COMPETITIVENESS OF PHILIPPINE CACAO INDUSTRY TO THE GLOBAL

MARKET

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A Research

Presented to the Faculty of

College of Business Administration Education

Davao City, Philippines

____________________

In Partial Fulfillment

of the Requirements for the Course Subject

Research Project

CBM 321
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Cañares, Krizel July

Lagrimas, Kent

Orendain, Sharmaine L.

Tero, Stephanie C.

Vaquilar, Rotsen Ann S.

August 2019
Rationale of the Study

Theobroma cacao, or cacao is used for different purposes. Primarily, it is the

main ingredient in chocolate production and no other crop or product can substitute
cacao as far as the chocolate production is concerned. It is also widely used in the
cosmetic and pharmaceutical industries. Six (6) intermediate products can be
derived from cacao beans: cocoa nibs, cocoa liquor or commonly known as
“tableya”, cocoa powder, cocoa butter, cocoa cake, and chocolate confectionary
blocks. Cacao’s diversified use, both for food and non-food, can provide broader
market opportunities, especially the Philippines, which has a conducive location for
cacao production (Cacao Industry Development Association of Mindanao Inc., 2017).

According to Cacao Industry Development Association of Mindanao Inc.

(2017), the leading suppliers of cacao in 2017 come from tropical countries. Among
the leading countries are found in Africa which contributes 71% of the world cacao
production, Latin America for 16%, and Asia, where the Philippines is located,
supplies 13% of the global demand for cacao. In the Philippines, 80% of the national
cacao production is contributed by the Davao Region; 10% contributed by the rest of
Mindanao, while the other 10% shared by Luzon and Visayas. However, production
constraints such as wild weather patterns, pests and diseases, aging of cacao trees,
and low productivity levels were faced by these countries since 2012. As a result, the
leading suppliers, such as those countries found in Africa, has a declining volume at
245,000 metric tons.

Cacao has been proven suitable for intercropping and has been benefiting
130,000 farmers in the country. Meanwhile, current trends affect the behavior of
cacao price. Despite the prices went down due to the global financial crisis that
happened during 2008-2009, cacao prices have gone up by 22% since 2010. The
average price continued to rise from ₱54 in 2009, it went up to ₱70 in 2010, and
continued to rise at ₱89 per kilogram in 2011 (Peace and Equity Foundation, 2016).

Hence, Cacao Industry Development Association of Mindanao Inc. states that:

"The Philippines is among the countries in Asia seen to have a

competitive advantage on cacao production given its strategic location and
climatic condition. The two (2) million hectares of coconut farms ideal for
cacao intercropping supplement the industry’s competitive advantage."
 Currently, cacao is one of the Philippines’ key crops that has a huge potential
in the world market. Philippines makes more than 10,000 metric tons of cacao per
year. It has imports worth $102.3 million but only has $24.3 million worth of cacao
exports to the international market (Cacao Industry Development Association of
Mindanao Inc., 2017). So, the Philippine cacao industry targets additional $250
million in export earnings through the programs made by the Cacao Industry
Development Association of Mindanao Inc.

Given this situation of the cacao industry of the Philippines, a study like this is
important to be conducted because it aimed to analyze the potential
competitiveness, including the current status of the Philippine Cacao Industry. The
findings of this study can be useful to find the Philippines’ way to enter the global
market. However, the study does not fully explore in the wider context but rather
limited to the analysis of the competitiveness of the Cacao Industry in the Philippine
setting, from collected data of year 2007-2022.
Objective of the Study

The general objective of this paper is to elaborate the potential of Philippines

as an exporting country for cacao.

Particularly, this paper seeks to present:

1. The production capacity and volume of exported cacao of the Philippines

from 2012-2022;

2. Income and employment opportunities in the cacao industry;

3. The competitive advantages of Philippines with regards to cacao

production;

4. The constraints that Philippine cacao industry have been facing; and

5. The interventions that can boost the potential of Philippine cacao to the
global market.
Significance of the Study

This study will be undertaken to determine the value of import demand of

cacao from neighboring and western countries in which the Philippines should
specialize in exporting cacao.

With the objective of determining the value of imported cacao on the following
countries, the result will be of great to the following:

The domestic customers. They can benefit to the variety of cacao product
choices that the local producers can offer to the market.

The local farmers. Once the cacao industry has expanded, there will be
more jobs, livelihood opportunities for them, starting from cacao farming to cacao
production.

The local producers and processors. Since Philippines has potential in

providing the cacao demands, they can benefit to the expected growth on the sales
for exports in the coming years.

The local government. This research can help them determine which
country to specialize, which is later converted into income that can be distributed to
local citizens, and it will be a great support to the agriculture sector of the economy.

The Philippines. Once the export of cacao expands, it will be of greater help
to the national economy to grow and this expands the global market. The more
domestic economic activity is occurring; the more net exports increase the wealth of
the country.

The importing countries. They can suffice the demand of cacao in their
country by importing higher quality of cacao, produce the finished goods and extend
the business profit margins of their country.
Methodology

This section of the research paper presents some key outlines and various
steps in the data collection process of the study. The following steps that the
researchers undergo for the gathering of information are as follows:

The researchers sought for reliable information that will be used for the
entirety of the study through the use of internet wherein most of the data collected
are coming from the Official Websites of the Department of Trade and Industry,
Philippine Statistics Authority, Department of Agriculture, journals and news articles
that talks about the production and potential of Cacao industry in the country and
even related studies conducted by other researchers.

In addition, assessing and scrutinizing the data collected were observed

wherein a careful deliberation was made in accordance with the selection of data
that is needed for the study. Afterwards, the analyzation and interpretation of data
was being conducted by presenting figures, tables and graphs about the production,
exportation, and any related gathered information about the Cacao Industry in the
Philippines in order to arrive into a result.
Results and Discussion

This section presents the results and discussion through the related studies –
both international and local studies that could support the research presently
conducted.

Since 1900s, the aggregate demand for cacao in the global market was
constantly increasing. The global production of cacao from hot tropical climates,
typically in developing countries, is also equivalently increasing and meeting the
positive shift of global demands (Cacao Industry Development Association of
Mindanao Inc., 2017). Over the past ten years, the total value of trade in the global
value chain of cocoa has doubled to nearly 44 billion US dollars (UNComtrade,
2016). This consistent increase leads to the primary drivers of demand, which is the
relative evolution of consumption patterns of the western countries - specifically the
United States of America and Europe, the increasing discretionary household
income of the developing countries, and as well as the relative standing of cacao in
the food and health industry.

However, according to the researchers from Duke University (2017), recently

the slight fluctuations in the global supply became concurrent with the constant rise
in demand, causing prices to rise. Several factors were involved including
environmental factors and concerns with sustainability. As a result, mediocre
manufacturers and producers work directly and engage more on farming techniques
to improve the quality and productivity of cacao production, which led to the increase
in price of uncertified beans yet retained low price premiums for certified beans due
to the supply shortage (Hamrick & Fernandez-Stark, 2017).

CACAO PRODUCTION AND EXPORT CAPACITY OF THE PHILIPPINES

The potential of Philippine cacao industry has been a talk for quite some time.
During the forum conducted by the Department of Agriculture – CAR and the
Department of Trade and Industry – CAR last January 25, 2018, cacao was dubbed
by Cordillera Cacao Industry Coordinator Arell Bañez as the ‘tree of love’ or ‘food for
the gods’ and pointed its fast growing market in the Philippines and a huge
production volume gap is expanding in the global market (Sunstar, 2018). With the
current situation of cacao industry on local and global setup, on the same forum,
Department of Agriculture targeted the Philippine Cacao Industry to produce 100,000
metric tons (MT) of fermented beans by the year 2022 for both the export and
domestic markets or a 40-percent increase in the present production level of cacao
according to Department of Trade and Industry (DTI) Region 11 assistant regional
director and national cacao industry coordinator Edwin Banquerigo (Agatep, 2018).

Table 1. CACAO: Supply Utilization Accounts, Philippines, 2012 – 2014

The performance of Philippine cacao industry clearly shows improvement for

the past years as presented on the Supply Utilization Accounts of Selected
Agricultural Commodities of The Philippine Statistics Authority, where table 1 shows
the production of cacao grew by a yearly average rate of 6.13 percent. Production of
cacao in 2012 was reported at 4.8 thousand metric tons and slightly increased to 4.9
thousand metric tons in 2013. In 2014, it increased to 5.4 thousand metric tons. On
the average, production was computed at 5,045 thousand metric tons which was
around 18.0 percent of gross supply. With respect to exports of cacao, table shows
that average growth rate of 156.45 percent from 2012 which only exported 315
metric tons, increases to 528 metric tons on 2013 and improve drastically on year
2014 at 1,823 metric tons of export (Philippine Statistics Authority, 2015).
 Table 2: Volume, Value and Percentage Share of Selected Commodities

Cacao has maintained a good performance in its value and share in total
agricultural exports in the Philippines. Cacao may not be the top exporting crop of
the country but alongside with other agricultural exports of the Philippines it
impressively increases its volume and value. In 2013, it has a value and percentage
share of ₱45,763.70 and 0.017%, respectively. ₱197,941.40 and 0.068% in 2014,
₱262,094.10 and 0.112% in 2015, ₱345,616.20 and 0.138% in 2016, and
₱422,291.70 and 0.127% in 2017 (Philippine Statistics Authority, 2018).

Table 3: Cacao Production Target

According to Ramos (2016), cacao production target on the draft of National

Cacao Roadmap during the Inter-Agency Convergence last April 2016 shows target
export volume in metric tons for the year 2020-2022 is 1210 MT, 33558 MT and
72634 MT, respectively. Also, the table shows the projected import in metric tons
where in 2020, 51891 MT, 2021 for 52376 MT and 52829 MT for 2022. As shown in
the table, it targets to increase the volume of export every year until the export
volume outweigh the import volume of the country. It also projected the production
volume in metric tons for the year 2020, 2021 and 2022, where it targets to have
60875 MT, 94187 MT and 134226 MT production volume respectively.
INCOME AND EMPLOYMENT OPPORTUNITIES

Income Opportunities

According to CocoaPhil (2009), cacao production has given the Philippines

more income opportunities because cocoa is suitable with intercropping.
Intercropping cacao can make an additional ₱60,000.00 to ₱80,000.00 per harvest,
per hectare. This is appropriate for small scale farmers that do not have the needed
resources to establish large-scale plantation (as cited by Peace and Equity
Foundation, 2016).

In a 2013 news report by Katlene Cacho, the president of the Filipino-

Cebuano Business Club (FCBI) – Rey Calooy, stated that “a hectare for cocoa
production will generate an income of at least PHP 260,000 to PHP 300,000 per
harvest and this income would be supplemented by other incomes from
intercropping with other crops such as coconut and others”. John Silva, a farmer and
owner of the Silva Cacao Industry in Davao, says that he now earns PHP 300,000
from a current stock of 50,000 cacao seedlings that he can produce in six months’
time (Peace and Equity Foundation, 2016).

Employment Opportunities

In terms of employment, 130,000 Philippine cacao farmers have a good

employment condition because they are given incentives by the government. Cacao
Industry Development Association of Mindanao Inc. (2017) aims to achieve inclusive
growth in the cacao industry and poverty reduction through: (1) increasing cacao
farmers’ income to at least ₱130,000.00 per hectare per year and, (2) increasing the
number of farmers to 150,000 by 2022 (Department of Trade and Industry, 2016).

PHILIPPINES’ POTENTIAL COMPETITIVE ADVANTAGE IN THE

INTERNATIONAL TRADE OF CACAO PRODUCTION

Philippines in 2015 had a little global market share in the international cacao
trade despite having several competitive advantages among other cacao exporters.
It ranked 72nd in global exports with a market share percentage of less than 0.01.
(Hamrick, 2017) However, the global demand for cocoa continuously increases,
posing an opportunity for the Philippines to expand and strengthen the production
aspect of the industry considering the fact that the current global supply is in
disequilibrium to the global demand.

Among the countries in Asia, Philippines potentially have a competitive

advantage on cacao production through its strategic location and climatic condition,
high valued crops, government assistance, and more recent international
opportunities.

Geographic and Climatic Conditions

Countries usually located along the equator are major producers and
exporters of cocoa around the world. This pertains that production is based in hot
tropical climates. Similarly, Philippines’ geographic conditions allow the country to
grow high quality cocoa. The Cacao Industry Development Association of Mindanao
Inc. (2017) stated that the climate, rainfall, and average temperature across the
Philippines promote cocoa bean growth and possesses good agro-climatic natural
capital endowments. Moreover, cocoa does well with many other agricultural
products of the country such as coconuts and bananas whereas two million hectares
of coconut farms become ideal for cacao intercropping, mono-cropping, and other
mixed farming systems. This intercropping means that farmers can practice growing
multiple crops in proximity to produce greater yield with just a small piece of land to
maximize on utilizing most of the ecological processes that would probably not be
utilized by a single crop. This becomes the most valued advantage due to early
return of investments and high profitability from the output, given that cacao
production requires small monetary start-up capital.

High Value Crop

The HVCDP helps promote the production, processing, marketing and

distribution of high value crops which strategically increases income and create
livelihood opportunities for contributing to national agricultural development of the
Philippines.

Accordingly, the Department of Agriculture included Cacao as a priority in the

High Value Crops Development Program. This shows that the grading and quality
requirements of cacao exceeds the imposed Philippine National Standards. Cacao
nurseries have also been increasing over the past years, a total of 110 as of 2011, to
produce continuous supply of healthy and quality seedlings, and help sustain the
growth of cocoa industry (DA-HVCDP, 2013)

Also, Philippines has the ability to grow all of the three main cocoa beans
namely the Trinitario, Criollo, and Forastero beans. The suitability of the country for
diverse types of cocoa helps in diversification efforts and will minimize the risks and
challenges associated with planting only one variety. Specifically, Forastero beans
are high value varieties, followed by Criollo beans which are mainly from older trees,
and Trinitario beans that are most prominent and most focused as it is sufficient to
make the nation competitive on the global market.

Government Assistance

The research and development for the cacao industry in the Philippines still
sees the need to conduct further research activities regarding the need for a more
effective system on ensuring a firm access to technology, as well as the transfer of
new production inputs and techniques to improve producer competitiveness. This
promotes coordination between farmers under large farming associations and
cooperatives to facilitate the transfer of knowledge and technology, and to improve
the economies of scale, saving proportionate costs gained through increased level of
production.

Also, the government is rendering various support services to upgrade and

expand cocoa farming systems. It includes assistance and tax exemptions and
incentives through R.A. 7900 High-Value Crops Development Act of 1995, credit
assistance, planting materials, and crop insurance. In addition, provincial and Local
Government Units provide support for the establishment of nurseries including the
provision of infrastructure and facilities needed for continuous seed production,
covering the pre and post-harvest equipment. Moreover, establishing local trading
posts is also provided to ensure that cocoa prices are balanced in every trading
processes.

Moreover, The Revised Charter of the Philippine Crop Insurance Corporation

Act of 1995 (R.A. 8175), helps provide adequate agricultural insurance as a
mechanism for managing risks including climate, disaster, pest and price-induced
risks faced by agricultural producers. Also, The Organic Agriculture Act of 2010 (R.A.
10068) also provides support and incentives to farmers who are willing to shift
production methods from conventional to organic. Totally, the government assigned
different departments and programs to assist and address the need of cocoa
producers and stakeholders on maximizing financial and physical resources for a
more effective provision of services (DA-NAFC, 2013).

International Opportunities

Philippines, despite having competitive advantages such as government

assistance, and fertile soil and climate suitable for growing cacao, it still lacks in
technical knowledge and skills needed for cacao cultivation. Philippines is the most
fit in cacao production, but it is incapable of reaching its full potential, as compared to
Indonesia.

On the other hand, Indonesia in the global market of cacao has the ability to
produce significant supply of a large number of beans. Unfortunately, the country
faces difficulties in financially optimizing their production capacity due to aging trees,
diseases, and floods, which results in the decline of production and forecasted
decline on exports in the subsequent years. Thus, the formation of synergies
between Philippines and Indonesia can be the key to success (Aranas et. al, 2012).
This synergy focuses on producing quality cacao seeds that can be competitively
compared to the local produce of Africa.

Meanwhile, Africa, the main producer of Cacao has declined its production
due to unfavorable weather conditions, turning prices to rise. Climate change is
having a profound impact on crop yields, and cocoa had the greatest hit (Beroe,
2019). As climatic conditions threaten cocoa yields across Africa, their estimated
production is questionable through 2020. The region was also exposed by the media
for child and trafficked labor in cocoa farming. Its supply fell short against the usual
demand of North America, Europe and Japan, and the emerging markets from Asian
economies like China and India.

Their rising costs of labor shortages increases the expenses in

accompaniment with cocoa harvests, leading several farmers to leave the cocoa
industry. This issue of sustainability greatly affects the overall aggregate supply of
the country, paving an opportunity for the Philippines to take advantage of the global
market share while the top exporter of cacao declines in product yield.
 Likewise, chocolate producers began looking for new sources of cacao, and
consequently, ways to sustain their supply. Mars, a $30 billion US company that
holds one of the biggest consolidated global confectioneries today, chose the
Philippines, which already had hundreds of years of experience in cacao planting,
when the Spaniards introduced it in 1640 (Glocal Davao Cacao, 2019). The choice
further led the company to Mindanao, which, according to newspaper, Business
Mirror (2019), grows 90 percent of cacao trees in the country, 80 percent of which
comes collectively from Davao region. The other 10 percent is shared by Luzon and
Visayas.

Figure 1. Top Cacao-Producing Regions in the Philippines

. Accordingly, Freefood Co. (2014), stated that the Philippines can evolve as a
top-quality cocoa source by 2020 and serve the needs of growing demand for
chocolate in Asia, focusing on organic cocoa and its health benefits as demanded by
consumer preference.

CONSTRAINTS OF THE PHILIPPINE CACAO INDUSTRY

Despite the export performance of the industry, the country is still considered
as an importing country of cacao. According to Cacao Industry Roadmap (2014), the
Philippines is said to be the first country in Asia that planted cacao. However, the
country is still an importer of cocoa products such as chocolate, cocoa powder,
cocoa beans, and cocoa butter. In 2014, a total of USD 102.3-M worth of import was
recorded, while export value was at USD 24.3-M only (as cited by Department of
Trade and Industry, 2016).

A study conducted by the Duke University (2017) about Philippines on the

Cocoa- Chocolate Value Chain showed a table from UN Contrade about the export
value of Philippine cacao to its export markets as well as the global market share of
Philippines and other selected Asian nation (Hamrick & Fernandez-Stark, 2017).

Table 4: Profile of Leading Philippine

Cocoa-Chocolate Export Markets, 2007-
2015

Table 5: Global Market Share of

Selected Asian Nation
 As observed in table 4, the global exports of different cacao products are
continuously increasing, most especially the export market for cocoa beans. Other
products like cocoa butter and chocolate are gradually increasing but is still
statistically insignificant compared to the significant huge demands of Asian and
western countries. Consequently, the table 5 presents that the global market share
of the Philippines does not even reach 1 percent compared to neighboring countries
such as China, Indonesia, Japan, and Malaysia, even Thailand which from time to
time, the global market share equals to 1 percent and above.

Production Capacity

Availability of efficient postharvest facilities are necessary for the development

of the Philippine Cacao Industry given its important effects on the characteristics and
quality of cocoa and taking into account the Philippine market position of producing
and exporting fine flavor beans. However, mostly cacao-growing regions in the
Philippines, majority of the cacao farmers still do the fermentation and drying at their
farms or homes using makeshift equipment. Cacao beans are dried on the ground or
makeshift platforms which may expose the beans to surface contamination and
infestation (Department of Trade and Industry, 2016). Other agricultural cooperative
has the facility however; their facility is limited to a few numbers which hinders their
production capacity.

For example, Subasta Integrated Farmers Multi-Purpose Cooperative located

at Calinan, Davao City, Philippines has only two fermentation and solar drying
facilities are owned capable of producing 1 MT of dried beans a week per facility or a
total of 100 MT of dried beans annually and during peak season, they would have to
rent at the Alternative Marketing Center (ALMACEN) facility owned by Josefa
Segovia Foundation Inc. in Catalunan Pequeño just to process the supply that
exceeded the processing capacity of their owned facility. This incurred additional
costs in terms of rental, hauling, and transporting activities (Sarmiento, Obsioma and
Acuna, 2014).

Human Resource Development

Most of the cacao farms in the country are funded with little investment and
are being owned and managed by farmers. Farmers are mostly undergraduates who
have gained knowledge in farming from their descendants or from experience.
Consequently, majority of them have limited technical skills and knowledge on the
production, marketing, and entrepreneurial aspects of agribusiness. Furthermore,
farmers have limited access to relevant and updated data, information, and
knowledge which they can use. This human resource gap often becomes a
hindrance in attaining the desired productivity and competitiveness of the industry.
Lack of knowledge on the use and establishments of postharvest facilities affect the
quality of the beans thus ultimately affecting the farmers’ income. Addressing these
gaps are relevant to the industry given that cacao production is labor-intensive rather
than capital-intensive.

It was also mentioned by Senator Cynthia Villar that there is a need for
education and training among Filipino farmers since among the barriers that keep
farmers from being efficient are little to no of technical expertise, access to socialized
credit, lack of mechanization and financial literacy (Fenequito, 2018). Thus, Villar
pushed for the approval of P2 Billion budget for cacao intercropping and training.

Fragmented Production

Smallholders primarily undertake production of cocoa beans, and coordination

among these actors is limited. While some cooperatives and farmer associations
exist to help aggregate supply and reduce transaction costs, the high domestic price
for beans and limited resources of cooperatives encourages side-selling by member
farmers and poses a significant challenge to reaching economies of scale
(Sarmiento, Obsioma and Acuna, 2014).

Research and Development

Improvement and innovation across the different areas of the value chain are
essential in gaining competitive and comparative advantage. Accordingly, both the
private and public sectors including the academe have been doing their own
research and development on cacao production, management, product development
and enhancement in order to attain these advantages but resources and support are
still limited and that implementation as consolidated from the findings of the DA-
HVCDP, the Congressional Oversight Committee on Agriculture and Fisheries
Modernization (COCAFM), and the Department of Trade and Industry is still
considered one of the weakness of cacao industry on their SWOT analysis (Peace
and Equity Foundation, 2016).
 Moreover, Department of Trade and Industry (2016) pointed out the need for
an effective system to promote research products and ensure firm-level
technological absorption or facilitate technology transfer must also be taken into
consideration.

Table 7: Public and Private Research and Development as Percentage of GDP

Table 7 was presented on the study of Duke University about the Philippines
in Agribusiness Global Value Chain which shows research and development made
by both public and private sectors with respect to agribusiness as percentage of
GDP from year 2004-2013. This clearly shows R&D funding of the Philippines has
been far below other Asian countries. Out of 9 countries coming from Asia, the
country has the least percentage on 2004, 2005 and 2007, garnering only 0.13%,
0.11% and 0.11%, respectively. There were also no data collected by the
researchers from the world bank on years 2006 and 2008-2013. This might be an
indicator that the country has not been capitalizing on basic research, applied
research or experimental development on country’s agribusiness (The Duke
University Center, 2017).

INTERVENTIONS TO BOOST POTENTIAL OF PHILIPPINE CACAO INDUSTRY

 It is undeniable that Philippine cacao industry is underrated, despite the
conducive environment for planting the country has, for the Philippine cacao industry
to takeoff, a couple of things have to be addressed not just by the government but all
the parties involved such as farmers, agencies and investors (Mattyasovszky, 2018).

Process Upgrading

Focus on increasing the quantity of beans harvested from the trees through
replacing or rejuvinating aging trees or planting more seedlings which will eventually
increase production; improved fertilizer and irrigation techniques, pruning and weed
control as well as shade coverage can also all boost production. This entire process
requires skills therefore access to training for producers should be incorporated,
training for new production methods and finance to support the integration of new
techniques into the production operations is necessary to unlock the potential of the
industry.

This process upgrading was observed by the Dominican Republic around

2009 and 2012, several companies together with CONACADO, the national
confederation of cocoa producers in the Dominican Republic launched an initiative to
increase productivity via the rehabilitation and rejuvenation of cocoa plantations.
Even before new plants reached maturity, the introduction of organic fertilizer,
weeding and pruning had boosted output by up to 77%, increasing productivity to
competitive global levels (Fernandez-Stark & Bamber, 2012).

Now, the Philippine is starting to take action in upgrading the production. For
instance, social entrepreneur and the owner of Seed Core Roberto Crisostomo is
making a bid to make local cacao bean globally competitive. His company sells
cacao beans from Mindanao to chocolate industrial grinders that make cocoa butter
and powder and to Barry Callebaut, the world’s largest supplier of chocolate. He
even flew to Barry Callebaut Malaysia in Kuala Lumpur to negotiate and explain his
cause which then the company to send experts to teach Filipino technicians and
farmers the proper method of harvesting, processing and fermenting cacao. One of
Seed Core’s projects is in Samar which is funded by People In Need, a European
nongovernmental organization where there goal is to distribute 300,000 seedlings to
cacao farmers and train them as part of post-Yolanda rehabilitation (Enriquez, 2019).
 In addition, conferences are also conducted in different areas of the country
such as the two- day conference that tackled nursery establishment, post-harvesting
processing and chocolate making in Ilo-ilo City where Chairman of the Philippine
Cacao Industry Council Valente Turtur cited the huge potential of Panay for cacao
plantation, particularly those that were once planted with sugarcane and were left
idle (Lena, 2017). Process upgrading is a long list of activities to be executed, but if
well-observed by the entire country, Philippine cacao on global market may rocket.

Product Upgrading

Shifting into the production of fine cocoa beans; these include replacement of
regular varieties for higher value ‘fine’ cocoa variety as well as improving the quality
of production of regular cocoa beans. These cocoa beans yield higher returns on
average than commodity cocoa beans.

Capitalizing on the growing demand for premium chocolate, Ecuadorian

farmers shifted production to fine or flavored cocoa beans, known as cocoa Arriba.
Because of its high quality and unique taste profile it is able to obtain above market
prices and is used in niche chocolate manufacturing. In 2012, the government
established a national program dedicated to increase yields via industrialization and
increased production. It now supplies over 65% of all Arriba cocoa consumed
globally (Nestle, 2012).

Aside from shifting to production of fine cocoa beans, value-adding is also

important in product upgrading. In the Philippines, there are seven cacao products
sold to local and international markets. These are the wet beans, dried beans, dried
fermented beans, cacao nibs, tablea, cocoa powder, and cocoa butter. Value of each
product depends on the value-added inputs and demand in the market.

Figure 2: Cacao Product Value Ladder, as of Year 2016

 Products that have undergone value-adding processes are more valued. Per
industry estimate, the value of beans increases four times when converted to tableya
and increases eight times when converted to chocolate. This entails that in order to
gain higher profitability, producers must value-add their products instead of settling
into wet or dried beans alone (Department of Trade and Industry, 2016).

Installation of roasting and grinding operations, allowing for in-country

intermediate processing and value addition to cocoa beans. Traditionally, cocoa
beans have been harvested, fermented and dried before being shipped in bulk to
processing facilities in developed countries. Increasingly, cocoa producing countries
are providing primary processing before shipping.

One good example of this is in Cote D’Ivoire, the government instituted tax
incentives for grinders to establish operations in the country in the 1990s; these were
in place for 20 years until 2012 (Monnier, 2015). By 2016, 12 grinders with 720,000T
of capacity were operating locally, of which market leaders Barry Callebaut, Olam
International, Cargill and Cemoi are the largest (Aboa & Kpodo, 2016). New policy
initiatives include tax incentives for grinders expanding their capacity, and a
secondary market limiting access to the mid-crop to locally based grinders to
improve their competitiveness (Monnier, 2016). In addition, the country is
implementing export taxes on unprocessed and early-processed products to try and
drive upgrading into even higher stages of the chain (Monnier, 2016). The country
aims to process 50% of the country’s output by 2020.
 Among the most valued cacao product is the cocoa butter which is being sold
at PhP750.00 per kilogram or higher. It is a major ingredient in practically all types of
chocolates, and also being used in making ointments, toiletries, and
pharmaceuticals. In selling beans, the dried fermented ones are more valued
compared to the wet and dried beans. Farmers may have an additional PhP10-15.00
per kilogram in selling dried fermented beans. However, in order to market this type
of product, availability and accessibility to postharvest facilities are very important to
farmers (Department of Trade and Industry, 2016).

Initiation of the production of cocoa butter. Adding pressing functions require a

high investment in sophisticated equipment, skilled labor to run and manage the
machinery. It also consumes high levels of energy.

Indonesia became the world’s third largest producer of cocoa beans during
the 1980s and 1990s. In 2010, the government led an initiative to add value to
production by implementing an export tax on unprocessed beans of between 5-15%
depending on the world prices. Between 2009 and 2012, processing capacity
doubled; investors included domestic and regional grinders. Subsequently, global
processors Barry Callebaut and Cargill made large-scale investments in grinding and
cocoa butter operations in the country and began to link these with industrial
chocolate operations supplying Indonesian food and beverage manufacturers
serving the domestic and regional markets (Barry Callebaut, 2016). In 2010, the
country exported US$260 million in cocoa butter and after the export tax on
unprocessed beans, the cocoa butter exports increased to almost US$800 million in
2015.

Farm to Market Road

Accessibility to farm-to-market road (FMR) plays a vital role in the production and
marketing aspects of the industry. In the production side, the lack of FMR affects the
farmers’ capacity to transport farm inputs and farm products thus increasing their
production costs. The delay of movement in the harvested cacao to postharvest
facilities and/or marketing channels also affects the quality of beans. Development of
Farm to Market Roads are catalyst in improving rural economy.

For example, residents in the Municipality of Initao, Misamis Oriental are now

experiencing faster delivery of their products from farm to the market with cheaper
transportation cost since the completion of the P27-million Gimampang-Aluna-
Casilihon farm-to-market road (FMR). In 2016, the 3.02km FMR was completed and
now serving the 950 households in the area which changed their livelihood for the
better and residents are planting more variety of crops such as dwarf coconut and
cacao fruits because the new road makes it easier to bring the planting materials to
the area (Montecalvo, 2018).

Conclusion

The Philippines is a tropical country and is truly blessed when it comes to

agricultural resources. It is perfect for planting different crops and one of those are
cacao. Cacao is one of the exporting products that Philippines offered to the global
market. Philippines is one of the exporting countries that exports cacao, but
unfortunately, it is not included in the top 10 cacao producing countries. This is due
to the constraints that the country's facing. One of those is the lack of technical skills
that is very important to produce or process product in an easier way. There may be
constraints occurring, but atleast the goal to have more exports in the year 2022 is
slowly achieved, since producing cacao is constantly increasing. On the other hand,
in terms of exporting cacao, Philippines truly have the potential or capacity in
providing the cacao demands of the largest importers of cacao. Philippine targets to
increase the volume of export every year until the export volume outweigh the import
volume of the country, and based on the results, it is really happening since the
demand for cacao is increasing. In addition, Philippines is already increasing the
volume and value of producing cacao and it implies that we are really improving.
Hopefully in the coming years, government expands the cacao industry to help local
citizens and the country to develop and grow. The Philippines may not be the top
exporter of cacao today but since it is rich in resources especially in agricultural
sector, it might be expected to improve in the future. (Cañares, 2019).

Although the Philippines is a country that is blessed enough for cacao farming
due to its perfect geographical location which is located in the equatorial belt making
it a greater competitive edge towards the other countries and allows us to grow a
higher value cacao that is perfect for exportation. However, amidst all this
competitive advantage that the Philippines has, the country is still not one of the
biggest exporters of cacao products in the global market making it left behind by
other countries where farming, production and exportation of cacao products is
significantly high and after conducting this research, it can be concluded that the
reason behind this current situation of the Cacao Industry in the Philippines is due to
its numerous challenges and constraints that it currently faces which makes the
production of Cacao in the country not fully realized to its maximum potential and
with that limits the amount of export that the country can offer and give to its trading
partners. On the contrary, with all these numerous constraints, it is surprising to see
that the Cacao Industry in the country in terms of its production and exports is
increasing significantly when it comes to its monetary value and percentage of share
in the total agricultural export of the country and will continue to improve as years
went on, with that it is a good indicator that the government is doing their best to
uplift the current state of Cacao Industry although it is not the country’s primary
agricultural export. Moreover, as the country seeks for the betterment of the Cacao
Industry in the future, it is not impossible that as the country hones its potentials it
would result into huge amount of difference that could make the Cacao Industry one
of the Country’s finest export entry in the global market (Lagrimas, 2019).

Philippines’ potential competitiveness in the industry of cacao, its significant

contributions on decreasing unemployment patterns, and continuous income
generation led several provincial and local government units to constitute
interventions that will support the growth and development of cacao industry.
Furthermore, the growing demand for cocoa from the neighboring and as well as
western countries paves an opportunity for the Philippines to have a significant
proportion in the global market share of the cocoa industry. However, despite the
overwhelming competitive advantages, Philippines still lack the capacity to engage in
massive cultivation of cacao products. Philippines still need improvements with
regards to farming technologies to emphasize quality while producing huge
quantities. Also, the country lacks more technical skills for cacao farming. Thus, even
if the cacao industry is most fitted for the Philippines, the incapability to reach its full
potential on competing with the top exporters of cocoa becomes its greatest
limitation (Orendain, 2019).

The Philippines is endowed with fertile soil fit for planting different crops. If
handled well by the government and other stakeholders, Philippines could also be a
top agricultural-produce country. Cacao industry has been booming around for the
past years and Philippines has seen to be a potential exporting country for cacao.
Many had seen the potential of the country and the government has been working on
it fervently.

Through the data gathered by the researchers, impressive number of

improvements on this industry were seen. Cacao farming and processing is a work in
progress in the Philippines. Different organization team up to promote and unveil the
potential of this industry. Action plan was made, roadmap was established, targets
were determined and some interventions were being executed. And by 2022, they
see Philippines contributing bigger market share on cacao industry. Few more years
yet there are still a lot to consider, bottlenecks are still in front. It cannot be denied
that resolving the constraints and weaknesses of this industry is not a piece of cake.
This is not just the government that should take action, there is a need for everyone
to participate in empowering the cacao products as well as the entire agricultural
sector of the country.

Filipinos are known for its ingeniousness and hardworking attitude, given the
proper knowledge, support and resources, Philippines can contribute not just a
chunk or a parcel of the global market demand for cocoa products, cacao industry
could transcend to be a major exporter of this crop alongside with other world-class
agricultural products the country has been offering for years. (Tero, 2019).

The cacao industry is not given much attention in the Philippines although it
has an advantageous climatic condition and strategic location. In fact, the country is
not that competitive to make it to the top 10 cocoa producing countries. Cacao can
significantly contribute to poverty alleviation and growth through livelihood and job
opportunities for cacao farmers, producers, and processors. Through conducting this
research, not only the constraints of Philippine cacao industry were analyzed, but
also its competitive advantages that the government could use to expand the cacao
industry. Through the government and cacao industry working together to give
interventions, Philippines may step up its game. Given the growing demand for
cacao, Philippines can increase the number of its exports through encouraging local
farmers and exporters to push for a more dynamic and competitive cacao industry
that can compete with other major cacao-growing nations. Philippines could engage
in international trade and introduce the high-quality Philippine cacao to the global
market (Vaquilar, 2019).

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