Report No. 19281-PH Philippines Tree Crops For Rural Development Issues and Strategy Volume 11 Annexes June 22, 1999 Rural Development and Natural Resources Sector Unit East Asia and Pacitic Region Document of the Wod Bank CURRENCY EQUIVALENTS (as of December, 1998) Currency Unit = Pesos (P) US$1.00 = P 40.0 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS A&D = Alienable and Disposable AFMA = Agriculture and Fisheries Modernization Aact ARB = Agrarian Reform Beneficiaries ARC = Agrarian Reform Communities CARL = Comprehensive Agrarian Reform Law CARP Comprehensive Agrarian Reform Program CEF = Competitiveness Enhancement Fund CocoFed = Coconut Federation of the Philippines CPO = Crude Palm Oil DA = Department of Agriculture DAR = Department of Agrarian Reform DENR = Department of Environment and Natural Resources DOST = Department of Science and Technology DPS = Direct Payment Scheme DTI Department of Trade and Industry FELCRA = Federal Land Consolidation and Rehabilitation Authority (Malaysia) FELDA = Federal Land Development Authority (Malaysia) FFB = Fresh Fruit Bunches HVCCP = High Value Commercial Crops Program ISF = Integrated Social Forestry LBP = Land Bank of the Philippines LGU = Local Government Unit LOI = Letter of Instruction MTPDP = Medium Term Philippine Development Plan NES = Nucleus Estate Schemes ODA = Official Development Assistance ORRAF = Office of the Rubber Replanting Aid Fund (Thailand) PD = Presidential Decree PTF = Government-owned Plantation (Indonesia) RA Republic Act RCF = Rural Countryside Fund SAFDZ = Strategic Agricultural and Fisheries Development Zones SCU = State Colleges and Universities VLT = Voluntary Land Transfer VOS = Voluntary-Offer-to-Sell Vice President :Jean-Michael Severino, EAP Country Director :Vinay Bhargava, EACPF Sector Manager :Geoffrey Fox, EASRD Task Team Leader :Richard Anson, EACPF PHILIPPINE S TREE CROPS FOR RURAL DEVELOPMENT: ISSUES AND STRATEGY ANNEXES ( 11) Annex 1: Overview of Tree Crop Production (Levels and Trends) Annex 2: Classification of Tree Crop Production by Different Tree Crop Farm Types Annex 3: Tree Crop Support Services, Institutional Roles and Performance Annex 4: Government Policies Affecting Tree Crop Development Annex 5: Philippine Experience in Tree Crop Development (A) Overview (B) Summary of Lessons from Case Studies (23) (C) Past and Present GOP-supported Tree Crop Programs: Key Features (D) Budgetary Allocations for Tree Crop Development (Working Paper includes summary assessment of relevant East Asia Regional experience in tree crop development) Annex 6. International Price & Market Prospects Annex 7. Financial Impact of Tree Crops on Smallholders Annex 8. Current Financing of Tree Crop Planting and Options for the Future Annex 9. Economic returns from Tree Crop Investments Annex 10. Alternative Investment and Management Systems for Tree Crop Development Annex 11: Tree Crop Specific Strategy Frameworks * Overall Summary Table (by tree crop) * Indicative Frameworks for the Main Tree Crop Strategies (includes 9 Attachments: coconut; coffee; rubber; oil palm; mango; banana; cacao; other fruits; timber trees) Bibliography Annex I Page 1 of 8 OVERVIEW OF TREE CROP PRODUCTION AND MARKETING I. TREE CROP PRODUCTION IN THE PHILIPPINES Importance within Agriculture and Linkages with Other Sectors I. Tree crops comprise a significant part of Philippine agriculture. Of the 10 million ha of farmland, about 4.5 million ha are devoted to tree crops, of which coconut accounts for about 3.3 million ha. The balance are in coffee, rubber, oil palm, mango, banana and other pure and mixed stands. 2. In 1997, tree crops contributed about 12.5% of agricultural Gross Domestic Product (GDP); coconut alone contributed about 5% while coffee, rubber, mango and banana, another 6%. The relatively low contribution largely understates their potential contribution as average farmn productivity is far less than what are being achieved in good farms. Table Al: Tree Crops in Agricultural GDP and Value of Production in 1997 (At Current Prices) Gross Value Added Value of Production Amount Share Amount Share Crop (Pesos, million) (%) (Pesos, million) (%) Coconut 28,730 4.7 29,529 5.9 Coffee 4,520 0.9 5,020 1.0 Rubber 1,500 0.3 1,671 0.3 Mango 8,970 1.8 10,554 2.1 Banana 12,170 2.7 14,921 3.0 Subtotal 55,890 11.5 57,695 11.6 Others (A) 4,840 1.0 5,380 1.1 Total Tree Crops 60,730 12.5 63,075 12.7 Total Crops 287,640 59.1 340,638 68.2 Total Agriculture 486,850(b) 100.0 499,457 100.00) a) kruitinres, tre nuto, o- palm, etc. (b) Including Forestry (c) Excluding Forestry Source: Bureau ofAgricultural Statistics (for Production Values) National Statistical Coordination Board (for Gross Value Added) Mission Estimates 3. In the 1980s, the GDP of major tree crops declined compared to the slight increase in total crops. This was primarily caused by contractions in coconut and banana. In the 1990s, tree crop GDP registered higher growth than total crops GDP due to dramatic expansion in mango production. As a result, the contribution of tree crops to agriculture growth was largely negative in the 1980s, but turned positive in the 1990s. -2- Annex 1 Page 2 of 8 Table A2: Estimated Tree Crop GDP Growth, 1980-97 (In million pesos at constant 1985 prices) Ave. Annual Growth (%) Crop 1980 1990 1997 1980-90 1990-97 Coconut 11,956 7,084 7,700 (4.6) 1.3 Coffee 2,320 3,001 2,538 2.8 (2.3) Rubber 373 718 744 7.5 0.5 Banana 3,935 2,698 2,871 (3.5) 0.9 Mango 2,200 2,330 4,628 0.7 11.3 Total 20,784 15,831 18,481 (2.5) 2.3 Total Crops 81,027 85,870 99,006 0.6 2.1 Total Agriculture(a) 125,030 153,414 182,383 2.1 2.5 ta) rxuurng toresy_ Source: National Statistcal Coordination Board Bureau ofAgricultural Statstics Mission Estimates Table A3: Changing Structure of Agriculture Growth, 1980-1999 (In Percent) Ave. Growth Ave. Share Contrib. to Growth 1980-90 1990-96 1981-90 1990-96 1980-90 1990-96 Crops Palay 2.7 3.4 16.2 16.2 112.9 50.1 Corn 3.5 (1.6) 6.8 6.4 63.9 (10.0) Coconut (4.6) 0.5 7.3 4.2 (100.6) 1.7 Sugarcane (1.6) 6.1 3.1 2.9 (31.6) 10.7 Banana (3.5) 0.6 2.5 1.7 (25.5) 0.9 Other crops 1.5 2.1 23.4 23.5 81.0 46.5 Subtotal 0.6 2.0 59.1 54.9 100.0 100.0 Livestock 5.9 3.9 9.4 11.2 Poultry 6.5 6.6 6.3 9.1 Agri Act. & Services 4.1 2.3 4.3 5.0 Fishery 3.9 12 20.8 19.8 Total Agrculture() 2.1 2.4 100.0 100.0 IJbxCEtualng rtclStry. Source: Natonal Statistical Coordination Board 4. Tree crop areas have not grown significantly during 1980-1990. In the 1980s, coconut areas - the dominant crop - contracted, followed by marginal expansion in the 1990s. The bright spot was the dramatic expansion in oil palm (albeit from a small base) in the early period, and that of mango in the later period. These changes were generally reflected in production trends. Table A4: Major Tree Crop Area (In Thousand Hectare) Ave. Annual Growth (%) Crop 1980 1990 1997 1980-90 1990-97 Coconut 3,236 3,112 3,314 (0.3) 0.6 Coffee 116 150 150 2.3 (0.1) Rubber 65 86 93 2.9 0.9 Oil palm(") <5 <15 <15 12.0 0 Mango 48 53 90 1.0 8.9 Banana 277 300 328 0.8 1.0 Memo item: Palay 3,470 3,319 3,842 (0.3) 2.2 Corn 3,199 3,820 2,726 1.9 (4.6) taktcmm, Source: Bureau ofAgricuitural Statistics Mission Estimates Annex I Page 3 of 8 Table A5: Major Tree Crop Production (In Thousand Tons) Ave. Annual Growth (%) Crop 1980 1990 1997 1980-90 1990-97 Coconut 13,369 11,940 12,053 (1.0) 0.3 Coffee 110 143 121 3.1 (2.2) Rubber 32 62 65 7.3 1.0 Oil palm (CPO)(a) 17 46 70 10.5 6.5 Mango 319 390 670 2.5 9.0 Banana 3,283 2,972 3,391 (0.6) 2.1 Memo item: Palay 7,646 9,319 11,268 2.2 2.9 Corn 3,050 4,854 4,333 4.9 (1.5) ta) Estimate - Source: Bureau ofAgricultural Statistics Mission Estimates Export 5. Tree crop exports heavily contribute to agriculture exports. In 1997, products derived from tree crop earned at least US$1 billion or more than half of the total agriculture exports. Products derived from coconut earned about $765 million. Table A6: Tree Crop Exports in 1997 (In US$ Million) Item Value Products derived from: Coconut 764.3 Coffee 4.4 Rubber 25.1 Mango 45.1 Banana 240.4 Cacao 19.2 Total 1,098.5 Source: National Statistics Office 6. The general trends in exports at constant prices indicate a marginal growth following significant differences in crop performance. Export of coconut product shows notable expansion in coconut oil and dramatic decline in copra. Desiccated coconut export fell in the 1980s but recovered in the 1990s. Rubber products posted increases over the long period and similarly for fruits (banana and mango). Table A7: Export Earnings In Million US Dollars (At Constant 1985 Prices) Ave. Annual Growth (%) Crop 1980 1990 1997 1980-90 1990-97 Coconut 642.4 735.4 625.8 5.0 0.9 Coffee 35.9 20.7 1.2 5.1 2.6 Rubber 4.7 11.3 20.5 16.8 11.2 Mango 10.2 19.1 43.6 7.8 14.5 Banana 136.7 131.9 185.3 0.6 6.1 Cacao 12.5 34.3 24.3 26.4 (3.8) TOTAL ABOVE 842.3 952.7 900.6 3.2 0.8 Source: Foreign Trade Statistics of the Philppines -4- Annex 1 Page 4 of 8 Table A8: Export Volumes (In Thousand Tons) Ave. Annual Growth (°) Crop 1980 1990 1997 1980-90 1990-97 Coconuts: Crude Coconut Oil 873.7 1,059.3 874.2 6.8 3.6 Refined Coconut Oil 44.8 75.3 205.9 20.9 17.1 Copra Meal 436.0 644.0 571.0 na na Copra 121.5 97.3 7.0 (15.1) (4.3) Desiccated 87.2 75.3 76.8 (0.26) 0.8 Shell charcoal na na 41.0 na na Activated Carbon na na 28.3 na na Oleo Chemicals 101.6 57.5 na (3.8) Coffee Beans 15.8 9.1 0.5 5.1 2.6 Rubber * 7.3 17.7 32.0 16.8 11.2 Mango Products na 5.3 ta) 4.5 na 5.9 Fresh 8.9 13.0 44.9 6.5 22.3 Puree Dried 0.1 0.5 0.6 22.9 2.2 Banana Products Fresh 922.7 839.8 1,143.3 0.1 5.7 Chips 3.7 10.2 19.1 14.2 10.2 Cocoa Products Butter 2.4 6.5 3.8 25.7 (6.6) Paste - - 1.7 - nm Powder 1.0 2.3 0.9 28.5 8.5 (s lWIl ValUe. Source: Foreign Trade Statistics of the Philippines Linkages with Industry 7. Tree crops supply raw materials to a significant number of food and agri-related industries. In 1994, there were almost 1,000 establishments, or 1% of total establishments. Some 55,000 were employed, of which 41% were women. The tree crop related industries generated about P50 billion in output and P20 billion in value added, or 6% of the total manufacturing sector. Among large establishments (with 10 or more workers), the average capacity utilization range from 60 to75% in part due to raw material constraints from agriculture. Table A9: Tree Crop-Related Manufacturing Establishments in 1994 Item No. Employment Percent Value of Census Share Female Output Value Added (%) Pesos (%) ____________ lMillions Fruit Canning and 148 18,653 37 9,517 5,810 1.7 Preserving Crude Coconut Oil 254 3,267 25 14,531 3,120 0.9 Milling Coconut Refining 42 2,471 12 4,892 1,148 0.3 Coffee Roasting 59 3,732 16 9,417 3,524 1.0 Cocoa Products 20 1,957 36 1,397 497 0.1 Rubber Products 455 25,157 45 10,122 5,707 1.7 Total 978 55,237 41 49,876 19,806 5.8 All Manufacturing 92,270 1,182,882 41 880,965 338,563 100.0 Source: 1994 Census of Establishnents, National Statisties Office -5- Annex 1 Page 5 of 8 8. The agro-industrial linkages of tree crops are significant and wide. Estimates from partial data show that for every Pl of farm output, there is another P 0.50 of agri- industry output. This excludes the contributions of input supply industries (e.g. fertilizer, farm chemicals, packaging products, etc.) and services (e.g. banking and finance, transportation, storage and trade). If these are included, it is likely that for every P 1 value added in agriculture, there is an additional PI value added in industry and services sector. The main downstream industries are shown in Table 11. Table A10: Value Added in Agriculture and Agro-Industry: Selected Tree Crops, 1994 :_____________________ _ ( In Billion Pesos, Current Prices) Crop Agriculture Value Agro-Industry Added Gross Value of Gross Value Added Production Coconut 26.4 19.4 4.3 Coffee 4.6 9.4 3.5 Rubber 1.4 10.1 5.7 Cocoa 0.3 14(a) 0.5 Banana, Mango and 5.8 Fruit trees 16.6(b) 9.5 TOTAL 49.3 49.8 19.8 (a) UMuae pCasulng or unporre mom (b) Esdtma Source: Nadonal Statistics Oice Mission Estimcdes Table All: Value Added Products of Tree Crops in the Philippines Primary Major Intermediate and Downstream Products Coconut Crude and refined coconut oil Cooking oil Soap and shampoo Oleo-chemicals Desiccated coconut Coconut shell charcoal Activated charcoal Nata de coco Coffee Beans Instant coffee Rubber latex/cuplumps Crepe rubber Tyres, Belts, Bushings, etc. Oil Palm Crude and refined palm oil Cooking oil Oleo-chemicals Mango Puree and Juice Dried Preserves Ice cream flavor Banana Chips Sauces/Ketchup Native Foods Cacao Chocolate confectionery Tonic drinks Bakery mixes Source: Mission Estimates -6- Annex 1 Page 6 of 8 II. ENVIRONMENT/TREE COVER 9. Tree crops contribute to sound environmental management by increasing the productivity of marginal lands while providing economic opportunities in the uplands and lowlands. They also provide vegetative cover which is compatible with environmental sustainability. Trees provide adequate soil conservation measures against soil erosion and flash flooding. According to the Bureau of Soils and Water Management, about 5.2 million ha of land are classified as severely eroded and 8.8 million ha are slightly eroded. The severely eroded areas are found mostly in Mindanao while the moderately and slightly eroded are mostly found in Luzon. There are some environmental risks associated with tree crop development. Most adverse environmental impacts could be mitigated by improving project sites, avoiding wildlands, managing use of pesticides, and controlling factory effluents. 10. Tree crops is a major contributor to vegetative cover. In 1997, actual forest cover was 18% out of the total land area of 30 million ha. This varied from a low of 6% in the Visayas to a high of 22% in Luzon. The major tree crops alone provide about 13% of vegetative cover, ranging from a low of 8% in Luzon to a high of 20% in Mindanao. Because of this, Mindanao has a total cover of almost 40% as compared to 20% and 30%, for Visayas and Luzon, respectively. Table A12: Forest and Tree Crop Cover in 1997 (In Thousand Hectares) Iteva Luzon Visayas Mindanao Total TOTAL LAND AREA 14,140 5,661 10,199 30,000 Certified A&D 6,594 3,392 4,131 14,177 "Forest" land 7,546 2,269 6,068 15,883 Actual Forest 3,105 352 1,935 5,392 (% Cover) (22%) (6%) (19%) (18%) Dipterocarp 1,843 306 1,387 3,356 Old Growth 660 35 110 805 Residue 1,283 271 1,177 2,731 Others 1,262 46 548 1,856 Brushlands 1,318 186 728 2,232 Major Tree Crop Areas: Coconut 949 671 1,694 3,314 Coffee 39 11 99 149 Rubber 93 93 Banana 110 72 146 328 Mango 55 17 18 90 TOTAL 1,153 771 2,050 3,974 (% Cover) (80%) (14%) (20%) (13%) GRAND TOTAL 4,258 1,123 3,985 9,366 (% Vegetative Cover) (30%) (20%) (30%) (31%) Source: Department of Environment andNatural Resources Bureau ofAgricultural Staistics Annex 1 Page 7 of 8 Table A13: Incremental Export Potentials (US$ Million at early 1998 prices) Present Futire increinental (1997) (2015) Coconut, Copra Based 810 1,340 530 Coffee Beans 1 47 46 Rubber 34 344 310 Palm Oil (30) 280 310 Banana, fresh 212 293 81 Mango, fresh 40 124 84 Total (Net) 1,067 2,428 1,361 Soutce: Mission estimates Table A14: Production Potential Exports and Forex Saving (At Late 1998 Prices) Present (1997) Future (2015) Incremental Area Yield + Area Yield Prod'n. ± Incremet Ave Add'l Crop ('000 ha) (ton/ha) Prod'n. Imports Consu Exports ('000 ha) (ton/ha Imports Consum Exports at Exp. Export Export or mption ) ption Price (b) Forex ($/ton) Savings ('000 tons) _('000 tons) US$ mln Coconut 3,310 0.79 2,618 0 619 (a) 1,842 1,800 2.5 4,500 0 1,450(c) 3,050 1,208 440 530 Copra Basis__ _ _ __ _ _ _ __ _ __ _ _ _ _ _ _ _ Coffee 150 0.4 59.4 nil 58.5 0.9 IS0 1.0 50 0 121(d) 29 28 1,650 46 beansI Rubber, 92.9 0.71 65.5 0.8 32.0 34.3 400 1.0 400 0 58(e) 342 310 1,000 310 drc I__ __ _ _ _ _ _ _ _ _ _ I_ _ _ _ Palm oil 70 40 110 0 200 4 800 0 370(f) 430 470 650 310 Banana 328 10.3 3391 0 2152 1239 300 15 4500 2710(g) 1690 451 180 Mango 90 7.4 670 0 616 54 135 12 1620 0 1482(h) 138 84 1000 84 Total 1361 00 (a) Net of inventory changes (b) Late 1998 prices (c) Ave. growth of 5% p.a. (d) Ave. growth of 4% p.a. (e) Ave. growth of 3% p.a. (f) Ave. growth of 7% p.a. (g) Ave. growth of 2% p.a. (h) Ave. growth of 5% p.a. Source: Mission Preliminary Estimates Co _ oo Annex 2 Page 1 of lO CLASSIFICATION OF DIFFERENT TREE CROP FARM TYPES 1. The methodology for classifying tree crop farms involve three criteria: (a) size of holdings; (b) crop mix; and (c) type of management. 2. Majority of the tree crop production in the Philippines are smallholdings. According to the latest data (1991), farms below 3 ha account for the majority of the farms: some 72% of the coconut farns; 64% of the coffee farms; 72% of mango farms; and 76% of banana farms. However, holdings above 10 ha account for significant areas: 3.5% of coconut farms account for 27% of the area; coffee (5% from 21%); rubber (12% for 53%); mango (4% from 15%); and banana (3% from 18%). With CARP, the proportion of smallholdings may have increased following land distribution to ARBs. There are, however, large estates which have been transferred collectively, particularly in rubber, oil palm and banana. 3. A large proportion of smallholdings have mixed croppings. These farms are either intercropped or mixtures of pure stands. Finally, farm households maintain backyard tree crops where temporary crops are grown in much of the farm area or non-farm households maintaining small areas of backyard tree crops. Table 1. FARM SIZE DISTRIBUTION OF SELECTED TREE CROPS IN 1991 (In Percent) Coconut Coffee Rubber Mango Banana Hectare No. Stock No. Stock No. Stock No. Stock No. Stock Under 1 28.6 4.0 22.6 5.4 6.2 0.6 30.4 18.4 33.8 12.3 1 - <3 43.6 22.8 41.5 25.3 34.2 10.4 42.3 35.5 42.7 32.8 3 - <5 14.5 19.5 17.2 22.1 22.1 12.5 13.9 16.4 12.5 18.4 5 - <7 7.1 16.5 10.1 17.9 18.0 14.8 7.0 10.2 6.1 12.7 7 -<10 2.7 9.6 3.6 7.1 7.4 7.9 2.8 4.9 2.2 6.1 10 - <25 3.1 18.7 4.5 12.5 10.5 18.5 3.2 8.4 2.4 9.5 25 & over 0.4 8.9 0.5 8.7 1.6 35.3 0.4 6.2 0.3 8.2 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: National Statistics Office, Census ofAgricutre, 1991 4. Farms are also categorize by type of management. Majority of the farms are operated by smallholders either as owner-operators or lessors/tenants. Estate or commercial operations are evident in rubber, oil palm, banana, mango, some fruits. Coconut. Most of the 3.3 million ha of coconut lands are smallholdings. (The average farm size was 3.6 ha in 1991). Coconut farms are widely distributed nationwide, largely from Southern Tagalog in the north and Mindanao in the south. According to Philippine Coconut Authority, there are about 1.77 million ha with a yield potential of more than 2.5 ton copra per ha; and 1.18 million ha with a yield potential of 1.5 to 2.5 ton copra per ha as compared to the present average yield of 0.7 ton per ha in 1998. -10- Annex 2 Page 2 of 10 Figure 1. REGIONAL CONCENTRATION OF COCONUT FARMS, PHILIPPINES Bico I Southern Others 19% Tagalog 8% 19% ARMM 4% Northern Mindanao 9% Western Southern Mindanao Eastern Mindanao 11% Visayas 16% 14% Source: Census of Agriculture, 1991 5. There are around 328 million coconut trees in the country, 86.5% of which are considered productive. In terms of physical area management, 67.5% are owner-operated, 28.2% are tenanted, the rest, 4.3% are either leased or rent free. Table 2. COCONUT: NUMBER OF FARMS AND TREES BY SIZE OF FARM, 1991 NUMBER OF HECTARE NUMBER TOTAL NUMBER PRODUCTIVE OF FARMS OF TREES TREES Unde_ I785_ 13,071,333 10,956,128 1 - <3 1,195028 74,903,115 64,061,771 3 - <5 396,210 _ 63,963,114 55,151,025 5 - <7 196,160 53,926,560 46,566,726 7 - <10 74,193 31,594,819 27,288,373 10 - <25 85,244 61,252,989 53,144,141 25 and over 11,015 29,285,988 26,697,457 TOTAL 2,742,425 327,997,917 283,865,621 Source: Census ofAgriculture, 1991 6. Rubber. Rubber farms are highly concentrated in Mindanao due to its agro-climatic endowment. Around 49% of rubber farms are located in Western Mindanao, followed by Central Mindanao with 29%. There are about 200,000 ha of gross area of rubber lands, but only about 90,000 ha when converted into standard density plantings. Much of the rubber lands are grown as smallholder mixed systems; with annual or perennial crops. It is estimated that there are about 35,000 ha of estates. Annex 2 Page 3 of 10 Figure 2. REGIONAL CONCENTRATION OF RUBBER FARMS, PHIIIPPINES CARAGA ARMM 10.5% 0.5% W estern Mindanao Central 48.9% Mindanao 29.0% Mindanao Mindanao 7.0% 5.2% Source: Bureau ofAgricultural Statistics 7. Based on the Census of Agriculture (1991), there are 17.6 million rubber trees, around 72% of which are considered productive. Table 3. RUBBER: NUMBER OF FARMS AND TREES BY SIZE OF FARM, 1991 NUMBER OF HECTARE NUMBER TOTAL NUMBER PRODUCTIVE OF FARMS OF TREES TREES Under 1 1,993 100,611 53,104 1 - <3 11,008 1,845,655 1,052,855 3 - <5 7,120 2,213,431 1,364,151 5 - <7 5,795 2,614,662 1,659,908 7 -<10 2,387 1,401,533 887,066 10 - <25 3,366 3,258,239 2,222,480 25 and 519 6,248250 5,526,388 over TOTAL 32,188 17,682,381 12,765,951 Source: Census ofAgriculture, 1991 8. Coffee. Coffee is a smallholder crop and grown under mixed systems. There were about 120,000 ha with perhaps 70,000 ha under coffee and 50,000 ha of mixed crops. There are four varieties of coffee grown: robusta (the dominant type), arabica, liberica and excelsa. Coffee is grown nationwide from Cordillera in the north to Mindanao in the south. Most coffee farms are owner-operated (79%), only a small percentage (8%) are tenanted, the rest (13%) are either leased or rent free to farmer-operators. -12- Annex 2 Page 4 of 10 Figure 3. REGIONAL CONCENTRATION OF COFFEE FARMS, PHILIPPINES Central Southern Mindanao Tagalog 14% CAR 15%10 Northern Others Mindanao 20% 16% Southern Mindanao 25% Source: Census ofAgriculture, 1991 Majority of coffee farms are smallholdings. Farms below 3 ha account for majority (411%) of the farms. Around 23% are under one ha and 17% above 3 ha but below 5 ha. There are 126 million coffee trees in the country, 88% of which are considered productive. Table 4. COFFEE: NUMBER FARMS AND TREES BY SIZE OF FARM, 1991 ________ _____________ NUMBER OF HECTARE NUMBER TOTAL NUMBER PRODUCTIVE OF FARMS OF TREES TREES Under 1 132,205 5,609,257 5,030,349 l - <3 243,100 34,592,492 30,586,762 3 - <5 100,814 28,063,020 24,524,281 5 - <7 59,114 22,593,244 19,439,131 7 - <10 21,033 9,011,544 7,903,151 10 - <25 26,491 15,784,253 13,707,137 25 and over 3,184 10,954,674 10,114,164 TOTAL 585,943 126,608,486 111,304,978 Source: Census ofAgiculture, 1991 9. Oil Palm. There are only 15,000 ha of oil palm grown in three commercial operations, one with an outgrowers scheme, in Mindanao where the agro-climatic conditions are ideal. These farms have an average farm size of 375 ha. -13- Annex 2 Page 5 of 10 10. Mixed Trees. After coconuts, the mixed farming type has the largest coverage of tree crops. They include multi-cropping of coconut (about 1 million ha) and multi-cropping (intercropped or mixed) of various tree crops (coffee, fruit trees, cacao, etc) and mixed cropping with annual crops. 11. Among fruit trees, mango is usually mixed with other perennials and annuals. Banana, on the other hand is either grown as plantation crop or mixed with other fruit trees. There were around 1.5 million farms planted with 7.6 million mango trees, 63% of which are productive. Table 5. FRUIT TREES (MANGO AND BANANA): NUMBER OF FARMS AND TREES BY SIZE OF FARM, 191 _______ .MANGO | BANANA l NUMBER TOTAL PRODUC- NUMBER TOTAL PRODUC- IIECTARE OF NO. OF TIVE OF NO. OF TIE FARMS TREES TREES FARMS TREES TREES Under 1 475,445 1,400,869 921,770 1,101,468 21,536,339 15,942,229 1 - <3 662,556 2,708,220 1,740,625 1,391,121 57,689,855 44,491,815 3 - <5 217,791 1,248,489 767,246 409,110 32,338,798 25,464,886 5 - <7 109,780 778,123 469,017 197,463 22,401,143 17,828,186 7 -<10 42,811 375,000 218,928 70,788 10,780,471 8,579,577 10 - <25 50,264 640,992 369,610 79,753 16,618,665 13,255,724 25 and over 6,693 470,155 294,888 9,239 14,338,089 13,311,478 TOTAL 1,565,340 7,621,847 4,782,084 3,258,942 175,703,358 138,873,895 Source: Census ofAgricul*ur4 1991 12. Based on 1991 Census of Agriculture, Mango farms are highly concentrated in Southern Tagalog (35%), Central Luzon (20%), Central Visayas (10%) and Ilocos Region (8%). Banana are mostly planted in Southern Tagalog (20%) under mixed tree system. In Mindanao, banana plantations are concentrated in Northern Mindanao (18%) and Southern Mindanao (16%). -14- Annex 2 Page 6 of 10 Figure 4. REGIONAL CONCENTRATION OF MANGO FARMS, PHILIPPINES _ Northern Central Ilocos Region Mindanao CAR 8%_ 4 % Others Visayas 3% 12% 10% W e stern Visayas 4% Central Luzon Southern 20% Southern Tagalog Mindanao 35% 4% Source: Census ofAgriculture, 1991 Figure 5. REGIONAL CONCENTRATION OF BANANA FARMS, PHILIPPINES Cagayan Western Central Valley CentralLuzon Visayas Mindanao NCR " 9%R 7% 5N° > Others 15% Southern Mindanao 16% Northern Southern Mindanao Tagalog 18% 20% Source: Census ofAgriculture, 1991 13. Backyard. Most of the rural households have backyard plantings of tree crops. These are farms with less than one ha of tree crops where temporary crops are grown on much of the area. Around 780,000 hectares are considered backyard farms with multi-cropping of tree crops. 14. There are also non-tree crop farms which are mostly planted with annual crops i.e. rice, corn or sugarcane. It is estimated that there are around 3 million ha of farms with no tree crops, providing livelihood to almost 2.6 million households. Rice is the major crop -15- Annex 2 Page 7 of 10 planted with an estimated 1.6 million ha. Most rice farms are owner-operated providing an income to almost 1.2 million households in the country. Table 6. TREE CROP FARM TYPES: ESTIMATED NUMBER OF HOUSEHOLDS FARM AVERAGE NUMBER OF HOUSEHOLDS CROP AREA FARM OWVNER WORKERS TOTAL SIZE (a) ('000 Ha) (Ha) ('000) A. TREE CROP _ l __l . COCONUT T 1 High Potential 1,850 3.0 _________ _600 240 840 Medium Potential 900 3.0 300 120 420 Subtotal 2,750 900 360 1,260 2. RUBBER 130 3.0 43 22 65 SMALLHOLDER 3. RUBBER ESTATES 35 50.0 <1 13 13 4. COFFEE 120 3.0 42 65 ____________ __ _ _ _ __ _ _ 23 5. OIL PALM 15 375.0 <1 3 _ _ _________ _ ______________ 3 4. FRUIT TREES 70 10.0 45 52 l _______________________ _________ _ _______ _ 7 l__ _ _7 5. MIXED TREES. 3,100 2.0 250 1,850 l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 ,6 0 0 6. BACKYARD 780 nil 400 1,500 1,100 TOTAL TREE CROP 7,000 1,135 4,808 3,673 B. NON-TREE CROP _ 1. RICE Irrigated 1.2 180 780 700 600 Rainfed 950 2.5 50 450 400 Subtotal 1,650 3.7 200 1,200 1,000 2. CORN 1,000 2.0 50 550 3___GRC NE20 ________6500 _ __ _ _ _ 3. .SUGARCANE 200 6.0 ____ 100 132 -16- Annex 2 Page 8 of 10 FARM AVERAGE NUMBER OF HOUSEHOLDS- CROP AREA FARM OWNER WORKERS TOTAL SIZE (a) ('000 Ha) (Ha) ('000) 32 4. OTHERS 150 1.5 10 110 100 TOTAL NON-TREE 1,002 2,634 CROP 3,000 1,632 ___ _ _ GRAND TOTAL 2,137 7,442 10,000 I 5,305 (a) Including leaseholder, share cropper and permanent/temporary workers. Source: Census ofAgriculture 1991 Bureau ofAgricultural Statistics Mission Estimates 15. Altogether, there are about 4.5 million ha of tree crops or 45% of total farm area. Some 65% of the rural households have tree crop plantings as primary or secondary sources of incomes. -17- Annex 2 Page 9 of 10 Table 7. CLASSIFICATION OF TREE CROP FARM TYPES Farm Tree No. Of % of Area Crop Rural Rural Farm Type' Description Area (In 1000 Ha) HH HH ('000) 1. Coconut- High Potential Coconut areas with high 1,850 1,750 840 12.4 productivity potential due to favorable agro-climatic endowment Intercrops are secondary. Insome cases, part of the area would be planted to other crops (i.e. temporary crops). With proper technology and management, average yield of more than 2.5 ton copralha is attainable. 2. Coconut - Medium Coconut areas with medium 900 800 420 6.2 Potential productivity potential due to less favorable agro-climatic endowment. Intercrops are secondary. In some cases, part of the area would be planted to other crops (i.e. temporary crops). With proper technology and management, average yield of 1.5-2.5 ton-copra/ha is attainable. 3. Rubber - Smalilholder Pure stands rubber as main crop. 130 110 65 1.0 Some temporary crops are grown on part of the farm. 4. Rubber - Estates(a) (b) Farm size over 25 ha 35 35 13 0.2 5. Coffee Pure standstcoffee as main crop. 120 70 65 1.0 Temporary crops are grown on part of the farm. Includes commercial and commercially- oriented smallholder 6. Oil Palm - Commercial(a) Plantation and growers 15 15 3 0.0 7. Fruit Trees - Banana, mango, citrus, durian, 70 70 52 0.8 Commercial(a) etc. 8. Mixed Tree System Farms with multi-cropping of 3,100 1,600 1,850 27.2 tree crops (coconut, coffee, fruit trees, cacao, etc.) and with more than 0.1 ha tree crops. In many cases, temporary crops are. grown on part of the farm 9. Backyard Farms with less than 0.1 ha of 780 80 1,500 22.1 tree crops where both (I) temporary crops are grown on much of the area, and (2) non- farm households with backyards and with multi-cropping of tree crops -18- Annex 2 Page 10 of 10 Subtotal Tree Crop Farms 7,000 4,530 4,808 64.6 10. Farms with No Tree Crops 3,000 2,634 35.4 GRAND TOTAL 10,000 4,530 7,442 100.0 % Share of Tree Crop Area 45% 1 Represents the dominant farming systems of fanns with or without tree crops. (a) Number of households include farm workers in estates and conmnercial fruit trees. (b) Include ARB plantations Source: National Statistics Office, Census ofAgrculhure 1991 Bureau ofAgricutural Statistics Mission Estimates Table 8. CLASSIFICATION OF TREE CROP FARMS (In Thousand Hectares) CLASSIFICATION FRUIT TOTAL NON- TOTAL OF FARMS RUBBER COFFEE OIL TREES TREE TREE FARM COCONU PALM ETC. CROPS CROP AREA T WITH TREE AREAS CROPS Coconut - High 1,450 30 - 270 100 1,850 Potential 1,750 Coconut - Medium - 20 - 130 100 900 Potential 650 800 Rubber - Smallholder - 60 10 - 40 20 130 110 Rubber- Estates - 30 - - 5 nil 35 35 Coffee- - - 40 - 30 50 120 Purestands/Main Crop 70 Oil Palm- - - - - 15 nil 15 Commercial 15 Fruit Trees - - - - 70 nil 70 Conimercial 70 Mixed Tree Crops - 40 410 1,500 1,150 1,600 3,100 Backyard (<0. I ha)(a) 50 - - - 30 700 780 80 SUBTOTAL 90 140 15 985 2,470 3,300 4,530 7,000 Farm with No Tree - - - - - - 3,000 3,000 Crops (Rice, corn, sugarcane, etc.) TOTAL CROP AREA 90 140 15 985 5,470 10,000 3,300 4,530 (a) Non-farm households and non-tree crop farms Source: Census ofAgiculture 1991 Bureau of Agricultral Statistics Mission Estimates -19- Annex 3 Page 1 of 8 OVERVIEW OF TREE CROP SUPPORT SERVICES, INSTITUTIONAL ROLES AND PERFORMANCE 1. Investments on research and extension to tree crops in the Philippines are not substantial except on coconuts, which is largely supported by the Philippine Coconut Authority (PCA). PCA has major research stations in Davao, Zamboanga and Albay. Its research programs are focussed on hybridization, crop protection management, agronomic studies, soil management and fertilization, processing technology, intercropping, multiple cropping studies and wood product development. 2. Other than PCA, Colleges/Universities such as UP Los Bafnos, Visayas State College of Agriculture, University of Eastern Philippines, Twin Rivers Research Center and the University of Southern Mindanao are doing research and advisory services. Research projects are on variety improvement, cultural management practices and processing technology. There is a very minimal linkage with research scientists and farmers as to results of researches conducted. 3. A major constraint in coconut research and development is lack of funds. Extension programs are so limited and unorganized. Extension workers are not visible in the coconut farming community. 4. Even big coconut farners are not taking advantage of results of research. It is very rare that you can find coconut farmers applying fertilizers/doing control of pests and diseases. This is one of the reasons why yield levels of coconut farmers in the Philippines is low. 5. A major constraint of coconut smallholders is their lack of appreciation of the future of the coconut industry. It seems that they could not see an improvement of their quality of life with the yield levels and schemes of management of their coconut farms. 6. In the case of rubber, coffee and cacao, research and extension activities are done in the University of Southern Mindanao, Central Mindanao University and Cavite State University. Most of the studies are on regional collection of clones, cultural management such as intercropping/multiple cropping, fertilizer management and crop protection. Smallholders have access in the university research projects during field days and farmers' visits. Researchers provide advisory services to smallholders but in a very limited scale. 7. Research and extension funds for rubber, coffee and cacao are very limited. Most of the rubber, coffee and cacao farmers are largely dependent on whatever information they could get from their co-farmers or research universities. In the case of the University of Southern Mindanao, regular rubber training programs are conducted in the field in the areas of nursery and cultural management. 8. The major constraints to rubber, coffee, cacao small-holders development are lack of support in terms of production financing; lack of organized extension system and lack of research and development funds for the research institutions. -20- Annex 3 Page 2 of 8 9. Due to the very uncertain ownership of farms by the big rubber farmers, many of them do not do replanting programs or apply technology like fertilizer, disease and pest management, and efficient tapping management system. When in fact, many rubber farmers in the Cotabato area are cutting down their rubber trees. 10. Another constraint is the very erratic price of rubber. The farmers are very uncertain of the rubber prices that most of smallholders are forced to sell their produce at low price. 11. For durian, mangoes and bananas, research and extension projects are done in selected universities, colleges and some private institutions. 12. In the case of mango, researches are done in UP Los Bantos, Bureau of Plant Industry Stations in Davao, Guimaras, and Bohol, Pangasinan State University, University of Southern Mindanao, Central Luzon State University and Western Luzon Agricultural College. Researches are in the areas of cultural management practices. PCARRD is coordinating a network of institutions doing research and link with the investors of the mango industry. 13. For bananas, research projects are done by big banana plantations like Del Monte and Dole-Philippines, UP Los Bafios, BPI - Experiment Station in Davao and University of Southern Mindanao. 14. For durian, it is only the University of Southern Mindanao and the Department of Agriculture are doing research and extension. During the last five (5) years, there was a substantial increase of hecterage planted to durian in Mindanao. Research projects are clonal collection and improvement and cultural management practices, such as nursery management, fertilization, and irrigation. 15. The majoi constraints of durian production are: (a) Limited research and extension funds to support durian development; (b) High cost of production inputs; (c) Inadequate infrastructure facilities in Mindanao; (d) Limited supply of planting materials; and (e) Inadequate knowledge on crop/climatic factors and relationship. 16. In conclusion, research and extension activities on tree crops in the Philippines are focussed on coconuts. A very unorganized extension system is implemented in rubber, coffee and cacao. Research and extension in oil production is generally absent. Its production and processing is dove by large corporations. The nucleus corporation technically and financially supports oil palm smallholders. Banana research and extension are done by Universities and large private corporations. There is a very limited extension program for smallholders. Tree crops researches are mostly cultural management practices. Ill-equipped laboratory facilities and lack of incentives of scientists are major constraints to institutions doing research and extension to tree crops in the Philippines. -21- Annex 3 Page 3 of 8 A. SUPPORT SERVICES AND INSTITUTIONAL ROLES -- PUBLIC AND PRIVATE SECTORS 17. The tree crops commodity system performs within a complex institutional and organizational arrangement, which covers the area of research, extension, training, credit and guarantee funds, policy formulation and advocacy, infrastructure, and market information. 18. These institutions and organizations from the public (government) sectors, composed of department line agencies, research centers, state colleges and universities (SCUs) perform in different level or degree of concerns. Concerns ranging from national, regional, cooperating responsibility based on the Philippine Council Agriculture, Forestry and Natural Resources Research and Development (PCARRD) system. 19. Public institutions at the national and regional level of responsibility have a profound macro level impact on the performance of the tree crops sector development of the country. 20. The cooperating nature of responsibility on the other hand calls for specific/localized area of concern within which institutions co-operately work under the thrusts of a national/regional agency. 21. Interactions of these institutional arrangements and the parallelism between their areas of responsibility provide the necessary mechanisms for transferring research results, extension services, support system, and market information towards the areas where it is most needed. 22. It also serves as a vehicle for transfer of feedback to generate and realign research programs and policy directions suitable to the peculiarities of the sector it caters. 23. The institutions specific to a commodity and their corresponding important collaboration activities with the private sector are shown in Annex_ (or table--). Coconut 24. Institutions focused on coconut development are the following: (a) Philippine Coconut Authority (PCA), (b) Department of Science and Technology (DOST) Research and Development Institutes, (c) Twin River Research Center, (d) Philippine Coconut Research and Development Foundation (PCRDF), -22- Annex 3 Page 4 of 8 (e) Philippine Council for Energy and Industry Development (PCEID) (f) Philippine Council for Agriculture and Resources, Research and Development (PCARRD), and (g) Philippine State Colleges and Universities (SCUs). 25. Research and extension support programs are concentrated on hybridization, variety improvement, soil nutrition and management, crop protection management, post- harvest processing technology and product development. 26. The University of the Philippines at Los Bafios (UPLB), Visayas State College of Agriculture (VISCA) and the University of Eastern Philippines (UEP) are the pioneers in doing research and extension in coconuts. Philippine Coconut Authority (PCA) stations in Zamboanga, Davao and Albay also conduct some research activities. 27. Credit assistance is available through the Development Bank of the Philippines (DBP) and the United Coconut Planters Bank (UCPB). 28. However, the extension program for coconut is weak. Farmers in some coconut communities barely receive extension services. In addition to this, the increasing number of old trees and unproductive trees call for immediate research and extension strategies to increase productivity. Multiple cropping technologies, for example in Misamis Occidental, are not yielding good results. Research programs on how to increase household income of coconut farmers should be analyzed and reviewed. Rubber 29. Research and extension support for the rubber industry is available at the following: (a) University of Southern Mindanao (USM) (b) DA--Research Stations in Ipil and Zamnboanga del Sur, and (c) Central Mindanao University (CMU). 30. These institutions focus on clone production and cultural management of rubber trees and farms. However, investments for research and extension of these institutions in the last ten (10) years remain to be minimal, underutilizing its full potentials and capacities. The rubber laboratory established with a grant from the French government in USM remains unexhausted. Mango 31. Due to massive planting of mango during the last five (5) years throughout the country, the Department of Science and Technology (DOST), Department of Agriculture (DA), state universities and some private sectors are putting substantial investments for mango research and extension support. -23- Annex 3 Page 5 of 8 32. PCARRD is spearheading a Mango Information Network (MIN) with support from the private sector. Some private sectors and some of universities and colleges provide quality-planting materials. Research projects are on cultural management practices, processing technology, crop protection management and quality planting management. Other Tree Crops 33. Oil palm and banana researches are generally handled by the corporate private sector. 34. Coffee and cacao research and extension are not given much investment. USM, CMU, Cavite State University, University of the Philippines and the Nestle-Philippines are doing research and extension of these crops but on a very limited scale. 35. USM handles durian and other fruit crops research and extension. The DOST/PCARRD and DA are the major funding institutions on the durian project in Mindanao. Much of the researches are on clonal collection, cultural management practices such as irrigation, pruning system and control of diseases and pests. B. POTENTIALS FOR AND KEY CONSTRAINTS TO TREE CROPS DEVELOPMENT Agronomic Potential and Suitability for Different Tree crops 36. Generally, the Philippines has the potential and suitability to tree crops development especially in Mindanao, which is free from typhoons, although coconuts, coffee, cacao, bananas and mangoes are also commercially grown in the Visayas and Luzon. 37. Soil is an important consideration in coconut production. Coconut prefers fertile and adequately drained soil with a minimum depth of 75 centimeters and with high water-holding capacity. 38. The palm tolerates soil pH from 5.0 to 8.0. For optimum growth, however, a pH range of 5.5 to 6.5 is ideal. 39. Coconut requires a productive soil that has adequate essential elements such as nitrogen (N), phosphorous (P), potassium (K), calcium (Ca), magnesium (Mg), sulfur (S), Chlorine (CL), iron (Fe), manganese (Mn), zinc (Zn), boron (B), copper (Cu), and molybdenum (Mo). Generally, Philippine soils commonly planted to coconut have appropriate amounts of P, K, Ca, Mg, Fe, Mn, Zn, and B, but most inland and coastal soils are severely deficient in N and Cl, and inadequate in S. Such soils definitely require fertilizer application to sustain high yield. 40. Coconut is not very exacting in its climatic requirements. But, while it tolerates a wide range of climatic conditions, coconut demands certain environmental standards of optimum growth and high productivity. An altitude of 600 meters appears to be the limit -24- Annex 3 Page 6 of 8 for commercial coconut production. Above this elevation, the palms usually have slow growth, become stunted, have delayed maturity, and poor yield. For profitable cultivation, total rainfall of 1,800 millimeters to 2,000 millimeters or more per year -- evenly distributed throughout the year -- would be ideal. For normal growth and high yield, the relative humidity should be 80 to 90 percent and must not go below 60 percent. A persistently high humid condition is not suitable for the palm because it favors the rapid spread of bud rot, a fatal disease. 41. Rubber is suitable in Mindanao for commercial growing which requires an economic stand of 300 to 400 trees per hectare. The present rubber areas in the Philippines of about 85,000 hectares are in Mindanao. It is estimated that the potential rubber area is 450,000 hectares, which can be cultivated under s smallholder rubber project. In Misamis Occidental alone, an area of 20,000 hectares could be made available in the municipality of Don Victoriano for rubber and palm oil development. 42. Coffee, cacao, banana, mango and durian are crops that can be grown in many areas of the Philippines especially in Mindanao. For coffee, especially C. arabica and C. robusta cultivars thrive best in higher altitude like Tagaytay, Baguio and in the mountain ranges of Mindanao like Bukidnon, Davao and Cotabato. 43. Mango is a commercially important fruit crop in the Philippines. It is grown practically all over the country, but leading production areas are in western Visayas, Central Luzon and the Ilocos Region. Massive plantings recently are done in Mindanao. "Carabao" mango shares the biggest production in terms of cultivars grown. With new mango technologies applied, it is expected that the Philippines will be one of the top mango producers in the world. 44. Durian, commonly known as the "king of tropical fruits", is a native of the Malay Archipelago. The tree has an economic stand of 25 years or more. 45. While the Philippines is highly suitable for profitable durian production, limited area of more or less 8,000 hectares are devoted to this crop. One of the reasons for the slow expansion of durian production in the Philippines is the inadequacy of information on technological breakthrough to overcome major constraints in commercial production. This issue brings more concern to have more research on this crop which has a high potential and suitability in the Philippines. C. CONTRAINTS TO TREE CROP DEVELOPMENT Technology Weaknesses 46. The constraint to tree crops development in the country is seriously impeded in its ability to provide production technologies to support its capacity to respond in the changes of its product and by-product supply and demand. In addition, continuous research and development activities are being undertaken in tree crops industry in order to maximize opportunities that can be created. Institutions involved in research and development are state universities with funding support provided from the government. -25- Annex 3 Page 7 of 8 47. New and improved technologies are readily available from above mentioned institutions. The usual practice on technology transfer is through channeling to local government units that would be responsible in demonstrating and promoting the use of developed technologies to farmers. On the other hand, there are limiting problems on transfer of technologies to local farmers, such as: * Adaptability of improved varieties to climatic and geographic conditions; * Improved technologies, like hybrids, are inputs intensive and demands comprehensive cultural management; * Low promotional activities of local extension workers to accelerate farmer-adoption process through establishment of municipal and barangay nurseries, and demo farms; * Limited financial support to augment said technology transfer activities; and * Farmers have low or meager knowledge on proper farming systems to maximize land utilization to improve productivity and income 48. Access to available technologies remains to be concentrated in the workplace of large commercial farms. The existence of an effective working capital of these farms to fmance technology generation and adoption contributed much. 49. Small holders, on the other hand, generally depend on extension workers for production technologies. However, availability of responsive extension workers is another constraints of the industry, which resulted to poor and unyielding transfer of technology. On the other hand, areas where extension workers are available lack proper technical training on tree crop management that consequently resulted to poor farmer- adoption. In addition, technology transfer are being undertaken using informal channeling system, that resulted to poor management practices such as fertilizer application and other cultural practices. Problems Associated with Critical Inputs 50. Inputs are critical factor in meeting requirements of certain tree crop variety to ensure its proper growth and development. By this, proper input application means high productivity thereby a profit maximization strategy. But there are problems posted in inputs utilization, these are; * who have limited access to new and improved Sourcing of quality planting materials, a problem among small farmers varieties; * Management of essential and high yielding tree crop variety requires appropriate fertilizer and pesticides management to ensure proper growth and development, minimizing pests and diseases infestation; * Since tree crop production should be complete in fertilizer and chemical requirements with comprehensive cultural practices, undertaking management practices are labor intensive; -26- Annex 3 Page 8 of 8 * With high amount of fertilizer and chemical requirements, high working capital is needed in crop production, these inputs generally limits farm production capacities and potentials; and * Aside from above mentioned inputs, a good irrigation system, like in establishment of oil palm, is also a requirement to assure crop sustainability. D. INSTITUTIONAL (AGENCIES AND RESPONSIBILITIES INCLUDING MARKET LED PRIVATE SECTOR MECHANISMS) 51. An efficient smallholder tree crops development program in the Philippines requires a review of the different institutional arrangements of the agencies of government and private sector involve in its implementation. 52. In coconut, it is the Philippine Coconut Authority (PCA) given the mandate to provide leadership in the development of the industry. For the past years, its growth was so much delayed due to low level of investments and commitments to its development. Research and extension programs were short-tern and with very low level of outputs. 53. Small coconut farmers were so demoralized that the farns were not managed very well. No application of fertilizers and other inputs were common practices. The replanting program was so slow. 54. In order for the coconut industry to be vibrant, it has to provide a very strong leadership and policies encouraging the performance of the personnel of PCA. 55. The Department of Agriculture (DA), Department of Science and Technology (DOST) and state universities and colleges (SCUs) should be more coordinated so that the coconut farmers will efficiently utilize technologies generated by research institutions. 56. For rubber, coffee, cacao, palm oil, mango and durian, the agencies involved in its development should be provided additional investments so that these institutions can generate supporting technologies to improve the levels of productivity. More coordination should be done by the different public and private institutions to minimize duplication of efforts and investments. 57. The private sector institutions should be tapped and encouraged to invest on research and extension with grants from the government agencies like the DA and DOST. Like the banana industry, this will encouraged partnership and making use of existing facilities and personnel of the private sector. Results of research maybe shared with the small growers. -27- Annex 4 Page 1 of 26 GOVERNMENT POLICIES AFFECTING TREE CROP DEVELOPMENT 1. Over the years, government laws and regulations have influenced the growth of the tree crop sector. These can be categorized into several aspects: exchange rate, land access, financing, and government strategic focus. Exchange Rate Policy 2. The decades old policies of overvaluation of the peso and the high protection to import substitution industries have been detrimental to exports in general, and tree crops, in particular. Tree crops account for more than half of agriculture exports and about 45% of farm lands. At the same time, overvaluation caused in part the significant increases in the imports of competing products, particularly fruits. The dramatic increase in the exchange rates since July 1997 has helped the sector. Land Access 3. The modem land laws of the Philippines began as Public Land Law (Act No. 926) of the Philippine Commission in 1903 under the American colonial rule. This was subsequently approved by the United States Congress in 1904 as US Public Law 235. PL 235, among others, provided for disposal of land under public domain by grant or sale not exceeding 16 hectares to any one person; and 1,024 ha to any corporation or association. It also prohibited corporations engaged in agriculture or mining from owning more than 1,024 ha of land. 4. Despite proposals by the Philippine Commission to increase the limit from 1,024 ha to 6,000 ha for corporations, and 16 ha to 50 ha for individuals, the US Congress never relaxed the 1,024 limit. This limit was embodied in the subsequent constitutions of the Philippines. The limits of PL 235 were rationalized as a measure that would guarantee that the patrimony of the Filipinos did not go to foreigners. The truth was that, as former Governor General Forbes (1909-1913) later explained, the limits were: "imposed by Congress ostensibly for the protection of the Filipinos (but) in reality was the result of a very powerful lobby maintained in Washington by the beet sugar interests, who looked with alarm upon possible Philippine competition and endeavored to cripple the Philippine sugar industry by preventing corporations from holding enough land to support a modem sugar central (Corpuz, 1997). 5. The Act No. 2874 of 1919 later amended Act No. 926 and subsequently raised the limit to homestead lands to 24 ha. Subsequently Act 3219 of 1924 raised the limits on sales to individuals of public agricultural lands to 144 ha (Corpuz, 1997). In 1937, The National Development Company (NDC), a government corporation, was allowed to contract lease agreements with domestic and foreign investors for the exploitation of public agricultural and -28- Annex 4 Page 2 of 26 mineral lands in excess of 1,024 ha limit stipulated by the 1935 Constitution. It was through this process that large pineapple firms, and much later in the 1980s that three oil palm plantations were able to operate relatively larger operations without necessarily owning land (Hayami, Quisumbing and Adriano, 1990). 6. The Agricultural Land Reform Code (Republic Act 3844) of 1963 covered only rice and corn lands. "Operation Leasehold" converted share tenancy with rent fixed at 25% of the average harvest in three normal years preceding the Operation. "Operation Land Transfer" expropriated lands in excess of 75 ha. Presidential Decree No. 27 of 1972 also covered rice and corn lands and set the retention limits to seven ha. The limitation to rice and corn lands meant that some 2.15 million ha of coconut lands, 368,000 ha of sugarlands, and 1.8 million ha of other croplands were excluded (Hayami, Quisumbing and Adriano, 1990). 7. The 1987 Constitution allowed private corporations to lease up to 1,000 ha of public agricultural lands while local citizens no more than 500 ha. Foreign nationals who want to invest in the exploitation of natural resources (e.g. forest plantations) were limited to 40% share in equity. 8. In mid-1988, the Comprehensive Agrarian Reform Law (CARL), otherwise known as RA 6657, was passed after a long and emotional debate. CARL covers all private agricultural lands and public lands. It mandates a retention limit of five (5) ha for natural and juridical persons; and a maximum limit of three (3) ha for eligible beneficiaries. Eligible heirs of landowners can own up to three (3) ha each subject to approval by the Department of Agrarian Reform. The phasing of land acquisition were as follows: Phase I (mid-1988 to mid-1992): rice and corn lands, idle and abandoned lands; all private agricultural lands voluntarily offered for sale; foreclosed lands by government financial institutions; all lands acquired by the Presidential Commission for Good Government; and all government-owned lands; Phase II (mid-1988 to mid-1992): All alienable and disposable public agricultural lands; all arable lands under agro-forest, pasture and agricultural leases already cultivated; all public agricultural lands to be opened for new development and resettlement; and all private agricultural lands in excess of 50 ha; Phase III: All other private agricultural lands under the following schedule: (a) Landholdings above 24 ha and up to 50 ha (mid-1992 to mid-1995); and (b) Landholdings from retention limit up to 24 ha (mid 1994 to mid-1998). 9. Land acquisition, particularly Phase III, has been unduly delayed due to various factors: e.g. weak absorptive capacity of the bureaucracy, inadequate funds for land compensation, land valuation issues; and opposition by landowners. The Ramos government extended the implementation by another ten years to 2008. The Estrada government has -29- Annex 4 Page 3 of 26 made pronouncements that land acquisition should be completed by 2002. Given the magnitudes of areas for acquisition as well as the amount required for land compensation, this target appears optimistic. Stock Distribution Option 10. CARL provided for a stock distribution option of corporate farms within one year from the approval of the Act. The process involved giving equity ownership to ARB based on the share of the value of raw land to total assets. Only about 20 companies took advantage of the option. Foremost of which was the Hacienda Luisita, a 5,500-ha sugar estate of the family of President Corazon Aquino. While the Luisita option was severely criticized by some sectors as a "loophole" to agrarian reform, it has its own strengths. Employment was maintained while the company was able to sustain its high productivity (compared to neighboring sugar farms), and access to bank financing. Status of Land Acquisition 11. The Philippines has a long history of agrarian reform. Earlier reform initiatives has been mainly directed at improving tenure of tenants and in giving ownership to rice and corn lands. CARL outlined a far-reaching program with potentially significant development impact. To be implemented over a ten-year period (1988-1998), the program estimated that 10.3 million hectares of private and public lands (now revised downward to 8.2 million ha) would be distributed to about 3.7 million small farmers and landless families. Tenancy reform is also part of the overall program; share tenancy is prohibited (with some exceptions) as a form of tenure, and is to be replaced by leasehold. 12. The actual performance in implementing the program has been so far less than satisfactory. Most of the land transfer that has taken place so far is mainly of lands which some form of government ownership. As a result, CARP has largely been implemented so far in areas where landholding inequality is not a significant problem. Two regions with the highest landholding inequality (Western Visayas and Bicol) have made the least progress in implementing CARP (the inequality in the two regions was about 0.81, compared to the national average of 0.57, and the average landholding size at over 7 ha, compared to the national average of 2.2 ha). In reviewing the options for the future, various issues related to CARP implementation need to be considered. In doing so this report looks at issues primarily from economic and tree crop development standpoint. It is recognized, however, that CARP has important socio-political implications underlying it. 13. Land acquisition as of September 1998, reached 2.82 million ha, or 72% of the working scope of 3.91 million ha for agricultural lands. The balance of about 1.07 million ha remained, of which 0.47 million ha were considered by DAR as problematic, thus, leaving a workable balance of 0.64 million ha. While Operation Land Transfer (rice and corn), government-owned lands, and settlements have notable accomplishments, acquisition of private lands above 5 ha did not fare well. There remains about 918,000 ha to be acquired: -30- Annex 4 Page 4 of 26 366,000 ha above 50 ha; 163,000 ha between 24 and 50 ha; and 388,000 ha between 5 and 24 ha. Of the balance, DAR classified 348,000 ha (38%) as problematic. 14. The rate of accomplishment by region has so far varied significantly. With respect to private agricultural lands above 5 ha, the rates of accomplishments are lowest in Regions V, VII, VIII, and XII, where there are large concentrations of coconut lands; and Region VI, with sugarcane lands. Table 1. Average Farm Size and Landholding Distribution, By Major Crops (Census Years) Average Farm Size (Ha) Gini 1980 1991 1980 1991 Philippines 3.6 2.2 0.53 0.57 Rice 3.0 1.8 0.45 0.36 Corn 2.5 2.0 0.50 0.34 Sugarcane 14.0 7.2 0.83 0.81 Coconut 4.4 3.6 0.52 0.51 Coffee 4.2 2.9 0.54 0.50 Source: Balisacan (1993) adapted. Annex 4 Page 5 of 26 Table 2. Status of Land Acquisition (In hectares, As of September 30, 1998) Working Accomplishment Prob- Workable Item Scope To Date % Balance lematic Balance OLT 581,121 518,331 89.20 58,577 33,439 25,138 PAL >50 702,623 332,462 47.32 365,626 141,728 223,897 VOS 233,744 161,209 68.97 68,588 22,752 45,897 CA 396,528 121,828 30.72 274,149 113,181 160,968 VLT/DPS 72,351 49,425 68.31 22,889 5,795 17,094 PAL 24-50 236,608 73,155 30.92 163,445 62,561 100,885 VOS 55,908 34,471 61.66 21,429 7,217 14,211 CA 143,359 11,045 7.70 132,314 52,391 79,923 VLT/DPS 37,341 27,638 74.02 9,703 2,953 6,750 PAL 5-24 745,835 356,784 47.84 388,544 144,222 244,321 VOS 139,836 98,905 70.73 40,757 8,794 31,964 CA 338,341 16,387 4.84 321,954 127,096 194,858 VLT/DPS 267,659 241,492 90.22 25,832 8,333 17,499 PAL <5 47,173 38,690 82.02 8,463 1,022 7,441 VOS 15,008 8,641 57.58 6,367 329 6,038 CA 32,164 30,049 93.42 2,096 693 1,403 GOL GOL/GFI 186,753 149,664 80.14 32,675 11,685 20,991 GOL/KKK 691,118 662,131 95.81 25,126 10,311 14,815 Landed Estates 70,581 68,511 97.07 2,069 1,432 637 Settlements 645,385 620,834 96.20 24,545 20,963 3,582 GRAND TOTAL 3,907,198 2,820,562 72.19 1,069,072 427,364 641,708 Legend:,, CA = Compulsory acquisition DPS = Direct payment scheme GFI = Government financial institutions GOL = Government-owned lands KKK = Lands under program under the defunct Ministry of Human Settlements OLT = Operation Land Transfer PAL = Private agricultural lands VLT = Voluntary land transfer VOS = Voluntary offer to sell Source: Department ofAgrarian Reform Table 3. Rate of Accomplishments By Region (As of September 30, 1998, In Percent) PRIVATE AGRI LANDS GOLI Land Settle- Region OLT >50 24-50 5-24 <5 GFI KKK Estate ments Total 76.2 66.5 73.5 78.2 86.4 74.0 82.2 - - 80.9 l 98.8 89.5 97.7 98.5 99.8 97.4 98.1 100.0 100.0 98.0 II 91.1 62.2 32.7 51.4 90.1 84.3 99.3 99.4 96.7 82.8 III 97.0 73.0 39.4 59.8 91.1 68.6 99.5 97.8 97.8 89.1 IV 93.0 59.9 36.0 43.2 91.5 70.7 90.2 99.8 94.4 68.9 V 66.2 38.3 24.8 21.6 78.7 78.4 82.3 72.0 65.4 43.9 VI 80.6 30.0 16.6 29.4 34.5 88.6 99.0 100.0 100.0 55.1 VII 78.2 44.8 37.2 27.0 56.6 76.6 84.8 - 100.0 61.5 VIII 68.0 25.3 11.3 14.6 74.4 73.8 99.0 100.0 98.7 IX 98.2 91.6 62.8 95.7 100.0 96.2 99.9 - 100.0 96.4 X 91.9 62.1 41.7 76.1 97.8 92.0 99.9 - 99.9 85.0 XI 98.4 71.3 59.0 68.2 84.9 91.0 95.3 - 99.8 81.5 XII 92.1 35.2 10.8 28.6 30.9 57.6 92.1 - 94.7 70.3 ARMM 95.4 52.2 40.6 71.8 100 92.3 99.9 - 99.6 88.1 89.2 47.3 30.9 47.8 82.0 80.1 95.8 97.1 96.2 72.2 Source: Department ofAgrarian Reform -32- Annex 4 Page 6 of 26 15. By crops, it appears that a significant areas of coconut lands and sugarlands have yet to be acquired. With respect to other tree crops, large areas of rubber, oil palm, and fruit trees have already been acquired. Table 4. Land Acquisition by Type of Crops Planted (In Hectares, As of June 30, 1998; Preliminary) Item Luzon Visayas Mindanao Total MONOCROPPED RICE 503,007 74,655 207,589 785,251 Corn 125,333 38,095 285,570 448,998 Coconut 162,652 223,000 176,676 562,053 Sugarcane 35,250 114,761 22,575 172,586 Pineapple 1,967 222 18,967 21,156 Banana 17,013 4,235 19,288 40,536 Vegetables 88,079 948 11,275 100,302 Rubber 0 0 35,996 35,996 Tobacco 4,216 10 537 4,763 Fruit trees 35,085 4,209 43,101 100,493 Rootcrops 10,643 8,004 7,873 30,431 Abaca 5,871 150 2,952 8,973 Oil palm 0 0 10,029 10,029 Others 75,367 25,976 99,140 209,589 INTERCROPPED Rice w/ com 7,423 130 12,580 20,133 Rice wl other crops 13,292 3,450 4,209 20,952 Rootcrops & others 14,873 1,260 7,631 23,764 Fruit trees w/others 47,099 2,088 11,898 61,085 Others 14,466 38,000 51,730 104,196 TOTAL 1,161,636 538,918 838,656 2,761,287 Source: Department ofAgrarian Reform Table 5. Summary of Major Tree Crops Acquired (In Hectares, As of June 30, 1998 (Preliminary) Item Luzon Visayas Mindanao Total Coconut 162,652 223,000 176,676 562,053 Banana 17,013 4,235 19,288 40,536 Rubber 0 0 35,996 35,996 Fruit Trees 35,085 4,209 43,101 100,493 Oil palm 0 0 10,029 10,029 Fruit trees wJ intercrops 47,099 2,088 11,898 61,085 Coffee na na na na Total 261,849 233,532 296,988 810,192 Commercial Farms Under Deferment 16. CARL provides for a ten-year deferment from land acquisition of commercial farms. Some 1,536 farms totaling 63,146 ha availed. Subsequently, the livestock and poultry raisers filed a case with the courts and won (Luz Farm case). In turn, the prawn and fishpond group Annex 4 Page 7 of 26 filed a similar case and won. To date, only 816 farms covering less than 35,000 are deferred. Some 30,000 ha (87%) of the areas are in Mindanao, of which 10,000 ha are in banana, 3,800 ha in cacao, and 2,800 ha in rubber. Table 6. Commercial Farms Under Deferment (Number and Area of Farms, As of March 1998; Preliminary) Luzon Visayas Mindanao Total >50 ha Number 18 5 77 100 Area 1,689 765 21,111 23,563 24-50 ha Number 20 11 103 134 Area 693 358 3,613 4,664 5-24 ha Number 74 28 462 564 Area 853 309 5,392 6,554 < 5 ha(a) Number 4 1 13 18 Area 10 3 49 62 Total Number 116 45 655 816 Area 3,245 1,336 30,261 34,842 (a) Likely farms in excess of retention limits Source: Department ofAgranian Reform Table 7. Deferred Commercial Farms By Crop (In Hectares; Estimates) Crop Luzon Visayas Mindanao Total Coffee 8 33 265 306 Rubber 0 0 4,662 4,662 Oil palm 0 0 1,864 1,864 Banana 0 0 9,902 9,902 Mango 385 390 258 1,033 Cacao 0 0 3,836 3,836 Citrus 360 0 431 791 Mixed 2,492 855 7,408 10,755 Others 0 60 1,239 1,299 Total 3,245 1,336 30,261 34,842 Source: Department ofAgrarian Reform Public A&D Lands and ISF Areas 17. A major component of CARL is the distribution of public A&D lands and ISF areas. As of June 30, 1998, some 1.74 million ha had been distributed, or only 60% of the target of almost 2.9 million ha leaving a balance of 1.16 million ha. In terms of accomplishments, the -34- Annex 4 Page 8 of 26 leading regions were Regions II, IV, X, XI, and XII; and the latter three are in Mindanao. The severely lagging regions were: Regions III, VII, Caraga and ARMM. Table 8. DENR: Land Distribution Targets and Accomplishment (As of June 30, 1998, In hectares) Category Target Accomplishment Balance Public A & D Lands 1,816,254 1,020,155 57 796,099 Integrated ISF Areas - CSC Issuance 1,071,541 708,445 66 363,096 -CBFMA Issuance 9,396 0 0 9,396 Total 2,897,191 1,736,600 60 1,160,591 Source.PARC Table 9. DENR: Land Distribution Targets and Accomplishment By Region (As of June 30, 1998, In Hectares) REG Public A and D Lands IFS & CBFM Area Total Target Accomp. % Target(') Accomp. % Target Accomp. % Balance CAR 77,423 37,614 49 35,011 27,485 79 112,434 65,099 58 47,335 I 170,052 92,204 54 55,784 17,716 32 225,836 109,920 49 115,916 II 130,426 88,904 68 105,518 66,841 63 235,944 155,745 66 80,199 III 187,658 64,700 34 76,144 25,796 35 263,802 90,496 34 173,306 IV 235,346 142,164 60 107,438 81,085 75 342,784 223,249 65 119,535 V 130,275 57,178 44 41,985 33,700 80 172,260 90,878 53 81,382 VI 128,582 62,622 49 60,439 43,851 73 189,021 106,473 56 82,548 VII 122,772 64,114 52 94,331 31,301 34 217,103 95,415 44 121,688 VIII 142,438 80,832 57 77,121 36,076 47 219,559 116,908 53 102,651 IX 93,366 54,549 58 163,499 92,687 58 256,865 147,236 57 109,629 X 130,090 79,969 61 91,433 89,426 98 221,523 169,395 76 52,128 XI 106,721 84,138 79 110,730 102,500 93 217,451 186,638 86 30,813 XII 137,722 113,234 82 54,348 54,959 101 192,070 168,193 88 23,877 Caraga 11,143 2,153 19 6,156 5,022 82 17,299 7,175 41 10,124 ARMM 12,240 3,780 31 1,000 - 0 13,240 3,780 29 9,460 Total 1,816,254 1,028,155 57 1,071,541 708,445 66 2,897,191 1,736,600 601 1,160,591 Note: (a) Includes 3,132 ha. of CBFM in each of Regions W1, Vil, IX. Target based on approved Work and Financial Plan. This excludes 174,468 hectares of CSCs distributed from 1983-1986 This activity started in CY 1998 for almost all the regions except Regions ll, X & Xl which still prioritize the distribution of CSCs Source.:PARC -35- Annex 4 Page 9 of 26 Banking and Financing 18. In 1949, the Philippine Congress passed Republic Act 337, known as the General Banking Act. Section 79 of the Act provides: 19. "The amortization schedule of bank loans shall be adapted to the nature of the operations to be financed. In case of loans with maturities of more than three years, provisions must be made for periodic amortization payments but such payments must be made at least annually. Provided, however, That when the borrowed funds are to be used for purposes which do not initially produce revenues adequate for regular amortization payments therefrom, the bank may permit the initial amortization payment to be deferred until such time as said revenues are sufficient for such purposes, but in no case shall the initial amortization date be later than three years from the date on which the loan is granted" (Underscoring by the mission). 20. Act 337 was later amended several times under Presidential Decree (PD) No. 71, PD 515, PD 865-B, PD 1795, PD 1828, during the Martial Law period and by Batasang PIambansa No. 61. (Nolledo, 1994). In no case was Section 79 amended. 21. The intent of Section 79 was appropriate for industrial projects as well as short- gestating agriculture projects. It was, however, severely inappropriate for tree crop development projects such as rubber, coconut, and fruit trees. In 1996, the Ad Hoc Committee for Banking Reforms under the Bangko Sentral agreed to recommend for extending the grace period to five years but no legislation was passed on the subject. 22. The Implementing Rules and Regulations (IRR) of the High Value Development Crops (RA 7900) of 1995 provided for a longer grace period for loans longer than three years (Rule VII, Section 7). However, this was never followed through with corresponding legislation to amend Section 79 the General Banking Act. 23. The passage of the Agriculture and Fisheries Modernization Act (RA 8435) in late 1997 stipulates the repeal of Section 79. Section 24 of the Act provides: That agriculture and fisheries projects with long gestation shall be entitled to a longer grace period in repaying the loan based on the economic life of the project. The IRR Rule 24.3 provides: 24. The Bangko Sentral ng Pilipinas (BSP) and the Agriculture Credit and Fisheries Council (ACPC) shall formulate, through participatory process involving representatives of lenders, beneficiaries, and independent financial and agribusiness analysts, the implementing guidelines for setting of variable grace periods on the repayments of loans and guarantees to long-gestating and viable agriculture and fisheries projects. The guidelines shall be presented to the Monetary Board and the Secretaries of Agriculture and Finance for consideration and implementation on or before December 30, 1998. 25. In June 1998, the Technical Committee, chaired by BSP and ACPC, proposed a maximum grace period of seven (7) years. The release of the guidelines is being awaited. -36- Annex 4 Page 10 of 26 26. Presidential Decree (PD) 717 of 197-, known as the Agri-Agra Law mandates banks to allocate 15% of its portfolio to agriculture and 10% to agrarian reform beneficiaries. Banks which are unable to lend directly are allowed to purchase government securities. PD 717 is largely ineffective. According to experts, investments in low-yield securities have lend to higher banks intermediate costs. There are proposals to repeal and/or amend the law. However, the bills were not passed during the Ramos administration. Tariff and Non-tariff Barriers 27. Tariffs on tree crop products have been declining since 1980. MFN import duties on coconut oil fell from 40% in 1981 to 20% at present; palm oil duties rose from 20% to 50% in 1993-95 and fell to 20%. Duties on the two vegetable oils from ASEAN will fall to 15% in 2000 to 3% in 2003. Until 1996, coffee products were until quantitative restriction (QR) under Republic Act 2712 of 1960. The QR was lifted as part of the Philippine accession to WTO in 1995. In exchange, EO 313 of March 1996 set the-in-quota duty at 50%; and the out-quota duty at 100% and falling to 60% in 2000. 28. With respect to natural rubber, the import duty was already low at 20% in 1981 and will further decline to 3% in 2000. On the other hand, those of cacao beans have declined from 30% during the 1980s and early 1990s to only 3% in 1996. Processed products (butter, paste and powder) fell dramatically from 80% in 1981 to 30% in 1996-97 to 3% in 1998. Meanwhile, banana and mango duties sharply fell from 70% in 1981 to 20% in 1998. 29. Compared to rice, corn, and sugar, tree crop products are far less protected. Annex 4 Page 11 of 26 Table 10. Import Duties of Tree Crop Products (% Ad Valorem) Item 1981 1982 1983 1984-91 1993-95 1996-97 1998-2000 Coconut oil-MFN 40 40 40 40 50 30 20 -ASEAN 20/15 Palm oil -MFN 20 20 20 20/40 50 30 20 -ASEAN 20 20 20 20/40 50 30 20/15 Vegetable oils Coffee beans 60 QR 50 QR 50 QR 50 QR 50 QR - - -In quota 50/45 45 -Out quota 100/80 80/60 Natural rubber 20 20 20 20 20 10 3 Cacao beans 30 30 30 30 30 3 3 Cocoa butter and paste 80 70 60 50/40 30 10 3 Banana 70 50 50 50 50 30 20 Mango 70 50 50 50 50 30 20 Memo Items: Rice QR QR QR QR QR QR QR Corn QR QR QR QR QR - - -In quota 35 35 -Out quota 100/80 80/65 Sugar -In quota 50 50 -Out quota - 100/80 80/65 Fertilizers 5 -' 32 3 Farm chemicals - - 20 10 3 3/03 Agri machineries Agri, horticulture & 30 30 30 20 20 20/10 10 threshing machinery for soil cultivation Other agri 20 20 20 20/30 20 3 3 _machineries I_I I I I Source: Tariff Commission; Executve Order 313 of March 1996; Executive Order 486 of June 1998 1except Ammonium Nitrate, 20% 3-except Ammonium Nitrate, 10% 3 1999-2000-free (Joint Dept. Admin. Order No. 1, 1998 series of December 7, 1998) 30. In a comparative study prior to WTO (DeRosa, 1995), it was found that the Philippines had among the highest tariffs in food products and agriculture raw materials among four ASEAN countries after Thailand. On cereals, the country had the highest tariffs. With respect to non-tariff barriers, the Philippines ranked first in food products, and second to Indonesia in agriculture raw materials. -38- Annex 4 Page 12 of 26 Table 11. Import Restrictions in ASEAN Countries by Primary Products Country/sector Tariffs Frequency of non-tariff barriers(a) Ave. Tariftib) Licenses Quotas Prohibitions Others(c) PHILIPPINES Primary Products 26.9 32.9 3.6 1.7 2.3 Food Products 35.8 45.6 7.7 3.2 3.5 - Cereals 36.9 57.7 38.5 0.0 3.8 - Meat 40.0 54.0 70.0 2.0 3.0 Agri'l. raw materials 22.7 20.2 0.0 0.9 3.1 INDONESIA Primary Products 14.7 61.7 13.8 21.8 1.6 Food Products 24.5 21.5 29.4 45.6 3.3 - Cereals 3.6 0.0 0.0 56.4 43.6 - Meat 25.0 0.0 20.0 30.0 37.5 Agri'l. raw materials 10.2 94.0 0.0 1.8 0.0 MALAYSIA Primary Products 6.0 4.3 0.0 0.2 0.0 Food Products 5.0 5.4 0.0 0.2 0.0 - Cereals 0.0 30.8 0.0 0.0 0.0 - Meat 0.0 9.0 0.0 0.0 0.0 Agri'l. raw materials 5.5 5.7 0.0 0.4 0.0 THAILAND Primary Products 28.0 21.0 0.0 8.2 0.0 Food Products 41.4 30.5 0.0 16.5 0.0 - Cereals 5.0 30.8 0.0 30.8 0.0 - Meat 60.0 30.0 0.0 12.5 0.0 Agri'l. raw materials 23.7 14.9 0.0 0.0 0.0 (a) Percentage or nationai tani schedule tine atteCtea by non-tanri barners within me product category. (b) The table presents average (unweighted) levels of nominal protection across categories of primary commodities. (c) Foreign exchange restrictions or state trading monopolies. Source: DeRosa, D. (1995), Adaptedfrom Niemi (1998) Government Strategic Focus 31. For decades, the strategic focus of the government was rice self-sufficiency. A political crop, rice has always been an imported commodity. Between 1901 to 1941, the Philippines imported rice in significant qualities in all years. From 1945 to 1998, a span of 54 years, major rice imports occurred half of the time. The thrust for self-sufficiency was given strong impetus. Between 1965 and 1980, irrigated areas grew almost four-fold. A massive credit program (Masagana 99) was launched in 1973 following a major rice crisis. This was followed by the Rice Production Enhancement Program in 1986-90 and the Rice Action Program in 1990. During the Ramos Administration, two rice program were launched: Grains Production Enhancement Program (GPEP) in 1993-95 and the Gintong Ani Program in 1996-1998. -39- Annex 4 Page 13 of 26 32. While the support for rice production remain inadequate, the magnitude of government support was relatively far larger relative to tree crops. 33. The inadequate support for tree crop development in the Philippines has caused in part the slow growth in agriculture exports and the subsequent deterioration of balance of trade in agriculture. A comparative study among ASEAN countries (Niemi, 1998) indicate that the Philippines has a poor base of agriculture exports (in value terms, it is a fourth of Indonesia, a fifth of Malaysia, and a seventh of Thailand). Consequently, the country became a net importer since 1994. By contrast, Indonesia, Malaysia and Thailand, in part due to tree crops had significantly higher levels of agriculture exports and continually registered large trade surpluses. 34. The comparative analysis is revealing and calls for an in-depth assessment of the Philippine agriculture strategy in the light of the proposed Medium Term Philippine Development Plan, 1999-2004. Of the 10 million ha of agricultural lands, majority of the areas are suitable to tree crops rather than rice. While the drive for food security is of national importance, the near quadrupling of irrigated areas between 1965 to the present (from 400,000 ha to 1.4 million ha) may have cost the government easily P50 billion at current prices. By contrast, support to tree crop development had been minimal to say the least. As a result, poverty alleviation and regional development were severely limited. -40- Annex 4 Page 14 of 26 Table 12. Major Agricultural Exports, Imports and Trade Balance (In US$ millions) I99O 1992 1994 1995 1996 PHILIPPINES Major export items Coconut oil 300 483 476 826 571 Fruits 434 443 502 504 550 Crustaceans 319 258 310 291 220 Fish products 151 134 222 211 217 Total agricultural exports 1,618 1,771 1,941 2,328 2,122 Total agricultural imports 1,449 1,447 2,016 2,562 2,975 Trade Balance 169 324 -75 -234 -853 INDONESIA Major export items . Rubber 972 1,042 1,273 1,964 1,920 Palm Oil 468 670 1,132 1,041 1,338 Crustaceans 796 789 1,051 1,081 1,064 Coffee 376 242 754 614 605 Fish products 377 381 531 5S5 613 Cocoa 143 153 274 301 365 Total agricultural exports 3,652 4,501 6,766 7,518 7,951 Total agricultural imports 1,710 2,528 3,393 4,844 5,721 Trade Balance 1,942 1,973 3,373 2,674 2,230 MALAYSIA Major export items Palm oil 1,859 2,175 3,178 3,947 3,702 Rubber 977 927 1,119 1,610 1,395 Palm oil, processed 393 515 830 1,091 951 Cocoa 248 234 251 226 211 Total agricultural exports 7,869 8,353 9,925 11,425 10,821 Total agricultural imports 2,454 2,903 3,324 4,316 4,814 Trade Balance 5,415 5,450 6,601 7,109 6,007 THAILAND Major export items Rubber 978 1,139 1,664 2,459 2,535 Crustaceans 1,355 1,566 2,327 2,412 2,080 Fish products 1,540 1,505 1,863 2,035 2,010 Rice 1,196 1,426 1,559 1,952 2,029 Sugar 639 796 733 1,288 1,260 Cassava 925 1,184 750 730 826 Total agricultural exports 7,397 10,045 11,423 13,706 14,05S Total agricultural imports 2,301 2,916 3,278 3,851 3,855 Trade Balance 5,096 7,129 8,145 9,855 10,200 Source: Niemi, Jyrki (1998) -41- Annex 4 Page 15 of 26 Specific Policies: Coconut BOX NO. 1 I. EVOLUTION OF THE COCONUT LEVY A number of laws have been enacted since 1971 to institute various levies on the coconut industry. Notable among the various funds that have been imposed on the industry are the coconut investment fund, the coconut consumer stabilization fund, the coconut industry development fund, the coconut industry stabilization fund and the coconut reserve fund. A. The Coconut Investment Fund (CIF) The passage of RA No. 6260, otherwise known as the Coconut Investment Act on June 19, 1971 paved the way to the introduction of the first levy. The Act warranted the collection of a levy from coconut farmers in the amount of P0.55 on the first domestic sale of every one hundred kilograms of copra. Of the fifty five centavos (P 0.55), fifty cents (P0.50) shall constitute a special fund, dubbed as the Coconut Investrnent Fund (CIF), for the target capitalization of P100 million of the Coconut Investment Company (CIC) which the Act also established. CIC shall advance the development of the coconut industry through "the provision of medium and long-term financing for capital investments in the coconut industry." One-tenth of the earnings of the Fund each year shall be used to "finance technical and economic research studies, promotional programs, scholarship grants and industrial manpower development programs for the coconut industry." The remaining five centavos (P0.05) shall be used as follows: (a) P0.03 shall be used exclusively for administering the fund, organizing coconut conventions including a national congress and undertaking information campaigns; and (b) P0.02 "shall be placed at the disposition of the recognized national association of coconut producers which shall be responsible for continuing liaison with the different sectors of the industries, the government and its own mass base." The levy shall be imposed until the P100 million capitalization has been reached but the collection period shall not exceed 10 years. Upon full payment of the required capitalization, the receipts issued to coconut farmers in connection with the payments of the levies shall be transferred to them through the conversion of the receipts into shares of stock of the Company. B. The Coconut Consumer Stabilization Fund (CCSF) On August 20, 1973, Presidential Decree No. 276 established a Coconut Consumers Stabilization Fund (CCSF) in order to address the cooking oil crisis' that characterized the year. The PD called for the collection of P1 5/c.k. copra levy from coconut farmers for a period of one year or earlier until it is deemed that the crisis is solved. The objective was to generate funds to "subsidize the sale of coconut-based products at prices set by the Philippine Price Control Council." The funds are to be administered by a Coconut Consumer Stabilization Committee and shall be treated as a separate trust fund, which shall not form part of the general fund of the government The PD was meant to implement LOI No. 116 issued on August 16, 1973 to address the crisis. It instructed the Secretaries of National Defense, Agriculture and Natural Resources and of Trade and the PHILCOA Administrator to explore all possible solutions including "a military takeover of 20 percent of all coconut oil and copra in the Philippines." Thus, a meeting was called among government and industry representatives to draw up possible alternatives other than the "military takeover." Several proposals were Inl 973, there were shortages of oilseeds and oils as well as major agricultural products in the world market as a result of floods, drought and other major calamities which hit the major agricultural areas of the world Consequently, commodity prices spiraled. The country was not spared and eventually, the prices of basic coemodities, specifcally, rice, sugar and cooking oil, rose sharply prompting the government to intervene. The Price Control Council established ceiling pricesfor prime comnodities including other coconut-based products such as laundry soap, filled milk and copra neal The ceiling pricefor cooking oil was computed on the basis ef the prevailing pricefor copra at the time Unfortunately, cepra prices continued increasing. Manufacturers of cooking oil and other coconut-based products were thereforefaced with the problem of escalating copralraw material costs and the government controlled pricesfor their products which resulted to losses on their part. Thus, eventually, the said products disappeared in the market -42- Annex 4 Page 16 of 26 floated: "(a) changing the existing tax rate differential to further discourage copra exports; (b) outright ban of copra exports; (c) setting a ceiling domestic price for copra; (d) retention scheme; and (e) the subsidy scheme to be financed through the imposition of a levy of P151c.k. copra, upon the coconut farmers during their first domestic sale." In the end, the subsidy scheme was adopted. Thus, the issuance of PD No. 276 four days later. Per PD 414 issued on 18 April 1974, the uses of the CCSF were expanded as follows: "(1) to provide a subsidy for coconut-based products, depending on the prices set by the Price Control Council; (2) to refund wholly or in part any premium export duty collected. The Board shall take into account the degree ofprocessing of the coconut product exported in refunding the premium export duty; and (3) to set aside funds for investment in processing plants, research and development, and extension services to the coconut industry. " The rate of the CCSF has varied since 1973. C. The Coconut Industry Development Fund (CIDF) On November 14, 1974, another presidential decree (PD 582) was passed creating yet another fund - the Coconut Industry Development Fund (CIDF). The CIDF is a permanent fund to be administered by the National Investment and Development Corporation, a subsidiary of the Philippine National Bank, for the following purposes: "(a) to finance the establishment, operation and maintenance of a hybrid coconut seednut farm as would ensure that the country shall have, at the earliest possible time, a proper, adequate and continuous supply o high yielding hybrid seednuts; (b) to purchase all the seednuts produced by the hybrid coconut seedfarm which shall be distributed for free by the Authority to coconut farmers in accordance with, and in the manner prescribed in the nationwide coconut replanting program that it shall devise and implement; Provided, that farmers who have been paying the levy shall be given priority; and (c) to finance the establishment, operation and maintenance of extension services, model plantations and other activities that would insure that the coconut farmers shall be informed of the proper methods of replanting their farms with hybrid seednuts. " The initial capitalization for the CIDF in the amount of P100 million was sourced from the CCSF. PD 582 also specified that thereafter, at least P0.20 per kg of copra or its equivalent out of the current CCSF collections shall be paid to the CIDF. In the event that the CCSF is terminated, a permanent levy of P 0.20 was thereafter imposed on the first sale of every kilogram of copra or its equivalent. On July 14, 1976, PD No. 961, otherwise known as the Coconut Industry Code was passed "restructuring various laws that have been enacted to promote the rapid development of the industry and integrate said laws into a codified law. On June 11, 1978, PD 961 was amended through the issuance of PD 1468, also known as the Revised Coconut Industry Code. The decree introduced the so-called vertical integration program in its declaration of policy, created the Philippine Coconut Authority (PCA) and restructured and further authorized the continued collections of the CCSF and CIDF. The collection of the CCSF and CIDF was suspended on May 20, 1980 by virtue of PD No. 1699. D. The Coconut Industry Stabilization Fund (CISF) On 2 October 1981, PD No. 1841 was passed establishing the CISF. It called for the collection of an assessment of P50 for every 100 kilos of copra resecada or its equivalent in other coconut products from copra exporters, the oil millers, refiners, the dessicators and other end-users of copra. The CISF shall be used for the implementation of socio-economic and development programs for the coconut industry and shall be allocated for as follows: -43 Annex 4 Page 17 of 26 "(a) P20.00: to finance the cost of the coconut hybrid replanting program and as such shall be paid by the Authority to the CIDF; (b)P4.00: to defray the cost of the scholarship program for the deserving and gifted children of coconut farmers which amount shall be paid to the federation of coconut farmers, the Philippine Coconut Producers Federation; (c)P12.50: To fund the life and accident insurance expenses of coconut farmers the amount of which the Authority shall pay to the bank acquiredfor the benefit of the farmers under PD 755 and which in turn, shall utilize the amount to pay the required premiums to the insurance company owned by the coconut farmers; (d)P3:00: to shoulder partly the operating expenses of the Philippine Coconut Producers Federation; (e) P2.00: To defray part of the operating expenses of the Philippine Coconut Authority; and (f)P8.50: To finance the coconut industry rationalization program envisioned andprescribed by LOI 926, the provisions of which are hereby incorporated as part hereof, which shall be paid to, and utilized by, the bank acquiredfor the benefit of the coconut farmers under PD 755 to liquidate the liabilities of coconut oil mills/refineries, whose operations have been stopped to effect the rationalization program, to the creditors that have agreed to a restructuring of their respective claims under the guidelines prescribed under LOI 926; Provided, however, that the amount allocated for this purpose shall be collected for a maximum period offive (5) years and thereafter, the assessment fixed in Section I hereof shall be automatically reduced to the amount ofP41.50 for every hundred kilos of copra resecada or its equivalent in other coconut products." E. Coconut Reserve Fund By virtue of PD No. 1842, issued on 16 January 1982, the fixed P 50/c.k copra CISF was revised to an amount equivalent to a specific percentage of the prevailing world market price of coconut oil. Further, the PD also established a Coconut Reserve Fund "to ensure continued financial support to critical socio-economic and development programs... in times of depressed world prices for coconut." The CRF is constituted from assessments in excess of P50/c.k copra. 1T. IMPACT2 Various levies were imposed on the coconut industry to support government programs that would advance its development. Notable among these programs are those focusing on replanting, vertical integration, subsidy and welfare. The government programs were designed such that farmers would receive the following benefits: "(1) benefits derived from their ownership of a bank that presently accumulates property; (2) credit extensions only for production purposes at the preferential rate of 8 percent per annum; (3) the subsidized cooking oil and other coconut consumer products; (4) the scholarship and death benefits; (5) a free replanting of old coconut trees with a variety whose yield is five times more than that of the present 30 nuts/tree; and (6) benefits arising from their control of the milling sector through UNICOM and eventually of the trading sectors" The burden of the coconut levy fell on the farmers. On the average, it accounted for close to 41 percent of the farm price of their products from 1974 to 1978. While the programs financed by the levy were supposedly designed to benefit them, the bulk of the benefits have, in fact, not gone back to them. Ownership and control of what was supposed to be the farmers' bank (UCPB) actually fell on the hands of big planters, middlemen and other non-farmers. Only about 30 percent of the farmers were eligible to become owners of the bank. The subsidy program generated collections of P1,759.48 million from 1973 to 1979. The bulk of this amount was paid to edible oil manufacturers. A subsidy surplus was registered at P 37.1 million from 1973 to 1978. The surplus was a major factor that led industry leaders to continue the CCSF levy to implement other government programs (e.g. vertical integration). 2 Discussions on the impact of the coconut levy and corresponding governmentprograms drew heavilyfrom the research paper of the Institute ofLabor and Manpower Studies on the Government Programs in the Coconut Industry (1981). -44- Annex 4 Page 18 of 26 The vertical integration program was intended to transform farmers into traders, bankers aind processors. It turned out to be a concession to big planters allowing them to own banks and mills at the expense of the farmers. The replanting program indirectly taxed the farmers. Thus, they were not aware that they were taxed and how such tax was used. They may also not be aware that they were entitled to a free replanting of their coconut with the superior hybrid. In the end, what the farmers actually got, i.e., scholarship and insurance benefits, represented just a trickle of the whole package of benefits. III. STATUS From the time the coconut levy was imposed up to 1982, total collections have reached P9.7 billion3. The money was sequestered by the Presidential Commission on Good Government in 1986 in response to protests from NGOs/POs on the unconstitutionality of the private character of the funds. They cited two grounds, namely: (a) only the government has the sole authority to impose a tax and (b) the levy collected cannot be used for private purposes. The COCOFED, on the other hand, counterfiled a case before the Supreme Court questioning the sequestration move by the PCGG. They claimed that the coconut levy is private property with the coconut farners as owners. Until now, the issue has not been resolved and the funds are still sequestered and frozen. The controversy regarding the coconut levy actually revolves around two major issues - fund character and ownership. The coconut levy was originally intended as public fund to be used for financing the capital requirements of the coconut industry. However, through "legal and political maneuverings," the fund became private in nature. While then President Ramos issued Executive Order No. 277 declaring the funds as "affected with public interest," the EO did not categorically state that the fund is public. At present, the issue is pending before the Supreme Court. References: Utilization of the Coconut Levy Fundfor Mindanao. Growth with Equity in Mindanao Program (GEM), USA4ID The Government Programs in the Coconut Industry: Who Pays, Who Benefits. Institutefor Labor and Manpower Studies. 1981. Specific Polices: Coffee 35. Coffee imports were placed under QR with the passage of RA 2712 in 1960. Because of protection, exports had been minimal through 1975. Expanded surpluses led to surges in exports starting 1976. With the accession of the Philippines to the International Coffee Agreement (ICA) in 1980, the country was granted 0.8% of high-priced global quota. Export quotas were allocated by the International Coffee Organization (ICO) Certifying Agency under the Department of Trade and Industry. As a result, exports reached its peak of almost 43,000 tons (US$120 million) in 1986. In 1989, the ICA collapsed. Since 1992, coffee exports precipitously declined. 3 The total coconut levy collections until 1982 amounted to P9,662,391,102.56 broken down asfollows: Coconut Consumer Stabilization Fund (CCSF) colectionsfrom August 10, 1973 to June 16, 1980 - P 6,671,650,104.20; Coconut Industry Developmnent Fund (CIDF) coUections from June 17, 1980 to September 9, 1981 - P 2,373,441,403.03; and Coconut Industry to Stabilization Fund (CISF) collections from October 2, 1981 to August 27, 1982 - P 617,299,595.33. Considering interests on deposits and other income anounting to P33,045,647.I , the total anount of the fund reached P9,695,436,749.67 (SOURCE: Study on the Utilization of the Coconut Levy FundforMindanao. GEM-USAID) -45- Annex 4 Page 19 of 26 Specific Policies: Rubber 36. Rubber development was largely a private sector initiative by both plantations and smallholders. Plans to develop the industry has a checkered history. Government financing support was started by the Development Bank of the Philippines in the 1970s and early 1980s in part due to a World Bank-supported project. The advent of the political/economic crisis in 1983-85 led to the termination of the program. In a related development, in the early 1980s, the World Bank prepared a rubber development project, but this was not implemented in part due to the economic and political crisis. Thereafter, the Asian Development Bank prepared a rubber-cum-oil palm project in Arakan Valley, Mindanao, but for various reasons, this was also shelved. 37. A Rubber Master Plan was drawn by the private sector together with the academic community in 1992 and called for the development of 400,000 ha till the next century. In 1993, the World Bank-funded a study (the so-called Hassal study) for a rubber project covering three provinces (Basilan, Zamboanga Sur and Cotabato) that would benefit six ARB estates (8,700 ha) and two smallholder areas (13,600 ha). The project (project cost: US$24 million) was shelved, in part due to potential implementation constraints. 38. In 1995, the Office of the President in Mindanao commissioned a USAID-supported study, Rubber Industry: Profile and Strategic Directions, which was the subject of a Rubber Congress in Davao City in late 1995. Among the key proposals was the creation of a Long- Term Fund for Rubber Development. A seed fund of P1 billion was proposed that will finance 25,000 ha of plantings over five years. 39. In late 1997, the Department of Agriculture commissioned a Rubber Development Program Document that called for a target of 10,000 ha replanting and 10,000 ha new planting during 1998-2002 as well as the creation of the Perennial Crop Fund with a seed fund of P500 million. This was presented to National Rubber Congress in Davao City in October 1997, and launched in Makilala, Cotabato in March 1998. A National Steering Committee was formed with strong participation from the private sector and NGOs. A component of the program was the creation of a Task Force to fast track rubber development (See Box). The Task Force requested a budget of P3 million from the DA. One of the project areas proposed was a resettlement area of 8,500 ha in Laac, San Vicente, Davao Norte. The proposal was to establish budwood gardens of selected rubber clones and seedling dispersal to smallholders as a cost sharing of the government. The community, organized into nine cooperatives, will undertake planting and maintenance. However, following the advent of the financial crisis as well as the change in government, the proposal was shelved. -46- Annex 4 Page 20 of 26 BOX NO. 2 FAST TRACK RUBBER DEVELOPMENT PROGRAM Objectives 1. Identify doable investment sites including specific "ready" organizations willing to undertake commercial rubber production. 2. Identify possible modalities for partnerships between farm-based organizations and investors Target Hectarage * 10,000 hectares of rubber production (planting and replanting) in the nest 2-3 years (1998-2000) Target Sites . Basilan * Zamboanga del Sur: Titay, Ipil, Naga, Kabasalan * Bukidnon: Talakag . Cotabato Province * Davao Master Plan The Master Plan effectively captures and defines the parameters for the right investment environment. These parameters are: * Market-led . Private-sector led * Advanced and sustainable technology led * Minimal government subsidies . Liberalized trade policies coupled with progressive safety net measures . Transparency in program implementation and transactions * Braod-based private sector participation * Cost-Sharing . Agribusiness orientation * Linkages Specific Implementable Programs -47- Annex 4 Page 21 of 26 For the Philippine rubber industry development to pole-vault into the next milleniumfi, specific implementable programs have to be formulated such as: Market Development. The rubber industry must have a market intelligence system that will keep track of developments in product mix and markets supported by an efficient marketing data and information Access to Land. Identification of specific areas suitable for rubber production and determining its availability and competitive land use and more importantly, determine tenurial arrangements as applicable. Organization Development. Site-specific organization development will be the approach considering the social and business preparedness of the target holders as well as the strengths-weaknesses-opportunities-threats of various partnership modalities. Financing and Investments. Long-term financing for long-gestating crops such as rubber need to be put in place as well as a doable investment program with appropriate mechanisms to incentivize investors and local partners. Technology. A program for making available high-yielding and pest resistant clones as well as updated relevant rubber production technologies have to be made accessible to rubber growers. Work Program January 1998 Organization of Team Strategic Planning Rubber Development Plan design Early identification of suitable rubber areas Early designation of priority sites and estimated investment needs in each rubber district Budgeting February 1998 Reconnaissance of potential areas in Mindanao March 1998 Initial areas identified up to municipal level April 1998 Land use workshop May 1998 Identified municipalities for rubber production Identified grower groups June 1998 Organizational assessment of holders July 1998 Formation and organization of rubber holders August 1998 Training of program participants Extension and advisory services Coordination and monitoring -48- Annex 4 Page 22 of 26 Program evaluation Development time table July - Aug 1998 Nursery preparation Sept 1999 Field Planting Facilitating development funds through DA, DENR, DAR funds, legislative Advocacy, GFI's, NGO's Market Linkaging Producers-Traders Producers-End users Producers-Exporters INITIAL NURSERY DEVELOPMENT AND FIELD PLANTING Nursery July-Aug 1998 Seedbed preparation Sept 1998 Seed collection and germination Average field planting stand 450 plus allowance of 20% unviable seeds 20% nursery culls 10% field mortalities Source of seeds - from existing stands of clones TJ-1, GT-1, PRIM-501, RRIM 605 in the area March 1998 Budgrafting (6 mos. from germination and growth in polybags) Source of budwood - from existing stands of clones GT-1, RRIM-600 or other desired clones in the area Field July-Aug 1998Preparation, clearing, staking, holing Sept 1999 Field planting polybag budded seedlings Sept 1998 Earliest time from Jan 1998 that rubber seeds can be collected and germinated Sept 1999 Earliest date of planting polybag budded seedlings in the field Source: A4P Agribusiness Development Center Specific Policies: Oil Palm 40. Oil palm development was started by the Menzi group in 1963 with its 280 ha plantation in Basilan (Mindanao) which was convertedfrom senile coconuts. It was followed by 4,500-ha nucleus estate-outgrowers operation (Kenram) in Sultan Kudarat (Mindanao) inl 966. -49- Annex 4 Page 23 of 26 41. In 1981, the Philippine government through the National Development Company (NDC) formed a joint venture with Kumpulan Guthrie Berhad (Malaysia) and developed two estates (about 8,000 ha) in Agusan del Sur. It also put up 40 ton ffb/day mill. In 1984, NDC again formed a joint venture with Singaporean investors, the Agusan Plantations, Inc (1,800 ha). NDC's participation was necessary as it had a mandate to lease public lands in excess of 1,024 ha (see Chapter II, Part E). The advent of CARL led to distribution of the NDC lands to fannworkers, and the present owners are now on lease-back arrangement. (See Boxes, Chapter II, Part F). Specific Policies: Bananas 42. The Cavendish banana industry began in Mindanao in the late 1960s. At that time, banana supply was dominated by Taiwan and Ecuador. Private investors, led by the multinationals with global brands (Dole, Del Monte and Chiquita), felt that Mindanao has the agro-climatic endowment to supplant existing suppliers following the rising labor costs in Taiwan and the long shipping time from Ecuador. Moreover, the dramatic increase in oil prices in 1973 provided purchasing power in the Middle East. Between 1970 and 1972, banana exports reached 420,000 tons from only 107,000 tons. 43. In 1973, President Marcos signed Letter of Instruction (LOI) 58 limiting the hectarage planted to Cavendish banana to 21,000 ha. To paraphrase its rationale: 3 The Export Banana Industry, which the private sector has investments exceeding P300 million, is beginning to reach maximum capacity; * The government will protect these dollar-earning investments and secure the employment of those directly and indirectly employed in the industry; * A stable market and stable prices are necessary to sustain the development of the industry; * Market stability may be obtained be achieving and maintaining an optimum hectarage to export bananas; and * A stable industry, a stable market, and stable prices can be achieved by regulation of production. THE BENEFICIARIES OF THE LOI ARE SPECIFIC PLANTATIONS AND THE ALLOCATION OF THE HECTARAGES ARE NON-TRANSFERABLE. 44. Between 1972 and 1978, exports rose to 776,000 tons ($84 million) from 422,000 tons ($25 million). In 1979, President Marcos issued LOI 790, which increased the allowable hectarages to 25,483 ha. To paraphrase its justifications: There is a definite indication of a growing demand for bananas, both in the Japanese market as well as in the newly-developed markets in the Middle East and other countries; -50- Annex 4 Page 24 of 26 * To allow the development of additional banana plantations over the total hectarages authorized by LOI 58 in order to meet the requirements of new banana export markets, while at the same time providing a "buffer" for the inevitable occurrence of natural calamities; * The additional hectarage shall be distributed pro-rata to existing growers listed in LOI 58 because the growers have the necessary agricultural expertise and established marketing tie-ups and would, therefore, be in the best position to attain the optimum degree of economic efficiency because economies of scale deemed necessary to enable the industry to compete in fiercely competitive banana export markets; and * To legalize the unauthorized plantings. 45. There were pressures for the lifting of the LOIs since 1986. The major rational of the proponents was to allow for more competition from new investors. It was felt that some existing firms were not efficient enough for the long-sustainability of the industry. However, resistance from the existing companies was too strong. The advent of the CARL in 1988 radically changed the structure of the industry. Many banana farms were transferred to the ARBs, which led to production inefficiencies. The expiry of the ten-year deferment of commercial farms in July 1998 will lead to a further distribution to ARBs of about 10,000 ha. DAR issued Administrative Order No. 9 Series of 1998 providing guidelines to the acquisition of commercial farms covering 35,000 ha, of which 10,000 ha are in bananas. Moreover, some plantations were no longer ideal for bananas as they are too close to urban areas. Tree Crop Development and AFMA 46. A pro-active tree crop development is not only in consonance with the poverty alleviation target of the Estrada administration but also with the policy declaration and goals of the Agriculture and Fisheries Modernization Act (AFMA). Among these are (a) poverty alleviation and social equity; (b) food security; (c) rationale use of resources; (d) global competitiveness; and (e) sustainable development. Tree crop development has also numerous strategic fit with the various sections of the AFMA. -51- Annex 4 Page 25 of 26 Table 13 STRATEGIC FIT: TREE CROP DEVELOPMENT AND AFMA AFMA PROVISIONS Specific Provision(s) TITLE 1: Chapter 1: Strategic Agricultural and Section 5: Declaration of Policy Section 6: Network of Areas for Agricultural and Agro-lndustrial Fisheries Development Zones (SAFDZ) Development. Section 7: Model Farms Section 8: Mapping of SAFDZ Section 9: Delineation of SAFDZ Chapter 2: The Agriculture and Fisheries Section 13: Agriculture and Fisheries Modernization Plan Section 14: Food Security, Poverty Alleviation, Social Equity Modernization Plan and Income Enhancement Section 15: Global Competitiveness and Sustainability Section 17: Special Concerns Chapter 3: Credit Section 20: Declaration of Policy Section 21: Phase-out of the Directed Credit Programs and Provision for the Agro-Industry Modernization Credit and Financing Program (AMCFP) Section 23: Scope of AMCFP Section 24: Longer loan grace period for long-gestating agriculture and fisheries project Chapter 6: Other Infrastructure Section 46: Agriculture and Fisheries Infrastructure Support Services Section 47: Criteria for Prioritization Section 48: Public Infrastructure Facilities Section 49: Private Infrastructure Facilities Section 50: Public Works Act Section 51: Fishports, Seaports and Airports Section 52: Farm-to-Market Roads Section 54: Communications Infrastructure Section 55: Water Supply System Section 56: Research and Technology Infrastructure Section 57: Post-Harvest Facilities Chapter 7: Product Standardization and Section 60: Declaration of Policy Section 61: Bureau of Agriculture and Fisheries Product Consumer Safety Standards Section 62: Coverage TITLE 3: Chapter 1: Research and Development Section 80: Declaration of Policy Section 83: Funds for Research and Development Section 84: Excellence and Accountability in Research and Development -52- Annex 4 Page 26 of 26 Chapter 2: Extension Services Section 86: Declaration of Policy Section 87: Extension Services Section 88: Special Concerns in the Delivery of Extension Services Section 89: The National Extension System for Agriculture and Fisheries (NESAF) Section 90: The Role of Local Govemment Units Section 91: Role of the Private Sector in Extension Section 92: The Role of Government. Agencies Section 93: Funding for Extension Activities TITLE 4: Rural Non-Farm Employment Chapter 1: Declaration of Policy and Sections 96 - 97: Declaration of Policy and Objectives Objectives Chapter 3: Rural Industrialization and Section 100: Principles Industry Dispersal Program Section 101: The Role of Government Agencies TITLE 5: TRADE AND FISCAL Section 108: Taxation policies must not deter growth of value- adding activities in the rural areas INCENTIVES Section 109: Duty-free importation of agricultural and fisheries inputsts for five years Source: Agricultural and Fisheries Modernization Act (RA 8435 of 1997) -53- Annex 5 Page 1 of 22 PHILIPPINES EXPERIENCE/LESSONS LEARNED, KEY GOP PROGRAMS, AND BUDGETARY ALLOCATIONS IN TREE CROP DEVELOPMENT I. OVERVIEW 1. Tree crops development in the Philippines is primarily private sector initiatives. Unlike in Malaysia, there are no land development agencies to implement tree crop schemes. Spontaneous coconut and fruit trees plantings occurred even in the 19th century. Organized rubber plantings began in the 1910s. Thereafter, individual plantings of coffee followed. Commercial plantings of Cavendish bananas for export started in the fairly late 1960s. 2. Coconut. There were over 200,000 ha of coconut in 1911. These doubled to 418,000 ha in 1921, and hovered at about 1 million ha during the 1946-60. The plantings were largely spontaneous to define land occupancy and helped by the free trade with the United States.The planted area reached 2 million ha in 1971 and over 3 million ha in 1979. Since then areas stagnated at around 3.1 to 3.3 million. 3. In 1900, copra was already second only to abaca (Manila hemp) as principal export. In 1934, following the strong lobby of American dairy farmers, the U.S. Congress imposed an excise tax equivalent to triple the price of coconut oil (Eleazar, 1998). In the post-war period, copra was the dominant export commodity until late 1960s. Government marketing intervention occurred during 1973-1985 following the imposition of the levy and the advent of the United Coconut Oil Mills group, followed by free market reforms since 1986. The industry is saddled with low productivity in part due to limited fertilization, and senile trees. In 1990, the World Bank financed a Coconut Smallholders Development Project. Implementation was unduly delayed due to limited counterpart funds and other implementation constraints. 4. Coffee. Coffee has a long history in the Philippines. Grino (1998) cited that in the 1880s, the Philippines was the fourth largest coffee exporter in the world. However, in the 1890s, the coffee industry was practically wiped out by a disease. Up to 1940, planted areas barely reached 7,000 ha. Recoveries began in the post-war era. From about 10,000 ha in 1950, areas doubled in 1956, and reached 50,000 ha in 1962 primarily under spontaneous plantings. The next spurt started in the late 1970s that by 1986, there were over 140,000 ha. The major impetus were two: the PNB and DBP financing in the 1960s and 1970s and the accession to the International Coffee Agreement which ushered in higher quota prices until its collapse in 1989. From 1990 onwards, areas stagnated. Among the key players in coffee plantations were Menzi Agricultural Corporation (Basilan and Bukidnon provinces) and San Miguel Corporation in Bukidnon. Both operations were transferred ARBs under CARL since 1990. _54 Annex 5 Page 2 of 22 5. Nestle Philippines, a private company has been involved in technical assistance program to coffee farmers nationwide since the 1980s. It provided good robusta clones which bear fruits in two years as well as assure the farmers with guaranteed market. Nestle has built-in incentives as it accounts for about 80% of the national market for soluble coffee. 6. Rubber. The first commercial production of rubber began in the Menzi Farm in Basilan in 1914. In 1919, Goodyear Tire and Rubber Company started a 1,000 ha operation in Zamboanga; and in 1929, American Rubber Company started another 1,000 ha in Basilan. In late 1950s, large scale plantings were undertaken by BF Goodrich in Basilan, Firestone in Cotabato, and Goodyear in Zamboanga. From 2,600 ha in 1929, area planted rose to only 3,400 ha in 1950, primarily due to the Constitutional limits of 1,024 ha. Expansion among smallholders and plantations increased since 1961 when areas reached 10,000 ha. and doubled to 21,200 ha in 1969. Dramatic expansion was noted during 1974 to 1982 that ended with 74,000 ha. Since the advent of CARL in 1988, the rubber plantings practically stagnated at about 85,000-90,000 ha. Under CARL, many rubber estates were transferred to ARB under the voluntary-offer-to sell (VOS scheme). Unfortunately, many of these fanns have senile tree stocks which were not replanted and this affected farm incomes and the ability of ARBS to amortize land and access credit. The DAR provided P100 million for replanting to ARB plantations through Land Bank but this was severely inadequate. 7. Oil Palm. Despite its good potential, oil palm is a minor crop in part due to lack of promotion. There are only three commercial operations in the country with a planted area of about 15,000, all in Mindanao.The crop was first commercially planted (280 ha) in Basilan Island in 1963 by Menzi Agricultural Corporation. In the mid-1960s, Kenram Philippines began plantings in Sultan Kudarat where it has a nucleus plantation of about 1,600 ha, a processing plant, and 35 growers on 2,900 ha. Most of its trees are now due for replanting. In the early 1980s, the National Development Company (NDC) together with Kumpulan Guthrie Berhad decided to develop two 4,000 ha plantations in Agusan, and a processing plant. Guthrie later divested to Indonesian interests. NDC also privatized its shares, and the two plantations are now owned under Filipinas Palm oil Plantations by the Filipino group. Also in the 1980s, NDC, together with Singaporean interests, developed some 1,800 ha under Agusan Plantations, Inc (API). An API subsidiary, Agusan Mills opened its palm oil processing plant in early 1998. 8. Under CARL, the NDC lands were transferred to the ARB cooperatives and the companies concerned undertook leaseback of the land. In the case of Kenram Philippines which opted for the ten-year deferment, it is exploring CARL-compatible options such as leaseback. Similar uncertainties apply to its large growers. Currently, total production of about 70,000 tons cpo only supply 60% of total domestic demand; the balance is imported largely from Malaysia. This is bound to increase as there are limited plantings on stream. 9. Fruits. Fruit trees are generally backyard or small holder operations. Mango and banana are two of the most important fruits in the Philippines. Mango plantings have -55- Annex 5 Page 3 of 22 been in existence for centuries. As early as 1930, there were about 15,000 ha and these doubled to 30,000 ha in 1939. In the post-war era, mango plantings were practically stagnant in the late 1950s to the late 1980s. There were significant increments since 1993, despite the advent of CARL. Total planted areas are now about 90,000 ha. One of the key technological developments in the industry was the discovery of flower-inducers which led to rising productivity since the mid-1970s. The stringent quality requirements of the Japanese market was also addressed with the establishment of four vapor heat treatments plants in Manila, and lately, one in Davao. The expansion of the export markets (Japan, Hongkong, etc) since the 1970s provided impetus to plantings of the Carabao variety. Mango, particularly fresh produce, earned over $50 million in 1997. 10. The commercial development of Cavendish banana is one success story of Philippine agriculture. In the 1960s, Japan was supplied by Ecuador and Taiwan. It took about 18 days for Ecuadorian bananas to reach Japan. In the late 1960s, the multinationals - Dole, Chiquita, Del Monte and some Japanese companies - started to developed plantations in Davao and also launched growership contracts with large plantations and small farmers in integrated operations from production to marketing. The rest is history. Banana exports jumped from 23,000 tons in 1969 to 823,000 tons in 1975 to our 1.1 million tons in 1997. The Philippines became a major player in bananas in Asia and captured three-fourths of the Japanese market. Banana farms now face the transition following the passage of CARL in 1988. About 10,000 ha opted for the ten- year deferment and are subject to compulsory acquisition in 1998. Lessons of Experience 11. Tree crop development in the Philippines offers the following lessons: (a) Crop choice was primarily market-led. Most of them were tradable goods. Coconut, coffee, Cavendish banana and mango found their way into the export markets. (b) The impetus for their development was mainly private sector initiative. Except for coconut, government support was minimal. (c) Financing primarily came from the equity. The banking rules were not conducive to long-term financing as it limits the grace period to only three years. (d) The advent of CARL has created uncertainties in private investments due to problems of land access and the loss of collateral value of agricultural lands. At the same time, farms taken over by ARB face several constraints of: lack of social preparation to take over management, inadequate access to financing, and reduction in incomes. -56- Annex 5 Page 4 of 22 II. PHILIPPINES: SUMMARY OF LESSONS FROM CASE STUDIES Company/Coop Nature of Land Arrangement Main Lessons Coconut with cacao Lacaron ARB Cooperatives * ARB Plantations * ARB Coop split into four groups (formerly Phil. Cocoa * VOS * Serious financial and management problems Estates) Anibongan Multipurpose * ARB Plantation; * Highly diversified cropping with contract Cooperative (formerly * VOS arrangements Eden Corp. Project) * Some coop projects failed due to mgt. problems Rubber: Tumahubong ARB * ARB Plantation (1,017 ha) * Land transfer process was contentions. Cooperative (formerly * VOS * Lack of ARB preparations led to financial and Sime Darby Plantation) management problems United Workers ARB * ARB Plantation (1,020 ha) * Smooth land transfer by company Cooperative (fomerly * VOS * Slow land transfer procedures by Government Menzi Rubber Plantation) * Access to financing North Cotabato Rubber * ARB/smallholder coop * Merits of direct land transfer with individual titles Dev't Coop. (fornerly * Direct Land Transfer * Access to financing is vital for replanting of senile Philtread Rubber trees. Plantations) Coffee: FARM Coop (formerly San * ARB Plantation (1,350 ha); VOS * Smooth transfer by the company Miguel Coffee * Problems with landowners (lessor to the Plantation) company) * Lack of ARB preparations led to management and financial constraints * Coop undertook lease of some lands and "1V" to another company. Coffee Bagras * Smallholders * Intercropping of coffee with fast-growing timber Intercropping * (Nestle technical assistance) species for cash flow purposes. Oil Palm: Kenram Philippines * Nucleus plantation (Deferred * Importance of nucleus plantation and processing commercial farm; 1,600 ha) plant in outgrowers development of "perishable" * Outgrowers (deferred crop. commercial farms; 2,500 ha) * Uncertainties under CARP caused investment slowdown. Filipinas Palmoil * Leaseback of ARE coop land * Importance of land access to attract foreign Plantations, Inc. * Transfer of leased gov't ladn to investors. ARB * Settling conflicts re lease renegotiations * Employment of all ARBs limited by the low labor intensity of oil palm * Outgrowers development constrained by lack of long-term finance. Agusan Plantations, Inc * Leaseback of ARB coop land * Importance of land access to foreign investors. (1,800 ha) * Conflicts on lease renegotiation * Transfer of leased gov't. land to * Outgrowers development constrained by long- ARB termn finance. Mango/Calamansi Oro Verde Plantations * Deferred commercial farm (400 * Extended gestation period due to agri-related ha) technical problems. * Company will take time to recoup investment. H Farm * Small Commercial Farm (10 ha) * Strong interests from small urban-based investors ("landless investors") * Land access constrainted expansion M Farm * Commercial farm (10 ha) * Conversion of coconut farm * * Owner has technical expertise Cojuangco Farms * Proposed Joint Venture with * Smooth transfer -57- Annex 5 Page 5 of 22 Company/Coop Nature of Land Arrangement Main Lessons ARB (4,000 ha) * Details of joint venture arrangement still sketchy. Banana: Marsman Estates * Deferred Commercial Farm * Well-paid workers due to high productivity and Plantations, Inc. (1,000 ha) low reject rate * Company exploring options * High investment cost translate into high land amortization of ARB Lapanday Corporation * Lease of ARB Coop land by new * Conversion of coconut lands to export crop. (formerly Montelibano investor (500 ha) * ARB coop projects did not fare well. estate) * Not all ARBs can be employed by company. Davao Farmers Coop * Contract growing by ARB (122 * Conversion of marginal rice and corn land to ha) export crop. * ARB must follow stringent mgt. standards Tagdanua ARB Coop * Joint Venture with ARB Coop * The first real and only operational joint venture (formerly Tagdanua (360 ha) company Coconut Plantation) * Management problems led to losses Nova Vista Dev't. and Mgt. * Lease of ARB land (715 ha) * Conversion of part of the coconut and cacao land Corp. (formerly * Direct payment of land by lessor into export crop. Tagnanan Estate) to landowner * Lessor company provided ARB coop for support business Mixed Fruits: South Davao Development * Livestock Farms (480 ha) * Conversion of tree crops of under-utilized land Co. into fruit trees * Expansion into new areas constrained by CARP Santos Farm * Medium family-owned * Gradual land accumulation financed by farm commercial farm (11 ha) profits. * Not subject to land acquisition * Market-led diversification * Entrepreneur has good technical training Green Country Farm * Large family-owned commercial * Gradual land accumulation financed by farm far (46 ha) profits. * Not subject to land acquisition * Market-led diversification (several titles) * Owner has good management training * Direct produce marketing Others (Proposed Joint * Joint Venture * Landowner accepts Land Bank valuation reinvests Venture Model) proceeds with JV * Just compensation issues will diffe to be settled by _______________ ____ the Court III. OVERVIEW OF PAST AND CURRENT TREE CROP DEVELOPMENT PROGRAMS Key Commercial Crops Development Program 12. In 1995, the Key Commercial Crops Development Program (KCCDP), was spearheaded by the Bureau of Plant Industry. The program was initially headed by National Business Corporation (NABCOR) KCCDP as one of the components of Medium Term Agricultural Development Plan (MTADP) is geared to promote and intensify production of commercial crops to improve profitability which are not intended for home consumption only and with comparative viable market. Such crops include vegetables, fruits, legumes, spices, plantation and ornamental crops. -58- Annex 5 Page 6 of 22 OBJECTIVES: 13. The KCCDP aims to increase the income generating capacity of 1.3 million hectares of marginally suitable rice and corn areas 1.2 million hectares of existing commercial crop areas. 14. Specifically, the KCCDP aims to: * Diversify 1.3 million hectares of marginal rice and corn areas and intensify the use of 1.2 million hectares of existing commercial cropped areas by 1998; * Double existing productivity levels of commercial crops through efficient production methods and the establishment of agro-processing enterprises; * Accelerate the empowerment of commercial crop farmers through cooperativism as the mechanism to at least triple their income by 1998; • Increase the value of commercial crops exports by an average of 100% by 1998. 15. The attainment of the above objectives is dependent on the combined efforts of various program components. PROGRAM COMPONENTS A. RESEARCH AND DEVELOPMENT 16. The R&D components will develop sustainable cropping options and specific packages of environment - friendly technologies for the production of low-cost and high- quality products. Technology promotion/comnmercialization schemes for priority comnmercial crops will also be done to increase the use of develop technologies. B. TRAINING 17. The training component will promote human resource development of program participants by addressing identified gaps in clientele capabilities and productive skills. The human resource development program for KCCDP will tap the sharing of training cost, concentration of efforts on the so-called "winner crops" and identification of clientele of producers, organized grower groups, support services, local government and other KCCDP players. C. INFORMATION COMMUNICATION DEVELOPMENT 18. The development support communication of the KCCDP will include a nationwide multimedia appropriate and required levels of awareness, attitudes towards and acceptance of the program. The contents of the communication material will cover transfer of technology, policy advocacy, post-harvest and processing, credit availability and marketing support system. -59- Annex 5 Page 7 of 22 D. PRODUCTION INPUTS 19. Superior crop varieties and planting materials are vital to increased agricultural productivity. Through this component, the program will require from local and international sources superior crop varieties and planting materials. E. IRRIGATION AND WATER MANAGEMENT 20. The Bureau of Soils and Water Management with the active participation of the LGUs and farmer cooperatives will be tapped to develop irrigation systems or water sources for the identified priority commodities in thew key production areas. F. POSTHARVEST 21. This component focuses on the provision of appropriate post-harvest support systems to promote the competitiveness of commercial crops in both local and international markets. G. MARKETING AND CREDIT SUPPORT 22. Market development for domestic and export markets in the primary concern of this component. This involves continuous identification/assessment of export market opportunities of priority commercial crops and determining their respective positions in the domestic market. 23. Credit support will be provided to individuals and/or groups of organized farmers through market-driven financing schemes and financial institutions. ACCOMPLISHMENTS 24. As regular and critical intervention programs were implemented, it pushed for the alignment of commodity plans and the zonification of areas, assuming interfacing among crops synchronization of plans among the groups and/or banner crops on an area to area basis and on the basis of area suitability, crop compatibility, techno-physical support and market readiness/absorbability. 25. On tapping the 1.3 Million hectares marginal rice and corn lands, 26 KCCDP was able to identify 850,000 hectares as potential expansion areas for Commercial Crops or 65% of targeted marginal areas. By crop type, this include 260,000 hectares of national banner crops, 110,000 hectares for regional banner crops and 490,000 hectares for industrial crops (As of December 1995 survey). 26. On intensification of 1.2M hectares for Industrial Crops. All National Agencies for Industrial Crops (NAIC) commodities already cover a total of 1.34M hectares, excluding coconut which was estimated at 3.5M hectares. Proposed expansions are total some 490,000 hectares, further exceeding target hectarage for industrial crops. -60- Annex 5 Page 8 of 22 27. Corollary focus on 2.5M hectares for the banner crops: National and regional banner crops total only to some 450,000 hectares. Potential expansion was likewise estimated at 370,000 hectares or 820,000 hectares in all representing only 33% of target. 28. The program also prides itself for having: (a) Established crop development centers for mango, cashew and potato; (b) Produced and distributed seeds/planting materials; (c) Linked/Matched farmers/cooperatives with various market-buyers, processors; (d) Continue to provide extension and technical services and credit support to farmers and/or farmers cooperatives; and; (e) Intensified technology development activities on production, pest management, postharvest and processing to support production program; (f) Established tissue culture laboratory for white potato in Dalwangan, Bukidnon. Maintained the existing tissue culture laboratories in Davao, Baguio, Los Banios, and La Granja. (g) Started the survey on mango pulp weevil project in Palawan (h) Supported the Bio-Bodong Project of Fr. Balweg entitled "Sustainable Development Plan for Bio-Bodong Development Farm" Gintong Ani High Value Commercial Crops Program 29. The Gintong Ani - High Value Crops (GA-HVCC) is designed to operationalize Republic Act (RA) 7900, or the High Value Crops Development Act. This program which was launched on February 27, 1997 is in line with the country's national development plan to expand food supply at affordable prices and increase the total value added in agricultural export products and the Medium Term Agricultural Development Plan (MTADP) of the Department of Agriculture (DA). 30. High value commercial crops is defined as those that have competitive returns on investment when traded in fresh or processed form vis-a-vis alternative investment opportunities. These are crops other than the traditional crops as rice, corn, coconut and sugarcane. High value commercial crops fall under the major classifications of cutflowers and omamentals, fruits and vegetables, nuts, herb and spices, beverage, essential oils, fibers and industrial crops. -61- Annex 5 Page 9 of 22 OBJECTIVES: 31. The overall goal of the Program is to empower the private sector, particularly the small farmers or small or smallholders and entrepreneurs, to expand investments in high- value commercial crops, thereby increasing their contribution to economic growth, farmers' income and consumer welfare. POLICYAND STRA TEGY FRAMEWORK 32. The above goal will be attained through the following policies and strategy framework: (a) Market-led. All activities and assistance will be referenced on market opportunities and specifications. (b) Private sector - led. Government will not compete with or crowd out private sector investment. (c) Advanced and sustainable technology - based. The program will adopt the concept of "sustainable technology leap - frogging" and "technology pole vaulting" (d) Minimal government subsidies. There will be no government subsidy on loans, procurement or exports. (e) Liberalized trade policy coupled with progressive safety net measures. The program will utilize the Competitiveness Enhancement Fund (CEF) in the formulation and execution of safety net measures. (f) Cost-sharing. Private sector participants will share in the costs of generation and dissemination of information on technology and markets with other industry players. (g) Agribusiness orientation. The program will operationalize internationally proven agribusiness system approaches. PROGRAM COMPONENTS A. LEGISLATIVE AND POLICY REFORM AND ADVOCACY AGENDA 33. With the accession of the Philippine government to various trade agreements including the WTO-GATT, APEC and AFTA, the required policy reforms and legislation must be consistent with commitments and be in place to provide clear investment signals to the private sector. -62- Annex 5 Page 10 of 22 B. MARKET DEVELOPMENT AND FINANCING 34. Market development encompasses multi-functional activities to meet market/buyer requirements in order to sell and to gain profit. Associations/cooperatives and small and medium enterprise will be targeted as key companies with backward linkages with small producer. Understanding of markets and buyers' specifications will therefore be a prerequisite to initiating the following activities under this component: (a) Market Reconnaissance and Assessment (b) Market Linkage/Encounter (c) Market Information Systems and Networking (d) Agri-aqua and Agro-Industrial Trade Fairs, Local and International (e) Trade and Agribusiness Missions - Local and International (f) Quarantine/Sanitary/Phytosanitary Services (g) Food Safety and Sanitation (h) Strengthening of Farmers Cooperatives and Industry Associations (i) Producer/Buyer Linkages (j) Financing for Integrated Production, Marketing and Processing C. TECHNOLOGY PROMOTION AND COMMERCIALIZATION 35. This component will focus on the operational aspects of mature and tested technologies, i.e., with proven and profitable results, rather than on those that requires further research and development. Appropriate "technology packages" from pre- production to production, postharvest and marketing will be disseminated through print, broadcast and other forms of media, training courses and seminars. D. RESEARCH AND DEVELOPMENT 36. There is a need for medium and long term plan for research and development in assessing policy directions, patterns and trends in the world and domestic markets as well as accessing technologies to meet changing consuming preferences. E. RURAL INFRASTRUCTURE 37. The planning and implementation of infrastructure projects such as roads and bridges take considerable time. Private sector investment in postharvest, processing, bulk handling and cold chain facilities will be encouraged through a sound policy environment supported by appropriate technical and financial packages. -63- Annex 5 Page 11 of 22 F. PROGRAM ADVOCACYAND COMMUNICATION 38. This component focus on the dissemination at all levels, through radio, print and TV policy reforms, guidelines and information materials developed by the Program. G. PROGRAM MONITORING AND EVALUATION 39. Management Information System (MT S). The MIS for the Program including problems in program implementation and actions taken or recommend actions to address such problems will be provided. 40. Evaluation of Program Benefits and Impact. The program's impact and benefits will be evaluated vis-a-vis pre-identified parameters which could include increases in investments and incomes of program participants and employment. ACCOMPLISHMENTS A. LEGISLATIVE POLICYREFORMANDADVOCACYAGENDA 41. Identified and expressed its support to pending legislative measures which would be beneficial to the growth and development of high value comnmercial crops. B. MARKET DEVELOPMENTAND FINANCING (a) Participated to various international trade fairs and congress: * AnugaFair'97 * Agri-link '97 * Floricultura '97 a Postharvest Asia '97' (b) Organized and co-sponsored the following national trade fairs: * Agri-Aqua '97 * Agri-Trends 97 * National Food Congress 97 (c) Identified priority products for promotion with market (d) Conduct market matching and market reconnaissance -64- Annex 5 Page 12 of 22 C. TECHNOLOGY PROMOTIONAND COMMERCIALIZATION (a) Conducted trainings on: (b) Production Technology (c) Post-Harvest Processing and Packaging (d) Credit and Marketing (e) Program Management (f) Conducted technology demonstrations on various crops (g) Produced and distributed assorted seeds and planting materials (h) Maintained existing Foundation Scion Groves and provincial nurseries (i) Maintained existing tissue laboratories in Davao, Los Banos, La Granja and Dalwanga. D. RESEARCH AND DEVELOPMENT (a) Conducted evaluation of proposals upon identification of the priority crops and its R&D gaps. (b) Conducted studies on technology verification and identification. E. RURAL INFRASTRUCTURE (a) Provided processing infrastructure support (b) Installed mini-sprinkler for white potato in Sagada, Mt. Province. (c) Completed designs and in the process of installing drip irrigation systems in all Regions. F. PROGRAM ADVOCACY AND COMMUNICATION (a) Printed the revised (3A-HVCC program document, posters leaflets, pamphlets, etc. (b) Illustrated/produced promotional materials for high value commodities. Agrikulturang Maka-MASA High Value Crops Program 42. The new administration under President Joseph Ejercito Estrada puts the highest priority to food security and poverty alleviation. RA 8435, otherwise known as the -65- Annex 5 Page 13 of 22 Agriculture and Fisheries Modernization Act of 1997, prescribes the measures to modernize Philippine agriculture and fisheries sectors in order to enhance their profitability, and prepare said sectors for the challenges of globalization through an adequate, focused and rational delivery of necessary support services. An earlier legislation -Republic Act 7900 or the High Value Crops Development Act -promotes the development of high value crops and provides the market orientation of developing the industry. The Department of Agriculture (DA), as the lead institution, presents a national development program Agrikulturang Makamasa, as the banner program to carry out the functions and mandate under the AFMA towards meeting the goal set by the Estrada administration. 43. The Agrikulturang Makamasa-High Value Crops Program (AM-HVCP) provides the national directions and framework for harmonizing local initiatives. High value crops offer alternative profitable opportunities to smallholders and lend well to value-adding activities and marketing agreements or joint ventures with users or processors. The market orientation of high value crops production systems is imperative in a free market economy and within the full implementation of the Comprehensive Agrarian Reform Program (CARP) where large corporations will have to explore new management, production and marketing approaches to sustain their business operations. Structural adjustments need to be made to involve smallholders. Policy reforms have been defined, with some in full implementation providing clear signals to the private sector as basis for making medium and long term investment decisions. 44. The Agrikulturang Makamasa High Value Crops Program (AM-HVCP) replaces the Gintong Ani - High Value Commercial Crops Program (GA-HVCCP). The new program adopts the major shift towards market-oriented production systems by introducing the Commodity Producers Linkages with Users (Commodity PLUS) as the basic reference for addressing the gaps in the commodity marketing systems. To cushion the impact of the currency crisis, the Program will encourage the production of selected commodities which are largely imported -- e.g., mungbean and peanut -- to conserve foreign exchange, and expand exports to generate additional foreign exchange. 45. The new program will adopt the same policy and strategic framework, particularly the orientation of production systems to market opportunities or buyers specifications. The need to orient production Systems to markets is imperative and inevitable as: (a) The high value crops industry must be competitive in a free market. (b) There is renewed confidence by processors to make long-term investments since government policies are more responsive to private sector needs, e.g., the removal of import restrictions and reduction of tariffs on agriculture inputs to zero to enhance the industry's competitiveness. (c) The full implementation of the CARP covering the large plantations has provided corporations opportunities to explore new production, marketing, and management modalities with smallholders; and -66- Annex 5 Page 14 of 22 (d) The AFMA provides for strengthening and redirecting the government bureaucracy towards market orientation coupled with improved production and extension resources. Goal of the Program 46. The goal of the program is to empower the private sector, particularly small farmers or smallholders and entrepreneurs, in order to expand investments in high value commercial crops, thereby increasing their contribution to economic growth, producer's incomes and consumer health and welfare. 47. Objectives of the Program are: (a) To fulfill food security requirements by enhancing the ability to produce or procure food and other high value crops. Availability of a wide variety of nutritious and safe foods at reasonable and affordable prices, whether locally produced or imported, to meet local demand and nutritional requirements; (b) To increase private sector investments in agribusiness through policy reforms and advocacy, access to financing and cost-effective incentives; (c) To expand income opportunities for producers and other entrepreneurs especially from value-adding activities; (d) To improve the state of technologies for fresh and processed forms of high value crops towards meeting world standards for competitiveness, increase productivity, improved food security, sanitation and safety; (e) To increase access to modem and sustainable agricultural technologies and production schemes through improved government technical and support services as well as innovative working arrangements with the private sector such as cost-sharing schemes; (f) To improve access to markets, both local and export, and to develop seasonal and ethnic niche markets; and (g) To reduce postharvest losses through improvement of rural infrastructure, and cold chain distribution systems. Trargets (h) National priority crops - are those that are commonly/similarly grown in the regions (e.g., mango); -6 7- Annex 5 Page 15 of 22 (i) Regions/Provinces/Municipalities will have their own priority crops based on their SAFDZ; and (j) Production targets on national priority crops are 5-10% higher than the 1997 production. Agrikulturang MakaMasa Accomplishments (1998) A. Legislative Policy Reform and Advocacy Agenda 48. A series of consultations and planning workshops were conducted to map out the operational strategies that will improve the implementation of the program. * Land Use Code * Agri-Aqua Law Safeguard and Countervailing measures * Anti-Dumping Act - Plant Variety Protection B. Market Development and Financing (a) Conducted market reconnaissance and assessment which include gathering of secondary data for 12 major urban cities and actual survey. (b) Conducted/participated in international and national trade fairs. * Agri Aqua Fair'98 * World Farmers Congress Expo Filipino '98 * Food Security Fair (c) Conducted 38 regional trade fairs on high value commodities (d) Prepared/Packaged 20 Agribusiness investment opportunities (e) Conducted 53 Agribusiness Investment Clinic in different regions and 10 AICs in national level. (f) Compiled 2 plant quarantine procedural guide on import export requirement of priority crops. (g) Developed crop insurance package for HVCC (h) Loan project packaging on generic packages for different crops were developed Annex 5 -68- Page 16 of 22 (i) Disseminated 108 market information for market information system and Networking. C. Technology Promotion and Commercialization (a) Conducted a total of 142 trainings on: * Credit and Marketing * Retooling Course/Production Technology * Training Support to Irrigation and Water Management * Postharvest Processing and Packaging * Program Management (b) Established and maintained 218 technology demonstration in various strategic places. (c) Produced and distributed 7,190,989 pieces. Assorted planting materials both sexually and asexually propagated (d) Maintained 25 foundation scion grove. (e) Drafted the revised guidelines on Potato Seed Certification and accreditation of seed potato growers D. Research and Development (a) Supported 17 projects through research grants provision (b) Conducted 135 research studies on technology generation and verification and 22 postharvest studies (c) Organized and convened inter-agency groups to develop integrated Rural development Program for priority crops. E. Rural Infrastructure (a) Identified 135 infrastructure sites for prioritization (b) Constructed 173 shalloW tube wells and 200 small farm reservoir (c) Installed 3 mini-sprinklers and 8 drip irrigation system (d) Established Technology Demonstration Centers (TDCs) on postharvest technology (e) Provided processing infrastructure support -69- Annex 5 Page 17 of 22 * Operationalization of cashew processing on a semi-commercial scale * Initial tests on the extraction of cashew nut shells * Pre-pilot testing activities for potato chips production and marketing F. Program Advocacy and Communication (a) Produced and distributed different information materials (program document, posters, flyers, pamphlets) (b) Produced jingles on cotton, rubber and sugarcane program (c) Published in newspaper dailies the supplement for the GA-HVCC Commodity Plus Programs (d) Aired GA-HVCC updates/ interviews over radio/TV programs G. Program Monitoring and Evaluation (a) Developed technical designs for the computerized monitoring systems (b) Conducted workshops/conference, monitoring and evaluation (c) Program Management Office supported the following projects through fund support: * Floricultura '98 * Mindanao Food Congress * Rubber Project (USM) * Nursery Establishment (c/o Cong. Bautista) * Honeybee Project H. Commodity PLUS 49. Sugarcane: (a) Sixty three (63) one-hectare high yielding varieties (HYV) nurseries were established in 22 mill districts (b) Produced 602,546 plantlets in 5 micropropagation laboratories (c) Rubber -70- Annex 5 Page 18 of 22 (d) Malaysian expert conducted rubber clonal inspection to provide distinguishing morphological features and varietal characteristics of rubber clones. (e) Identified, selected and recommended rubber clones suitable for commercial planting in Mindanao areas. IV. GOP BUDGETARY ALLOCATIONS FOR TREE CROPS: RESEARCH, DEVELOPMENT AND OTHER SUPPORT PROGRAMS BUDGET Cacao YEAR PCARRD DA-BAR NAFC 1991 541,099 1992 203,609 1993 466,315 29,266 1994 69,200 - 1995 105,590 25,000 1996 n.a. 20,000 1997 n.a. 20,000 1998 n.a. 14,170,000* - NAFC budget for cacao is from 1998-2001 Rubber YEAR PCARRD DA-BAR DA AIIS BPI 1991 192,660 1992 155,360 1993 2,219,032 130,900 1994 594,040 200,956 1995 615,320 302,764 _ _ _ _ _ _ _ 1996 2,124,800 148,200 1997 3,831,300 3,139,000* 1998 4,160,200 _ 8,125,000 1,625,000 1999 n.a. I _ _ 4,400,000 1 ___ *as of 1998 Coffee YEAR PCARRD DA-BAR NAFC 1991 1,112,710 1992 673,040 1993 189,037 962,000 1994 119,750 170,000 1995 263,282 195,000 1996 831,630 1997 1,502,070 1998 8,050,000* *NAFC budget for coffee is for 1998-2001 Annex 5 -71- Page 19of22 Coconut YEAR DA-BAR DA 1993 1994_ __ 1995. 1996 _ 1997 4,500,000* 1998_ _ __ 1999 _ 30,684,100 *as of 1998 Mango YEAR DA-BAR DA 1994 1995 _ __ 1996 1997 1 5,538,156* 1998 90 ,000 1999 2,487,000 *as of 1998 Banana YEAR DA-BAR DA 1993 _ 1994 __ _ ___ _ 1995 _ _ _ _ _ _ _ _ _ _ _ _ _ 1996 __l 1997 8,378,030* 00X=0 1998 __ _ 400,000 *as of 1998 NAFC Budgeting Allocation for Coffee Programmed Projects Budget Allocation Programmed__________________________________ ProjectsYear I I. Preparation layout & orinting of information materials on coffee P210,000 rejuvenation, pests and diseases brochures II. Coffee training on rejuvenation and pest management 615,000 IlI. Establishment of coffee nursery 575,000 IV. Establishment of Demo Farms 200,000 V. Provision of Post Harvest Facilities 658,500 VI. Project monitoring 300,000 TOTAL 2,558,500 -72- Annex 5 Page 20 of 22 NAFC Budgeting Allocation for Cacao Component ~~~~~~~~~~~~~~Budget Allocation Comnponent Year 1 I. -Clones and demonstration farms -Training Activites 840,000 -Preparation, printing & distribution of 5,000 copies of reference materials on cocoa 600,000 II. Post Production Component 2,441,000 Ill. Market promotion and Information 700,000 IV. Management, Supervisional and Administration 650,000 TOTAL P7,581,000 1997 Bureau of Agricultural Research Budget for Selected Tree Crops MUANGO Mango Pulp Weevil in Palawan 215,357 Synergistic Effect of Forest Material and soil Mineralogy on 1,012,500 the Quality of Philippine (carabao) Mango Sustainable Mango Production through Integrated pre and Post Harvest Management of Mango Anthraconize 1,477,699 Development of Bit Traps and Detector Protocol for the Quarantine Surveillance of the Mango Pulp Weevil Management Practices 2,382,600 Improvement of Cultural Management Practices for Sustainable Mango Production 450,000 COCONUT Sustainability of Coconut & Coco Based Farming System 4,500,000 BANANA Research and Development 2,800,000 Research and Development Project 5,578,030 RUBBER Evaluation of Rubber Cultivated Technique 7 Practices for Smallholders 650,000 Integrated Rubber Industry Development Program T 2,489,000 -73- Annex 5 Page 21 of 22 Gintong Ani High Value Commercial Crops Program 1998 Revised Program /Activity & Budgetary Allocation ComponentlPrograml Implementing MOOE Capital Total Activity Agency _______ Outlay _______ 1. Legislative Policy 1,246 1,246 Reform and Advocacy Agenda BPI 1,046 1,046 MAS 200 200 2. Market Development 20,152 20,152 and Financing MAS 9,515 9,515 AIIS 7,000 7,000 BPI 3,637 3,637 3. Credit Assistance 310,000 310,000 QUEDANCOR ___ 208,568 208,568 PCA 50,700 50,700 PCIC __-___ 50,732 50,732 4. Technology 11,299 11,299 Promotion and __ __ _ __ _ Commercialization ATI 10,647 10,647 BPRE 652 652 5. Research and 21,698 21,698 Development . BAR 20,269 20,269 BPRE 1,429 1,429 6. Rural Infrastructure BSWM 3,400 3,400 7. Program Advocacy AID 3,488 3,488 and Communication 8. Program BPI 13,787 13,787 Management 9. Commodity PLUS 23,132 175 23,307 Sugarcane SRA 6,933 6,933 Fiber FIDA 2,359 175 2,534 Rubber AIIS 8,125 8,125 BPI 1,625 1,625 Cotton CODA 4,090 4,090 10. Support to HVCC ARMM 1,801 1,801 Program . 11. Survey Priority BAS 2,202 2,202 Commodities BAS_22022_ .202 12. Unprogrammed 16,363 16,363 Equipment Outlay Total 102,205 326,363 428,743 -74- Annex 5 Page 22 of 22 Agrikulturang MakaMASA - High Value Commercial Crops Program 1999 Budget Allocation by Component COMPONENT Budgetary Allocation (P'000) TOTAL OSEC RFUs 1. Policy Retorm, Market Development 15,758.000 8,663.345 24,421.345 and Promotion . II. Infrastructure Development 11,997.000 45,435.315 57,432.315 III. Investment and Financing 5,405.000 5,030.150 10,435.150 IV. Technology Development Training Extension, Communication Support 65,533.000 54,369.675 119,902.675 V. Program Advocacy, Information Networking and Dissemination 7,551.000 6,705.542 14,256.542 VI. Program Management 248,042.000 52,960.973 301,002.973 TOTAL 354,286.000 173,165.000 527,451.000 -75- Annex 6 Page 1 of 3 INTERNATIONAL PRICE & MARKET PROSPECTS I. For several decades, most internationally traded coconut oil has originated in the Philippines. In recent years, Philippine exports constituted more than 60% of traded coconut oil. (See Figure 1.) When countries with large market shares expand production in markets where demand is inelastic, it is possible for the new supplies to lower prices to the point where the country is worse off. This is known as the adding-up problem. Consequently, given the Philippines large market share in coconut oil, there are concerns that expanded exports could depress international prices for coconut oil. 2. The issue is not new for the Philippines. For example, Librero wrote about the problem in 1971. Most economists point out that the market for coconut oil is part of a larger market for fats and oil. This is because coconut oil must compete with palm and palm kernel oil, soybean oil and even animal fats. In addition, for industrial uses in detergents, coconut oil must compete with petroleum based products'. And the Philippines exports less than 3% of the world's traded supply. (Figure 2.) 3. Nonetheless, in this section we examine the possible effects of expanded coconut oil under the unlikely assumption that coconut oil is largely distinguishable from other fats and oils. In order to do so, we constructed a two-country model (Philippines and the rest of the world) to quantify the effects of a 10% expansion of coconut oil production in the Philippines. The results are calculated under two assumptions about the elasticity of demand for coconut oil. The elasticities are taken from Warr and Wollmer (1996) and range from 1.4 to 2.1. In both instances the effects on world markets are small. The models shows that world prices are effected by 2-3%. The export revenues of other producers decline by 7 to 10% and domestic consumption of coconut oil in the Philippines increases by around 5%. Export revenues grow by 8-9%. Sensitivity analysis shows that at slightly higher elasticities - around 5% -- the effect of expansion on world markets approaches zero. 'Tirso Antiporda, Jr., former UCPB Chair, cited that the potential long-term price ceiling of coconut oil must match that of ethylene of about US cents 25-26 per lb. -76- Annex 6 Share of world coconut oil exports, average 1990-1997 Phi)ippines 62% ROW 18% Indonesia 20% World trade in fats and oils us$ 30 - million l Philippines mlin20h 10 | Rest of world 190 0 1990 1991 1992 1993 1994 1995 1996 1997 -77- Annex 6 Table 1: Model Results Ten% Increase in Production Assumptions World Demand elasticity 2.1 1.4 Production increase 10.0% 10.0% Results % Change % Change World price -2.5% -3.4% Export Revenue of ROW -7.4% -9.9% Philippines Market share 3.8% 4.3% Export Revenue 9.2% 8.4% Exports 12.0% 12.2% Domestic dernand 5.5% 5.0°/O -78- Annex 7 Page 1 of 2 FINANCIAL IMPACT OF TREE CROPS ON SMALLHOLDERS I. The detailed budget tables for each tree crop are shown in Annex 9. This Annex deals with the financing options for various tree crops. Ruabber 2. Table 1 indicates two possibilities for financing rubber. Firstly, (Alternative A) unsubsidized financing at typical ongoing rates in the Philippines, that is a nominal interest rates of 17%, and assumes a 10-year loan with three years' grace. The underlying inflation rate is taken to be 7%. It is very clear that this option is not financially viable. The per hectare deficit during the six-year development period gets larger each year and only moves into positive cash flow in year 9. The sum which the smallholder would have to find from the value of his own labor or other resources in order to meet the debt financing is around Pesos 12,000 per year in years 5, 6 and 7 (US$300 per ha per year). 3. An alternative would be a grant from the Department of Agrarian Reform given over the first three years to cover materials and part of the labor cost. Such a grant would amount to about US$850 per ha in 1998 price terms, spread over three years. This is shown as Alternative B and demonstrates that the farmer would have an annual deficit in years I to 6 of about Pesos in 3,000 each year or the equivalent of the income from 30 days' labor. This should be sustainable for many smallholder families. With such a grant supported investment, and with assistance of a medium-term working capital loan (four year loan, two years' grace), from year 7 cash flow from the rubber operation would be positive. It would rise in constant 1998 terms to US$500 or US$600 per ha from year 12 onwards. This is attractive compared with alternative agricultural crops (for example, annual income from rain fed rice is only about $80 per hectare net of labor and that of corn about US$ 30 (Annex 9 Table 3)). If the value of farm labor is also included, earnings from rainfed rice would be about US$500, those from corn, about US$270 but those of rubber on average, during the mature period, about US$800/ha. This level of earnings per day US$5.2 for rubber, compared with US$2.6 for rice, and US$2.3 for corn would certainly be sufficient to keep the farmer on the farm and involved with his rubber. 4. The analysis in Table 2 shows that the DAR grant is not much more expensive to give out than a soft loan which was the alternative proposed. Indeed, if DAR finances a loan at 4%, and average administrative costs are 5% of the outstanding balance (better than Landbank's current achievement) and collection rates are 90%, the effective recovery of the loan is only 4.6% of its capital amount - virtually nothing. Even if administrative costs fall to 2.5% and collection rises to 95%, the economic subsidy element would is still more than three quarters of the nominal loan amount. It is also demonstrated in Table 2 that there is a reasonable expectation of GOP recovering the cost of such a grant indirectly. If incremental taxes (from Value Added Tax and Income Tax from downstream activities) amounted to the equivalent of only 10% of the value of -79L,L-. Annex 7 Page 2 of 2 rubber sales, then full cost recovery at an internal real rate of return of 7% would be achieved. Palm Oil 5. The financing options for palm oil are shown in Table 3. They consider two alternatives. Alternative A, unsubsidized funding directly to the farmer, and Alternative B in which a developer covers the first three years' financing of the palm oil and this is then sold to the farmer at the beginning of year 4 and repaid under a seven-year agrarian loan from Landbank. While palm oil could be financed entirely commercially, the shortfall in years 3 and 4 (Pesos 6,000 and Pesos 11,000 per ha) would be large for individual smallholders to bear unless they had significant other income sources. Consequently, although a commercial financing arrangement should be fine for commercially oriented operators, for individual smallholders, financing of the development by a developer and then refinancing under an agrarian loan gives a much more acceptable and manageable cashflow. Under these circumstances, the smallholder is essentially not involved with the development of the oil palm for its first three years (unless he works as paid labor on the site). If the smallholder then takes out a loan at the beginning of year 4 when the oil palm starts yielding, he would suffer modest deficits (US$80 and US$120 per ha in the first two years). These should be financeable from other resources and following that would move strongly into profit, averaging about US$700 per ha per year from years 6 to 15, after covering the cost of labor. If the smallholder undertook the farm work himself, his income would be a close to US$1,000/ha. Oil palm gives good returns to labor, estimated at over US$9 per day during the mature period. Coffee 6. Coffee provides an example of a crop which is relatively short-term and can be financed commercially. Table 4 shows that it can be financed with a five year loan and two year's grace on principal. Such financing would require the commercially oriented smallholder to be able to meet interest payments in the first two years totaling about US$250. After that, the cash flow is fine with net income after labor costs and debt service averaging about US$600 per year in 1998 price terms. As with palm oil, the possibility of a developer, perhaps a coffee co-operative being responsible for implementing the plantings during the initial 2 years would be attractive. If such a developer bore the initial financing and only handed back the plantation when it is ready to produce the small holder would get a positive cashflow from the start. This would be more managable for smallholders with few resources other than their land. (Details are shown as alternative B, Table 4.). Annex 8 -80- Page 1of 11 CURRENT FINANCING OF TREE CROP PLANTING AND OPTIONS FOR THE FUTURE 1. This Annex briefly reviews the estimated investment within the tree crop sector, the level of reinvestment and new investments required, and the medium-term production which would result from different rates of new planting. 2. Annex 8, Table 1 gives an indicative estimate of the investment in tree crops in the Philippines at present and the historic average level of annual investment required to sustain such a tree crop stand. The assumed average length of cycle is longer than would normally be considered optimum because of farmers' reluctance to reinvest. The average annual investment requirement for each crop and proportion of farm labor are based on the budgets given in Annex 9and are expressed in constant 1998 currency terms. The labor included is only the farm labor and does not include the labor element of planting material production, supervision during construction or the labor element of roads costs. About 50% of total investment is on farm labor and two-thirds other costs. It is estimated that the present stock of tree crops would have cost about US$3.7 billion to establish and that the average reinvestment required to maintain the stock would be about US$151 million annually. The areas of crops are estimated on a pure stand equivalent basis. 3. Annex 8 Table 2 estimates the indicative investment for a level of new planting geared to modest growth of tree crops, assuming rationalization of the present support for them. It also indicates, the area planted during the 10-year period 1999 to 2008, and the likely stand resulting from that in the year 2008. The estimation of total area is based on the assumption that existing stands decline at the rates indicated by their cycle length from Table I, i.e., with coconuts, one-fiftieth of the 1997 area goes out of production each year, whilst with coffee the factor would be one-fifteenth. 4. Under the "Active Development" scenario, which would involve planting of about 126,000 hectares per year over the next 10 years, the total tree crop area would be likely to fall slightly by an equivalent of 0.3% per year. This would result from small percentage falls in the substantial areas of coconuts and rubber, compensated for by modest gains in fruit crops and a substantial increase in the area of oil palm. Annual investment required at 1998 prices would be about the same as the historical average of US$152 million per year, but would involve lower annual investments in coconuts and higher annual investments in coffee and oil palm than in the past. 5. The impact of the "Pro-Active" policy is indicated in Annex 8, Table 3. In this table, it is assumed that annual plantings would be about 170,000 hectares of which 40,000 would be coconuts, 10,000 rubber, 15,000 oil palm, 25,000 coffee and 83,000 fruits. Under this scenario, annual investment required is US$ 200 million and there would be a slight growth in tree crop area averaging 0.6% per annum. The largest percentage growth would be expected within oil palm, which starts from a very low base. -81- Annex 8 Page 2 of 11 6. The likely effect of maintaining the status quo would be for a continuing decline in tree crop area. This is indicated in Annex 8, Table 4 and it is assumed that new planting of the traditional estate-type crops would be minimal - 10,000 hectares per year for coconuts, 1,000 hectares per year for rubber. Oil palm is taken to be planted at 2,000/ha year, and coffee at 10,000 hectares per year, which would be the amount required to maintain the stand. (Reasonable replanting would be expected from oil palm and coffee under the status quo situation because these are profitable crops anyway and receive little government support). Similarly, modest growth would also be expected from mango and banana but the amount of new planting of other fruits which may need government support would not be sufficient to maintain cropped areas. All in all, the likely planting would be about 85,000 hectares per year over the 10-year period and annual investment about US$112 million of which only about 8% would be for the main plantation crops - cocoa and rubber. By 2008, the estimated total area of tree crops would fall from present level of about 4.5 million hectares to about 4 million hectares. Production Estimates 7. Based on the changes in tree population and the new planting for each of the three different scenarios, production estimates for the year 2008 are made. These are calculated based on the changes in area and on the assumption that the newly-planted mature areas will yield at substantially higher level than the average for the present crop (except in the case of export bananas). However, the impact of new planting by the year 2008 is relatively limited so that the overall change in average yield based on the projected mature area is not very high. For example, under the active scenario, although some 300,000 hectares of new coconuts would be planted by 2008, only about 180,000 of these would be producing by that year. The consequent increase in yield based on the total coconut area would only be from 0.74 tons/ha in 1997 to 0.78 tons/ha in 2008, whilst the average yield based on producing trees would increase from 1.07 to 1.29 tons/ha.. 8. In making production estimates, a specific year, 2008, has been used. For long gestation tree crops, the impact of a substantial new planting effort starting in 1999 would only just have begun to be felt by then. For example, with rubber, only 30-40% of the new plantings in the period 1999 to 2008 would actually be yielding in the year 2008. The main impact of sustained increased replanting levels would be felt a further seven years down the line, in say 2015. This is not the case, however, with shorter-tern crops such as bananas whose production level reflects planting one or two years after the event. 9. Also, the situation is different for mango. This is because in the base case there is a substantial area of immature mango (planted between 1992 and 1997 which will come into production from 1999 onwards and which is likely to substantially increase mango production even without any new planting at all. 10. The overall effect on production of the 'Active' investment scenario (Table 5) would be for rubber and coconut production in 2008 to be slightly below the 1997 level (the equivalent to growth of -0.3% and -0.5% p.a. respectively. Conversely, a substantial 15% p.a. growth is estimated for oil palm, 8% for coffee, and 2% overall for fruit crops. -82- Annex 8 Page 3 of 11 11. The Pro-Active scenario which would encourage higher rates of planting, (indicated in Table 3) would lead to a substantial overall increase in tree crop production by 2008. In this case, coconut production would be about the same in 2008 as in 1997 but rubber production would increase by the equivalent of about 4% per year, and fruits by about 3% per year. Growth in oil palm and coffee would be expected to be high (22% per year and 12% per year respectively) reflecting the likely profitability of these crops and, in the case of oil palm, the very low starting base. Details are given in Table 6. 12. Under the maintenance of the 'Status Quo' scenario, (table 7) tree crop production overall would still increase slightly. There is a projected decline of about 1.8% per year for coconuts (resulting in production of about 2,000 tons copra equivalent by 2008), and a reduction of 2.4% per year from rubber. These would be offset by continued increases of 2% and 4% per year from oil palm and coffee, and a modest increase of 1.7% per year from fruits, largely due to mango. Table 1. Summary of Likely New Planting Investment Needed 1999-2008 Under Different Development Policies Status Quo Active Development Pro-Active Development Planting -ha Annual Cost Planting -ha Annual Cost Planting -ha Annual Cost over 10 yrs (US$ '000) over 10 yrs (US$ '000) over 10 yrs (US$ '000) Coconut 100 7,200 300 21,600 400 28,800 Rubber 10 1,243 30 3,729 100 12,430 Oil Palm 20 2,656 80 10,624 150 19,920 Coffee 100 13,780 150 20,670 250 34,450 Bananas 390 67,928 422 72,015 435 74,544 Others 231 19,426 276 23,048 370 31,220 Total 851 112,233 1,258 151,686 1,705 201,364 Growth in area Growth in area Growth in area Total Area Total Area % p.a. '97 - Total Area % p.a. '97 - Total Area % p.a. '97 - 1997 '000 ha 2008 '000 ha '08 2008 '08 2008 '08 Coconut 3,314 2,751 -1.7% 2,951 -1.0% 3,051 -0.7% Rubber 93 72 -2.3% 92 -0.1% 162 5.2% Oil Palm 15 29 6.2%0 89 17.6% 159 23.9% Coffee 149 150 0.0% 200 2.7% 300 6.6% Bananas 328 348 0.5% 380 1.3% 393 1.7% Others 631 626 -0.1% 671 0.6% 765 1.8% Total 4,530 3,976 -1.2% 4,383 -0.3% 4,830 0.6% Table 2. Indicative New Planting Investment Needed 1999-2008 (US$'000) - Active Development Growth in area Percentage of Total Are Area Planted % p.a. '97 - Investment in Total 2008 1999-2008 '08 10 year period Investment System Coconut Good Potential 1,740 300 -0.3% 216,000 14.2% Partial Grant (using PCA resources) Coconut Moderate Potential 1,211 -2.0% - 0.0%/e Intercropped partly by 'others' see below All Coconuts 2,951 300 -1.0% 216,000 14.2% Rubber 92 30 -0.1% 37,290 2.5% Limited Grant to replace present credit option Commercial supported by Limited LT Credit Oil Palm 89 80 17.6% 106,240 7.0%/o Line Coffee 200 150 2.7% 206,700 13.6% Commercial supported by Limited Credit Line Cacao 16 11 0.2% 16,500 1.1% Backyard & Commercial Mango 120 45 2.6% 37,980 2.5% Backyard & Commercial co Banana - Local 350 350 1.4% 360,150 23.7% Back yard Banana - Export 30 72 0.6% 360,000 23.7% Commercial Back yard and supported by PCA when Others 535 220 0.2% 176,000 11.6% intercrop of coconuts All Fruits (incl Cacao) 1,051 698 0.8% 950,630 62.7% Total 4,383 1,258 -0.3% 1,516,860 100.0%0/ a G Table 3. Indicative New Planting Investment Needed 1999-2008 (US$'000)- Pro-Active Expansion Stragy Total Area Area Planted Growth in area Investment in 2008 1999-2008 % p.a. '97 -'08 10 year perod System Coconut Good Potential 1,840 400 0.2% 288,000 ieplan ing Grant (using PCX resources) Coconut Moderate PotenUial 1,211 -2.0% - Intercropped partly by 'others! see below All Coconuts 3,051 400 -0.7% 288,000 Replanting Grant w'ith Strong Technical Rubber 162 100 5.2% 124,300 Support Commercial supported by Special LT Oil Palm 159 150 23.9% 199,200 Credit Une Commercial supported by Special LT Coffee 300 250 6.6% 344,500 Credit Une Cacao 25 20 4.3% 30,000 Backyard & Commercial Mango 125 50 3.0% 42,200 Backyard & Commercial Banana - Local 360 360 1.7% 370,440 Back yard Banana - Export 33 75 1.5% 375,000 Commercial Back yard and supported by PCA when Others 615 300 1.4% 240,000 intercrop of coconuts All Fruits (Ind Cacao) 1,158 805 1.7% 1,057,640 Total 4,830 1,705 0.6% 2,013,640 o 00 Table 4. Indicative New Planting Investment Needed 1999-2008 (US$000) - Status Quo Total Area Area Planted Growth in area Investment in 10 2008 1999-2008 % p.a. '97 -'08 year perod System Coconut Good Potential 1,540 100 -1.4% 72,000 Modest PCA assistence Coconut Moderate Potential 1,211 -2.0% All Coconuts 2,751 100 -1.7% 72,000 Rubber 72 10 -2.3% 12,430 Limited DAR support Oil Palm 29 20 6.2% 26,560 Commercial Coffee 150 100 0.0% 137,800 Backyard & Commercial Cacao 16 11 0.2% 16,500 Backyard & Commerdal Mango 115 40 2.3% 33,760 Backyard & Commercial Banana - Local 320 320 0.6% 329,280 Back yard Banana - Export 28 70 0.0% 350,000 Commercial Others 495 180 -0.5% 144,000 Back yard All Fruits (ind Cacao) 974 621 0.1% 873,540 Total 3,976 851 -1.2% 1,122,330 00> 0 00 Table 5. Indicative Medium Term Estimate of Tree Crop Production - Active Investment 1997 2008 _ Total Area Assumed Average Producton Yield New Total Area Total New Estimated Average Annual 000 ha Producing Yield Planlings 000 ha Producing Produdng Producton Yield Growth (000 ha) (tha) (000 t) (tVha) (000 ha) 000 ha) (000 ha) (000 t) (tlha) % p.a. Coconut Good Potental 1,800 1,400 1.30 1,820 2.50 1,740 1,400 180 2,036 Coconut Moderate Potental 1,514 900 0.70 630 1,211 400 280 Total Coconuts 3,314 2,300 1.07 2,450 2.50 2,951 1,800 2,316 1.29 -0.51% Rubber 93 70 0.93 65 1.50 92 60 12 63 1.04 -0.35% Oil Palm ffb 15 14 18.00 252 20.00 89 58 56 1,156 19.93 14.85% m Coffee green beans 149 130 0.50 65 1.20 200 170 90 148 0.87 7.76% Mango 90 53 12.60 668 12.60 120 89 14 1,115 12.60 4.77% Banana- Local 300 250 10.00 2,500 12.00 350 315 280 3,710 11.78 3.65% Banana - Export 28 24 35.00 840 40.00 30 23 22 906 39.74 0.69% Other Fruits 541 450 10.00 4,500 18.00 551 436 92 5,098 11.70 1.14% Total Fruit Crops (Incl Cacao) 959 777 _ _8,508 1,051 862 408 10,829 2.22% Total _ 4,530 3,291 1 1 11,340 1 1 4,383 2,950 566 14,511 2.27% Note: Average yields in table relate to the 'Producing Area', not to the Total Area. >4 00 x0 Table 6. Indicative Medium Term Estimate of Tree Crop Production - Pro-Active Expansion 1997 2008 = Total Area Assuned Average Producton Yeld New Total Area Total New Estrmated Average Annual 000 ha Produdng Yield Planbngs 000 ha Producing Prducing Producton Yield Grwth (000 ha) (tlha) (000 t) (t#ha) (000 ha) (000 ha) 0OO ha) (000 t) (tlha) % p.a. Coconut Good Potential 1,800 1,400 1.30 1,820 2.50 1,840 1,460 240 2,186 Coconut Moderate Potential 1,514 900 0.70 630 1,211 400 280 Total Coconuts 3,314 2,300 1.07 2,450 2.50 3,051 1,860 2,466 1.33 0.06% Rubber 93 70 0.93 65 1.50 162 88 40 105 1.19 4.41% Oil Palm fRb 15 14 18.00 252 20.00 159 107 105 2,136 19.96 21.45% Coffee green beans 149 130 0.50 65 1.20 300 250 150 230 0.92 12.17% Mango 90 53 12.60 668 . 12.60 125 90 15 1,134 12.60 4.93% Banana - Local 300 250 10.00 2,5001 12.00 360 324 288 3,816 11.78 3.92% Banana - Export 28 24 35.00 840 40.00 33 26 26 1,020 40.00 1.78% Other Fruits 541 450 10.00 4,500 18.00 640 480 128 5,827 12.13 2.38% Total Fruit Crops (Inci Cacao) 959 777 _ __ 8,508 _ 1,158 920 457 11,797 1 3.02% Total 1 4,530 3,291 1 11,340 4,830 3,225 752 16,734 1 3.60% Note: Average yields in table relate to the 'Producing Area', not to the Total Area. 1> 0 0 o 00 Table 7. Indicative Medium Term Estimate of Tree Crop Production - Status Quo 1997 l _ | 2008 l l Total Area Assumed Average Production Yield New Total Area Total New Estimnatd Average Annual 000 ha Producing Yied Planffngs 000 ha Producing Prdudng Producdon Yield Growth (_000 ha) (ha) ('00 t) (tUha) ('O0 ha) (000 ha) 000 ha) ('OOOt) (Vha) % p.a. Coconut Good Potential 1,800 1,400 1.30 1,820 2.50 1,540 1,280 60 1,736 Coconut Moderate Potential 1,514 900 0.70 630 - 1,211 400 280 Total Coconuts 3,314 2,300 1.07 2,450 2.50 2,751 1,680 2,016 1.20 -1.76% Rubber 93 70 0.93 65 1.30 72 52 4 50 0.96 -2.40% X Oil Palm ffb 15 14 18.00 252 20.00 29 16 14 316 19.75 2.08% Coffee green beans 149 130 0.50 65 1.10 150 130 60 101 0.78 4.07% Mango 90 53 12.60 668 12.60 115 87 12 1,096 12.60 4.61% Banana - Local 300 250 10.00 2,500 12,00 320 316 32 3,224 10.20 2.34% Banana - Export 28 24 35.00 840 40.00 28 21 21 840 40.00 0.00% Other Fruits 541 450 10.00 4,500 14.00 511 506 4 5,076 10.03 1.10% Total Fruit Crops (Incd Cacao) 959 777 _ _ 8,508 974 930 69 10,236 1.70% Total 4,530 3,291 1 11,340 1 3,976 2,808 147 12,719 1.05% Note: Average yields in table relate to the 'Producing Area', not to the Total Area. >c 0 Table 8. Indicative Estimate of Tree Crop Investment (US$'OOO) Area '97 Initial Unit Investment Average Historic Average Annual Investment Required Length of Proporlion Total Total 000 ha US$/ha Total Cycle (yrs) Total Fm Labor Fm. Labor Materials Coconut Good Potential 1,800 720 1,296,000 50 25,920 35% 9,072 16,848 Coconut Moderate Potential 1,514 727 1,100,678 50 22,014 46% 10,126 11,887 All Coconuts 3,314 2,396,678 47,934 40% 19,198 28,735 Rubber 93 1,243 115,599 30 3,853 57% 2,196 1,657 Oil Palm 15 1,328 19,920 25 797 35% 279 518 Coffee 149 1,378 205,322 15 13,688 30% 4,106 9,582 Cacao 16 1,500 24,000 15 1,600 35% 560 1,040 Mango 90 844 75,960 60 1,266 85% 1,076 190 Banana - Local 300 1,029 308,700 10 30,870 20% 6,174 24,696 Banana - Export 28 5,000 140,000 4 35,000 20% 7,000 28,000 Others 525 800 420,000 25 16,800 50% 8,400 8,400 All Fruits (in Cacao) 959 1,010 968,660 85,536 27% 23,210 62,326 Total 4,530 3,706,179 151,808 32% 48,990 102,818 s00 0 > -91- Annex 9 Page 1 of 7 ECONOMIC RETURNS FROM TREE CROP INVESTMENT Overview 1. The methodology used to assess the viability of tree crops per se is to calculate their economic cost of production and compare this with projected world prices (adjusted back to the farmgate level). This is done for the major tree crop types, starting with unit physical budgets and 1998 financial prices to give unit financial budgets at 1998 prices. As tree crops are of long gestation, and there are expectations that the real prices of outputs and some inputs will change over time, price projections are made for the future and expressed in real 1998 currency terms. These projections are generally based on the World Bank International Price Projections published in August 1998. The projections are worked back to the farm-gate level and take account of the likelihood of a growth in production of both coffee and oil palm and a consequent switch in the basis for pricing from import parity to export parity. Financial budgets have then been converted to unit budgets in economic prices by using economic conversion factors. The main economic conversion factor used is the standard conversion factor SCF of 0.83. For rural labor, amongst which there is substantial under employment, a lower conversion factor of 0.6 is applied at present, but this is projected to increase to 0.7 by 2010. The possibility of real increases in the cost of labor, which would be expected to occur if there is a strong increase in demand from the urban sector, coupled with a reduction in the growth of a new entrants to the labor force, is dealt with through sensitivity analysis. 2. As may be expected, with all tree crops economic viability is quite sensitive to yield projections. It is clear that in the Philippines, as in other countries, there is a huge variation in potential yield, both as a result of differences in climate and soil type and as a result of the management capacity of the farmers. This analysis concentrates on the viability of appropriate crop production under relatively good conditions. Because it is assumed that new investment in specific tree crops would be likely to be undertaken only in suitable areas. The analysis indicates, for each tree crop, the cut-off point, i.e., the level of projected yield below which new investment would not be economically viable under the projected price cost and input regimes of the unit budgets. 3. This approach of using unit models to make a broad economic justification for developing particular tree crops is conservative, firstly because intercrops may boost economic returns and secondly agricultural yields tend to improve over time. In a number of situations, there may be synergy between a tree crop and its under crop (e.g., cocoa underneath coconuts). In those circumstances, the underlying mix of crops would most likely be viable at lower levels of main crop yield than for a pure stand. However, there are very many potential mixed cropping calculations, which need to be dealt with on a case-by-case basis, taking account of the local climatic conditions and other key factors. They are not dealt with directly within this annex, although it can normally be assumed that a well-managed multi-cropping system has the potential for higher returns to land, and probably a higher return to investment than mono-crops. Furthermore, the presence of inter-crops within the early years of a new tree crops development, provided that they are well-managed, is likely to lead to better establishment. This is because the mere presence of a second crop which is producing saleable output on the same physical area -92- -92- Annex 9 Page 2 of 7 will help concentrate the farmer's attention on necessary husbandry practices. Otherwise, if he were growing his short-term market or food crops away from the tree crop site, there would be a tendency not to supervise the immature tree crop sufficiently closely. Secondly, the unit budgets are based on 1998 yields (of well managed crops on appropriate soils). For most of the crops planted over the next 5 years, peak production would occur not in 1998 but in 10 - 25 years time. No account is taken in the models of the general trend upwards in agricultural yields, which, if it only were 1% p.a. for example would add 10%-20% to the economic value of output, depending upon the crop. 4. A summary of the economic and financial characteristics of the main tree crops is shown in the table below. The detailed supporting tables are given as an appendix to this annex. Table 1. Summary of Financial and Economic Characteristics of Different Crops in Favorable areas, under Good Management Conditions (figures do not take account of opportunity cost of land) Oil Palm Rubber Coconuts Coconuts Coffee Mango Banana Hybrid Local Development US$ Cost/ha 1,328 1,243 720 727 1,378 844 1,029 Years of Development Period 3 6 4 6 2 7 1 First Year in Which Annual Cash Flow Breaks Even 4 9 5 7 3 8 2 Annualized Financial Margin '98 Prices (US$/ha) 725 12 324 102 513 748 1,166 Armualized Financial Margin LR Prices (US$/ha) 355 115 239 75 354 563 412 Arnualized Economic Margin LR Prices (US$/ha) 466 248 309 126 553 489 412 Base FRR 98 Financial Prices 39% 10% 36% 18% 50% 41% 136% Base FRR Long Run Financial Prices 32% 16% 32% 21% 43% 37% 63% Base ERR Long Run Prices 38% 23% 42% 27% 66% 41% 75% Labor Days/ha at Full Development inci Harvesting 95 156 65 48 163 67 117 Average Discounted Retum per manday (US$/md) 6.78 3.58 7.65 4.73 5.35 13.70 6.51 Return per manday during mature period (USS/md) 9.20 5.15 10:5 8.70 8.48 23.28 9.18 Fa_n Gate Costs and Prices Per Ton FFB 21% DRC Copra 6% Copra 6%/o Gr Beans Mango Banana Econ. Cost of Production LR U5$/ton (OCC=100/o) 27.5 375 95 121 685 96 45 Economic Farm Gate Prices (US$/ton): 199 98.8 561 330 330 1540 291 115 2010 67.8 711 264 264 1050 244 73 Fin'cial Cost of Production LR US$/ton (OCC=10%) 35.8 530 130 175 920 123 59 Financial Farn Gate Prices (US$/ton): 1998 102.0 537 322 322 1525 350 137 2010 62.5 685 256 256 1009 293 87 Yield - Base Case (Peak years av kgtha) 19,000 1,710 3,028 1,900 1,305 7,400 20,230 Minimum Yield Needed for 15% ERR (kg/ha) 8,400 1,168 1,185 1,050 710 3,200 13,100 Minimum Yield Needed for 15% FRR (kg/ha) 11,400 1,670 1,665 1,600 945 3,500 14,300 Max yield reduction for FRR to still exceed IS% -40% -2% -45% -16% -28% -53% -290/o -93- Annex 9 Page 3 of 7 5. While there are a number of differences between the likely economic viability of the different crops there are also some important similarities. Because the economic price of labor is well below the financial price, yet there is not much distortion in the output prices, economic rates of return are generally substantially higher than financial rates of return. This means that private investment may be curtailed, even though there is strong economic justification for the crop. Secondly, the long run price projections for internationally traded tree crop products, with the exception of rubber, are relatively unfavorable, perhaps over pessimistically so. In constant currency terms, the WB projections suggest that by 2010 coconut oil price will fall by a real 17%, coffee by 22% and palm oil by 45%. Rubber price is projected to increase by 14%. 6. An important economic characteristic of long gestation tree crops is that once established, they show good returns to labor, so that although their overall return to labor, compared with the financial wage rate is not all that high, returns during the mature period are. This means that they can be a good means of keeping people in rural areas, and provides a sound economic justification for 'cost sharing' during the development period. Coconuts 7. Even without the benefit of inter-cropping, newly planted hybrid coconuts show good economic returns. On the basis of an average peak yield of three tons per hectare in the key productive years (years 7 to 16), copra can be produced at the farm-gate level with an opportunity cost of capital of 10% at around US$95 per ton. Under a situation of coconuts being produced on land with zero opportunity cost, the estimated economic rate of return is 42%. This assumes no increase in the real financial cost of labor over the time period of the crop; but with less underemployment, the opportunity cost of labor would go up. To account for this, the Specific Conversion Factor for labor is assumed to increase from 0.6 to 0.7. 8. Taking account of sensitivity analysis, over a wide range of variations in both yields and increases in real wages, it is clear that investment in hybrid coconuts is economically sound. However, coconuts are a relatively low output activity; the annualized performance over the life cycle of the crop would be the same as an annual crop with per ha sales every year of US$466, costs of US$157 and a net return at economic prices of US$309. At 1998 financial prices, the retums are more attractive, giving a net margin of US$324 per hectare, but taking account of projected long-term financial prices, the likely margin would be the equivalent of US$239 per hectare. This is not particularly high and is only comparable with moderate output annual crops, such as cereals, and it represents a much less intensive land use than vegetables or other high output crops. 9. Per hectare economic returns from investment in tall coconuts are substantially lower than for hybrids, but the focus with talls should be on inter-cropping and making effective use of the land underneath them in those areas where soils are suitable for inter-crops. The estimated economic rate of return based on long-run prices for tall coconuts, yielding an average of kg -94- Annex 9 Page 4 of 7 1,900 of copra per ha is 27%. Yield could fall to kg 1,050/ha before the economic rate of return would fall to 15%. 10. These returns assume a zero opportunity cost of land. In practice, in some areas, the opportunity cost of land will truly be zero as there are no alternative crops which could be reasonably grown, but this would not generally be the case with coconut areas in the Philippines. Taking bare land as typically being worth Pesos 50,000 per hectare, and an acceptable return on investment in land of 6% in real terms, the opportunity cost of coconut land could be considered to be taken as Pesos 3,000 (US$75 per hectare per year). This would reduce the annualized margin on tall coconuts (at economic prices) from US$126 per hectare to US$51, with the result that the ERR would fall to 15%. This indicates that new planting of tall coconuts would only be marginally attractive in economic terms if there were an alternative land use. 11. The impact of a Peso 3,000 per year rent on hybrid coconuts, however, is much less devastating because of the more intensive nature of the crop. In this case, the annualized return would fall from US$309 to US$234, but the resultant economic rate of return of 31% is still attractive. However, the key to a good rate of return from hybrid coconuts is undoubtedly yield. If the yield during the peak yielding period were only two tons per hectare, then the economic rate of return for hybrid coconuts after land rent would be about 19%. Oil Palm 12. The areas in which oil palm can be expected to be grown in the Philippines are largely those without alternative land use, other than low output forest or rubber. Consequently the opportunity cost of land would be only marginal. Analysis of the likely benefits and costs of developing oil palm at present (1998) prices, indicates that it is an extremely attractive crop. It has an estimated financial rate of return at 1998 prices of 39%. However, assuming oil palm is expanded, it will shift from being an import crop to an export crop. That change will reduce farm gate price considerably in that firstly, the effective protection through import duty on oleins will be lost. Secondly, the net freight and handling costs between Philippines wholesale and world markets prices will be a deduction from world price rather than an addition to it. At the farm level, switching from import parity to export parity would cost about Peso 700/ton of FFB. The FRR of oil palm investment based on projected long run prices is 24% if the WB August 1998 projections are used, but 32% based on the 'base case' projections (see below). Clear evidence that oil palm is seen to be profitable by farmers and investors is the current strong interest in its development within Mindanao, where planting is already beginning to take place. 131Based on the World Bank projection of August 1998 which appear unreasonably pessimistic, the Philippines is still able to produce palm oil profitably for export at long-run prices and the projected economic rate of return for investment in oil palm at long-run prices is 32%. However, the study team's more positive view of palm oil prices, would give better returns. This takes as a base WB's soybean oil projections as the benchmark and assumes that the palm oil to soybean Annex 9 Page 5 of 7 oil price ratio remains at the average of the past four years, (95%). Using farm gate prices derived from this assumption, the projected economic rate of return would be 42%. 14. The attached table indicates that the margin per hectare from oil palm at long-run economic prices would be US$281 per hectare using the August 1998 World Bank price projections, but US$466 per hectare using the more optimistic projection (relating long-term oil palm prices to projected soybean oil prices). Both figures represent a substantial decrease from the present levels of profitability of this crop. At 1998 prices, the financial margin/ha is US$725, whilst at long run prices (based on 1998 planting) it is US$355. 15. Oil palm is likely to be economically viable and financially profitable over a wide range of potential input/output changes, provided that the processing facilities are in place. Yields could be as low as 8.4 tons per ha for the crop to be economically viable, compared with the projected level of 19 tons/ha. Clearly this is potentially a very rewarding crop. Rubber 16. The economics of rubber production under the present yield and labor cost regime existing in the Philippines are relatively poor. However, rubber is expected to increase in price over the next decade, and so provided wage rates remain low and there continues to be significant under-employment, it is a crop which shows a reasonable economic rate of return. 17. The estimated economic rate of return from smallholder rubber using long-run price projections, is 23%. The annualized economic profitability after discounting at 10% is US$248 per hectare. The problem with rubber is that it is very labor-intensive and financial returns are considerably less attractive (FRR of 16% based on projected long-run prices, but only 10% based on 1998 prices). At these likely levels of financial reward, self financed investment or reinvestment in rubber by private individuals is likely to be low. However, it should be possible to substantially increase the financial and economic rates of return from rubber by more efficient tapping regimes. The budgeted total tapping cost, particularly towards the end of the production cycle in the unit model, is high. While it reflects existing Philippine practice, experience elsewhere indicates that it may be possible to improve considerably on it. The issue of low labor productivity can clearly be seen in the discounted (at 10% p.a.) annualized financial return to labor of Peso 143/day, compared with Peso 271/day for oil palm or Peso 306/day for hybrid coconuts. 18. Rubber clearly would not be financially attractive in situations where there was a genuine alternative land use. A rent of US$75 per ha would reduce the FRR at long run prices to an estimated 12%. The economic rate of return would then be an estimated 18%. The implications of this are that if good alternative use could be made of the land, farmers would not plant rubber, but in situations where land suitable for rubber is available, and does not have an alternative use, then rubber would be seen as a worthwhile investment. -96- Annex 9 Page 6 of 7 Coffee 19. Coffee is a crop with a shorter cycle than the other tree crops, consequently its ERR and IRR are more volatile. The base coffee model indicates an ERR of 66% at long run prices and an FRR of 43%. At 1998 prices the FRR is 50%. Presently, coffee is highly protected (45% import tariff) but little is imported so that the domestic wholesale price is way below import parity. An important issue in the long run expansion of coffee will be acceptability by the world market of the quality of Philippine coffee. Provided quality is good, it is a very attractive crop with a high level of return to land. Furthermore, it can be cropped together with coconuts in some areas to- increase the total returns. 20. On the basis of these unit budgets, average yield, years 3-7 could fall from a projected Kg 1,305 green beans per hectare to Kg 710 for the economic rate of return to be over 15%. However, at long run prices the FRR would fall to 15% at a yield of 945 kg/ha. The financial analysis is based on prices declining evenly from their present levels to the projected 2010 levels, but with only an eight year cycle, 1998 plantings (which are the basis for this analysis) only produce through 2005. If coffee prices fell immediately to the projected 2010 levels, the FRR would be much lower - 18% while the projected ERR would be 41%. The substantial difference between the FRR and the ERR is largely caused by the shadow pricing of labor, which is a major input. 21. The impact of coffee land having alternative uses, as indicated by an implied rent of US$751ha would reduce the ERR on coffee to 57% and the FRR to 35%, based on 1998 planting and long run prices. However, at projected 2010 price levels, the ERR would still be acceptable, at 33%, but the FRR would fall to only 11%. Mango 22. The financial and economic returns for mango production can be very high. Mango is not an expensive crop to establish, although it takes a long time. At present mango prices, real returns are high, once the crop comes into production. Our model, which is for mango grown traditionally with few inputs during the establishment period, indicates a base financial rate of return, at a price of P14/kg of 37%, and an economic rate of return of 41%, excluding the shadow price of land. Introducing a land rent of US$75 per ha reduces these returns to 32% and 25% respectively. Even if yields were halved, returns would still be above 15%. 23. Mango, or similar fruit trees are ideal back yard crops, and in those circumstances, when they are planted along boundaries, there is often very little alternative use for the land (other than by another fruit tree). A small development of 2 -3 additional mango trees in the back yard is equivalent to about 1/20 of a hectare. This could give incremental sales to a smallholder of about -97- Annex 9 Page 7 of 7 400 kg of mango per year, worth some P5,600 or US$140, while incremental costs would only be a few hundred pesos plus family labor. In practice, the success of small holder fruit production will depend tremendously on individual access to market. The model used for mangoes assumes good market access and a continued high price. For many farmers, incremental fruit may be difficult to sell and it will be important that in backyard development a wide diversity of types is maintained. Lacatan Banana 24. The base model is for a type of banana, which is produced for the domestic market. It has a much shorter gestation period and much greater profitability than the 'plantation type' tree crops. Analysis at current (1998) prices, shows that the crop gives very good financial returns (annualized profit of US$1166/ha and an FRR of over 100%). The estimated long run cost of production for this type of banana, with a yield of 20 tons' per ha, is Pesos 2.26 per kg, yet the current packhouse price is P 6 per kg (giving an ex-farm price of P5.46/kg). Such a situation is unlikely to be sustainable (domestic supply would be likely to increase faster than demand, thereby causing prices to fall). For analytical purposes, therefore, it is assumed that the real domestic price will fall and a figure of Pesos 4/kg or US$100 per ton is taken as the likely future packhouse price for this commodity in the production areas. 25. At this price of US$100/ton, and ignoring the opportunity cost of land, bananas show economic and financial rates of remrn of 75% and 63% respectively. However, these returns are sensitive to yields, and at a lower yield of 15 tons/ha the ERR and FRR would fall to 34% and 22% respectively. A rent cost of US$75 per hectare at would result in returns of 63% and 52%, at yields of 20 tons per ha, but only 23% and 10% at yields of 15 tons per ha. The financial returns for this model are based on small farm operations with non-union labor. If labor cost a total of P180 per day all in, rather than the P100 in the budgets, financial returns would fall from 52% to 27% with a cost of $75 per ha. In this situation, the minimum yield required to give a 15% FRR would be an average of 18.7 tons per hectare. 26. Clearly technically good banana farmers will make a lot of money if prices stay at present levels, but the profitability of moderate farmers will be susceptible to price declines. This is the normal situation for farmers producing relatively high output crops for the fresh consumption market. 'Average yield years 3-6. -98- Annex 9 Page 1 of 2 ECONOMIC RETURNS FROM TREE CROP INVESTMENT LIST OF TABLES OVERVIEW Attachment A: Table 1 Annualized Budgets in 1998 Currency Terms (Using 10% OCC for discounting) Attachment B: Table 2 : Summary of Investment Costs (Pesos/ha) Attachment C: Table 3 : Summary offinancial and Economic Characteristics of Different Crops Attachment D: Table 4 : Summary of Potential Grants (Pesos/ha) Attachment E: Table S : Summary of Investment cost of Different Crops Attachment Fl: Corn and Rice Table I Financial Performance: Corn & Rainfed Rice at Long Run Prices Attachment F2: Corn and Rice Table 2 Economic Performance: Corn & Rainfed Rice at Long Run Prices Attachment F3: Corn Table 3 Estimated Cost of Production Per Hectare of Corn Attachment GI: Hybrid Coconut Table 1: Physical Performance: Smallholder Hybrid Coconut Attachment G2: Hybrid Coconut Table 2 : Smallholder Coconuts (Hybrid) Prices Attachment G3: Hybrid Coconut Table 3 : Financial Performance: Smallholder Coconuts Hybrids - 1998 Real Prices Attachment G4: Hybrid Coconut Table 4 : Financial Performance: Smallholder coconuts - Hybrids - Long Run Prices Attachment GS: Hybrid Coconut Table 5 : Nomic Performance: Smallholder Coconuts - Hybrids (Long Run Prices) Attachment HI: Tall Coconut Table I : Physical Performance: Smallholder Local Tall (Hedgerow Planting) Attachment H2: Tall Coconut Table 2 : Prices: Smallholder Local Tall Attachment H3: Tall Coconut Table 3 : Financial Performance: Coconuts Local Tall (1998 Prices) Attachment H4: Tall Coconut Table 4 : Financial Performance: Coconuts Local Tall (Long Run Prices) Attachment H5: Tall Coconut Table 5 : Economic Performance: Coconuts Local Tall (Long Run Prices) Attachment II: Palm Oil Table 1 : Physical Performance Per Ha: Palm Oil (Smallholder Estate Cooperative) Attachment 12: Palm Oil Table 2 : Palm Oil Small Holder Estate Cooperative: Input and Output Prices (1988 Constant Terms) Attachment 13: Palm Oil Table 3 : Financial Performance: Palm Oil (Smallbolder Estate Cooperative) - 1998 Price Levels Attachment 14: Palm Oil Table 4 : Financial Performance: Palm Oil (Smallholder Estate -99- Annex 9 Page 2 of 2 Cooperative) - At Projected Long Run Prices Attachment I5: Palm Oil Table 5 : Economic Performance: Palm Oil (Smallholder Estate Cooperative) - At Projected Long Run Prices Attachment JI: Rubber Tablel : Physical Performance: Smallholder Rubber Attachment J2: Rubber Table 2 Prices: Smallholder Rubber Attachment J3: Rubber Table 3 : Financial Performance: Smallholder New Rubber (1998 Prices) Attachment 4: Rubber Table 4 : Financial Performance: Smallholder New Rubber (Long Run Prices) Attachment J5: Rubber Table 5 : Economic Performance: Smallholder New Rubber (Long Run Prices) Attachment Ki: Coffee Table 1 : Physical Performance Per Ha: Coffee Smallholder Attachment K2: Coffee Table 2 : Coffee Smailholder Input and Output Prices (1998 Constant Terms) Attachment K3: Coffee Table 3 : Financial Performance: Coffee Smallholder - 1998 Price Levels Attachment K4: Coffee Table 4 : Financial Performance: Coffee Smallholder - 2010 Price Levels Attachment K5: Coffee Table5 : Financial Performance: Coffee Smallholder - At Projected Long Run Prices Attachment K6: Coffee Table 6 : Economic Performance: Coffee Smallholder- At Projected Long Run Prices Attachment K7: Coffee Table 7 : Economic Performance: Coffee Smallholder - 2010 Price Levels Attachment LI: Mango Table I : Physical Performance: Smallholder Mango Attachment L2: Mango Table 2 : Prices: Smallholder Mango Attachment L3: Mango Table 3 : Financial Performance: Smallholder Mango (1998 Prices) Attachment L4: Mango Table 4 : Financial Performance: Smallholder Mango (Long Run Prices) Attachment L5: Mango Table 5 : Economic Performance: Smallholder Mango (Long Run Prices) Attachment MI: Banana Table1 : Physical Performance: Lactan Banana Attachment M2: Banana Table 2 : Smallholder Banana Prices Attachment M3: Banana Table 3 : Financial Performance: Smallholder Bananas - 1998 Real Prices Attachment M4: Banana Table 4 : Financial Performance: Smallholder Bananas - Long Run Prices Attachment M5: Banana Table 5 : Economic Performance: Smallholder Bananas - Long Run Prices -100- Attachment A Attachment A, Table 1: Annualized Budgets in 1998 Currency Terms (Using 10% OCC for discounting) Table Economic Prices (LR) Financial Prices (LR) Financial Prices (98) Hybrid Coconuts Pesos US$ Pesos US$ Pesos US$ Sales 18,642 466 18,102 453 21,509 538 Development Cost 1,837 46 2,517 63 2,519 63 Operatng Cost 4,440 111 6,043 151 6,049 151 Margin 12,365 309 9,542 239 12,941 324 Tall Coconuts Sales 8,927 223 8,662 217 9,519 238 Development Cost 1,627 41 2,534 63 2,326 58 Operating Cost 2,263 57 3,117 78 3,12i 78 Margin 5,036 126 3,011 75 4,067 102 Oil Palm (Aua 98 WB Price Proil Sales 23,635 591 22,846 571 46,126 1,153 Development Cost 3,700 93 4,285 107 5,040 126 Operating Cost 8,711 218 11,855 296 12,092 302 Margin 11,223 281 7,072 177 28,994 725 Oil Palm (Mission LR Price Prxo Sales 31,061 777 30,323 758 46,126 1,153 Development Cost 3,700 93 4,285 107 5,040 126 Operating Cost 8,711 218 11,855 296 12,092 302 Margin 18,649 466 14,183 355 28,994 725 Rubber Sales 21,361 534 20,475 512 16,544 414 Development Cost 2,968 74 4,310 108 4,314 108 Opera0ing Cost 8,479 212 11,585 290 11,743 294 Margin 9,915 248 4,580 115 487 12 Coffee Sales 45,545 1,139 45,494 1,137 51,892 1,297 Development Cost 6,938 173 9,112 228 9,112 228 Operating Cost 16,488 412 22,214 555 22,277 557 Margin 22,119 553 14,168 354 20,503 513 Mano Sales 32,132 803 38,713 968 46,186 1,155 Development Cost 1,655 41 2,551 64 2,553 64 Operating Cost 10,932 273 13,651 341 13,720 343 Margin 19,545 489 22,511 563 29,913 748 Banana (Lacatan) Sales 43,695 1,092 52,146 1,304 82,291 2,057 Development Cost 6,127 153 7,763 194 7,764 194 Operating Cost 21,076 527 27,889 697 27,890 697 Margin 16,493 412 16,494 412 46,638 1,166 Com (2 Croos) Sales 10,853 271 15,000 375 15,000 375 Operating Cost 9,468 237 13,816 345 13,816 345 Margin 1,385 35 1,184 30 1,184 30 Rainfed Rice (2 CroDs) Sales 25,000 625 32,000 800 32,000 800 Operating Cost 20,827 521 28,700 718 28,700 718 Margin 4,173 104 3,300 83 3,300 83 Attachment B Tab!c 2 ___________ _______ ~~Attachment B, Table 2: Summary of Investment CotsPesolha Oil Palm ___Rubber YEAR ~ ~~~1 21 3 TOTAL I1 21 31 4~ 5L 6 TOTAL Labor 8,500 5,000 5,000 118,500 12,000 3,500 4,000[ 3,000 3,000 3,000 28,500 In Field Roads 7,500 7,500 __ Direc Materials Plantirng Materials 10,360 10360 7,500 _ 70 Fertilizer 1,998 2,663 3,954 8,615 2,663 2,663 3,954 -9,281 Chemficals 1,000 1,000 1,000 3,000 __ Farm Tools 500 250 250 1,000 250 250 250 _ _ ____ 750 -Sub Total Direc Materials 13,858 3,913 5,204 22,975 10,413 2,913 4,204 - -17,531 Supervision Fee 2,236 891 1,020 4,147 2,241 641 820 ___ ___ ___ 370-3 DEVELO~PMENT COST 32,093 9,805 11,224 53,122 ____ 24,655 7,055 9,024 3,000 3,000 3,000 49,734 ______________ ~~~~~Hybrid Coconuts _____ ___Local Tall Coconuts YEAR _______________ ____ 2 3 ~ 4 TOTAL __ _ __ _ 21 3_ 4 ____ b TOTAL INPUT _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Labor ~~~~~~6.000 1,000 1.500 1,500 10,000 __ __ 6,000 -1,500 1,500 1,500 1 500 1,500 13,500 - Direct Materials _ _ _ _ _ Planting Materilts 5,0051 __ __ __ 5,005 __ __ 1,500 __ 1 -1,500 - Fertilizer 930 1,394 1,855 3,701 7,879 __ __ 650 97 1,300k 2,600 1,950 1,950 9,425 1Herbicide 399 399 39 399 1,596 ___- - I__ ____ Farm Tools 800 300 30 300 1,700 11,175 39__ 500 300 300 300 30 0 2,000 Sub Total Direct Materials 7,134 2,0931 2,554 4,400 16,180 __ __ 2,650 1,275 1,600 2,900 2,2_0 2,250 12__ 925_ ~Supervision Fee 1,313 -309 405 590 2,618 86 78 30 4 35 375 2,643 -i 303 __ DEV~ELOPMENT COST 14,447 3,403 14,459 i 6,490 28,798 __ __ 9,515 3,053 3,4`10 4,840 4,125 I 4,125 29,068 Coffee Banana Mango.- Small holder YEAR I~~~ 2 *TOTAL TOTAL (Yrl1) l 2j 3___ 4 5, 6 7 TOTAL ~Labor 10,600 5,900 18,500 7,350 5,000 ,4,000 4,000 4,00 4000 4,000 4,000 29,000 VDirc Materials __ ____ ____ i__ IPlan*n Materials 17,000 17,000 18,000 _ 1,500 _____11,500 Fertilizer 6,597 9,824 16,421 12,469 __ 390 390 388 3851 383 380 378 2,693 Insecticide 600 600 11,200 150 'Fungicide 250 250 500 _ __ ____ ____ 1 Weedicide 1,600 1,600 3,200 __ 2.000 ___ _____ ___ FFarm Tools& Sacks 270 40 310 __ 1,200 250 50 50 50i 5 50 50 550 Sub Total Direct Materials 26,317 -12,314 38,631 33,819 2,140 440 438 435] 433 430 428 4,743 IDEVELOPMENT COST 36,917 18,214 55,131 41,169 710 4440 4,438 4,435 4,433 4,430 4,428 33,743 Attachment C -102- Attachment C. Table 3: Summar of Financial and Econo Characteri Q _ of Different Oil Palm Rubber Coconuts Coconuts Coffee Mango Banana Rice Com Hybrid Local _ _ Rainfed Two Crops Development US$ Cost/ha 1,328 1,243 720 727 1,378 844 1,029 0 ( Years of Development Period 3 6 4 6 2 7 1 1 1 First Year in Which Annual Cash Flow Breaks Even 4 9 5 7 3 8 2 1 1 Annualized Financial Margin98 Prices (US$/ha) 725 12 324 102 513 748 1,166 83 30 Annualized Financial Margin LR Prices (US$/ha) 355 115 239 75 354 563 412 83 30 Annualized Economic Margin LR Prices (US$/ha) 466 248 309 126 553 489 412 104 35 Base FRR'98 Financidal Prces 39% 10% 36% 18% 50% 41% 136% Base FRR Long Run Financial Prices 32% 16%1. 32% 21% 43% 37% 63% Base ERR Long Run Prices 38% 23% 42o 27% 66% 41% 75% Labor Days/ha at Full Developmentincl Harvesting 95 156 65 48 163 67 117 198 115 Average Discounted Retum per manday (US$/md) 6.78 3.58 7.65 4.73 5.35 13.70 6.51 2.56 2.32 Retum per manday during mature period (US$/md) 9.20 5.15 10.55 8.70 8.48 23.28 9.18 2.56 2.32 Farm Gate Costs and Prices Per Ton FFB 21% DRC Copra 6% Copra 6% Gr Beans Mango Banana Palay Com Economic Cost of Production LR US$/ton (OCC=10%) 27.5 375 95 121 65 96 45 130 79 Economic Farm Gate Prices (US$Iton) 1998 98.8 561 330 330 1540 291 115 180 88 2010 67.8 711 264 264 1050 244 73 156 91 Financial Cost of Production LR US$/ton (OCC=10%) 35.8 530 130 175 920 123 59 180 115 Financial Farm Gate Prices (US$1ton) _ _ 1998 102.0 537 322 322 1525 350 137 200 125 2010 62.5 685 256 256 1009 293 87 200 125 Yield - Base Case (Peak years av kglha) 19,000 1,710 3,028 1,900 1,305 7,400 20,230 2,000 1,500 Minimum Yield Needed for 15% ERR (kglha) 8,400 1,168 1,185 1,050 710 3,200 13,100 1,753 1,367 Minimum Yield Needed for 15% FRR (kg/ha) 11,400 1,670 1,665 1,600 945 3,500 14,300 1,890 1,451 Max yield change for FRR & ERR to still exceed 15% -40% -2% -45% -16% -28% -53% _29% % 3% Attachment O Table 4 -103- Attachment D, Table 4:. Summary of Potential Grants (Pesoslha) Three Years Investment _ Three years grant Rubber _ _ __| YEAR 1 2 3 TOTAL %Grant 1 2 3TOTAL INPUT _ Labor 12,000 3,500 4,000 19,500 50% 6,000 1,750 2,000 9,750 Sub Total Direct Materials 10,413 2,913 4,204 17,531 100% 10,413 2,913 4,204 17,531 Supervision Fee 2,241 641 820 3,703 100% 2,241 641 820 3,703 DEVELOPMENT COST 24,655 7,055 9,024 40,734 18,655 5,305 7,024 30,984 Hybrid Coconuts YEAR 1 2 3TOTAL % Grant 1 2 3 TOTAL INPUT Labor 6,000 1,000 1,500 8,500 50% 3,000 500 750 4,250 Sub Total Direct Materials 7,134 2,093 2,554 11,780 100% 7,134 2,093 2,554 11,780 Supervision Fee 1,313 309 405 2,028 100% 1,313 309 405 2,028 t~~~ _ I _ DEVELOPMENT COST 14,447 3,403 4,459 22,309 11,47 2,903 3,709 18,059 Mango/Fruit trees _ I _ _ YEAR 1 2 3 TOTAL % GrantI 1 2_ 3lTOTAL INPUT _ _ _ _ _ _ Labor _. L5,000 4,000 4,000 13,000 50%' 2,500 2,000 00 Sub Total.Direct Materials 2,140 440 438 3,018 100%1 2,140 440 438 3,018 I~~~~~~~~___ I__ I0% 2,4 44 438 I 3,1 DEVELOPMENT COST 7,140 4,440 4,438 16,018 | _ 4,640 2,440 2,438 9,518 Annual Cost to Govemment (Pro Active) (P Million) _ _ _ I _ Anua Cos to T_ _ I I . Area/yr 20001 2001_ 2002_ 2003_ 1 Rubber 10,000 187 240 310 310 _ ' | _ Coconut 40,000 458 574 722 722 _ _ _ _ Mango/Fruit Trees 35,000 162 248 333 333 _ _ ___ ________________ 85,000 807 1,061 1,365 1,365 _ _ _ _ _ Annual Cost to Govemment (Active) (P Million), _ _ _ ____I __ Arealyr 2000 2001 2002 2003 | I Rubber 3,000 56 72 93 - 93 ______I bCoconut 30,000 343 430 542 542 ______ Mango/Fruit Trres 27,500 128 195 262 262 1___I_I ____________________ ______ 527 697 896 896 _ _ . Attachment E. Table 5: Summary of Investment cost of Different Crops Oil Palm Rubber Coconuts Coconuts Coffee Mango Banana Assumed Local Hybnd I Labor % Labor 18,500 28,500 13,500 10,000 16,500 29,000 7,350 100% In Field Roads 7,500 - - - - - - 50% Direct Materals Planting Matenals 10,360 7,500 1,500 5,005 17,000 1,500 18,000 70% Fertilizer 8,615 9,281 9,425 7,879 16,421 2,693 12,469 o0%0 Chemicals 3,000 - - 1,596 4,900 - 2,150 0% Farm Tools 1,000 750 2,000 1,700 310 550 1,200 30% Sub Total Direct Matenals 22,975 17,531 12,925 16,180 38,631 4,743 33,819 Supervision Fee 4,147 3,703 2,643 2,618 90% DEVELOPMENT COST 53,122 49,734 29,068 28,798 55,131 33,743 41,169 _ Average 2 Average 3/ Percentage Direct Labor 35% 54% 25% 19% 31% 55% 14% 26% 29% Percentage Indirect Labor 28% 18% 14% 22% 22% 4% 31% 24% 21% Non Labor element 37% 29% 61% 59% 47% 42% 55% 50% 49% Percent Purely Outside Sector 1/ 7% 2% 320% 33% 39% 8% 36% 29% 26% Investment Weighting 2/ 7% 2% 3% 11% 14% 15% 47% 100% Investment Weighting excl Cavendish 3/ 9% 3% 4% 14% 18% 20% 31% 100% 1/ Fertilizer & Chemicals only 2/ Average based on 'Active Development' scenario - all Tree crops > 3/ Average based on 'Active Development' scenario - excludes Cavendish Banana. _ _ rn 105- Attachmncit Fi Corn anid Rice T able I Attachment Fl: Corn and Rice Table I FINANCIAL PERFORMANCE: CORN & RAINFED RICE AT LONG RUN PRICES CORN UNIT QUANTITY UNIT PRICE COST (Plha) Pesos Land preparation contract 1,200 Seeds kg 18 6 108 Fertilizer Complete 50-kg bag 1 400 400 Urea 50-kg bag 1 450 450 Threshing and Harvesting 10 % of prod 750 Total labor man-day 50 80 4,000 Interest Expense 308 TOTAL COST 7,216 PRODUCTION kg 1,500 5 7,500 NET INCOME 285 Plus: Imputed value of family labor 4,285 RAINFED RICE UNIT QUANTITY UNIT PRICE COST (P) Land preparation contract 3,000 Seeds kg 90 10 900 Fertilizer. Complete 50-kg bag 2 400 800 Urea 50-kg bag 1 450 450 Agrochemicals assorted 1 800 800 Threshing and Harvesting 15 % of prod 2,400 Total labor man-day 75 80 6,000 Interest Expense 758 TOTAL COST 15,108 PRODUCTION kg 2,000 8 16,000 NET INCOME 893 Plus: Imputed value of family labor 6,893 Interest expense Is 15% of the total value of land preparation, fertilizers and chemicals. There are two croppings per year. Either rice-com, rice-rice or com-corn. For Comparison with Annualized Tree Crops (2 CroDsNear) Corn Rainfed Rice Annual Sales 15,000 32,000 Labor 8,000 12,000 Other Costs 5,816 16,700 Total Operating Costs 13,816 28,700 Margin before Finance Charges 1,184 3,300 Retum per man day 92.90 101.52 Attachment F? -107- Corn and Rice Table 2 Attachment F2: Com and Rice Table 2 ECONOMIC PERFORMANCE: CORN & RAINFED RICE AT LONG RUN PRICES CORN Financial Economic UNIT QUANTITY UNIT PRICE CF UNIT PRICE COST (P/ha) Pesos Land preparation contract 1 1200 0.83 996 996 Seeds kg 18 6 0.83 5 90 Fertilizer Complete 50-kg bag 1 400 0.83 332 332 Urea 50-kg bag 1 450 0.83 374 374 Threshing and Harvesting 10 % of prod 543 Total labor man-day 50 80 0.60 48 2,400 TOTAL COST 4,734 PRODUCTION kg 1,500 5 0.72 3.62 5,427 NET INCOME 693 Costof Prod 3.16 RAINFED RICE UNIT QUANTITY UNIT PRICE COST (P) Land preparation contract 1 3,000 0.83 2,490 2,490 Seeds kg 90 10 0.83 8 747 Fertiizer Complete 50-kg bag 2 400 0.83 332 664 Urea 50-kg bag 1 450 0.83 374 374 Agrochemicals assorted 1 800 0.83 664 664 Threshing and Harvesting 15 % of prod 1,875 Total labor man-day 75 80 0.60 48 3,600 TOTAL COST 10,414 PRODUCTION kg 2.000 8 0.78 6.25 12,500 NET INCOME 2,087 Cost of Prod 5.21 For Comparison with Annualized Tree Croos 12 CrornlYear) Corn Rainfed Rice Annual Sales 10,853 25,000 Labor 4,800 7,200 Other Costs 4,668 13,627 Total Operating Costs 9,468 20,827 Margin before Finance Charges 1,386 4,173 Retum per man day 61.86 75.82 Long Run Economic Prices (Import Parity) Assume Mindanao Production (1 998 Prices USS$ton) Rice Com Fob Bangkok 278 100 Quality Duf (28) Freight 30 30 Manila Price 280 130 Convert to Pesos 11.20 5.20 Davao Manila Freight 1.08 1.08 Ex Davo Price 10.12 4.12 Net Trading/Milling Cost 0.50 0.50 Convert to Palay (65%) 9.62 Ex Farm Price 6.25 3.62 Attachment F3 Corn Table 3 -108- Attachment F3: Corn Table 3 ESTIMATED COST OF PRODUCTION PER HECTARE OF CORN ACTIVITIES MAN-DAYS MAN-ANIMAL DAYS LABOR Land Preparation Plowing contract Harrowing contract Furrowing 2 Basal fertilizing 2 Planting 6 1st spraying 2 Off-barring 2 Weeding 10 Side dressing 1 Hilling-up 5 2nd spraying 3 Harvesting Post-harvest operaton (hauling, shelling, drying) MATERIAL INPUTS Seeds 20 Fertilizer Complete (50-kg bag) I Urea (50-kg bag) I Chemicals Empty sacks 60 PRODUCTION 3000 Attachment G1: Hvbrid Coconut Table 1: PHYSICAL PERFORMANCE: SMALLHOLDER HY8RID COCONUT YEAR UNIT 1 2 3 4 5 6 7 8 9 I 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INPUT Drd Labor Cultural mandays 60 10 15 15 15 12 12 12 12 12 12 12 12 12 12 12 12 12 12 122 12 12 12 12 12 Direct Materials Planfing Materials 143 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fertlizer Ammonium Sulphate kg 72 107 143 286 215 215 215 215 215 215 215 215 215 215 215 215 215 215 215 215 215 215 215 215 215 Murtateof Potash kg 72 107 143 286 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 SodiumChloride kg 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 Solophos kg 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 143 Herbcide lter 1.5 1.5 1.5 1.5 - - - - - - * - Farm Tools pesos 800 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 Supervision Fee Percent Cost 10% 10% 10% 10% Harvestng KG Nuts 0 0 0 0 4,750 11,150 11,750 13,150 15,000 17,500 16,000 16,000 16,000 16,000 16,000 14,000 14,000 14,000 14,000 14,000 10,000 10,000 10.000 10,000 10,000 Mariu Copra Kg Copra 0 0 0 0 950 2,230 2,350 2,630 3,000 3,500 3,200 3,200 3,200 3,200 3,200 2,600 2,800 2800 2,800 2,800 2,000 2,000 2,000 2,000 2,000 OUTPUT Copra (Resecada - 6% MC) Copra kg 0 0 0 0 950 2,230 2,350 2,630 3,000 3,500 3,200 3,200 3,200 3,200 3,200 2,800 2,800 2,800 2.800 2,800 2,000 2,000 Z000 2,000 2,000 i C '. -'. Attachment 02: Hybrid Coconut Table 2: SMALLHOLDER COCONUTS (HYBRID) PRICES Assutmed FX Rate Peso$ 40 YEAR UNIT Financial ECF Economic Financial ECF Econ Price Price EoDn Price Price world Price INPUT 19tt 2010 Charge O10 Dre4tLaborrCost mandays 100.00 0.6 60.00 t00.00 0.7 70.00 DrwcMsait ls Cost Plinb g Miaterials piee 35.00 0.83 29.05 35.00 0.83 29.05 Fertilirr WiP as % Cost AorrroniumSulphate Phg 5.00 0.83 4.15 5.46 0.83 4.53 11% 85% Mudsle otfPutosh PAh 8.00 0.83 6.64 7.21 0.63 5.98 -12% 80% Sodilum Chrordet PAst 3.00 0.83 2.49 3.00 0.83 2.49 90% Soloptos Phkg 5.00 0.83 4.15 5.00 0.83 4.15 75% Herbicde 266.00 0.83 220.78 266.00 0.83 220.78 Farm Tools assorted 1.00 0.83 0.83 1.00 0.83 0.83 Supevislon Fee Percent 0.10 0.83 0.00 0.10 0.83 0.08 Hanra6ting PMg Nuts 0.20 0.6 0.12 0.20 0.7 0.14 Making Coora Phtt 0.75 0.6 0.45 0.75 0.7 0.53 OUTPUT Copra (Resecada - 6% MC) Kg Copra 12.86 13.18 10.22 10.55 Copea Prce Calculations In Contnt 18S8 Tenre 199tt Intemaiionat Fiancial ECF Econorric VWrt Prie CcceonU 0at S0.64 25.60 1.00 25.80 Fretht 60.07 2.80 1.00 2.80 E Davan Price 22.00 1.00 22.80 PROcaSgkr Cost 1.11 0.83 0.92 Add back Vale of Copra Meal (311% 2,000) 0.62 1.00 0.62 Int% mittVaue 22.31 22.50 Cora)l0 Rab 63% 63% CopreVaiueat-me 14.06 14.17 TressoIrt&TradkVrMargin s 1.20 0.83 1.00 Ex Farm ValkeaResecada(6%) Copra 12.86 13.18 ExfarmPdoe(15% MC) 11.62 11.92 2010 (on 1199t eestan pDces) international Fnacal ECF t-conormic Word Prioe Coconut 0D av $0.54 21.42 1.00 21.42 FreigM 60.07 2.80 1.00 2.80 ExhDaoPrice 18.62 1.00 18.62 ProressingCost 1.11 0.83 0.92 Add bacir Value ofCopra Meal)31% 2,DDO) 0.62 1.00 0.62 Into Mi Vaie 18.13 18.32 CopraOl Ratio 63% 63%> CoprsVakaatMAt 11.42 11.54 Transport & TradinV Margins 1.20 0.83 1.00 3 Er FaValue Resacada (6%) Copra 10.22 10.55 E Farm Pdce (15% MC) 9.24 9.54 av Export price Rosterdam bulk (VVB Commodrty Markets August 1998) - r. achment 03: HybId Coconut 71T 3.: FINANC41. PERFORMANCE: SMALLHOLDER COCONUTS- HYBRIDS -191,8 REA PRICES (Pesnta IsssCnWntPdice Temis) YEAR PV 1 2 3 4 5 8 7 a 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 *30 INPUT 0ud> 16.127 6,000 1,o0o 1,50 1,500 1,50 1.200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1.200 1,200 1,200 1,200 1,200 1,20D 1,200 1,200 1,2D0 1,200 1,200 Diroct M*insa Aa guflt 4,550 5,005 - - - . . - . * * * * * . * . * Fiikra Awmnnnn hAt 3618 358 530 715 1,430 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 1,073 Mtb a aatPt 10,409 572 58s 1,144 2,200 1,144 1,144 1.144 1,144 1,144 1,144 1,144 1,144 1,144 1,144 1,144 1,144 1,144 1,144 1,144 1,14 1,144 1,144 1,144 1,144 1,144 - SOdN d Z534 * - - 429 429 429 429 429 429 429 429 429 429 429 429 429 429 429 429 429 429 429 429 429- Sd*o 4,224 - . - - 715 715 715 715 715 7 715 715 7 715 715 715 715 715 715 715 715 715 715 715 715 - mat. 1,265 399 399 399 399 - - - - - - - - - - - - - - - - - Fusm Tc.* 3,283 000 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 suswiaFo 2,159 1,313 309 406 592 Hstgt 15,773 0 0 0 0 950 230 2350 Z630 3,000 3,500 3,200 3,200 3,200 3,200 3,200 tsDD 2,800 2t.o8 2,00 2,8o 2,000 2,000 2O,O 2,000 ,000 1,500 MtirgCqne 11,030 0 0 0 0 713 1,673 1,763 1,973 2,200 2,625 2,400 2,400 2,400 2,400 2,400 2,100 2,100 2,100 2,100 2,100 1.500 1,500 1,5W0 1500 1,500 1,125 DEVELOPMENT COST 23,745 14,447 3,403 4,404 6,509 OPERATING COST 57,025 0 0 0 0 6,823 B,763 8,973 9,463 1,111 10,96 10,461 10,461 10,461 10,461 10,461 9,761 9,761 9,761 9,761 9,761 8,361 8,361 8,361 8,361 8,301 4,125 TOTALCOST 80,770 14,447 3,403 4,464 6,509 6,823 8,763 8,973 9,463 10,111 10,980 10,401 10,461 10,461 10,461 10,481 9,761 9,761 9,761 9,761 9,761 8,361 8,361 8.361 8,361 8,361 4,125 OUTPUT Copra (Resecada - 6% MC) kg 0 0 0 0 950 2,230 2,350 2,630 3,000 3,500 3,200 3,200 3,200 3,200 3,200 2800 2,80 2,800 s Z0 2800 2,0 2,000 2,000 2,0 0C 2,00 1,s Coora(Resecada-6%MC) 202,763 0 0 0 0 12,213 28,657 30,210 33,809 30,586 44,994 41,137 41,137 41,137 41,137 41,137 35,995 35,995 35,995 35,995 35,995 25,711 25,711 25,711 25,711 25,711 19,203 CASH FLOWBEFORE FINANCING (14,447) (3,403) (4,484) (6,509) 5,390 19,904 21,237 24,346 28,455 34,D08 30,676 30,676 30,676 30,676 30,676 20,234 26,234 26,234 26,234 26,234 17,350 17,350 17,350 17,350 17,390 15,158 Intemal Rate of Rtotim at 1998 pries 36% COST OF PRODUICTION tfes PvIt,O',A PV C ld 10% 15,246 79,327 Lo Yield - Prcent BAse Case 100% Av Yied Yeaos 7-16 3,028 ¼ > oC, R U4 0:r ASachmia 04: Nobd CoeautiTthO: FI NANCIAL PERFORMANE: SMALLNOLDER COCONUTS .907Y910 - LONG RUPIKE (PON"sht A n & 100 W Pe"COTURN) YEAR PV 0 2 3 4 5 a 7 a 0 10 I01 12 12 14 15 1o 17 10 10 20 21 22 23 24 25 26 27 cwmw ifi~10.27 60,00 1,000 IS A 1,500 1,0 i,0 0,200 1,200 1,200 1,200 1,200 1,200 1,290 1,200 1,20 1,200 1,200 1,200 120 1,200 1,200 1,200I= 1,200 i,200 1,200 1,200 1,200 1,200 PISIMOIIS 4.550 5,005 0 0 0 0 0 0 0 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - AIIUim u*IIIJII 0,001 358 530 721 i,454 1,00 .00 1,1010ll 1,127 0,130 1,145 1,154 1,103 1,172 1,172 1,172 1,172 i1.72 1,172 1.172 1.12 1,72 1,172 1,112 1,172 1,172 - - WI d McPc0ad, 0,001 572 050 1,134 2,247 1,113 1.103 1,002 1,002 1,072 t0,0i 1,050 1,040 1,031 1,030 1,031 1.031 1,031 1,030 1,021 1,031 1.031 1,031 1,021 1,031 1,031 Soim ChOrW*d 2,534 . - - 420 420 420 420 429 40 420 429 429 42 0 420 42 9 429 420 42 0 42 9 420 42 9 420 42 0 420 42 SoIqAcs ~~~~~~4,224 715 715 70 5 705 715 70 5 705 715 715 715 70 5 715 705505715 710 75 710 75 715 70 75 705 HetIcids 1,205~~~~I'n 309 309 300 3900 FanmTook 3,203 800 300 300 300 300 300 300 300 300 300 300 300 300 300 3 300 300 300 3 300 300 a w 300 300 300 300 300 300 Sqpwdw Fe. 2,151 1,313 309 405 590 No-wq 152773 0 0 0 0 050 2,230 2,200 2,030 3,000 3,500 3,200 3,200 3,200 3.200 3,200 2,900 2,00 2,000 2,60 2,800 2,O00 2,0O0 2,000 2,000 2,000 isco0 osco uA,Oce. 11,030 0 0 0 0 713 1.673 1,743 0,073 Z2,20 2,025 2,400 2,400 2,400 2,400 2,400 2,0 3,100 2,100 2,100ZI 2,100 0,0 0,500 1,500 1,500 0.500 1,125 1,025 DEVELOPI.NT COST 23,728 14$?4 3,403 4,460 6,490 OPERATNONCOST 50,005 0 0 0 0 4,819 0,750 0,007 9,455 10,102 10,975 10,449 15,440 00,440 15,444 00,444 0,740 0,740 9,740 9,740 0,744 8.40 0,340 0,344 0,348 8,34 04,25 4,025 TOTAL COST 00,600 14,447 3,403 4,45 6,490 6,019 9,70 0,007 0.455 10,002 00,070 10,440 10,440 00,444 15,448 10,446 0,740 9,740 0,746 0,745 9.740 8.348 8.344 0,344 0,344 0,340 4,125 4,125 OUTPUT - Ccprip.m im. 6%WMC) kg 0 0 4 0 0 00 2,200 2,300 2,603 3,000 3,500 3,200 3,200 3,200 3,200 3,200 2,900 2,80 ,00 2,000N 2,000 2,00 Z000 Z000 2,000 2,000 1,500 0,5000 Cop)OuR-cuds-.0% It) 170,644 0 0 0 0 11.530 20,532 27,300 30,033 33,540 30,202 34,244 33,470 32,702 32,702 32,712 20,623 28,033 20,023 30,023 20,023 20,446 20,446 20,445 20,445 20.445 15,334 15,330 CAS94FLOWIOEFOtE FO0OIO4 (14,44T) (3,403) (4,450) (0,400) 4,711 17,775 19,430 20,517 23,438 27,307 23,700 23,030 22,200 222M 22,20 10,077 10,77 10,077 18,977 10,877 12,009 12,000 02,000 12,009 12,009 11,200 11,209 MouudRaft*RbnatPmtje PdmFcu 32% COST OF PRODI3ICTION4 Diout OS vnm.aoa4 Poc C*Voftan.fh 10% 00,240 79,35 530 SonmowyoOSomNtofFOR0 YielMd adRuM FouaLtorCotlwueu R.5 Wege Qmo lpa -2% 0% 2% 4% 0% IO% 0000 2% - I -* vM - - of 05O 14% 12% 0% tugS.t rugS. nqagS 2000 22% 20% 17% 14% 4% nogS. 3020 33% ~ 30% 20% 24% 00% 3500 37% 30% 35% 33% 20% 24% Thld-Po.uOMCMOu 100% Av YOU Yen7-16 3,028 SUui*iwly t OSW boo. In FmuolS Cogod bof 1 GwhiROWl Wepep.s. 0% wag" EscuIok% 0% 0% 0% 0% 0% 0% 0% 0% 0%A 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% A% 0% 0% 0% A4ouk Culh Flow )14,447) (3,403) (4,459) (0,400) 4,700 07,775 00.430 20.577 23,438 27,317 23,705 23,030 22,264 22,200 22,20 10,077 00,977 10,877? 00,977 09,077 12,00 12,000 02,009 12,090 13,000 10,300 11,20 > FOR 32.3% CY'< 0C, Annex 9 Aftchment G5: Hybrid Coconut Tableb ECONOMIC PERFORMNCE: SMALLHOLDER COCONUTS . HYBRIDS ILONG RUN PRICES) Mba 1998Constart Price Terms) I PV 1 2 3 4 5 6 7 8 9 10 I1 12 13 14 15 16 17 18 19 20 21 22 (Occ-lo%) ct Labor Cultwal 10,263 3,600 600 914 927 941 764 775 785 796 807 818 829 840 840 840 840 840 840 840 840 840 840 dt Materials Planbing Maeals 3,777 4,154 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Ferlizw Amnuimu Sulphate 7,521 297 445 598 1,207 913 920 928 935 943 950 958 965 973 973 973 973 973 973 973 973 973 973 Multeof Potash 8,209 475 712 941 1,865 924 915 907 898 890 881 872 864 855 856 855 855 56 855 855 855 855 855 Sodum Chbdde 2,103 - - - 356 356 356 356 356 356 356 356 356 356 356 356 356 356 356 356 356 356 Soophos 3,506 - - 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 593 Herbicide 1,050 331 331 331 331 mn Tools 2,725 664 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 erision Fee 1,327 790 194 252 380 vesing 10,684 0 0 0 0 596 1,419 1,517 1,721 1,991 2,355 2,182 2,211 2,240 2,240 2,240 1,960 1,960 1,960 1,960 1,960 1,400 1,400 king Ccpra 8,013 0 0 0 0 447 1,064 1,138 1,291 1,493 1,766 1,636 1,658 1,680 1,680 1,680 1,470 1,470 1,470 1,470 1,470 1,050 1,050 LOPMENT COST 17,321 10,311 2,531 3,285 4,959 ATINGCOST 41,855 0 0 0 0 5,019 6,281 6,462 6,830 7,311 7,957 7,665 7,726 7,786 7,786 7,786 7,296 7,296 7,296 7,296 7,296 6,316 6,316 LCOST 59,176 10,311 2,531 3,285 4,959 5,019 6,281 6,462 6,830 7,311 7,957 7,665 7,726 7,786 7,786 7,786 7,296 7,296 7,296 7,296 7,296 6,316 6,316 UT ra (Resecada - 6% MC) kg 0 0 0 0 950 2,230 2,350 2,630 3,000 3,500 3,200 3,200 3,200 3,200 3,200 2,800 2,800 2,800 2,800 2,800 2,000 2,000 fa(Resecada-6% MC) 175,737 0 0 0 0 11,837 27,252 28,156 30,882 34,508 39,422 35,277 34,511 33,745 33,745 33,745 29,527 29.527 29,527 29,527 29,527 21,091 21,091 FLOW BEFORE FINANCING (10,311) (2,531) (3,285) (4,959) 6,818 20,971 21,695 24.052 27,197 31.465 27,612 26,785 25,959 25,959 25,959 22,231 22,231 22,231 22,231 22,231 14,774 14,774 mal EcoDnomic Rate of Retum at Prcjedad PIces 42% COST OF PRODUCTION bocc* PVWo,*O PV 0..a 10% 15,248 58,152 3.81 Summary of SenstIvity of ERR to Yield and Real Economic Labor Cost lnceae . Rea Wages Growth p.a -2% 0% 2% 4% 6% 10% Peak Yield (kg/ha) 1000 11% 9% negative negative negative negatbe > 1400 22% 20% 17% 14% negative negative = 2 2000 31% 30% 28% 27% 26% negative 3028 43 #_ 41% 40% 39% 36% -3 3500 46% 45% 44% 43% 41% 39% vC) Attohment HI: Tall Coconut Table 1: PHYSICAL PERFORMANCE: SMALLHOLDER LOCAL TALL IHedar Planing YEAR UNIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INPUT Direc Labor Cuitural mandays 60 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 155 1 5 15 IS 15 15 15 15 Oirer Matedals Plantirg Materials 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Ferblizer AmmonumSulphale kg 50 75 10W 200 150 150 100 100 100 100 100 100 100 100 100 - - - - * - MurlateolPotash kg 50 75 100 200 150 150 100 100 100 100 100 100 100 100 100 SodiumChlorde kg 100 100 100 100 100 100 100 100 100 - - - - - - Srdophos kg 100 100 100 100 100 100 100 100 100 Herbidde liter - - Farm Tools pesos 500 3D0 3D0 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 Supervismion Fee Perment Cost 10% 10% 10% 10% Harvestng KG Nuts 0 0 0 0 0 0 4,000 5,000 7,500 9,000 10,000 10,0 10,0D0 10,0D0 10,000 9,000 9,000 9,000 9,000 9,000 6,000 6,000 6,000 6,000 6.0D0 MalingCopra KgCopra 0 0 0 0 0 0 800 1,0 1,5D0 1,800 2,000 2,0D0 2,000 2,0D0 2,000 1,800 1,800 1,0 1,800 1,800 1,2 ,200 1,200 1,200 1,200 OUTPUT Copra Coprakg 0 0 0 0 0 0 800 1,000 1,500 1,800 2,000 2,000 2,000 ZOO 2O,O 1,800 1,800 1,800 1,800 1,800 1,200 1,200 1,200 1,200 1,200 .4: '-1> 0~ cr Attachment H2: Tall Coconut Table t: PRICES: SMIALLI4OLDER LOCAL TALL Assumed FX Rate Peso4 40 YEAR UNIT Financial ECF Economic Financial ECF Econ Price Econ Price Price Price World Price INPUT 1998 2010 Change 98-10 Direct Labor Cost mandays 100.00 0.6 60.00 100.00 0.7 70.00 Direct Materials Cost Planbng Matedals piece 15.00 0.83 12.45 15.00 0.83 12.45 Fertilizer WP as % Cost Ammonium Sulphate P/hg 5.00 0.83 4.15 5.46 0.83 4.53 11% 85% MuriateofPotash Phkg 8.00 0.83 6.64 7.21 0.83 5.98 -12% 80% Sodium Chloride Phkg 3.00 0.83 2.49 3.00 0.83 2.49 90% Sohphos P/hg 5.00 0.83 4.15 5.00 0.83 4.15 75% Herbicide 266.00 0.83 220.78 266.00 0.83 220.78 Farm Tools assoded 1.00 0.83 0.83 1.00 0.83 0.83 Suparvision Fee Percent 0.10 0.83 0.08 0.10 0.83 0.08 Harvesting P/Kg Nuts 0.20 0.6 0.12 0.20 0.7 0.14 Making Copra Phkg 0.75 0.6 0.45 0.75 0.7 0.53 OUTPUT Copra Kg Copra 11.62 11.92 10.26 9.54 Copra Price CalculatIons In Conetbnt 1S98 Terms 1998 Intemational Financial ECF Economic Wodd Pdce Coconut 0l at $0.64 25.60 1.00 25.60 Freight $0.07 2.80 1.00 2.80 Ex Davao Pnce 22.80 1.00 22.80 ProcessingCost 1.11 0.83 0.92 Add back Value of Copra Meal (31% @ 2,000) 0.62 1.00 0.62 Into Mill Value 22.31 22.50 Copra/CJ Ratio 63% 63% Copra Value at Mill 14.00 1417 Transport & Trading Margins 1.20 0.83 1.00 Ex Farm Value Resecaoa(6%) Copra 12.86 13.18 Ex Farm Pdce (15% MC) 11.62 11.92 2010 (In 1998 consant pdces) Intemational Financial ECF Economic World Prce Coconut Oil al $0.54 21.42 1.00 21.42 Freight $0.07 2.80 1.00 2.80 Ex Davao Price 18.62 1.00 18.62 Proessing Cost 1.11 0.83 0.92 Add back Value of Copra Meal (31% @ 2,000) 0.62 1,00 0.62 Into Mill Value 18.13 18.32 > Copra/Ol Ratio 63% 63% = CopraValueatMill 11.42 11.54 Transpod & Tradig Margins 1.20 0.83 1.00 Ex Farm Value Resecada (6%) Copra 10.22 10.55 Ex Farm Price (15% MC) 9.24 9.54 r at Export price Rontrdam btk ( Ceodir Marets Auustt 99m) Attachment H13 -116- TaIl CoconutTable 3 _ .~ . o, .d ° ° a . .....,. ...... R a ~~~~~- , , to -N 0 ° .1 . § R§ ° E ! R o, . . . . g- _ .- - .ca _ 2 ,,.,, f I f . §. 8- R ~~~ a~~~.>g §1 8n °.* 1400 14% 12% 9% 2% negaotva nagaewiv 1900 21% fl 17% 14% 10% nagalive e) 2200 22% 21% 20% 18% 14% 3% ° r- 4- Attachment H5: Tall Coconut Table 5: ECONOMIC PERFORMANCE: COCONUTS LOCAL TALL (LONG RUN PRICES) (Pesostha 1998Constant Price Terms) YEAR PV 1 2 3 4 5 6 7 8 9 10 11 12 13 . 14 15 16 17 18 19 20 (OCC0o%) INPUT Direct Labor Cultural 11,658 3,600 900 914 927 941 955 968 982 995 1,009 1,023 1,036 1,050 1,050 1.050 1,050 1,050 1,050 1,050 1,050 Direct Matedals Planting Materials 1,132 1,245 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fertilizer Ammonium Sulphate 3,538 208 311 418 844 638 643 432 436 439 443 446 450 453 453 453 Murate of Potash 5,242 332 498 658 1,304 969 960 634 628 622 616 610 604 598 598 598 Sodium Chlide 809 - - - 249 249 249 249 249 249 249 249 249 Solophos 1,349 - - - - 415 415 415 415 415 415 415 415 415 Herblide - - - - - - Farm Tools 2,498 415 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 249 Supervision Fee 1,176 481 163 186 276 232 233 Harvesting 5,300 0 0 0 0 0 0 516 655 995 1,211 1,364 1,382 1,400 1,400 1,400 1,260 1,260 1,260 1,260 1.260 Making Copra 3,975 0 0 0 0 0 0 387 491 747 908 1,023 1,036 1,050 1,050 1,050 945 945 945 945 945 DEVELOPMENT COST 15,341 6,281 2,121 2,425 3,600 3.029 3,040 OPERATING COST 21,336 0 0 0 0 0 0 3,851 4,104 4,712 5,100 5,379 5,422 5,465 5,465 5,465 3,504 3,504 3,504 3,504 3,504 co TOTAL COST 36,677 6,281 2,121 2,425 3,600 3,029 3,040 3,851 4,104 4,712 5,100 5,379 5,422 5,465 5,465 5,465 3,504 3,504 3,504 3,504 3,504 OUTPUT Copra kg 0 0 0 0 0 0 800 1,000 1,500 1,800 2,000 2,000 2,000 2,000 2,000 1,800 1,800 1,800 1,800 1,800 Copra 84,151 0 0 0 0 0 0 9,585 11,742 17,254 20,274 22,048 21,570 21,091 21,091 21,091 18,982 18,982 18,982 18,982 18,982 CASH FLOW BEFORE FINANCING (6,281) (2,121) (2,425) (3,600) (3,029) (3,040) 5,734 7,638 12,542 15,174 16,670 16,148 15,626 15,626 15,626 15,478 15,478 15,478 15,478 15,478 Intemal Economic Rate of Retum at Projected Pries 26.7% COST OF PRODUCTION OarRW PVPkpui0O.W PV cOib Cot orPudrc 10% 7,440 35,879 4.82 Summary of Sensitivity of ERR to Yield and Real Economic Labor Cost Increases Real Wages Growth p -2% 0% 2% 4% 6% 10% Peak Yield (kgiha) > 1000 16% 14% 12% 6% negative negative 1400 22% 21% 19% 17% 13% negative o 3 1900 28% i 26% 24% 22% 12% 2200 32% 31% 30% 29% 28% 23% v, -119 - Attachment [1 Palm Oil Table I Ba . ° § ° N ~ G S § ¢ N ~ G W- ° §a_ C- 8§°Ra°t a-~~~~~~~~~~~~~~~~~~~~~~o . ~ ~ G _§~ ,§ n° °3 o ~ G -W° ° §4,oSo °~ ~~G S 0 S00a. ' 8 0 S . 0 ac G '°' ~J ~a ~~GaaGaa'a§ G Cm°-aS° - S i o°S s e °*4~ aR-° i , S 2S Attachment 12: Palm Oil Table 2: PALM OIL SMALLHOLDER ESTATE COOPERATIVE: INPUT AND OUTPUT PRICES (1998 Consant Terms) Assumed FX Rate Peso/$ 40 YEAR UNIT Finarclia ECF Eossnic Financial ECF Econ Prlke Price Ecron Pnc Price WoddPrice INPUT 1995 2010 Ch gane10 In field Roads meter 150.00 0,83 124.50 150.00 0.83 124.50 DOWe Labor Cost mandays 100.00 0.6 60.00 100.00 0.7 70.00 DiretMrials Cost Planing Matenias piece 70.00 0.83 58.10 70.00 0.83 58.10 Ferliw WP as % Cast 14-14-14 Phkg 8.88 0.83 7.37 7.87 6,53 -13% 85% 16-20-0 Phag 8.63 0.83 7.16 7.09 5.88 -22% 80% 000 PhK 7.82 0.83 8.49 6.95 5.77 -12% 90% 21-0 Phng 4.83 0.03 4.01 5.22 4.34 11% 75% KOsr Phg 3.45 0.83 2.86 3.45 28ii Weedicide 250.00 0.83 207.50 250.00 207.50 FarmTools asseded 1.00 0.83 0.83 1.00 0.83 0.83 S-Vison Fee Perent 0.10 0.83 0.00 0.10 0.83 0.08 OUITPUT Fresh Fruit Bunch FFB kg 4.08 3.95 2.28 2.53 PHim Oil Cetetione in Conxtant 1i9o Tem 1sea 2000 Inslnarnai Fisaciat ECF Ecornomic lemaiionai Fwcai ECF Economic Wed hlrlned S0.650 26.00 1.00 26.00 WcrrbsotI/ f0.548 21.92 1.00 21.92 Net Freight Dirrnce (50.015t (0.60t 1.00 (0.60) Net FreightD Dence (f0.015) (0.60) 1.00 (0.60) PrstCosts 1.00 0.83 0.83 PortCosts 1.00 0.83 0.83 IsfrstDuty ct 5% 1.27 -IsrpoDutyEffeco 5% 1.07 -i ValtlealManilaPrt 27.67 25.40 V3uaetMaena Port 23.39 21.32 TraeptMadia 1.30 0.83 1.08 Treanpmtet.itaa 1.30 0.83 1.08 O Mtdxke iing CosI ue on 15.0% 3.96 0.63 3.28 MateOngCodistibon 15.0% 3.51 0.83 2.91 MMi"gCoela(P80OanFF8) 2.00 0.83 2.37 MalsgCoso t"MMrFFB) 2.00 0.83 2.37 Add PCO R a_e (5% at P5,40012i%) 1.29 1.04 1.34 Add PCO Receres 5% at P5,40021%) 1.29 1.04 1.34 IniewV*A PairrO 20.84 20.00 IntDMW Value PalmON 17.01 16.30 Oi6FFB Rao 21% 21% OitFFS Rio 21% 21% FF8 ViraotfM 4.30 4.20 FFBVaueaaitk 3.57 3.42 Ta FrtFarm - Mi 0.30 0.83 0.25 TrastFam - M1I 0.30 0.83 0.25 EtFamrVate 4.08 3.95 ExFanrValue 3.27 3.17 288 2818 Intamenei Financial ECF Eronomrric Flea lct ECF Economtic Wsndkrwrtat S0.4i5 19.40 1.00 19.40 WorddPrtoeal S0.440 17.60 1.00 17.60 NetFrrietDilarence (50.015j (0.60) 1.00 (0.60) ExpselFreightCost (S0.050) (2.00) 1.00 (2.00) PortCost 1.00 0.83 0.83 krWit 0rAY EfSt 5% 0.94 - - VaaMatula Port 20.74 18.80 Value atPManoPoit 15.60 15.60 Tranepoul9staea 1.30 0.83 1.08 TraeopolttaMArlta 1.30 0.83 1.08 Matrk0irgCtAMii liOor0n 12.5% 2.43 0.83 2.02 MakOglEar"tCosts 8.0% 1.14 0.83 0.95 MM" gCosw(PM6lon FF8) 286 0.83 2.37 WsingCosts fP5inFFB) 2.00 0.80 2.29 -x > AdrPCORrcnsee(5%atP5,400121%) 1.29 1.04 1.34 AddPCORO Reovia(5%a1P5,400121%) 1.29 1.04 1.34 Iet4 iVatua Palm i 15.44 14.67 ring Viae PanOl 11.58 12.62 3 OtliFFRao 21% 21% OiIF8RaRo 21% 21% ° 3 FF8 Vabieatti 3.24 3.08 FF8VkeattkiM Z43 2.5 _ r Transporl Fam-Mi 0.20 0.83 0.17 Trrport Farm-MNi 0.15 0.83 0.12 s - Ex FarmValue 3.04 2.91 Ex FarmValue 2.28 253 rs A _aw IL, hW Olt Tbl 3: FllCLE:I t OIL I&VLLHODE ES;TATE COOPERATIMAD 4tl PAwLyA (cea I860cmbrtPfte Tom) YEAR PV 1 2 3 4 5 6 7 8 9 10 I1 12 13 14 16 18 17 ls 10 20 21 22 23 24 26 INPUT| bFindF ctds 6,81 7,5C - . . . . . . . . . . . - . - - . . -. Dkid Ltbw CIA" 48,567 k,W 5, 5,s,O S O SaO SaOc S,mi Sm SODO S,OO o S,O S,O SM S,m SOC S,OOO SmO SOC EOC SAO SOm 5,O EOm SmO HWrus2ig9 2656 0 0 0 4500 4,5C0 4.500 4,500 415 4,5C0 4.5D0 45C0 4,5S0 4.50 4,500 4,500 4,600 4,5 4,500 4,500 4,5C0 4,50 4.500 4,5M0 4.50D 4.5C0 oiedm*4111 Mt aid 9.418 10,360 1114 7t010 1t998 Z663 ,05 - 16-20-0 11,368 0 0 0 1,125 1,725 1,725 1.12 1,725 1.725 1,72t 1,125 1,725 1,726 1,725 12 1,725 11,27 1,126 1.2 12 525 1,1726 1,12 1,7125 1,725 040 16,481 0 0 0 t346 2346 2346 Z346 2346 Z346 2,346 Z346 Z346 2,346 2,346 2346 Z346 Z346 2346 Z346 2,346 346 2,346 2346 2,346 2.345 21t40 6,366 0 0 0 968 f68 9B 966 966 966 966 9o6 966 9660OM 96 o6 966 966 996 966 966 tKiub 3,410 0 0 0 510 618 $10 518 SIt 616 S1 s1t S16 510 610 1 Shig 51t 518 Sig 610 518 618 018 510 618 libdc& 9,077 1.000 t,mO 1i0D0 1,0DO t.O i. 1,0 K 1,O 1,0DO tO D 1.0D 1 O 1, t ,mDO t,ODO 1,0DO t 1.000 1.001,0 0 0 1,00 1,00 1.0m0 1,0DO t,ODO t,mDO Farmn Toos 4,803 6 250 250 m60 600 6m 0 6m0 600 600 600 600 600 600 600 WO 600 600 600 6C0 600 600 6m0 6m0 600 6mm S _priua Fe 3,53 2236 89t t.02O DEVELOPMENT COST 45,746 3203 9,005 11,2t0 OPERATING COST 109,756 0 0 0 16655 16ss o15 16,666 10t66, 16,066 16,655 18,665 16,6 55 16.656556656 16,655 11655 16,6 55 16,655 16,655 16,656 10.655 TOTALCOST 155,502 3tO93 9,805 11,270 18,655 16,655 16,655 160655 16,655 16,655 16,665 16,655 16.6,665555 to,wa 1ens 16.6,5 1t6,65 5o6a seas 1865 16,655 io65 MAS io65 16.655 OUTPU)T FrehFnitBwch kg 0 0 0 4,500 1t0.0D 1t5,O 18000 18,0mO 19,000 19,0D0 20,000 201000 20,000 19000 16,000 10 1,000 110 160C00 15,0D0 1tS0 14,0D3 14.000 ItZOO it2O Fresh FAtBwuh 418,602 0 0 0 18,347 40.770 61,156 73,387 72,307 77.464 77,464 81,541 80.641 01341 77,464 77.464 73.367 738 73.317 65,233 61,156 61,156 57,079 67,079 48,925 48,9X2 CASH FLOW EFOREFINANCN (3t093) (9,006) (1,270) 1,692 24,116 44.501 55,732 51,732 608C0 600M 64,886 64.686 68,686 60,0 6.0 56.732 61732 51,732 48.578 44,501 44,501 40,424 40,424 3t270 32270 IndM RA BO lSR dceetipra 39% COST OF PRODUCTION DIS Ro PVPt"s. OuA W CcO CodolPrcducln 10% 102.692 165632 tat Yieldd- PewtOC 100% Av Yi YeY 7-46 19,0DO 0-:> Aftachment 14: Palm OII Table 4: FINANCIAL PERFORMANCE: PALM OIL ISMALLNOLDER ESTATE COOPERATIVE) * At Proted Long Run Pdcn (Pososla 1998Constant Price Terms) YEAR PV 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INPUT InFiektRoads 6,818 7,500 - - - . . - . . . . . . . - . . . . . Drect LakOr Culturl 48,567 8,500 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Haweuting 29,656 0 0 0 4,500 4,500 4,500 4,500 4,500 4,500 4,5Q0 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 Diret blabnats Piastingtaateriats 9,418 10,360 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 14-14 14 6,988 1,998 2,663 3,954 16-20-0 10,021 0 0 0 1,669 1,641 1,613 1,585 1,557 1,529 1,501 1,473 1,445 1,417 1,417 1,417 1,417 1,417 1,417 1,417 1,417 1,417 1,417 1,417 1,417 1,417 00-0 14,315 0 0 0 2,298 2,275 2,251 2,227 2,203 2,179 2,156 2,132 2,108 2.084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 2,084 ,084 2,084 21-0-0 6,712 0 0 0 980 988 995 1,002 1,009 1,016 1,023 1,031 1,038 1,045 1,045 1,045 1.045 1,045 1.045 1,045 1,045 1,045 1,045 1,045 1,045 1,045 Klesm 3,410 0 0 0 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 518 Weedcs 9,077 1,000 1,000 1,000 1,000 1,000 1,00 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Farm Tools 4,803 S0W 250 250 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 600 Supision Fee 3,536 2,236 891 1,020 DEVELOPMENT COST 38,893 24,593 9,805 11,224 OPERATING COST 107,609 0 0 0 16,565 16,521 16,476 16,432 16,387 16,342 16,298 16,253 16,209 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 TOTALCOST 146,503 24,593 9,805 11,224 16,565 16,521 16,476 16,432 16.387 16,342 16,298 16,253 16,209 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 16,164 OUTPUT Fresh FrutBunch kg 0 0 0 4,500 10,000 15,000 18,000 18,000 19,000 19,000 20,000 20,000 20,000 19,000 19,000 18,000 18,000 18,000 16.000 15,000 15,000 14,000 14,000 12,000 12,000 Fresh FnuitBunch 275,238 0 0 0 14,515 31,797 47,007 55,583 54,756 84,014 52,029 51,730 48,693 45,655 43,372 43,372 41,090 41,090 41,090 36.524 34,241 34,241 31,959 31,059 27,393 27,393 1 CASH FLOW BEFORE FINANCING (24,593) (0,805) (11,224) (2,050) 15.276 30,531 39,152 38,371 38,572 35,731 35.477 32,484 29,491 27,209 27,209 24,926 24,926 24.926 20.360 18,077 18,077 15,795 15,795 11,229 11,229 o Ilremal Rate of Return at Prjc Prices 32% COST OF PRODUCTION Disc Rao PV Physat Output PV Costs Cost of Production 10% 102,692 146,503 1.43 rdd - Pwent Base Case 100% AV Yield Yeas 7-16 19,000 SensitiVU Real tcease b Fnancial Cost of Labor Grwth in Rea Wag p.a. 0% Wages Escalalor % eo os as as as as as as as as a s a s a s a s a s a s a s A4ojsM CM Flw ozwj) P." (110*4 0,0250 AM 3035' 31.152 x370 X35 *.731 3477 3Z4A 2V841 27.2 SI 2S 24,2 SAW KM5 20Nt 0107 1807 05M I9M 11.22 0m FRR 32.4% Annuatied Budget Pesos USS Sals 30,323 758 Deveblpent Cost 4,285 107 Opaating Cost 11,855 296 Mtgin 14,183 355 3 > or. - &, Atachmnot 15: Palm Oil Table k ECONOmiC PERFORMANCE: PALm OIL iSimALLHOLDER ESTATE COOPERATNE -*Al Procltbd Long Run Prnc (Pesahia 1998Constant Pdce Tenms) YEAR PV 1 2 3 4 5 6 7 a 9 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 iwe"(01 INPUT In FWd Roads 5,659 6,225 - - - - - - - - DIc Labor Cultural 31,363 5,100 3,000 3,045 3.091 3,136 3,182 3,227 3,273 3,318 3,384 3,409 3,455 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 Harwesllng 19,763 0 0 0 Z782 2,823 2,884 2,905 2,945 2986 3,027 3,088 3,109 3,150 3,150 3,150 3,150 3,150 3,150 3,150 3,150 3,150 3,150 3,150 3,150 3,150 OWct MateIas Ptatt Mateiais 7,817 8,599 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Feitw 14-14-14 5.800 1,658 2,211 3,282 - - - - - - - - * - - 16-20D0 8,318 0 0 0 1,385 1.362 1.339 1,316 1,292 1,269 1,246 1,223 1,2D0 1,176 1,176 1,176 1,176 1,176 1.176 1,176 1,176 1,176 1,176 1,176 1,176 1,176 0-08 11,881 0 0 0 1,908 1,888 1,868 1,848 1,829 1,809 1,789 1,769 1,750 1,730 1,730 1,730 1.730 1,730 1,730 1,730 1,730 1.730 1,730 1,730 1,730 1,730 2140 5,571 0 0 0 814 820 826 832 838 843 849 8t5 861 867 867 867 867 867 867 867 867 867 887 867 867 867 Kia 2,831 0 0 0 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 430 Weodk lde 7,534 830 830 830 830 830 8 830 830 83 0 830 830 830 830 83 830 830 6 830 830 830 30 830 830 830 830 830 Farm Tools 3,987 415 208 208 498 450 498 450 498 450 450 498 498 498 498 498 498 498 498 498 498 498 458 498 498 498 Supesol Fee 2.141 1,378 519 611 DEVELOPMENT COST 33,589 24,205 6,767 7,976 OPERATING COST 79.074 0 0 0 11,737 11,786 11,838 11,886 11,934 11,984 12,033 12,082 12,132 12,181 12,181 12,181 12,181 12.181 12,181 '8 12,181 12,181 1Z181 12,181 12,181 1Z181 TOTAL COST 112,663 24,205 6,767 7,976 11,737 11,786 11,836 11,885 11,934 11,984 12,033 12,082 12,132 1Z181 12,181 1,t181 1Z181 1Z16 12,181 12,181 12,181 12,181 12,181 12181 1Z181 1Z181 OLtTPUT Fmsh Fuit Bunch kg 0 0 0 4,500 10.0S0 15,000 18,000 18,000 19,0S0 19,000 20,0S0 20,00 20,000 19,000 19.000 18,000 18,000 18,000 16,000 15,000 15,0S0 14,000 14,000 12,000 12,000 FreshFAuitiunch 281,939 0 0 0 14,047 30,699 45,273 53,397 52,487 53,907 52,431 53637 52,084 50,530 48,004 48,004 45,477 45,477 45,477 40,424 37,898 37,898 35,371 35,371 30,318 30,318 1 CASH FLOW BEFORE FINANCING (24,205) (6.767) (7,976) 2,310 18,912 33,437 41,512 40,533 41,923 40,398 41,555 39,952 38,349 35,823 35,823 33,296 33,296 33,296 28,243 25,717 25,717 23,190 23,190 18,137 18,137 Ni Intemnal Ecnic Rate of Retum at P*ed Price 38% COST OF PRODUCTION Disc Rate PV Physical Output PV Costs Coslt O P,ductl 10% 102,692 112,663 1.10 YIlid - Pecent Bat Case 100% Av Yield Yeas 7-16 19,000 Sesily to Real Incre In Ecomtoric cost of Labor Gnowth In Read Wag p.a 0% WagesEscala or% es 0 n vs b 0s oA V Adjusted Cash Flow (w P814." (74)I 2.210 till2 Ws37 41,512 4533 41S.a1 4.3 41.5 WON 31530 AM2 AS5 32118 AM 2s36 28243 25.717 4717 also 2210 ,I,T IS ERR 38.4% Summary of Sensuffvtty of ERR to Yieid and Rea Economic Labor Cot incass and P*Io AItmniva (95% Soyban Pruqjectons) PNMce PMens WB August 1998 95% WO Proected Soybean 0l PIce Real Wages Growth p.a. -2% 0% 4% -2% 0% 4% Peak YIed (kgma) 10000 14% 12% 4% 22% 20% 16% > 15000 26% 25% 21% 33% 32% 30% 19000 33% 32% 30% 39%: 36% 36% 22000 37% 36% 34% 45% 44% 43% 11v 0-' Awmettt Ji: Rubber Tbl 1: PHYSICAL PERFORMANCE: SUALLROLERRUSSR YEAR UNIT t 2 3 4 5 6 7 8 9 10 I1 12 t3 14 15 to t? t8 19 20 21 22 23 24 25 26 27 -30 INPUT CUiud muday 120 35 40 30 30 30 21 21 21 21 21 21 21 21 21 21 21 21 21 21 21 21 21 21 21 21 15 DhsM Piut *Mmd* 500 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fsr* CORpe la 300 3C0 450 16-200 kg 150 200 200 200 200 200 200 200 200 200 200 200 200 200 200 0480 kg ISO ISO tS0 ISO 15o1 iso t9o iso iso too io 1o 1o iso ISO 211-G kg 300 800 000 soo Ioo m so Soo scm s00 8oo 8oo Boo eoo 600 Boo Farm Tal pus 250 250 260 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 0 250 250 250 250 250 TaW$ hMdt pas 3000 300 300 200 200 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 S&qum Fn Pero" Codl 1o% 10% 10% Tq0ple Man Ds ° 0 0 0 0 0 0135 136 t35 135 135 135 135 135 136 15 1335 135 1151 135 135 135 135 135 135 135 OUTPUT Rit*KC) Kg 0 0 0 0 0 0 700 900 1200 1,300 1,400 1.500 1.700 1,800 2,000 2,000 1,800 1.800 1.800 1,000 1.800 1,600 1,600 1,600 1,600 1,600 1,200 X > F-i cra c. 3 Attachment J2: Rubber Table 2: PRICES: SMALLHOLDER RUBBER Assumed FX Rate Peso/S 40 YEAR UNIT Financal ECF Economic Finandal ECF Econ Price Econ Price Pice Pfice Wodd Price INPUT 1908 2010 Change'98-10 Dired Labor Cost mandays 100.00 0.6 60.00 100.00 0.7 70.00 Direct Materials Cost Planting Materials piece 15.00 0.83 12.45 15.00 0.83 12.45 Ferilizer - WP as % Cost Complete P/kg 8.88 0.83 7.37 7.87 6.53 -13% 85% 16-20-0 P/g 8.63 0.83 7.16 7.09 5.88 -22% 80% 0460 Phkg 7.82 0.83 6.49 6.95 5.77 -12% 90% 2100 Phg 4,83 0.83 4.01 4.83 4.34 11% 75% Farm Tools 1.00 0.83 0.83 1.00 0.83 Tapping Marials 1.00 0.83 0.83 1.00 0.83 0.83 Supervision Fee Percent 10% 0.83 0.08 10% 0.83 0.08 Tapping Manday 100.00 0.6 60.00 100.00 0.7 70.00 OUTPUT Rubber (DRC) Kg 21.48 22.45 27.39 28.42 Rubber Pdce Calculaons In Consant 1998 Terms '19981I Internatinal Finandal ECF Economic WoildPriceRubbera/ S0.783 31.32 1.00 31.32 n QuaGll fferrWbtiaW S0.102 4.10 1.00 4.10 Export Value ex Davao 27.22 27.22 ExportersCosts and Margin 5% 1.36 0.83 1.13 Proesig & Trampo to Davao 4.00 0.83 3.32 Into Mil Value 21.86 22.77 Cup Lump:DRC Ratio 52% 52% Cup Lump Value at LIl 11.37 11.84 Transport to Mi 0.20 0.83 0.17 Ex Farm Value Cup Lump 11.17 11.68 Ex Farim Value DRC Basis 21.48 22.45 2010 (in 1908 consant prices) International Finandal ECF Economic Wodd Prioe Rubber at $0.891 35.64 1.00 35.64 QualityDiffertitbal/ $0.055 2.19 1.00 2.19 Export Value ex Davao 33.45 33.45 Exporters Costs and Margin 5% 1.67 0.83 1.39 Processing & Tmnsportto Davao 4.00 0.83 3.32 > Into Mil Value 27.78 28.74 Cup Lump:DRC Ratio 52% 52% R Cup Lump Value at MWi 14.44 14.94 0, TransportoMill 0.20 0.83 0.17 c. Ex Farm Value Cup Lump 14.24 14.78 Ex Farm Value DRC Basis 27.39 28.42 a) Maysian Expoft Pace RSSI (WB Commo Market August 199) bl SMWR 20 aerges about 6.7% hwer ban RSS1 and Pbflippine Rubber is discounted a btlwer $50ho. This is assumed to reduce by 50% by 2010. 1chment J3: Rubber Table 2: FINtANCIAL PERFORIIANCE: SUALLNOLDER NEWN RUBBER (1998 PRtCESI (Pesoslhe 199ICorrstant Price Terms) YEAR PV I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 -30 INPUT DOred Labo Cuturat 32.903 12,0D0 3,500 4,000 3,000 3,000 3,000 2,1D 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 D red Materials Planting Materias 6,918 7.500 - - Feruter Complete 7,624 2,663 2.663 3,995 t6-20-0 7,185 - - - - - - 1,294 1,725 1,725 1,725 1,725 1,725 1,725 1,725 1,725 1,725 1,725 1,725 1,725 1.725 1.725 Oo-o 5,036 - - - - - 1,173 1.173 1,172 1,173 1,173 1,173 1,173 1,173 1,173 1,173 1,173 1,173 1,173 1,173 1,173 21t-0 15,351 - - - - - - ,449 3,864 3,864 3,864 3,864 3.864 3,864 3,864 3,864 3,864 3,864 3,864 3,864 3,864 3,864 Farm Toobl 1,890 250 250 250 - - - 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 250 Tapphtt Materials 2,907 - - - - - - 3,00 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 300 Supefion Fee 3,187 2,241 641 825 Tapping 68,467 0 0 0 0 0 0 13,500 13,500 13,500 13,500 13.500 13,500 13,500 13,500 13.500 13,500 13,500 13,500 13,500 13,500 13,500 13,500 13,500 13,500 13,500 13,500 DEVELOPMENT COST 40,663 24,655 7,055 9,070 3,000 3,000 3,0N0 OPERATING COST 110,705 0 0 0 0 0 0 22,766 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 16,150 16,150 10,150 16,150 16,150 TOTALCOST 151,368 24,655 7,055 9,070 3,000 3,000 3,000 22,766 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22,912 22.912 22,912 22,912 22,912 22,912 22912 16,150 16,150 16,150 16,150 16,150 OUTPUT Rubber (DRC) kg 0 0 0 0 0 0 700 95 1,200 1,300 1,400 1,500 1,700 1,800 2,000 2.000 1.800 1,800 1,80 1,800 1,8 0 1 106N t,600 ,6 t,60 1600 Rubber (DRC) 155,959 0 0 0 0 0 0 15,033 19,328 25,771 27,919 30,066 32,214 36,509 30.657 42,952 42.952 38.657 38,657 38,657 38,657 38,657 34,361 34,361 34,361 34,361 34,361 a, CASH FLOW BEFORE FINANCING (24,655) (7,055) (9,070) (3,000) (3,000) (3,000) (7,733) (3,584) 2,859 5,007 7,154 9,302 13,597 15,745 20,040 20,040 15,745 15,745 15,745 15,745 15,749 18,211 18,211 18,211 18.211 18,211 Irrlerrral Rate otRsuRm at 1998 picms 10% COST OF PRODUCTION Dic Rate PV Physal Ouput PV Costs Coal otProdutuon 10% 6,809 145,877 21.43 Yiel - Prcr Basa Cm 100% Av Yiel Yaws 10-19 1,710 Anrruwaled Budget Pease US$ Sals 16,544 414 Deveopmet Coust 4,3t4 108 OpWcarr Cost 11,743 294 Margin 487 12 C > - a r urn _ - Attachment J4 -12 7- Rubber Table 4 X f .7 8, ,6 ,, .6 ..6 8 8 SS W of . .... .6. ...s> ..; of . 4 a 8, ° K °° 8 S S 8 N a ER N 8 <0. 33i.N°- 3 ,3 3 80 X o . . . . . , .. K wl 8 °3 3 2 2 3z i Z 8, ° . ....Z...°°.°° .S 6 S 8 3 |4 3 .. . ... ..4.5 i~~~~~~~ 00 84 ° 40 8 z2 _f _ ,. 4 .6 C6 °4. ° o _ -O, o, gj3 3 7g! i,, ,°, S Ea°*5S _; , f 4- ^ f -° -44. ° of @. 0 - ~ 8- °° 3 8,3 ,N O 3 8 8 § g o a 0}}t4a 84 °-° 8 ° 8 e o 2 ° 8 g 4 4 i n 8. °~j33 ., ° 8° 8' 8i ° .? ° 4f l ~ < j~ -' S .;aug,, .as S ; E S- S04 °~ of .44. > g ia5t@2; !; 0s 1 oDfwzz e° -.6 .st4- o S8r|°eX of o B 8 0 i3 3 F2 a 3 Aaclement JO: Rubbw TaUiI 5: ECONdOMIC PERFORMANCE: SAA OLDER NEW RUBBER ILONG RUNd PRIES (Peasmt o nst 880eroaiae os.Tarmi) YEAR PV 1 2 2 4 5 6 7 8 8 10 I1 1 2 13 14 15 18 17 18 18 20 21 22 23 24 25 24 27 28 28 30 CUO,Oai 20,791 7,200 ZI00 2,430 1,800 1.882 1,808 1,305 1,375 1,394 1.413 1,432 1,451 1.470 .1,470 1,470 1,470 1,470 1,470 1,470 11,470 1,470 1,470 1,470 1,470 1.470 1,470 1,000 1.050 1,008 1.000 DSdkit) dds P009e'mwiaIo 5,008 8,220 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fe,98w C-Woroll 9,302 2,211I 2,211 3,292 18-20.0 ~~~~~~~5,0107 . . . . 07 1,302 1,289 1,248 1,223 1,200 1,170 1,178 1,176 1,178 1,176 1,178 1,178 1,178 1,178 0.-4 3,805 . . . . 24 814 004 895 885 875 885 885 8865 885 885 885 985 885 885 210.00 13,0107 . . .1,247 3,300 3,374 3,308 3,422 3,445 3,489 3,489 3,460 3,489 3,409 3,489 3,489 3,489 2,488 Fam Tools 1,588 208 208 208 - - 208 208 208 208 208 208 208 208 208 208 209 M 208 MO820 20 208 208 208 208 208 208 20820 208 Toppin Muateias 2.413.- -2,490 240 249 248 249 248 249 249 249 208 248 249 249 248 248 249 249 249 249 249 249 249 248 248 Sujpurt)liai Fee 1,875 1,315 375 492 TopIn 48,788 0 0 0 0 0 0 9,714 8,828 8,958 9,092 8,205 8.327 9,400 9,450 9,400 9.400 9,400 9.450 8,400 0,450 9,400 9.450 9,450 9,408 9,450 8,400 9,450 9.450 8,450 9,400 DEVELOPMCENT COST 27,878 17,159 4.893 8.417 1,855 1.082 1,909 OPERATING COST 79,929 0 0 0 0 0 0 15,925 18,224 18,207 18,489 18.822 16.705 16,887 10,887 158,87 16,887 168,87 18,887 16,887 186,887 18,887 1 1,377 11,377 I i.377 11,377 11,377 10.957 10.957 10,957 10,007 TOTAL COST 107,905 17,159 4,893 8,417 1,855 1,882 1,908 15,925 18.224 18,357 18,409 18,822 18,750 15,887 18,087 16.887 18,887 18,887 18,887 18,887 18,887 19,887 11,377 11,377 11,377 11,377 11,377 10,957 10,957 10,957 10,8957 OUTPUT maw &(DRC) kg 0 0 0 0 0 0 700 OM0 1,200 1,300 1,400 1,500 1,70D 1,800 2,000 2,500 180 1,900 1,800 1,800 1,808 1,800 1,800 IW 1,890 1,800 1,808 1,200 1,200 1,208 1.200 R"Ake(DRC) 201,370 0 0 0 0 0 0 17,818 23,137 31,500 24,831 30,200 41,817 48,315 51,157 58,841 50,841 51,157 51,157 51,157 51,157 51.i57 45.473 45,473 45,473 45,473 40,473 34,104 34,104 34,104 34,104 CASIOFLOW BEFORE FINANCING (17,158) (4,893) (8,417) (1,850) (1,882) (1,808) 1,801 8,913 15,144 18.241 21,840 25,082 21,428 34,270 39.954 39954 34,270 34,270 34,270 34,270 34,270 34,008 34,098 34,098 34,088 34,089 23.148 23.148 23,148 23.1400 0 Ilantam Eco,oarl Rale of Roatum at fl~ttecd PlIosa 22.9% COST OF PRODUCTION t.C nt woNPN~# P C- C.PCO 1O% 8,80 104,037 15,29 Yield.- Poton Bas Caue 100% Ay YleW YwanlO-4 1,710 WaoJILlyi Rea lIncreomneO Economic Cosl of Labor Growth inReal Wapsp.a. 0% WapBEsoaalaeor% 0% 8% 0% 0% 5% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% A4uW ashdnnlFiUw (17,158) (4,893) (8,4`17) (1,8505) (1.882) (i,808) 1.891 8,913 15,144 18,341 21.684 25,082 31,428 34,270 39.854 39.954 34.270 34,270 34.270 34.270 34,270 34,0989 34,088 34,088 34,088 34,088 233,149 23.148 23,149 23.148 ERR 22.9% Summary of SenrruhIvy of ERR to Yield and Real EconomIc LAbor Cost honeuses Real WageoGrowth p.a. -2% 0% 2% 4% 8% 10% Peak YieWd (kg0rn) 1000 14% 11% 7% negaVee negnive wgneOe 1408 20% 19% 18% 13% 2% negallon 1710 24% in 21% 18% 14% negalhv 200 27% 26% 24% 22% 19% nega8va 0' CL 0 Attachment KI: Coffee Table 1: PHYSICAL PERFORMANCE Per Ha: COFFEE SMALLHOLDER YEAR UNIT 1 2 . 3 4 5 6 7 8 INPUT Direct Labor Cultural (incl drying) mandays 106 59 50 50 50 50 50 50 Harvesting kg Undried - - 4,500 6,250 7,500 7,500 6,875 5,625 Direct Materials Planting Materials 1,700 0 0 0 0 0 0 0 Fertilizer 18-46-0 kg 425 540 540 540 540 540 . 540 540 46-0-0 kg 260 365 500 500 500 500 500 500 0-0-60 kg 170 365 450 450 450 450 450 450 Insecticide liter 2 1 2 2 2 2 2 2 2 Fungicide kg 1 1 1 1 1 1 1 1 Weedicide gallon 1 1 1 1 1 1 1 1 Farm Tools & Sacks pesos 270 40 100 150 150 150 125 100 Milling/Sorting/Marketing kg GB - - 900 1,250 1,500 1,500 1,375 1,125 OUTPUT Undried Red Cherries Undried kg - - 4,500 6,250 7,500 7,500 6,875 5,625 Green Beans Sold GB kg - - 900 1,250 1,500 1,500 1,375 1,125 0O _ r, Attachment K2: Coffee Table 2: COFFEE SMALLHOLDER INPUT AND OUTPUT PRICES (1998 Constant Terms) Assumed FX Rate Peso/$ 40 YEAR UNIT Financial ECF Economic Finandal ECF Econ Price Price Econ Price World Price INPUT 1998 2010 Change'98-10 Labor Cultural (incl drying) mandays 100.00 0.6 60.00 100.00 0.7 70.00 Harvesting kg Undried 1.50 0.6 0.90 1.50 0.7 1.05 Direct Materials Cost Planting Materials piece 10.00 0.83 8.30 10.00 0.83 8.30 Fertilizer WP as % Cost 18-46-0 P/kg 7.50 0.83 6.23 6.99 0.83 5.80 -8% 85% 46-0-0 P/kg 8.00 0.83 6.64 8.70 0.83 7.22 11% 80% 0-0-60 P/kg 7.82 0.83 6.49 6.95 0.83 5.77 -12% 90% Insecticide liter 300.00 0.83 249.00 300.00 0.83 249.00 Fungicide kg 250.00 0.83 207.50 250.00 0.83 207.50 Weedicide gallon 1,600.00 0.83 1,328.00 1,600.00 0.83 1,328.00 Farm Tools & Sacks assorted 1.00 0.83 0.83 1.00 0.83 0.83 Milling/Sorting/Marketing kg GB 3.50 0.83 2.91 3.50 0.83 2.91 OUTPUT Green Beans Sold Kg GB 61.00 61.92 40.35 41.96 Palm Oil Calculations In Constant 1998 Terms 1998 2000 0 Intemational Financial ECF Economic Intemational Financial ECF Economic World import a/ $1.760 70.40 1.00 70.40 World import a/ 1.703 68.12 1.00 68.12 Quality Differential (domestic market) 0%O - - Quality Differential (domestc mark 0% - Net Freight Difference ($0.015) (0.60) 1.00 (0.60) Net Freight Difference ($0.015) (0.60) 1.00 (0.60) Port Costs & Importers Margin 4.50 0.83 3.74 Port Costs & Importers Margin 4.50 0.83 3.74 Import Duty Effect 45% 31.41 - - Import Duty Effect 0.45 30.38 Wholesale Price Manila (Imported Coffee) 105.71 73.54 Wholesale Price Manila (Imported Coffee) 102.40 71.26 Wholesale Price Manila (Domestic Coffee) 75.00 Wholesale Price Manila (Domestic Coffee) 75.00 TransporUHandling/Traders Margin 7.00 0.83 5.81 TransporUHandling/Traders Margin 7.00 0.83 5.81 Ex Pier Midanao 68.00 67.73 Ex Pier Midanao 68.00 65.45 Traders cost & margin Mindanao 7.00 0.83 5.81 Traders cost & margin Mindanao 7.00 0.83 5.81 Ex Farm Value (Green Beans) 61.00 61.92 Ex Farm Value (Green Beans) 61.00 59.64 2005 2010 Intemational Financial ECF Economic Intemratonal Financial ECF Economic World Price a/ $1.578 63.10 1.00 63.10 World Price a/ $1.440 57.60 1.00 57.60 - Quality Differential (export market) -10% (6.31) (6.31) Quality Differential (export market) -10% (5.76) (5.76) Export Freight Cost ($0.050) (2.00) 1.00 (2.00) Export Freight Cost ($0.050) (2.00) 1.00 (2.00). Export Value at Minanao Port 54.79 54.79 Export Value at Minanao Port 49.84 49.84 Exporters & Port Costs 50/% 2.74 0.83 2.27 Exporters & Port Costs 5% 2.49 0.83 2.07 Traders cost & margin Mindanao 7.00 0.83 5.81 Traders cost & margin Mindanao 7.00 0.83 5.81 Ex Farm Value 45.05 46,71 Ex Farm Value 40.35 41.96 GC_Annex9(Tables_coffee).xls Table2 Attachment K3 Coffee Table 3 -131- Attachment K3: Coffee Table3: FINANCIAL PERFORMANCE: COFFEE SMALLHOLDER -1998 Price Levels (Pesos/ha 1998Constant Price Terms) YEAR PV 1 2 3 4 5 6 7 8 INPUT 0 Direct Labor Cultural (ind drying) 32,509 10,600 5,900 5,000 5,000 5,000 5,000 5,000 5,000 Harvesting 34,038 - - 6,750 9,375 11,250 11,250 10,313 8,438 Direct Materials Planting Materials 15,455 17,000 - - - Fertiizer 1840 20,822 3,188 4,050 4,050 4,050 4,050 4,050 4,050 4,050 46-0-0 18,702 2,080 2,920 4,000 4,000 4,000 4,000 4,000 4,000 00-60 16,234 1,329 2,854 3,519 3,519 3,519 3,519 3,519 3,519 Insectidde 3,201 600 600 600 600 600 600 600 600 Fungicide 1,334 250 250 250 250 250 250 250 250 Weedicide 8,536 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 Farm Tools & Sacks 745 270 40 100 150 150 150 125 100 MillinglSorting/Marketing 15,885 - - 3,150 4,375 5,250 5,250 4,813 3,938 DEVELOPMENT COST 48,614 36,917 18,214 OPERATING COST 118,846 0 - 29,019 32,919 35,669 35,669 34,269 31,494 TOTAL COST 167,460 36,917 18,214 29,019 32,919 35,669 35,669 34,269 31,494 OUTPUT Green Beans Sold kg - - 900 1,250 1,500 1,500 1,375 1,125 Green Beans Sold 276,846 - - 54,900 76,250 91,500 91,500 83,875 68,625 CASH FLOW BEFORE FINANCING (36,917) (18,214) 25,881 43,331 55,831 55,831 49,606 37,131 Intemal Rate of Retum at 1998 prices 50% COST OF PRODUCTION Disc Rate PV Phys. Output PV Costs Cost of Production 10%' 4,538 167,460 36.90 Yield - Percent Base Case 100% Av Yield Years 3-7 1,305 Annualized Budget Pesos US$ Sales 51,892 1,297 Development Cost 9,112 228 Operating Cost 22,277 557 Margin 20,503 513 Attachment K4 Coffee Table 4 -132- Attachment K4: Coffee Table 4: FINANCIAL PERFORMANCE: COFFEE SMALLHOLDER - 2010 Price Levels (Pesos/ha 1998Constant Price Terms) YEAR PV 1 2 3 4 5 6 7 8 INPUT Direct Labor Cultural (ind drying) 32,509 10,600 5,900 5,000 5,000 5,000 5,000 5,000 5,000 Harvesting 34,038 - - 6,750 9,375 11,250 11,250 10,313 8,438 Direct Materials Planting Materials 15,455 17,000 0 0 - Fertilizer 18-46-0 19,406 2,971 3,775 3,775 3,775 3,775 3,775 3,775 3,775 46-0-0 20,332 2,261 3,175 4,349 4,349 4,349 4,349 4,349 4,349 0-60 14,422 1,181 2,536 3,126 3,126 3,126 3,126 3,126 3,126 Insecticide 3,201 600 600 600 600 600 600 600 600 Fungicide 1,334 250 250 250 250 250 250 250 250 Weedicide 8,536 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 Farm Tools & Sacks 745 270 40 100 150 150 150 125 100 Milling/Sorting/Marketing 15,885 - - 3,150 4,375 5,250 5,250 4,813 3,938 DEVELOPMENT COST 48,167 36,733 17,875 OPERATING COST 117,697 0 - 28,700 32,600 35,350 35,350 33,950 31,175 TOTAL COST 165,863 36,733 17,875 28,700 32,600 35,350 35,350 33,950 31,175 OUTPUT Green Beans Sold kg - - 900 1,250 1,500 1,500 1,375 1,125 Green Beans Sold 183,128 - - 36,315 50,438 60,526 60,526 55,482 45,394 CASH FLOW BEFORE FINANCING (36,733) (17,875) 7,616 17,838 25,176 25,176 21,532 14,219 Intemal Rate of Retum at 2010 prices 18% COST OF PRODUCTION Disc Rate PV Phys. Output PV Costs Cost of Production 10% 4,538 165,863 36.55 Yield - Percent Base Case 100% Av Yield Years 3-7 1,305 Annualized Budget Pesos US$ Sales 20,175 504 Development Cost 5,306 133 Operating Cost 12,966 324 Margin 1,902 48 Attachment K5 Coffee Table 5 -133- Atbechmret K5: Coffee Table 5: FINANCIAL PERFORMANCE: COFFEE SMALLHOLDER - At Proiected Lona Run Prices (Pesos/ha 1998Constant Price Terms) YEAR PV 1 2 3 4 5 6 7 8 INPUT 0 Dmct Labor Cultrlai (md drying) 32,509 10,600 5,900 5,000 5,000 5,000 5,000 5,000 5,000 Haeg 34,038 - - 6,750 9,375 11,250 11,250 10,313 8,438 Drect Mateas Planting Materals 15,455 17,000 0 0 0 0 0 0 0 FerbTier- - - - - - - - - 18-46-0 ' 20,532 3,188 4,050 4,025 4,000 3,975 3,950 3,925 3,900 46-0 19,070 2,080 2,920 4,032 4,063 4,095 4,127 4,159 4,190 04-60 15,819 1,329 2,854 3,483 3,448 3,412 3,376 3,340 3,305 InsectIide 3,201 600 600 600 600 600 600 600 600 Fungicide 1,334 250 250 250 250 250 250 250 250 Weedide 8,536 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 Farm Tools & Sacks 745 270 40 100 150 150 150 125 100 MillinglortnglMarketing 15,885 - 3,150 4,375 5,250 5,250 4,813 3,938 DEVELOPMENT COST 48,614 36,917 18,214 OPERATING COST 118,509 0 - 28,990 32,861 35,582 35,553 34,124 31,320 TOTAL COST 167,123 36,917 18,214 28,990 32,861 35,582 35,553 34,124 31,320 OUTPUT Green Beans Sold kg - 900 1,250 1,500 1,500 1,375 1,125 Green Beans Sold 242,711 * - 54,900 72,263 81,932 77,148 66,334 50,686 CASH FLOW BEFORE FINANCING (36,917) (18,214) 25,910 39,403 46,350 41,596 32,210 19,366 Intemal Rate of Retum at Projected Prices 43% COST OF PRODUCTION Disc Rate PV Physical Output PV Costs Cost of Production 10% 4,538 167,123 36.82 Yedd - Percent Base Case 100% Av Yield Years 3-7 1,305 Sensitivty to Real Increase in Financial Cost of Labor Grwth in Real Wages p.a. 0% Wages Escalator% 0% 0% 0% 0% 0% 0% 0% 0% Adusted Cash Flow ^O1) (18,214) 25,010 39,403 48,350 41,596 3Z,10 12,3% FRR 42.9% Annualized Budget Pesos US$ Sales 45,494 1,137 Devebpmt Cost 9,112 228 Operating Cost 22,214 555 Margin 14,168 354 Overall Retum To Labor Whole Cyde Reurns to Labor 142,136 (26,317) (12,314) 37,660 53,778 62,600 57,846 47,523 32,803 Man Days 665 106 59 118 144 163 163 153 134 Av Retum to Labor 213.58 Attachment K6 Coffee Table 6 -134- Attachment K6: Coffee Table 6: ECONOMIC PERFORMANCE: COFFEE SMALLHOLDER - At Projected Lona Run Prices (Pesos/ha 1998Constant Price Terms) YEAR PV 1 2 3 4 5 6 7 8 (OCc-10%) INPUT Direct Labor Cultural (Ind drying) 20,033 6,360 3,540 3,045 3,091 3,136 3,182 3,227 3,273 Harvesting 21,462 - - 4,111 5,795 7,057 7,159 6,656 5,523 Direct Materials Planting Materials 12,827 14,110 0 0 0 0 0 0 0 Fertilizer 1846-0 17,041 2,646 3,362 3,341 3,320 3,299 3,278 3,258 3,237 46-0 15,828 1,726 2,424 3,346 3,373 3,399 3,425 3,452 3,478 04-60 13,130 1,103 2,369 2,891 2,862 2,832 2,802 2,773 2,743 Insecticide 2,657 498 498 498 498 498 498 498 498 Fungicide 1,107 208 208 208 208 208 208 208 208 Weedicide 7,085 1,328 1,328 1,328 1,328 1,328 1,328 1,328 1,328 Farm Tools & Sacks 618 224 33 83 125 125 125 104 83 MillinglSortinglMarketing 13,184 - - 2,615 3,631 4,358 4,358 3,994 3,268 DEVELOPMENT COST 37,012 28,203 13,761 OPERATING COST 87,961 0 - 21,466 24,230 26,239 26,362 25,497 23,638 TOTAL COST 124,973 28,203 13,761 21,466 24,230 26,239 26,362 25,497 23,638 QUTPUT Green Beans Sold kg - - 900 1,250 1,500 1,500 1,375 1,125 Green Beans Sold 242,982 - - 53,672 71,312 81,697 77,820 67,780 52,548 CASH FLOW BEFORE FINANCING (28,203) (13,761) 32,206 47,083 55,459 51,457 42,283 28,910 Intemal Economic Rate of Retum at Projected Price 66% COST OF PRODUCTION Disc Rate PV Physical Output PV Costs Cost of Production 10% 4,538 124,973 27.54 Yield - Percent Base Case 100% Av Yield Years 3-7 1,305 Sensitivity to Real Increase in Economic cost of Labor Growth in Real Wages p.a. 0% Wages Escalator % 0% 0% 0% 0% 0% 0% 0% 0% Adjusted Cash Flow 28.203) 13.761) 3W205 47,083 65,469 51.457 42283 28.910 ERR 65.6% Summary of Sensitivity of ERR to Yield and Real Economic Labor Cost Increases Real Wages Growth p.a. 0% 10% Peak Yield (kg/ha) 675 7% neg 1000 44% 34% 1350 _ g 58% 1500 77% 70% Attachment K7 Coffee Table 7 -135- Attachment K7: Coffe Table 7: ECONOMIC PERFORMANCE: COFFEE SMALLHOLDER - 2010 Price Leels (Pesos/ha 1998Constant Price Terms) YEAR PV 1 2 3 4 5 6 7 8 INPUT Direct Labor Cultural (inci drying) 22,757 7,420 4,130 3,500 3,500 3,500 3,500 3,500 3,500 Harvesting 23,827 - - 4,725 6,563 7,875 7,875 7,219 5,906 Direct Matesals Plantng Materials 12,827 14,110 - - - - - Fertlizer 1846-0 16,107 2,466 3,133 3,133 3,133 3,133 3,133 3,133 3,133 46-0-0 16,876 1,877 2,635 3,610 3,610 3,610 3,610 3,610 3,610 0060 11,970 980 2,105 2,595 2,595 2,595 2,595 2,595 2,595 Insecticide 2,657 498 498 498 498 498 498 498 498 Fungicide 1,107 208 208 208 208 208 208 208 208 Weedicide 7,085 1,328 1,328 1,328 1,328 1,328 1,328 1,328 1,328 Farm Tools & Sacks 618 224 33 83 125 125 125 104 83 Milling/SortinglMarkeUing 13,184 - - 2,615 3,631 4,358 4,358 3,994 3,268 DEVELOPMENT COST 38,092 29,111 14,069 OPERATING COST 90,924 0 - 22,293 25,189 27,228 27,228 26,188 24,128 TOTAL COST 129,015 29,111 14,069 22,293 25,189 27,228 - 27,228 -26,188 24,128 OUTPUT Green Beans Sold kg - - 900 1,250 1,500 1,500 1,375 1,125 Green Beans Sold 190,452 - - 37,768 52,455 62,946 62,946 57,700 47,209 CASH FLOW BEFORE FINANCING (29,111) (14,069) 15,474 27,266 35,718 35,718 31,513 23,081 Intemal Rate of Retum at 2010 prices 41% COST OF PRODUCTION Disc Rate PV Phys. Output PV Costs Cost of Production 10% 4,538 129,015 28A43 Yield - Percent Base Case 100% Av Yield Years 3-7 1,305 Annualized Budget Pesos US$ Sales 20,982 525 Development Cost 4,196 105 Operating Cost 10,017 250 Margin 6,768 169 Attachment Li: Manuo Table 1: PHYSICAL PERFORMANCE: SMALLHOLDER MANGO YEAR UNIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 -25 INPUT Direct Labor Cultural (ind wrapping) mandays 50 40 40 40 40 40 40 52 52 52 52 52 52 52 52 52 52 52 52 52 52 Dired Materials Plandng Maledals 50 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fertilizer Complte kg 30 30 30 30 30 30 30 00440 kg 200 200 200 200 200 200 200 200 200 200 200 200 200 200 21-04 kg 30 30 30 30 30 30 30 200 200 200 200 200 200 200 200 200 200 200 200 200 200 Tools/Spmyer/Stakes aet pesos 250 50 50 50 50 50 50 750 250 250 250 250 250 250 250 250 250 250 250 250 250 Flwe Induoer kg 44 44 44 44 88 88 88 88 88 132 132 132 132 132 Fungidde kg 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Insecdeide Mar 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Wapping Materias pesos 400 600 600 600 600 800 800 800 800 800 800 800 800 1200 HarvestinglPaddng Man Days 0 0 0 0 0 0 0 8 12 12 12 12 16 16 16 16 16 16 16 16 24 OUTPUT Mangoes (Saleble) Kg 0 0 0 0 0 0 0 4,000 6,000 6,000 6,000 6.000 8,000 8,000 8,000 8.000 8,000 8,000 8.000 8.000 12,000 > g S* 0 Attachment L2: Manao Table 2: PRICES: SMALLHOLDER MANGO Assumed FX Rate Peso/$ 40 YEAR UNIT Financial ECF Economic Financial ECF Econ Price Econ Price Price Price World Price INPUT 1998 2010 Change'98-10 Direct Labor Cost mandays 100.00 0.6 60.00 100.00 0.7 70.00 Direct Materials Cost Planting Materials piece 30.00 0.83 24.90 30.00 0.83 24.90 Fertilizer WP as % Cost Complete P/kg 8.00 0.83 6.64 7.09 5.88 -13% 85% 0-0-60 P/kg 8.00 0.83 6.64 7.11 5.90 -12% 90%h 21-0-0 P/kg 5.00 0.83 4.15 5.00 4.49 11% 75% Tools/Sprayer/Stakes etc. 1.00 0.83 0.83 1.00 0.83 Flower Inducer 100.00 0.83 83.00 100.00 0.83 83.00 Fungicide 300.00 0.83 249.00 300.00 0.83 249.00 Insecticide 300.00 0.83 249.00 300.00 0.83 249.00 Wrapping Materials 1.00 0.83 0.83 1.00 0.83 0.83 Harvesting/Packing Manday 100.00 0.6 60.00 100.00 0.7 70.00 OUTPUT Mangoes (Salable) Kg 14.00 11.62 11.73 9.74 Mango Price in Constant 1998 Terms (assuming 80% sold in peak season, 20% lean season) 1998 Financial ECF Economic Ex Farm Value Packed Basis 14.00 0.83 11.62 2004 - 2010 (in 1998 constant prices) Financial ECF Economic Ex Farm Value Packed Basis 11.73 0.83 9.74 (Dr- -13 8 - Attachment L3 Mango Table 3 q °O O 8 g°] a O 0°o o 8 M2 8 0 o u _ _ "- e @ _ N 8' 8' N tB' - ° ° ° ° ° R 888 8 E E o 8 8, o X * .88 8 g 8 ° °8 ° E E 88 R X o o o o o o o o o o o e x, . x,8, N 58,8, S X 8 E o 8 8  ° c O n 8 8 8 2 8 E E 88. 8 ' _ _ t st>' ZD - 8 8 -z %' # ' 80, , sS t o,8, ° 8° S S 8,8, 8 S S o o o o gS Wi . . 4 +, . + 8 , g , S ,8, , , , Z 4 0 g , &° ° ° U°, S ° F ° U ° ° g 6 5 8 * 8 a S , 8, , o 40 0 0 O g 8 E z R E X 8. , g° , S ,8, ° Z ° Z ° ° g 0 S, } - ' 2 RJ 8, . ^°._,8, ° Uo o oo g } } S - °° S g S S o 0 0 0O o * 10 gX} 8 ffi ffi _ g g 0 g ro r o 8 0 ° 80 Y w _ _se _88ge - as 2 6 X 0 1 l§§X% 1|}|} { 08 8 >l]-i 5 5 8 2 Attachment L4 -139- Mango Table 4 Alachment L4: Banana Table 4: FNANCIAL PERFORUANCE: SUAUIOLDER BANANAS - LONG RUN PRICES (Pesostha l998Constanlt Price Temms) YEAR PV 1 1 2 2 3 3 4 4 5 5 6 6 7 7 1 2 1 2 1 2 1 2 1 2 1 2 1 2 INPUT 0AWal 38,782 3,300 3,150 4,040 4,040 4.040 4,040 4,040 4,040 4,040 4.040 4,040 4,040 4.040 4,040 C.ob 858 900 - - - - - Db.ctMdWte Suckd 17,162 18,000 0 0 0 0 0 0 0 0 0 0 0 0 0 Fd ks, - - ' - - - - -- ' '' 14t4-14 9,416 4,795 5,328 2104 11,754 1,449 1,449 t,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1.449 1.449 0480 21,163 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 Z346 18-0.0 21,002 - - 2Z589 Z589 2,589 2589 Z589 2,589 2,589 2,589 2589 2,589 2,589 -Z589 Hud 11,606 1,200 800 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1.200 1,200 Fw*Wwtuedde 2,570 0 150 300 300 300 300 300 300 300 300 300 300 300 300 FwmTooh 15,327 900 300 1,750 1,750 1,750 1,750 1,750 1 ,750 1.750 1.750 1.750 1.750 1.750 1,750 BagkugMtis 15.637 * - 1,517 1,517 2,275 2,275 2,275 2,275 2,048 2,048 1,820 1,820 1,593 1,593 Hawing 12,527 - - 1,215 1,215 1,823 1,823 1,823 1,823 1,640 1,640 1,458 1,458 1,276 1,276 DEVELOPMENT COST 38,718 29,095 1,074 - OPERATING COST 139,087 0 0 16,406 16,406 17,772 17,772 17,772 17,772 17,362 17,362 16,952 16,952 16,542 16,542 TOTALCOST 177,804 29,095 12.074 16,406 16,406 17,M 17,772 17,772 17,772 17,362 17,362 16,952 16,952 16,542 16,542 OUTPUT Bananas kg - - 7,290 7,290 10,935 10,935 10,936 10,935 9,842 9,842 8,748 8,748 7,655 7,655 Baarnas 260,062 - 25,223 25,223 37,835 37,a35 37,835 37,835 34,052 34,052 30,268 30.268 26,485 26,485 CASH FLOW 8EFORE FINANCING (29,096) (12,074) 8,818 8,818 20,064 20.064 20,064 20,064 16,690 16,690 13,316 13,316 9,942 9,942 Intemal Rate of Retum at Projected Prices 63% FRR after Land Rent 52% COST OF PRODUCTiON Disc Rate pvqwo PVC cu 10% 75,163 177,804 IV Semi Annual Equivalent 4.88% Sunmary of Sendviqty of ERR to Yeld and Prke Declnes & Rea Economic Labor Cost Real Waes Charge 0% 25% 50% 0% 25% 50% Paiduouse Price 4.00 3.00 Peak Yield (lha) 10000 negative negative negabve negaive negaabve negative 15000 24% 14% 3% negaive negative negabve 20D00 55% 46% 16% 5% -8% Yield - Percent 8ase Case 100% Av Yield Yearm 3-6 20,230 Sensitivity b Re Incraease in Frandcal Cost of Labor Proproon Increase 0% Wages Escaator % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% D% 0% 0% 0% Adjusted Cash Flow (29,095) (12074) 8,818 8,818 20,064 20,064 20,064 20,064 16,690 16,690 13,316 13,316 9,942 9,942 FRR U3% (30,595) (13,574) 7,318 7,318 18,564 18,564 18,564 18,564 15,190 15,190 11,816 11,816 8,442 8.442 52% 4.987 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Return per Manday Man Days 513 33 32 53 53 59 59 59 59 57 57 55 5S 53 53 Magin before Labor Cost 133,567 (25,795) (8.924) 14,073 14,073 25,926 25,926 25,926 25,926 22,370 22,370 18,814 18,814 15,258 15,258 Retum per MD 260.32 USS 6.51 $ Annualized Budget Pesos USS Producion 453 Sales 52,146 1,304 166,275 DNelopment Cost 7,763 194 367.06 Opwafng Cost 27,889 697 US$ 9.18 Margin 16,494 412 Attachment L5 Mango Table 5 -140- Attachment L5: Bonna Tabe: ECONOMIC PERFORMANCE: S ALHOLOER BANANAS (LONG RUN PRiCES (Pessa 199SConstant Price Tenos) YEAR FV I 1 2 2 3 3 4 4 5 5 6 6 7 7 Semester 1 2 1 2 1 2 1 2 1 2 1 2 1 2 INPUT Culkwd 24,144 1,980 1,890 2,442 2,461 2,479 2,497 2,516 2,534 2,553 2571 2,589 2,608 2,626 2,626 Ca5aa 515 540 Su9kr 14,245 14,940 0 0 0 0 0 0 0 0 0 0 0 0 0 Fuma 14-14-14 7,S15 3,980 4,422 - - - - - - - - - - - 2140 9,985 - 1,207 1,212 1,217 1,222 1,227 1,232 1,238 1,241 1,246 1,251 1,256 1,256 0040 17,110 1,947 1,938 1,928 1,919 1,909 1,899 1,890 1,880 1,871 1,861 1,852 1,842 1,842 16.20 16,664 - - 2,133 2,117 2,101 2,084 2,068 2,052 2,036 2,020 2,004 1,988 1,972 1,972 Hobld 9,633 996 664 996 996 996 996 996 996 996 996 996 996 996 996 Fw0ddetscide 2,005 0 125 249 249 249 249 249 249 249 249 249 249 249 FamTTo* 12,721 747 249 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 Bgaggkrg 12,979 - - 1,259 1,259 1,888 1,888 1,888 1,888 1,699 1,699 1,511 1,511 1,322 1,322 Hwust 7,849 - - 735 740 1,118 1,127 1,135 1,143 1,036 1,044 934 941 829 829 OEVELOFPENT COST 30,556 23,183 9,297 OPERATING COST 105,109 0 0 12,411 12,414 13,419 13,425 13,431 13,437 13,138 13,143 12,843 12,847 12,544 12,295 TOTALCOST 135,665 23,183 9,297 12,411 12,414 13,419 13,425 13,431 13,437 13,138 13,143 12,843 12.847 12,544 12,295 OUTPUT B wa kg - - 7,290 7,290 10,935 10,938 10,935 10,935 9,842 9,842 8,748 8,748 7,655 7.655 Bananas 217,918 - - 21,136 21,136 31,704 31,704 31,704 31,704 28,533 28,533 25,363 25,363 22,193 22,193 CASH FLOW BEFORE FINANCING (23,183) (9,297) 8,725 8,722 18,2n4 18,279 18,273 18,267 15,395 15,390 12,520 12,516 9,649 9,898 ntemra Ecnomic Rate of Ftn at FPjected Pris (Annued) -75% COST OF PRODUCTION aipb PVpO*. P0 CodPtn 10% 75,163 135,665 1.0 4.88% Sumnary of Senitity of ERR to Yild andt Pdi DOcline & Real Economic Labor Cost Red Wages Change 0% 25% 50% 0% 25% 50% Patihouse price 4.00 3.00 Peak Yield OcMa) 10000 negative negatie negdve negative negafve negaive iS000 34% 27% 20% neatiw negapte negabve 20000 68% 62% 30% 22% 15% Yetd - Pecent Base Case 100% Av Yield Years 3-6 20,230 Sens* t Change in Economic cost of Labor Increased Rea Wages 0% Wages Escaaw % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% A*sted Cash Flow es an S72I S.75 14 l 10.273 *low7 AS.S5 S3 1Z520 tZOi6 9.649 9.496 ERR 75% Senstv to Pesos 3,000ha land Rent (24,428) (10,542) 7,480 7,477 17,039 17,034 17,028 17,022 14,150 14,145 11,275 11,271 8,404 8,653 63% 4.9872 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Annualked Budget Pesos USS Sas 43,695 1,092 OeopmentCost 6,127 153 Operating Cost 21,076 527 Margin 16,493 412 Attachment Ml: Banana Table 1: PHYSICAL PERFORMANCE: LACTAN BANANA YEAR 1 1 2 2 3 - 3 4 4 5 5 6 6 7 7 Semester 1 2 1 2 1 2 1 2 1 2 1 2 1 2 INPUT UNIT Direct Labor Cultural mandays 33 32 40 40 40 40 40 40 40 40 40 40 40 40 Cultivation Man animal day 9 Direct Materials Suckers 1,200 0 0 0 0 0 0 0 0 0 0 0 0 0 Fertilizer 14-14-14 kg 540 600 21-0-0 kg 300 300 300 300 300 300 300 300 300 300 300 300 0-0-60 kg 300 300 300 300 300 300 300 300 300 300 300 300 300 16-20-0 kg 300 300 300 300 300 300 300 300 300 300 300 300 Herbicide liter 3 2 3 3 3 3 3 3 3 3 3 3 3 3 Fungicide/Insecticide liter 0 1 1 1 1 1 1 1 1 1 1 1 1 1 Farm Tools pesos 900 300 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 Bagging Materials Kg Bananas sld - - 7,290 7,290 10,935 10,935 10,935 10,935 9,842 9,842 8,748 8,748 7,655 7,655 Harvesting Man Day - - 12 12 18 18 18 18 16 16 15 15 13 13 OUTPUT Bananas Kg Banana - - 7,290 7,290 10,935 10,935 10,935 10,935 9,842 9,842 8,748 8,748 7,655 7,655 > H *b _ Attachment M2: Banana Table 2: SMALLHOLDER BANANA PRICES Assumed FX Rate Pesol$ 40 YEAR UNIT Financial ECF Economic Financial ECF Econ Price Price Econ Price Price World Price INPUT 1998 2004 Change 98-04 Direct Labor Cost mandays 100.00 0.60 60.00 100.00 0.65 65.00 Caribao Man Animal day 225.00 0.73 163.75 225.00 0.77 173.25 Direct Matenals Cost - - Suckers piece 15.00 0.83 12.45 15.00 0.83 12.45 Fertlizer - WP as % Cost 14-14-14 P/kg 8.88 0.83 7.37 8.88 0.83 6.96 -7% 85% 21-00 P/kg 4.83 0.83 4.01 4.83 0.83 4.19 6% 80% 0-0-60 P/kg 7.82 0.83 6.49 7.82 0.83 6.14 46% 90% 16-20-0 P/kg 8.63 0.83 7.16 8.63 0.83 6.57 -11% 75% Herbicide P/kg 400.00 0.83 332.00 400.00 0.83 332.00 Fungicide/lnsecticide P/kg 300.00 0.83 249.00 300.00 0.83 249.00 Farm Tools assorted 1.00 0.83 0.83 1.00 0.83 0.83 Bagging Materials Kg Banana 0.21 0.83 0.17 0.21 0.83 0.17 Harvesting mandays 100.00 0.60 60.00 100.00 0.65 65.00 OUTPUT Bananas at Packhouse 11 P/kg 6.00 0.83 4.98 4.00 0.83 3.32 Haulage to Packhouse 0.46 0.76 0.35 0.46 0.79 0.36 Trimming Crowns 0.08 0.60 0.05 0.08 0.70 0.06 Bananas Kg Bananas 5.46 0.84 4.58 3.46 0.84 2.90 1/ Price assumed to fall to P4 from 1999 onwards > x.:, ch R Attachment M3: Banana Table 3: FINANCIAL PERFORMANCE: SMALLHOLDER BANANNAS 1998 REAL PRICES (Pesos/ha 1998Constant Prce Terms) YEAR PV 1 1 2 2 3 3 4 4 5 5 6 6 7 7 1 2 1 2 1 2 1 2 1 2 1 2 1 2 INPUT Dic L*or Cveural 38,782 3,300 3,150 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 Caibao 858 900 - - - - - Dect Maedas suces 17,162 18,000 - - - - - - - Feurtl 14-14.14 9,416 4,795 5,328 - - - - - - - - - - 21.- 11,754 - - 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 0-0 21,163 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 2,346 18-20.0 21,002 2,589 2,589 2,589 2,589 2,589 2,589 2,589 2,589 2,589 2,589 2,589 2,589 Heitticlde 11,606 1,200 800 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1.200 1,200 1,200 Fungldansetde 2,570 0 150 300 300 300 300 300 300 300 300 300 300 300 300 Farm To* 15,327 900 300 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 Bagn Modas 15,637 - 1,517 1,517 2,275 2,275 2,275 2,275 2,048 2,048 1,820 1,820 1,593 1,593 Hadvesting 12,527 - - 1,215 1,215 1,823 1,823 1,823 1,823 1,640 1,640 1,458 1,458 1,276 1,276 DEVELOPMENT COST 38,718 29,095 12,074 1 OPERATING COST 139,087 0 0 16,406 16,406 17,772 17,772 17,772 17,772 17,362 17,362 16,952 16,952 16,542 16,542 TOTAL COST 177,804 29,095 12,074 16,406 16,406 17,772 17,772 17,772 17,772 17,362 17,362 16,952 16.952 16,542 16,542 OUTPUT Bananas kg - 7,290 7,294 10,935 10,935 10,935 10,935 9,842 9,842 8,746 8,748 . 7,655 7,655 Bananas 410,387 - 39,803 39,803 59,705 59,705 59,705 59,705 53,735 53,735 47,764 47,764 41,794 41,794 CASH FLOW BEFORE FINANCING (29,095) (12,074) 23,398 23,398 41,934 41,934 41,934 41,934 36,373 36,373 30,812 30,812 25,251 25,251 Intemal Rate of Retum at 1998 pices (Annuallsed) 136% COST OF PRODUCTION DOscRA PV Phy4rwOUd Pv CI CeCdPrUoo 10% 75,163 177,804 as.s Yield - Percent Base Case 100% AvYield Years 3-6 20,230 CD> Annualized Budget Pesos USS Sales 82,291 2,057 Development Cost 7,764 194 < 5 Opera0ng Cost 27,890 697 , Margin 46,638 1,166 "I Attachment M4 Banana Table 4 -144- Alhnwdit M4: Banana Table 4: FINANCIAL PERFORUMANCE: SUALLH4OLDER BANANAS LONG RUN PRICES (Pesoslra 1998Constart Price Terms) YEAR PV 1 1 2 2 3 3 4 4 5 5 6 6 7 7 1 2 1 2 1 2 1 2 1 2 1 2 1 2 INPUT DOd Laea cutSi 38,782 3,3D0 3,150 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 4,040 CatD 858 900 - - - - - - - - Swdis 17,162 18,0D0 0 0 0 0 0 0 0 0 0 0 0 0 0 Fez- - - . - - - - - 14-14414 9,416 4,795 5,328 - - - - - - . - - 2140 11,754 - - 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 1,449 04oe 21,163 - Z346 2,346 Z346 2,346 2,346 2,346 Z346 2,346 2,346 2346 2,346 2,346 2,346 1620. 21,002 - - Z589 2,589 Z589 Z589 Z589 Z589 2,589 2,589 2589 2,589 2,589 2,589 Hwt"d 11,608 1,200 80 1,200 1,200 1,20 0 1,20 0 1,200 1,300 1,2D0 1,200 1,200 1,200 1,200 1,200 FIbddb1ns9dk& Z570 0 150 300 300 300 300 3C0 300 300 300 300 300 300 300 FmiTooIs 15,327 900 300 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 san Mawigaat 15,637 - - 1,517 1,517 2,275 2,275 2,275 2,275 2,048 2,048 1,820 1,820 1,593 1,593 Hwmd.s 12,527 - - 1,215 1,215 1,823 1,823 1,823 1,823 1,640 1,640 1,458 1,458 1,276 1,276 DEVELOPMENT COST 38,718 29,095 12,074 - - OPERATING COST 139,087 0 0 16,406 16,406 17,M 17,772 17,772 17,772 17,362 17,362 16,952 16,952 16,542 16,542 TOTALCOST 177,804 29,095 12,074 16,406 16,406 17,772 17,772 17,772 17,772 17,362 17,362 16,952 16,952 16,542 16,542 OUTPUT Bananas kg - - 7,290 7,290 10,935 10,935 10,935 10,935 9,542 9,842 8,748 8,748 7,655 7,655 Bananas 260,062 - . 25,223 25,223 37,835 37,835 37,B35 37,835 34,052 34,052 30,268 30,268 26,485 26,485 CASH FLOW BEFORE FINANCING (29,095) (1Z074) 8,818 8,818 20,064 20,064 20,064 20,064 16,690 16,690 13,316 13,316 9,942 9,942 Intemal Rate of Retum at Projected Prices 63% FRR ater Land Rent 52% COST OF PRODUCTION Disc Rate vPvmcot. Pv c.% Ccd Pdio IfPA;g) 10% 75,163 177,804 2.v Semi Annual Equivalet 4.88% Sunsnary of Sendtvity of ERR to YIeld and Price Decines & Real Economic Labor Cost Real Wages Charge 0% 25% 50% 0% 25% 50% Packhouse Price 4.00 3.00 Peal;Tiel (kgia} 10000 negative negative negative negative negative negative 15000 24% 14% 3% negative negative negative 20000 55% 46% 16% 5% -8% Yield - Percent 3ase Case 100% Av YWid Years 3-6 20,230 Sensitivity to Real Increase in Financial Coast of Labor Proportion Incaease 0% Wages Escalabr % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Adjusted Cash Flow (29,095) (12,074) 8,818 8,818 20,064 20,064 20,064 30,064 16,690 16,690 13,316 13,316 9,942 9,942 FRR 63% (30,595) (13,574) 7,318 7,318 18,564 18,564 18,564 18,564 15,190 15,190 11,816 11,816 8,442 8,442 52% 4.987 0.5 . 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Retum per Manday manDays 513 33 32 53 53 59 59 59 59 57 57 55 55 53 53 Magin befbre Labor Cost 133,567 (25,795) (8,924) 14,073 14,073 25,926 25,926 25,926 25,926 22,370 22,370 18,814 18,814 15,258 15,258 Retum per MD 260.32 USS 6.51 $ Annualized Budget Pesos USS Product 453 Sates 52,146 1,304 166,275 Development Cst 7,763 194 367.06 Operating Cost 27,889 697 US$ 9.18 Margin 16,494 412 Attachment M5 Banana Table S -145- Aftachment M5: Banana Table S: ECONOMIC PERFORMANCE. SIALLHOLDER BANANAS (LONG RUN PRICES) (Pesoslha 1998Constant Price Tems) YEAR PV 1 1 2 2 3 3 4 4 5 5 6 6 7 7 Semester 1 2 1 2 1 2 1 2 1 2 1 2 1 2 INPUT DiedLabor uIto 24,144 1,980 1,890 2,442 2,461 2,479 2,497 2,516 2534 2,553 2,571 2,589 2,608 2f626 2,626 Cabao 515 540 -- - - DirecMateis Suckers 14,245 14,940 0 0 0 0 0 0 0 0 0 0 0 0 0 FeStw 14-14-14 7,815 3,980 4,422 - - - - - - 21-4 9,985 - - 1,207 1,212 1,217 1,222 1,227 1,232 1,236 1,241 1,246 1,251 1,256 1,256 0-.0 17,110 - 1,947 1,938 1,928 1,919 1,909 1,899 1,890 1,880 1,871 1,861 1,852 1,842 1,842 16-20-0 16,664 - - 2,133 2,117 2,101 2,084 2,068 2,052 2,036 2,020 2,004 1,988 1,972 1,972 Habidde 9,633 996 664 996 996 996 996 996 996 996 996 996 996 996 996 Furdlrseeiide 2,005 0 125 249 249 249 249 249 249 249 249 249 249 249 - Faem Tools 12,721 747 249 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 1,453 BagiqMateurals 12,979 - - 1;259 1,259 1,888 1,888 1,888 1,888 1,699 1,699 1,511 1,511 1,322 1,322 HarVSu 7,849 - - 735 740 1,118 1,127 1,135 1,143 1,036 1,044 934 941 829 829 DEVELOPMENT COST 30,556 23,183 9,297 OPERATING COST 105,109 0 0 12,411 12,414 13,419 13,425 13,431 13,437 13,138 13,14 12,843 12,847 12,544 12,295 TOTAL COST 135,665 23,183 9,297 12,411 12A14 13,419 13,425 13,431 13,437 13,138 13,143 12,843 12,847 12,544 12,295 OUTPUT Bananas kg - - 7,290 7,290 10,935 10,935 10,935 10,935 9,842 9,842 8,748 8,748 7,655 7,655 Bananas 217,918 - - 21,136 21,136 31,704 31,704 31,704 31,704 28,533 28,533 25,363 25,363 22,193 22,193 CASH FLOW BEFORE FINANCING (23,183) (9,297) 8,725 8,722 18,284 18,279 18,273 18,267 15,395 15,390 12,520 12,516 9,649 9,898 Internal Economic Rate of Retun at Prjected Pfices (Annuatzed) 75% COST OF PRODUCTION rsr tOw * Pv Coos 10% 75,163 135,665 1i8n 4.88% Summary of Sensitvty of ERR to Yield and Price Declines & Real Economc Labor Cost Real Wages Change 0% 25% 50% 0% 25% 50% Packhouse price 4.00 3.00 Peak Yied (kglha) 10000 negatve negative negatbe negaves negabve negale 15000 34% 27% 20% nev negatve negates 20000 68% 62% 30% 22% 15% YWeld-Percent Base Case 100% Av Yield Years 3-6 20,230 Sensitivity to Change in Econoric cost of Labor Increased Real Wages 0% Wages Escalator % 0% 0% 0% o% 0% 0s 0% O% 0% 0% 0% 0% 0% 0% Adjusted Cash Flow (Mtn A27) 2S II 1*,n 4 t S,279 is" 73 08,267 *s3ss 1S2D 2z.2 1516 96.6 9.36 ERR 75% Sensivity to Pesos 3,000a land Rent (24,428) (10,542) 7,480 7,477 17,039 17,034 17,028 17,022 14,150 14,146 11,275 11,271 8,404 8,653 63% 4.9872 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Annualrized Budget Pesos USS Sales 43,695 1,092 DevelopmentCost 6,127 153 Operating Cost 21,076 527 Margin 16,493 412 -146- Annex 10 ALTERNATIVE INVESTMENT AND MANAGEMENT SYSTEM FOR TREE CROPS The table below sets out Alternative management systems for tree crops and summarizes their strengths, weaknesses and relevance in the Philippines context. System of Relevance for Management & Strengths Weaknesses PhRlippines Ownership Philippines 1. Outgrowers Centralized management - New NE needs large outlay, so it Oil Palm (or rubber) based on potential for high may be difficult to fmd private sector where there is already Nucleus Estate technology - ready market NE operator. Potential for conflict an existing plant with (NE). - economies of scale in between outgrowers and NE because supply shortage. For processing (for operator) when resources are scarce or timne example, in Mindanao and in procurement of windows are limited NE is likely to there are currently inputs. Provides plausible get priority, which outgrowers will underutilized oil palm basis for credit finance view as unfair processing facilities using NE as the anchor. whose efficiency could be improved through outgrowers supplies. 2. Centralized Farmers are organized with Problems of collective ownership - Applicable in limited Management - support from Departnent slow in decision making. Low situations where a Cooperative of of Agrarian Reform probability of long term commercial significant proportion Agrarian Reform (DAR). Technical staff credit being repaid. If replanting is of the funance is a Beneficiaries often available from to be grant fmanced, costly to Govt. grant. Alternatively, (ARBs). previous plantation and so not widely replicable. where such a arrangement and Generally these co-ops are very short management structure infrastructure in place. of resources because (a) lack of cannot be changed, capacity of individuals to contribute replanting needs to be equity and (b) estates were generally phased so that debt for run down at the time of the co-op replanting investment taking over the land. can be serviced from current cash flow without a grace period and credit period is kept fairly short. This might apply to rubber on several plantations in Mindanao 3. Centralized Central decision making. Difficulty in funding site or getting Where JV partner is a Management - Opportunity for good smallholders to lease out or give up skilled agri-business Private (e.g. management and high tech newly acquired land rights. operator, crops are rented with long system. Provides plausible Management may be expensive. high value and term security of basis for credit fmnance potentially profitable tenure) direct to corporate farm or enough for all parties Corporate farn using JV as the anchor. to get a good return - or JV between such as export fruits. Corporate farm There are several and examples of this, with -147- Annex 10 System of _ Management & Strengths Weaknesses Relevance for OwnershipPhipne smallholders. a range of products which Landbank has financed. 4. Individual Makes no formal demand Smallholders do not have their own Fine for commercial Ownership with on public sector. Purely finowciledgestosuccessfull plantinew producers with direct no special market driven, knowledge to successfully plant new access to research areas or even replant old tree crop fidings, capital and support. areas. Unlikely that banks will credit. Also can apply provide credit to individual to the small proportion smallholders except when they have of small who title (e.g. old homestead owners). hv smaitholders who have title to land and significant assets. 5. Individual Sound technical inputs. Cuts out local service providers (e.g. In specific situations Ownership Could be linked with credit seed gardens or fertilizer traders). using Bilateral Aid (on supported by finance. Costly to implement so may not be soft terms) which is PMU (often aid sustainable once external support is not fungible so that fnanced) withdrawn. Credit collection there is a subsidy from unlikely to be effective unless PMU outside and an remains in place well beyond the expectation that the investment period. project will go on for some time. May apply to coconuts, if it transpires that the levy funds are available for use for this purpose. Otherwise, likely to have limited application. System of Strengths Weaknesses Relevance for Management & Philippines Ownership 6. Individual Market based system, Individuals, especially smallholders Suitable for Ownership which should be will have difficulty accessing credit commercial farmers or supported by sustainable in the long directly from commercial banks. in the few situations strengthened term. Institutions to strengthen (research, where there are strong institutions and seed suppliers nurseries, extension long established co- credit with links and village level financial ops (even then, to private sector institutions) start from a low base. ftnance would marketing probably be restricted to working capital, and not available for new -148- - Annex 10 System of Relevance for Management & Strengths Weaknesses Philippines Ownership planting or replanting of long gestation crops). Also appropriate for back yard trees - and would apply to poor farmers who could be given improved planting - materials but use organic fertilizer and own labor during establishment period. 7. Individual Positively encourages Bad experience in Philippines with Could be successfully Ownership - replanting. Potential for coconut levy. Relatively high applied to coconuts if replanting under good cost recovery with overhead associated with present legal problems Cess & Grant exportable crops grant/technical support agency. of old cess (coconut System Lower effective product price (due to levy) were solved. cess) may discourage new planting. Possible application for rubber, but cess would need to be collected both from exports and manufacturers, and should permit replanting to alternative crops as well as rubber. SUMMARY FRAMEWORKS OF TREE CROP STRATEGIES (BY MAIN CROP)1 _______-________X_-__ Indicative Investment Requirements (US$ M) Crop Key Issues Key Strategic Key Actions. Status Quo Active Pro-Active Remarks Elements _Development Development 1. Coconut * Low productivity * Policy Reforms * Amend Coconut 7.2 21.6 28.8 * DA/PCA needs to * Senile trees * Farm Devt Preservation Act broaden * Inter-cropping (private (overly restrictive) stakeholders * Extension sector/farmer * Promote expanded participating in the * Inadequate funding led) role of private sector Coconut Sub- (public and private) * Strengthen in seednut gardens, group (with DA * Constraints to Supporting nurseries, taking the lead) expanding private Services diversification; * Draft Coconut sector role in seednut * Expand access to * Promote farmer Strategy gardens finance actions to rehabilitate Framework needs * Coconut levy * Develop and replant coconut to be further * Coconut Preservation guidelines for areas (focus on high revised Act use and mgt. of potential areas) and coco. Levy funds intercropping (once Court * Strengthen coconut '. makes decision) research and extension Streamline & activities, (and better strengthen integrate with LGU institutional roles extension system) * Rationalize DA & PCA's future role, expand role of private sector, farmer groups, LGUs) Further details are provided in the initial draft Strategy Frameworks prepared for each of the main tree crops (see Attachments). As part of operationalizing its strategies and MTPDP, The Dept. of Agriculture plans to establish a Commercial Crops and Diversification Steering Committee (inter-agency, to be chaired by the Secretary of Agriculture), to be supported by a Commercial Crops and Diversification Technical Working Group (to be chaired by the USEC of Policy and Planning), and component subgroups for each of the main commodities and cross-cutting areas te.g., land and finance). Some of these subgroups already have formed and have : started to prepare draft strategies. The investment requirements will be provided primarily by the participating farmers/investors, and are only indicative, based on their crop and investment decisions. ___________________ _ . .Indicative Investment Requirements (US$ M) Crop Key Issues Key Strategic Key Actions Status Quo Active Pro-Active Remarks Elements Development Development 2. Coffee * Low productivity * Rejuvenation and Form Coffee Subgroup 13.8 20.7 34.4 * Project new plantings: under Commercial Crops development will * Bean quality supply of planting & Diversification Tech. be private sector materials Working Group DA/LGU/SCUs * Inadequate financing * Long-term finance (CCDTWG) will provide support * Poorly organized * Institution-building * Formulate private- smallholders sector-led coffee master plan * Access ODA assistance 3. Rubber * Low productivity * Supply of planting Form Rubber Subgroup 1.2 3.7 12.4 * Project dev't will be * Senile trees materials under CCDTWG private sector; * Inadequate financing * Long-term finance DA/DAR/DENR * Weak extension * Extension services * Formulate private will provide support * Poorly organized * Institution building sector-led rubber smallholders * Management and masterplan L * Management of ARB- long-term finance * Advocate for o estates of ARB estates Gov't/LGU support * Access in public lands * Policy clarification * Access ODA assistance and modification * Immediate r6eplanting support for ARB estates under cost-sharing scheme * Clarify policies in public lands Indicative Investment Requirements (US$ M) Crop Key Issues Key Strategic Key Actions Status Quo Active Pro-Active Remarks Elements Development Development 4. Oil palm * Untapped * Investment Form Oil Palm Subgroup 2.7 10.6 19.9 * Project opportunity promotion under under CCDTWG development will nucleus - Evolve financing be private sector * Underutilized mills outgrowers packages DA/LGU will * Land access scheme provide support * Inadequate * Outgrowers * Advocate for financing consolidation Gov't/LGV support * Long-term * Lobby for ODA finance assistance 5. Mango * Low productivity * Supply of planting Form Mango Subgroup 1.8 3.0 4.9 * Project * Lack of financing materials under CCDTWG development will * Weak extension * Long-term finance be private sector * Poorly organized * Extension services * Formulate mango DA/LGU/SCU will growers * Institution-building component under provide support * Infrastructure Fruits Master Plan * Advocate for Gov't/LGU support 7 * Cost-sharing scheme * Lobby for ODA assistance Indicative Investment Requirements (US$ M) Crop Key Issues Key Strategic Key Actions Status Quo Active Pro-Active Remarks Elements Development Development 6. Banana Deferred Commercial * Transfer modalities For Deferred Farms: fast- 67.9 72.0 74.5 * Project Farms: Supply of planting track "smooth" transfer development will be * CARP materials process through joint private sector Backyard/smallholders * Research and venture, corporative and DA/DAR/LGU will * Low productivity extension services leaseback provide support * Weak research and * Institution building Form Banana Subgroup extension * Support under CCDTWG * Poor infrastructure * Fornulate banana master plan * Advocate for Gov't/LGU support * Lobby for ODA assistance 7. Cacao * Low productivity * Supply of Form cacao subgroup 0 1.0 2.0 * Plantings/project l * Weak research and planting under CCDTWG development will be 'i extension materials * Formulate master plan private sector * Lack of * Financing * Lobby for Gov't/LGU DA/LGUs/SCUs management skills * Research and support will provide support of ARB estates extension * Increasing rate of * Institution import dependence building 8. Other Fruits * Low productivity * Supply of Form Other Fruits 14.0 19.1 24.5 * Plantings/project * Weak research and planting Subgroup under development will be extension materials CCDTWG private sector * Poorly organized * Research and * Formulate development DA/LGUs/SCUs smallholders extension component of Fruits will provide support services Master Plan * Institution- * Advocate for building Gov't/LGU support * Lobby for ODA assistance Indicative Investment Requireme nts (US$ M) Crop Key Issues Key Strategic Key Actions Status Quo Active Pro-Active Remarks Elements Development Development _ . 9. Timber trees * Unclear land * Policy Form Timber Trees n.a. n.a. n.a. * Plantings/project policies clarification and Subgroup under development will be modifications CCDTWG for farmers in private sector. * Lack of financing private lands DENR will provide for smallholders * Long term * Formulate master plan support in public finance lands and DA in * Poorly organized * Institution * Clarify and modify private lands smallgrowers building land policies * Lobby for ODA assistance Others TOTAL : 108.6 151.7 201.4 u -154- Annex 1 1 Attachment 1 PROPOSED STRUCTURE OF TREE CROP FRAMEWORK STRATEGY FOR COCONUT I. Background A. Importance of the Crop 1. One third of the Philippine population or approximately 24 billion Filipinos depend directly/indirectly from the coconut industry for livelihood. 2. The sector is one of the largest contributors of foreign exchange, with Philippine coconut exports accounting for some 65% of the world traded products and by-products. 3. 3.093 million hectares representing 25% of total agricultural land in the Philippines is planted to coconut. 4. Coconut is grown as a major crop in 64 out of 78 provinces nationwide. The industry export of 54 coconut products and by-products to some 63 countries earn for the country an average of US$800 M annually. 5. The potentials for growth and development of the industry remains favorable given the new users 6of coconut made possible by new technologies and greater interest in "naturals." 6. Prospects of the industry remain bright with world demand expected to increase and domestic consumption to grow by 3% annually. 7. There is an increasing consumer demand for the healthier oilseed in Europe and North America; rising demand for copra meal and coconut oil in Asia, emerging markets in finished edible products in Eastern Europe. 8. There are at least 6,000 barangay-based small coconut farmers' organizations nationwide. Its membership totals to approximately 200,000 small coconut farmers and farm workers. Meanwhile, the Philippine Coconut Producers Federation (COCOFED) boasts of 2 million members from its 900 town chapters. Both have representatives in the Lower House. 9. The influence of the industry to the Filipino life is pervasive. From the time he/she wakes up until he/she goes to bed consumes coconut products. This is true in the rural and urban areas. 10. Coconuts have very high medicinal significance with the diuretic effect of the coconut water in avoiding the formation of kidney stones and the coconut oil -155- Annex 1 1 Attachment I as health food for its anti-microbial, anti-toxic and metabolic enhancing properties. l1. The ecological value of coconuts is exemplified by the products derived which are biodegradable and environment-friendly. Further, it is a very good planting material for reforestation. 12. With coconut as a major element of a farning system it can be complemented with intercropping, livestock production, aqua-culture project and village- level processing of coconut products and by-products. B. Main Programs IMPLEMENTATION MAIN PROGRAMS KEY LESSONS EXPERIENCE Productivity Programs - Small Coconut Farms co 15,800 hectares c> 36.8% below the target Development Project replanted vis-a-vis primarily due to lack of (SCFDP) 25,000 ha. target. source of planting materials. A World-Bank assisted long-term program of c> Nut and copra yield per coconut replanting and 3 360,000 hectares hectare can double after productivity fertilized. four years of annual improvement, back-up by fertilizer application of necessary infrastructure about 4.5 kg. per palm or and support services 9 bags per hectare. Coconut yield increased from about 40 to 80 nuts/palm/year and from 1 to 2 kgs. Coprala/year. v Only 1 to 2 kg. of c> Utilization of husks in mineral fertilizer per fertilized farms as palm would be required, support for post should the farmer retain rehabilitation efforts. more than 50% or half of the available coconut -156- Annex 1 I Attachment 1 husks in the farm. c> Developed an elite group > Extension workers are of extension workers more aggressive, thru massive "hands-on" dynamic and highly trainings, and values motivated in the formation. There is also implementation of the an improvement in the project in the field. mobility of extension workers thru provision of motorcycles and increase in transportation allowance. cp Inadequate GOP ' An increase of project counterpart funding cost overrun of GOP due aggravated by the delays to currency adjustment in the release of and the non-secondment approved budget resulted of DA extension workers to the substantial delay whose functions were in meeting required devolved to the local physical target. government units. l One-day techno ca' Techno-development development training training of farmers - a was not sufficient as big crowd of small they could not grasp all coconut farmers and the leanings that PCA farmworkers gathered wanted to impart. It was together to listen to also too costly. resource speakers and PCA researchers and officers on update on different issues and concern of the industry. 3 Interfacing/complementi 3 MAUNLAD NA 3 PCA shall establish ng of all assistance NIYUGAN TUGON SA model farrns of at least packages offered by KAHIRAPAN 15-20 has. Each in assisting agencies are PROGRAM selected areas in the 64 made available. coconut producing Dubbed as the provinces of the country. Agrikulturang Makamasa Program for coconut, in c> In the initial stage of -157- Annex 11 Attachment 1 response to the call for program food security and poverty implementation, alleviation programs of activities presently being the ESTRADA pursued include farm Administration. evaluation and location of funding and credit Aims to increase the facilities for model farmers' income from farrns. 910,000.00 to R100,000.00 per hectare per annum thru diversified farming; intercropping, livestock, irrigation, aquaculture 9 Farm visits for the production, processing purpose of extending facilities and organizing technical assistance to into viable cooperatives. farmers on more advanced technologies ct GENERAL FARM 0- 178,455 has. have been on coconut production ASSISTANCE covered; 296,173 farms were transferred to PROGRAM have been visited; and coconut farmers. 16,727 farmers attended meetings/sessions. c_ Likewise, farmers were 422,707 farmers have made aware of the other received assistance sources of livelihood like under the program in CY production of coco- 1998. based products and by- products on small and medium-scale. c' No sustainable funding. c> COCONUT 0> Mini coconut GERMPLASM TESTING seedgardens are being STATIONS (CGTS) operated and maintained in 6 major coconut producing regions. They can produce hybrid coconut planting materials that can supply PCA's regular replanting C> Sustainability is a main program of about 1,000 concern due to fund hectares per year. constraints. -158- Annex 11 Attachment I cl REGUL4R PLANTING! REPLANTING PROJECTS c:) Planting of suitable local tails where 19,930 hectares replanted and Includes complementary 26,473 farmers assisted. replanting programs from SOLCENTAF, Gintong a Prosecution of cases is A ni, Calamity difficult for lack of Development Fund and manpower resources and RA 8048. lack of police power for PCA to implement the law. IMPLEMENTATIONOF a Reduction of a Need to amend the indiscriminate cutting of preservation act. RA 8048 old and senile trees as well as those posing hazards to life and c> Loan requirement on > Also known as Coconut property. track record and Preservation Act of 1995 coopertive standing regulating the cutting of should be relaxed. coconut trees in the Philippines. 03 FIELDSfor SCFO Credit facility program c> Successfully ca Production of nine high for coconut farmers' implemented in the yielding PCA hybrids but organization. countryside among only four were utilized coconut farmers due to lack of interest organization; assisted in from the private sector. securing loans from Land Bank. c> Given much emphasis was high yielding potential but other factors RESEARCH & like MCT, etc., were PROJECTS given minor consideration. ~ AGRICULTURAL - Technology developed RS AGRICULTURAL on varietal improvement. v Sustainability of funding DEVESLOPMEHAND *breeding forspecific due to high investmnent DEVELOPMENT breeding for specific cost. -15 9- Annex 11 Attachment 1 purpose. * Biotechnology/tissue c No irrigation project culture. c> Mainly crops but no livestock component. cD No socio-economic studies to support. 9 Technology developed c3' Emphasis was much on on sustainability of the application of coconut based farming inorganic fertilizers rather system. than organic. t CANFARMS ca Field application not fully Integrated crop developed. protection c3 Promotion is hampered Coconut timber due to effects of RA utilization 8048. t Socio-economic and technology. c3> Lack of funds. Socio- economic studies would serve as guide to project proposal most beneficial to the farmer-participants. The farmers' and farms' 3 Technical Support profiles would be of great Services help in determining investment decisions. * Monitoring, evaluation and a Delineation of functions documentation. of PCA units involved in t Plant and soil M and E not yet analysis. internalized. t Manpower development. a Need assessment must be clear cut. ca With the objective to C PRODUCT RESEARCH c' Copra/Oil Quality improve the quality of AND DEVELOPMENT Improvement Philippine coconut products to meet the * Philippine-German international standards, Coconut Project. 38 establishments were -160- Annex 11 Attachment 1 * post-harvest potential users of coco processing charcoal briquettes and technology. 40 as potential users of interlaced coir fibers. * 2 Fresh-Dry Extraction of CNO and By- Trials and analyses were Products Processing. made to determine the + market research shelf-life study on refined t field studies and oil, application of fast surveys. drying technique and improved copra drying. * Coconut Milk - improved coconut manufacturing via c Can be household conversion of coco enterprise residue to coco flour and virgin oil. a Additional income can be generated. * High value dietary fiber products from coconut flour. i c Investment Promotions * Industry Liaison cD Promoted business c> Additional income can be opportunities on coconut generated. husk processing among businessmen in one seminar each in Visayas, Mindanao and Southern Tagalog. cI Two serious investors are c3 Domestic Market c> Coconut Charcoal considering investing on Expansion Briquette Production this area. c> Technology-ready for c> Demonstration/Survey farmers. conducted among bakers on the use of coconut c> Prototype available in flour on various products. Davao. v Bakers in Davao and c> TRADE & AIARKET __ _ Metro Manila prefer to -1 6 1- Annex I 1 Attachment 1 INFORMATION use coconut flour but they SERVICE need regular supply. c3> Promotional meetings with DPWH and MA a DPWH is reported to be technical people to testing the use of these demonstrate various uses products. of geotextile nets, etc. a Dissemination of daily price information to a Farmers are informed of regional offices which are daily price movement. disseminated through broadcast media. a Distribution of coconut C> Inquiries are received out trade directory to RP of this channel. embassies/consular c> FOREIGN M4RKET offices abroad, and EXPANSION foreign trade organizations/embassies in Manila. c> Inquiries are generated c> Participated in which are referred to international trade fairs exporters. and exhibits. c> Foreign tourists who visit cv Maintenance of coconut the area are able to see products display area at the wide array of coconut the Philippine Centennial products. Expo at Clark, Angeles City. C. Key Issues 1. Low productivity of coconut farms, thus low income from coconut fanning, due largely to an increasing number of senile and/or unproductive coconut trees, the unabated illegal cutting of young and productive trees, and natural calamities. 2. Sustainability of the gains and progress made under the SCFDP which is scheduled for termination after December 31, 1999, compounded by the inability of the GOP to meet its commitments under the loan agreement. 3. Implications and repercussions of the termination of the SCFDP on the continuity and effectiveness of PCA's operations, as in the case of the regional offices with -162- Annex 1 Attachment 1 minimal regular plantilla positions, not to mention the seedgardens (Aroman, etc.) which face inevitable closure. 4. Impending dismemberment of the PCA as a result of the enactment of the AFMA, and the possible abolition of PCA under proposed Senate and House bills now pending in congress. 5. Non-inclusion of CARP-related issues (such as incentives) in the Investment Priority Plan, which inhibits the active involvement and participation of the private sector in industry development programs such as coconut production. 6. Difficulty in establishing and maintaining large-scale coconut seedgardens due to ancestral domain claims. 7. Difficulty of the private sector in getting multi-year contracting schemes, particularly in seednut production and marketing, because of strict govermment regulations. 8. Lack of sustained and adequate resources for infrastructure support, market, research and extension services. 9. Matching between the production of nuts (supply) and the processing plants' capacity (demand), which may necessitate the possible relocation of some plants to ensure greater efficiency and productivity and to prevent/eliminate unnecessary cutthroat competition. 10. The attitude of farmer-beneficiaries towards government projects (whether as grant or as a loan), where policies tend to be vague and/or implementation is sometimes haphazard and inconsistent in terms of application. 11. The long-drawn court litigation involving the coconut levy funds, which polarizes the farmers sector and impedes forward planning by the government and the private sectors. 12. Absence of any impact assessment made on the various coconut-related programs and projects, except for one that was done by a PCA consultant in 1997 which confirmed that production under the SCFDP-covered farms doubled on the average. 13. Over-reliance on single inorganic fertilizers vis-a-vis the negligible propagation of the use of organic and/or compound fertilizers. 14. Lack of mother palms to be used in the production of local hybrids found to be promising in terms of yield and oil content. -1 6 3- Annex I 1 Attachment 1 15. Lack of research on the varieties of lauric (C12) and other fatty acids in relation to questions pertaining to oleochemicals. 16. Difficulty in enforcing RA 8048, due to deficiency in the law and the lack of government personnel to implement it. 17. Minimal efforts for the large-scale production of the Tacunan variety which is highly suitable to typhoon-prone areas. 18. Over-concentration of research activities on crops instead of on livestock and other agricultural products and by-products. 19. Need to review the implementing rules and regulations governing land conversion, specifically in all areas that are classified as suitable to coconut farming. 20. Decentralizing replanting to the provinces and involving the community where the project is located. 21. Giving coconut farmers greater latitude on the choice of primary and secondary crops to be planted in coconut farms in instances when it is determined that coconut may no longer be viable in such farms. nI. Component of the Program 1. Planting/Replanting 1.1 Seedgardens 1.2 Nurseries 1.3 Field Planting and fertilization 1.4 Covercropping and intercropping 2. Rehabilitation by fertilization 3. Post-rehabilitation 4. Integrated Coconut-Based Farming System (Maunlad na Niyugan Tugon sa Kahirapan) 5. Institutional Strengthening III. Strategy Elements 1. Seedgardens - PCA will continue operating its existing seedgardens while simultaneously encouraging the private settor to enter into small scale (50 hectare size) seednut production centers at the provincial level. -164- Annex 11 Attachment 1 1.1 Continue harnessing the Aroman seedgarden, which is capable of providing hybrids for 9,000 hectares at full development per annum to supply the planting material. 1.2 Harness the Zamboanga Research Center's mini-seedgarden to produce hybrid seednuts for replanting 2,300 hectares per annum. 1.3 Make representations with the Board of Investments and the Department of Agrarian Reform for the possible availment of the pioneering industries incentives program under a corporative set up being presently encouraged by DAR. 1.4 Seek the assistance of the Economic Mobilization Group in looking for private investors willing to go into hybrid seednut production for replanting purposes, to cater to the coconut farm not covered by this program. 2. Nurseries 2.1 On site nurseries numbering 533 will be established of which PCA will still be in-charge of operating and maintaining them, although the support of the LGUs as well as the community/farmer groups, and NGOs will be sought in terms of underwriting such activities as the provision of land, equipment, irrigation facilities, security and labor. 2.2 Require the prospective beneficiaries to make a counterpart contribution by means of providing the labor for nursery maintenance. 3. Planting/Replanting 3.1 Concentrate all replanting activities in areas classified as wet and intermediate zones, as well as in coastal areas, and to lower in prioritization its official support to the areas classified as unsuitable to coconut planting. The target for five years is 53,000 hectares. 3.2 Continue the technology promoted in the SCFDP (1st phase) under a reduced scale (5 years fertilizer commitments instead of 7 years). 3.3 Use coconut as a planting material in support of the agro-forestation program of the DENR. 3.4 Continue promoting underplanting with subsequent thinning over a period of 3-4 years to speed up participation in replanting. 3.5 Include open areas especially in Mindanao where coconut trees are generally young and where many trees that are 50 years old and above are still productive. -165- Annex I 1 Attachment 1 3.6 Adopt the "corporative" approach of DAR to agrarian reform communities (ARCs) planted to coconut. This will be done by encouraging and assisting the agrarian reform beneficiaries to embark on viable enterprises that will not only serve to plow back their income/earnings to the amortization of their lands but also to eventually make them self-sufficient, self-reliant and self- directing members of the society. 4. Rehabilitation by Fertilization 4.1 PCA will pursue the fertilization of matured coconut trees, where soil nutrition is the limiting factor for production, at a rate of 25,000 hectares/annum. This will create a buffer against decreasing coconut production brought about by replanting, illegal and rampant cutting, and natural calamities. 4.2 PCA will continue the technology promoted in the SCFDP (1st phase) where beneficiaries are given fertilizers for 2 years after which they will be required to keep on the practice on their own. 5. Post-Rehabilitation Scheme This involves a total of 200,000 hectares intended to maintain the high degree of production attained under phase I of the SCFDP. 5.1 PCA will intensify this scheme by requiring rehabilitation by fertilization participants who received the complete fertilizer allocations under phase I of the SCFDP to use coconut husk with a combination of minimal inorganic fertilizers on their farms. 6. Integrated Coconut-Based Farming System (Maunlad na Niyugan Tugon sa Kahirapan). This will be carried out primarily through the "Maunlad na Niyugan Tugon sa Kahirapan" program where model farms will showcase appropriate farming systems that are adaptable to any particular area and capable of being replicated in similar areas. 6.1 Focus will be on the planting and propagation of intercrops in coconut areas by interfacing with appropriate agencies to make available resources, such as the NIA and BSWM for small-scale irrigation facilities, BPI for planting materials, BAI for livestock, and private agricultural corporations involved in seed production. 6.2 Pursue studies by social scientists on how to ensure the replication of the "Maunlad" model farms by the coconut farmers. -1 6 6- Annex I 1 Attachment 1 6.3 Wherever appropriate, irrigation, systems will also be established in the farms in collaboration with the NIA, the BSWM, and other govermment agencies concerned. 6.4 Provision of technical assistance, and training to coconut farmers. 7. Institutional Strengthening 7.1 Restructure PCA such that the collaborative efforts of all its units and sub- units are focused towards making PCA's existence more relevant to the dynamics of the industry as well as the national and global economy. 7.2 Conduct relevant training activities for the extension workers and other personnel of PCA. 7.3 Recruit new extension workers and regularize positions in newly-created regional offices and in the PCA-operated seedgardens. 7.4 Increase PCA fees from P.06/copra kilo to R.09/copra kilo to support especially the planting/replanting program. 7.5 Increase the fees under RA 8048 to discourage tree cutting, the increment or proceeds of which will be given as an additional incentive to the LGUs. 7.6 Use the coconut levy, regardless of whether it is private or public as will be determined by the courts, to benefit the coconut farmers and industry. 7.7 Embark on skills development training for coconut farmers through the Farmers Field Schools (FFS) program. 7.8 Regardless of their current affiliations or membership, integrate all coconut farmers' organizations (COCOFED, SCFO, etc.), the unified body of which will become the primary conduit of all PCA extension/assistance programs and projects. 7.9 Participative impact monitoring involving appropriate sectors of the government and community shall be encouraged to instill an atmosphere of belonging and commitmnent. IV. Implementation Arrangements and Roles A matrix have been prepared and herewith attached elaborating the different roles of the different sectors. -1 6 7- Annex 11 Attachment 1 V. Estimate Costs The Tree Crop Strategy for Coconuts has an indicative estimate of P2,567 M for five (5) years, broken down as follows: Components Pesos (Million) 1. Planting/Replanting P 1,069 1.1 Seedgardens P 296 1.2 Nurseries 260 1.3 Covercropping/intercropping 215 1.4 Field Planting & fertilization of coconut seedlings 298 2. Rehabilitation/Post-Rehabilitation 603 3. Integrated Coconut Based Farming System 150 (Maunlad Model Farms) 4. Institutional Strengthening 245 6. Incremental Operating Costs 500 Total P 2,567 or P 513.4 per annum VI. Benefits 1. The country will remain a stable and reliable supplier of coconut products and by- products. 2. Coconut farm income will increase from 10,000/ha./annum to P1 00,0001haJannum. 3. Senile and unproductive trees will be replaced with new and high-yielding varieties. 4. The food security thrust of the government will be supported, especially through crop diversification. 5. Coconut fanners will become more self-reliant, self-sufficient and self-directing members of society. 6. Coconut farmers' organizations will become more responsive to the continually changing demands of the times. -168- Annex 1 1 Attachment 1 7. More jobs will be generated, especially at the village level where the womenfolk and the youth can be utilized in the various undertakings that will be done. VII. Risks 1. There may still always be the tendency of the targeted clientele (farmers) to be over-dependent on grants. 2. The introduction of genetically-engineered substitutes and new chemical discoveries that are cheap and biodegradable may reduce the premium that coconut oil and other products and by -products demand in the world oils and fats market, thus threatening a possible shift to competing products. 3. With inefficiencies and high cost of production, coupled with a pronounced yearly decrease of coconut tree stand, coconut export products from the Philippines must be priced out of the world market. -169- Annex 11 Attachment 2 INDICATIVE FRAMEWORK FOR COFFEE DEVELOPMENT STRATEGY 1. Background Importance 1. Coffee has a long history in the Philippines. In the 1880s, the country was the fourth largest coffee exporter in the world. By the 1890s, the crop was practically wiped out by a disease. Through 1940, planted areas barely reached 7,000 ha. From about 10,000 ha in 1950, areas doubled to 20,000 ha in 1956 and further rose to 50,000 ha in 1962 primarily due to spontaneous plantings. The next spurt started in the late 1970s; by 1986, there were over 140,000 ha of various varieties (robusta, liberica, arabica, and excelsa). About 400,000 rural households in small or backyard farms are dependent on coffee for their primary or supplementary income. 2. Coffee is one of the important smallholder crops, many of which are backyard operations. It is grown nationwide either in pure stands, mixed crops or as coconut intercrop. About 70% of production come from Mindanao, 24% from Luzon, and 6% in the Visayas. Production declined at an average rate of 2.2% p.a. in the 1990s, a reversal of the growth of 3.1% p.a. in the 1980s. Meanwhile, planted areas was practically stagnant at about 150,000 ha in the 1990s compared to an average growth of 2.3% p.a. in the 1980s. As a result, average yield stagnated at 400 to 500 kg per ha, far lower than the yield of good farm of about 2,000 kg per ha in the Philippines and about 1,200 kgs per ha average in Vietnam. 3. Coffee exports peaked in the late 1980s and then dramatically declined thereafter. Bean export reached 43,000 tons (US$120 million) in 1986 from 16,000 tons in 1980. The impetus was the accession of the Philippine to the International Coffee Agreement (ICA) which gave the country 0.8% of the high-priced global quota. Since 1992, coffee export has been minimal. The sharp decline in exports is attributed to the collapse of the ICA in 1989. 4. Farmers sell their dried cherries to village traders/assemblers which in turn sell to buying agents. Buying agents dehusked the cherries to green beans. Large buying agents provide cash advances to village traders who also provide advances to smallholders. Some farmers' cooperatives also own huskers. Their green-beans are bought by buying stations of Nestle and other traders. There are few large coffee processors in the Philippines. Green beans are roasted to produce soluble coffee and then marketed in retail packs under different brands. Nestle Philippines, with strong brand presence, dominates the market with about 80% of the soluble coffee market. The rest are divided among three companies: Universal Robina Corporation, General Milling Corporation, and Commonwealth Foods. 5. Domestic consumption of coffee is relatively low at about 0.8 kg per person in 1997. Consumption has been on a long term uptrend, except for the crisis years or 1983-86 where it drastically fell. According to the experts, the current consumption of coffee is about 810,000 60-kg bags (48,600 tons), up from 480,000 bags in 1986 (Reyes, 1998). This consurnption estirnate is 20% lower than official statistics indicate. -170- Annex 11 Attachment 2 Main Programs, Implementafion Experiences and Key Lessons 6. Coffee development is primarily a private sector initiative. From about 10,000 ha in 1950, areas doubled in 1956, and reached 50,000 ha in 1962 primarily under spontaneous plantings. The next spurt started in the late 1970s and by 1986, there were over 140,000 ha. The major impetus were two: the PNB and DBP financing in the 1960s and 1970s and the accession to the International Coffee Agreement which ushered in higher quota prices until its collapse in 1989. From 1990 onwards, areas and production practically stagnated. 7. Among the past key players in coffee were Menzi Agricultural Corporation in Basilan and Bukiclnon provinces and San Miguel Corporation in Bukidnon. Under CARP, both companies took the voluntary-offer-to sell option in 1990. The estates are now under the control of farmworkers cooperatives. Some diversified into other crops, such as banana. Meanwhile, Dacon Corporation has developed considerable plantings of arabica coffee in its Timber License Agreement in Sultan Kudarat. Nestle Philippines, a subsidiary of a multinational company, has been actively involved in technical assistance program nationwide since the 1980s. It provides good robusta clones which bear berries in two years and buys the produce of most farmers. 8. Government support to coffee development is at best marginal compared to its support to grains. During 1991-1996, budgetary allocation to PCARRD and DA-BAR averaged less than P1 million annually. In 1997, these increased to P 1.5 million but miniscule compared to the coffee production valued at P 5,000 million. In 1998, the DA Natural Agriculture and Fisheries Council budgeted P 2.6 million for training eight nurseries, four demo farms, three post harvest facilities and project monitoring. Assuming a benchmark R&D budget of 1% of gross value added, the R&D budget for coffee would have been about P50 million annually. Key Issues 9. Coffee covering 150,000 ha is one of the important commercial crops. It is planted in pure stands, mixed farms, or as coconut intercrop. Among the key issues are: * Low productivity. The low yield (400 to 500 kg/ha) is due to poor clones, limited rejuvenation and inadequate crop management. The yield is only a fourth of the "best farm" in the country and a third of Vietnam's average. * Poor quality. Bean quality has considerably improved over the years but a lot remains to be done. * Declining exports. The production decline has led dramatic fall in exports and threatens to make the country a net importer. Government support appears inadequate compared to that of Vietnam which through concerted efforts in the past 10 years its coffee areas have not reached 400,000 ha. * Inadequate financing. While new coffee clones take about two years to bear berries, Banks have the ingrained perception that coffee has longer gestation. Nevertheless, coffee requires a longer repayment period. This is also exacerbated by the weak growers' organizations. -171- Annex 11 Attachment 2 II. Strategy Elements and Tentative Components of the Program 10. A smallholder coffee development program must be anchored on two elements: rejuvenation of unproductive standards, and newplanting. Nestle is active in providing technical assistance but a private company also faces resource constraints. A sustainable program would entail support from the national and local governments. Among these are: Nursery Development. An active rejuvenation program will require the participation of private nurseries (individually-owned or group-owned) in many regions preferably assisted by Nestle. These nurseries could benefit from long-term supply contract from the DA or LGU via a voucher system. * Long-term Financing. While new coffee planting can take on a loan grace period of three years, the repayment schedule starting the 4h year could require about five years. * Extension Services. While Nestle has active presence in many regions, its manpower is severely stretched. Extension technicians under the LGU will be trained by Nestle. * Institution-building. There is need for organized growers associations in order to attain the benefits of scale economies in: input purchases, common post-harvest facilities, and marketing as well as capacity to employ their own extension technician. 11. Under the newplanting scheme, mixed cropping will be promoted in order to optimize the use of farm labor and to diversify sources of farm incomes. A common system is the intercropping of senile coconut stands. Another is the use of line planting of eucalyptus deglupta, an indigenous fast- growing tree, along the east-west direction. When the trees are cut after ten years, the coffee would also be ripe for rejuvenation. III. Implementation Arrangements and Roles 12. There are two similar variants of coffee development: one in ARB-estate and another in smallholder areas. (a) ARB Estate or Coop * DAR and/LGU will provide cost-sharing for nursery development. It will also provide support to NGOs in organizing the ARB. * Nestle or a private company will provide technical services and marketing assistance. * Land Bank will provide financing for farm inputs as well as common post harvest facilities (depulping/drying). (b) Smallholders * DA or LGU will provide cost sharing for nursery development. It will lend financial assistance to NGOs in organizing weak farmers associations and cooperatives. * Nestle or a private company will provide technical services and marketing assistance. * Land Bank/DBP will provide long-term financing for farm inputs and post harvest facilities. -172 - Annex 11 Attachment 2 IV. Estimated Costs and Financing Strategy/Arrangements 13. Status Quo. Under this scenario, only 10,000 ha will be planted and rejuvenated per year making the total area practically stagnant at 150,000 ha as part of the areas will be shifted to other uses. Assuming a yield increase to 600 kg/ha, total supply will increase to 100,000 tons in 10 years versus a projected domestic demand growth of 4% p.a. to 85,000 tons, leaving a small amount of export. This will require an average annual cost of P550 million (US$ 13.8 million). 14. Active Development. Under this scenario, about 15,000 ha per year will be planted/rejuvenated and total area will increase to about 200,000 ha. Assuming an average yield of 700 kg/ha, total production will reach 140,000 tons, leaving about 55,000 tons (about US$ 80 million) for export. This program will require an average annual cost of about P830 million (US$ 20.7 million). 15. Pro-Active Development. Under this scenario, some 25,000 ha of coffee will be planted annually. Assuming an average yield of 1,000 kg/ha, total production will reach 300,000 tons on 300,000 ha. Given a projected domestic demand of at least 85,000 tons, this will leave 215,000 tons (US$ 320 million) for export. This strategy will entail an average annual cost of P1,380 million (US$ 34.4 million). This scenario will have to be calibrated with world market conditions. V. Expected Benefits and Risks 16. Benefits: Coffee development will be a good vehicle for increasing farmers' incomes of who are not averaging 400-500 kg /ha compared to the good farms of 2,000 kg per ha. According to experts, small holders could attain a yield of over 1,000 kg per ha under good management. Moreover, coffee is a good crop for environmental sustainability in the uplands. On the macro-economy side, the country will benefit from coffee production by either saving foreign exchange and/or expanding exports. 17. Risks. The main risks include: severe fluctuations in the world market and the non-attainment of targeted yields. The recent peso depreciation has provided a good "cover" for down turn in coffee prices. During the past two decades, world robusta coffee fell below US$1 per kg only once (1992). The critical factor, therefore, is the attainment of targeted yield to at least 1,000 kg per ha. VI. Main Recommendations and Suggested Next Steps 18. The coffee industry urgently needs a credible group to champion its causes. A coffee subgroup under the Tree Crop Steering Committee must be formed, with heavy private sector representation. It will have the following mandate: * Formulate a coffee master plan. (This will be coordinated with other tree crop subgroups under mixed cropping strategies) * Advocate for Government/LGU support for nursery development, institution-building and infrastructure. * Lobby for Bank financing and ODA. -1 7 3- Annex 11 COFFEE DEVELOPMENT FRAMEWORK Attachment2 (Rejuvenation and Planting) PRIVATE FIRM (e.g. Nestle Phils.) Technical Assistancet Sales rGROWYERS_ ODA/DOF > LPI8PDBP Cr ASSOCIATION/ Numsery DA PHF COOPERATIVE InsUtution Social Prep. Infra \BulIding Fund Finance LGU NGO j Component Items Stakeholder Development Cost Land clearance, DA/LBP/DBP/Growers planting materials, crop maintenance Technical Assistance Private Firm Institutional-Building Organization/Social DA/LGU/NGO preparation Research and Extension DA/LGU/SCU Infrastructure Farm-to-market roads LGU -174- Annex 11 Attachment 2 TABLE 1. PRODUCTION (GREEN BEANS), AREA AND YIELDS Ave. Growth Rate (% p.a.) Crop 1980 1990 1997 1980-90 1990-97 Production ('000 tons) 55.2 70.8 60.5 3.1 (2.2) Area ('000 ha) 115.5 149.7 149.5 2.3 (0.1) Yield (tons/ha) 0.5 0.5 0.4 0.4 (4.0) Source: Bureau ofAgricultural Statistics TABL]E 2. REGIONAL DISTRIBUTION OF PRODUCTION, 1980 AND 1997 Region 1980 1997 Ave. Growth Rate (% p.a.) (%) (%) 1980-90 1990-97 Luzon 34.8 23.7 0.6 (4.4) Visayas 7.5 6.0 0.5 (1.7) Mindanao 57.7 70.3 4.6 (2.0) TO)TAL 100.0 100.0 3.1 (2.2) Source: Bureau ofAgricultural Statistics TABLE 3. COFFEE EXPORTS, SELECTED YEARS VOLUME IN TONS Ave. Growth Rate (% p.a.) Crop 1980 1990 1997 1980-90 1990-97 Green Beans 15,802 9,121 543 5.1 2.6 Others(a) 185 113 544 4.2 27.8 "Extracts, Issences, Roasted, End Concentrates Source: Foreign Trade Statistics of the Philippines TABLE 4. COFFEE EXPORTS, SELECTED YEARS VALUE IN US$'000 Ave. Growth Rate (% p.a.) Crop 1980 1990 1997 1980-90 1990-97 Green Beans 44,576 8,007 1,222 1.7 40.3 Others(a) 2,077 908 3,201 (3.1) 23.2 Extracts, Essences and Concentrates Source: Foreign Trade Statistics of the Philippines -175- Annex 11 Attachment 2 TABLE 5. DIRECTION OF TRADE IN 1997 PERCENT SHARE TO TOTAL VOLUME Country/Region Coffee (%Share) Green beans Singapore Oman Korea Others (64.2%) (26.8%) (2.2%) (6.8%) Source: Foreign Trade Statistics of the Philippines TABLE 6. COFFEE SUPPLY AND CONSUMPTION IN '000 TONS GREEN BEANS Apparent Year Production Imports Exports Consumption 1980 55,200 54 16,000 39,200 1981 60,600 1 20,700 39,900 1982 61,000 8 24,700 36,300 1983 61,000 21 21,800 39,200 1984 62,400 7 32,700 29,700 1985 68,600 19 30,700 37,900 1986 72,600 8 42,700 29,900 1987 70,000 5 15,500 53,500 1988 71,000 5 26,300 44,700 1989 78,000 4. 25,000 53,000 1990 71,400 5 9,200 62,200 1991 70,800 8 5,300 65,500 1992 71,000 3 1,900 69,100 1993 67,100 23 1,500 65,600 1994 66,300 18 4,500 61,800 1995 67,000 52 3,600 63,400 1996 59,400 259 900 58,500 1997 60,500 482 1,000 59,500 Note: Excluding soluble coffee. Source: Bureau ofAgricultural Statistics National Statistics Office -176- Annex 11 Attachment 3 INDICATIVE FRAMEWORK FOR RUBBER DEVELOPMENT STRATEGY I. Background Importance 1. The rubber industry covers about 90,000 ha at standard tree density, or about 200,000 ha in gross farm area basis as a result of mixed croppings by smallholders. About 35,000 ha are in areas above 25 ha and the rest distributed to smallholders and medium-sized farms. The industry is located in Mindanao which possesses the ideal agro-climatic endowment. The region has a potential for at least 400,000 ha. Some 80,000 rural households are directly dependent on the industry. Natural rubber production reached about 65,000 tons, dry rubber in 1997. The average yield of about 700 kilos/ha appears low by international standards. The low yield can be attributed to high senility of tree stocks', poor seedlings selection, and poor crop management. Rubber areas increased from 65,000 ha in 1980 to almost 93,000 ha in 1997. The official estimate appears overstated as it likely fails to account for the continuous cutting of senile trees. Industry experts indicate that rubber areas have stagnated at about 85,000 ha since the advent of CARP. 2. There are two types of rubber processing in the Philippines: crumb process; and air-dried sheet rubber. The major producers are all in the crumb system due to the advantage of processing speed and production volume. They have a common rated capacity of 300 tons dry rubber/month, requiring inputs from about 2,500 ha of productive rubber farms. There are about 24 crumb rubber lines with a combined capacity of 7,200 tons per month. About 85% of rubber production is Crumb 20. The present production is only about 3,000 tons, or a capacity utilization of only 40%. The old type of rubber processing is the sheet air drying, of which there are about 18 small producers. The combined sheet production is about 500 tons drc/month, or an average production of about 30 tons/month. As of 1999, in Cotabato alone, 90% of the processing plants are underutilized leading to losses for processors. 3. The three domestic automotive tires makers consume about 40% of the domestic supply. It is considered a premium market, mainly using Crumb 20. There are several grades of Philippine rubber: Crumb 20 or 2x brown, used by smaller manufacturers for bicycle tires, shoe soles, conveyor belts bushings, etc. and: pale crepe or Crumb 5 are used for light colored rubber products such as rubber gloves, sandals, etc. Philippine rubber is not exactly known for its quality. Rubber processors are mainly pre-occupied with increasing volumes without regard to quality. Except for two plants, all the crumb rubber production fall short of quality standards. On the other hand, the processors point to the low quality of farm cuplumps as the major cause of poor quality. In the export market, the C&F price of Standard Philippine Rubber is normally discounted by US$50 I At least 30% of tree stocks are senile. Using a 35-year cycle and working back from 1998, there were about 18,000 ha in 1963, or 20% of the area today. However, industry experts felt that this is understated as the current area is overstated. -177- Annex 11 Attachment 3 per ton from the FOB prices of Standard Malaysian Rubber (SMR) 20. Raw cuplump is also exported to Singapore and Malaysia. It is normally priced at US$100 per ton less than SMR 20 at destination (Gross, 1995). 4. The main destination of primary processed rubber is Metro Manila where the major rubber industries are located and is also the key port of origin for exports. The large plantations, many have been transferred to ARB cooperatives, undertake their own processing into crumb rubber. The baled rubber are sold to large traders/exporters based in Manila. By contrast, smallholders sell cuplumps to buying agents which in turn sell to primary processors. Primary processors in Mindanao sell bulk to traders/exporters in Manila. Normally, about 30% of rubber production are exported. Malaysia, China and Singapore are the major destinations. Exports of primary rubber products (e.g. crumb rubber) have increased over the years from 7,300 tons in 1980 to its peak of 25,300 tons in 1995. Meanwhile, imports remain minimal which results in a significant trade balance. 5. Meanwhile, domestic consumption accounts for about 60-70% of total production. Since 1980, consumption increased from less 25,000 tons to its peak of almost 47,000 tons in 1996. The entry of import rubber products (e.g. tires) following significant lowering of tariffs from 30% to only 10% caused domestic consumption growth to decelerate in 1997. Main Programs, Implementation Experiences and Key Lessons 6. Rubber development in the Philippines was pioneered by large estates in the early part of the 20th century. The first tapping began at Menzi Agricultural Corporation in 1914 in Basilan, Mindanao. In 1919, the Goodyear Tire and Rubber Company started a 1,000 ha estate in 1919, followed by the American Rubber Company in 1929. By the late 1950s, large-scale plantings were started by Goodrich in Basilan, Firestone in Cotabato, and Goodyear in Zamboanga. Goodyear encouraged neighboring farms to grow rubber by making production technology and planting materials available, a strategy later followed by other estates. Small and medium landowners were thus encouraged to grow rubber. From 2,600 ha in 1929 area planted grew to 3,400 ha in 1950 and accelerated to 22,000 ha 1970. With financing from the Philippine National Bank and the Development Bank of the Philippines, provided further impetus. By 1980, there were 65,000 ha under rubber. In 1991, there were about 31,200 farms covering almost 90,000 ha. About 60% of the farms were less than five ha, and 35% between five and 25 ha. (Grino, 1998) 7. In the mid-1970s, a World Bank supported project was launched by DBP. The response was largely positive. However, the advent of the economic crisis of 1983-1985 caused the massive peso devaluation and skyrocketing interest rates these led to repayment problems. Ultimately the program ceased operation. In the early 1980s, a World Bank mission prepared a rubber development project which was eventually shelved. 8. The passage of CARP in 1988 led to a general climate of uncertainties in investments. Many private estates shelved their replanting programs. The CARP combined with abnormally high increases in mandated wages in 1989 and with low -178- Annex 11 Attachment 3 commodity prices in the early 1 990s led many private estates to opt for voluntary-offer-to -sale (VOS). Some opted for ten-year deferment. VOS lands fell under the ownership and management of farmworkers cooperatives. The newly-formed agrarian reform beneficiaries (ARB) cooperatives faced several constraints: senile trees, lack of working capital and limited management know-how. 9. To address these concerns, the DAR provided P100 million from the Agrarian Reform Fund and channeled the funds through Land Bank at 4.5% interest rate. In the light of the General Banking Act which limits the grace period on loans to three years, the DAR money provided funds for replanting in the first three years; thereafter the Land Bank would pick up the funding requirements during the 4th to 6th year of gestation period under its agrarian reform lending window. According to Land Bank, some 2,200 ha of ARB estates benefited in the form of replanting (about 1,000 ha) and working capital loans. The hectarage appear too small to reverse the accelerating senility and cutting of old rubber trees. 10. In 1992, a multi-sectoral body led by the Philippine Council for Agriculture, National Resources and Development (PCARRD) of the Departnent of Science and Technology published a Rubber Master Plan which called for a replanting/new planting of 400,000 ha over 20 years. The Plan did not take off due to lack of broad-based support. In 1995, a Natural Rubber Industry workshop was held in Davao City under the auspices of the Office of the President in Mindanao which again called for the revitalization of the industry in the light of market potentials and increasing senility of tree stocks. A hiatus followed until a similar workshop was held in late 1997 under the auspices of DA. As a result, the Ramos administration launched a DA rubber development program in March 1998. It had ambitious targets of 10,000 ha of replanting and 10,000 ha of new planting over the next five years over the period 1998-2002. To date, very limited success has been achieved. 11. Government support to rubber development is at best marginal. Since 1991,Government budget through PCARRD and DA Bureau of Agricultural Research (BAR) averaged less than P1 million annually. This dramatically increased to P7 million in 1997, still miniscule compared to the farm counterpart of P1,670 million. Some P3.8 nmillion went to PCARRD for research grants to the state colleges and universities (SCUs) mi Mindanao; and P3.1 million went to BAR for evaluation of cultivation practices (P0.6 million), and "integrated rubber industry support" (P2.5 million). In 1998, a budget of P14 million was appropriated: (a) P4.16 million through PCARRD from research grants to SCUs; (b) P8.12 million to DA contract for rubber industry consultations and launching of the "Gintong Ani" Rubber program; and (c) P1.62 million through Bureau of Plantation Industry for various purposes. In 1999, the DA appropriated P4.4 million for nursery development and other projects. Key Issues Increasing senility of trees and production decline. To date, of the 90,000 ha, about 25% are already over 35 years old. Without significant replanting, by 2010, there about 50,000 ha left, of which almost 60% will -179- Annex 11 Attachment 3 be over 30 years old. By 2020, 90% of the current stock will be over 35 years old. Since the advent of CARP in 1988, there has been limited replanting. Most of the large estates, totaling over 10,000 ha, have been transferred to agrarian reform-beneficiaries. These ARB-run estates are now confronted with high senility of tree stocks, limited management know-how and lack of access to financing. With low farm incomes and the burden of land amortization, many ARB estates face a bleak future. * Shift to a net importer. The country is a net exporter of about 40% of production. Over the next decade, the country will turn into a net importer unless significant replantings/new plantings are addressed. In 2010, assuming an average yield of 600 kg, total production will reach only 40,000 tons drc, just adequate for the domestic consumption of 1998. Even if replanting begins now, it would take about seven years for production to have some significant effect. * ,Lack of access to long-term financing. Since 1949 to the present the General Banking Act limited maximum loan grace period to three years. Tlhis provision is applicable to industrial projects but highly inappropriate to long-gestating projects such as rubber. The passage of the Agriculture and Fisheries Modernization Act (RA 8435) in 1997 effectively repealed the provision. The guideline signed by the Monetary Board and the Secretaries of Agriculture and Finance, due on December 30, 1998, is being awaited. Other "market failures" also contributed to the severe lack of long-term agricultural finance. They are: unwillingness of banks to lend to agriculture, the lack of collateral value of agricultural land due to CARP, and the severely short deposit base of banks with long-term maturities, as well as the highly fluctuating interests rates due to macro- economic management also contributed to the shortage of long-term agricultural finance. * Weak research and extension. Research and extension funds are very limited. Moreover, results in experiment stations and the SCUs are not effectively transferred to rubber farms due to severely inadequate extension services. This is one factor for the poor tapping practices and low quality of latex and cuplumps. The status of smallholders rubber farms are characterized by unselected seedlings, low input practice, poor maintenance over the growing period, inefficient tapping techniques and partiality to quick cash cuplumps with very low quality receiving low prices. In other areas, social problems for smallholders are tied up with the agrarian related problem which led to non- replanting for senile trees, low input application and low production. The research funds needed to develop set of appropriate technology for smallholders are very limited, thus impact of research from agricultural universities and colleges are often non-existent, coupled with inadequate extension services for the transfer of those few and limited research results. -180- Annex 11 Attachment 3 II. Strategy Elements and Tentative Components of the Program 12. A "doable" development strategy would require several elements: * Access to land. Investors require large areas to attain economies of scale for management and processing. * Planting materials. Access to good clones are necessary to achieve high productivity. * Management system. A management system will be required to attain high plantation standards. * Financing. Long-term financing appropriate for long gestating crop is provided for sustainable development. * National and local government support. For research, extension, and infrastructure & institution-building. 13. The priority strategy will be the replanting of ARB-estates. This can be complemented by a calibrated new plantings of surrounding small holders. The next priority will be the replanting/new planting programs of organized farmers cooperatives and associations, andlor plantings in Integrated Social Forestry (ISF) areas and ancestral domains. 14. Related strategies include: * Application of appropriate production technologies by strengthening research and extension by increasing investment in research institutions and establishment of direct linkage to extension services. Developing joint venture between the smallholders and processing & manufacturing sectors on the conduct of training for production technicians and farmer leaders in ensuring the transfer of technology for high quality products. * Organize rubber-based cooperatives that will secure production of high quality seedlings, availability of production inputs and development of low-cost processing pressers for smallholders. * Encourage setting up of group processing centers to maximize the utilization of the center, and help improve the quality to obtain reasonable prices for the outputs. * Hasten the role of the private sector on increasing investment in rubber and to help develop products and markets. III. Implementation Arrangements and Roles 15. Program implementation must be private sector-led. It must focus on "ready to go" project sites to ensure early project success. -181- Annex 11 Attachment 3 * The ARB estates are "ready to go" areas for replanting. As earlier indicated, they could serve as nucleus for the surrounding smallholders. With respect to "new" areas, the DA, DAR and DENR will collaborate to locate areas under the Convergence Framework that can be consolidated to attract private sector investments under various schemes, including joint venture. * Supply of Planting Materials. The ARB estates and selected cooperatives have existing nurseries which could be tap. They could supply planting materials under the cost-sharing arrangement through a voucher system fumded by DAR for the estates and DA for outgrowers. It should be emphasized that nurseries must be privately managed. * Access to Financing Given the long-gestation period of rubber, a cost sharing scheme should be devised. In the first three years from planting, the Government will provide the grant for development cost particularly for out-of-pocket costs (i.e. land clearing, planting materials, fertilizers, and other contracted services). The ARBs or smallholders will contribute family labor. Thereafter, during the 4th to 6th year, the ARBs or smallholders may opt for bank or other alternative finance. The DA or DAR will access the national government or official development assistance (e.g. World Bank) for the cost sharing funds. It is also worthwhile to access the local governments for contribution. * Research and Extension. The DA will provide support to the SCUs to undertake research programs on rubber and intercrops. It will further provide support to LGUs in providing extension services to smallholders. 16. The implementation arrangements and roles are shown in Charts 1 to 3 and also detailed below. 17. Scheme I. ARB Nucleus Estate. The core component of this program will be the replanting of senile trees of the ARB-estates. The nursery development/expansion will be funded by cost-sharing from DAR. Similarly, land clearance and crop establishment in the first three years will be cost-shared by DAR, the ARBs, and if feasible, the LGUs. Land Bank can provide financing for cash crops during the gestation period of rubber. Financing requirements of rubber from the 4h year onwards can be provided by Land bank. 18. With respect to surrounding outgrowers (mainly smallholders), the planting materials and technical assistance will be provided by the ARB estate. In return, the DA will undertake a long-term supply contract with the ARB estate for planting materials. With respect to land clearance, crop establishment and on-farm roads and drains, there will be cost-shared by DA, LGU and the smallholders, the latter in the form of family labor. Bank loan will be tapped in the 4th year if and when necessary. It must be emphasized that newplanting must be phased in order that only a portion of the farms will be planted to rubber; the rest will be under food and cash crops. 19. Scheme II. Smallholder Cooperative-led. The scheme will focus on areas covered by smallholder cooperative or association (e.g. North Cotabato Rubber -182- Annex 11 Attachment 3 Development Cooperative). It will supply planting materials to its members via long- term contract with DA, and/or LGU. Land clearance, and crop establishment will be cost-shared by DA, LGU and the smallholders. 20. Scheme III. Private Sector Partnerships. A private company or industry group (e.g. Philippine Rubber Industry Association -PRIA) will undertake a joint venture with the beneficiaries in ARB estates, ISF areas, ancestral domains, etc. The private sector group will provide marketing and management assistance as well as equity for say land clearance and project management. The DARIDENR will provide a cost sharing in the form of grants for land clearance and crop establishment in the first three years. Meanwhile, LGU will provide infrastructure support as well as funding of NGO for land consolidation and beneficiary orgaiizing. 21. These schemes will involve plantings of high quality seeds as well as quality improvement programs for farm produce (latex and cuplumps). IV. Estimated Costs and Financing 22. Status Quo. Under the status quo, replanting/newplanting will be a miniscule 1,000 ha per year. Given the high senility of tree stocks only about 72,000 ha will be productive after ten years and production decline will continue unabated. As a result, ihere will be continuing decline of rubber areas and production due to increasing senility. Assuming an average yield of 700 kg drc/ha, total production will be only 50,000 tons compared to about 60,000 tons in domestic demand assumed to grow at only 4% p.a. This will imply about 10,000 tons annual imports in ten years time and increasing. This scenario will require an average annual cost of about P50 million (US$ 1.2 million). 23. Active Development. Under this scenario, the rate of replanting/newplanting will be 3,000 ha per year. Given the high senility rate of tree stocks about 92,000 ha (of vhere 18,000 ha is still immature) will be the planted area in ten years. Assuming an average yield of about 800 kg drc/ha from a production base of 80,000 ha, total production will reach 64,000 tons barely adequate to meet domestic demand of 60,000 tons. This will imply the loss of about 34,000 tons in exports (US$ 34 million) in 1997. This scenario will require an average annual cost of P150 million (US$ 3.7 million). 24. Pro-active Development. Under this scenario, replanting/newplanting will be 10,000 ha per year. Given about 150,000 ha of planted areas in ten years, a productive base of 90,000 ha and an average yield of 900 kg/ha, total production will be about 80,000 tons as compared to domestic demand of 60,000 tons. Surplus for exports will be 20,000 tons (compared to 34,000 tons in 1997) but increasing as the immature trees become commercial. The average annual cost of this strategy will be P500 million (US$ 12.4 million). In order for the country to expand exports, the 10,000 ha per year target may be inadequate. -183- Annex I 1 Attachment 3 V. Expected Benefits and Risks 25. Benefits. A pro-active program will increase farm incomes and assist in ensuring the sustainability of the ARB estates crops and outgrowers areas, increase raw material supply for processing and contribute to environmental sustainability. Additional production will help maintain exports and contain the threat of dramatic surge in rubber imports in less than a decade. The project will also reduce poverty in Mindanao provinces already suffering from high poverty incidence. 26. Risks. There is minimal market risks as the product is highly export oriented and the incremental output will be minimal relative to global supply. A moderate risk is the non-attainment of projected yields given the limited management know-how of ARB estates and smallholders. Security constraints in some areas will also be a constraint. VI. Main Recommendations and Suggested Next Steps 27. Rubber development program must be pursued in Mindanao. It will be a key component of the DA Commercial Crops Development Program. There is an imperative for a body to "champion" the rubber industry. A Rubber Sub-group under the Tree Crops Steering Conumittee will be organized with the following terms of reference: o Formulate a rubber master plan with strong private sector inputs. * Fast-track "ready to go" projects. O Gather support from the govemment/LGUs for cost-sharing schemes for long-gestating crops. a Advocate for ODA assistance. O Lobby for immediate replanting support to ARB estates. O Clarify policies in public lands. -184- Annex 11 Attachment 3 RUBBER DEVELOPMENT FRAMEWORK (Replanting) ARB Estate LBP ~Cash crop ARBDA LBP LOan > Option: cor. DA with outgrowers sharing L Infra Finance Loan Infra Cost Sharing ODA/DOF LGU --Cash crops DA (flrst3yrs. or In commo _ areas Component Items Stakeholder Development Cost Land Clearance, DAR/LGU/ARB Cost (First 3 years) Planting Materials Sharing Crop Maintenance Cash Crop Dev't. Crop Loan LBP/DA/LGU Assistance (First 3 years and/or Common Areas) Dev't. Cost Crop Maintenance LBP/ARB (4t Year to 6t year) B3eneficiary Support Management Assistance DAR Research & Extension Cash crops DA Infrastructure Roads, Irrigation LGU, DAR _____________________ (Cash Crops) Outgrowers Development Land Clearance DA/LGU Smallholder Planting Materials Cost Sharing _____________________ Crop Maintenance -185- Annex 11 Attachment 3 RUBBER DEVELOPMENT FRAMEWORK (Smaliholder Plantings Cum Replanting) PRIVATE Long-Termn Contract NURSERIES for Planting Matgerials Planting Materials ESTABLISHED LBP Cash crop SMALL HOLDERS Ct DA Loan sharing COOP Cost Sharing Infra Support ODA/DOF LGU Component Items Stakeholder Development Cost Land clearance, DA/LGU/Smallholder (First 3 years) planting materials, Cost Sharing crop maintenance Cash Crops Development Crop Loan LBP/DA/LGU Assistance Research and Extension Cash Crops DA/LGU Infrastructure Roads, Irrigation LGU (Cash Crops) -186- Annex 11 Attachment 3 RUBBER DEVELOPMENT FRAMEWORK (New Planting in Public Lands) PRIVATELBDP INVESTORS(S) LBP/DBP Joint Venture or BOT ODAIDOF Loan l~~~~~~~ CADCVISF Cost- l DENR CIP Land SharingI CADCIP Lad jBeneficiaries 9n (ISF) (CADCI) , enur (Rubberlbased devt tend Status Vllages) Tenure L Areas _ ~~~~~Status L infra Organizationl ,,-' \~~~~ocial Preparation LGU Social Prp. NGO L ~~~~~~~~L Component Items Stakeholder Development Cost Land Clearance, DENR/CIP/ Planting Materials & Private Investor Crop Maintenance Beneficiaries Cost Sharing (first 3 years) Institution Building Organization/Social DENR/NGO Preparation _Land Tenure Status and Boundaries LGU/NGO/DENR/CIP -187- Annex 11 Attachment 3 TABLE 1. PRODUCTION, AREA AND YIELDS Ave. Growth Rate (% p.a.) Crop 1980 1990 1997 1980-90 1990-97 1. Production 32.1 61.8 65.5 7.3 1.0 ('000 tons-drc) Area ('000 ha) 65.1 86.3 92.9 2.9 0.9 Yield (tons-drc/ha) 0.5 0.7 0.7 4.6 (0.2) drc = dry rubber content Source: Bureau ofAgricultural Statistics TABLE 2. RUBBER PRIMARY PROCESSING CAPACITIES DRY RUBBER/ MONTH Item Capacity Est. Production Capacity Utilization, % Crumb 6,825 3,410 50 Sheet 1,360 776 57 Cuplumps __1,250 Total 8,185 5,436 Source: Victor Gross et al., The Philippine Rubber Inutry: Industry Profile and Strategic Directions, Office of the President in Mindanao October 1995. TABLE 3. RUBBER EXPORTS AND IMPORTS, SELECTED YEARS Ave. Growth Rate (% p.a.) Crop 1985 1990 1996 1985-90 1990-97 Export Volume, ton 15,378 17,682 33,568 8.0 13.9 Value, US$'000 9,888 11,767 33,812 11.4 25.1 Import Volume, ton 27 148 571 175.5 35.6 Value, US$'000 35 136 870 193.7 51.8 Trade Balance, US$M 9,853 11,631 31,942 - Source: Foreign Trade Statistics of the Philippines -188- Annex 11 Attachment 3 TABLE 4. DIRECTION OF TRADE IN 1996 PERCENT SHARE TO TOTAL VOLUME Country/Region Rubber (%Share) Natural rubber Malaysia China Singapore Others (37.9%) (24.0%) (16.4%) (21.7%) Source: Foreign Trade Statistics of the Philippines TABLE 5. RUBBER SUPPLY AND CONSUMPTION IN '000 TONS DRY RUBBER Apparent Year Production Imports Exports Consumption 1980 32,130 na 7,280 24,850 1981 33,430 na 10,760 22,670 1982 32,630 na 10,600 22,030 1983 32,000 na 6,700 25,300 1984 46,900 na 7,400 39,500 1985 48,620 30 15,380 33,270 1986 48,670 200 15,450 33,420 1987 49,090 100 9,640 39,550 1988 52,140 420 15,170 37,390 1989 59,310 720 13,510 46,520 1990 62,860 150 17,680 45,330 1991 65,010 250 24,050 41,210 1992 62,390 660 18,620 44,430 1993 62,900 750 25,130 38,520 1994 64,530 910 22,450 42,990 1995 66,530 670 25,330 41,870 1996 62,600 570 16,310 46,860 1997 65,500 750 31,960 34,290 Source: Bureau ofAgricultural S taistics National Statistics Office -189- Annex 11 Attachment 4 INDICATIVE FRAMEWORK FOR OIL PALM DEVELOPMENT STRATEGY I. Background Importance 1. The oil palm industry in the Philippines is virtually an "infant" industry. Despite the massive development programs in the past decades in Malaysia and Indonesia, the lack of Philippine Government promotion, combined with land issues, have limited the entry of domestic and foreign investments. There are only three oil palm operations in the country covering about 15,000 ha producing at total farm value of P1.1 billion. In 1998, palm production was estimated at about 70,000 tons compared to total consumption of about 110,000 tons, leaving some 40,000 tons supplied by imports. The Philippines is a net importer of palm oil products since 1992, and a full importer since 1995. The domestic supply/demand gap has increased over the years as current stocks have either reached maturity or already senile. 2. Oil palm is grown in Mindanao due to its ideal agro-climatic requirements. In 1980, there were only two farms in operation with about 15,000 tons cpo production. In the 1980s, two estates came into production which led to high production levels of about 70,000 tons cpo in 1997. The potential areas for development in Mindanao is estimated to be about 300,000 ha. 3. Marketing of palm oil is relatively straightforward. The processing companies sell their produce to buyers in Manila. The firms transport the oils in tanker-trucks to their tank farms near the port. They are loaded on boats with deep tanks for buyers in Manila. Pricing is based on NW Europe quotations plus tariff premium. Domestic consumption of palm oil products has dramatically increased over the last ten years from about 32,000 tons in 1988 to 108,000 tons in 1996. This is projected to increase by at least 5% annually. Main Programs, Implementation Experiences and Key Lessons 4. Oil palm development in the Philippines is primarily a private sector initiative. The crop was first commercially planted in 1963 in Basilan Island, Mindanao by Menzi Agricultural Corporation. Extensive felling of about 300 ha of old coconut stands was initially criticized as "sacrilegious" by die-hard coconut planters (Grino, 1998). The success of the earlier plantings led to the opening of three other plantations in Mindanao. 5. In the mid-1960s, Kenram Philippines began plantings in Sultan Kudarat; it developed a nucleus plantation of about 1,600 ha, a processing plant, and 35 growers on 2,900 ha. Most of its trees are now due for replanting. In the early 1980s, the National Development Company (NDC), together with Kumpulan Guthrie Berhad, developed two 4,000 ha plantations in Agusan, and a processing plant. Following the economic crisis of 1983-85 and the passage of CARL, Guthrie sold out to Filipino and Indonesian interests. Today, the two plantations are merged into one operation, Filipinas Palmoil Plantations -190- Annex 11 Attachment 4 (FPPI), controlled by local investors. An affiliate operates a 38 ton ffb per day mill. NDC also privatized its shares, and are now owned by Filipino interest. Also in the 1980s, NDC, together with Singaporean interests, developed some 1,800 ha under Agusan Plantations, Inc (API). An API subsidiary, Agusan Mills Inc. (Agumil) opened its palm oil processing plant in early 1998. Given its excess capacity, Agumil undertook an outgrowers development program. The first phase of 500 ha will be financed by Land Bank, guaranteed by Agumil. The management indicated that in the Agusan Provinces alone, the potential for outgrowers development is easily 50,000 ha. One constraint cited is the lack of a bridge to the west bank of Agusan River in Talacogon. 6. Under CARL, the NDC lands were transferred to the ARB cooperatives and the companies concerned undertook leaseback of the land. In the case of Kenram Philippines which opted for the ten-year deferment, it is exploring CARL-compatible options such as leaseback. Similar uncertainties apply to its large outgrowers. Currently, total production of about 70,000 tons cpo only supply 60% of total domestic demand; the balance is imported largely from Malaysia. This is bound to increase as there are limited plantings on strearn. 7. Following the presidential visit of President Ramos to Malaysia in 1992, the Malaysian Pilgrim Board (Tabung Haj) signed a joint venture agreement with the domestic-based Janoub Holdings to develop 30,000 ha in Lanao del Sur. Due to various implementation delays and undefined land access, only 100 ha have been reportedly planted to date. Around 1996, the Chief Minister of Trengganu, Malaysia also signed a memorandum of agreement with ARMM Governor Nur Misuari for oil palm development in the autonomous region. To date, no progress has been made. Key Issues 8. Oil palm is a highly untapped opportunity in Mindanao. The present planted area of about 15,000 ha fall short of its potential of about 300,000 ha. There are several issues that need to be addressed: * Under utilization of processing capacities of Kenram and Agumil. The former's ffb supply has declined due to senile tree stocks; the latter due to its "small" nucleus plantation. * Increasing imports of palm oil products. They now comprise 40% of total domestic supply. Given limited area expansion in sight, this import- dependency is bound to increase. * Land access. The advent of CARP which has constrained access to land. (This can be addressed in part by alternative farm management such as outgrowers scheme and leaseback arrangement, joint venture and "cooperative"). The unclear land tenures in public A&D lands and local ISF areas and ancestral domains. * Limited access to long-term financing for small and medium growers. -191- Annex 11 Attachment 4 Infrastructure. The expansion of outgrowers is limited by the poor road network. II. Strategy Elements and Tentative Components of the Program 9. An oil palm development strategy must be anchored on nucleus-outgrowers scheme. There are already three existing "nucleus" firms: API, FPPI, and Kenram. The entry of other investors with or without strategic alliance with the three firms will be an added dividend. A key element is the long-term financing package to the outgrower. * Investment Promotion. The three existing companies have expressed strong interest in expanding/establishing outgrowers program. Given the 300,000 ha potential areas in Mindanao, there is room for more. One package of incentive is the deduction from after-tax income of the cost of extension services to outgrowers. * Consolidation of Outgrowers. Given the perishability of oil palm, the outgrowers should ideally be located within a 50-km radius from the nill. Long-term Financing. Outgrowers can not access financing from the normal bank windows. The LBP/DBP must package a financing scheme in collaboration with the nucleus farm. * Infrastructure is a critical element as oil palm is perishable and loaded into heavy trucks. III. Implementation Arrangements and Roles 10. Program Implementation must be private sector-led and site-specific - Nucleus. It will provide technical processing and marketing assistance to the outgrowers. D Outgrowers consolidation. To attain "critical mass" for technical assistance, the outgrowers areas must be consolidated in either one large cluster (or "satellite") or several clusters within a defined radius from the mill. This will be the primary responsibility of an NGO with financial support from LGU/DA/DAR. * Long-term financing. The Land Bank and/or DBP will be the main conduit of ODA funds for relending to the individual outgrowers, their associations or cooperative. * Mill fmancing. The Land Bank, DBP or other interested private financial institutions will lend to the "nucleus" company for mill expansion and/or working capital. * Infrastructure. "Large ticket" infrastructure such as the Talacogon Bridge (across Agusan river) must be funded by the national government and partly cost-shared by the LGU. Access roads to outgrower areas will be provided by the concerned LGU. * Investment incentives to be provided by the BOI. -192- Annex 11 Attachment 4 IV. Estimated Costs and Financing Strategy/Arrangements 11. The estimated costs will be categorical in the three scenarios status quo; active; and pro-active. * Status Quo. Under this scenario, only 2,000 ha per year can be planted the next ten years. There will be an increase in areas to 29,000 ha from 15,000 ha in ten years. Import dependency will accelerate. This scenario will only entail an average annual cost of about P100 million (US$2.6 million) per year. * Active Development. About 8,000 ha per year will be planted. This will increase areas to about 89,000 ha. Assuming domestic demand will increase by 5% p.a., total demand will reach 180,000 tons cpo in ten years compared to production of about 360,000 tons, leaving about 180,000 tons for export (US$120 million) This scenario will require an average annual cost of P400 million (US$10.6 million). * Pro-active Development. About 15,000 ha will be planted annually over ten years. This will increase planted areas to about 159,000 ha producing some 640,000 tons cpo as compared to about 180,000 tons in domestic demand. This will leave about 460,000 tons for export (US$300 million) This scenario will require an average annual cost of P800 million (US$ 20 million). V. Expected Benefits and Risks 12. Benefits. The main benefit of the program is the conversion of low productivity or underutilized lands into highly productive agriculture. This will result into: increased farmers incomes, enhanced regional development, and increased foreign exchange savings in the early phase and export earnings in the long-run. 13. Risks. There are moderate risks in oil palm development as the markets are well- established. The nucleus farm will provide technical assistance as well as serve as the Bank's collecting agent. The major risk will be the deterioration of the fib harvest due to the lack of all -weather access roads. VI. Main Recommendations and Suggested Next Steps 14. The major recommendation is for the DA to include oil palm as part of its Commercial Crop Program. An Oil Palm subgroup will be formed under the Tree Crop Steering Committee to champion its causes. Its mandate includes: * Coordinate with specific stakeholders in areas with high potential. * Evolve financing packages in coordination with nucleus firms. * Advocate for ODA assistance for long-gestating crops and cost-sharing from the national and local government. * Clarify policies in public A&D lands, ISF areas and ancestral domains. -193- Annex ll Attachment 4 OIL PALM DEVELOPMENT FRAMEWORK Outgrowers