Land access Large

Rubber Long (3.5 to 6 years)High investment Land access Large

CoffeeMedium (2 years)Medium InvestmentCoconut intercrop

Requires high altitudes (for Arabica coffee) Large

Cacao MediumCoconut intercrop

Pest and disease controlAccess to fermentation plant Large

Saba banana Short-gestatingCoconut intercrop Perishable Medium

Cross-cutting

Long-term financing for oil palm, rubber, coffee and cacaoImplementation modelsEnabling environment

Large

Preferred Management SchemeThe community must choose the management option they prefer. There should be little perceptions that the crop and management schemes are imposed externally.


Table 20. Advantages and Constraints of Various Schemes

Scheme Advantages Constraints

Individual farm IndependentSmall, fragmentedNo scaleAccess to financing and market

CorporateScaleAccess to market, financing Land access

Land consolidation

NGO Managed Access to market, technology, and maybe finance

Very few NGOs with track record on tree crop development

Contract farmingSmall farms and coops can participateAccess to market and financing

Farmers: Farm tied to the companyCompany: Polevaulting

Develop-maintain-transfer

High standard of plantation managementTechnology transfer to beneficiariesScale

Large investment requirement for large number of beneficiariesNational govt/ODA engagement

There are several management options: • Datu Paglas Model• Contract Farming• Cluster Farming• NGO managed • Develop-Manage-Transfer (a la FELDA or FELCRA central management)

Paglas Model

The Paglas model shows the critical role of an enlightened leader in providing assurance of stability to external investors. Mayor Datu Ibrahim “Toto” Paglas consolidated the land for long-term lease to the banana investor. In return, he was “appointed” as the sole provider of plantation labor and trucking services – both involve substantial resource capture.

Box 2: Paglas Model: Players and Roles

Local External

Player Mayor Paglas Investor

Contributions Consolidated LandInvestment in banana plantations and pack-ing house

Gains Land lease incomeEmployment

Large tract of landStable operation

Convergence Economic and Social ProfitJob creation for less empowered (poor)Multiplier effects


Much has been written about Paglas. This model was effective because of Mayor Paglas’ leadership ability, can-do character, lineage, and strong ties to the powers that be in the field, including MILF.15 Moreover, there was a group of investors with familiarity of the area who was willing to take risks given the potential high returns from good soils and relatively lower cost of labor than in Christian-dominated regions.16

The Paglas model is not easily replicable. One needs the confluence of two “ideal” parties to “close the deal.”

Figure 1. Commercial Plantation Model

Contract Farming

This is a common model for broiler, vegetable, seeds, oil palm and Cavendish banana in many areas of the country. Broiler and banana are capital intensive. Small farms like coconut, oil palm and rubber will be more appropriate for small holders.

15 Datu Ibrahim “Toto” Paglas was a nephew of Hashim Salamat, the MILF founder.

16 The group of Senen Bacani, who was a veteran in agribusiness in the area.

28 The Business Models

This is a tested model in many parts of the country, and it can work with local entrepreneurs (though few and far between) or a leader-entrepreneur-intermediary. He will provide the capital investments, consolidate the lands, and assemble the harvest for delivery to the processors. There are limited cases for this option except for mayors and their families planting oil palm in Maguindanao.

Figure 2. Contract Growing

Nucleus estate is a variant of contract farming. Sugar mill districts as practiced in the past were prime examples. Due to agrarian reform, the “true” nucleus scheme has limitations in the Philippines. To acquire land for a plant and nucleus plantation for oil palm will need about 2,000 ha.

NGO-managed model

This model involves an NGO (with track record) to organize small holders for a development project with external assistance. The Kasanyangan Foundation, founded in 2005 and based in Zamboanga City, works closely with small farmers and communities.

The Business Models 29

Figure 3. Nucleus Estate

Box 3: Agumil Oil Palm Model: Players and Roles

Local Growers External

Player Landed ElitePolitical Elite Investor

Contributions Lan Management

Certified Seedling and other farm inputs Palm oil mill Technical assis-tance

Gains Farm Profits Mill Profits

Convergence Economic Profits

Note: Land Bank lends to Agumil for latter to advance seedlings and inputs


Working with two LGUs (Esperanza and Bayugan, Agusan Sur), and supported by Codespa-Agencia Espanola de Cooperacion Internationacional para el Desarollo (AECID) and Oxfam Mindanao, the Foundation leads a program that has enabled 400 farm households in less than three years to establish viable, high value farms that are fully planted with superior varieties of rubber at one hectare each household. While waiting for rubber trees to be tapped for latex, the smallholders engage in secondary crops such as banana, vegetables, and corn. The Foundation’s own literature states thus:

“One-hectare farm at full development increase significantly in asset value and current farm gate prices, and yield incomes well in excess of the rural income-poverty threshold for a family of five. Poor households are keen to develop this productive asset, but are constrained by both knowledge and skills in farm design, establishment and maintenance and the entry costs, the bulk of which is the cost of acquiring 500 high-quality seedlings. Based on community consultations and consensus processes, and with the participation of local government and development agencies, a program evolved that allowed households to purchase the full seedling requirements for farms at half their commercial costs, with the remaining subsidy shared between the local governments and international cooperation assistance.

To meet the quality standards and quantities of seedlings required for the program and to keep their production and sales price low, the Foundation with counterpart contributions from the provincial government, established and operated a central rubber nursery in Bayugan exploiting the scale economies provided by the large demand for seedlings under the program.”

Today, the Agusan del Sur Central Rubber Nursery and Smallholder Field School is the largest rubber nursery of its kind in Mindanao with capacities to produce in excess of 250,000 seedlings a year, good for 500 ha.

The program assists participant smallholders in enhancing production and marketing their secondary crops. In parallel, rubber establishment and maintenance is undertaken under close training and supervision. The program’s implementing, farm monitoring and farm extension capacity, is broadly extended by the participation of LGU agricultural personnel and specialists as well as barangay (village)- based farmer para-technicians drawn from farmers who had previously developed their plots. About half of the current participants are women smallholders who lead participation of their households in the program. There has been a discernibly larger crop output from communities that have been covered thus far under the program, and a continuing demand to extend coverage to more communities.

Centralized Management Scheme (CMS)

CMS originated in Malaysia. In the 1950s, foreign-owned plantations had high standards of management in rubber and oil palm. By contrast, smallholders achieved low yields. The high rural poverty is also attributed to small, uneconomic holdings or landlessness. Deputy Prime Minister Tun Abdul Razak thought of a land agency that combines the high


standard of plantation management, a good crop with large market, and State lands to reduce rural poverty combined with township development. Thus was born the Federal Land Development Authority (FELDA) in 1957 under the Ministry of Land and Regional Development. There were four main actors:

• State government released the land for development, and helped identify settler-beneficiaries

• FELDA was responsible for land development and crop establishment• Federal government provided the funding for development sourced internally

or from the World Bank• Settlers who benefited repaid the loans for crop establishment

Settlers were given about four hectares each under a block management by FELDA. To attain high plantation standards, FELDA employed contractors for land development and crop establishment. Settlers were hired as maintenance workers in their own blocks but paid wages. Meanwhile, the contractors withdrew after two years from planting, and FELDA took over with the settlers as laborers. The settler earns incomes both from dividends from the estate, net of loan repayment, and from wages if they work.FELDA became the most successful land agency in the world and heavily contributed to rural poverty reduction in Malaysia. Critics felt that the cost per family for settlement was excessive at US$12,000 which included housing, roads, schools, mosques, etc. It could be true, but the success of FELDA is the development and management of rubber and oil palm estates according to global standards. As a result, settlers earn incomes way above poverty threshold.17

Develop-Manage-Transfer Scheme

The Philippines has no tradition of efficient land agencies unlike Malaysia. However, there is a second-best solution for the “big push” projects which can benefit many families. This is for government to employ agriculture contractors to develop plantations with global standards. The beneficiaries will work in the land development, and the contractor will turn over to the beneficiaries the project after, say, three years from planting of oil palm. A smaller crew may be left behind for another two years if needed.

The project could seek financial support from the ODA community, including Islamic banks.

17 See Glover, David and Lim Teck Ghee (1992). Contract Farming in Southeast Asia: Three Country Studies.


Figure 4. Centralized Management Schemes (FELDA and FELCRA)


PART II. INVESTMENT-ENABLING MEASURES

ARMM has tremendous potentials for agribusiness development. It has the agro-climatic endowment, an important ingredient in economics of location. So far, the feedback on coconut, rubber, oil palm, coffee and cacao appears favorable.

Access to land remains a major problem, especially for long-term crops. The political- economic structure is important in identifying the change agents.

Key Issues for Investors

• Who are the Future Agribusiness Partners? The Paglas model is successful because of the “rare” local leader, the late Toto Paglas, a man who is at ease in the traditional Maguindanao culture and the “modern” management culture.

• Ready-to-Go Lands and Security of Tenure. After an investor (or an ODA funded project) has found a partner, there must be assurances that the land is freed of encumbrances. This finds even more importance in tree crops development.

• Land Consolidation. Large consolidated lands are ideal if the strategy is to attract large investors. However, for a smallholder development approach, large contiguous areas will not be needed provided: (a) the project sites are near processing plants; and (b) road access is good to the “satellite areas”.

Barriers to Investments and Corresponding Approaches

Social Structure and Entrepreneurship. The social structure of ARMM contrasts notably with most of Mindanao. The former has a feudal structure, wealth and power are inherited, and grassroots entrepreneurship is stifled. By contrast, non-ARMM areas are mostly populated by educated immigrants, more egalitarian, and natural risk-takers.

The social structure impacts on access to land. While the powers that be have relatively easier access, the masses have limited access. This makes entry of “outside investors” difficult without “accommodating” those who wield power. Leaders from within like Datu Ibrahim “Toto” Paglas can change this system and benefit the community. Also, anecdotal evidence points that unclear property rights severely impact land access. Cases of multiple claimants are reported.

The classic case is the failed Janoub Holdings oil palm project in Tagaloan, Lanao del Sur. It was a result of a high-level meeting between Prime Minister Mahathir Mohammad and President Fidel Ramos to develop 30,000 hectares of oil palm in ARMM. The Malaysian partner was cash-rich Tabung Hajj (Malaysian Pilgrims Board). The 6,000-ha project in the said locality was only a “starter” for a larger, longer-term development project with Tabung Hajj funding. The project failed for many reasons including land access and conflicting


ownership. The planted and harvestible area of about 500 hectares could not be harvested to this date due to multiple claimants.

To address this concern, there is need to identify potential leaders (mayors) who will have significant support in developing and managing projects.

Access to capital. High poverty, small holdings, and lack of titles to land combined to make a capital lack in the ARMM areas even if the land ownership is “secure.” The constraint is widespread all over the country, but is deeply ingrained in ARMM. The vicious cycle of poverty is evident--low income means low savings leading to low investments. Since most of the potential beneficiaries are poor, government intervention will be critical for poverty reduction.

It is thus advisable to start with a model project. After the land has been identified, claimants must be identified and convinced to support the project. Their land will become equity contributions or leased. Since most of the beneficiaries are Muslims, the Islamic banks overseas can be tapped.

Local Governance. Poor governance has always been a major constraint in many regions of the country. The tribal power structure in ARMM exacerbates this situation. There is an intertwining and concentration of political, tribal and economic power in a few families. The clans decide political succession, and there are a few clans competing. This is not to say that in the non-ARMM (Davao and other regions) areas, this malady does not exist. However, the voters in the latter are “free to choose” their leaders. This leads to abuse of power and for “elected” officials to ignore the real needs of their constituencies.

The internal revenue allotment (IRA) is the major source of funds for LGUs. According to the law, at least 20 % of IRA will be allocated for economic development. This almost always means agriculture and fishery, but as expected, the law is almost meaningless in many communities. Anecdotal evidence of big spending for ARMM officials and their families are well known in the shopping areas of Davao City.

The government and ODA community must “vote with their pockets” in supporting good leaders in the region. First, a master agribusiness development plan can be crafted, projects identified, and implemented with external consultants, if needed.

Infrastructure. Infrastructure remains a constraint in most regions. However, from field observations, Northern Luzon (Cagayan, Isabela and Pangasinan), Central Luzon (Nueva Ecija), Western Visayas (Capiz and Iloilo), and many parts of Mindanao (Davao, Bukidnon) appear to have better infrastructure.I attribute this to local revenue generation, efficient use of IRA, and respect of technical standards of construction.

Rubber, coconut, coffee, and cacao are not perishable after first processing on-farm. Rubber cup lumps, coffee and cacao beans can be stored. They can be transported even on

References 35

carabao and tricycles. Nevertheless, bigger volumes would need light trucks or jeepneys, and they would require good roads.

Oil palm fruits are perishable and must be processed in 24 hours to maintain oil quality. The fruit bunches are heavy and will need light trucks (3-tonner) as carrier at the minimum. Thus, road access is important from the farm to the highway.

When the proposed agribusiness development area has been selected, an infrastructure plan must be developed even before the start of crop establishment. Small public-private partnerships can be encouraged with the NG and LGU building the roads, and the private investor commits to maintenance.

REFERENCES

Agriculture-Fisheries 2025. Briefing Updates on Coconut, Sugar, Rubber, Coffee, and Cassava (2011).Briefing Kit (1997). National Rubber Industry Congress, Davao CityDepartment of Agriculture (1998). Rubber Development Program Document.Dy, Rolando et al (2011). The Business of Agribusiness: From the Roots to the Fruits.University of Asia and the Pacific. Pasig CityDy, Rolando (2009). Food for Thought: How Agribusiness is Feeding the World. University of Asia and

the Pacific. Pasig CityGovernment of the Philippines, International Funding Agencies, and Mindanao Stakeholders (2005).

Joint Needs Assessment for Reconstruction and Development of Conflict-Affected Areas in Mindanao. Integrative Report.

Grover, David and Ken Kusterer (1990). Small Farmers, Big Business. MacMillan. London.----------------- and Lim Teck Ghee (1992). Contract Farming in Southeast Asia: Three Country Studies.

University of Malaya. Kuala Lumpur.Indonesian Chamber of Commerce and Industry (KADIN) (2010). Feed the World. Japan International Cooperation Agency and Department of Public Works and Highways -ARMM

(2010). The Study on Infrastructure (Road Network) Development Plan for the ARMM. Final Report. CTI Engineering International Co. Ltd and Yachiyo Engineering Co. Ltd.

National Economic and Development Authority (2011). Philippine Development Plan, 2011-2016.Office of the President in Mindanao (1996). Mindanao 2020. Agriculture Chapter.Pamplona, Pablito (2011). Status of the Palm Oil Industry. Briefing Paper. August 2011.Personal Conversation with Mr. Escalona (2011). Oil palm Farmer in Compostela Valley.Personal Conversation with Chan Lok Lim (2011). Chair of the Agumil GroupPersonal Conversation with Antonio Avelino (2011). Sirawai Plywood and Timber Company, a large

rubber producer and processor.Personal Conversation with Antonio Jose, Dep. Director, Kasanyangan Foundation, Zamboanga City.

October 2011.World Bank (2011). Price Prospects of Commodities. Pink Sheet-----------------(2008). World Development Report 2008: Agriculture for Development.

36 ANNEX A: Selected Agricultural Statistics in ARMM

ANNEX A. SELECTED AGRICULTURAL STATISTICS IN ARMM

Number and Physical Area of Farms, 2002 Census (latest)

Province Number of Farms

Physical Area of Farms (ha)

Average Farm Size (ha)

Maguindanao 96,089 221,174 2.3

Lanao del Sur 64,813 140,111 2.2

Basilan 25,344 82,480 3.2

Sulu 49,392 59,501 1.2

Tawi Tawi 13,890 30,144 2.2

ARMM 248,528 533,410 2.1Source: NSO, Census of Agriculture, 2002

Physical Areas of Farms by Specific Crops, 2002 Census (Latest)ARMM Maguindanao Lanao Sur Basilan Sulu Tawi Tawi

All Farms 533,410 221,174 140,111 82,480 59,501 30,144TemporaryCrops 276,239 166,824 98,085 955 3,393 6,982

-Palay 108,556 68,583 36,719 450 644 2,161

-Corn 149,645 93,367 55,214 159 312 593

-Sugar 1,437 119 1,267 - 1 50

-Tobacco 154 154 - - - -

-Rootcrops 11,113 2,097 2,730 328 1,928 4,030

-Vegies 1,110 301 555 17 173 63

-Others 1,868 1,277 402 1 156 31

Not reported 2,357 926 1,198 1 179 53PermanentCrops 255,676 81,356 41,488 53,758 56,017 23,058

Citrus 3,920 478 597 1,185 996 664

Banana 14,243 2,350 2,991 5,172 1,697 2,034

Mango 5,853 481 833 2,907 1,116 516

Coconut 201,769 65,438 29,395 39,687 48,553 18,697

Coffee 6,936 922 3,224 1,310 1,061 419

Pineapple 69 44 - 19 - 5

Fiber Crops 1,492 19 546 288 638 1

Others 18,438 12,359 (a 2,496 2,279 1,721 582

ANNEX A: Selected Agricultural Statistics in ARMM 37

Not reported 2,957 2645 1,406 912 234 139Source: NSO, 2002Farms by Tenure by Province, 2002

ARMM Maguindanao Lanao Sur Basilan Sulu Tawi Tawi

All Farms 248,528 95,089 64,813 25,344 49,392 13,890

%:

Owned 65.5 57.2 63.5 83.9 70.4 77.9

Partly owned 13.9 20.1 13.0 7.0 9.8 3.0

Tenanted 12.2 12.3 11.6 5.1 16.4 13.0

Leased 3.8 4.6 6.7 1.0 0.8 0.4

Others 4.0 5.0 4.4 2.9 1.8 5.3

Not reported 0.7 0.8 0.8 0.1 0.9 0.3Farm Areas

(ha) 533,410 221,174 140,111 82,480 59,501 30,144

%

Owned 66.1 59.7 64.1 84.8 65.3 73.9

Partly owned 17.8 23.1 17.4 8.5 17.6 6.8

Tenanted 10.3 10.6 10.0 5.1 14.4 15.3

Leased 3.0 3.5 5.0 0.7 0.6 0.2

Others 2.2 2.4 3.0 0.8 1.4 3.7

Not reported 0.5 0.7 0.6 0.1 0.7 0.1Source: NSO, 2002

Planted Areas 2002ARMM Maguindanao Lanao Sur Basilan Sulu Tawi Tawi

Top Temporary CropsCorn 271,712 164,074 103,071 1,670 1,313 1,585

Palay 155,459 100,950 50,448 1,193 1,192 1,676

Rootcrops 29,678 1,272 8,248 2,351 7,418 10,383

Leguminous plants 6,518 4,849 2,829

Peanuts 6,335 2,502 2,061 99 640 266

Fruit Bearing Vege 95 795 333

SugarcaneSource: NSO, 2002

38 ANNEX A: Selected Agricultural Statistics in ARMM

Permanent Crops 2002 (Number of Hills, ‘000)


Top Permanent Crops

Coconut 19,172 3,768 2,632 5,087 4,760 2,044

Banana 5,761 2,497 1,015 878 972 398

Coffee, arabica 3,524 1,334 1,430 673

Coffee, robusta 2,055 468 1,151

Rubber 1,842 1,775

Cacao 903

Abaca 274 550 290

Lanzones 156

Durian 98

Mango 27

Jackfruit 21

Papaya 18Source: NSO, 2002

Irrigated Areas, 2002


NIS 32,415 27,170 3,410 717 601 519

CIS 21,447 10,225 5,664 4,518 557 484

Individual 40,825 14,455 13,291 3,613 5,525 3,943

Others 16,436 2,892 6,262 4,291 1,419 1,572

Total 111,124 54,741 28,526 13,138 8,101 6,518Source: NSO, Census of 2002

Key Economic Base by Harvested Areas, 2010 (in hectares)

Product Lanao Sur Maguindanao Basilan Sulu Tawi Tawi

Coconut 46,380 94,355 68,003 66,850 40,057

Corn, white 100,795 148,184 681 1,389 1,772

Corn, yellow 13,558 45,950 … … …

Rice 60,494 142,804 1,888 1,853 681

ANNEX A: Selected Agricultural Statistics in ARMM 39

Cassava 29,220 815 17,224 27,826 18,944

Banana 4,915 16,286 7,094 2,532 725

Rubber 75 1,110 20,849 … …

Coffee 2,440 4,291 3,296 3,579 129

Sugarcane

Oil Palm 500* 3,000 … … …

40 ANNEX B: Financials

ANNEX B. FINANCIALS

B1. Coconut

C o c o n u t F er tiliz atio n B u dg et (C o mmo n S alt Applic atio n o n ly)At 2011 P r icesC o s t in 2008 P r ic es

P AR T IC UL AR Y ear 0 Y ear 1 Y ear 2 Y ear 3 Y ear 4 Y ear 5

WIT H FE R T ILIZAT IO NYield (Copra/tree, kg) 10 13 15 15 15 15 Trees (123/ha) 123 123 123 123 123 123 Copra/ha kg 1,230 1,538 1,845 1,845 1,845 1,845 Price (Php/kg) Current ave. 2011 30 30 30 30 30 30 GROSS RETURNS, Php 36,900 46,125 55,350 55,350 55,350 55,350

PRODUCTION COSTCommon Salt (NaCl), kg/tree - 2 2 2 1 1

kg/ha - 246 246 246 123 123 kg/ha at P7/kg - 7 7 7 7 7 P/ha - 1,722 1,722 1,722 861 861

Labor and other costs 3,881 8,343 8,404 8,404 8,404 8,404 Total Cost 3,881 10,065 10,126 10,126 9,265 9,265 Net Return 33,019 36,060 45,224 45,224 46,085 46,085

WIT HO UT FE R T IL IZAT IO NYield (Copra/tree) 10 10 10 10 10 10 No. of trees/ha 123 123 123 123 123 123 Copra/ha, kg 1,230 1,230 1,230 1,230 1,230 1,230 Price (Php/kg) 30 30 30 30 30 30 GROSS RETURNS 36,900 36,900 36,900 36,900 36,900 36,900

PRODUCTION COSTCommon Salt (NaCl), 2kg/tree - - - - - -

246kg/ha - - - - - - kg/ha at P7/kg - - - - - -

Labor 3,881 3,881 3,881 3,881 3,881 3,881 Total Cost 3,881 3,881 3,881 3,881 3,881 3,881 Net Return 33,019 33,019 33,019 33,019 33,019 33,019

INC R E ME NT AL R E T UR NS - 3,041 12,205 12,205 13,066 13,066

% change from base - 9 37 37 40 40 multiple of base 1.00 1.09 1.37 1.37 1.40 1.40

S ourc e: S everino Magat and L iberty C anja

ANNEX B: Financials 41

D etailed C o s ts : S alt F er tiliz atio n

P AR T IC ULAR Y ear 0 Y ear 1 Y ear 2 Y ear 3 Y ear 4 Y ear 5

WIT H S ALT (NaC l)

1. FertilizerRate/tree, kg 2 2 2 1 1 Rate/ha, kg 246 246 246 123 123 Price/kg, Php 7 7 7 7 7 Total Cost 1,722 1,722 1,722 861 861

2. Pesticides, Php 1,100 1,100 1,100 1,100 1,100

3. Labor (days)Ring Weeding 14 14 14 14 14 Pesticide application 1 1 1 1 1 Fertilizer application 2 2 2 2 2 Total labor days 17 17 17 17 17 Unit labor cost/day, Php 200 200 200 200 200 Total labor cost 3,300 3,300 3,300 3,300 3,300

4. Harvesting (Price Rate)9x9m=123

Per Tree 3 3 3 3 3 No of trees 123 123 123 123 123 No of times per year 6 6 6 6 6 Total harvesting cost 2,435 2,435 2,435 2,435 2,435

5. Piling and HaulingNo. of days 2 2 2 2 2 No. of times per year 6 6 6 6 6 Rate Php/day 100 100 100 100 100 Total Cost 1,200 1,200 1,200 1,200 1,200

6. Dehusking, P80/1000 nuts 123 148 148 148 148

7. Copra making, P120/1000 nuts 185 221 221 221 221

T O T AL C O S T 10,065 10,126 10,126 9,265 9,265



C OC ONUT F E R T IL IZAT ION(with Mu lti Nu tr ien t F er tiliz er )MNF (NP K -C I-S -B )14-5-20


WIT H FE R T ILIZAT IO NYield/tree, copra kg 10 15 20 25 25 25 Tree/ha 123 123 123 123 123 123 Copra/ha, kg 1,230 1,845 2,460 3,075 3,075 3,075 Price, Php/kg at 35 30 30 30 30 30 30 GROSS RETURNS, Php 36,900 55,350 73,800 92,250 92,250 92,250

PRODUCTION COSTFertilizer MNF kg/tree - 3 2 1 1 1

kg/ha - 369 246 123 123 123 Php/kg, at 27 - 27 27 27 27 27 Php/ha - 9,963 6,642 3,321 3,321 3,321

Labor and other costs 3,881 5,643 5,704 5,704 5,704 5,704 Total Cost 3,881 15,606 12,346 9,025 9,025 9,025 Net Returns 33,019 39,744 61,454 83,225 83,225 83,225

WIT HO UT FE R T IL IZAT IO NYield/tree, copra kg 10 10 10 10 10 10 Trees/ha 123 123 123 123 123 123 Copra/ha 1,230 1,230 1,230 1,230 1,230 1,230 Price, Php/kg at 39 30 30 30 30 30 30 GROSS RETURNS 36,900 36,900 36,900 36,900 36,900 36,900

PRODUCTION COSTFertilizer - - - - - - Labor 3,881 3,881 3,881 3,881 3,881 3,881

Total Cost 3,881 3,881 3,881 3,881 3,881 3,881 Net Returns 33,019 33,019 33,019 33,019 33,019 33,019

Incremental Returns, Php - 6,725 28,435 50,206 50,206 50,206

% change from base - 20 86 152 152 152 multiple of base 1.00 1.20 1.86 2.52 2.52 2.52



C o c o n u t: D etailed C o s t with MF N


1. FertilizerRate/tree 3 2 1 1 1

kg/ha 369 246 123 123 123 Php/kg, at 27 27 27 27 27 27 Total Cost 9,963 6,642 3,321 3,321 3,321

2. Pesticides 1,100 1,100 1,100 1,100 1,100

3. Labor (days)Ring Weeding - - - - - Pesticide App 1 1 1 1 1 Fertilizer App 2 2 2 2 2

Total labor days 3 3 3 3 3 Unit cost of labor 200 200 200 200 200 Total labor cost 600 600 600 600 600

4. Harvesting (Price Rate)Per Tree 3 3 3 3 3 No of trees 123 123 123 123 123 No of times per year 6 6 6 6 6 Total harvesting cost 2,435 2,435 2,435 2,435 2,435

5. Piling and HaulingNo. of days 2 2 2 2 2 No. of times per year 6 6 6 6 6 Rate Php/day 100 100 100 100 100 Total Cost 1,200 1,200 1,200 1,200 1,200

6. Dehusking, P80/1000 nuts 123 148 148 148 148

7. Copra making, P120/1000 nuts 185 221 221 221 221

T O T AL C O S T 15,606 12,346 9,025 9,025 9,025



B2. Oil Palm

OIL P AL M D E V E L OP ME NT E XP E ND IT UR E SIn P es o s P er Hec tar e

P AR T IC UL AR MD Unit T otal Y ear 1 Y ear 2 Y ear 3 Y ear 4

C LE AR ING 7,000 Underbushing (manual slashing) 10 200 2,000 Falling and Bucking (chainsaw operations) 4 750 3,000 Stacking and Burning (manual piling) 10 200 2,000

P LANT ING 21,280 Seedling Cost (inclusive of 3% mortality), per seedling 132 125 16,500 Lining and Staking 2 200 400 Holing 8 200 1,600 Loading/Transport/Unloading, per seedling 132 15 1,980 In-Field Hauling/Planting/Basal Application 4 200 800

C O VE R C R O P P LANT ING 1,400 Cost of Seeds C. caerelium, in kilos 4 120 480 C. muconoides, in kilos 1 120 120 Cost of labor 4 200 800

WE E DING 5,400 5,400 4,000 3,250 Circle-Manual 11 200 2,200 Blaket Slashing 16 200 3,200

FE R T IL IZE R AP P L IC AT IO N 19,298 23,260 32,402 36,610 Bio-organic fertilizer, in bags 1 1,000 1,000 Complete (14-14-14), in bags including transport 6 1,920 12,288 Rock Phosphate (cover crops), in bags including transport 3 1,870 5,610 Kieserite, in bags including transport 1 1,970 1,970 Complete (14-14-14), in bags including transport 11 1,920 20,890 Muriate of Potash, in bags including transport 2 1,870 3,740 Complete (14-14-14), in bags including transport 15 1,920 28,262 Muriate of Potash, in bags including transport 10 1,870 18,700 Ammosul, in bags including transport 8 1,020 8,160 Rock Phosphate (cover crops), in bags including transport 5 1,870 9,350 Labor 2 200 400 400 400 400

P E S T AND DIS E AS E C O NT R O L 1,293 Rat Netting Materials, per net 132 3 422 Rat Netting Labor, per net 132 1 158 Rat Baiting, per palm 1 132 112 Rhinoceros Bettle Control, lumpsum 600

OIL P A L M C OS T A ND R E T U R N

U s in g 2010 E s tim ate

P AR T ICUL AR Y e a r 1 Y e a r 2 Y e a r 3 Y e a r 4 Y e a r 5 Y e a r 6 Y e a r 7 Y e a r 8 Y e a r 9 Y e a r 1 0 Y e a r 1 1 Y e a r 1 2 Y e a r 1 3 Y e a r 1 4 Y e a r 1 5 Y e a r 1 6 Y e a r 1 7 Y e a r 1 8 Y e a r 1 9 Y e a r 2 0 Y e a r 2 1 Y e a r 2 2 Y e a r 2 3 Y e a r 2 4 Y e a r 2 5

C AS H INF L O W

Yie ld (ton ffb /ha ) 6 11 16 20 24 28 30 30 28 28 28 24 24 23 23 22 22 22 19 19 17 17

Fa rm Pric e (P/ton ) 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000 6 ,000

Tota l Revenues - - - 36 ,000 64 ,800 93,600 122 ,400 144 ,000 165,600 180 ,000 180,000 165 ,600 165 ,600 165 ,600 144 ,000 144 ,000 136,800 136,800 129 ,600 129 ,600 129 ,600 115 ,200 115,200 100,800 100 ,800

C AS H O UT F L O W

Deve lopm en t Cos t

Clea ring 7 ,000

Plan ting 21 ,280

Cover Crop Planting 1 ,400

Weed ing 5 ,400 5 ,400 4 ,000 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250 3 ,250

Fertiliz ation 19 ,298 23,260 32 ,402 36 ,610 36 ,610 36,610 36 ,610 36 ,610 36,610 36 ,610 36,610 36 ,610 36 ,610 36 ,610 36 ,610 36,610 36,610 36,610 36 ,610 36 ,610 36 ,610 36 ,610 36,610 36,610 36 ,610

Pes t and Dis eas e Con tro l 1 ,293 200 200 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165 165

Pla tfo rm Cons tru c tion /Cons erva tion 600 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Mou ld ing and Pro pp ing/Ab lation /San ita tion 400 400 400

Roads and Ma intenanc e 3 ,500 2 ,000 3 ,500 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000 2 ,000

Supe rvis ion 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500 1 ,500

Ha rves ting 6 ,400 7 ,000 8 ,200 10 ,200 10 ,800 12,200 12 ,800 13,200 13 ,200 12 ,600 12 ,600 11 ,600 11,600 11,200 11,200 10 ,800 10 ,800 10 ,800 10 ,200 10,200 9 ,400 9 ,400

Tota l Cos t 61 ,671 32,860 42 ,102 50 ,025 50 ,625 51,825 53 ,825 54 ,425 55,825 56 ,425 56,825 56 ,825 56 ,225 56 ,225 55 ,225 55,225 54,825 54,825 54 ,425 54 ,425 54 ,425 53 ,825 53,825 53,025 53 ,025

NE T C AS H F L O W (6 1 ,671 ) (32,860) (42 ,102 ) (14 ,025 ) 14 ,175 41,775 68 ,575 89 ,575 109,775 123 ,575 123,175 108 ,775 109 ,375 109 ,375 88 ,775 88,775 81,975 81,975 75 ,175 75 ,175 75 ,175 61 ,375 61,375 47,775 47 ,775

B AS E CAS E IR R 2 8 %

Y ie ld L e v e l s to a c h ie v e d e s ire d IR R bas e c as e 6 .000 10 .800 15.600 20 .400 24 .000 27.600 30 .000 30.000 27 .600 27 .600 27 .600 24 .000 24.000 22.800 22.800 21 .600 21 .600 21 .600 19 .200 19.200 16.800 16 .800

33% lowe r than bas e c as e 1 5 % 4 .020 7 .2 36 10.452 13 .668 16 .080 18.492 20 .100 20.100 18 .492 18 .492 18 .492 16 .080 16.080 15.276 15.276 14 .472 14 .472 14 .472 12 .864 12.864 11.256 11 .256

8% lowe r than bas e c as e 2 5 % 5 .520 9 .936 14.352 18 .768 22 .080 25.392 27 .600 27.600 25 .392 25 .392 25 .392 22 .080 22.080 20.976 20.976 19 .872 19 .872 19 .872 17 .664 17.664 15.456 15 .456

S o u rc e : C K Ch a n g , Ag u m il a n d UA&P -C F A

B3. Natural Rubber


B4. Coffee

R o bu s ta C o ffee C o s t an d R etu r nP er Hec tar e

P AR T IC ULAR Y ear 1 Y ear 2 Y ear 3 Y ear 4 Y ear 5 Y ear 6 Y ear 7 Y ear 8 Y ear 9 Y ear 10

C AS H INFLO WYield (kg dried-beans) - 300 750 1,000 1,000 1,000 1,000 900 900 900 Ave. Price (2011) (P/kg) - 80 80 80 80 80 80 80 80 80 T otal R evenues - 24,000 60,000 80,000 80,000 80,000 80,000 72,000 72,000 72,000

C AS H O UT FLO W

MATERIALS1. Seedlings

No. of Pieces 2,000 Average Price (P/pc) 9 cost 18,000

2. FertilizersNo. of bags-organic 17 34 34 34 34 34 34 34 34 34 x ave. price 250 250 250 250 250 250 250 250 250 250 cost 4,250 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500 8,500

No. of bags-inorganic 3 5 5 5 5 5 5 5 5 5 x ave. price 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 cost 4,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500

3. Chemicals 1,000 1,500 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 (Fungicides/insecticides)

4. Others (stakes, etc) 500 70 170 340 340 340 340 340 340 340

TOTAL MATERIALS 28,250 17,570 18,170 18,340 18,340 18,340 18,340 18,340 18,340 18,340

LABOR COST 22,000 9,800 18,100 30,700 30,700 30,700 23,950 20,325 20,325 20,325

T otal C os ts 50,250 27,370 36,270 49,040 49,040 49,040 42,290 38,665 38,665 38,665

NE T C AS H FL O W (50,250) (3,370) 23,730 30,960 30,960 30,960 37,710 33,335 33,335 33,335

B AS E C AS E IR R 38%

Y ield Levels to ac hieve des ired IR R base case 300 750 1,000 1,000 1,000 1,000 900 900 900 22% lower than base case 15% 234 585 780 780 780 780 702 702 702 13% lower than base case 25% 261 653 870 870 870 870 783 783 783

S ourc e: J oel L umagbas


B5. Cacao

C AC AO C O S T S AND R E T UR NS P E R HE C T AR E

P AR T IC ULAR Y ear 1 Y ear 2 Y ear 3 Y ear 4 Y ear 5 Y ear 6 Y ear 7 Y ear 8 Y ear 9 Y ear 10

CASH INFLOW

Wet Bean Production (ton) - 0.660 1.800 3.300 3.600 3.600 3.600 3.600 3.600 3.600 Price (P/ton) 27,500 27,500 27,500 27,500 27,500 27,500 27,500 27,500 27,500 27,500 Total Revenues - 18,150 49,500 90,750 99,000 99,000 99,000 99,000 99,000 99,000

- - - - - CASH OUTFLOW - - - - - Materials - - - - -

Tools 3,950 - - - - - - - - - Seedlings 11,000 - - - - - - - - - Dolomite (for soil pH correction) 525 525 525 525 525 525 525 525 525 525 Fertilizer - - - - - Complete 1,575 2,100 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 Muriate of Potash 0-0-60 148 182 2,812 2,964 4,613 4,613 4,613 4,613 4,613 4,613 Ammophos 16-20-0 308 384 477 728 783 783 783 783 783 783 Urea 45-0-0 278 329 1,097 1,197 1,814 1,814 1,814 1,814 1,814 1,814 Agri chemicals (for insects, black pod, canker) 600 1,200 1,800 2,400 2,400 2,400 2,400 2,400 2,400 2,400 Plastic sleeves for CPB control - 600 1,750 3,000 3,500 3,500 3,500 3,500 3,500 3,500 Provision for harvest baskets/sacks for pods/wet beans - 300 600 900 1,200 1,200 1,200 1,200 1,200 1,200

- - - - - Labor - - - - -

Clearing 750 - - - - - - - - - Layout / staking 450 - - - - - - - - - Digging of holes 2,500 - - - - - - - - - Planting 1,250 - - - - - - - - - Round weeding & mulching 7,500 5,000 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 Dolomite application / liming for soil pH correction 150 150 150 150 150 150 150 150 150 150 Fertilizer application 900 600 300 300 300 300 300 300 300 300 Pesticide spraying 1,800 1,800 900 900 900 900 900 900 900 900 Tree pruning, chupon pruning, shaping 1,200 1,800 1,800 2,400 2,400 2,400 2,400 2,400 2,400 2,400 Pod sleeving - 500 1,375 2,500 2,750 2,750 2,750 2,750 2,750 2,750 Harvesting, pod breaking - 6,600 18,000 33,000 36,000 36,000 36,000 36,000 36,000 36,000

- - - - - Total Costs 34,885 22,069 36,711 56,090 62,459 62,459 62,459 62,459 62,459 62,459

- - - - - NET CASH FLOW (34,885) (3,919) 12,789 34,660 36,541 36,541 36,541 36,541 36,541 36,541

B AS E C AS E IR R 48%

Y ield L evels to ac hieve des ired IR R base case 0.660 1.800 3.300 3.600 3.600 3.600 3.600 3.600 3.600 24% lower than base case 15% 0.505 1.377 2.525 2.754 2.754 2.754 2.754 2.754 2.754 18% lower than base case 25% 0.541 1.476 2.706 2.952 2.952 2.952 2.952 2.952 2.952

S ourc e: J os ephine R amos , C oc oaphil

booklet.policy paper 3.priming the armm through...

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