towards a roadmap/masterplan for the philippine coffee

Towards a Roadmap/Masterplan

for the Philippine Coffee Industry

Presented during the Industry Roadmaps & AEC Gameplan: Roadmap Localization for Competitiveness on May 28-29,2015, Baguio country Club, Baguio City.Joan Dimas-Bacbac, HVCDP Regional Coordinator, DA-RFO CAR

Supported by:Department of AgricultureDepartment of Environment and Natural ResourcesDepartment of Agrarian ReformDepartment of Trade and IndustryPhilippine Coconut AuthorityGovernment Financial InstitutionsLocal Government UnitsNational Competitiveness Council

Crafted by:Farmers, Processors, Coffee Manufacturers, Industry Associations, Exporters, People’s Organizations and the Academe

OUTLINE

I. BenchmarkingII Philippine Coffee IndustryIII. Industry Vision, Mission and

GoalsIV. Target SettingV. Strategic Directions and Action

Programs of Major Issues

I. BENCHMARKING

THE PHILIPPINE COFFEE INDUSTRY

vs

THE BEST:INDONESIA AND VIETNAM

PERFORMANCE: Area, Yield and Production (2011)

Item Philippines Indonesia Vietnam

Planted Area (ha) ~120,000 ha (a) 1.3 M ha 537,000

(90,000 ha Robusta,19,000 ha Arabica,9,000 ha Excelsa and1,400 ha Liberica)

(1.04 M haRobusta,251,000 ha Arabica)

(500,000 haRobusta,37,000 Arabica)

Yield (ton green beans /ha)

0.20 - 0.30 0.67 2.4

Production (tons greenbeans)

25,000 – 30,000 (b) 634,000 1.2 M

Planting density 500 – 1,700 trees/ha(Robusta)800 – 2,000 trees/ha(Arabica)

1,100 trees – 2000trees/ha

1,100 trees/ha(Robusta)5,000 – 6,000trees/ha (Catimor)

Average farm size 0.5 – 1 ha 0.6 ha 0.5 – 1 ha

PERFORMANCE: Farming and Processing CostsInvestment costs are comparable


Average establishment cost/ ha (Robusta)

PhP 50,000 – 82,000 PhP 78,000 PhP 71,000

Average cost per kg green beans

PhP 49 – 68 PhP 23 PhP 65.10

Price per kg of green beans (farmer’s selling price)

PhP 79.38 PhP74 PhP 83

Payback period 4.3 – 6.3 years 4.9 years 6.2 years

Financial Internal Rate of Return

8 – 36 percent 31 percent 21 percent

Processing costs per kg

Roasting Php 10 PhP8.10

Grinding Php 10 PhP8.93

Exchange Rates: PhP42/US$1; VND20,800/US$1; IDR9,400/US$1

POLICIES: Credit


Credit Mainly through government financial institutions (e.g., LBP)and informal sourcesLBP loan ceiling for coffee :New planting: PhP100,000/ha(US$2,381) (payable in 5 years, 10-12% interest per annum, 2 years grace period) Existing plantation (maintenance):2nd year: PhP42,500 (US$1,012)3rd year: PhP55,000 (US$1,310)4th year: PhP63,000 (US$1,500)5th year: PhP72,000 (US$1,714)

Rural Bank of Indonesiasmall scale lending and micro finance(none for new plantings)

Vietnam Bank forAgriculture and RuralDevelopment (VBARD orAgribank)Credit for planting (mainly for existing plants or rejuvenation and not for new plantings), and Credit for harvesting, processing and export trading(short-term loans with terms of one year and three to six months, respectively; interest is 13% p.a.)State Bank of Vietnamshort term loan (up to 12months) with maximuminterest of 15% p.a.


Land Ownership CARP Law – Maximum 5 hectares

Co-existence of smallholders and large estates

Long-term leases from government

Price Policy No price policy oncoffee. Prices followworld prices (Londonexchange for Robusta, NewYork Exchange for Arabica).There are price speculatorsor consolidator-traders whooffer premiums on top ofworld market prices.

No price policy oncoffee. Prices follow world prices.

No price policy oncoffee. Prices follow world prices.

Governmentsupport

(budget for coffee)

PhP 470 MBreakdown : PhP 170 M(DA-HVCDP)PhP 300 M(PCA Intercropping)

PhP639 M(US$15.2 M)(143 B IDR)(MA)

PhP 14.7 B(US$350 M)(7,280 B VND)(MARD)

Macroeconomic Environment (Labor, Fuel and Power)Labor costs are comparable but fuel and power costs are higher .


Labor PhP 150 - 300 per day(US$3.57 - 7.14 per day)

PhP 134 - 223(US$3.19 - 5.32 per day)(IDR 30,000 – 50,000)

PhP 242 - 303(US$5.77 - 7.21 per day)(VND 120,000–150,000)

Fuel(July2012)

PhP 42 - 44 per liter(diesel)(US$1 - 1.05/li)

PhP 53-56 per liter (gas)(US$1.26 - 1.33/li)

PhP20.11/li (diesel)(US$0.48/li)(IDR 4,500/li)

PhP46.24-46.91/li (gas)(US$1.10 - 1.12/li)(IDR 10,350 – 10,500/li)

PhP46.44 - 48.46/li(gas)(US$1.11 - 1.15/li)(VND 23,000 –24,000/li)

Power PhP 6.50 - 6.75 per kwh(US$0.15 - 0.16 per kwh)

PhP 1.79 – 3.13(US$0.04 - 0.07 per kwh)(IDR 400–700 per kwh)

PhP 2.02(US$0.05 per kwh)(VND 1,000 per kwh)

PRACTICES: Farm


Input supply

Clones used Mostly Robusta, SomeArabica, Small Excelsaand Liberica

Mainly Robusta,Some Arabica

Mainly Robusta, Some Arabica and Catimor(Robusta TR varieties – TR 4, 9, 10, 11 and 12)

Fertilizer usage

Organic and inorganicfertilizersSome farms do not fertilize (e.g. Kalinga)

Mostly inorganicfertilizers fromgovernment subsidy

Heavy application offertilizers (evenreaching 1 ton/ha)

Planting density

600 – 1,700 trees/ha 1,100 trees – 2000trees/ha

1,100 trees/ha(Robusta) 5,000 – 6,000trees/ha (Catimor)

Intercrop Fruits, vegetables, treecrops

Mostly monocrop Mostly monocrop

Sources of plantingmaterials

WildlingsSeeds of existing plantsNurseries (e.g. Nestlenursery)

Indonesian Coffeeand Cocoa ResearchInstitute (ICCRI)

Western HighlandsAgro-forestry Science andTechnical Institute (WASI)

PRACTICES: Farm


Maintenanceactivities

WeedingFertilizationPruning

WeedingFertilizationPruningSome farms do grafting

WeedingFertilizationPruningIrrigation

First harvest Year 2 Year 3 Year 2-3

Harvesting period

December - March May - September August – Jan

Harvesting practice

Selective harvestingStrip harvesting



Drying Mechanical dryingSolar drying

Mechanical dryingSolar drying

Solar drying Mechanical drying

Certification Organic, 4C 4C, Rainforest 4C, Rainforest, UTZ,Viet Gap

PRACTICES: Processing


Processing for beans

Wet processing (mainly for Arabica)Dry processing (mainly for Robusta)

Wet processingDry processing

Wet processingDry processing

Processing plants(ground and instantcoffee)

Nestle (Nescafe) –marketleaderUniversal RobinaCorporation(Great Taste, Blend 45)Commonwealth Foods (Café Puro)Century Pacific Group (Kaffe de Oro)Regent Foods Corp.(Koffie)

PT TorabikaPT Santos Jaya AbadiIndocafeNestle

VinacafeTrung NguyenNestle

Products produced

Coffee beansRoasted beansGround coffeeInstant coffee (3 in 1; 2 in 1)

Coffee beansRoasted beansGround coffeeInstant coffee

Coffee beansRoasted beansGround coffeeInstant coffee

II. PHILIPPINE COFFEE INDUSTRY

(Typical vs. Modern Farming)

ROBUSTA,Typical and Modern Farms,

Philippines

Activity Typical Modern

Cropping system Mostly with intercrop (vegetables, fruit trees)

Monocrop(Block cropping)

Plant propagation practices

Use of wildlingsSeeds from existing plantsAbsence of clone selection

Use of selected clones from certified nurseriesBuying price: PhP15/seedling

COFFEE FARMING (ROBUSTA): Typical vs Modern


Planting density 600 – 1,200 trees/ha 1,500 – 1700 trees/ha

Fertilizer application

Inorganic (46-0-0)~ 2 bags per yearOrganic ~ 68 bags per year

Inorganic (16-20-0, 46-0-0,0-0-60)~ 10 bags per yearOrganic ~ 33 bags per year

Pruning Not done at all / not regularly done

Regularly done (about 6 times a year)

Pest and disease control

Regularly done Regularly done



First harvest Year 2 Year 2

Harvesting Strip harvesting Selective harvesting


Parameters Typical Farm Modern Farm

Planting density 600 – 1,200 trees/ha 1,500 – 1700 trees/ha

Average yield (tons gcb/ha) 0.72 1.29

Peak yield (tons gcb/ha) 1.0 2.0

Average establishment cost per ha (Year 1) PhP 50,000 PhP 82,000

Average cash outflow per ha per year PhP 49,000 PhP 63,000

Price per kg of green beans (farmer’s selling price)

PhP 80 PhP 80

Average cash inflow per ha per year PhP 58,000 PhP 103,000

Average net cash flow per ha per year PhP 9,000 PhP 40,000

Average net cash flow per ha per year (including returns to family labor)

PhP23,000

Average cost per kg of green beans PhP 68 PhP 49

Payback period 6.3 years 4.3 years

Internal Rate of Return (IRR) 8 percent 36 percent


COFFEE FARMING (ROBUSTA): Income and Area Targets for Poverty Reduction

Item Typical Modern Incremental

Planting density 850 trees/ha (with intercrop)

1,667 trees/ha (mono)

817

Average yield (tons green beans/ha)

0.72 1.29 0.57

Average income/ha atPhP80/kg green beans

Gross income PhP58,000 PhP103,000 PhP55,000

Gross income PhP23,000 (a) PhP40,000 PhP17,000

Average area to get preferred net income of PhP94,000 (poverty threshold, 1H 2012)

4.09 ha 2.35 ha (1.74 ha)

ARABICA,Typical and Modern Farms,

Philippines


Cropping system Mostly with intercrop (forest trees, fruit trees)

Without or with intercrop (forest trees, fruit trees)

Plant propagation practices

Use of wildlingsExisting plantsAbsence of clone selection

Use of certified seedlingsBuying price: PhP25 –30/seedling

COFFEE FARMING (ARABICA): Typical vs Modern


Planting density 600 – 1,200 trees/ha 1,200 – 1,500 trees/ha

Fertilizer application

None / Minimal fertilizer application

Inorganic ~ 18 bags every three yearsOrganic~ 90 bags every four years

Pruning Regularly done Regularly done

Pest and disease control

As need arises Regularly done

Harvesting Year 2 – 3 Year 3

Harvesting practice Strip harvesting Selective harvesting


Parameters Typical Farm Modern Farm

Planting density 600 – 1,200 trees/ha 1,200 – 1,500 trees/ha

Average yield per ha 0.5 tons dry parchment(0.40 tons gbe)

1.1 tons green beans

Peak yield per ha 0.6 tons dry parchment(0.50 tons gbe)


Average establishment cost per ha PhP 37,000 (Year 1) PhP 135,000 (Years 1-2)

Average cash outflow per ha per year PhP 29,000 (Years 2 - 10) PhP 65,000(Years 3 - 10)

Price per kg (farmer’s selling price) PhP 100/kg of dry parchment PhP 200/kg of green beans

Average cash inflow per ha per year PhP 49,000 PhP 229,000

Average net cash flow per ha per year PhP 20,000 PhP 164,000

Average net cash flow per ha per year (including returns to family labor)

PhP36,000

Average cost per kg PhP 58 per kg of dry parchment PhP 59 per kg of green beans

Payback period 4.9 years 4.1 years

IRR 31 percent 53 percent


COFFEE FARMING (ROBUSTA): Income and Area Targets for Poverty Reduction

Item Typical Modern Incremental

Planting density 800 trees/ha(with intercrop)

1,250 trees/ha(with intercrop)

450 trees

Average yield 0.49 tons dry parchment coffee

(0.39 tons gbe)



Average price (PhP/kg) PhP 100/kg dry parchment coffee

PhP200/kg green beans

Average income

• Gross income PhP49,000 PhP229,000 PhP180,000

• Net income PhP36,000 (a) PhP164,000 PhP128,000

Average area to get preferred net income of PhP94,000 (poverty threshold, 1H 2012)

2.61 ha 0.57 ha (2.04 ha)

Supply Chain Segments and Activities

Inputs for Nursery

Development Inputs

Farm Production

PrimaryProcessing

Marketing Logistics

SecondaryProcessing

Logistics Market

-Area selection-Seeds-Plastic bags-Fertilizer-Tools and equipment

-Seedlings -Fertilizer-Pesticides-Tools and equipment

-Area Selection-Land preparation-Maintenance-Fertilization-Pest control-Harvesting-Sorting/ Grading-Storage

-Depulping-Fermentation-Drying -Dehullingto green beans

-Trading-Handling-Transport / Shipping-Storage

-Roasted beans-Roast andground coffee-Instantcoffee

-Handling-Transport/Shipping-Storage

-Domestic-Exports

Selected Stakeholders and Players along the Coffee Supply/Value Chain Input

SupplyFarm

ProductionPrimary

ProcessingMarketing/

TradingSecondary Processing

Marketing

Seedlings•Nestle•Rocky Mountain•MacNut•CavSU•BSU•HVCC ZDN•Greenworld•Greenday•BPI accredited nurseries

Land Access•Farmers•ARCs•IFMA•CBFM•DENR •DAR •PADCC•LGU•Private sector

Financing•Private sector , LBP, DBP, DENR, DA-HVCDP, Phil Coconut Authority, LGU

Fresh cherries•Individual Farmers•Greentropics•Rocky Mountain•MacNut•Mt. MatutumFarms•Dacon/SII•CHMI Agro•Others

Green Beans•Individual Farmers•Greentropics•Dacon/SII •Rocky Mountain•MacNut•Mt. Matutum•CHMI Agro

Local traders•Nestle•URC•Comfoods•Rocky Mountain•MacNut•Mt. Matutum•Bote Central•Greentropics•Dacon/SII•CBCEs•DTI

Nestle•URC•Comfoods•Rocky Mountain•MacNut•Mt. Matutum•Bote Central•Greentropics•Dacon/SII•CBCEs•Local processors

Households•Supermarkets•Convenience stores•Fast food chains•Coffee shops•Hotels•Restaurants •Sari-sari stores•Exports

Training/Tech Assistance•Nestle•PCB•PCA•Rocky Mountain •TESDA •LGU

Research, Dev’t & Ext’n•CavSU•BSU•PhilMech•Nestle•Rocky Mountain•LGU

Policy Advocacy•PCB•PCA •NCC•DA HVCDP•DA NAFC•DTI•LGU

Other Related Cross Cutting Segments

III. INDUSTRY VISION, MISSION

AND GOALS

VISION

An industry that is cost-competitive, aligned with global quality standards,

reliable and environment-friendly; and provides sustainable benefits to farmers,

processors, traders and exporters.

MISSION

Development of a cost-competitive, quality-driven, supply-reliable, product-diversified value chain from farming to coffee products manufacturing under

sustainable practices

GOALS

1. Increase productivity and production2. Improve farmers’ standard of living through

diversified high value agriculture3. Increase rural employment4. Promote environment-friendly technologies5. Lessen coffee bean and coffee products

importation6. Improve incomes of farmers, processors and other stakeholders

IV. AREA TARGETS AND REQUIRED INVESTMENTS

THE PLAN’S FOCUS:

1. Improve smallholder coffee farmers’ productivity, profitability and product quality

2. Promote new plantings and provide funding

3. Target value-addition in coffee products

SPECIFIC TARGETS (2015-2016)

TARGETS 2015 2016 2017

New Planting (ha) (All Regions) 70,747 78,919 253,433

Re-Planting (ha) Kalinga,NorthernMindanao, Davao, Soccsksargen

2,008 2,008 8,032

Rejuvenation (ha) Kalinga, Davao, Soccsksargen

572 572 2,388

Total seedling requirement (including 10% mortalityallowance) (million)

62.5 67.5 215.7

Investment Cost (PhP million)

4,645.1 5,224.4 16,309.6

Basic Considerations: New planting/replanting cost

-Robusta: PhP 30,000/ha (600 trees, Year 1)-Arabica: PhP 130,000/ha (1200 trees, Years 1-2)

Rejuvenation cost: PhP17,000/ha (600 trees)

Seedling requirement/ha w/ 10% mortality‰ -Robusta: 660 trees

-Arabica: 1,320 trees„ Nursery investment cost: PhP8.00/seedling„ Replanting is replacement of old trees with new plants in the same area„ Rejuvenation refers to cutting of the vertical stems of old trees to promote the growth of new sprouts

Targets and Sufficiency Levels

Assumptions: Domestic requirement of 70,000 tons*

green beans, to grow by 3% per annum

Local current production of 25,000 tons to remain stable

Net demand deficit of 45,000 tons

Around eight million seedlings estimated to be available in the existing nurseries

When do we cover deficits?

Coverage of beans deficit will depend on:

Harvested area (old and new planting)

Average yield

Implementation of identified expansion targets by the various stakeholders

When do we cover deficits?

Coverage of imported 3-in-1 sachet deficit will depend on:

Domestic production

Cost of sugar and cream

Cost of packaging

Cost of power

V. STRATEGIC DIRECTIONS AND ACTION PROGRAMS ON MAJOR

ISSUES

INPUTS: Improve quality and availability of planting material

Key Result Area Performance

Indicators

Action Programs Time Frame/

Working

Group

Establishment of

accredited/

certified mother

clonal

gardens

and nurseries

No. of accredited/

certified mother

Clonal gardens and

Nurseries

No. of

accredited/certified

seedlings produced

Invest in mother

Clonal gardens and

nurseries (1 per major

coffee area) Train prov’l

reps on Nursery

development Promote

accreditation/certification

of nurseries

2013-2016 LGU,

Private Sector, DA-

RFUs, BPI, SCUs

Training of

propagators and

provision of IEC

materials

No. of trainings

conducted

No. of IEC

materials produced

Conduct trainings for

nursery establishment

Reproduce and

distribute IEC

materials to farmers

DA-ATI, TESDA,

LGU,Industry

Associations,

Private sector



Indicators


Working

Group

Training on

proper handling

of seedlings

Improvement in quality

and availability of

accredited/ certified

seedlings

No. of trainings

conducted

No. of nurseries/farmers

trained

Conduct trainings on

proper handling of

seedlings

SCUs, BPI

DA-ATI Private

Sector TWG,

LGU



Indicators


Working

Group

Yield

improvement

Ave. yield from 300

kg/ha to 1.0 ton/ha

(Arabica) Ave. yield

from 700 kg/ha to 1.5

tons/ha (Robusta)

Net Income >

PhP84,000/year

Improved harvesting

practices

IEC campaign on

GAP/best farm

practices including

seed selection

2013 to 2016

Private Sector,

DA ATI, PCARRD

LGU - PAO,

MAO, NGOs

Production

Expansion-new

planting and

replanting areas

Total expansion area

≥ 100,000 ha to

address deficit?

Develop PPP for

planting and

replanting projects

Continuing

-Industry/third

party group

FARM PRODUCTION: Enhance farm efficiency and investments


Indicators


Working

Group

Adoption of GAP

and GMP

No. of GAP

certified farms

No. of GMP

certified

processing

companies

Benchmarking and

best practices

dissemination

Conduct trainings

on modern farm /

processing practices

DA, ATI, SCUs,

Private sector,

LGU

Enhanced quality

of seedlings

No. of accredited/

certified nurseries

Conduct trainings

on nursery operation

and

management

DA, BPI, LGU,

ATI

Trainings on

proper harvesting

and pruning

No. of skilled

farmers/farm

workers

Conduct trainings Private Sector,

TESDA, LGU,

SCUs, ATI, NGOs

PROCESSING: Reduce Processing Cost


Indicators


Working

Group

Lower processing

costsPower cost per kg

Labor cost per kg

Material cost per kg

Better recoveries

Enhance processing

efficiency

2013-Private

Sector, DA, DTI,

Philmech, DOST

Increase capacity

utilization of

plants

Volume of gcb

marketed

Higher recoveries

Improve supply of gcb

Inspection and

upgrade processing

plants

Private Sector

DA, DTI

LGU

Quality discipline Better prices of

gcb

Establish guidelines in

sale of gcb

Incentivize compliance

to product standard

Private

Sector

DA, BAFPS,

DTI

PROCESSING: Increase Export Value


Indicators


Working

Group

Adequate post-

harvest facilities

No.of drying, hulling,

storagefacilities

Coordinate with

PhilMechre: village level

facilities e.g. small dehuller/

depulper

Private Sector,

DA,

PhilMech

More value

adding on farm

No. of value added

products produced

Evaluate/ monitor field

processors

TWG, SCUs, DA,

Private Sector

MARKET: Improve Market Price and Coffee StandardsKey Result Area Performance

Indicators


Working

Group

Transparent

pricing linked to

world market

Farm price as a

percent of world

price

Daily world price

access from DA

website/SMS

Private Sector,

DTI, DA, LGU

Geographic

branding and

standards for

coffee

No. of geographic

brands and

standards for

Philippine coffee

products

Convene

concerned

organizations to

settle standards

BPS, DA, BAFPS,

TWG, Industry

Associations, DTI-

BETP, CITEM

Enhanced market

access and

marketing

strategies for

specialty coffee

No. of new

markets accessed

Find alternative

markets

DA –AMAS, DTI

MARKET: Improve Market Price and Coffee StandardsKey Result Area Performance

Indicators


Working

Group

Inadequate

market

intelligence for

specialty coffee

No. of market

opportunities

explored

Tap agricultural/

trade attaches in

Philippine embassies

Private sector, DA-

AMAS, DTI,

Industry Associations,

DOST

SUPPORT SERVICE Financing: Access to Long Term Funds


Indicators


Working

Group

Access to long

term financing

Longer grace and

Repayment periods

of loans

Lower interest rates

Review financing

program for coffee

DA to endorse

proposal to LBP

2013 –LBP, DBP,

AGFP-ACPC

Private Sector

DA

LGU

SUPPORT SERVICE Logistics: Reduce Logistics Cost to Processors MarketKey Result Area Performance

Indicators


Working

Group

Farm to Market

Roads

Length of FMRs to

coffee farms

Lower transport

cost/ton km

Advocacy to

prioritize FMRs

Industry assns.

LGU, DA,

Private Sector

Establishment of

Tram Lines

No. of tramlines

established

Identify areas Industry assns.

DA, PhilMech

Private Sector,

LGU

SUPPORT SERVICE R & D: Improve Search and Extension ServicesKey Result Area Performance

Indicators


Working

Group

Strengthen

National Coffee

Research,

Development

and Extension

Center (based at

CavSU)

Number of coffee

scientist/experts

Multi-year budget

allocation for coffee

Establish three

research stations

(BSU, SMIARC*,

SK State University)

CavSU, BSU

DA-BAR,

DOST-PCARRD

Private Sector

SUPPORT SERVICE Policies: Appropriate Investment Incentives


Indicators


Working

Group

Improved policies

(e.g. land access)

Land ownership

ceiling

Land

consolidation for

development

Public lands opened

to investors

Review

CARPER

Review land use policy

Review IPRA Law

Advocacy with DENR

Development of

military reservations

and abandoned

mined areas

DAR, DENR, DA

PADCC-NCI

NCIP

Private Sector

DND-AFP

SUPPORT SERVICE Market Intelligence: Reliable Industry Data


Indicators


Working

Group

Improved collection

and recording of

industry data

(e.g.production,

area, trade,

demand)

Industry data

aligned with

private sector

estimates

Review official data in

consultation with

the private sector

Industry

associations,

BAS, Private

Sector, DA , LGU

SUPPORT SERVICE Organization: Industry Unity in Diversity

Key Result

Area

Performance

Indicators


Working

Group

Improved

industry

organizational

structure

Aligned

government and

private sector

initiatives

Conduct seminar

on organizational

development

Team building

Industry assns,

DA, Private

Sector

The finalization of the Masterplan/Roadmap will

determine the major terms of reference :

The following principles are important:

• High farm income arising from good farm yields is a result of GAP.

• Self-sufficiency in green beans estimated by 2017 will be reached and sustained provided farmers derive good income from coffee compared to alternative crops.

• The ENGINE OF GROWTH will be the farmers, private sector, CSOs backed by government, LGUs, and SUCs in unison.

towards a roadmap/masterplan for the philippine coffee

Documents