Posted on November 17, 2014 09:56:00 PM
The economic sub-regions in our backyard: What do we know?
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THE BRUNEI Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA) and Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) held their second joint conference in Davao City on October 23-26. The sub-regions belong to the ASEAN. The conference was hosted by the Mindanao Development Authority and former President Fidel V. Ramos and Mayor Rodrigo Duterte graced the occasion.
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In the business conference, there were four segments: ASEAN, Connectivity, Agribusiness, and Tourism. I will dwell on agribusiness, the lynchpin of the development of the two sub-regions.
There were excellent speakers from Indonesia’s Center for Food Distribution and Reserve, Thailand’s Charoen Pokphand Group, Malaysia’s Federal Land Development Authority, Philippines’ La Frutera, Chulalongkorn University Halal Center, Thai Univanich Palmoil, and Nestle.
Many Filipinos have little knowledge of the sub-regions, which rank as the world’s largest concentration of major tropical tree crops production. These tree crops include oil palm, rubber, coconut, coffee and cocoa. It is also the global center for the production and processing of important marine products.
TREE CROPS. EAGA and IMT are the world’s largest suppliers of palm oil, natural rubber, and coconut products. They are also key players in coffee and cocoa.
EAGA hosts oil palm, coconut, coffee, cocoa and rubber plantations totaling over 12 million hectares. Oil palm occupies about 6.6 million hectares, coconut 3.3 million hectares, rubber 1.2 million hectares, cocoa 1.2 million hectares, and coffee 240,000 hectares.
In EAGA, Kalimantan, Sabah and Sarawak — all in Borneo — are the main producers of oil palm; Kalimantan for rubber, Sulawesi for cocoa; Sulawesi, Maluku and Mindanao for coconut; and Sulawesi for coffee.
Tree crop exports, at $75 billion a year, comprise over half of the global exports of these products. Palm oil and rubber are the big-ticket items, $35 billion and $29 billion respectively, in 2011. These products, plus palm kernel oil and coconut oil, account for at least 80% of world exports.
TROPICAL FRUITS. The joint area is a global player in bananas and pineapples.
For bananas, the Philippines’ Mindanao accounts for over 12% of world exports (over $800 million in 2013) and ranks second after Ecuador.
The Philippines, Indonesia and Malaysia contribute some 32% of world canned pineapple exports. (Thailand accounts for over 50% of world exports but almost all of the production are outside the IMT, in Central Thailand.)
MARINE FISHERIES. EAGA is a major player in the world tuna industry, with main processing centers in Bitung, North Sulawesi, in Indonesia and General Santos in the Philippines. (Thailand is the leading canned-tuna producer, but its canneries are outside IMT.)
EAGA is also a major grower of seaweeds. The key seaweed areas are Mindanao and Palawan in the Philippines, and Sulawesi in Indonesia. (The Philippines is a major carrageenan exporter and its main processing center is in Cebu, Central Philippines.)
There are a number of agribusiness models in Southeast Asia which provide lessons that may find applications in the region.
CONTRACT FARMING. The system is fairly widespread in broiler chicken across Southeast Asia. It is also applied to banana in the Philippines, and fruits and shrimps in Thailand. Under the scheme, the company provides the market and financial support in terms of input advances as well as technical services to the growers. The growers provide the land, buildings, equipment and labor.
NUCLEUS ESTATE — OUTGROWERS (NES) SCHEMES. Known in Indonesia as the Inti-Plasm scheme, the inti (nucleus) is a private or public company running a core plantation and processing plant. The plasm (smallholder growers) sell their produce to the inti. The inti is responsible for providing technical services to the growers. This is common among oil palm growers.
CENTRAL MANAGEMENT OF SMALLHOLDER ESTATES. The management system is similar to corporate plantations. This “Malaysian-made” model has two variants: large state land development for landless smallholders, and consolidated smallholder lands. These models were implemented as early as the 1960s to early 1990s. They were applied to rubber, and later to oil palm. The dynamics changed as smallholder cooperatives matured, and when both agencies became public corporations in mid-1990s.
BIMP-EAGA and IMT-GT are global players in tree crops, tropical fruits, and marine products. The thrust is for expanded value adding. Already, the sub-regions have global presence in downstream olein, oleochemicals and bio-diesel. They are also leading exporters of rubber products and rubber wood furniture.
Four key developments are worth watching that will have impact on the sub-regions.
First, in IMT, southern Thailand will continue to shift to oil palm from rubber due to labor shortage and shorter gestation. The same has already happened in Peninsular Malaysia.
Second, cross-border investments into “less developed areas” of EAGA will occur, especially in eastern Indonesia and Mindanao. Labor supply is not a constraint. Mindanao has the labor and under-utilized lands, but consolidating small holders will be a challenge.
Third, governments — national and local — need to be strong enablers, not barriers. They must consider that investors have shareholder expectations on project returns. There are also competitive places such as Myanmar and West Africa.
Fourth, there is a strategic imperative to apply models that will be inclusive to help reduce rural poverty, especially in Mindanao and Eastern Indonesia.
Mindanao, Palawan and Eastern Indonesia remain good investment destinations for both plantations and value additions. They have the resource endowments for tree crops, fruits and marine products. Member countries have specific competitive advantages in terms of land, labor and marine resources. Cross-border investments have made the sub-regions among the most dynamic agribusiness centers of the world.
Rolando T. Dy is the chair of the MAP Agribusiness and Countryside Development Committee, and the executive director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.