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Agribusiness in Philippines

Although crop production is estimated to have improved in 2010/11, the Philippines will continue to rely on imports to meet its basic food needs over the short term. Although the country will be somewhat sheltered from soaring grain prices because of government programmes, the weak productivity within the grain and rice sectors (as measured by yields), and the yearly threat of typhoons means the country will remain somewhat vulnerable to food price inflation increases. Over the long term, government investments will aid production increases across the agriculture sector. However, with the country set to reduce tariffs as part of a regional free trade agreement, productivity will need to improve to achieve the country's goal of greater self-sufficiency.

Key Trends

- Rice consumption growth to 2015: 14% to 15.7mn tonnes. The combination of strong population growth and only moderate production growth means that the country will remain one of the world's largest net importers of rice.
- Sugar production growth to 2014/15: 13% to 4.6mn tonnes. This will keep the country barely able to satisfy domestic demand. However, as the Philippines does not allow sugar to be traded due to the country's unique market sharing arrangement, the country should be able to prevent domestic shortages in the wake of production increases.
- Coffee consumption growth to 2015: 21% to 1.3mn tonnes. While the country's rapid population growth of around 2% a year will account for some of the growth, the increased interest in speciality coffee and Western-style coffee shops are also major drivers of consumption.
- 2010 Real GDP Growth: 6.2% (up from 0.9% in 2009; predicted to average 4.8% from 2010 until 2015).
- Food And Beverage Price Inflation: 2% year-on-year in October 2010 (down from 4% y-o-y in July 2009).

Industry Developments

Despite our initial fears that Typhoon Megi would significantly reduce the country's rice output, reports have put losses between 52,000 and 105,000 tonnes, much lower than the estimated 230,000 tonnes which the National Food Authority (NFA) had expected. In addition, the government has also assured the population that current rice stocks are more than enough to meet demand. These dynamics reinforce our view that further upside for rice prices -which have been rallying since mid-2010 - will be limited given the recent reports of good rice harvests from Thailand and Vietnam.

According to the Manila Times, poultry raisers and market vendors were able to reach an agreement on a standard reference price of PHP100 per kilogram for unbranded dressed chicken and PHP110 for branded chicken, with dressed chicken now selling at PHP120 per kilogram. Previously, prices had been low for live chickens, in so far as some producers threatened to suspend their operations as prices had fallen below their break-even price of around PHP60 per kilogram. Poultry producers claimed that they would police themselves in order to prevent an oversupply of poultry in Philippine markets, which had combined with lower incomes (a consequence of typhoons) to decrease demand, leading to a supply glut of chicken in previous quarters.

Corn is expensive in the Philippines with the government setting minimum farmgate prices and high tariffs restricting the competitiveness of imports. However, some of the tariff protection enjoyed by corn farmers in the Philippines will come to an end in 2010, as the country is bound to cut tariffs on agricultural imports from its South East Asian neighbours to between 0% and 5% under the Association of South East Asian Nations (ASEAN) Free Trade Agreement (AFTA). Ultimately, we do not see the AFTA agreement having a major impact on corn production in the Philippines as tariffs on corn imports from other ASEAN member states are already low and none of the members are significant corn exporters.

by S. C.
07 december 2010, World News > Asia

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