Developing farmlands for agribusiness

President Arroyo has set the development of two million hectares of farm lands for agribusiness to generate two million jobs during her six-year term to support her poverty alleviation programs.

In line with this, the Department of Agriculture has listed targeted commodities and the corresponding "development" hectarage - 1.35 million hectares for coconut, 283,940 hectares for high value crops, 280,250 hectares for corn, etc.

Lost in this need to respond to the presidential goals is the inventory of existing "agri-business" land and how to further promote their economic existence and contribute additional employment or job generation.

All these years, the private sector has been in many activities that led to the development of agribusiness land. Their starting point, as in any business venture, is to fill a perceived market need or demand and over a period of time, make a compensatory profit out of their investment and for the risks undertaken.

The pineapple plantations were initiated by private corporations, with Del Monte Co. leading the way with its 1940s investment in Bukidnon. Similar investments (and area expansions) were done by other local investors with marketing agreements with foreign buyers. Dole Philippines was a late entrant, and so with Tboli farms. Ventures into pineapple production required huge investments such that forays into it were limited to the big corporate entities.

The banana industry in Mindanao started and grew with very minimal government intervention outside of taxes levied and collected. And toward its maturing stage, government intervention was more of "limiting" the area, in the guise of protecting the market from an oversupply situation. Large scale banana plantations, like the pineapple, have been in the realm of corporate operations.

Our coconut lands have always been there for generations. And we have been processing coconut meat into copra and into coconut oil. It has been our mainstay in agri-export, subjected to the vagaries of El Niño and typhoons. Yet a big number of coconut farmers have remained poor, barely eking enough income for their subsistence.

And there has been no news lately of new investments to expand the areas for coconut plantation (and coconut trees are being cut and converted into coco-lumber). Nor there was any program implemented by land owners for massive replanting of better varieties to replace aging trees.

Area expansion and replanting for coconuts are basically of private sector initiative and one can surmise that investors are not convinced of an acceptable rate of return on investments should they venture into expansion or replanting activities.

The Philippine Coconut Authority intervened with its fertilization program and tree replanting program but its impact on the industry has yet to be established. A continuing government program to support the coconut industry has been hampered by lack of funding support coupled with the maze of bureaucracy attached to it.

Are we missing something here? Indonesia went all out in expanding their coconut plantation these last few years while we were contented with what we have. And for the longest time, Philippines was the biggest producer of coconut oil. Indonesia has overtaken us on this. And if not for their big domestic consumption, they should have been the biggest exporter of coconut oil. Indonesia, 20 years ago was not even in the ranks of countries having big coconut areas.

Investment for palm plantation in Mindanao was undertaken by the private sector some years ago. For one reason or another, the project failed to take off.

In the case of mango, we are barely able to export five percent of total production. Prices would bottom down during peak harvest months. And in 2003, for lack of demand, some farms were selling their harvest at P8 a kilo. And production volume had grown by 18 percent from 2000 and still growing with new trees reaching production age.

A quick look at the mango industry will show that the immediate need is to increase the quality level of produce to qualify for export. The Philippine share in the world mango trade is a meager 5.5 percent with India garnering the biggest share. There exists a large room to expand in this area, with the initial inroads made in the China and Hong Kong markets.

Another "agribusiness land" basket case is our coffee industry. Many promises from government bureaucrats have been made to make our coffee world class. And yet, the industry is still languishing and farmers are still commodity producers, unable to cross to the entrepreneurial sector.

It took a private organization to initiate and revive the "barako" coffee in the Cavite and Batangas areas. And they have been pretty successful and they are still into it, sustaining their campaign by linking producers with markets and buyers.

Ventures into coffee production have also been few for the last many years. A friend of mine in Cavite who started a cooperative of coffee producers had their property foreclosed by DBP when they failed to settle their coffee production loan. They were unable to survive the domestic business environment.

A local coffee processing company has been doing a yeoman’s job of convincing coffee farmers to adopt new varieties and production technologies to be competitive against imports, but their success rate is still below their expectation.

In all of these ventures, government must be able to identify where interventions can contribute to the development of agribusiness. Production investments are in the realm of the private sector. Creation of the business environment is the primary role of government. New agribusiness land areas are made out of private sector decisions, taking into account return on investment and long term profitability.

And profitability is a function of an effective and efficient access to market. The market determines the size of new agribusiness land.

Franklin Panahon is a director of the Foundation for Resource Linkage and Development (FRLD) and served as undersecretary, Office of the Presidential Adviser on Agricultural Modernization (2001-2004).