Is exporting food a sound strategy?: Where do we stand vs our neighbors?

MANILA, Philippines –  The world’s leading food companies brag about their billion dollar brands. Nestle, the world’s leading food company, has 28 brands with sales of almost $1 billion a year. Nestle brands are either No.1 or No.2 in the market: Nescafe, Maggi, Kit Kat, Milo, Nido, Nesquik, Pure Life, Nespresso, and Purina.

Pepsico has 19 mega brands with retail sales of over $1 billion a year: Pepsi Cola, Mountain Dew, Lay Potato Chips, Gatorade, Tropicana, Seven Up, Doritos, Lipton Teas, Quaker Foods, Cheetos Cheese, and Mirinda.

Kraft Foods has 11 brands with annual sales of over $1 billion: Kraft, Cadbury, Oreo, Nabisco, Maxwell House, Philadelphia, Jacobs, Lu, Trident and Milka. Mars, the world’s leading confectionery company, has M&M’s, Snickers, Dove, Mars, Extra and Orbit.

The large presence of global brands is a sign of sustained competitiveness of the product lines of these companies. They must invest heavily in making their brands grow and sustain their ranking in the market place.

What about countries? How does the Philippines compare with peers: Indonesia, Malaysia, Thailand and Vietnam?

Why is the rural poverty rate of these countries lower than that of the Philippines. In this article we shall also argue that food export is a sound strategy for increasing farm incomes and reducing poverty?

How competitive is Phl?

How does a country improve its exports and at the same time develop agriculture competitiveness and increase farmers’ incomes?

By selling to the domestic market and by tapping opportunities overseas. Countries, like companies, must sell outside their domestic market to grow. The domestic market is not always adequate to absorb excess supply. They are either short of population and buying power, or both. For many countries, agriculture export is also an instrument of rural poverty reduction as exports expand sales territories.

In 2008, the Philippines earned only $4 billion from the export of agriculture and food products.

Is this good? The answer is in the numbers. Thai exports were eight times those of the Philippines, Indonesia almost eight times, Malaysia seven times, and Vietnam, almost three times.

There was only one product cluster that the Philippines earned over $1 billion a year: coconut products. Malaysia had three such clusters, Indonesia and Vietnam five each, and Thailand six.

On a unit farm land basis at $340 per hectare of export, the Philippines heavily trailed its peers; Indonesia 2x, Malaysia 10x, Thailand 6x; and Vietnam 3x.

A look at the product list shows the export diversity of other ASEAN peers. The Philippines has only two products earning over $500 million: coconut, and fruits (banana and pineapple). Malaysia has five (palm oil, rubber, cocoa products, cereal/milk products and seafood). Indonesia has six (palm oil, rubber, seafood, coffee and tea, cocoa products, and   processed seafood). Vietnam has six (seafood, rice, coffee, rubber, cashew nuts and processed seafood.     Thailand had 12 (rubber, rice, seafood, shrimps, fruits, sugar, processed food, feed ingredients, vegetable oils, cereals/milk products, and milling products.

On seafood export, the poor record of the Philippines is highly unfortunate as it has the world’s second longest coastline after Indonesia. Mariculture needs more support.

As a result of poor export record, the Philippines is the only country among the five that posted a negative trade balance. According to a NEDA report, this started to occur in 1995.

Based on the data from the UN International Trade Centre in Geneva, the Philippines dismally trailed its ASEAN peers in 2008.

In fresh food exports:

• The Philippines ranked No. 60 in world market share as compared to Indonesia 16, Malaysia 30, Thailand 11, and Vietnam 14

• On market diversification, the Philippines ranked 77th compared to Indonesia 58, Malaysia 27, Thailand 20, and Vietnam five.

In processed food exports:

• The Philippines is ranked No. 58 in world market share compared to Indonesia 12, Malaysia four, Thailand 16, and Vietnam 61

• On market diversification, the Philippines was No. 65 compared to Indonesia 39, Malaysia 10, Thailand 24 , and Vietnam 48.

Why do we trail?

There are at least five factors.

1. The lack of focus on product diversification, particularly tree crops, fishery and aquaculture. Political leaders look at rice self-sufficiency as the success factor.

2. Most of the budget (some 60 percent) went into the rice program, mostly for rice irrigation.

3. Lack of long term funds for planting long-gestating crops such as rubber, oil palm, cacao, coffee, coconut, etc.

4. Limited funds for export market intelligence and development.

5. Lack of solid program for rural poverty reduction anchored on agribusiness development.

Where do we go from here?

An agriculture blueprint is urgently needed that is inclusive (all farmers, landless and fishers) and market-driven. It must increase farmer incomes that will lead to rural poverty reduction (at nearly 50 percent of all families today). Second, is penetrating new markets.

This must be under the ambit of three key result areas: productivity increase of all crops; market-led diversification; and non-farm and off-farm creation through private investments and public-private partnerships.

The opportunities are staring right at our faces. These are:

1. Coconut and rubber have expanding export markets but production is severely limited. The capacity utilization of coconut mills is 50 percent to 60 percent. Little replanting has been done for the senile coconuts. And fertilization has been inadequate.

The country imports 30 percent to 50 percent of its palm oil. Mindanao and Palawan have potential of 500,000 hectares but today only about 40,000 hectares are planted. Moreover, the country also imports half of its coffee beans.

2. The country imports seaweeds from Indonesia as the country is short of supply for processing. The Seaweed Industry Association of the Philippines indicated that the total capacity is about 130,000 tons a year versus domestic supply of 85,000 to 90,000 a year.

3. A leading fruit processor in Cebu revealed that there is competitive supply of banana, pineapple, papaya and mango. But, the others are either scarce or costly such as passion fruit, jackfruit, guyabano, etc.

4. ASEAN countries are very strong in seafood exports. Where are we today? We need more resources mariculture research and production.

Exporting is an important tool for market expansion. Given that half of the rural folks are poor, and there are external market potentials for many products, it is a sound strategy to exploit these opportunities.

Are we depriving the Filipino nation food if we export?

Obviously not. In fact, we are improving the lives of the rural poor by increasing their incomes. Given more money into their pockets makes a vibrant domestic consumer markets. That is the evidence in the ASEAN. We need not re-invent the wheel. –Rolando Dy, Executive Director Center for Food and Agri Business UA&P (The Philippine Star)