Industry Clustering using the Value Chain Approach

Transforming Relationships to Increase Competitiveness and Focus on End Markets

Undersecretary Merly M. Cruz DTI-Regional Operations Dev’t Group 12 March 2012

OUTLINE OF PRESENTATION I Introduction (Concept, Legal Basis)

II Value Chain as a Tool III Industrial Governance Framework
IV National Industry Cluster Capacity Enhancement Project (NICCEP)

V Sample Application (Coco Coir & Peat)

 Industry Clusters are groups of competing, collaborating and interdependent businesses within a value chain.  It has increasingly been recognized as an effective approach in industrial development and promotion of micro, small and medium enterprises as it encourages competitiveness.  The clustering process necessitates the operation of upstream (raw material suppliers, production inputs) and downstream (logistics, value-adding, packaging and marketing) economic activities to support the whole value-chain.


- The value-creating flow of a good from RM, production, commercialization, & ultimately delivery to end-users or consumers.

- A geographic concentration of interconnected businesses, suppliers, & associated institutions creating direct & indirect synergies among them.


 The PDP recommends maximizing public-private partnerships (PPP) in the identification of solutions for the challenges and problems of the industry clusters.  Inclusive growth and poverty reduction goal  Increase productivity and efficiency of the industry and services  Contribute more to economic growth and employment.  The strategy towards clusters should have coordinated interventions to provide an integrated response to the needs of the industry clusters. Alignment to PDP 2011-16 . In the Philippine Development Plan for 2011-2016.

Value Chain Framework Basic Functions (chain links) Provision of specific inputs Production Transformation Trade Final Sale Provide .Equipment .Inputs Grow Harvest Dry etc. industry Traders Final Sales point/Retailer Source: ValueLinks Manual. Classify Process Pack Transport Distribute Sell Specific consumer market Categories of Chain Operators and their relations Specific input providers Primary producers Logistics centers. gtz .

Mapping the Institutional & Policy Environment for Agro Industry Processing Production Collection Agro industry Wholesale Importer Retail Wholesaler Consumption Vendor Distributor Modern Retail Consumer Farmer Collector Food Services Supplier Association Key Institutional/Policy Factors Influencing Chain Dynamics and Actor Behavior Tenure Services Private Standards Marketing regulations Public Standards Tariffs Foreign Investment Policy Cultural Preferences Cooperative law .

Main types of industrial clusters in developing countries  Clusters of large national firms and local suppliers Clusters of Small & Medium Enterprises Subsidiaries of MNCs and local suppliers   Cluster-based Industrial Development Strategy .

technology and infrastructure They learn collectively what it takes to be competitive Cluster-based Industrial Development Strategy .Advantages of Industry Clusters It’s demand-driven Requires raw material production and optimizes utilization Reduces costs of operation and encourages productivity Requires specialization of major players Provides an avenue for leveraging on another’s specialties Increases opportunities for innovation to be competitive Players pursue joint solutions to common problems They build on common labor pool.

Guidelines for Cluster Development  Clear view of the goals  Let the private sector lead  One size does not fit all  Match initiatives to the level of government support/program  Build a cluster organization  Promoting and supporting . networking and co-operation Cluster-based Industrial Development Strategy .

enhancing technological and innovation capabilities and efforts .promoting external linkages between clusters & global partners.The way forward: new forms of industrial governance  Cluster based development strategies are formulated and implemented at local/regional level through partnerships between the government. SMEs and networking. the industries and the institutions of the innovation and learning system.  Support policies and joint programs focus on improving the innovation and learning system : . Improving connectivity ( road and telecom infrastructure) Cluster-based Industrial Development Strategy . supporting entrepreneurship. developing technical and managerial skills .

Framework on Industrial Governance The industrial system Global industries Local industrial clusters Industrial Governance Framework Macro Conditions Source: Griffiths. Martin. A Presentation of the Flinders University .

National Industry Cluster Capacity Enhancement Program (NICCEP) .

Project Brief  Project Duration : 3 years (2012-2015)  Implementation Date : April 2012  Target Industry Clusters  Luzon (8) . .  Coconut. Tourism. Dairy. ICT. Poultry. Bamboo. Coffee. Tuna  Oil Palm. Seaweeds and H&W   Mindanao (8) – Rubber. Mining.Milkfish. 2011 at DTI-RODG Makati. Tourism Meeting between DTI & JICA Advisor Minoru YAMADA &  and ICT his Team on June 27. Health & Wellness (H&W) and Wearables & Homestyles  Visayas (5) .  Wood. ICT. Seaweeds.GDH. Tourism. Banana. Mango.

GOAL . o increase in value-adding.NICCEP’s overall goal is to facilitate increase in the contribution of the selected priority industry clusters to the national economy particularly in terms of o creation of jobs. o improvement in the business environ. o development & strengthening of SMEs. more importantly impact on the poverty.

) OBJECTIVES . facilitate service delivery. evaluate projects. Enhance the capacity of selected industry clusters throughout the country to plan. implement. and improve industry competitiveness.  Replicate DICCEP experience on industry clustering approach nationwide. (Note: DICCEP ended 2010 with a recognition as the 2010 Official Development Assistance (ODA) Good Practice Award under Strategies for Achieving Outcomes category by NEDA.

Available data & info related to the Project.JICA     Dispatch of the Experts Counterpart trainings in Japan Training/workshops/monitoring Local activities of target clusters DTI  Staff allocation  Office space for Japanese Experts  Counterpart Costs for Trainings/Workshops/Monitoring & Local Activities of the Target Clusters  Others (ID for Experts. etc) INPUTS .

Implementation Structure of the Project *NPMO: National Project Management Office *SPMO: Satellite Project Management Office *DTI: Department of Trade and Industry *RODG: Regional Operations and Development Group *GDH: Gifts.Office of Secretary SPMO 【DTI-Region III (Angeles)】 -Satellite Project Director -Satellite Project Manager -Staffs for daily operations SPMO 【DTI-Region IV-A (Laguna)】 -Satellite Project Director -Satellite Project Manager -Staffs for daily operations DTIRegion IVB SPMO 【DTI-Region VII (Cebu)】 -Satellite Project Director -Satellite Project Manager -Staffs for daily operations SPMO 【DTI-Region XI (Davao)】 -Satellite Project Director -Satellite Project Manager -Staffs for daily operations DTI-Region IX DTI-CAR DTI-NCR Rubber R9 Coffee CAR DTI-Region II H&W NCR Bamboo R3 Tourism R4B H&W R7 DTI-Region VI Dairy R2 DTI-Region I DTI-Region V ICT R4A Milkfis h R1 ICT R6 DTI-Region VIII W&H R5 Seaweeds R7 North Luzon South Luzon GDH R8 IT Wood R11 R11 Tuna Seaweeds R12 R11 Oil Palm DTI-Region XIII R13 Visayas Mindanao DTI-Region XII Touris m R7 Poultry Banana DTI-Region X R10 R11 Minin Mango g R11 R11 Tourism Coconut R11 R11 . House wares *H&W: Health & Wellness *W&H: Wearables & Homestyle NPMO 【DTI-RODG】 -National Project Director -National Project Manager -Staffs for daily operations Secretariat Industrial Cluster Development Unit DTI. Decors.

Priority Industries for National Convergence .

Priority Industries for National Convergence .

 Practical and sustainable operational workflows for promoting and mainstreaming the industry cluster approach are designed & practised models of industry cluster approach are established within Luzon and Visayas of upgraded industry clusters are established in Davao to provide lessons and best practices for other regions  Pilot  Models OUTPUTS .

Sample No. 1 Coconut Coir Industry (SAMPLE ) .

195 coconut municipalities Coconut trees 1.04 M hectares 27% of total agricultural land 68 out of 79 provinces are coconut areas 1.3 Million bearing trees Nut Production 15.195 coconut municipalities 341.Quick Facts… Areas Planted to Coconut 3.1 Billion nuts/year (average – 2005-2009) 45 nuts/tree/year (average – 2005-2009) The Philippines is one of the Top 3 producers around the world Source : PCA Website .

Coconut by-product: Coco Coir & Coco Peat  Coco Coir is a light. bulky. long fiber extracted from coconut husk  Coco Coir Peat is the 'coir fiber pith' or 'coir dust' produced as a by-product when coconut husks are processed for the extraction of the long fibers from the husk. Coco Coir Peat is the binding material that comes from the fiber fraction of the coconut husk.  Traditionally thrown away as waste material or used as fuel .

When processed: From Coco Husks To 30% Coco Fiber and 70% Coco Peat .

Uses of Coco Coir Widely used as bed mattresses Other uses Coco pots Upholstery Rope Car seat Geo Textile for Soil Erosion Control .

000 MT (US$ 56 M) o Phil exported 1.123 MT (0. Mattress for China  Annual demand: 100M beds/mattresses (4.5% only)  China’s demand increases @ 20% every year or US$11 M Source : BETP .5 kg of coco fiber to make 1 mattress)  Import of raw coco fiber in 2009 o 200.DEMAND for Coco Coir Products 1.

provinces of Beijing.000 sq km concentrated mostly in the Northern part.27% every year due to sandstorms occurring during the months of October to December . Harbin. i.…demand for China 2.e. among others • Desert areas increasing around 1. Geo Textile-Erosion Control Materials For China’s Desertification project • Estimated at 270..

1%) animal bedding 1 Locally: for nurseries. growouts of trees. landscaping Green houses using soil-less.Uses of Coco Peat Europe market: for cut flower (exports more than $2B/year) Multi-purpose soil conditioner & growing medium (horticulture & Used as a filter vegetation) for water treatment Being systems (high-end but 2 exported to a very small market Japan for 3 around 0. hydro-phonic system Brick Type Block Type Loose Form .

Major Export Markets Baled Coco Coir People’s Republic of China Taiwan/Hongkong Singapore Japan USA Japan Nets of Coir Coco Peat Korea People’s Republic of China Taiwan/Hongkong Japan Singapore UK. USA & Canada .

603 4.738 (2008 figure) .379 151.402 0.561 1.853 15.895 0.) Production (B nuts) Coir Products Exports (in MT) Sri Lanka India Thailand Indonesia Philippines Malaysia Source: PCA 0.7302 1.6683 0.094 53.4981 15.061 83.Comparative Coconut Production and Volume of Exports of Coir Products 2009 Country Area Planted (million ha.395 1.104 16.827 14.100 2.850 3.239 3.

2009 .575 ha IX .661 ha III .375.383.219.568 ha IV-B .088 ha IV-A .13.369.Coconut Tree Plantation (In hectares) CAR .169.013 ha ARMM – 315.179.952 ha Approx.24.540 ha II .447.119.300.663 ha X .321 ha VI . Sri Lanka Source : PCA Website/DA-BAS.546 ha VII .107 ha XI .254 ha V .764 ha VIII .490 ha XII .343.281 ha I .11.128.707 ha XIII .

013 ha IX .219.490 ha ARMM – 1.906 MT II .896 MT V .331 MT 2 4 3 7 X .1.568 ha IV-A .1.575 ha X .Coconut Production (In Metric Tons) I .107 ha XIII .668.691.985.211 MT VIII .361 MT VI .478. ha V .952 ha 1 XI . 2009 .744.743.738 MT XII .300. MT III .199.2.321 ha IV-B .128 MT 10 6 Highest Productivity IV-B .254 ha XII .546 ha VIII .086 MT ARMM – 315.427 MT 5 IV-A .338 MT 8 IX .434.730 MT CAR .895.589 MT XIII .383.916 MT VII .447.375.905 MT 9 Source : PCA Website/DA-BAS.430.776.343.971 MT XI .369.1.1.

2.1.738 MT IX .375. 84 /year XI .219. (19) VIII .1.764 ha Cap: 2.250.[9].000 MT / year Total estimated installed capacity (Philcoir) – 120.086 MT 9 Cap: 2.895.30.(3) 1 Cap. 60MT/year ARMM – 1.546 ha Cap: 1.[2].(1) Cap.691.985.744.35 Operational 52 87 Total estimated production capacity (Philcoir) .905 MT Reg 11 – [18].343.369.910 MT/year * XII .000 MT/year Reg 2 .(2) Cap.575 ha Cap: 960 MT/year * Reg 10 .743.257.(1) Cap: 360 MT/year * Reg 3 . (1) Cap: 7.447.220 MT/year * XI .169.[5].300 MT/year* VIII .300.70 MT/year * Reg 6 . (4) V .952 ha Reg 12 – [4].383.916 MT Reg 8 .1. (3) XIII .107 ha X . (1) Cap: 84 MT/year * IX .254 ha 4 8 . (2) IV-A .Mapping of the Coco Coir/Peat Sector Non-operational .[11].768 MT/year V .338 MT Reg 13 – [ 2].1. (no data) IV-A .568 ha Cap: 916.971 MT ARMM – 315.430. (3) XII .776.013 ha Reg 9 .427 MT X .211 MT 6 2 3 7 XIII .490 ha 5 Reg 5.1.128 MT Reg 4A .

Coco Sweetener Propagation Fertilization Production & Expansion R&D Nursery Husk Decorticators Actvated Carbon Coco Water Dessicated Coco + Oil Edible Oil/ Industrial Oil Baled Fiber / Geotextile Producers Coco Peat Processors GTH Manufacturers Traders / Exporters Local Farms/Nurseries/ Commercial Gardens/ Grow Bags/etc Distributors/Malls M A R K E T SUPPORT INDUSTRIES (Transport/Machineries/Ancillaries) Small Coco Farmers/Coops/Assoc’ns/Processors/Exporters/Traders Government Institutions: DA-PCA/CIIF/DTI/DOST/LGU Phil Coconut Industry Cluster Team (Coir & Peat) .

Growing World demand for Geotextile / coco coir and peat Potential domestic & export market demand for coco coir and peat valued-up products Readily available capacity of approx 90.000 MT Abundant supply of Coconut : 15.668 B nuts Trading / Exporting Low Price for Coco Peat in the export market (Production & transport cost is higher than buying price ) High cost of equipment High labor cost High cost of power (unstble suppl) High local shipping cost Underutilized capacity Unstable/limited supply of coco husks High transport cost (farm to processing sites) Processing Decorticating Husk Gathering Based on inputs from the Industry Players .

VISION  Quadruple the Export Earnings  Grow the Phil COIR & PEAT (ave annual growth of 25%. 2011-2016 ) .

711 2.138 2.095 1.368 1.342 4.Targeted Philippine Export Earnings (Coco coir products) Year 2008 (base year) 2009 2010 2011 2012 2013 2014 2015 2016 Philippine Exports(UD$000) (25% AAGR) 1.673 3.177 5.526 .221 6.

 To develop and expand domestic supply-base for coco coir  To strengthen access to market information (domestic & export)  To strengthen market linkage among actors within the VC  Redistribution Strategy (Upscale Community-based business model)  Market Devt & Promotion (Use Anchor Firm/Exporter as Big Brother – ind’l mkt)  Productivity & Efficiency Improvement (Management of the local Supply Chain) .

Urgent Action…  Improve the supply of coco husk thru a nationwide drive. . “MAY PERA SA BUNOT DRIVE”  Develop collection and marketing system.

Extensive campaign for replanting and fertilization 3. others) . Advocacy (value chain as a tool) “May Pera sa Bunot” Campaign Capacity Building Entrepreneurship Training Farm to Market Roads 2. GFIs.Plan of Action  2011 Priorities 1. Financing (ACEF.

Plan of Action  2012-2013 Priorities Technology development – techno transfer Continuous Value Chain and Cluster Development Training Consultative mechanism for price rationalization .

Plan of Action  2014-2016 Priorities 1 2 3 Sustained Promotion Structure for Industrial Governance Enabling Policy .

Good day! .

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