Challenges for Philippine Food and Agriculture : A Year-End Food and Agri Business Conference (Part 1)
Economists forecast an economic growth for 2007 of 5.9% – 6.5%, a mild slide from the earlier projection of 6.1%-6.7%. The reasons : declining exports, appreciating peso and slowdown in remittances from overseas contract workers. Last ear, the GDP grew by 5.4%.
The agriculture sector directly contributes about 17% of GDP and perhaps nearly 50% if indirect effects are included. For 2007, the UA&P-CFA projects growth at 4.1%, as compared to 3.*% in 206. The government’s target is at 4.0%-5.0%.
The leaders in 2007 will include corn, banana and fishery. Meanwhile, the laggards will be coconut and sugarcane
Commodity highlights
Palay
Production growth will almost be equal to 2005 with slight increase in hectarage and improved yields both in irrigated and rainfed areas. The weather has generally been favorable throughout the year except for a dry spell in the second and third quarters which reduced area harvested. The DA has come up with a quick turn around program where farmers are encouraged to plant a third crop from August to mid-September to address losses from weather disturbances. Farm process have been favorable for farmers as world market price has remained high at US$300 per ton FOB. The NFA palay support price is now P11.00 per kg but the NFA rice retail price continues to be at P18.00 per kg throughout 2007. However, imports are still high at 1.6 million tons.
Corn
Good farm prices have stimulated plantings from farmers despite decreased area harvested in the second quarter due to the dry spell. Generally favorable weather and the continuos adoption of hybrid and GM corn have also contributed to the good performance for the second year in a row. The very goo yield growths in the second semester, however, more than offset the effects of the dry spell.
Coconut
Production is expected to drop in 2007 resulting mainly from the series of super typhoons in the last quarter of 2006. Both the UCAP and the PCA have indicated that the effect of these natural calamities will impact this year. Small pockets of losses in yield have also been experienced in some provinces due to the coconut leaf beetle infestation.
Sugarcane
Production declined by 6.5% in the first half of 2007. This was due to early milling cut off in Bukidnon and production decline in Western Visayas.
Banana
Output managed a 7.1% growth in the first half of the year from 11.1% during the same period in 2006. Growth stood at 6.6% in the third quarter, up from 5.7% a year ago. According to the BAS, growth came from area expansions and increases in the number of bearing hills in MIMAROPA, Northern Mindanao, Compostela Valley, Davao del Norte and Davao City led by Cavendish and lakatan. For the whole of 2007, growth is projected at 6% to 7%. The harvest will come principally from 2006 plantings.
Other crops
This group consists of a mixed bag of (except banana), vegetables, tree crops and fibercrops. Output posted a strong recovery of 5.7% in the first half from a contraction of 0.5% a year ago. Dry weather also provided help. Production expansions were registered for pineapple, coffee, tobacco, peanut, mongo, cassava, camote and rubber. The third quarter turnout at 4.1% was also relatively strong, coming from a minimal growth of only 0.2% last year. Recoveries were posted in mango, tomato, onion, cabbage, eggplant, calamansi, and others. Overall growth for 2007 is seen at 3.0% to 4.0%.
Livestock
Output increased by 2.5% during the first half of 2007. Growth in the number of animals slaughtered, inventory, of fatteners and number of dairy cattle were reported. Meanwhile, cattle and goat production experienced slight declines during the semester. The growth is only moderate as consumer purchasing power has been hurt by high prices.
Poultry
Production growth has been rather slow at only 0.3%, during the first half of 2007. The minimal growth was attributed to a small increase in chicken and chicken egg output and the continuous drop in duck and duck egg production. High production costs and, in turn, high retail prices have caused consumers to cut back on purchases.
Fishery
In the first half of 2007, output gained 7.3%. More fishing trips and increased catch from commercial fishing bolstered growth, despite the high fuel costs. The strict implementation of fishery laws and absence of commercial vessels in fishing grounds helped municipal fishing. Aquaculture likewise managed a positive growth but at a slower rate. Contributory factors include favorable weather conditions, good quality cultivars of seaweed, good demand due to good quality produce of seaweeds, increases in milkfish and tilapia stocks and areas due to availability of fingerlings were among the factors.
Forestry
From a slump last year, production grew by 27.3% in the first half of 2OO7. Increased production of industrial tree plantations in CARAGA benefited forestry performance.
During June 2006 to October 2007, price of rice grew slower relative to the other key agricultural imports. Rice prices posted a minimal increase of O.5% per month from US$305.6/ ton in June 2006 to US$329.2/ton in October 2007. The smaller price fluctuations in rice were a result of the orderly release of Thailand government-owned stocks. Prices are also driven by increasing purchases.
THE RISE IN DEMAND MOVED PRICES OF soybean meal upward. Production has been insufficient to satisfy global demand. Prices of soybean meal grew by 4.6% per month from US$196/ton in June 2006 to US$384/ton in October 2007. As an ingredient to feeds, the upward trend in soybean meal prices has ripple effects on the livestock and poultry Sectors.
Price indices vs. exchange rates indices
For the period June 2006 to October 2007, monthly exchange rate indices were on a downward trend. In October 2007, the index for exchange rates was 17%, lower than 17 months ago (June 2006), indicating sharp peso appreciation.
Comparing the average prices of the key export products of the country from June 2006 (base year) to August 2007, Coconut oil has the highest difference of 68%. The rise in consumption and tightening supply may have led to the surge in prices. Fresh banana and pineapple prices increased by only 2% and 7%, respectively, from June 2006 to August 2007. With the 17% peso appreciation, producers took beatings in farm profits. In addition, ocean freights have also surged to record highs in the past months.
For the key import products, soybean meal exhibited the highest price index at 96%, in October 2007 from the base year. This was followed by wheat and rice at 72% and 8%, respectively.
World Prices of Key Products
Global change such as markets and climate weigh heavily on food and agricultural products’ prices. Meanwhile, external factors like exchange rates, fuel prices, freight rates, politics and income growth are continuously drawing attention as they affect price volatility. Below are discussions on the trends in prices of key export and import commodities of the country as well as the exchange rates during June 2006 to October 2007.
Exports
The top three export products of the country are coconut oil, banana and pineapple. They accounted for about 43% of the total export earnings in 2006.
Coconut oil prices have been steadily increasing from June 2006 to August 2007. It
is about 68%o higher from its value of US$522/ton over a year ago following price spikes in world vegetable oils. On the average, it grew by 3.9% per month. Crude coconut oil mainly goes to Netherlands and US.
Fresh bananas are mainly destined to Japan (42%). Average prices fluctuated from a low of US$169/ton to US$189/ton during June 2006 to August 2007. Among the key exports, it grew the least at only 0.2% per month during the period.
The increasing price of fresh pineapples is accompanied by extreme volatility. Over the 15 month period, average fresh pineapple prices increased by 0.6% per month from US$200/ton in June 2006 to US$213/ton in August 2007. As in bananas, it mainly caters to the Japanese market (- 65%).
Imports
About one-third of the country’s import value consisted of wheat (including meslin), rice and soybean oil, cake and meal.
Wheat prices have been relatively stable during June 2007 to May 2007. This was followed by more rapid movements later. Over the 17 month period, wheat prices grew by 3.7% per month from US$ 195/ton in June 2006 to US$ 335/ton in October 2007. The rise in prices are due to tight supplies and partly, to the weakening of the US dollar. Further, the rise in wheat prices contributed to the increase in prices of basic foods such as bread.