Josephine V. Ramos Chairperson, Cacao Industry Development Sub-Committee, DA/PCAF

Industry Roadmaps and AEC Gameplan: Roadmap Localization for Competitiveness 12 May 2016 Hotel Roma, Tuguegarao City

Defining Competitiveness in the Philippines’ Cacao Industry

The Top Ten Global Confectionery Companies that

Manufacture Some Form of Chocolate, by Net

Confectionery Sales Value in 2015

Reference:

Candy Industry, January 2016

* This includes production of non-confectionery items

Company Net Sales 2015 (US$ millions)

Mars Inc (USA) 18,400

Mondelēz International (USA) 16,691

Nestlé SA (Switzerland) 11,041

Ferrero Group (Luxembourg / Italy) 9,757

Meiji Co Ltd (Japan) 8,461*

Hershey Co (USA) 7,422

Chocoladenfabriken Lindt & Sprüngli AG (Switzerland)

4,171

Arcor (Argentina) 3,000

Ezaki Glico Co Ltd (Japan) 2,611*

Yildiz Holding (Turkey) 2,144

Cacao Grindings: World Projections, 2008-2019

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

20

14

/15

20

15

/16

20

16

/17

20

17

/18

20

18

/19

tho

usa

nd

to

n

Year

Source: ICCO, “The World Cocoa Economy: Past and Present”, January 16, 2014

Cocoa grindings will increase to 4.6 M MT by 2019

Cacao: World Production Projections, 2008-2019

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

4,600

4,800

20

08/0

9

20

09/1

0

20

10/1

1

20

11/1

2

20

12/1

3

20

13/1

4

20

14/1

5

20

15/1

6

20

16/1

7

20

17/1

8

20

18/1

9

tho

usa

nd

to

ns

Year Source: ICCO, “The World Cocoa Economy: Past and Present”, January 16, 2014

World production will increase to almost 4.6 M MT by 2019

Cacao Prices: Annual Average Projections, 2008-2019

2,000

2,200

2,400

2,600

2,800

3,000

3,200

3,400

3,600

20

08/0

9

20

09/1

0

20

10/1

1

20

11/1

2

20

12/1

3

20

13/1

4

20

14/1

5

20

15/1

6

20

16/1

7

20

17/1

8

20

18/1

9

US$/t

on

(co

nst

an

t)

Year Source: ICCO, “The World Cocoa Economy: Past and Present”, January 16, 2014

Cacao prices will rebound to$ 3,200/T by 2019

Cacao is the main raw material for chocolate production, it has no other substitute.

• Sustainability, Standard, and Certification are key trends in cacao consumption and supply sources

• Consumers are paying more attention to the source and farming practices of cacao producers.

• Single sourcing, dark chocolate and understanding the health message of flavanols in cocoa are current trends.

• The consumers' overall health concerns points to platforms and research that are centered around healthy chocolates. This includes new recipes made with herbs and spices, such as rosemary, thyme, chili and lemongrass, reduced sugar, and chocolate containing stevia

• Demand for food safety assurance

CACAO Industry in the

Philippines

Long tradition of cacao production, primarily, for own-consumption

As Business Undertaking… •Spaniard named Jose Maria Antonio

Pueo set up a chocolate factory in Intramuros, Manila in the late 1930s. His chocolate was made the old fashioned way up to present.

•Serg’s Chocolates was established in late 1940s by a Filipino-Chinese Family.

Investments

• The 1950’s saw investments in processing facilities for cacao and chocolates manufacturing.

• In the mid-1950, a National Coffee and Cacao Development Program was launched, and the Philippine Coffee & Cacao Institute was organized. This was a special project of the Philippines (through Department of Agriculture & Natural Resources) and the United States of America (through the USAID).

1970s To Early 1980s – Rapid Growth In Commercial Production • The late 1970’s toward early 1980’s saw

establishments of commercial scale cocoa plantations in Mindanao. The Philippine government provided tax incentives for investments in cacao growing. Private investments flourished including for research activities and facilities.

• The Coconut Based Farming Systems in the early 1980s ushered in small scale cacao production as one of intercrops in coconut farms

Late 1980s and 1990s onwards: Rapid Decline in production

• Production declined from about 20,000 mt to 6,000 mt

=> local production barely equates 20% of the supply

needed by local processors in beans equivalent

• WHY such a change in performance?

Agrarian reform 1988 (plantation to smallholder production)

International cocoa prices declined, input costs increased

Lack of support services (research, extension), credit

Cocoa pod borer (CPB)

Lack of post-harvest facilities and market chains for quality product

Slowed-down or Closures in domestic cacao processing operations (high costs of power & sugar, labor issues)

Rebuilding the Industry

•What conditions have changed?

International cacao prices increased since year 2000

Technical assistance for production, seedlings, CPB control Post harvest & marketing support schemes

Why expect a “turnaround”?

• Cacao production expansion is recognized to provide significant contribution to poverty alleviation & sustainable agriculture

• Achievements and lessons learned from past programs can be capitalized to escalate upgrading and expansion

• Farmers’ expressed willingness for equitable growth and development

• Supportive institutions and policies . Cacao is now included in the pipeline of support for priority high-value commercial crops

• Good germplasm collection that is at par with the world’s best materials

• No new land conversion. Utilizing barely 5% of existing mono-cropped coconut farms could contribute significantly to national economic growth

• Recognized capability to supply good quality fermented beans to the global market which pays premium for quality beans

• Expanding domestic demand, and growing opportunities in creating rural enterprises for cacao products processing

Production, area, and yield (Phil), 2005-2014

Source :BAS

0.40

0.42

0.44

0.46

0.48

0.50

0.52

0.54

0.56

0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

14000.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Area

Volume (MT)

Yield (T/ha)

Item Amount in US$

Total Imports 2014 102.3 M

Cocoa Beans 1.7 M

Cocoa Powder 44.8 M Cocoa Butter 0.53 M Chocolate 54.6 M

Total Exports 2014 24.3 M Cocoa Beans 4.5 M

Cocoa Powder 2.2 M

Cocoa Butter 4.3 M Chocolate 13.3 M

Philippine Cacao Trade Performance, 2014

Source: NSO

PHILIPPINE NATIONAL STANDARD FOR CACAO BEANS

PNS/BAFPS 104:2011 ICS 67.020

Cacao Production Targets Item 2016 2017 2018 2019 2020 2021 2022

Per Capita Consumption (Kg) 0.55 0.61 0.68 0.77 0.86 0.96 1.07

Local Demand (MT) at 0.5 kg/capita 55782 56755 57727 58698 59665 60629 61592

Local Demand (MT) at increasing per capita consumption 61188 69574 79084 89867 102085 115930 131615

Production (MT) from existing 6118 6496 6896 7322 7774 8253 8762

Imports (MT), Projected @ 0.5kg/capita 49663 50259 50831 51376 51891 52376 52829

Yield (T/ha) 0.59 0.63 0.69 0.75 0.82 0.89 0.98

Present area (ha), PSA 12035 12035 12035 12035 12035 12035 12035

Area re: PLGU R11 (ha) 22353 22353 22353 22353 22353 22353 22353

Pdn Volume re:DTI data on area (MT) 13110 14148 15402 16748 18286 19999 21940

Supply Gap @ 0.5 per capita cons 42671 42607 42325 41950 41378 40630 39651

Target area (ha), Industry Roadmap 14423 31152 40412 40412 40412

Total area (ha) 42868 74020 114433 154845 195257 195257 195257

Production Volume (MT) 13110 15671 22053 36316 60875 94187 134226

Self-sufficiency at 0.5kg/capita cos 23.50 27.61 38.20 61.87 102.03 155.35 217.93

Export volume (MT) 1210 33558 72634

Export value @ $2800/MT,USD M 3.39 93.96 203.38

Source: draft National Cacao Roadmap, Intet-Agency Convergence April 2016

REGION

No. of Planting Materials to be Procured for 2016

CACAO RUBBER

CAR 200,000 -

I 117,500 -

II 100,000 -

III 199,900 -

IVA 247,500 -

IVB 325,000 225,310

V 425,000 -

VI 352,000 -

VII 275,000 -

VIII 369,330 -

Business Opportunities in the Cacao Beans Value Chain

INPUTS

PRODUCTION

POST HARVEST PROCESSING

fermentation, drying, sorting/grading, packing, storage

TRANSPORT/ SHIPPING,

SELLING/MARKETING

To produce cacao beans, the farmers need these inputs: • Production loans • Seedlings, planting materials • Fertilizers, agri-chemicals • Botanical pesticides, organic fertilizers • Farm tools (pruning shears/saw, etc), pod sleeves • Farmers’, farm family or paid workers’ labor • Technology & extension services • Harvesting & pod breaking tools, wet beans collecting containers To convert the beans harvest into dried form: • Fermentation & drying facilities • Sorting & grading tools & equipment • Packaging materials • Storage facilities, warehouse To sell either wet or dried beans, • Market & price information • Transport facilities , or selling arrangements (pick up or delivered)

Issues on QUALITY Many farmers are aware that fermented beans are better, however, with less attractive financial incentives to take on added costs including labor, and to pull off immediate income as the fermentation process takes between five to six days plus several more days for drying, they generally do not ferment the beans. Another quality issue is related to sorting beans. The most commonly available grade of beans from farmers is all-in which involves minimal if any sorting, due in part to finding a market for ‘sub-standard’ beans.

Business Opportunities arising from quality issue: Investments in wet beans buying, operation of community fermentation and drying centers..

ENABLING ENVIRONMENT

Market related Technology

adoption &

upgrading

Skills devt &

extension services

Enabling policies

Large, growing local

and foreign markets

& Good prices

Available suitable

lands for expanded

production,

technology/ GAP

and good clones

Core of Technology

Facilitators

Extension services

provided in projects,

both local & foreign

funded

LGUs support for cacao;

Coconut Intercropping

Program

Development projects of

different govt agencies

supportive of cacao.

Foreign assisted development

projects for cacao

Modules of post

harvest cum buying

centers

Designs and

materials are

replicated and

improved

Contract growing

schemes

Plant now pay later

schemes for

planting materials &

inputs

Packaged extension

services with

contract growing

schemes

GFIs could cater to contract

growing schemes

Cacao is more than a delicious

concoction of frothy chocolate beverage or mouthwatering confection. It is more than the sum of interesting phytochemicals. To many Filipinos, cacao spells heritage, a connections with people and events in the past.

• Demand is increasing rapidly, e.g. Asia, Middle East • We need to increase production in an environmentally sustainable way (reduced inputs, reduced footprint). • New and improved planting material is a major factor, and a critical part of the solution, optimized by good agricultural practices. • Good quality, locally adapted planting material are continuously required, whatever country, region or farming system.

THINK OUT OF THE BOX

STAND OUT. BE THE PURPLE COW. BE SPECIALTY.

At least 100,000 MT quality

cacao beans by year 2025

100,000 farmers getting additional incomes between

PhP60,000 to PhP80,000 per

hectare

At least 50 million cacao trees producing 2.0 kg dried beans equivalent

per tree

Additional export earnings of at least

USD300million

Can we ‘hit’ these in 10 years?

Year 2025

Thank You

DIOS TI AGNGINA