Sugar is the Philippines’ third-most-valuable cash crop export behind bananas and pineapples, and it retains a unique position in the country due to its value both as an export commodity and a crucial input for the domestic biofuels programme. This double-edged demand has led to a substantially undersupplied domestic market, as biofuel languishes at partial operating capacity in spite of substantial incentives, while exports remain largely dependent upon annual production fluctuations.
The drought-ridden 2009/10 sugar cropping season produced the lowest output of the past decade, with 1.97m tonnes of raw sugar produced – the only time in the past 10 years during which raw sugar production dipped below the 2m tonne mark, according to data from the Sugar Regulatory Administration (SRA). This was followed up by a bumper crop during the 2010/11 season on the back of favourable weather conditions, with 2.40m tonnes of raw sugar produced. The 2009/10 season’s global shortfall of production also contributed to a spike in sugar prices for the 2010/11 season, further driving up the value of the crop, which surged 45.76% from P38.55bn ($855.8m) to P56.19bn ($1.3bn) over the period, according to the Philippine Statistics Authority (PSA). Output numbers tailed off to 2.24m tonnes produced in the 2011/12 season, followed by slightly stronger production of 2.47m tonnes in 2012/13 and 2.46m tonnes in 2013/14, before falling slightly to 2.32m tonnes in 2014/15, according to data from the SRA.
This inconsistent output is largely attributed to fluctuations in weather patterns, including the negative drought effects of the El Niño phenomenon, resulting in large swings between boom-and-bust cycles. The sector as a whole has so far been unable to smooth out these ups and downs, in large part because the small farms which make up the majority of production lack the resources to implement modern farming practices that are able to mitigate climactic conditions to some extent. Farms of less than 10 ha make up the vast majority of sugarcane cultivation, accounting for nearly 90% of active farms. In 2011-12 a total of 57,973 farmers (89.5% of total farmers) worked farms of 10 ha or less, for a combined area of 159,604 ha (38.7% of total sugarcane acreage). Another 5652 farmers worked medium-sized farms ranging from 10-50 ha, with a combined total of 124,967 ha (30.3% of total land) and 1140 farmers worked 128,139 ha on larger farms exceeding 50 ha.
What this bottom-heavy composition gains in employment opportunities for traditional farmers it loses in productivity. Limited funds and a lack of economies of scale have hindered efficiency efforts in the country, leading to a pronounced lack of competitiveness compared to regional and global sugar producers. Capital-intensive solutions, such as mechanisation and irrigation, remain largely underutilised on these smaller plots, resulting in much lower yields than their larger counterparts. The tractor-to-ha ratio for sugar producers in Luzon, for instance, is only one tractor per 110 ha, one per 57 ha in Visayas and one per 120 ha in Mindanao, according to data from the Philippine agribusiness company, Roxas Holdings Incorporated.
Irrigation is also very limited, leaving the majority of producers reliant on rainwater. Only around 10% of Luzon and Mindanao sugar crops are irrigated, with farms in Visayas faring only slightly better at 15-20% of the total planted area for sugarcane. The cumulative result is a strong disparity in sugar yield between the larger and smaller farms. Farms of 5 ha or less yield only 41.90 tonnes of cane per ha and 81.6 50-kg bags of sugar per ha, compared to 55.77 tonnes of cane per ha and 121.88 50-kg bags of sugar per ha for farms larger than 100 ha.
The need to address these issues led directly to one of the most significant events affecting the industry in recent years, the passing of the Sugar Industry Development Act in April 2015. The timing of the act reflects the sense of urgency within the industry to rapidly increase its competitiveness given the full reduction of trade barriers within ASEAN in 2015. Domestic sugar yields for the 2014/15 cropping season trail all but two of the top-13 sugar producers in the world, according to US Department of Agriculture’s Global Agriculture Information Network reports. The Philippines’ average yield of 55.06 tonnes per ha is around half that of the 108.30 tonnes per ha posted by industry leader Guatemala, and is also behind regional rivals India (70.82 tonnes per ha) and Thailand (70.89 tonnes per ha).
The new act’s primary goal is to maximise the country’s sugarcane resources by increasing the competitiveness of the industry as a whole, while improving the incomes of farmers and farm workers through improved productivity, product diversification, job generation and increased efficiency of mills. One of the most crucial components to this strategy is to scale up the institutionalisation of the block farming programme previously initiated by the SRA. Other provisions include mechanisation and other farm support; irrigation programmes; transportation infrastructure, such as farm-to-mill roads; capacity building, including the usage of the latest agriculture technologies; advanced seed breeding and best agriculture practices.
Perhaps most importantly, the act also secured mandatory funding for the industry, which is to be allocated by the government regardless of any change in leadership at even the highest levels of the executive or with the Department of Agriculture (DoA). Beginning in 2016 approximately P2bn ($44.4m) will be earmarked for the sugar industry annually and distributed through the SRA. These funds will be divided, with half being allocated to infrastructure development, consisting primarily of road and irrigation projects, along with communication and other infrastructure. Equal allocations of 15% each will also be set aside for block farm development, research and development (R&D) – including breeding and genetic modification programmes – and farm mechanisation. Furthermore, 5% of the annual budget is set aside for human resource development and training. Following close on the heels of the approval of the Sugarcane Development Act is the rollout of the new Sugarcane Roadmap 2020, which was released in September 2015, and outlines the development of the sector in light of the new funding afforded it.
While the building of infrastructure, R&D and farm mechanisation are relatively straightforward projects, the expansion of block farms across the country requires a shift in mindset from traditional small farmers and, if ultimately successful, will bring about fundamental changes in the structure of the industry. The goal of the initial programme, laid out in the previous industry roadmap, was to take advantage of scales of economy, by bundling contiguous small farm lots – including farm lots held by agrarian reform beneficiaries – into large production sites or blocks not smaller than 30 ha. The ownership of the lands, however, remains with the landowners.
The act sets aside P300m ($6.7m) per block farm each year, starting in 2016, enough to significantly expand the programme, which developed 28 block farms from 2011-15. This new budget is expected to dramatically scale up the programme with a total of 140 block farms planned in 2016 with assistance from the SRA and DoA. Once established, ongoing support will be provided through credit from the Land Bank of the Philippines and the SRA. Early results from the pilot programme have been encouraging, with the SRA monitoring reports showing a 29.2% increase in yield at 19 blocks farms during their first cropping season, compared to output the previous year under traditional operating norms. Average yields of the measured block farms increased from 50.78 tonnes of cane per ha to 65.29 tonnes of cane per ha the following year. By 2020 approximately 80% of small sugarcane farms are expected to be included in the block farming scheme, accounting for 150,000 ha of land which should increase productivity.
It may take years for the full impact of the projects to be realised due to adverse effects of El Niño on output over 2015/16, countering some the projected increases in efficiency. In the first two quarters of 2015 sugar production was already down 2.9% and 15.4%, respectively, compared to the same quarters the previous year, due primarily to less rainfall. The future remains hopeful, however, with prospects of growth for the next season.
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