sugar plantation industry 2011 by boi.pdf

7/25/2019 Sugar Plantation Industry 2011 by BOI.pdf

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INVESTMENT OPPORTUNITY IN SUGARCANE PLANTATION

Introduction

The government is promoting the development of tracks of land in SouthernPhilippines into sugarcane plantations. A foreign investor engaged in food or beverageproduction which consumes a lot of sugar may invest in sugarcane production in thePhilippines to supply its sugar requirements. Although Philippine sugar cannot beexported directly, some forms of cost leverage on the foreign investors sugar from thePhilippines can be arranged. We also consider bioethanol as another source of revenue forthe sugar industry. Its demand in the domestic market is high and will further rise as thegovernment mandates the increase in the blend of bioethnol with all gasoline solddomestically.

Promotion of agribusiness projects like sugarcane plantations will make use of our

undeveloped or idle lands or existing farmlands where investments are needed to make

them more productive. Owners of undeveloped alienable and disposable lands, cultural

ancestral domain claimants (CADCs) and beneficiaries of agrarian reform programs

(ARBs) are important stakeholders.

Sugarcane production is highly desirable and very profitable. Supporting

computations done by an industry player prove its desirability. Furthermore, sugarcane

production is one of the governments priority activities that would be eligible for a

package of incentives under the Omnibus Investments Code.

Investment Opportunities

Most of the sugar produced in the country go to the domestic market. On top ofthis, we set aside about 200,000 tons to preserve preferential access to sugar exports tothe US. The Philippines tries to always honor its commitment to the US because it is agenerally favored market.

Normally, the industry is producing enough of what the country needs. It is forthis reason that area expansions in the industry are geared for the production of alternative

products. But sometimes, an El Nino-induced drought may damage crop resulting to low

harvest. The Sugar Regulatory Administration (SRA) determines if there is a need toimport sugar when the crop year ends and sugar millers had reported their actual sugarproductions. When the SRA sees that there will be a tight domestic supply, importationbecomes necessary for the government to ensure it keeps preferential export quotas to theUS and to maintain a buffer stock. Newcomers in the industry will have this market incase such phenomenon happens. But we dont want them to exist just to address theshortage in sugar when there is tight domestic supply.

The Mill District Development Committees (MDDCs) are optimistic onincreasing the countrys production of ethanol. The Biofuels Act of 2006 which aims toachieve a three-pronged objective of energy security, countryside development, and

environmental protection mandates the use of ethanol and/or ethanol-blended gasoline forthe transport sector.


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The enactment of the Biofuels law created a sure market for locally-produced

ethanol but our existing capacity cannot supply the demand. To address this gap and to

comply with the mandate, oil companies import their additional requirements from other

countries particularly from Brazil.

Meanwhile under the said law, fuel companies are currently required to blendethanol with gasoline at 10% this year with some exemptions. Current ethanol demand isestimated at about 219 million liters versus domestic production of merely 80 millionliters, derived from sugarcane and molasses.

The table below shows the production and importation trend of the industry since

2008 vis-a-vis the demand based on the mandate of the law.

Source: Department of Energy

As of December 2008, three companies had registered with the DOE as bioethanolproducers. One additional bioethanol plant will operate this year and another two havesecured certification from DOE for their plant site.

The SRA has certified 4,990.07 hectares of existing sugarcane plantations asfeedstock areas for bioethanol.

General Profile of the Sugar Industry*

Total area planted to Sugarcane ~ 383,000 hectares

- Average size of farm holding ~ 5 hectares

- Estimated number of farm owners = 55,000

- Estimated number of farm workers ~ 580,000 individuals

Number of operating Sugar Mills = 29 mills (as of February 13, 2011)


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- Average capacity of sugar mill ~ 6,900 tons cane/day (TCD)

- Average duration of milling season ~ 180 days per annum

Number of Refineries = 12 refineries (as of February 13, 2011)

- Average refining capacity ~ 12,000 LKg Sugar/Day

Annual raw sugar production (5-year average) = 2. 2 million metric tons

Annual refined sugar production (5-year average) = 20.437 million 50Kg/bag

Sugarcane is one of the major crops of the Philippines. It is cultivated in 19

provinces across the country. From 2002 to 2006, sugarcane production contributed an

average of P24.91 billion/per year to national agricultural production. Based on the latest

statistical data, about 392,300 hectares are for sugarcane production which accounts for7.43 percent of agricultural lands for major crops.

Sugarcane areas are divided into small farms with an average farm size of 5

hectares. A hectare of sugarcane usually requires 1.5 workers. This puts the labor force

directly employed by the industry, including sugar mills and refineries, at 600,000

workers, with an additional 5 million indirectly dependent on sugar production for

livelihood.

On the average, the country milled 20.42 million tons cane per season in CY 2008-

2009 and CY 2009-2010 and has, at present, 29 operating mills and 12 operatingrefineries strategically located in the various sugar producing areas.

*Source: Philippine Sugar Millers Association, Inc.

Constitutional Provisions and Statutory Laws Relevant to Agribusiness Ventures

with Foreign Investors

Foreign corporations or associations can not be owners of alienable lands of the

public domain. They may hold such lands only through lease for a period not exceeding25 years, renewable for not more than 25 years and not to exceed 1,000 hectares in area.

Modality Options Open to Investors in Agribusiness Commercial Plantations

Agribusiness Venture Agreements (AVAs) in agrarian reform areas involves a

contract signed between a lessee and a lessor wherein the lessor (agrarian reform

beneficiary) binds itself to give the lessee (investor) control over the use and supervision

of the land for a specific period of time and for a certain amount.

Management Contract


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This is a form of agribusiness agreement whereby Agrarian Reform Beneficiaries

(ARBs) or their cooperative/farmers organizations that assume full and exclusive

ownership of the land, hire services of the former land owner or contractor-investor to

manage and operate the farm in exchange for fixed wages or commission, as the case may

be.

Joint Venture

In a joint venture arrangement, the agribusiness firm and the cooperative agree to

form a third party or a joint venture (JV) company. The JV leases the land from the

cooperative while the agribusiness firm provides the technology, financing the

management of the operations. The cooperative members now become hired laborers in

the farm and if operations include processing, qualified household members can be hired

in the processing plant as well. The market could be the JV company and or the

agribusiness firm, depending on the terms and conditions agreed upon.

In case of the ARBs, the land is their equity in the joint venture and its value is

based on the computed valuation.

Nucleus Estate Scheme

This is an integration of contiguous individual lots to form a single estate or

several nucleus farms. The management of the nucleus estate can be handled by a

cooperative or a company. Two possible set-ups are as follows:

The company negotiates the lease of the land to individual owners over fixed

term. The nucleus farm can be managed by the anchor firm as core plantation.

Company-Managed Farm

Management is centralized. The company handles the production, financing and

management of the nucleus farm. The cooperative members are hired as laborers.

This is a grower-type arrangement between the company and cooperative. The

cooperative is contracted as a supplier of raw materials for the company. In thiscase, the members of the cooperative surrender their right to operate the land they

owned to the cooperative that subsequently manages the nucleus farm. The

member-owner of the nucleus farm provides the necessary labor.

Cooperative-Managed Farm

Identification of Possible Plantation Areas

The Philippines Agricultural Development and Commercial Corporation(PADCC), the designated agribusiness marketing, investment promotion and projectdevelopment corporate arm of the Department of Agriculture, extends assistance toinvestors for their projects basic requirements, namely:


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Identification of possible plantation areas, which include:- assistance and provision of general support identification and evaluation of

suitable agricultural lands- endorsement of the project to interested and qualified landowners- provision of complete data and information necessary in the

implementation of the project Consolidation, packaging, and contract negotiation with the land owners

Facilitation of endorsements, accreditations, licenses, and permits from concernedgovernment agencies.

Keys to a More Sustainable and Globally-Competitive Sugarcane Industry

Tariff rates on imported sugar from competing ASEAN countries will begradually reduced from the current 38% to only 5% by 2015. By 2012, tariff rate will

further go down to 28%, to 18% by 2013, and 10% by 2014. This schedule of tariffreduction is expressly provided under Executive Order 892.

In the light of the implementation of the ASEAN Free Trade Agreement (AFTA),sugarcane farmers need help from the government in providing the necessary equipmentand infrastructure particularly tractors, trucks and irrigation systems to increase

productivity and enhance long-term competitiveness in the world market. Other farmersalso clamor for more farm-to-market roads in major sugar producing provinces for fasterand more efficient transport of canes to the mills. Investors may provide funds to bankrolltheir equipment needs or they may enter into any of the different modalities presentedherein.

Incentives Under the Omnibus Investments Code (E.O. 226)

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ANNEX

PHILIPPINE SUGAR INDUSTRY

Total Volume of Production and Area Harvested with Sugarcane

Source: Bureau of Agricultural Statistics

Raw and Refined Sugar Production

CY 2005-2006 CY 2006-2007 CY 2007-2008 CY 2008-2009 CY 2009-2010

Raw Sugar

(in metric

tons)

2,138,075 2,233,453 2,455,027 2,100,048 1,970,784

Refined Sugar

(in 50K bag) 20,036,314 21,645,089 21,843,627 18,977,540 19,684,060

Source: Sugar Regulatory Administration (SRA)

Number of Sugarcane Farms by Farm Size

(Crop Year 2005-2006)

Mill District

(in hectares)

0.01-5 5.01-10 10.01-25 25.01-50 50.01-100 over 100 Total

Philippines 44,895 6,059 4,843 2,396 1,378 808 60,379

Luzon

1. Carsumco

(Cagayan)

2.

Basecom(Pasudeco)

3.

Tarlac

4. Batangas

5. Don Pedro

6.

Pensumil

(Bisudeco)

10,118

450

295

1,142

2,392

4,983

856

1,221

110

162

146

430

285

88

1,041

101

142

184

405

167

42

503

47

71

83

238

56

8

288

29

49

31

155

20

4

231

44

21

107

50

5

4

13,402

781

740

1,693

3,670

5,516

1,002

Negros

1. Aidsisa/

HawPhil

2.

BacMur/

FFTalSilay

17,114

277

881

2,265

54

235

1,797

89

138

1,022

100

108

619

47

87

284

17

38

23,101

584

1,487

Sugarcane 2006 2007 2008 2009 2010

Volume of Production

(in 000 metric tons) 24,345.1 22,932.80 26,601.4 22,932.8 18,421,429.2

Area Harvested

(in 000 hectares) 392.3 383.0 398.0 404.0 362.8


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3.

Binalbagan

4. Dacongcogon

5. Danao/ Sagay

6.

La Carlota

7. Lopez

8.

Ma-ao9.

San Carlos

10.Sonedco

11.

Victorias

12.Bais-Ursumco

13.Tolong

1,064

3,426

642

190

240

107587

1,015

67

5,885

2,733

280

450

272

72

82

66121

119

50

292

172

245

117

240

97

120

93134

103

178

180

63

131

49

104

69

83

6340

33

155

76

11

68

18

39

58

49

4315

19

112

43

21

44

7

37

19

1313

9

49

36

2

1,832

4,060

1,304

523

593

385910

1,298

611

6,512

3,002

Panay

1. Monomer

2.

Capiz/ Pilar

3. Passi

4. Santos-Lopez

2,767

305

639

1,266

557

417

55

141

122

99

329

32

113

120

64

104

15

28

43

18

79

8

8

6

57

15

2

4

5

4

3,711

417

933

1,562

799

Eastern Visayas/

Mindanao

1.

BogoMedellin

2. BogoDurano

3. Ormoc Hideco

4.

Bukidnon

5. Davao

6. Cotabato

14,896

161

136

763

7,499

4,128

2,209

2,156

56

11

199

1,453

306

131

1,676

33

14

205

1,074

203

147

767

15

4

71

602

38

37

392

10

4

61

249

46

22

278

25

2

73

144

28

6

20,165

300

171

1,372

11,021

4,749

2,552

Source: SRA

Wholesale Sugar Prices in Metro Manila per 50K Bag (in PhP)

CY 2003-2010


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Source: SRA

Retail Sugar Prices in Metro Manila (in PhP)

CY 2003-2010

Source: SRA

Potential Areas for Sugarcane Plantations in Mindanao

Province Potential Area (in hectares)


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Agusan del Norte/Sur 35,000

Lanao del Norte 38,110

Southern Bukidnon 10,000

Maguindanao 60,000

South Cotabato 15,000

Sultan Kudarat 70,000

General Santos/ Saranggani 22,000

Zamboanga del Norte 6,250

Source: Philippine Agricultural Development and Commercial Corporation

Directory of Sugar Mills

Crop Year 2010-2011

Mill District / Region Rated Capacity

Planter-Miller Sharing (TCD)Luzon

1 Universal Robina Corp. - CARSUMCO II 3,800

Piat, Cagayan

60/40

2 Sweet Crystals Integrated Sugar Mill Corp. - III 3,500

San Fernando

65/35

3 Sweet Crystals Integrated Sugar Mill Corp. - III 2,500Planas, Porac, Pampanga

65/35

4 Central Azucarera de Tarlac III 7,000

67.5/31.5

1-CATPA

5 Batangas Sugar Central, Inc. IV 5,500

Balayan, Batangas

65/35

6 Central Azucarera Don Pedro, Inc. IV 13,000

Nasugbu, Batangas

65/35

7 PENSUMIL, Inc. Mill V 3,500

Camarines Sur

60/40

Negros

1 Central Azucarera de Bais, Inc. VII 9,000

Bais City, Negros Oriental

67/33


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2 Binalbagan-Isabela Sugar Co., Inc. VI 12,000

Negros Occidental

66.33/30

3 First Farmers Holding Corp. VI 4,800Talisay, Negros Occidental

70/30

4 Hawaiian-Phil. Co. VI 7,500

Silay City, Negros Occidental

68/32

5 Herminio Teves & Co., Inc. VII 3,000

Sta. Catalina, Negros Orienta;

68/32

6 Central Azucarera de la Carlota, Inc. VI 18,000

La Carlota City, Negros Occidental

65/35

7 Lopez Sugar Corp. VI 7,000

Sagay City, Negros Occidental

70/30

8 Universal Robina Corp. - URSUMCO VII 8,000

Manjuyod, Negros Oriental

67/33

9 Sagay Central, Inc. VI 4,000

Bato, Sagay, Negros Occidental

70/30

10 Universal Robina Corp. - SONEDCO VI 9,000

Kabankalan City, Negros Occidental

70/30

11 Victorias Milling Company, Inc. VI 15,000

Victorias City, Negros Occidental

69.5/30.5

12 OPTION MPC VI 500

Sagay City, Negros Occidental

70/30

Central and East Visayas

1 Bogo-Medellin Milling Co., Inc. VII 2,800

Medellin, Cebu

64.5/33.5


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2 R. D. Durano III & Co., Inc. VII 2,000

Dungo-an, Danao City, Cebu

65/35

3 Hideco Sugar Milling Co., Inc. VIII 5,000

Kananga, Leyte66/34

Panay

1 Capiz Sugar Central, Inc. VI 4,500

Pres. Roxas, Capiz

65/35

2 Universal Robina Corp. VI 4,500

San Enrique, Iloilo

65/35

3 Central Azucarera de San Antonio VI 8,000

Passi City, Iloilo

35/35

Mindanao

1 Busco Sugar Milling Co., Inc. X 18,000

Bukidnon

64/36

2 Crystal Sugar Co., Inc. X 10,000

Maramag, Bukidnon

60/40

3 Davao Sugar Central Co., Inc. XI 5,000

Hagonoy, Davao del Sur

60/40

4 Cotabato Sugar Central Co., Inc. XII 4,500Matalam, North Cotabato

62/38

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