Executive Director's Corner

Narratives from agribusiness experts—Part 3

/ 05:01 AM May 29, 2017

This article covers rice and insurgency’s impact on job creation.

Rice imports

My Singaporean connection Rahul  (not his real name) is into imports logistics. Here is his expert opinion after years in rice trade.

Bulk imports under government-to-government (G2G) is highly impractical.
The government should know better, unless the people involved have other agenda. G2G entails bulk imports from Bangkok or Ho Chi Minh on 5,000-ton ships.  There are only  few ports that can handle the cargo: Polloc (Maguindanao), Sasa (Davao) and Ozamis in Mindanao; Tabaco (Bicol); Batangas, Poro Point and Subic (Luzon).

Manila Port is a no-no as rice has to be barged from Manila Bay and trucked to Bulacan warehouses. There are inventory costs incurred. The ship cannot land in Manila as unloading capacity is only 500 tons a day in bags.

The sound way is to allow private sector importers. How?
Today, the National Food Authority (NFA) allows under minimum access volume (quota) allocation of 500 tons per importer. That is equivalent to 20 containers at 25 tons each.  This 500-ton volume does not make economic sense. It violates lean inventory practice.

How will the importers dispose the rice in “one go”? This approach is not cost-effective because of high carrying costs. Recall the rotting of rice during 2008-2010 due to over-importation and lack of warehouses.

The cost-effective way is to allow only 100 tons (four containers) but subject to specific times of delivery. In order to protect farm prices, deliveries should be made only from June to August.  This means, before the importer even orders, there are already buyers for the four containers. The shipments can be trucked directly to the wholesaler’s warehouse or customers. Rahul wonders why this is not implemented.

Rahul also wonders why the country has to import 25-percent broken Thai rice ($377 per ton, from Bangkok, May 5, 2017 price quote). The cheap way is to import 5-percent broken rice ($383 per ton) as well as all broken rice ($322 per ton). Vietnamese offers for broken rice are $15 per ton cheaper.

The importer can sell to various customers by mixing the 5 percent rice and broken rice. The shipments can come in 2-ton bags. All this needs  a “cement” type mixer.

Why two-ton bags? Plastic sacks in Vietnam is expensive. Cheaper to buy from China.

Rahul also scratched his head why the NFA did not entertain the offer of Vietnam’s state corporation, Vina Food, to establish a huge warehouse in Subic. NFA or private buyers can buy rice at any time. No import costs at all. Clear timing of stock withdrawals.
He said: Malaysia (Bernas) and Singapore (Agrocorp, Marzuk Agri, Valency International) have private trading companies that have operations in Vietnam, Thailand and Myanmar. They operate globally aside from supplying their countries with rice.  In 2016, Malaysia and Singapore exported rice from their excess stocks despite their heavy import dependence. Rahul claims that the Philippines is out of sync.

Rice productivity

This is a feedback from Manuel of Cagayan Valley. There is also smuggling occurring, as much as 850,000 tons a year based on the difference between Philippine import volume and exports of Thailand and Vietnam.  Rice traders do not report their stocks. With containerization, rice can land in many ports in the Philippines in connivance with Bureau of Customs personnel.

Manuel said there were 160,000 hectares of irrigated farmland and 260,000 hectares of harvested area in Isabela. Their production cost is high at P11.50 per kilo because of low yield of 4.5 tons per hectare per season. Their production cost can be lower if yield can be raised to 7.5 tons per hectare with modern farming.  Farmers are difficult to change as most are old (57 years old). He said, it is hard to teach old dogs new tricks. He worries about the huge smuggled rice which are not properly monitored.

Game changers

The Renuccis couple (Patrick and Rachel Tan ) are true game changers. They want to transform the poverty landscape of Alangalang, Leyte. The town is heavily dependent on coconut and rice. I had dinner with them near the UA&P campus in Ortigas lately.

Chenyi Agventures plans a value-chain based, modern rice-farming. Mechanization will cover from plowing to harvesting to drying, silo storage, milling, branding  and marketing.  The partnership with small farmers will increase the current average income of farmers of P19,000 per hectare by several folds. The system will bring one-hectare farmers out of the current poverty threshold of about P110,000 per family per year.    I wish them well. As we speak, there are already different business models. Among them are:  small farms, large fields in Vietnam; small landlord, big tenants in Taiwan; and farm consolidation in Piddig Ilocos Norte.  It is all about managing land, labor, capital and technology. No secret here.

Insurgency and job destruction

Rural poverty in the Philippines is highest in the Asean at 30 percent of rural folk in 2015.  It was only 13.9 percent in Thailand (2013), 14.3 percent in Indonesia (2014), and 18.6 in Vietnam (2014). I opine it is closer to 40 percent in Mindanao. The countryside badly needs jobs.

The low farm productivity of the Philippines relative to its neighbors is glaring. Productivity lags in 13 out of 15 crops. The poor diversification and low productivity cause very poor agri-export performance, and, in turn, job creation.

The Philippine countryside cries for investments. Investments must break the classic vicious cycle of poverty: low productivity, low income, low investments. The spillover effects: weak consumer markets, and even less investments.

The New Peoples’ Army’s attacks on existing investors will exacerbate rural poverty. It will be the poor that will suffer from joblessness, not the rich.

Recall the burning of Standeco rubber plant in Makilala, North Cotabato in September 2013.  The owner’s cousin was killed by a roadside bomb as he drove to bring fire extinguishers. Some 160 workers lost their jobs in two nearby barangays. Disgusted, the owner did not re-open the plant.

Last April 29, NPAs burned the Davao City packaging plant of Lapanday Foods as well as its carton box plant.  The jobs lost numbered 180.  Damage: P2 billion.  I wonder if the plants will ever re-open.  Other incidents include: burning of equipment of Sumitomo Fruits in South Cotabato  and  the chopping down of Dole-Stanfilco banana plantations in Tago, Surigao del Sur.

With the closure of Dole farms, some 1,500 direct employees and 1,500 indirect workers were affected. The giant banana player reopened only on a condition that the local government unit would safeguard them from further attacks. The leading banana exporters group  said if left unaddressed, existing and even prospective investors will be driven away, losing  massive investments.

Investing in Indonesia

The firm, called it PT Kemajuan, said investors in Mindanao faced many hurdles.  Among them are:  access to land, extortion and   operational risks.  In Sumatra, PT Kemajuan claims there is no extortion, no burning, no teach-ins, and no risks to lives. There is only one law:  the elected government. They can focus on productivity and competitiveness.  Some firms spend up to 5 percent of cash costs in Mindanao for security and taxation.

When will the promised peace come? When will there be an agribusiness boom in Mindanao?

I wonder what my UP days Yakal dorm mates, the likes of Rafael Baylosis, former secretary general of the Communist Part of the Philippines, and the late Melito Glor, to whom an NPA Quezon command is named, of the famed First Quarter Storm of 1970s, would say.

Suffer the poor due to ideology?  Insurgency thrives on poverty. No wonder the Philippines has twice the Asean norm in rural poverty incidence.

Read more: http://business.inquirer.net/230317/narratives-agribusiness-experts-part-3#ixzz4iRYZvP1T
Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook