Philippine Coffee Industry Masterplan

Towards a Roadmap/Masterplan for the Philippine Coffee Industry

Presented during the Industry Roadmaps & AEC Gameplan: Roadmap Localization for Competitiveness on May 28-29,2015, Baguio country Club, Baguio City. Joan Dimas-Bacbac, HVCDP Regional Coordinator, DA-RFO CAR

Crafted by: Farmers, Processors, Coffee Manufacturers, Industry Associations, Exporters, People’s Organizations and the Academe

Supported by: Department of Agriculture Department of Environment and Natural Resources Department of Agrarian Reform Department of Trade and Industry Philippine Coconut Authority Government Financial Institutions Local Government Units National Competitiveness Council

OUTLINE

I. Benchmarking II Philippine Coffee Industry III. Industry Vision, Mission and Goals IV. Target Setting V. Strategic Directions and Action Programs of Major Issues

I. BENCHMARKING THE PHILIPPINE COFFEE INDUSTRY vs

THE BEST: INDONESIA AND VIETNAM

PERFORMANCE: Area, Yield and Production (2011) Item Planted Area (ha)

Philippines

Indonesia

Vietnam

~120,000 ha (a)

1.3 M ha

537,000

(90,000 ha Robusta, 19,000 ha Arabica, 9,000 ha Excelsa and 1,400 ha Liberica)

(1.04 M ha Robusta, 251,000 ha Arabica)

(500,000 ha Robusta, 37,000 Arabica)

Yield (ton green beans /ha)

0.20 - 0.30

0.67

2.4

Production (tons green beans)

25,000 – 30,000 (b)

634,000

1.2 M

Planting density

500 – 1,700 trees/ha (Robusta) 800 – 2,000 trees/ha (Arabica)

1,100 trees – 2000 trees/ha

1,100 trees/ha (Robusta) 5,000 – 6,000 trees/ha (Catimor)

Average farm size

0.5 – 1 ha

0.6 ha

0.5 – 1 ha

PERFORMANCE: Farming and Processing Costs Investment costs are comparable Item Philippines Indonesia

Vietnam

Average establishment cost/ ha (Robusta)

PhP 50,000 – 82,000

PhP 78,000

PhP 71,000

Average cost per kg green beans

PhP 49 – 68

PhP 23

PhP 65.10

Price per kg of green beans PhP 79.38 (farmer’s selling price)

PhP74

PhP 83

Payback period

4.3 – 6.3 years

4.9 years

6.2 years

Financial Internal Rate of Return

8 – 36 percent

31 percent

21 percent

Processing costs per kg Roasting

Php 10

Grinding

Php 10

PhP8.10 PhP8.93

Exchange Rates: PhP42/US$1; VND20,800/US$1; IDR9,400/US$1

POLICIES: Credit Item Credit

Philippines Mainly through government financial institutions (e.g., LBP) and informal sources LBP loan ceiling for coffee : New planting: PhP100,000/ha (US$2,381) (payable in 5 years, 10-12% interest per annum, 2 years grace period) Existing plantation (maintenance): 2nd year: PhP42,500 (US$1,012) 3rd year: PhP55,000 (US$1,310) 4th year: PhP63,000 (US$1,500) 5th year: PhP72,000 (US$1,714)

Indonesia

Vietnam

Rural Bank of Indonesia small scale lending and micro finance (none for new plantings)

Vietnam Bank for Agriculture and Rural Development (VBARD or Agribank) Credit for planting (mainly for existing plants or rejuvenation and not for new plantings), and Credit for harvesting, processing and export trading (short-term loans with terms of one year and three to six months, respectively; interest is 13% p.a.) State Bank of Vietnam short term loan (up to 12 months) with maximum interest of 15% p.a.

Item

Philippines

Indonesia

Vietnam

Land Ownership

CARP Law – Maximum 5 hectares

Co-existence of smallholders and large estates

Long-term leases from government

Price Policy

No price policy on coffee. Prices follow world prices (London exchange for Robusta, New York Exchange for Arabica). There are price speculators or consolidator-traders who offer premiums on top of world market prices.

No price policy on coffee. Prices follow world prices.

No price policy on coffee. Prices follow world prices.

PhP639 M (US$15.2 M) (143 B IDR) (MA)

PhP 14.7 B (US$350 M) (7,280 B VND) (MARD)

Government PhP 470 M support Breakdown : PhP 170 M (budget for coffee) (DA-HVCDP) PhP 300 M (PCA Intercropping)

Macroeconomic Environment (Labor, Fuel and Power) Labor costs are comparable but fuel and power costs are higher . Item

Philippines

Indonesia

Vietnam

Labor

PhP 150 - 300 per day (US$3.57 - 7.14 per day)

PhP 134 - 223 (US$3.19 - 5.32 per day) (IDR 30,000 – 50,000)

PhP 242 - 303 (US$5.77 - 7.21 per day) (VND 120,000–150,000)

Fuel (July 2012)

PhP 42 - 44 per liter (diesel) (US$1 - 1.05/li)

PhP20.11/li (diesel) (US$0.48/li) (IDR 4,500/li)

PhP 53-56 per liter (gas) (US$1.26 - 1.33/li)

PhP46.24-46.91/li (gas) (US$1.10 - 1.12/li) (IDR 10,350 – 10,500/li)

PhP46.44 - 48.46/li (gas) (US$1.11 - 1.15/li) (VND 23,000 – 24,000/li)

Power

PhP 6.50 - 6.75 per kwh PhP 1.79 – 3.13 PhP 2.02 (US$0.15 - 0.16 per (US$0.04 - 0.07 per (US$0.05 per kwh) kwh) kwh) (VND 1,000 per kwh) (IDR 400–700 per kwh)

PRACTICES: Farm Item

Philippines

Indonesia

Vietnam

Input supply Clones used

Mostly Robusta, Some Arabica, Small Excelsa and Liberica

Mainly Robusta, Some Arabica

Mainly Robusta, Some Arabica and Catimor (Robusta TR varieties – TR 4, 9, 10, 11 and 12)

Fertilizer usage

Organic and inorganic fertilizers Some farms do not fertilize (e.g. Kalinga)

Mostly inorganic fertilizers from government subsidy

Heavy application of fertilizers (even reaching 1 ton/ha)

Planting density

600 – 1,700 trees/ha

1,100 trees – 2000 trees/ha

1,100 trees/ha (Robusta) 5,000 – 6,000 trees/ha (Catimor)

Intercrop

Fruits, vegetables, tree crops

Mostly monocrop

Mostly monocrop

Sources of planting materials

Wildlings Indonesian Coffee Seeds of existing plants and Cocoa Research Nurseries (e.g. Nestle Institute (ICCRI) nursery)

Western Highlands Agro-forestry Science and Technical Institute (WASI)

PRACTICES: Farm Item

Philippines

Indonesia

Vietnam

Maintenance activities

Weeding Fertilization Pruning

Weeding Fertilization Pruning Some farms do grafting

Weeding Fertilization Pruning Irrigation

First harvest

Year 2

Year 3

Year 2-3

December - March

May - September

August – Jan

Harvesting practice

Selective harvesting Strip harvesting



Drying

Mechanical drying Solar drying

Mechanical drying Solar drying

Solar drying Mechanical drying

Certification

Organic, 4C

4C, Rainforest

4C, Rainforest, UTZ, Viet Gap

Harvesting period

PRACTICES: Processing Item

Philippines

Indonesia

Vietnam

Processing for beans

Wet processing (mainly Wet processing for Arabica) Dry processing Dry processing (mainly for Robusta)

Wet processing Dry processing

Processing plants (ground and instant coffee)

Nestle (Nescafe) – market leader Universal Robina Corporation (Great Taste, Blend 45) Commonwealth Foods (Café Puro) Century Pacific Group (Kaffe de Oro) Regent Foods Corp. (Koffie)

PT Torabika PT Santos Jaya Abadi Indocafe Nestle

Vinacafe Trung Nguyen Nestle

Products produced

Coffee beans Roasted beans Ground coffee Instant coffee (3 in 1; 2

Coffee beans Roasted beans Ground coffee Instant coffee

Coffee beans Roasted beans Ground coffee Instant coffee

II. PHILIPPINE COFFEE INDUSTRY (Typical vs. Modern Farming)

ROBUSTA, Typical and Modern Farms, Philippines

COFFEE FARMING (ROBUSTA): Typical vs Modern Activity

Typical

Modern

Cropping system

Mostly with intercrop (vegetables, fruit trees)

Monocrop (Block cropping)

Plant propagation practices

Use of wildlings Seeds from existing plants Absence of clone selection

Use of selected clones from certified nurseries Buying price: PhP15/seedling


Typical

Modern

Planting density

600 – 1,200 trees/ha

1,500 – 1700 trees/ha

Fertilizer application

Inorganic (46-0-0) ~ 2 bags per year Organic ~ 68 bags per year

Inorganic (16-20-0, 46-0-0, 0-0-60) ~ 10 bags per year Organic ~ 33 bags per year

Pruning

Not done at all / not regularly done

Regularly done (about 6 times a year)

Pest and disease control

Regularly done

Regularly done


Typical

Modern

First harvest

Year 2

Year 2

Harvesting

Strip harvesting

Selective harvesting

COFFEE FARMING (ROBUSTA): Typical vs Modern Parameters

Typical Farm

Modern Farm

600 – 1,200 trees/ha

1,500 – 1700 trees/ha

0.72

1.29

1.0

2.0

Average establishment cost per ha (Year 1)

PhP 50,000

PhP 82,000

Average cash outflow per ha per year

PhP 49,000

PhP 63,000

Price per kg of green beans (farmer’s selling price)

PhP 80

PhP 80

PhP 58,000

PhP 103,000

Average net cash flow per ha per year

PhP 9,000

PhP 40,000

Average net cash flow per ha per year (including returns to family labor)

PhP23,000

Planting density Average yield (tons gcb/ha) Peak yield (tons gcb/ha)

Average cash inflow per ha per year

Average cost per kg of green beans Payback period Internal Rate of Return (IRR)

PhP 68

PhP 49

6.3 years

4.3 years

8 percent

36 percent

COFFEE FARMING (ROBUSTA): Income and Area Targets for Poverty Reduction Item Planting density

Typical

Modern

Incremental

850 trees/ha (with intercrop)

1,667 trees/ha (mono)

817

0.72

1.29

0.57

Gross income

PhP58,000

PhP103,000

PhP55,000

Gross income

PhP23,000 (a)

PhP40,000

PhP17,000

4.09 ha

2.35 ha

(1.74 ha)

Average yield (tons green beans/ha) Average income/ha at PhP80/kg green beans

Average area to get preferred net income of PhP94,000 (poverty threshold, 1H 2012)

ARABICA, Typical and Modern Farms, Philippines

COFFEE FARMING (ARABICA): Typical vs Modern Activity

Typical

Modern

Cropping system

Mostly with intercrop (forest trees, fruit trees)

Without or with intercrop (forest trees, fruit trees)

Plant propagation practices

Use of wildlings Use of certified seedlings Existing plants Buying price: Absence of clone selection PhP25 –30/seedling

COFFEE FARMING (ARABICA): Typical vs Modern Activity

Planting density

Typical

600 – 1,200 trees/ha

Modern

1,200 – 1,500 trees/ha

Fertilizer application

None / Minimal fertilizer application

Inorganic ~ 18 bags every three years Organic~ 90 bags every four years

Pruning

Regularly done

Regularly done

Pest and disease control

As need arises

Regularly done

Harvesting

Year 2 – 3

Year 3

Harvesting practice

Strip harvesting

Selective harvesting

COFFEE FARMING (ARABICA): Typical vs Modern Parameters Planting density

Typical Farm

Modern Farm

600 – 1,200 trees/ha

1,200 – 1,500 trees/ha

Average yield per ha

0.5 tons dry parchment (0.40 tons gbe)

1.1 tons green beans

Peak yield per ha

0.6 tons dry parchment (0.50 tons gbe)


PhP 37,000 (Year 1)

PhP 135,000 (Years 1-2)

PhP 29,000 (Years 2 - 10)

PhP 65,000(Years 3 - 10)

Price per kg (farmer’s selling price)

PhP 100/kg of dry parchment

PhP 200/kg of green beans

Average cash inflow per ha per year

PhP 49,000

PhP 229,000

Average net cash flow per ha per year

PhP 20,000

PhP 164,000

Average net cash flow per ha per year (including returns to family labor)

PhP36,000

Average establishment cost per ha Average cash outflow per ha per year

Average cost per kg Payback period IRR

PhP 58 per kg of dry parchment

PhP 59 per kg of green beans

4.9 years

4.1 years

31 percent

53 percent

COFFEE FARMING (ROBUSTA): Income and Area Targets for Poverty Reduction Item Planting density

Typical

Modern

Incremental

800 trees/ha (with intercrop)

1,250 trees/ha (with intercrop)

450 trees

Average yield

0.49 tons dry parchment coffee (0.39 tons gbe)



Average price (PhP/kg)

PhP 100/kg dry parchment coffee

PhP200/kg green beans

PhP49,000

PhP229,000

PhP180,000

PhP36,000 (a)

PhP164,000

PhP128,000

2.61 ha

0.57 ha

(2.04 ha)

Average income • Gross income • Net income Average area to get preferred net income of PhP94,000 (poverty threshold, 1H 2012)

Supply Chain Segments and Activities Inputs for Nursery

Developm ent Inputs

Farm Production

Primary Processing

Marketing Logistics

Secondary Processing

-Area selection -Seeds -Plastic bags -Fertilizer -Tools and equipment

-Seedlings -Fertilizer -Pesticides -Tools and equipment

-Area Selection -Land preparation -Maintenance -Fertilization -Pest control -Harvesting -Sorting/ Grading -Storage

-Depulping -Fermentation -Drying -Dehulling to green beans

-Trading -Handling -Transport / Shipping -Storage

-Roasted beans -Roast and ground coffee -Instant coffee

Logistics

Market

-Handling -Transport/ Shipping -Storage

-Domestic -Exports

Selected Stakeholders and Players along the Coffee Supply/Value Chain Input Supply Seedlings •Nestle •Rocky Mountain •MacNut •CavSU •BSU •HVCC ZDN •Greenworld •Greenday •BPI accredited nurseries

Farm Production

Primary Processing

Fresh cherries •Individual Farmers •Greentropics •Rocky Mountain •MacNut •Mt. Matutum Farms •Dacon/SII •CHMI Agro •Others

Green Beans •Individual Farmers •Greentropics •Dacon/SII •Rocky Mountain •MacNut •Mt. Matutum •CHMI Agro

Land Access •Farmers •ARCs •IFMA •CBFM •DENR •DAR •PADCC •LGU •Private sector Financing •Private sector , LBP, DBP, DENR, DA-HVCDP, Phil Coconut Authority, LGU

Marketing/ Trading Local traders •Nestle •URC •Comfoods •Rocky Mountain •MacNut •Mt. Matutum •Bote Central •Greentropics •Dacon/SII •CBCEs •DTI

Secondary Processing

Marketing

Nestle •URC •Comfoods •Rocky Mountain •MacNut •Mt. Matutum •Bote Central •Greentropics •Dacon/SII •CBCEs •Local processors

Households •Supermarkets •Convenience stores •Fast food chains •Coffee shops •Hotels •Restaurants •Sari-sari stores •Exports

Other Related Cross Cutting Segments Training/Tech Assistance •Nestle •PCB •PCA •Rocky Mountain •TESDA •LGU

Research, Dev’t & Ext’n •CavSU •BSU •PhilMech •Nestle •Rocky Mountain •LGU

Policy Advocacy •PCB •PCA •NCC •DA HVCDP •DA NAFC •DTI •LGU

III. INDUSTRY VISION, MISSION AND GOALS

VISION An industry that is cost-competitive, aligned with global quality standards, reliable and environment-friendly; and provides sustainable benefits to farmers, processors, traders and exporters.

MISSION Development of a cost-competitive, quality-driven, supply-reliable, productdiversified value chain from farming to coffee products manufacturing under sustainable practices

GOALS 1. Increase productivity and production 2. Improve farmers’ standard of living through diversified high value agriculture 3. Increase rural employment 4. Promote environment-friendly technologies 5. Lessen coffee bean and coffee products importation 6. Improve incomes of farmers, processors and other stakeholders

IV. AREA TARGETS AND REQUIRED INVESTMENTS

THE PLAN’S FOCUS: 1. Improve smallholder coffee farmers’ productivity, profitability and product quality 2. Promote new plantings and provide funding 3. Target value-addition in coffee products

SPECIFIC TARGETS (2015-2016) TARGETS New Planting (ha) (All Regions) Re-Planting (ha) Kalinga,Northern Mindanao, Davao, Soccsksargen Rejuvenation (ha) Kalinga, Davao, Soccsksargen Total seedling requirement (including 10% mortality allowance) (million) Investment Cost (PhP million)

2015

2016

2017

70,747

78,919

253,433

2,008

2,008

8,032

572

572

2,388

62.5

67.5

215.7

4,645.1

5,224.4

16,309.6

Basic Considerations:  New planting/replanting cost -Robusta: PhP 30,000/ha (600 trees, Year 1) -Arabica: PhP 130,000/ha (1200 trees, Years 1-2)  Rejuvenation cost: PhP17,000/ha (600 trees)  Seedling requirement/ha w/ 10% mortality ‰ -Robusta: 660 trees -Arabica: 1,320 trees „  Nursery investment cost: PhP8.00/seedling „  Replanting is replacement of old trees with new plants in the same area „  Rejuvenation refers to cutting of the vertical stems of old trees to promote the growth of new sprouts

Targets and Sufficiency Levels  Assumptions:  Domestic requirement of 70,000 tons* green beans, to grow by 3% per annum  Local current production of 25,000 tons to remain stable  Net demand deficit of 45,000 tons  Around eight million seedlings estimated to be available in the existing nurseries

When do we cover deficits? Coverage of beans deficit will depend on:  Harvested area (old and new planting)  Average yield  Implementation of identified expansion targets by the various stakeholders

When do we cover deficits? Coverage of imported 3-in-1 sachet deficit will depend on:  Domestic production  Cost of sugar and cream  Cost of packaging  Cost of power

V. STRATEGIC DIRECTIONS AND ACTION PROGRAMS ON MAJOR ISSUES

INPUTS: Improve quality and availability of planting material Key Result Area

Performance Indicators

Action Programs

Time Frame/ Working Group

Establishment of accredited/ certified mother clonal gardens and nurseries

No. of accredited/ certified mother Clonal gardens and Nurseries No. of accredited/certified seedlings produced

Invest in mother Clonal gardens and nurseries (1 per major coffee area) Train prov’l reps on Nursery development Promote accreditation/certification of nurseries

2013-2016 LGU, Private Sector, DARFUs, BPI, SCUs

Training of propagators and provision of IEC materials

No. of trainings conducted No. of IEC materials produced

Conduct trainings for nursery establishment Reproduce and distribute IEC materials to farmers

DA-ATI, TESDA, LGU,Industry Associations, Private sector


Training on proper handling of seedlings


Action Programs

Improvement in quality Conduct trainings on and availability of proper handling of accredited/ certified seedlings seedlings No. of trainings conducted No. of nurseries/farmers trained

Time Frame/ Working Group SCUs, BPI DA-ATI Private Sector TWG, LGU



Action Programs


Yield improvement

Ave. yield from 300 kg/ha to 1.0 ton/ha (Arabica) Ave. yield from 700 kg/ha to 1.5 tons/ha (Robusta) Net Income > PhP84,000/year Improved harvesting practices

IEC campaign on GAP/best farm practices including seed selection

2013 to 2016 Private Sector, DA ATI, PCARRD LGU - PAO, MAO, NGOs

Production Expansion-new planting and replanting areas

Total expansion area ≥ 100,000 ha to address deficit?

Develop PPP for planting and replanting projects

Continuing -Industry/third party group

FARM PRODUCTION: Enhance farm efficiency and investments Key Result Area


Action Programs


Adoption of GAP and GMP

No. of GAP certified farms No. of GMP certified processing companies

Benchmarking and best practices dissemination Conduct trainings on modern farm / processing practices

DA, ATI, SCUs, Private sector, LGU

Enhanced quality of seedlings

No. of accredited/ certified nurseries

Conduct trainings on nursery operation and management

DA, BPI, LGU, ATI

Trainings on proper harvesting and pruning

No. of skilled farmers/farm workers

Conduct trainings

Private Sector, TESDA, LGU, SCUs, ATI, NGOs

PROCESSING: Reduce Processing Cost Key Result Area


Action Programs


Lower processing costs

Power cost per kg Labor cost per kg Material cost per kg Better recoveries

Enhance processing efficiency

2013-Private Sector, DA, DTI, Philmech, DOST

Increase capacity utilization of plants

Volume of gcb marketed Higher recoveries

Improve supply of gcb Inspection and upgrade processing plants

Private Sector DA, DTI LGU

Quality discipline

Better prices of gcb

Establish guidelines in sale of gcb Incentivize compliance to product standard

Private Sector DA, BAFPS, DTI

PROCESSING: Increase Export Value Key Result Area


Action Programs


Adequate postharvest facilities

No.of drying, hulling, storagefacilities

Coordinate with Private Sector, PhilMechre: village level DA, facilities e.g. small dehuller/ PhilMech depulper

More value adding on farm

No. of value added products produced

Evaluate/ monitor field processors

TWG, SCUs, DA, Private Sector

MARKET: Improve Market Price and Coffee Standards Key Result Area


Action Programs


Transparent pricing linked to world market

Farm price as a percent of world price

Daily world price access from DA website/SMS

Private Sector, DTI, DA, LGU

Geographic branding and standards for coffee

No. of geographic brands and standards for Philippine coffee products

Convene concerned organizations to settle standards

BPS, DA, BAFPS, TWG, Industry Associations, DTIBETP, CITEM

Enhanced market access and marketing strategies for specialty coffee

No. of new markets accessed

Find alternative markets

DA –AMAS, DTI

MARKET: Improve Market Price and Coffee Standards Key Result Area

Inadequate market intelligence for specialty coffee


No. of market opportunities explored

Action Programs

Tap agricultural/ trade attaches in Philippine embassies

Time Frame/ Working Group Private sector, DAAMAS, DTI, Industry Associations, DOST

SUPPORT SERVICE Financing: Access to Long Term Funds Key Result Area

Access to long term financing

Performance Indicators Longer grace and Repayment periods of loans Lower interest rates

Action Programs

Review financing program for coffee DA to endorse proposal to LBP

Time Frame/ Working Group 2013 –LBP, DBP, AGFP-ACPC Private Sector DA LGU

SUPPORT SERVICE Logistics: Reduce Logistics Cost to Processors Market Key Result Area


Farm to Market Roads

Length of FMRs to coffee farms Lower transport cost/ton km

Establishment of Tram Lines

No. of tramlines established

Action Programs

Advocacy to prioritize FMRs

Identify areas

Time Frame/ Working Group Industry assns. LGU, DA, Private Sector Industry assns. DA, PhilMech Private Sector, LGU

SUPPORT SERVICE R & D: Improve Search and Extension Services Key Result Area

Strengthen National Coffee Research, Development and Extension Center (based at CavSU)

Performance Indicators Number of coffee scientist/experts Multi-year budget allocation for coffee

Action Programs

Establish three research stations (BSU, SMIARC*, SK State University)

Time Frame/ Working Group CavSU, BSU DA-BAR, DOST-PCARRD Private Sector

SUPPORT SERVICE Policies: Appropriate Investment Incentives Key Result Area

Improved policies (e.g. land access)


Action Programs

Land ownership ceiling Land consolidation for development Public lands opened to investors

Review CARPER Review land use policy Review IPRA Law Advocacy with DENR Development of military reservations and abandoned mined areas

Time Frame/ Working Group DAR, DENR, DA PADCC-NCI NCIP Private Sector DND-AFP

SUPPORT SERVICE Market Intelligence: Reliable Industry Data Key Result Area

Improved collection and recording of industry data (e.g.production, area, trade, demand)

Performance Indicators Industry data aligned with private sector estimates

Action Programs


Review official data in consultation with the private sector

Industry associations, BAS, Private Sector, DA , LGU

SUPPORT SERVICE Organization: Industry Unity in Diversity Key Result Area


Improved industry organizational structure

Aligned government and private sector initiatives

Action Programs

Conduct seminar on organizational development Team building

Time Frame/ Working Group Industry assns, DA, Private Sector

The finalization of the Masterplan/Roadmap will determine the major terms of reference :

The following principles are important:

• High farm income arising from good farm yields is a result of GAP. • Self-sufficiency in green beans estimated by 2017 will be reached and sustained provided farmers derive good income from coffee compared to alternative crops. • The ENGINE OF GROWTH will be the farmers, private sector, CSOs backed by government, LGUs, and SUCs in unison.

Philippine Coffee Industry Masterplan

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