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
Crafted by: Farmers, Processors, Coffee Manufacturers, Industry Associations, Exporters, People’s Organizations and the Academe Supported by: Department of Agriculture Department of Environment and Natural Resources Department of Agrarian Reform Department of Trade and Industry Philippine Coconut Authority Government Financial Institutions Local Government Units National Competitiveness Council
OUTLINE I. Benchmarking II Philippine Coffee Industry III. Industry Vision, Mission and Goals IV. Target Setting V. 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, (1.04 M ha (500,000 ha 19,000 ha Arabica, Robusta, Robusta, 9,000 ha Excelsa and 251,000 ha Arabica) 37,000 Arabica) 1,400 ha Liberica) Yield (ton green 0.20 - 0.30 0.67 2.4 beans /ha) Production (tons 25,000 – 30,000 (b) 634,000 1.2 M green beans) Planting density 500 – 1,700 trees/ha 1,100 trees – 2000 1,100 trees/ha (Robusta) trees/ha (Robusta) 800 – 2,000 trees/ha 5,000 – 6,000 (Arabica) trees/ha (Catimor) Average farm size 0.5 – 1 ha 0.6 ha 0.5 – 1 ha
PERFORMANCE: Farming and Processing Costs Investment costs are comparable Item Philippines Indonesia Vietnam Average establishment PhP 50,000 – 82,000 PhP 78,000 PhP 71,000 cost/ ha (Robusta) Average cost per kg green PhP 49 – 68 PhP 23 PhP 65.10 beans Price per kg of green beans PhP 79.38 PhP74 PhP 83 (farmer’s selling price) Payback period 4.3 – 6.3 years 4.9 years 6.2 years Financial Internal Rate of 8 – 36 percent 31 percent 21 percent Return 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 Item Philippines Indonesia Vietnam Vietnam Bank for Credit Mainly through government Rural Bank of Agriculture and Rural financial institutions (e.g., Indonesia Development (VBARD or LBP) small scale lending Agribank) and informal sources and micro finance Credit for planting (mainly LBP loan ceiling for coffee : (none for new for existing plants or New planting: PhP100,000/ha plantings) rejuvenation and not for new (US$2,381) (payable in 5 years, plantings), and Credit for 10-12% interest per annum, 2 harvesting, processing and years grace period) export trading (short-term loans with Existing plantation terms of one year and three (maintenance): to six months, respectively; 2nd year: PhP42,500 (US$1,012) interest is 13% p.a.) 3rd year: PhP55,000 (US$1,310) State Bank of Vietnam 4th year: PhP63,000 (US$1,500) short term loan (up to 12 5th year: PhP72,000 (US$1,714) months) with maximum interest of 15% p.a.
Item Philippines Indonesia Vietnam Land Ownership CARP Law – Maximum 5 Co-existence of Long-term leases hectares smallholders and from government large estates Price Policy No price policy on No price policy on No price policy on coffee. Prices follow coffee. Prices coffee. Prices world prices (London follow world follow world exchange for Robusta, New prices. prices. York Exchange for Arabica). There are price speculators or consolidator-traders who offer premiums on top of world market prices. Government PhP 470 M PhP639 M PhP 14.7 B support Breakdown : PhP 170 M (US$15.2 M) (US$350 M) (budget for coffee) (DA-HVCDP) (143 B IDR) (7,280 B VND) PhP 300 M (MA) (MARD) (PCA Intercropping)
Macroeconomic Environment (Labor, Fuel and Power) Labor costs are comparable but fuel and power costs are higher . Item Philippines Indonesia Vietnam Labor PhP 150 - 300 per day PhP 134 - 223 PhP 242 - 303 (US$3.57 - 7.14 per day) (US$3.19 - 5.32 per day) (US$5.77 - 7.21 per day) (IDR 30,000 – 50,000) (VND 120,000 – 150,000) Fuel PhP 42 - 44 per liter PhP20.11/li (diesel) PhP46.44 - 48.46/li (July (diesel) (US$0.48/li) (gas) 2012) (US$1 - 1.05/li) (IDR 4,500/li) (US$1.11 - 1.15/li) (VND 23,000 – PhP 53-56 per liter PhP46.24-46.91/li (gas) 24,000/li) (gas) (US$1.10 - 1.12/li) (US$1.26 - 1.33/li) (IDR 10,350 – 10,500/li) Power PhP 6.50 - 6.75 per kwh PhP 1.79 – 3.13 PhP 2.02 (US$0.15 - 0.16 per (US$0.04 - 0.07 per (US$0.05 per kwh) kwh) kwh) (VND 1,000 per kwh) (IDR 400 – 700 per kwh)
PRACTICES: Farm Item Philippines Indonesia Vietnam Input supply Clones used Mostly Robusta, Some Mainly Robusta, Mainly Robusta, Some Arabica, Small Excelsa Some Arabica Arabica and Catimor and Liberica (Robusta TR varieties – TR 4, 9, 10, 11 and 12) Fertilizer Organic and inorganic Mostly inorganic Heavy application of usage fertilizers fertilizers from fertilizers (even Some farms do not government subsidy reaching 1 ton/ha) fertilize (e.g. Kalinga) Planting 600 – 1,700 trees/ha 1,100 trees – 2000 1,100 trees/ha density trees/ha (Robusta) 5,000 – 6,000 trees/ha (Catimor) Intercrop Fruits, vegetables, tree Mostly monocrop Mostly monocrop crops Sources of Wildlings Indonesian Coffee Western Highlands planting Seeds of existing plants and Cocoa Research Agro-forestry Science and materials Nurseries (e.g. Nestle Institute (ICCRI) Technical Institute (WASI) nursery)
PRACTICES: Farm Item Philippines Indonesia Vietnam Maintenance Weeding Weeding Weeding activities Fertilization Fertilization Fertilization Pruning Pruning Pruning Some farms do Irrigation grafting First harvest Year 2 Year 3 Year 2-3 Harvesting December - March May - September August – Jan period Harvesting Selective harvesting Selective harvesting Selective harvesting practice Strip harvesting Strip harvesting Strip harvesting Drying Mechanical drying Mechanical drying Solar drying Solar drying Solar drying Mechanical drying Certification Organic, 4C 4C, Rainforest 4C, Rainforest, UTZ, Viet Gap
PRACTICES: Processing Item Philippines Indonesia Vietnam Processing Wet processing (mainly Wet processing Wet processing for beans for Arabica) Dry processing Dry processing Dry processing (mainly for Robusta) Processing Nestle (Nescafe) – PT Torabika Vinacafe plants market PT Santos Jaya Abadi Trung Nguyen (ground and leader Indocafe Nestle instant Universal Robina Nestle coffee) Corporation (Great Taste, Blend 45) Commonwealth Foods (Café Puro) Century Pacific Group (Kaffe de Oro) Regent Foods Corp. (Koffie) Products Coffee beans Coffee beans Coffee beans produced Roasted beans Roasted beans Roasted beans Ground coffee Ground coffee Ground coffee Instant coffee (3 in 1; 2 Instant coffee Instant coffee in 1)
II. PHILIPPINE COFFEE INDUSTRY (Typical vs. Modern Farming)
ROBUSTA, Typical and Modern Farms, Philippines
COFFEE FARMING (ROBUSTA): Typical vs Modern Activity Typical Modern Cropping system Mostly with intercrop Monocrop (vegetables, fruit trees) (Block cropping) Plant propagation Use of wildlings Use of selected clones practices Seeds from existing from certified nurseries plants Buying price: Absence of clone PhP15/seedling selection
COFFEE FARMING (ROBUSTA): Typical vs Modern Activity Typical Modern Planting density 600 – 1,200 trees/ha 1,500 – 1700 trees/ha Fertilizer Inorganic (46-0-0) Inorganic (16-20-0, 46-0-0, application ~ 2 bags per year 0-0-60) Organic ~ 10 bags per year ~ 68 bags per year Organic ~ 33 bags per year Pruning Not done at all / not Regularly done (about 6 regularly times done a year) Pest and Regularly done Regularly done disease control
COFFEE FARMING (ROBUSTA): Typical vs Modern Activity Typical Modern First harvest Year 2 Year 2 Harvesting Strip harvesting Selective harvesting
COFFEE FARMING (ROBUSTA): Typical vs Modern 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 PhP 80 PhP 80 selling price) 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 PhP23,000 (including returns to family labor) 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 1,667 trees/ha 817 (with intercrop) (mono) Average yield (tons 0.72 1.29 0.57 green beans/ha) Average income/ha at PhP80/kg green beans Gross income PhP58,000 PhP103,000 PhP55,000 Gross income PhP23,000 (a) PhP40,000 PhP17,000 Average area to get 4.09 ha 2.35 ha (1.74 ha) preferred net income of PhP94,000 (poverty threshold, 1H 2012)
ARABICA, Typical and Modern Farms, Philippines
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