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Economy

Philippines tries to reignite production

A farmer on a coffee plantation in Davao del Sur Province.   © Peter Imbong

TAGUM, The Philippines -- On a searing afternoon in Tagum, a provincial capital at the southern end of the Philippine islands, a large truck carrying more than 200 sacks of dried coffee beans arrives at a coffee buying station.

     Almost immediately and with precise choreography, a dozen workers begin unloading and stacking the brown jute sacks on a wooden pallet while men with hollow steel rods shaped like swords puncture each bag.

 

   "They're called probes," says one of the coffee buyers observing the process. With each sweeping thrust the workers remove a few grams of dried coffee beans, which they transfer to a metal box that will hold all the samples from this delivery.

     The samples are mixed and divided in half several times until all that remains is about 500 grams of dried coffee beans. The quality of these beans will determine a farmer's success -- whether his total harvest is bought and turned into some of the millions of cups of coffee drunk in the Philippines every year.

     "In terms of beverages drunk [in the Philippines], coffee comes second [only] to water," said J.P. Bayangos, consumer marketing manager for Nescafe, the coffee company owned by Switzerland's Nestle.

     Domestic consumption is running at about 100,000 tons a year and demand is growing, according to the Philippine Coffee Board, a private sector marketing group. Euromonitor International, a U.K.-based market research group said the retail market was worth 39 billion pesos ($871 million) in 2013, when sales were up 9% from the previous year. That followed double-digit growth in 2012.

     But there is a problem: Despite substantial geographical advantages and its reputation as one of the world's great coffee producers, the Philippines cannot produce anywhere near enough beans to satisfy the market.

     Located in a narrow belt just north of the equator -- the Philippines is one of only a few countries that produce all four main bean varieties: Robusta -- which makes up 90% of the country's total production -- Arabica, Excelsa and Liberica.

     In the 1980s, the country exported up to $100 million worth of coffee beans a year. Exports were dampened by the collapse of an international coffee agreement in 1989, due to an oversupply in the world market, but the local industry remained reasonably successful throughout the latter part of the 20th century.

     Now, however, the Philippines is a relatively small producer, harvesting only 27,000 tons in the year to March, according to the U.S. Department of Agriculture, which monitors coffee production worldwide. By comparison, neighboring Indonesia produced 570,000 tons in the same period, USDA figures show.

     Domestic production volume has been almost flat for the last four years and the USDA forecasts it will grow only slightly in 2014-15 to 28,500 tons.

     To fill the gap, about 70% of the coffee consumed in the Philippines is now being imported from low-cost exporters such as Vietnam, Indonesia and Thailand, according to the coffee board.

Slow progress

The Philippine government wants to bring supply and demand into line by expanding domestic coffee production, but progress has been slow. One of the main challenges is the Philippines' vulnerability to the inherently volatile weather of the region, as well as to global climate change.

     The country averages 20 typhoons a year, according to the Philippine Atmospheric, Geophysical and Astronomical Services Administration, though few are as devastating as typhoon Haiyan, one of the most powerful storms ever recorded.

     Haiyan ripped through the southern region of the Philippines -- a largely agricultural area -- in November 2013, affecting more than 13 million people and causing damage worth $225 million to rice fields, fish lakes, and coffee and banana plantations. Tropical Storm Hagupit this month caused an estimated $22 million in damage.

     The Philippines is also undergoing rapid urbanization, which is taking agricultural land formerly used for coffee and other crops out of production.

     "Coffee-producing provinces continue to lose hectares of coffee farms because of conversion to high-end use like subdivisions and leisure farms," said Pacita Juan, president of the coffee board.

     To make matters worse, coffee farmers have taken shortcuts in planting and production because of shortages of quality-certified planting materials, which damages the long-term health and quality of the crop.

     Farmers who cannot afford to purchase seedlings without government support often instead plant wildings -- seeds that have fallen as ripe fruits and then become seedlings that produce sub-par coffee beans.

     There are ways of raising yields dramatically. A one-hectare coffee farm can produce 300kg of coffee a year. At the current world market price of 100 pesos per kilogram, that would earn the farmer about 30,000 pesos. "But this figure is based on old farming practices," said Nescafe's Bayangos. "Using genetically superior plants ... and practicing new farming techniques, the yield can be multiplied threefold.''

     In 2009, the Agriculture Department launched a 10-year strategic plan for the coffee industry, aimed at achieving national self-sufficiency by 2020.

     Jennifer Remoquillo, the program's director, said the High Value Crops Development Program, as the plan is known, is intended to raise coffee productivity and production, improving the standard of living for coffee farmers and reduce coffee imports.

     However, there has been little growth in output so far. "We see new [coffee] plantings, but, of course, we have lost many hectares of coffee lands which are getting urbanized quickly," said Juan.

     She said the government should launch a national campaign to increase production, making available planting materials for everyone to plant in government-owned parcels of land in the provinces.

     The Trade and Industry Department said more plans would be introduced to help the industry over the next few years, including the provision of coffee seedlings to kick start growth in areas that were once coffee plantations but have been converted to grow other crops. No details were available, however.

     Back in the coffee-buying center, the verdict for the 200 sacks of coffee beans is in.

     After checking for moisture content, foreign objects and deformed beans, and roasting, brewing and tasting a small batch, the farmer's shipment did not satisfy the coffee buyers' requirements.

     "He'll most probably sell it to another buyer but for a lesser price," said one of the buyers in Filipino. "Maybe he'll try again in the next few months."

 

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