THE PHILIPPINE COCONUT INDUSTRY: PERFORMANCE, ISSUES ANDRECOMMENDATIONS

Rolando Dy, Ph.D. August 2006

DISCLAIMER

The views expressed in this report are strictly those of the authors and do not necessarily reflect those of the United States Agency for International Development (USAID) and the Ateneo de Manila University.

Abstract
This paper seeks to identify and discuss the major problems and issues affecting the current programs in the Philippine coconut industry; discuss the effects of government policies and programs on the sector and how these policies and programs helped the sector go closer or farther away from the major goals of poverty alleviation, sustainable agriculture and global competitiveness in the Agriculture and Fisheries Modernization Act (AFMA); and suggest concrete policy recommendations that will ensure government programs to be more attuned to AFMA goals. The study finds that policies and programs in the coconut industry are characterized by lack of sustained direction and funding. To move the industry forward, it is imperative to develop a stakeholder, market-driven roadmap; allocate budget based on social and economic returns; and engage the civil society in program design, implementation and monitoring.

THE PHILIPPINE COCONUT INDUSTRY Performance, Issues and Recommendations EXECUTIVE SUMMARY This paper seeks to address three objectives: identify and discuss the major problems and issues affecting the current programs in the sector; discuss the effects of government policies and programs (DA and LGU) on the sector and how these policies and programs helped the sector go closer or farther away from the major goals in the AFMA of poverty alleviation, sustainable agriculture, and global competitiveness; and suggest concrete policy recommendations that will ensure government programs to be more attuned to AFMA goals. The coconut industry comprises the largest farm area (3.3 M ha and 1.4 M farms) in Philippine agriculture. It hosts some 3.4 M farmers and workers (Faustino, 2006). Coconut products generate the largest agri-food export. The industry has performed dismally over the years due to several reasons, foremost of which are: the lack of top level resolve, inequitable resource allocation, and implementation constraints. As a result, low productivity prevails and, in turn, high poverty and insurgency. Problems and Issues Confronting the Current Programs There are several issues that confront the coconut industry. These include: the lack of top level commitment which has led to a lack of a serious development program for the industry; the severe shortage of long-term financing for perennial crops; resource allocation criteria, which is biased toward rice; institutional issues with the PCA implementing mostly under-funded, short duration programs; implementation problems with limited involvement, if at all, of LGUs, the private sector, the civil society, and the academe; lack of civil society engagement especially in analyzing the whole gamut of problems besetting the sector; global market access such as the campaign of overseas soybean interests against CNO in the US food usage as well as labeling and wrong attribution of the negative impact on all saturated fats, including medium chain triglycerides from coconut oil; and CARP and other laws which have discouraged private investments following provisions on retention limits as well as transferability. Government Policies and Programs and their Effects on the Sector and AFMA Goals Government policies are generally biased against tree crops in general, and coconut in particular. First, public sector investments have focused on irrigated rice due to the decades-old drive for rice self-sufficiency. Second, slow implementation of CARP has contributed to investor uncertainties, and militated against investment in long-gestating tree crops. Third, limited grace period for tree crops and the high real interest rates resulting partly from Government

macro policies had made investment in long gestating crops unattractive (World Bank, 1999). Further, the age old reliance on the recovery of the coco levy fund as a means to develop the industry has also boomeranged. Little funds were allocated by the Government to coconut replanting since 1986. Moreover, the AFMA funding constraint is severely exacerbated in the case of coconut where support is miniscule relative to the needs. Meanwhile, programs implemented included the World Bank-supported Coconut Farms Development Project (CFDP), DARs agrarian reform communities (ARCs) program, and the GMA Coconut program which took off from the Maunlad na Niyugan Tugon sa Kahirapan Program, and the development of two million ha of agribusiness lands in order to create two million jobs under the MTPDP where 1.35 million ha will be in coconut lands. The focus has mainly been on increasing the productivity and income of farmers through replanting, fertilization and rehabilitation, as well as implementation of coconut-based farming systems. Overall, however, the policies and programs of the coconut industry were characterized by lack of sustained directions and funding. The low intensity approach to solving the problems of the coconut industry meant lost opportunities in the last two decades especially in the areas of poverty alleviation, global competitiveness, sustainable development, rational use of resources, and people empowerment. It is a sad commentary of what development management is not. Coconut provinces continue to be equated with high poverty and, in many cases, insurgency. Vast areas of lands generate low returns. The coconut industry is not globally competitive due to failure to put in place competitive strategies and actions. Agriculture is under threat as many coconut regions are unable to provide good incomes. In the process, outmigration becomes the option for the rural poor. Policy Recommendations The industry has good potentials for growth from both production expansion and market-led product diversification. Coconut lands also have tremendous scope for farm diversification. To move the industry forward, it is imperative to: (a) develop a stakeholder, market-driven roadmap; (b) allocate budget based on social (economic) returns; and (c) engage the civil society in program design, implementation and monitoring. A quick resolution of the levy issue, its judicious fund management, and utilization will be a plus factor. The interest earnings of the invested levy fund will be adequate for development of the industry.

THE PHILIPPINE COCONUT INDUSTRY Performance, Issues and Recommendations 1

OVERVIEW 1. The coconut industry has been at the forefront of debate and controversy for over three decades now. The situation stems from many sources: from the commanding presence of the industry in the rural sector, to its being the orphan child of Philippine agriculture, and to its claim to large assets the coconut levy fund. 2. Why is the industry that important? First, coconut farms are reportedly present in 68 out of 79 provinces (Carpio, Personal Conversation, June 2006). Second, coconut farms cover some 3.3 million hectares (ha), nearly 30% of farmlands. Third, coconut regions host among the largest number of rural poor. 2 Predominantly coconut areas are almost always the sites of insurgency. Fourth, coconut products contribute nearly half of agriculture exports. Fifth, coconut lands have among the largest potential for diversification among the major crops. Last but not the at least, it has a huge, untapped resource pool for industry development (the coconut levy funds) which has been locked in legal battles since 1986. 3. While the debates continue, the coconut industry is caught in a time warp of stagnating production and, in turn severe poverty. Resource flow to the industry is limited. And yet, this orphan child of Philippine agriculture has among the highest potential for growth through productivity enhancement, diversification, and industry value adding. If managed well, it can be instrumental in rural industrialization and job creation. 4. The paper has three objectives: (a) Identify and discuss the major problems and issues affecting the current programs in the sector; (b) Discuss the effects of government policies and programs (DA and LGU) on the sector and how these policies and programs helped the sector go
Prepared by Rolando T. Dy, Ph.D. ,Executive Director; Center for Food and Agri Business, University of Asia and the Pacific, Pasig City, Philippines. He is Fellow of the Center for Investment and Trade Opportunities (CITO) Foundation. Senen Reyes, Senior Management Specialist, CFA-UA&P, Manuel Lim and Oscar Torralba provided valuable inputs. 2 Poverty incidence remained very high at about 75% (World Bank, 1998)
1

(c)

closer or farther away from the major goals in the AFMA of poverty alleviation, sustainable agriculture, and global competitiveness; and Suggest concrete policy recommendations that will ensure government programs to be more attuned to AFMA goals.

5. The paper has five parts: (a) review of industry status and performance; (b) major problems and issues confronting the current programs; (c) specific government policies and programs (DA and LGUs) and their effects on the sector; (d) concrete policy recommendations; and (e) conclusions. Part (d) will discuss how these policies contributed or deterred in the achievement of AFMA goals. The study involved a review of existing literature, and interviews of resource persons INDUSTRY STATUS AND PERFORMANCE 6. This section will discuss the industry performance over the past two decades in terms of production and exports, as well as analyze trends and structures. 7. Farm Production. The coconut industry by any measure is a major agriculture industry. Coconut lands comprised 1.4 million farms, or 29% of all farms (2002 Census of Agriculture). This magnitude is surprisingly higher than rice lands at 1.35 million. Similarly, physical area of coconut lands totaled 3.32 million ha (34% of total), higher than rice at 2.5 million ha 3 and corn at 1.4 million ha. By island group, Luzon had 20%, Visayas 34%, and Mindanao 46%. Twothirds of coconut areas are in five regions: Southern Tagalog, Bicol, Eastern Visayas, Southern Mindanao, and Western Mindanao in that order. 8. Areas. Coconut farms averaged 2.4 ha and are bigger compared to rice at 1.8 ha and corn at 2.0 ha, but smaller than sugarcane, 5.4 ha. The farms are spread in 2.54 million parcels, equivalent to about 1.8 parcels per farm compared to the overall average of 2. Altogether, two-thirds of all farms are owneroperated, and 23% tenanted or leased. The average farm size shrank by a third to 2.4 ha in 2002 from 3.6 ha in 1991, 4 in part due to the advent of the Comprehensive Agrarian Reform Program (CARP) in 1988, as well as increases in number of farms to 1.4 million in 2002 from 0.76 million in 1991. Incidentally, CARP had been extended up to 2008, and there is now a call to extend it farther to 2013.

Annual harvested areas of rice is larger at about 4 million ha mainly due to higher cropping intensity of irrigated rice lands and some rainfed lands. 4 The 1991 Census showed that there were 761,970 farms and 2,733,474 ha. The 22% increase in area to 3,325,449 ha in 2002 Census is difficult to explain considering the massive cutting of trees, unless some coconut areas were not captured in the 1991 census.

Table 1. Coconut, Rice, Corn and Sugar Lands: Number of Farms, Farm Size and Tenure Item Tenure of Parcels (in percent) Total No. Owned Tenanted Leased Others No. of Farms Rice 1,351,678 58.9 23.5 10.8 6.8 Corn 679,183 59.7 21.4 5.2 13.7 Coconut 1,400,394 65.6 19.1 3.4 11.9 Sugarcane 67,490 63.0 12.0 9.6 15.4 Others 1,323,994 All Types 4,822,739 61.4 20.1 5.5 13.0 Area of Farms Rice Corn Coconut Sugarcane Others Total Area (ha) 2,467,164 1,354,428 3,325,449 362,877 1,980,875 Area Share by Tenure (in percent) 63.9 67.1 68.8 76.0
67.1

23.1 19.3 24.4 7.7

21.3

8.3 5.2 2.2 11.1

5.4

4.7 8.4 4.6 5.2

6.2

All Types 9,670,793 Source: 2002 Census of Agriculture

9. Productivity. At some 35-40 nuts per ha (about 750 kg copra /ha), coconut has the lowest farm value per ha among crops. It is only half of corn, a fifth of rice, and a sixth of sugarcane. It generates less than a third of the average for all crops. As will be shown later, this is due to low yield, monocropping, and underutilization of lands under the coconuts. Table 2. Item Farm Production Value and Gross Value Added per Crop in 2002 Farm Production Gross Value FPV per GVA per Value (FPV) Added (GVA) Ha/yr Ha/yr Php million Php million (Php) (Php) Rice 115,853 96,430 46,960 39,090 Corn 28,421 23,812 20,990 17,590 Coconut 35,438 26,863 10,660 8,080 Sugarcane 21,490 18,402 59,200 50,690 Banana 28,849 22,150 52,360 40,200 Other Crops 75,344 159,233 (a) 46,800 All Crops 305,395 346,890(a) 31,580 (a) NSCB data appears inconsistent with BAS data. FPV should be greater than GVA. Source: FPV Bureau of Agriculture Statistics; GVA National Statistical Coordination Board; Area - 2002 Census of Agriculture

10. Coconut-based Industries. The coconut-based industries span many activities (Annex 1). They are characterized, however, by over-capacity due to the stagnant farm sector. The industry comprises: (a) Some 65 coconut oil mills with an installed copra crushing capacity of 4.54 million tons a year; (b) 45 oil refineries with installed capacity of 1.53 million tons of cochin and refined, bleached and deodorized (RBD) oil a year; (c) 10 desiccated coconut plants with installed capacity of 132,700 tons a year; and (d) Eight oleo-chemical plants making intermediate coconut-based chemicals like fatty alcohol, fatty acids, methyl ester, and glycerine (UCAP, 2004). 11. The other industrial products and byproducts include: shell charcoal, activated carbon, coco coir, geo-textile and virgin coconut oil. The end-products are found in margarine, shortening in bread, cakes, cookies and chips, shampoos, and bath soaps, laundry soaps, detergents, cosmetics and pharmaceuticals (Agustin, 2005). 12. Export. Coconut products remain the Philippines leading agriculture export (US$840 to US$900 million a year) coming from 37 products and by-products that were exported to 114 countries. The major exports are crude and refined oil, copra meal, desiccated coconut, activated carbon, and oleo-chemicals. Exports account for 80% of production and 20% are consumed locally (Agustin, 2005). Table 3. Export of Major Coconut Products, Selected Years 1985 1995 2000 Value (US$ million, f.o.b.) Crude coconut oil 328.5 690.6 350.9 Refined coconut oil 18.8 26.3 135.5 Desiccated coconut 75.7 60.7 73.2 Activated carbon 14.3 22.0 31.0 Copra meal/cake 35.5 54.0 23.4 Quantity (ton) Crude coconut oil Refined coconut oil Desiccated coconut Activated carbon Copra meal/cake

2005 482.8 174.5 127.1 39.2 28.1

622,191 28,415 64,752 12,412 443,701

1,059,257 75,284 75,341 20,219 643,922

832,952 227,998 73,693 31,546 530,999

864,422 287,894 125,540 33,843 430,241

Source: National Statistics Office Note: see also Annex 2 for global situationer

13. Industry concerns. Much has been written about the coconut industry. Observers such as Villegas and Esteban (1980), Habito (1988), Intal (1988), World Bank (1987, 1989, 1998, 1999), Magat and Carpio (1997), Olander and Johansson (1998), Aragon (2000), and Romero (2005) have noted the various challenges facing the industry. These challenges include: low productivity, limited intercropping, and in turn, high poverty. Aragon (2000) discussed these constraints (Box 1). The causes include: (a) Large areas are planted with low genetic potential; (b) Vast areas are not fertilized while actual labor inputs are only half of optimal; (c) One third of the coconut trees are senile; and (d) Coconuts are planted on marginal lands. 14. Meanwhile, the present supply chain of the industry is generally characterized by cost-increasing rather that cost-reducing conditions (see also Annex 3). These include: (a) Unorganized and dispersed small holdings which affects economics of scale in input supply, primary processing and marketing; (b) Low yields caused by poor genetics, nil fertilization, and limited replanting of tree stocks; (c) Inadequate nut supply causes over-capacity of processing plants; (d) High cost of logistics due to small production lots and high transport costs; (e) Global market threats from tariff and non-tariff barriers such as minimum residues levels and labeling regulations 5 .

There are unsubstantiated health issues (saturated fats) raised by the soybean lobby in the 1980s which stuck to the consumers and food processors. Also, the US FDA labeling regulations on transfatty acids (TFA) takes effect January 1, 2006. High tariffs on CNO in India (42%), and discriminatory tariffs in China: 10% for Philippine CNO as compared to Indonesian CNO at 5% (Agustin, 2005).

Box 1. COCONUT INDUSTRY PROBLEMS

Aragon (2000) cited that low productivity and declining production could be attributed to the following reasons: 1. Senility of coconut trees. About 25% of coconut bearing trees are senile or over 60 years old (PCA, 1995); 2. Widespread use of low yielding varieties due to lack of quality coconut seedlings (Magat, 1999). More than 98% of the total coconut land area is planted to talls which bear fruits after seven years, yield approximately one-half that of coconut hybrids, and reach senility at 60 years (PCA, 1995). 3. Poor agronomic or farm management practices (Magat, 1999). Most coconut areas are dependent on rainfall or have no irrigation systems. Moreover, only one percent of the coconut parcels regularly receive fertilizer (Manicad, 1993). 4. Unabated cutting of coconut trees given the market for coco lumber. As of 1996, it was reported that 2.5 million trees, about half of which were believed to be productive, had been cut due to: a) the log ban which made traditional forest lumber very scarce and raised demand for coconut lumber; b) low price of coconut; and c) the Comprehensive Agrarian Reform Program where some landlords, in an effort to evade land reform, cut their coconut trees (PCA, 1995). To regulate the cutting of regular coconut trees, RA 8048 was enacted in 1995. 5. Poor soil nutrition. The soil fertility of most coconut farms has remarkably deteriorated through years of cropping resulting in low coconut productivity (PCA, 1991). The PCA study found that widespread deficiencies in nitrogen, chloride, sulfur, and potassium caused low yields in many areas. Nutritional deficiency can reduce productivity by about one ton of copra per hectare per year. 6. Incidence of pests and diseases. Cadang cadang, a viroid disease, kills millions of coconut trees in the Philippines each year. Production loss due to this disease has been at US$ 16 million annually (Manicad, 1993). 7. Natural calamities. The El Nio and the La Nia weather disturbances have an adverse impact on coconut production. 8. Land conversion. In areas where massive felling of coconut trees occurred, coconut lands have been converted to more profitable crops or to non-agricultural uses. 9. Lack of sustained and adequate resources for infrastructure support, research and extension services especially in the continuing value formation, technical skills, and entrepreneurial skills development of small coconut farmers. For example, PCA (1995) reported that the provision of irrigation to small farmers and the construction of feeder roads and buildings programmed for 1991 to 1995 were not carried out because of lack of funds. 10. Tenure-related problems. Most producers are small farmers, but there is a small minority which controls half of the coconut lands in the country (Manicad, 1993). The landed elite put minimal investments in coconut production and copra drying because they receive income from rental payments and lucrative trading. Furthermore, most of the coconut farmers have no capital to invest in good coconut varieties and can illafford the long wait for maturation of coconut trees that replanting requires. The small farmers lack sustained access to credit from formal sources.

MAJOR PROBLEMS PROGRAMS

AND

ISSUES

CONFRONTING

THE

CURRENT

15. There are several issues that confront the current programs in the coconut industry. These are: (a) top level commitment; (b) financing development; (c) resource allocation criteria; (d) institutional; (e) implementation; (f) engaging the civil society; (g) global market access; and (h) agrarian reform and other laws. Top Level Commitment 16. Coconut as the orphan child has resounding evidence in the lack of sustained roadmap 6 for the industry. It is also manifested in constant changes in PCA management, and the severely inadequate funds budget for development. This malaise contrasts with the resource commitments for the rice industry. The over-reliance on the resolution of the levy issue as the key fund source, and the long delays in judicial resolution do not augur well for coconut development in general and private investments in particular. 17. The constant changes in PCA leadership (as in the DA leadership) do not augur well for continuity of programs. The lack of political resolve by past administrations since 1986 has led to lack of a serious development program. The low budget for the coconut lands relative to its land area and farming population is difficult to comprehend to outside observers, in part caused by too much reliance on resolution of the coco levy funds. Financing Development 18. Shortage of long-term financing for perennial crops remains a major constraint on the development. The financing of the replanting program for coconuts is an outstanding example. However, the use of the banks for financing planting or replanting of perennial crops has been less successful in developing countries. Given the political difficulties in collecting levies, as well as the unwillingness of banks to finance perennial crops, the issue appears complex. There is need to explore various options for the establishment of effective financing mechanisms for perennial crops (World Bank, 1998). 19. Under MTPDP, the funding for agribusiness targets for the coconut industry falls short of expectations (see paras. 47-48).

Roadmap is meant here as a strategic plan where all stakeholders have agreed to be guided regardless of changes in political leadership. Contrary to some perceptions, it is not a government mandated (top-down) plan.

Resource Allocation Criteria 20. Coconut lands comprise the largest expanse of idle and underutilized lands today. The potential for investment and job creation are high. But rice lands receive a disproportionately large budget allocation compared to coconut on per ha or per farmer basis, and this excludes support from the National Food Authority. There must be a serious resolve to let market forces decide on what crop to plant and where to plant. 21. A planted hybrid coconut shows good economic returns. On the basis of an average peak yield of three tons copra per ha during year 9 to 16, the economic rate of return is 42% (with zero opportunity cost of land). By contrast, that of a local coconut tall is also good at 27% (peak yield of 1.9 tons copra per ha). The economic rates of return are comparable to those of oil palm (38%), rubber (23%) and mango (41%), and all are far higher than the hurdle rate of 15%. Both assume development costs per ha of US$720 and US$727, respectively at constant 1998 prices. (World Bank, 1999) 22. The ERR for tall coconuts are lower than for hybrids, but the focus with talls should be intercropping where soils are suitable (World Bank, 1999). However, the ERR for coconut replanting is far higher than many irrigation projects (new and rehabilitation) at 15 to 20% (Authors estimates). Also, the investment cost of irrigation is higher at more than US$2,000 per ha. Just for minor restoration alone, it is about $1,000 per ha and normally needs to be done every 5 to 7 years. Institutional 23. The PCA has been given the mandate to provide leadership in the development of the industry. For the past years, industry growth has been hampered due to low investment. Industry programs are characterized by many under-funded, short duration projects which could not generate a sustainable impact. This has demoralized both the farmers and the PCA extension staff. As a result, there is little or no application of fertilizers or other inputs, and replanting has been very slow or poorly maintained (World Bank, 1999). 24. The World Bank (1999) found the PCA Research Branch has achieved important breakthroughs in breeding as well as agronomy and plant protection but their adoption has been limited by the absence of sustained outreach programs and unpredictable funding. Emphasis is needed on the management of the research program to restore its momentum. In order for the coconut industry to be vibrant, strong leadership is required. Today, PCA has developed at least ten clones for various agro-climatic conditions but has no resources for their multiplication.

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Implementation 25. Some sectors felt that program implementation in the industry could benefit by engaging the stakeholders the LGU, the private sector, the civil society, and the academe. According to Efren Villasenor of the Pambansang Kilusan ng Magsasaka at Manggagawa sa Niyugan (PKSMMN), a total of 1 million ha need to be replanted with good site selection, or about Php 50 billion in total. He indicated that over the past 20 years, 1986-2006, the Government could not provide adequate support for the industry as many decision makers felt that the coco levy funds will arrive. He felt that replanting must be in suitable areas and all intercropped in a coconut-based farming system. There is need to concentrate in Southern Luzon (except Laguna and parts of Batangas) all the way to the Mindanao. He indicated that seed nuts can be harvested from good farm trees. He believed that contrary to some opinions, it is only in public lands that can the Nucleus Estate scheme can be implemented. But public land leases must provide for under a 50 year stewardship, not the current Constitutional provision of 25 years plus 25 years 26. With respect to LGU participation, many LGUs fail to provide adequate funds for agriculture development. According to a study, on the average, provincial governments allocate a mere 3-4% of their budgets to the Office of the Provincial Agriculturist while the Municipal Agricultural Offices receive no more than 6% of the municipal budget. Of this, 80-90% of the budget goes to personal services with only 10-20% for MOOE for the costs of extension work (Quizon et al, 2003). There are less than 20 provinces out of the 68 that have involvement in replanting and rehabilitation; most of these are for seed nuts distribution (Carpio, Personal conversation, June 2006). Moreover, 4th to 6th class LGUs have little resources for agriculture development. In principle, at least 20% of the IRA should be channeled for development projects. Engaging the Civil Society 27. In a Mindanao consultation, majority of the civil society organizations (i.e. NGOs, POs, producer groups, etc) showed appreciation for the use the levy funds to address the declining farm productivity. They suggested in a workshop in Mindanao not only to focus on the replanting and production issues, but, more importantly, examine the range of others problems such as the slow implementation of agrarian reform, the potential of downstream and upstream activities, the need to dismantle the existing monopolies in the sector, and the abject poverty that is prevalent among the coconut-dependent households (Mindanao consultation, World Bank, 1999). Productivity measures are indeed needed for both the highly productive coconut lands and for marginal coconut lands. Vilasenor (2006) suggested that replanting programs must engage civil society for better monitoring such as progress payments will only be made to planters on verifiable live trees every 12 months.

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Global Market Access 28. The campaign of overseas soybean interests has hurt the coconut oil (CNO) in the US food usage. Labeling requirements of trans-fatty acids in consumer products and wrong attribution of the negative impact on all saturated fats, including medium chain triglycerides from coconut oil have affected the industry. These non-tariff barriers will not abate as lowering of tariff barriers makes many countries impose technical barriers to trade. The industry stakeholders need to address these in concert. Laws: CARP and Coconut Cutting Law 29. The advent of CARP in 1988 has discouraged private investments following its provisions on retention limits, eligibility as well as transferability. Villasenor (2006) claimed that small farmers receive land but remain mired in poverty due to the loss of traditional support system such as credit. He strongly suggests sparing coconut lands from further agrarian reform. 30. The Coconut Cutting Law (RA 8048) is a dated law and may have to be repealed.

Box 2. VOICES FROM THE STAKEHOLDERS The single most important constraint is supply. Frequent changes in PCA leadership has also badly hurt industry directions - A key industry player Intercropping for commercial sales and for family food nutrition is neglected. And yet, the technologies are available - A farmer who lost his land to agrarian reform Coconut development must be always premised on intercropping A farmer leader

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SPECIFIC GOVERNMENT POLICIES AND PROGRAMS and THEIR EFFECTS ON THE SECTOR 31. There are general and specific policies that have affected the industry. These policies have influenced industry performance over the decades. Table 4. Policies Affecting the Coconut Industry Policy (a) Coverage

General: Food self-sufficiency Rice General Banking Act of 1949 (b) All commodities CARP All agri lands AFMA All agri commodities Specific Coconut levy Coconut Cutting Law (a) In chronological order (b) The short grace period (maximum of three years) on loans was amended by AFMA in 1997 but went into effect in November 1999 under a BSP Memorandum Circular General 32. Government policies are generally biased against tree crops in general, and coconut in particular. Tree crops particularly coconuts are often known as the forgotten child of agriculture. First, public sector investments have focused on irrigated rice. This is a result of the decades-old drive for rice self-sufficiency. For example, the AFMA provides that 30% of the budget goes to irrigation. Second, slow implementation of CARP has contributed to investor uncertainties, and militated against investment in long-gestating tree crops. Third, limited grace period for tree crops 7 and the high real interest rates resulting partly from Government macro policies had made investment in long gestating crops unattractive (World Bank, 1999). 33. Food Sufficiency. The bias for irrigated rice is shown by the disproportionate amount of resources going to rice programs. While rice lands (2.5 million ha) are smaller than coconut lands (3.3 million ha), the former receives about Php 4 billion to 5 billion a year for irrigation, R & D, seed subsidy and other support., and not counting the NFA subsidies. By contrast, since 2000 (after the end of the World Bank-financed Coconut Farms Development Project), the Philippine Coconut Authority gets Php 41 million a year in maintenance, operating and other expenses (MOOE) and no capital expenses (PCA, 2006).

Maximum of three years under the General Banking Act until it was amended by AFMA in 1997)

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34. The long-term bias for rice self-sufficiency and, therefore, for irrigation projects have inadvertently led to the neglect of coconut development as an instrument of poverty reduction. While the Government is willing to fund irrigation projects to the tune of Php100,000 to 400,000 per ha, and the subsequent operations and maintenance (O&M) subsidy for national systems, support for coconut has been far less (World Bank, 1999). Today, rehabilitation of national systems requires at least Php150,000 per ha. By contrast, coconut replanting would only require Php 50,000 per ha. This means that three coconut rice farmers can be benefited for every irrigated rice farmer! Coconut farms have significant potential for intercropping with a variety of crops, which can sustain farm incomes while waiting for newly planted trees mature (World Bank, 1998). 35. General Banking Act. This Act of 1949 provided that the maximum grace period on loans would be three years. While this was perhaps appropriate for industrial projects and agriculture production loans, the Law hampered lending for long gestating crops such as coconut and rubber. The specific provision was amended by AFMA in 1997 but took effect in late 1999. Nevertheless, the long tradition of bias, the advent of CARP as well as other factors have not increased the flow of long-term funds. 36. CARP. The advent of CARP (Republic Act 6657 of 1988) discouraged farm investments. The stringent provisions of eligibility and transferability have distorted the rural land markets and drove away investors. There had been no replanting or intercropping in most commercial estates since 1988. In the case of coconut, there had been cutting of coconut trees by landowner as lumber. The uncertainties created by land acquisition and transferability provisions of the law caused decline of private investors. DAR records showed that as of mid-1998, some 562,000 ha of coconut lands had been acquired or 20% of the total of 2.76 million ha (Word Bank, 1999). As of December 31, 2005, DAR acquired 3.69 million ha, compared to the working scope of 4.37 million ha, leaving a balance of 630,280 ha. As there no readily available time series data on land acquisition by crop, it is estimated that another 190,000 ha of coconut farms could have been acquired over the past 8 years. 8 Altogether, some 752,000 ha of land were acquired since 1988. By June 2006, about 190,000 ha may have yet to be acquired. 9 37. Coconut as compared to rice has several attributes: (a) it takes 3 to 6 years for coconut to be harvested (depending on whether it is hybrid tall) while it takes only 4 months for rice; (b) farm administrators take the place of land owners; and (c) many coconut farms have permanent workers who may not be as entrepreneurial as rice farmers. When land is distributed to farm workers, they face a more difficult and longer adjustment than a rice tenant/lessee who have a wider view of farm management.
This is estimated at 20% of the total land acquired between 1998 and 2006 of 930,000 ha. This is derived at 30% of the remaining balance based on preliminary (incomplete) estimates by DAR.
9 8

14

38. AFMA. Government policies for agriculture and fisheries, in general, are enshrined in AFMA since 1997. It called for a modernization agriculture and fisheries: the process of transforming the sectors into one that is dynamic, technologically advanced and competitive yet centered on human development, guided by sound practices of sustainability and the principles of social justice (Republic Act 8435) (underscoring by the author). 39. AFMA has seven principles: (a) poverty alleviation and social equity; (b) food security; (c) rationale use of resources; (d) global competitiveness; (e) sustainable development; (f) people empowerment; and (g) protection from unfair competition. Among its objectives are to: (a) modernize the agriculture and fisheries by transforming these sectors to a technology-based industry; (b) enhance profits and incomes particularly the small farmers and fisher folk; (c) ensure the accessibility, availability and stable supply of food; (d) promote people empowerment by strengthening peoples organization, cooperatives, and NGOs; and (e) pursue a market-driven approach to enhance comparative advantage of agriculture and fishery products in the world market (AFMA IRR, 1998). 40. There is, however, a wide chasm between policies and practice. The AFMA budget between 1999 and 2004 has declined in real terms in contrast to a large increment (Php 15 to 20 billion each year) for agriculture and fisheries under the law on top of the budget of the Department of Agriculture. 10 The funding constraint is severely exacerbated in the case of coconut where support is miniscule relative to the needs. Specific 41. Coconut Levy Fund. The levy fund has a long history (Annex 4). The levy is a potentially rich resource for the development of the coconut industry. The current market value of the assets could be in the order of Php100 billion for San Miguel shares as well as Coconut Industry Investment Fund (CIIF) mills, United Coconut chemicals, and other companies (Romero, Jr. and Villasenor, June 2006). However, the age old reliance on the recovery of the levy as means to develop the industry has boomeranged. Little funds were allocated by the Government on replanting since 1986. Even the World Bank-financed CFDP is modest relative to the overall replantable area of about one million ha (Box 3). Under the project, the replanting target was modest at 5,000 ha per year, given one million ha senile areas. Even at a target of 20,000 ha a year, it would take 25 years to replant 500,000 ha.

The budget for Agriculture and Fisheries Modernization Plan (AFMP) were: Php billion in 1999, Php billion in 2000, Php billion in 2001, Php billion in 2002, Php billion in 2003,and Php billion in 2004.

10

15

42. Coconut Cutting Law. The government log ban of the 1990s led to a dramatic increase in lumber prices. As a result, demand for coco lumber increased. RA 8048 was passed in 1995 following lobbying of processors and other interest groups. The provides penalties for illegal cutting of coconut trees ranging from fines of P50,000.00 to P500,000.00 and imprisonment from one (1) to six (6) years. The law is well-meaning but it adds another bureaucratic hurdle and is actually an infringement to the right to private property. Programs. 43. There are a number of programs that affect the industry. They may be categorized into two: industry specific programs, and sector-wide programs but with large impact to the industry. The first category includes the Coconut Farms Development Project, GMA coconut program, and LGU programs. The second category is the MTPDP Agribusiness Lands. The performance of the programs is at best mixed. Table 5. Specific Programs in the Coconut Industry Program/project Coverage Period Coconut Farms Replanting 1991-1999 Development Project Rehabilitation (World Bank) Intercropping Coconut ARCs No data Ongoing GMA Coconut Replanting Intercropping Replanting (LGU) Seed nut distribution Ongoing MTPDP- Agribusiness Replanting and 2004-2010 lands intercropping of 1.35 million ha

Agency PCA

DAR PCA LGUs DA and PCA

44. Coconut Farms Development Project (CFDP). During 1990s, the main program of significance was the World Bank-supported CFD, implemented in 1991-1999 (Box 3). The project was original for 1991-1995 but was extended due to implementation delays.

16

Box 3. COCONUT DEVELOPMENT: A BRIEF

The World Bank-supported Coconut Farms Development Project had the following justifications: World market prospects for copra products, especially coconut oil, appear promising, if only because most producer countries have failed to achieve their goals of increasing output; A sound technical basis exists for increasing production through both rehabilitation of existing talls and planting of hybrids; Much of the institutional framework is already in place for managing a large scale coconut farms development program; and Domestic demand is increasing at three percent per annum due to population increase.

The project was implemented in 1991-1999. It was envisioned as a five year time slice program but got extended by another four years due to funding and implementation constraints. Some 23,864 ha were replanted compared to the 25,000 ha target. On the other hand, the rehabilitation component, achieved 409,806 ha fertilized in 9 years. compared to 360,000 ha targeted over 5 years. In effect, in annual terms, replanting was 47% below target while rehabilitation was 37% below target. The Government commitment was to provide P450 million a year from AFMA funds for replanting and rehab in the absence of the resolution of the coco levy issue. In reality only P41 million a year in MOOE was provided to fund 12 regions and four research centers (Carlos Carpio, Personal Conversation, June 2006). As a result, validated figures for 2000 to 2001 show that only 4.383 ha and 3,318 ha , respectively were replanted; and 13.533 ha and 14.170 ha , respectively were rehabilitated. The years 1992-1998 saw a long period of coco levy advocacy. There was a plan for five seed gardens (1 Government and 4 private sector) of 250 ha each that will provide seeds nut for 62,500 ha a year. There were no takers from the private sector as according to one source, there were not sure if PCA had the funds to pay for the seed nuts. In 1998-2000, PCA envisioned 64 model intercropped farms in 64 provinces that will increase average income to P100,000 per ha from P10,000 per ha. The plan did not bring full fruition due to implementation constraints. Also, the project area selection was reportedly tainted by political considerations. Beside, there were no benchmarks and market studies on crop selection. Today, only the Aroman seed farm in North Cotabato can be relied upon for seed nuts for replanting. Aroman can produce about 720,000 nuts a year, or about 5,300 ha per year. For all centers, only 2 million seed nuts can be produced good for only about 15,000 ha per year CFDP Lessons. There are many lesson learned from the CFDP which should be taken into account, including: the importance of developing sustainable approaches to replanting and rehabilitating (fertilizing) coconuts; sustainable provision of extension services (and collaboration with LGUs) which supports a farming systems approach and the LGUs/private sector roles; serious GOP budgetary constraints which make it difficult to rely on substantial public sector funding, and hence the need to intensify actions which will trigger a more active private sector response. It will be important for GOP to develop a sound long-term coconut strategy, which also redefines the future role and structure of PCA (World Bank, 1999). Source: World Bank. Coconut Farms Development Project. Staff Appraisal Report. 1989. World Bank. Tree Crops for Rural Development, 1999. Interviews with key resource persons, 2006.

17

45. DAR-ARCs. Under DAR, the agrarian reform communities (ARCs) program, there are 645 coconut based ARCS with some 350,000 beneficiaries (about 700,000 ha). 11 Coconut-based ARCs account for nearly 40% of all ARCS (1,633) (DAR, 2006). The author has no basis to judge this program. 46. The GMA Coconut program which took off from the Maunlad na Niyugan Tugon sa Kahirapan Program which was launched under EO 210 of February 2000. The Maunlad Program sought to improve coconut productivity and increase the annual income of coconut farmers from P10,000 to P100.000 per hectare through an efficient integrated coconut-based farming system. It shall also seek to increase coconut production through conservation, replanting and rehabilitation of the palm population. 47. The Maunlad program included the following components: (a) Establishment of Model Coconut farms. A model coconut farm shall be contiguous cluster of small coconut farms with an aggregate are of 15 to 20 hectares, fully intercropped with cash and commercial crops, provided with livestock, poultry and small ruminants, and equipped with water supply, production and processing facilities; (b) Coconut Replanting and Establishment of Local Nurseries. A coconut replanting program shall be implemented to regain lost hectarage due to the rampant cutting of coconut trees; and (c) Provision of Agricultural Infrastructure by the DA, DPWH, DOE, DOTC, DILG and the LGUs in their respective plans and programs to include irrigation, farm-to-market roads, post harvest facilities, energy infrastructure, communication systems and other agricultural infrastructure to accelerate agricultural and fishery production, processing and marketing in coconut areas, particularly in model coconut farms. The Program shall also had the following components farmer development and socio-institutional services, livestock, poultry and aquaculture dispersal; credit and marketing assistance, research and development, extension and information services; institutional networking and linkaging; planning and project development; and monitoring and evaluation. 48. This program has not lived up to its targets. The coconut program was supposed to be funded under the High Value Crops Commercial Program (HVCC) but it received none. PCA had a budget of Php 424 M in 2005, of which Php 313 M were for PS, Php 70 M for other expenses; and Php 41 for MOOE. 49. The Medium-Term Philippine Development Plan (MTPDP), 2004-2010, Agribusiness Chapter envisions the development of two million ha of agribusiness lands in order to create two million jobs. Of these, 1.35 million ha will be in coconut lands: about 80% for replanting 1.08 million ha and 270,000 ha for intercropping. This would mean, replanting of about 180,000 ha per year which would require some 24 million seeds nuts a year. Since the supply from seed farms is only 2 million, there is a shortage of about 22 million a year.
Assuming an average of two ha per beneficiary, the total coconut areas would be about 700,000 ha.
11

18

Selected farm seed nuts can give about 12 million a year and that leaves a shortage of 10 million a year, or nearly 75,000 ha a year for replanting. 50. The budget required for 14 million seed nuts will be about Php70 million a year. On the other hand, fertilizer for 100,000 ha per year (at 6 bags per ha ) will need about P480 million, or some P550 million a year. Compare this with the PCA MOOE of P41 million a year. Given the mismatch of MTPDP coconut targets and resources, the agribusiness targets must be revisited. Benchmarking Industry Programs 51. Comparing the policies and programs of the coconut industry with those of Malaysian oil palm in the last 30 years showed marked differences. The former was characterized by lack of sustained directions and funding. In contrast, the latter was characterized by a corporate approach to problem solving: top level commitment, regular funds flow, and leveraging domestic funds with official development aid such as the World Bank. Table 6. Benchmarking Supply Chains Item Philippine Coconut A. Chain attributes Cost High cost due to low yield, old mills, inefficient logistics, and subsistence farming Quality Poor copra quality

Malaysia Palm Oil Low due to high yield, efficient logistics, new mills, and centralized or estate management Good quality due to short time lag between harvest and processing Good reliability sustained growth Good list

Supply reliability Product innovation

Poor reliability due to slow growth and variable supply Good list for main and by products

B. Functional areas Marketing Global market reach

Production Finance R&D

Stagnant or slow growth No long-term financing for replanting Under funded R &D

Global market reach Commodity futures exchange in Malaysia Good government-private sector cooperation Moderate to rapid growth Available long term financing programs Good R&D under Palm Oil Research Institute (PORIM) and private estates

19

Producer Organizations

Unorganized small holders Fractious stakeholders

Development Agencies

Constant changes in leadership in both PCA and DA have weakened these agencies Weak support at the top

Well-organized private estates Good government land agencies Management assistance to small holders Generally effective government land agencies Strong support at the top

Source: Various Sources; Authors experience

Impact of Government Policies and Programs (DA and LGU) on the Sector and Alignment with AFMA Goals 52. The low intensity approach to solving the problems of the coconut industry meant lost opportunities in the areas of poverty alleviation, global competitiveness and sustainable development in the last two decades. It is a sad commentary of what development management is not. Coconut provinces continue to be equated with high poverty and, in many cases, insurgency. Vast areas of lands generate low returns. The coconut industry is not globally competitive due to failure to put in place competitive strategies and actions. Agriculture is under threat as many coconut regions are unable to provide good incomes. In the process, out-migration becomes the option for the rural poor.

20

Figure 1.

IMPACT OF LIMITED INVESTMENTS IN THE COCONUT INDUSTRY

DETERIORATING CAPITAL STOCK (TREES) LOW PRODUCTIVITY (3M HA)
SLOW GROWTH RM SUPPLY AGRO-INDUSTRIES

NO MAINTENANCE

LOW JOB GROWTH

FOREGONE OPPORTUNITIES

LOW INCOME

LOW INVESTMENT

LOW SAVINGS

HIGH POVERTY

UNDERUTILIZED LAND UNDER TREES (2M HA)

LOW JOB GROWTH

FOREGONE OPPORTUNITIES

AFMA Goal: Poverty Alleviation and Social Equity 53. Returns to coconut lands has been dismally low as productivity stagnated. .Farm yields during 1998 to 2004 practically stagnated at about 750 kg copra per ha, except in 1999 when it fell to 420 kg/ha due to the effects of El Nino. Copra prices were on the uptrend which provided some extra relief. Nevertheless, at its peak in 2004, the gross return per ha was barely only Php16,000, or P32,000 per farm. 54. Poverty abounds in the 3.3 million ha of coconut areas. Based on the Human Development Report, regions with disproportionately coconut areas tend to have high poverty incidence. This is certainly the case for Bicol with 40.5% of families in 2003, Eastern Visayas (35.5%), Zamboanga Peninsula (44.1%) and Caraga (47.3%) and ARMM (45.7%) This is even more evident at provincial levels. As there had been little changes in coconut farm productivity through yield and/or intercrops, success in poverty reduction appears limited, except in areas

21

where there are alternative employment opportunities like Davao City and Laguna (Annex 5). 55. The slow growth in production has affected raw material supply to agribased industries such as coconut oil milling and activated carbon. In turn, this affected investments and job creation. AFMA Goal - Global Competitiveness 56. Global competitiveness is defined as the ability of a product to sustainably compete with exports in the global market or with imports in the local market. As most coconut products, are exported, the premier measure is cost competitiveness. Shown below is a comparative costs and returns of CNO and Malaysian CPO. While CNO has higher price than CPO, its return to revenues is much lower due to low farm productivity. Table 7. Comparative Analysis of Farm Profitability: An Illustration Professional Estimates, Per Hectare
Item Average farm yield (kg/ha) Farm price (US$/ton) Gross revenues (US$) Less. Materials costs Gross returns Imputed labor costs Net income after labor and materials Land costs (c) Net returns per ha after land costs (US$) Memo items: Gross return per labor-day net of land costs ($) Net as % of gross farm revenue
(a) 40 person days at $3/day (b) 50 person days at $6/day (c) Philippines: 25% of gross revenues; Malaysia: 10% Source: Authors estimates

Philippine Coconut Smallholder 750 copra 230 172 Nil 172 120 (a) 52 47 5 3 3

Malaysian Oil Palm Small holder 20,000 fruit bunches 58 1160 420 740 300(b) 440 116 324 12.28 28

57. A sound strategy for competitiveness is coconut-based farming system comprising two elements: replanting with good clones; and market-based intercropping with other crops and/or livestock. Marginal lands with senile trees, if not suitable for intercrops because of distance from market and other constraints must be shifted to other use such as timber or fruit trees.

22

AFMA Goal: Sustainable Development 58. Sustainable development has three aspects: economic, social and environmental (UNIDO, 2002). On the first aspect, the low financial and economic returns to coconut farming and its concomitant high poverty have fuelled insurgency and urban migration. On the social aspect, the CARP has caused land redistribution but poverty continues due to lack of investments and weak program support. On the environmental aspect, coconut has provided forest cover to some 10% of the total land mass, but its plantings in the hilly and steep areas may not be the best use of land. Perhaps, timber species and fruit trees would be best in hilly areas. Altogether, coconut antiquated, low-input farming technology may not be sustainable. AFMA Goal: Rational Use of Resources 59. The coconut industry has specially suffered from the specific provision of AFMA on budget allocation, i.e. 30% of AFMA budget will fund irrigation. In this country, irrigation is meant almost always equated to rice irrigation. While irrigation gets Php 4 to 5 billion a year in capital spending, coconut has a measly Php 41 million in MOOE. AFMA Goal: People Empowerment 60. AFMA provides that the State shall promote people empowerment by enabling citizens.. to participate in policy formulation and decision-making.. (Section 2). Based on discussions with selected stakeholders, it appears that plans and programs for the coconut industry were top-down in orientation. As a result, farmers have no sense of ownership of the government-mandated programs. CONCRETE POLICY RECOMMENDATIONS 61. The coconut industry is a study in contrast. The coconut farmers form among the largest stakeholders in Philippine agriculture but among the most impoverished. Land diversification potential is among the highest but derives among the least support from the government. If the Government desires a high growth in agriculture and job creation in the MTPDP, it has to look at the coconut lands as a major vehicle. 62. Considering the performance, problems and issues facing the industry, the following recommendations are in order.

23

Table 8. Recommendations for the Coconut Industry Action ISSUES RECOMMENDATION Program Lack of top level commitment; lack sustained industry directions Financing development Craft a stakeholderdriven industry roadmap Formulate funding scheme for perennial crops Resolve the levy issue Allocate budget based on social returns, area and number of farms Advocate for professional bureaucracy Push for partnerships and cost sharing Engage the civil society ST

Agency Stakeholders, DA, PCA

MT

Stakeholders OP DOJ DA, NEDA DBM, Congress DA, DBM, CSC Stakeholders PCA, DA, LGUs Civil Society, PCA

Resource allocation Bias for food self sufficiency in budgets Institutional

MT

MT

Limited LGU engagements Limited engagement of civil society in program design, implementation and monitoring Lack of private investments

ST ST

End CARP land distribution and acquisition in 2008 Note: ST short term; MT medium term

MT

DAR

63. The key recommendations are: (a) a stakeholder, market-driven roadmap; (b) budget allocation based on social (economic) returns and other rational criteria; (c) engaging the civil society in program design, implementation and monitoring. A quick resolution of the levy issue, its judicious fund management, and its cost-effective and transparent utilization will be a plus factor.

CONCLUSIONS 63. The coconut industry comprises the largest farm area (3.3 M ha) and 1.4 M farms in Philippine agriculture. It hosts some 3.4 M farmers and workers (Faustino, 2006). Coconut products generate the largest agri-food export. It has performed dismally due to several reasons foremost of which are: lack of top level resolve, inequitable resource allocation, and implementation constraints. As a result, low productivity prevails and, in turn, high poverty and insurgency.

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64. The industry has good potentials for growth from both production expansion and market-led product diversification. Coconut lands also have tremendous scope for farm diversification. These potentials can be realized by: (a) a stakeholder, market-driven roadmap; (b) budget allocation based on social (economic) returns; (c) engaging the civil society in program design, implementation and monitoring. A quick resolution of the levy issue, its judicious fund management, and cost-effective and transparent utilization will definitely be a key factor. The potential interest earnings from the invested levy fund will be adequate for replanting and rehabilitation of the industry.

25

REFERENCES Aragon, Corazon. 2000. Coconut Program Area Research Planning and Prioritization. Discussion Paper 2000-31. Philippine Institute for Development Studies. Socio Economic Research Portal for the Philippines. Agustin, Yvonne T.V. 2005. Global Competitiveness, Benchmarking and Best Practices for the Coconut Industry. Lecture materials for the Food Systems Management (FSM) on Major Crops and Processed Products. University of Asia and the Pacific. March 31, 2005. Asia and Pacific Coconut Community. 2006. Coconut IPM Project. Home Page. www.apccsec.org/message.html Carpio, Carlos B., Erlene C. Manohar and Nina Marie Kindipan. 2005. The Coconut Industry: Input Supply and Logistics for Coconut Production. Lecture materials for the Food Systems Management (FSM) on Major Crops and Processed Products. University of Asia and the Pacific. March 14, 2005. Dy, Rolando. 1988. Land Use Diversification in the Coconut Industry. Paper presented at the Technical Consultative Meeting on the Coconut Industry. February 19-20, 1988 at the Philippine Coconut Authority. Faustino, Joey. 2006. Facing the Challenges of the Philippine Coconut Industry: The Lifeblood of 3.4 million Coconut Farmers and Workers. Draft EPRA Paper. Food and Agriculture Organization, Coconut Tree of Life. www.fao.org//docrep/005/y3612e/y3612e03.htm Intal, Ponciano Jr. S. 1988. Some Notes on Price Stabilization in the Coconut Industry. Paper presented at the Technical Consultative Meeting on the Coconut Industry. February 19-20, 1988 at the Philippine Coconut Authority. Habito Cielito F. 1988. The Coconut Industry in the Overall Economic Policy Environment. Paper presented at the Technical Consultative Meeting on the Coconut Industry. February 19-20, 1988 at the Philippine Coconut Authority. Magat, Severino S. and Carlos B. Carpio. 1997. An Updated Guide on the Coconut Growing Zones and Productivity Suitability of the 14 Coconut Growing Regions and 67 Provinces in the Philippines. Philippine Coconut Authority. Romero, Jose Jr. V. 2005. Transforming the Coconut Industry: Institutional and Policy Reforms Toward Shared Development. Unpublished Ph. D. Dissertation in Political Economy. University of Asia and the Pacific. Villegas, Bernardo and Enrique Esteban. 1980. A Broad Policy Paper on the Philippines Coconut Industry. Submitted to the Philippines Coconut Research and Development Foundation. Center for Research and Communication. October 15, 1980. World Bank. 1987. Philippines Agricultural Sector Strategy Review. Volume I. Report No. 6819-PH June 25, 1987. World Bank. Philippines Promoting Equitable Rural Growth. Report No. 17979. May 29, 1998

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World Bank. 1999. Philippines Tree Crops for Rural Development: Issues and Strategy. Volumes I and II. Report No. 19281-PH. June 22, 1999. USAID/Growth with Equity in Mindanao. 1996. Utilization of the Coconut Levy Fund for Mindanao. PERSONAL CONVERSATIONS Carpio, Carlos. Deputy Administrator. Philippine Coconut Authority. June 7, 2006. Garcia, Claro. Former Coconut Farm Entrepreneur. Surigao City. May 17, 2006 Luy, Ernesto. President, International Copra Export Corporation, and Interco Manufacturing Corporation. May 29, 2006. Torralba, Oscar. Chair. Agribusiness Committee, Management Association of the Philippines. July 2006. Villasenor, Efren. Pambansang Katipunan ng Magsasaka at Manggagawa sa Niyugan. June 7, 2006

27

ANNEX 1 COCONUT PRODUCT MAP

Primary NUT Value adding Desiccated coconut Coconut milk & powder Buko juice Virgin coconut oil Delicacies Byproducts Coconut shell Value adding Shell charcoal Activated carbon

Husks

Coco Coir Coir dust (mulch) Geo-textiles

COPRA Coconut Oil Cochin oil RBD oil (a) Intermediate oleochemicals (fatty acids, fatty alcohol, glycerine) Biodiesel (a) Refined, bleached, deodorized Copra meal Animal feeds

Coconut Value Chain: An Illustration

140,000 120,000 115,000

Price per ton (Php)

100,000 80,000 60,000 40,000 20,000 NUTS COPRA CRUDE COCONUT OIL DESICCATED COCONUT FATTY ALCOHOL VIRGIN COCONUT OIL 15,000 3,600 30,700 55,700 55,800

28

Agro-industrial Cluster The coconut agro-industrial cluster is fairly complex compared to other Philippine agriculture products. Coconut has diverse products (nut, copra, oil, and desiccated nut) and byproducts (meal, activated carbon, coir, geo-textiles, etc.). The Figure shows the core industries as well as the related industries and services, and supporting institutions. The core industries are those using products and byproducts in the supply chain. The supplier industries are those that provide goods and services (the hardware) for the physical transformation and movement of products. In contrast, the supporting institutions provide the software of the supply chain.

29

ANNEX 1 AGRO-INDUSTRIAL CLUSTER

Supplier Industries
Inputs Planting materials Fertilizer/Chemicals Production Technology Primary Processing Drying Technology Packaging & processing Materials Utilities Secondary /Tertiary Processing Processing Technology Processing Equipment & Supplies Packaging Materials Utilities Warehouse/Storage

Economic Foundation
Natural Capital Land Water Climate Location Physical Capital Transport Communication Energy Technology and R&D capability Indigenous Introduced Human Capital Quality Quantity Availability Financial Capital Financing Credit Social Capital Cultural Political Land Tenure Policy Regime

Harvesting

Core Industry
Meat
Virgin Coconut Oil

CNO

Oleochemical Plant Refinery

Copra
Coconut Oil Mill

Biodiesel Plant Meat

Desiccated Coconut Plant

Meal

World Market

FARM PRODUCTION (NUTS)

Shell

Activated Carbon Plant

Shell Charcoal Plant

Husk

Decorticating Plant

Geo-textiles

Domestic Market
Coir Dust

Other products and wastes processing and utilization

Finance
Private Banks Rural Banks UCPB-CIIF Quedancor LGUs/NGOs Cooperative Landbank Informal

R&D

Education and Training

Private Sector PCA PCRDF DOST DA SCUs

TESDA ATI SCUs DA (Quarantine, ATI) DOST

Machinery Repair & Maintenance Other critical business support

Industry/Trade Associations

Marketing and Distribution

Private Sector DPWH LGU PPA DTI

Private Sector

Related and Allied Industries and Services

UCAP Philexport VCOPTA PHILCOIR COCOFED Others

Source: CFA, UA&P Framework Adapted from the World Bank/MADECOR Model on the Study of Restructuring Agro-Industries in Indonesia (2001).

30

ANNEX 2 Vegetable Oils: The Global Situationer

Global Trade. There are 17 vegetable oils and fats traded in the world market totaling about 40 million tons a year. The major vegetable oils are palm oil and soybean oil. Coconut oil accounts for less than 5% of the traded supply (Agustin, 2005). World per capita consumption of oils and fats average 16.5 kilograms (kg). Those of developing countries such as China, India and Indonesia average below 15 kg. The Philippines consumes even lower at 7 kg. Income growth in developing countries is expected to increase, and, thus, demand for oils and fats (Carpio et al, 2005). World Players. Indonesia, the Philippines, and India are the worlds top producers of coconut accounting for about 70% of total production of about 11 million tons in copra terms. Indonesia contributed 3.3 million tons (30%), the Philippines 2.8 million tons (25%) and India 1.8 million tons (16%). Compared to Indonesia and India, Philippine nut yield is 28% and 14% lower, respectively, although figures showed good yield growth for the Philippines over 20 years which could be misleading given the drought-affected low base of 1985. By contrast, area harvested for the Philippines practically stagnated while those of Indonesia (+ 35%) and India (+52%) expanded. 1985 Yield (ton/ha) Philippines Indonesia India Area (M ha) Philippines Indonesia India Prodn (M ton nut) Philippines Indonesia India Source: FAOSTAT 2.63 5.06 4.10 3.27 1.98 1.22 8.60 10.00 5.03 1990 3.53 5.36 4.90 3.11 2.26 1.48 11.02 12.12 7.23 1995 3.98 5.54 5.25 3.06 2.58 1.83 12.18 14.32 9.62 2000 4.17 5.88 5.18 3.12 2.59 1.82 12.99 15.24 9.42 2005 4.39 6.10 5.11 3.30 2.67 1.86 14.50 16.30 9.50

The world trade of CNO totals about 2 million tons of oil export a year. The Philippines supplies some the largest 60% (Carpio et al, 2005). Benchmarking. Coconut oil (CNO) and palm kernel oil (PKO) belong to the lauric segment of vegetable oil. Laurics have unique qualities. Comparing export performance with competitors, the Philippines lagged behind Indonesia and Malaysia. Between 19852005, Philippine CNO export barely grew from an average of 897,000 tons a year during 1985-90 to 1,109,000 tons during 2000-2004. In contrast, Indonesian CNO export rose from 143,000 tons a year to 478,000 tons a year. On the other hand, Indonesian PKO export rose from an annual average if 97,000 tons a year during 1985-89 to 693,000 tons during 2000-2004. Those of Malaysian PKO rose from 532,000 tons and 700,000 tons a year, respectively (FAOSTAT).

31

ANNEX 3 SUPPLY CHAIN COMPETITIVENESS ISSUES AND IMPACT Impact on competitiveness Negative Negative Negative: high production cost, supply reliability Negative

Item Input Supply Logistics Farm

Issues Poor genetics of most trees High transport cost of inputs due to poor transport infra Low yield (~40 nuts/tree) Limited replanting with good clones High assembly costs due to dispersed, fragmented and unorganized small holdings High transport costs due to poor marketing infrastructure Over-capacity of processing plants Obsolete copra crushing plants(?)

Logistics

Negative Negative on cost and supply reliability Negative. No funds for rehabilitation due to low capacity utilization Negative Positive

Processing

Marketing Global Market Access Coconut oil

High cost of raw materials Marketing system is fairly in place

VCO Supports: Financing Organization Sources: Various

Health concerns raised by the US soybean interests in 1980s USFDA labeling regulation on January 1, 2006 re trans fatty acids (TFA). New clause under FOSPA Contract No. 54, penalizes sellers 0.1% of the contract price for each ppb of B(a)P above the 50 ppb threshold Discriminatory Tariffs. -China 10% for Phil. vs. 5% for Indonesia; High tariffs in India 42% Some producers may not adhere to standards Lack of budget for replanting and rehabilitation Dispersed small holdings Unorganized

Negative Negative Negative

Negative

Negative

Negative Negative

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ANNEX 4
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. The Coconut Investment Fund (CIF) Republic Act (RA 6260) of June 1971 otherwise known as the Coconut Investment Act paved the way to the introduction of the first levy. The act warranted the collection of a levy from coconut farmers the amount of P0.55 on the first domestic sale of every one hundred kilograms of copra. Of the P0.55, fifty centavos (P0.50) shall constitute a special fund, dubbed as the Coconut Investment 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 program 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. 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 * 1 that Characterized the year. The PD called for the collection of P15/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 object 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 PHLCOA 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

In 1973, 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 commodities, specially, rice, sugar and cooking oil, rose sharply prompting the government to intervene. The Price Control Council established ceiling prices for prime commodities including other coconut-based products such as laundry soap, filled milk and copra meal. The ceiling price for cooking oil was computed on the basis of the prevailing price for copra at the time. Unfortunately, copra prices continued increasing. Manufacturers of cooking oil and other coconut-based products were therefore faced with the problem of escalating copra/raw material costs and the government controlled prices for their products, which resulted to losses on their part. Thus, eventually, the said products disappeared in the market.

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among government and industry representatives to draw up possible alternatives other than the military takeover. Several proposals were 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 P15/ c.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 of processing of the coconut product exported in refunding the export premium 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. 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 seed nut farm as would ensure that the country shall have, at the earliest possible time, a proper, adequate and continuous supply of high yielding highbred seed nuts produced by the hybrid coconut seed farm 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 seed nuts. 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 to 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 P0.20 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 The Coconut Industry Stabilization Fund (CISF) On 2 October 1981, PD No. 1841 was passed establishing the CISF. It is 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 desiccators and other end-

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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: (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 programs for the deserving and gifted children of coconut farmers which amount shall be paid to the federation of the coconut farmers, the Philippine Coconut Producer Federation; (c) P12.50: To fund the life and accidents insurance expenses of coconut farmers the amount of which the Authority shall pay to the bank acquired for the benefit of the farmers under PD 755 and which in turn, shall utilize the amount to pay the required premiums to the issuance 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 and prescribed by LOI 926, the provisions of which are hereby incorporated as part hereof, which shall be paid to, and utilized by, the bank acquired for 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 of five (5) years and thereafter, the assessment fixed in section 1 hereof shall be automatically reduced to the amount of P41.50 for every hundred kilos of copra resecada or its equivalent in other coconut products. Coconut Reserve Fund By virtue of PD No. 1842, issued on 16 January 1982, the fixed P50/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. II. IMPACT ** 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 sector. 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 hand 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 the edible oil manufacturers. A subsidy surplus was registered at
**

Discussions on the impact of the coconut levy and corresponding government programs drew heavily from the research paper of the Institute of Labor and Manpower Studies on the Government Programs in the Coconut Industry (1981).

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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) The vertical integration program was intended to transform farmers into traders, bankers and 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 reached P9.7 billion. The money was sequestered by the PCGG in 1986 in response to protests from NGOs and 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 sued for private purposes. The COCOFED, on the other hand, counter filed, a case before the Supreme Court questioning the sequestration move by the PCGG. They claimed that the coconut is private property with the coconut farmers 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 resolves around two major issues fund character and ownership. The 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. The Supreme Court later declared that the levy funds belong to the government. In a landmark decision rendered recently (2004?), the Sandigan Bayan upheld two important decisions of the Supreme Court declaring the levy funds as belonging to the government (Romero, 2005). Recent events indicate willingness by various parties for compromise in order to finally resolve the issue and unblock the funds which from various estimates are valued at Php 50 to P100 billion for the San Miguel shares and other CIIF assets. A farmer leader indicated (June 2006) that there is need to resolve the 8 Civil Cases (No. 0033-A to H) at the Sandigan Bayan to finally unblock the levy funds. References: Institute for labor and Manpower Studies. 1981. The Government Programs in the Coconut Industry: Who Pays, Who Benefits. GEM/USAID. 1996. Utilization of the Coconut Levy Fund for Mindanao. Growth with Equity in Mindanao Program (GEM/ USAID). Romero, Jose. 2005. Transforming the Coconut Industry: Institutional and Policy Reforms. Villasenor, Efren. Pambansang Kilusan ng Magsasaka at Manggagawa sa Niyugan (PKSMMN), Personal Interview, June 2006.

ANNEX 5 Poverty incidence in Top Coconut Areas

Province Coconut Areas (ha) Incidence of Poor Population (%) Coconut Area as % of A&D Land

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Quezon Davao Or. Leyte Zamboanga Norte Zamboanga Sur Misamis Occ Camarines Sur Davao del Sur Sorsogon Surigao del Norte Misamis Oriental Surigao del Sur Camarines Norte Lanao del Norte Northern Samar Sarangani Masbate Basilan Sulu Laguna PHILIPPINES

241, 171 153,914 150,101 141,966 127,300 107,327 104,150 100,959 97,738 93,300 90,100 89,732 85,350 79,000 76,398 76,063 75,890 67,853 66,902 62,290 -

32.9 32.8 34.9 47.0 34.8 46.8 40.8 18.3* 41.4 48.6 29.3** 38.4 52.7 49.1 39.8 49.4 61.5 31.5 58.9 8.1*** 33.0

50.8 76.6 36.6 54.0 30.6 85.6 28.4 41.8 56.3 76.8 51.5 67.6 61.0 50.0 51.6 .n.a. 28.8 79.2 140.2 46.2 -

*Includes Davao City: regional center with its diversified agriculture ** Includes Cagayan de Oro, regional center with large industrial and service activities *** Large bedroom communities of Metro Manila, industrial estates, etc

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ANNEX 6 STRATEGY MAKING BASED ON SWOT MATRIX The coconut industry is a resilient one, full of potential but has many weaknesses. While it hosts many opportunities, it also faces many threats. These are considerations in formulating policy directions for the industry. Coconut Industry: SWOT Analysis ADVANTAGES
STRENGTHS

CONSTRAINTS
WEAKNESSES

Inputs 1. Availability of good clones

1. Only 1% of the areas are planted with good clones 2. No irrigation system in coconut areas 3. 4. 5. 6. Senile trees (30% of stands) Only 1% of the farms apply fertilizers Plantings in marginal lands Intercropping in only 30% of the land

Farm Production 2. Favorable climate in most areas 3. Availability of technologies

Logistics 4. Established marketing system 5. Export facilities Milling 6. Presence of many mills 7. Presence of refiners

7. High assembly costs due to poor roads and fragmented, small holdings 8. Multi-layered marketing channels 9. Underutilized mills 10. Underutilized refineries 11. Shortage of raw materials 12. High assembly costs 13. Low quality copra 14. Cost of raw materials 15. Frequent changes in PCA leadership 16. Lack of program support; too dependent on coco levy resolution THREATS 1. Poor global image in supply reliability 2. Perception of government inaction 3. Competition from other tropical oils (i.e. palm oil and palm kernel oil) 4. Development of rapeseed and cuphea with high lauric content

Other Value Adding 8. Many product possibilities Institutions 9. Multi-stakeholders

OPPORTUNITIES 1. Stable and growing export and domestic markets 2. Good prospects for value added products (VCO, geotextiles, etc.) 3. Alternative fuel (coconut methyl ester- biodiesel) demand 4. Low domestic oil consumption

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5. More stringent sanitary and phytosanitary (SPS) standards 6. Unregulated cutting of trees Based on the SWOT analysis across the supply chain, benchmarking and issues and program analysis, strategies have been derived. The SWOT strategy matrix outlines the strategic directions of the industry. Coconut SWOT Strategy Matrix Opportunities (O) Strengths (S) O-S Strategies Planting and replanting program O1: S1, S2, S3, S5 Establish standards and enhance marketing O2: S3, S4, S7 Expand production O3: S1, S2, S3, S6

Threats (T) T-S Strategies Expand production T1: S1, S2, S3 Enhance public sector support T2: S1, S3, S4 Long term industry strategic plan T2: S1, S3, S5, S6 Expand production and improve quality T3: S1, S2, S3 T-W Strategies Expand replanting and fertilization T1: W1, W2, W3, W4, W9, W10 Enhance public sector support T2: W1, W4, W5, W6, W7, W8 Expand production and improve quality T3: W1, W4, W5, W6, W7, W8, W9, W10

Weaknesses (W)

O-W Strategies Expand replanting and fertilization O1: W1, W2, W3, W4, W9, W10 Expand production and marketing O2: W1, W2, W3, W4, W5, W10 Expand production O3: W1, W2, W3, W4, W10

The SWOT Matrix generated the following strategies given the industrys external opportunities and threats and its internal strengths and weaknesses. O-S STRATEGIES Planting and replanting program The industry has to expand the planting and replanting program to increase production to supply a stable and growing market. This must be done in strategic areas identified as having the most potential for growth. Establish standards and enhance marketing Given the prospects of value added products, it is imperative that national standards be established which are acceptable in the international markets.

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Corollary to attaining this is the creation of village level processing plants as close to the market to arrest quality deterioration. Expand production The use of coconut oil for biodiesel will need a few thousand hectares given a 1% blend of biodiesel and petroleum diesel. To avoid compounding the already poor supply reliability in the export market, there must be expansion of production for biodiesel purposes. O-W STRATEGIES Expand replanting and fertilization A focused replanting program must be complemented by a fertilization strategy for low yielding palms in non-senile areas. Expand production and marketing The prospects of value adding can materialize with enough raw material production to ensure supply reliability and through a sustained marketing information campaign. Expand production (See above) T-S STRATEGIES Expand production (See above) Enhance public sector support The public sector support for the industry through the PCA should find its way to the farmers. PCA seed gardens should be strategic with available supply of highyielding varieties. The PCA should act as catalyst and look at possibilities for the LGUs and private sector/farmer to establish their own seed farms and nurseries. A major source of government support would be the utilization of the coconut levy funds. Long-term industry strategic plan The coconut industry strategic plan 2020 (under consideration by the National Academy of Science and Technology) should provide a roadmap where the industry wants to go and map out the interventions to reach the goals. This must be clearly understood and endorsed by industry players within the supply chain. Expand production and improve quality In measuring up to the competition from other oils, it may not be sufficient to expand production to address supply reliability but quality aspects as well since there are cheaper oils. T-W STRATEGIES Expand replanting and fertilization (See Above) Enhance public sector support (See above)

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