Philippines Agribusiness Report Q3 2009

Jan. 28, 2010 - PRLog -- With the 2009 crop year drawing to a close, it looks like the government's efforts to spur rice production following the 'crisis' of 2008 have moderately paid off. We forecast production to rise 1.8% year-on-year (y-o-y) to 10.67mn tonnes. The increase could have been higher if it wasn't for the high price of fertiliser.
This follows on from a 7.2% y-o-y expansion in 2008. Despite the rising production, self-sufficiency is a distant goal with even the government's pushed-back target of 2013 still looking unlikely.
The Philippines' second crop, corn, will not fare so well in 2009. A reduction in the area planted, combined with falling fertiliser use and inclement weather saw production in the first half of crop year 2009 fall 8.8% y-o-y. For the full year, we forecast production to fall 5.5% y-o-y to 6.87mn tonnes. The continued high price of corn in the Philippines will likely also see consumption drop sharply in 2009. In the first four months of 2009, imports of wheat for animal feed were almost double the amount imported in the whole of 2008 as livestock farmers took advantage of a temporary abolition of import duty on wheat. This will see a concomitant fall in demand for feed corn.
The continued high price of feed is hitting livestock producers hard. As the economy slows this year, the situation is only going to get worse as demand growth for meat flags. While we do not currently expect the Philippines to see a full-blown recession, the slowdown in GDP growth to a forecast 2.8% will still be painful. The fall in remittence flows from balikbayans, Filipinos working overseas, will result in many families having much less disposable income. This will see consumption of more expensive foods, such as pork and beef, fall.
Another threat on the horizon for agriculture in the Philippines is the reduction of tariffs on most agricultural imports from Association of Southeast Asian Nations (ASEAN) member states under the ASEAN Free Trade Agreement (AFTA). From January 2010, tariffs on agricultural goods have to be reduced to between 0% and 5%. While farming bodies in the Philippines are pushing for the tariff reductions to be postponed, we do not think this is likely.
The level of concern over the tariff reductions in many ways goes to show how agriculture in the Philippines has fallen behind its peers. Livestock producers, especially, are worried that local production may be unable to compete with imports from other South East Asian neighbours such as Thailand and Malaysia . While some less efficient producers could well struggle in the face of rising imports, the removal of tariffs should be viewed as a positive development for agriculture in the Philippines. The country will still be protected from imports from developed countries and the added competition from within the region will spur increasing efficiency in production without devastating domestic production.

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