Spoilage

Super-typhoon Ompong is upon us. Unless this severe storm veers sharply northwards, its impact on our agriculture will be incalculable. September storms are often the cruelest.

The rice fields of the Cagayan Valley are ripe for harvest. We were relying on their output to relieve the serious rice situation that besets us.

The vegetable farms in the Cordilleras could suffer severe losses. Vegetable prices have been abnormally high the past few weeks because landslides blocked deliveries to the lowland cities. We could lose the stock completely.

Authorities estimate that Ompong could cause about P7 billion in damages, principally to agriculture. That can only aggravate the supply shocks we are already experiencing and fuel inflation further.

Agriculture is our weakest economic sector – even if we discount the typhoons and the flooding. When we speak of supporting this sector, it is often in the form of subsidies for irrigation, for road transport, for fertilizers and for seeds. But there has not been enough business interest in building the rest of the logistics system that will help conserve the value of our produce.

The most important measure of our agriculture’s weakness is the level of spoilage that happens because the logistics system is weak. The present estimate is that we lose 30% of our farm and fisheries produce due to spoilage. That is an intolerable rate. It jacks up consumer prices, causing high food price regime we have that stokes the poverty rate.

The essential truth about farming and feeding the urban population is this: supply and demand never occurs at the same instant. Without an efficient logistics system, spoilage happens between the time the produce is harvested and the time it is consumed by the end-user.

The solution is fairly simple. We need to put in place a logistics system that will conserve the value of the harvest. We need to put in a network of cold storages along the route from the farm to the market.

Since the cost incurred due to spoilage is much higher than the investments required to install refrigeration facilities, this should be an attractive business proposition. But few businessmen are willing to venture into refrigeration due to the impression for fear of getting into the enterprise of aggregation and on the impression that our farmers are too poor to afford modern facilities.

There are so many horror stories arising from the weak logistics system that plagues our agriculture.

For instance, an enterprising businessman in Capiz put in good money to efficiently culture bangus. But for want of refrigeration facilities, he could not sell his produce beyond a 100-kilometer radius from his fish farm. Consequently, his farm barely breaks even.

Everyday, at the Balintawak market, we see limp and dehydrated vegetables trucked in from Benguet. Tons of spoiled fruits and vegetables pile up as trash. Whatever survives the decrepit delivery systems is sold to consumers at a stiffly higher price to cover losses due to spoilage.

Cold Chain

The supply shocks that fuel current inflation rate are due largely to wildly gyrating prices for fish, meat and vegetables. The gyrations are due to the weakness of our domestic logistics system. Our interisland ports, for instance, are not equipped with cranes to handle refrigerated containers delivering fresh produce, resulting in very high spoilage rates.

The high spoilage rates take their toll on farm incomes, first of all. Farmers and aggregators assume very high risks and therefore run very vulnerable enterprises. A stray landslide or a minor storm could wipe out the value of produce before they hit the market. The premiums charged for handling farm produce are always high.

When I served on the DBP Board 18 years ago, we organized a program to help improve the inter-island logistics system. The program was eventually called the Nautical Highways System and involved upgrading ports to accept roll-on/roll-off (ro-ro) vessels and supporting aggregators who will build modern silos and modern storage facilities.

A vital component of this logistics system is what we called the “Cold Chain.” This is a network of privately owned and operated cold storage facilities to support our agriculture and fisheries.

Among those we initially supported in setting up its first facility at the FTI in Taguig is Glacier Megafridge Inc. (GMI). This is a company led by talented businessmen who appreciated the technological and engineering roles to be played by the Cold Chain.

GMI saw the business possibilities offered by the reality that only 30% of harvested aquamarine products reach the right market at the right price. Over a thousand small agricultural entrepreneurs produce 100,000,000 cubic meters of throughput annually. About 160,000,000 metric tons of perishable products from the Visayas and Mindanao need to be delivered to the Mega Manila area.

Over the past 13 years, GMI built cold storage plants in Calbayog City in Samar, Roxas City in Capiz and Legaspi City in Albay. They are building several more storage facilities in areas such as Pangasinan to handle fish produce from that province and vegetables from the uplands. These facilities fused Japanese technology with Filipino engineering know-how to build cold storage plants that are energy efficient, technology-driven and environmentally friendly.

Over the next few years, the company will expand their facilities and build closed loops with small enterprises to conserve the value of fish catch and farm produce. The plants function as transient catch basins for perishable products flowing to the metropolis.

This is a solid response to the problems that lower farm incomes and punish consumers with high food costs.