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INTERNATIONAL BANK FOR RBCONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

AGRICULTURAL DEVELOPMENT AND PROSPECTS

OF THE PHILIPPINES

August 12, 1970

East Asia and Pacific Department

Prepared By: Mirko Lamer

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TABLE OF CONTENTS

Page No.

* I. RECENT TRENDS IN AGRICUITURE 1

II. MAJOR ISSUES 4

A. Objectives Under the FY 1971-74 Development Plan 4B. Fertilizer Use 5C. Irrigation 7D. Land Reform Prospects 9E. Agricultural Credit 10F. Coordination Among Various Government Agencies 12

III. SUMMARY AND RECOMMENDATIONS 13

APPENDICES

I. AGRICULTURAL COMMODITIES 1

A. Rice and Corn 1B. Sorghum and Soybeans 4C. Livestock 5D. Coconut Products 5E. Sugar 8F. Tobacco 10G. Abaca 11H. Bananas and Pineapples 12I. Forestry and Forest Products 12J. Fisheries 13

II. TABLE 1 - Actual Production for 1968 & 1969 and PhysicalTargets of the Agricultural Program FY 1971-74 16

TABLE 2 - Average Growth Rates of Major Agricultural Proiucts 17

a

AGRICULTURAL DEVELOPMENT AND PROSPECTS

I. RECENT TRENDS IN AGRICULTURE

Production

1. In 1969 and 1970, agriculture continued roughly along the sametrend as in past years, and production of most commodities increased.However, the 1969 rate of growth of food crops was only 0.6 percent asagainst 6.2 percent in 1968 and 3 percent in 1967. The main reason for theslowdown was a severe drought affecting in particular paddy production,which declined by 2.5 percent in 1969, after a record 11.4 pereent increasein 1968. Rice production would have declined even more severely had it notbeen for the expansion of the area planted with high-yielding -rarieties.In 1968/69, the area under high-yielding varieties increased by 35.6 percentin comparison to 1967/68, and the new varieties covered about 18 percent oftotal acreage of paddy. Without high-yielding varieties, the ?hilippineswould have been obliged to import substantial quantities of ri.e in 1969.The situation for 1970 appears much more favorable and exports of rice areconsidered.

2. The effects of the drought were less pronounced for corn and otherfood crops which were more resistant, as the following table sl2ows:

Production of Major Food Crops(Thousand metric tons)

Growth Rate (% change)Crops 1968 1969 1966/67 1957/68 1968/69

Food 9,294.4 9,353.2 3.0 6.2 0.6Paddy (palay) 4,560.7 4,444.6 0.5 11.4 -2.5Corn 1,619.1 1,732.8 8.0 8.7 7.0Fruits and nuts 1,371.6 1,375.8 9.3 1.4 0.3Rootcrops 1,305.2 1,338.2 -7.1 -4.6 2.5Vegetables 201.1 218.5 4.3 0.7 8.7Coffee 43.9 43.8 3.5 -0.9 -0.2

3. Achievements in major agricultural export crops were better than infoodcrops, as illustrated by the following table:

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Productioni of Major 1gricultural Export Crops(Thousand metric tons)

Growth Rate (% change)Crop 1968 1969 1966/67 19677/6 1965/69

Export crops 3,948.o 4,146.0 7.7 1.9 5.0Sugar (centr. & Muscovado)1,658.4 1,665.0 11.1 2.3 0.4Molasses 502.9 505,1 10.2 24.0 0.4Copra 1,541.8 1,736.7 6.2 -2.2 12.4Desiccated coconut 56.3 49.7 14.2 -3.7 -11.7Abaca 103.4 104.9 -13.1 -12.1 1.5Tobacco (Virginia) 17.4 19.9 0.7 18.4 14.4Tobacco (Native) 47.5 36.9 -15.9 30.5 -22.3

The 1969 production of sugar hardly exceeded the 1968 lev.1 due to typhoons,drought, and lower yields of traditional varieties. In 1970, however,improved yields may lead to an increase in production of about 10 percent.This might permit for the first time since 1965 some shipments under theadditional quota to the United 1States. In 1969, the production of molassesdeclined severely because of a sharp drop of export prices from $100 to $60per ton. In 1970, molasses wil'L be diverted more to the domestic market forlivestock feeding.

4. In 1969, copra production showed an upward movement owing to favor-able weather conditions, but typhoons may reduce copra production in 1970 by10 percent. After several year3 of declining output, abaca showed a slightincrease in production, as prices improved in the international market.Native tobacco showed unfavorab'le production results, while production ofVirginia tobacco increased; this was due to the weather conditions affectingboth crops grown in different parts of the island of Luzon.

5. The production of logs shows sha-p and erratic annual fluctuations.In 1969, log production was 11.6' million m- or an increase of o,nly 4.2 percentas compared with a rate of 4L.9 percent in the previous year. 1 This was partlythe result of the government's policy to reduce the cut of timber for exportof logs and to promote domestic processing of wood produc-ts. The followingdata show trends in forestry products in recent years.

Forestry Products Production L968 Growth 1Rate (1961-68) annual

Logs (cubic meters) 11,086,0o0 7.7Lumber (000 board feet) 432,921 -0.3Plywood (000 square feet) 695,034 15.1Veneer (000 square feet) 1,205,9:L0 26.1

1/ Rate of veneer and plywood production Inot available for 1969.

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6. As for livestock and dairy production, pork and poultry meatproduction continued to increase. The recent introduction of a feedggain.program (yellow corn, sorghum and soybeans) should present an additionalimpetus for a further increase in livestock production. In 19'0, themanufacture of "toned milk" started. The catch of fish increased from937,700 metric tons in 1968 to 1,035,000 metric tons in 1969, or by 10.5 per-cent, which was a considerably slower expansion than the previous year's 25.7percent.

Inputs

7. Consumption of fertilizers reached 402,600 metric tons (productweight) in comparison with 384,000 metric tons in 1968, an increase of 4.8percent.

8. In 1969, the irrigated area did not increase greatly as new largescale gravity projects need considerable time for completion, but a numberof existing irrigation schemes were rehabilitated and expanded, and irrigationpumps were more extensively used for sugarcane and rice.

9. For the period 1968/69, the total area planted with high-yieldingvarieties of rice was 606,495 ha as against 390,294 ha in 1967/68, an increaseof 35.7 percent. In 1968/69, new high-yielding varieties were introducedin corn (54,000 ha) and sugarcane (133,000 ha). At the end of 1969 plantingof high-yielding varieties of sorghum and soybeans started on areas of 200 haand 1,480 ha, respectively.

10. Loans granted to agriculture continuously increased, from Fl4.billion in 1965 to P2.2 billion in 1968. Data for 1969 are incomplete forcommercial banks, but loans of rural banks to small farmers and of thePhilippine National Bank for large projects have increased, while loans bythe Development Bank of the Philippines declined.

11. Management of development programs has been strengthened by thecreation of the National Food and Agriculture Council (NFAC) in May 1969.This Council coordinates all agencies involved in the food program (rice andcorn), and is now also covering feedgrains for livestock (sorghum, soybeans,yellow corn), fruits, vegetables and fish.

12. The introduction of the floating rate of the peso in February 1970and the export tax in May 1970 brought confusion particularly during theperiod before the export tax was introduced. Agricultural exporters, thanksto the factual devaluation, have an easier access to foreign markets, butincreased prices of necessary inputs such as fertilizers, trac ors, irrigationpumps and other farm equipment, will probably slow down their use and lead toan increase of farm prices. Appendix I to this Annex contains a more detaileddiscussion on individual commodities and inputs.

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II. MAJOR ISSUES

A. Objectives under the FY 1971-74 Development Plan

13. The Four-Year Plan contains an agricultural strategy by which theGovernment plans to actively pro:mote agricu'Lture as the leading sector ofthe economy. T'he Plan aims at national sufficiency in food crops and promotionof agricultural. export crops as a source of foreign exchange. The overalltarget is to increase agricultural output by 6.2 percent annually; the sectoralshare of agriculture in the net dlomestic product should increase from 34.1 per-cent in 1969 tc, 35.1 percent in 1974. The specific objectives of the agriculturalprogram can be summarized as follows:

(a) intensification of food production (rice and corn) beyondself-sufficiency 'Levels not only for stockpiling, butalso for exports;

(b) expansion and improvement of the output of agriculturalexport crops through crash programs for coconuts, sugar,tobacco and ramie, kapok, ancd oil palm;

(c) expansion of the nlumber of animals and production ofanimal products to attain self-sufficiency in meat andmilk as soon as possible;

(d) livestock development (particularly hogs and poultry)based on an increased production of feedgrains suchas yellow corn, sorghum and soybeans;

(e) expansion of fish production, setting fish hatches,production and dispersal of f'ingerlings, promotion ofdeep-sea fishing, increased productivity of fish ponds,establishment of i'resh-water fish farms, increase ofmodern equipment f'or commercial fishing vessels, andimprovement of fish marketing conditions; and

(f) orotection of forests from urwarranted exploitation,reforestation of denuded areas, protection of park and-ildlife, stabilization of lcg exports by gradualincrease of domestic processing of logs and gradual.limitation of exports of logs to 40 percent of theallowable cuit.

1)4. Both the private and public sectors will assist in the execution ofthe program. The public sector vrill mainly concentrate on construction ofirrigation, inf:rastructural, storage, processing, marketing and creditfacilities. The Four-Year Plan projections of output and exports of agri-cultura.l product:s have been based. on past trends in the last decade and onthe intended shifts in emphasis as among products. Appendix II, Table 1

shows the output projections in detail, while Appendix II, Table 2 comparesthe growth rates of the Four-Year Plan with actual output of previous yearsand with some other projections.

B. Fertilizer Use

15. Soil deficiency of plant nutrients is very high in the Philippinesand fertilizers are needed to increase production of agricultural crops. Ofthe cultivated soil in Luzon, about 85 percent is deficient in phosphorus,59 percent in potash and 55 percent in nitrogen. 1/ The coastal plains havefertile soils, while mountainous regions have a low soil quality which rein-forces persistence of shifting agriculture. Government paid increased attentionto the use of fertilizers when domestic fertilizer plants started to operatein 1953, but imports covered still about 25 percent of total fertilizerconsumption in 1969. Government stimulated application of fertilizers for riceand corn by subsidized prices through the Agricultural Credit Admiristrationfrom 1956/57 to 1962/63. But rice and corn farmers often sold subsidizedfertilizers on the black market to sugar growers, the main users of fertilizersin the country. Since this system was discontinued, the domestic fertilizercompanies use their own field experts (about 600 in 1970) to teach farmersthe application of fertilizers.

16. Sugar was the first crop for which fertilizers were used; its sharewas 95 percent of total use before World War II. The application is spreadingto other crops as the following table shows:

Consumption of Fertilizers by Crops in 1967 a/(in nutrient equivalent)

Nitrogen N Phos hate P205 Potash K20Crops Metric tons Metric tons r Metric tcns

Sugar 37,829 47.8 17,033 57.5 12,570 59.2Rice 23,528 29.6 6,722 22.7 4,179 19.7Corn 3,396 4.1 515 1.7 252 1.2Tobacco 1,724 2.2 410 1.4 361 1.7Coconut 1,380 1.7 803 2.7 492 2.3Vegetables 2,301 2.9 1,140 3.8 858 4.0Citrus 1,742 2.2 1,092 3.7 686 3.2Pineapples 3, 038 3.8 131 0.4 737 3.5Other crops 4,543 .7 1,811 6.1 i,106 5.2

79,481 100.0 29,657 100.0 21,241 100.0

a/ Study of the Philippine Fertilizer Market. ESSO Standard Fertilizer and Agri-cultural Company, prepared by SyCip, Gorres, Velayo & Co., Manila, Aug. 1968,p.1S.

1/ Mirko Lamer, The World Fertilizer Economy, Stanford, 1957, p. 445.

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In 1969, consumption of fertilizers reached 402,60C metric tons (product weight),100,000 metric tons of which were imported; as against a consumption of 384,000metric tons in 1968, this meant a 4.8% increase. Fertilizer consumption insugarcane increased from 168,000 metric tons in 1967 to 188,000 metric tons in-968, while in rice, corn and other crops - where a higher growth rate wasexpected - it declined slightly from 196,000 metric tons to 193,000 metric tons.Adverse weather conditions, unfavorable prices of farm produce and reduction ofcredits were considered as responsible factors. T'he projections of the MarketingStudy on Fertilizers based on 1967, assume that demand for plant nutrients until1980 will shift from sugar to rice and corn. The average annual rate of growthwas projected at 8.9 percent for paddy,, 15.2 percent for corn, 2.8 percent forsugar and 8.1 percent for other crops. The following table shows the share offertilizer nutrient-demand by crops in 1967 and the expectations for 1980:

a/Projected Demand of Fertilizer Nutrients by Crops

:Ln percentages)

Rice Corn Sugar Other Crops

vNitrogen N 1967 30 4 48 181980 39 22 25 14

Phosphate P 0 1967 23 2 57 182 5 1980 39 21 25 15

Potash K20 1967 20 1 59 201980 15 1 67 17

-! Study of the Philippine Fertilizer Market, op. cit., p.2.

77. The effective fertilizer demand in 1969 of 402,600 metric tons.-s only 6.6 percent of the potential demand of 6 million tons, based on the"ideal rate" of application to a hectare of crop land. 1/ The effective useof fertilizer may not be more than 612,000 metric tons Tproduct weight) in-975, according to ESSO estimates. Among the factors preventing higherfertilizer use the low income level of farmers, lack of credits, and lack of-nowledge should be mentioned.

18. Farmers who use fertilizer respond quickly to price changes.Recently this was noticeable as a resu:Lt of the factual devaluation. Whenpices of imported nitrogen increased by 40-50 percent (and potash by

-/ Economic and Engineering Feasibility Study on Storage, Handling and Marketingin the Philippines. RCA with assistance of U'S AID, prepared by Weitz-Hettelsatter Engineers, Kansas City, Missouri, June 1968, p. 55.

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100 percent; due to reduced production in Canada) and domestic fertilizerprices settled on the same level as those of imported fertilizers which aresold at a low price in the Philippines due to sharp competition on theinternational market, the immediate response of rice farmers was a reductionof about 50 percent in the purchase of fertilizers; the reaction by sugar farmerswas less pronounced as sugar is an export crop.

19. The old idea of the Sugar Producers Cooperative to establish aurea plant on the main sugar island, Negros with a daily capacity of 300 tonsand cost of about $50 million was revived as a consequence of increasedfertilizer prices. There is also a proposal by the Farmers Fertilizer Companyto establish a nitrogen plant. The domestic fertilizer producers opposeestablishment of new plants as their plants operate at a low utilization rateof capacity. The Senate Committee on Economic Affairs recently proposed thecreation of a Conmmission to study the problems of fertilizer industry.

C. Irrigation

20. Considerable progress has been made in the expansicn of irrigatedland. In 1963, 290,000 ha were under irrigation, in 1966, 545,COO and atthe beginning of 1970 about 840,000. So far, irrigation projects concentratedon paddy land of which 750,000 ha are irrigated or 30 percent of total ricearea; on the contrary, only 5 percent of sugar plantation area cr about15,000 ha are irrigated. A good background for future development can befound in the reconnaissance reports prepared by the United States Bureau ofReclamation for the Government of the Philippines and the US AID. The objectiveof the Four-Year Plan is to expand the area covered by improved irrigation andnew projects by about 287,000 ha from 1970 to 1974 as follows:

National Irrigation Administration Fectares

Rehabilitation 11,000Completion of projects 12,800New projects (national) 70,600Communal irrigation projects 22,000Special projects:1. Upper Pampanga - 31,000 (old)

46,000 (new) 77,0002. NIA/UNDP groundwater development 3,0003. NIA/Asian Development Bank

Cotabato Project 7,430

Irrigation Service Unit

Pumps 83,260

287,090

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21. At present more than 95 percent of irrigation schemes use surfacewater, while the irrigated area is situated over abundant groundwaterresources, 2 to 5 rieters below ground level. Ground water has been neglectedas an alternative while the traditional gravity irrigation lacks sufficientsupply of water as it is closely related to the rainfall; thus, irrigationwater is plentiful during the rainy period and scarce during the dry season."The scattered natuire of the irrigatle area and the abundance of shallowacquifers calls fo:- the wide development of irrigation by pumping withoutneglecting surface and water conservation methods", and "large scale pumpingis an incentive fo:r mechanization, rower consunption and rural developmentin general" the FAO report on Philippine water resources points out. 1/ Thecountry's gap in groundwater technology has been due to the fact that theGovernment paid little attention to this type of irrigation. More initiativein groundwater was taken by private interests, particularly sugar plantationsand some rice farms. Recently, however, the Government has paid increasedattention to groundwater irrigation in the projects of Central LuzonI.

22. The Upper Pampanga River Project, assisted by a IBRD loan of $34 million,includes provisions to construct at a later StELge a power plant, the energy ofwhich would be used mainly by deep-lwell pumps for groundwater irrigation.The financing of the power plant would have to be covered by an additionalloan. After completion of the present phase of the Upper Pampanga Projectin 1974, an adjoining project in the province of Nueva Ecija will get priority;and this project will provide groundwater through deep and shallow wells to anarea of 40,000 ha. The total costs are estimated at $25 million, of which$12.5 million in foreign exchange a-t the old exchange rate. The feasibilityreport is expected to be completed in 2 years, and will be based on a UNDP/FAOassistance project intended to test and demonLstrate possibilities of agriculturalproduction based cn supplementary irrigation from groundwater sources, cover-ing two irrigatior.. pilot iareas in Nueva Ecija province. Another feasibilitystudy is made by National Irrigation Administration under a US AID feasibilityloan concerning the Magat multipurpose project in Isabela province based onsurface water for an area of 74,000 ha (34,000 ha of new irrigation). Originallyrice production was planned but other crops may be considered as a furtherexpansion of rice area does not seem to be called for. As with the formerproject, power generation in addition to irrigation is planned. Total costsare estimated at $60 million, of which $32.5 million in foreign exchange. TheAsian Development Bank has approved a loan of $265 million to cover foreigncurrency requirements of the Cotabato project to irrigate 7,430 ha of agri-cultural land. This project will be connected with a hydro-power plant,and pilot demonstration farms will be established in this area. While theUpper Pampanga and Cotabato projects should be completed during the Four-YearPlan, the groundwater project in Nueva Ecija and surface project in Magatwill start in a subsequent period.

1/ UNDP/FAO/OTC, Water Resources Development Task Force to the PhilippinesFina Report), Rome, July 196', p. 12.

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D. Land Reform Prospects

23. In 1963, the Agricultural Land Reform Code was passed in order toabolish tenancy and to establish owner-cultivatorship of the economicfamily sized farms, conducive to greater productivity and rice of farmincomes. In pursuing this policy, the leasehold system should re?lace thesharecropping system in the first stage of development, and the a3quisitionof land and transformation of leaseholders into owners should follow, butboth stages of land reform could be performed at the same time. rhe LandReform Code meant to achieve that the lease should be lower than the transferunder the sharecropping system by stipulating that rent of rice aad othercrop lands should not be over 25 percent of the average normal harvest duringthe three agricultural years immediately preceding the date of the leaseholdafter deducting the amount needed for seeds, the cost of harvesting, threshing,loading, hauling and processing. The leasehold contracts were to be registeredwith the municipalities upon agreement between agricultural lessor and lessee.Other provisions of the Code include that the agricultural lessor carries thecost of permanent irrigation and is entitled to an increase of rent commensurateto the resultant increase in production; he has the right to propose a changein the cropping pattern.

24. In the present phase of agricultural reform the main purpose seems tobe to convert sharecroppers to leaseholders. In 1963, the land reform taskbecame the conversion of 130,900 rice and corn sharecroppers into leaseholders.The holdings of sharecroppers average about 2.6 ha. which means that the areainvolved totalled about 330,000 ha; 24,200 sharecroppers were immediately pro-claimed leaseholders, 28,000 between 1964 and 1968, and 10,700 in 1969.

25. The second stage of the land reform, conversion of leaseholders intolandowners, is an extremely slow and time-consuming procedure. The determinationof "just compensation" of land to be expropriated is a long process. The LandAuthority, established by the Code, proceeds to acquisition of private agri-cultural land, when landowners agree to sell their property under the terms ofthe Code. A joint motion by the Land Authority and the landowner, includingthe valuation of the property, is submitted to the courts of agrarian relations;beneficiaries of the land can raise objections on the valuation if it isregarded as excessive and the court then finally determines the "just compensation'.

26. The owner of the expropriated land is paid by the Land Bank of thePhilippines, established by the Code as the financial arm of the reform.The Land Bank pays 10 percent in cash and 90 percent in Land Bank bonds witha 25 year term and 6 percent interest, or 60 percent in Land Bank bonds and30 percent in Land Bank preferred shares with 6 percent guaranteed dividend.This interest rate is regarded as very low in comparison with other governmentbond issues and private dividends. Land Bank bonds have a limited negotia-bility and they do not carry Central Bank support. The Land Bank could notdevelop large scale activities as it has had very limited funds at its disposal.Under the Agricultural Land Reform Code, Sec. 81, the authorized capital stockof the Land Bank shall be Pl.5 billion; P900 million of which shall be

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subscribed byr the Government and F600 million shall be issued as preferredshares. 1/ Of the subscribed capital L400 million has been allocated byCongress, but only P13.6 million or 3.4 percent of total allocations werereleased until now. 2/

27. In the whole period from 1964 until April 1970, the Land Bank,'inanced the acquisition of 1,012 hectares of land out of 330,000 ha underland reform "to establish owner-cultivatorship" and "dignified existenceof small farmers". Until now the Land Bank has acquired I1 agriculturalestates valued at F3,434,600. The average purchase price per hectarewas about P3,400 whLich means that the value of 330,000 ha should total aboutPK billion; but prices are expected to be about F5,000 per ha. in the future.Thus, the Land Bank. provided small farmers with the ownership of about 3.4percent of the land under the reform. The Land Bank is implementingadministrative procedures concerning negotiationQs about various landholdings,but it cannot undertake any large scale action due to insufficient funds.

28. Recently, it was proposed that the leaseholder provisions should bedeclared immediately operative for the whole coantry. This would meanabolishing sharecropping for about 432,000 paddy farmers and 174,402 corntenants working on an area of 942,485 ha. and 274,512 ha. respectively.However, other tenants, such as coconut and tobacco growers, have not yetbeen included in agricultural reform projects.

29. The econoiiic situation of leaseholders did not improve in relationto sharecropping as they actually remained sharecroppers although their shareto the landlord is now called "rent." The Land Reform Code (Sec-33) providesthat the lease of the land shall be paid in an amount in money or produce, orboth. Since the leaseholders do not have cash, they pay "the rert" to land-lords in rice (7-20 cavans per ha.) or in corn. In addition, the sharecroppersused to get credits from the landlord which were beneficial for farm investment,while now they may obtain short-ter. crop loans from Rural Banks. It appearsthat many former landlords became stockholders of rural banks.

E. Agricultural Credit

30. The land r-eform and increased credit requirements as a result ofexpansion of irrigation, new seeds and fertilizers, have led to the creationof various new credit institutions and to the strengthening of existing ones.The section on money, credit and prices 3/ shows the distribution of loanssupplied to agricu:Lture in the past years. Total loans increased from PI.4billion in 1965 to P2.2 billion in 1968, (data for commercial banks are notavailable for 1969). Short-term loans of rural banks to smallholders increasedfrom P363 million in 1968 to F406 million in 1969, and medium- and long-termloans of the Philippine National Bark (PNB) from P852 million to P903 million.

1/ Agricultural Land Reform Code (Rep.Act.No.3844) Manila 1968, p.55, Sec. 81.

2/ "Towards Full Land-Ownership" - An Annual Report of the Land Bank of thePhilippines, FY 1968-69, and the Statement of the Land Bank, Feb. 1970.

3/ See RAP-16 a, Current Fonnomic Position and Prospects of the Philippines,August, 1970.

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PNB aims at providing loanable funds to meet the financial requirements offarmers in their efforts to accelerate agricultural productivity as well as togive financial assistance to rice growers in support of the Government'sobjectives of expanding production; it granted loans without collateral tolessees, set up higher loan ceilings for coconut industry, gave assistance tothe fishing industry, and financed the sugar and livestock development.

31. The charter of the Development Bank of the Philippines (DBP) providesthat about 35 percent of loanable funds should be available to agriculture.DBP financed processing, storage and trading aspects of rice and corn, gaveloans for conversion of non-irrigated rice land into irrigated, and earmarkedloans for beef cattle, piggeries and poultry farms, fish and meat products,vegetable production and financed development of bananas and coconuts.

32. The system of Rural Banks is nearest to the small farmers, smallmerchants and small rural industries. In 1952, the Rural Bank AcJ was promul-gated in order to provide credit facilities to the rural economy. Rural Banksare spreading in various regions of the country, they had 462 offices inApril 1970; each month 3 new rural banks are established. The sy,stem of ruralbanks operating under a charter granted by the Central Bank of the Philippinesis supervised by the Department of Rural Banks of the Central Bankc. They areorganized in such a way that private capital in rural communities or smalltowns participates actively in these banks. They are mostly managed by themembers of the rural community who have capital resources; country lawyers,physicians, engineers, teachers etc. are active in the rural banks. Some ofthe rural banks are well managed under the guidance of progressiva entrepren-eurs with good knowledge of the agricultural situation in their areas. About55 percent of capital of rural banks is owned by private stockholiers and45 percent by the Government.

33. About 80 percent of the loans of rural banks concerns small farmers inthe form of short-term crop loans not exceeding one year, at 12 percent annualinterest. The loans of rural banks intend to cover farm expenses connectedwith production, harvesting and marketing of crops and purchase of animals,seeds and fertilizers. In recent years, rural banks started to finance mediumand long-term farm equipment loans with the assistance of IBRD. The first Bankloan of US$ 5 million was extended in 1965, and the second loan of US$ 12.5million was agreed upon in 1969. The second rural project slowed down after thedevaluation in 1970; as prices of all imported equipment increased, e.g. smalltractors by 30 percent, large tractors 50 percent, irrigation pumps 20-25 percent,and feed prices 35 percent, the farmers became reluctant to take higher creditsfor farm equipment. The Department of Rural Banks of the Central Bank iselaborating a system for revision of the present loan amortization scheme toease the program of payments in the first few years when prices cf farm produc-tshave not risen to the same extent as costs of farm equipment.

34. The Agricultural Credit Administration (ACA) was createcd by the LaridReform Code to supply the newly created group of leaseholders and small land-owners with production and crop loans. But, as the land reform has not made

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any substantial progress, this financial institution has had a very limitedscope of action also because it does not have any substantial funds ondisposal. According to the Land Reform Code, the sum of 150 million wasappropriated to the ACA from the National Treasury, but the release of fundswas very small. The highest amount of loans granted to farmers by ACA wasF31 million in 1967; it was F23.6 mil:Lion in 1969. ACA's share in totalloans granted to agriculture is less than 10 percent.

35. The most important issue of Loans to small farmers, who are changing-rom traditional and self-sufficient t,o market-oriented agriculture concernsincreased expenditures for various input factors and technical innovations,which are often not of a short 'but a medium-term nature. The loans of ACA aver-aged about P350 per ha. while those of rural banks averaged P600-P700 perfarmer or P200-F300 per ha. The production costs on rice farms (one crop)averaged about F400-FP500 per ha. and t,he loans covered about one-half of theproduction costs for fertilizers, seeds, harvesting, etc.

36. Interest rates on credits ex-ended by Rural Banks, ACA and Co-operatives amount to 1 percent per month while private money lenders chargeas much as 25-30 percent and sometimes 300 percent per year.

F. Coordination Among Various Government Agencies

37. The previous IBRD report on the Philippines 1/ pointed out that "thePhilippines has a plethora of government agencies concerned with planningand executing agricultural policy and in offeringr advice to farmers", adding"rthere is considerable room for'streamlining and reducing the number ofagencies." 2/ An important step forward has been made by the creation ofthe National Food and Agriculture Council (NFAC) by the President of thePhilippines on May 6, 1969. The Secretary of Agriculture and NaturalResources is the Chairman of the Council, which -s composed of 21 membersrepresenting various agencies. 3/ The function of the Council originally

1/ IBRD, "Current Economic Position and Prospects of the Philippines,"Volume IT, Annex ITT, p. 17 (June 24, 1969).

2/ Same source, p. 37.

3/ Rice and Corn Administration, Rice and Corn Board, Bureau of PlantIndustry, Agricultural Productivity Commission, Bureau of Soils, Bureauof Animal Industry, Fisheries Commission, Na-tional Irrigationr Administra-tion, Irrigation Service Unit, Bureau of Agr-icultural Economics, Officeof Statistical Coordination, Philippine National Bank, Central Bank ofthe Philippines, Agricultural Credit Adminis-tration, National Land ReformCouncil, Budget Commission, Presidential Arm on Community Develop:2ent,College of Agriculture, Universit;y of the Ph-Llippines.

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was to achieve a national program in self-sufficiency in rice and corn, butthis was expanded to feedgrain, vegetables, fruits and fishery. Agenciesdealing with sugar, tobacco, coconuts and forestry are not represen,ed inthe Council. However, the Council became the focal point of six variousagencies dealing with irrigation (National Irrigation Administrationi, IrrigationService Unit, Presidential Arm on Community Development, Agricultural Produc-tivity Commission, and Bureau of Soils). The Council became a clearing-houseamong various agencies and conducted negotiations with non-government organiza-tions e.g. with mixed-feed manufacturers to determine targets of the feedgrain program for development of livestock.

38. In 1969, the Water Resources Development Authority was created withthe purpose of coordinating all activities pertaining to water resourcesdevelopment; this covers technical coordination while NFAC integrates irrigationwithin economic planning. Proposals to integrate all agencies dealing withwater into one single body, be it a separate corporation, the Department ofAgriculture or Department of Public Works, are still under discussion.

39. In forestry, a similar situation as in irrigation exists; responsi-bility is divided among three separate agencies: Bureau of Forestry, theReforestation Administration, and Park and Wildlife Office. The Secretary ofAgriculture has submitted a recommendation to the President and Congress toconsolidate the different government forestry agencies into a Commission. 1/

III. SUMMARY AND RECOMMENDATIONS

4O. The concept of agricultural productivity penetrated the &griculturalstrategy of the Philippines after gains of the high-yielding varieties ofrice became obvious. The highest yields of paddy were obtained in the areaswhere all interrelated input factors (high-yielding varieties + fertilizers +irrigation) were applied at the same time. The results achieved by "miraclerice" have encouraged farmers to give up traditional methods and to acceptinnovations. This has also decisively influenced the government's economicpolicy. It is not a pure historical coincidence that the Administration ofPresident Marcos in his first term, at the time when first practical resultsof new varieties of rice were noticeable, shifted economic policy emphasisfrom industrialization to the promotion of agriculture. This is now muchmore vigorously launched in the second term of the Marcos Administ-^ation andparticularly in the present Four-Year Plan from 1971 to 1974. The seed andfertilizer revolution in rice created as a by-effect an increased interest inirrigation which was necessary to provide better yields and dimini3h sharpfluctuations of production during droughts. The rice irrigation projects started tobe developed on a larger scale including ground water development. Thus,rice cultivation reached the stage of self-sufficiency and the couatry is nolonger obliged to import rice for its fast increasing population. Today,

1/ Annual Report of the Secretary of Agriculture and Natural Resources tothe President of the Republic, December 1969, p. 30.

- 14 -

possibilities for rice exports are even considered.

41. Planting of high-yielding varieties started to spread to othercrops such as corn and sugar, and recently to sbrghum and soybeans. Theproduction of agricultural export crops did not show an increase in outputand could not match the requirements of export markets. One of the mainreasons for their low productivity is the fact that not all interrelated inputfactors have been applied. Fertilizers are used in considerable amounts onsugarcane, but new high-yielding varieties were introduced only recently andirrigation of sugarcane is very deficient since only 5 percent of the area isirrigated. The low coconut yields are due to lack of fertilizer application,high-yielding dwarf varieties with short gestation and new planting. Outputof both coconut and sugar increased less than domestic consumption and exportsdeclined. Favorable results have been obtained in those crops where allinput factors were applied, such as bananas and pineapples for exports, andvegetables in the areas around cities.

42. By the expansion of irrigat-Lon, new seeds and fertilizers, amultiple cropping system became feasible in the Philippines replacing thesingle crop of the traditional strains. The double cropping introduced invarious parts of Central Luzon resulted in farmers' incomes about twice ashigh as derived from the traditional vrarieties. The increased income offarmers was, absorbed however, by increased requirements of input factors andfarm improvements.

4L3. The trend of fostering agricultural productivity in developingcountries is connected with increased mechanization (tractors, harvestingmachines, irrigation pumps etc.) whichl often fol-Lows expansion of irrigationand use of high-yielding varieties for various crops. In the Philippines,howeverp, the mechanization is progressing slowly. This is not only due tothe small size of farms, but also to the institutional barriers of tenancy,which prevent initiatives for long-term investments.

44. Sharecroppers or leaseholders have very restricted credit facilities forshort-term (6 -month) crop loans in the rice area; the coconuat sharecroppers facinga long gestation period (5-7 years) are complete-Ly outside of credit zones. Therural banks supported by the IBRD started to develop medium-term credits for mech-anization for small farmers in the rice area. The short-term credits to rice farmersdo not even cover current expenditures for seeds, fertilizers, insecticides, harvest--ng etc. and definitely do not permit any larger expenditures for farm equipment.

Lack of credit is one of the main bottlenecks for increased investmentson new technological means of production. The available loans of rural banks,ACA and cooperatives cover about one-half of the most necessary productioncosts. Therefore, farmers often borrow from private money lenders at exhorbi-tant interest rates. One possibility to induce higher credits to farmers bycommercial banks would be a government guarantee scheme.

)X6. The limited market for farm equipment is one of the reasons that-Local manufacturing of such implements has not developed; only some assemblyplants exist, and the major part of farm equipment is imported. Maintenance

- 15 -

of farm equipment often presents problems as spare parts need tc be importedfrom various sources. Selection of a few importing manufacturirg firms orlocal manufacturing wherever possible would be preferable to the existingsituation.

47. In agriculture-based industry, government is speeding up the process-ing industries so as to substitute processed products for exports of rawmaterials, e.g. wood products instead of logs and coconut oil irstead of copra.The by-products of processing plants were mostly wasted until recently whenthe private sector showed increased interest in converting by-products intouseable products for domestic or foreign markets (e.g. rice bran and molassesfor livestock feeding, bagasse for production of board and pulp. wood wastesfor chips). An extensive study by the Government would lend valuable assistanceto promotion of productive by-product use. The factual devaluation of the pesothrough which imports became more expensive, could induce the establishment ofplants producing canned meat and fish, fish meal and soybean meal. An importlevy would create the same effects.

48. Regional specialization of agriculture according to climatic and soilconditions is progressing slowly. Some changes have been noticeable, as inrecent years new large coconut farms started to develop in Southern partsof the Philippines (particularly Mindanao) which are outside the typhoon zone.New banana, sorghum, soybeans, yellow corn and livestock development has beenmainly concentrated in the southern parts. But a resettlement policy intendedto move the population from the over-crowded areas in Luzon has not found agreat response. This is partly due to traditional attachment to area orcommunity but also to the difference in languages between vario-as islands.

49. The cooperatives, among which the Farmers Cooperative MarketingAssociation (FaCoMas) played the most important role, received a spurt ofdevelopment in the last two years. FaCoMas improved relations -aith ruralbanks and ACA for farmers' credits; they became active distributors offertilizers to farmers by agreements with fertilizer companies.

50. The Four-Year Plan strategy contains a number of ways to improveagricultural development; however, it may be useful to emphasize the follow-ing recommendations:

(a) The Land Reform should not remain in its present stagnation.This is not only a barrier to economic and social developmentbut also involves the stability of the country. It would bebeneficial to proclaim all sharecroppers leaseholders, butthis is not sufficient;medium-term credit facilities by ruralbanks or ACA or any other financial institution have to beadded. Under the present slow procedures, Land Reform notbeing compulsory but resolved from case to case, leaseholderswill not become landowners in the foreseeable future. This

_16_

creates a great social discontent among them. New legal andfinancial measures should be deve:Loped to substitute thepresent provisions of the Land Reform Code. An accelerationof the agricultural reform could 'be introduced by acquisitionand subdivision of large land-estates to farmers on long-termmortgages as a guarantee basis.

(b) Smal:L-sized farms however, will remain an obstacle for increaseduse of modern input factors. Moreover, these small farms willbe fragmentized still further due to division by inheritance.Among some sugar farms in Negros a certain consolidation of smallfarms into a single large unit was started. This proceduremight well be introduced in rice-growing areas where one commonirrigation system unif'ies farmers. The concept of small farmconsolidation deserves serious Government consideration.

(c) The agricultural strategy for crop development should be basedon a simultaneous operation of all the factors in the basicinput-triangle (seeds + fertilizers + irrigation) in order toreach a rapid yield takeoff. When one of the factors is missing,the results are only partially satisfactory. At the same time,promoting input factors should be closely connected withdeve'lopment of marketing, processing, credits and infrastructuralfacilities.

(d) Often programming of irrigation projects is concerned onlywith irrigation per se; but programming of the crop pattern,other input factors, marketing, processing, and creditfacilities to efficienitly use the irrigated land should beundertaken at the same time. In some new irrigation projectsit was taken for granted that crops which were gronm beforethe introduction of ir?rigation, should be maintained, withouttaking into account the possibility of diversified crops.

(e) Wherever possible, the introduction of small-scale irrigationby farmers through tubewells and pumps should be encouraged.This type of irrigation can often be introduced in a fewweeks, while large irrigation projects require several years.Besides, the farmers appreciate getting rapid results by theirown investments; however, they need credits for small-scaleirrigation.

(f) The expansion of irrigation has been concentrated mainly onpaddly, but it is necessary to pay more attention to theirrigation of sugarcane. The lack of irrigation has beenresponsible for low yields, and short harvesting and crushingseaEsons for most sugar mills which led to establishing moresugar mills than necessary. Future irrigation projects forsugarcane should at the same time develop the full package ofinput factors, including credit facilities, to obtain optimalyields by sugar planters.

17 _

(g) One of the priority subjects for pre-investment study shouldbe a comprehensive program of water resources (gravity andground water) for year-round irrigation, combined with aland classification system of crops. A comprehensi-re waterdevelopment project has to consider water requirements foragriculture, industry and domestic use in order to establishpre-requisites for investments in long-term irrigation. Thewater may become a more limiting factor for crop productionthan land. A number of reconnaissance studies on thae Phili-ppines and various parts of the country by UNDP/FAO andUS/AID have already been prepared. The irrigation projectsshould be closely connected with land classification todetermine the comparative advantages of different areas andsoils for particular crops and livestock development.

(h) The present breakthrough in rice output aiming at self-supplyshould be watched carefully so that output does not overshootthe targets. To accelerate the output drive is no problemas long as there is a domestic food shortage; but, the situationbecomes different when the Philippines have to search forexport markets. Many other countries are on their way todevelop self-sufficiency in rice, while Japan who used to bethe important importer of rice introduced a protectionistpolicy establishing a subsidized price at three times theworld market prices. In case Philippine rice cannct findsufficient export outlets, prices on the domestic marketwill decline substantially; farmers may then suffer fromthe results of technological changes. Therefore, it mayappear necessary to shift some of the rice acreage toother crops.

(i) A program of fertilizer application on coconuts is urgentlyneeded in order to increase yields. This involves providingcoconut growers with credit facilities for a period of about5 years, since without credit coconuts will not be fertilizedon small groves. Corn and native tobacco belong to othercrops needing increased application of fertilizers.

(j) In milk production, the relationship between low-fat and cheap"toned-milk" with still cheaper "filled milk" (produced fromdomestic vegetable oils and skim milk powder ) and should bestudied more carefully to secure development of "toned" milkindustry; this would create a valuable supply of animalproteins to low-income groups.

(k) An extensive study of production and marketing possibilitiesfor using various by-products of processing industries inoriginal or converted forms, would be valuable, as those arepresently wasted.

18 -

(1) One of the most important prerequisites for export ofwood products appears to be reshaping the present inter-island shipping system by concentration of loading places.Other'ise, the wood inc.ustries cannot compete with othersuppliers on the export, market. This would involve acareful study as the shift from logging to wood-processingdepends also on the freight rates.

(m) There are prospects for a project in deep-sea tuna fishingfor exports; a preliminary feasibility study has beenprepared and needs further attention.

(n) An investigation of the possibilities of the local manu-facturing of agricultural equipment for small farmers wouldbe valuable. Inadequate maintenance of spare parts is oftena crucial problem for f'arm equipment. A selection of a fewimporting farm equipmernt firms would be beneficial as wellas local manufacturing.

(o) Among other products, the price support system for tobacconeeds to be rationalized in order to promote higher gradedquality and to improve yields. At present, the conipetitiveposition of tobacco on the international market is weak.It should be stressed that abaca should gradually shiftfrom exports to supply in the domestic market, using theproducts for various purposes, e.g. pulp and sacks.

(p) The Rice and Corn Administration system needs specificattention as the production of both croos concerned hasreached levels different from those in earlier years whenRCA was established.

(q) The coordination system of the National Food and AgricultureCouncil has considerab:Ly promoted integrated action amonggovernment agencies an(d other orgamizations in the planningpolicy. It would be valuable if the coordination could beexpanded to other agricultural sectors such as sugar, coconuts,tobacco and forestry. The National Food and Agric-ultureCouncil played an important role in the Four-Year ?lanpreparation but a number of government agencies independentlyprepared their planning policy. All real efforts should becoordinated so that different targets set by various agencieson the same programs are eliminated.

APPENDIT I

AGRICULTURAL COMMODITIES

1. This survey discusses in some detail the recent trends ia the pro-duction of the major commodities and the factors influencing their develop-ment.

A. Rice and Corn

2. The impact of new high-yielding varieties of rice became verynoticeable in 1968/69 during the most severe drought which hit the Phili-ppines in the last 50 years. The short growing season of the new varieties,during the period of water shortage saved the crop, which would otherwisehave declined much more than by 2.5 percent compared with the previous year.In 1968/69, the total area planted with high-yielding varieties was 606,495 ha,an increase by 35.6 percent in comparison to 1967/68; low-yielding varietiescovered 2,258,000 ha. The yield performance of high-yielding varietiesaveraged about 3,300 kg per ha, while yields of traditional paddy rangedfrom 1,300 to 1,500 kg per ha. In 1966, new varieties covered only 3 percentof the total rice area, while in 1968/69 they reached 18 percent, and 21 per-cent in 1970. Thus, the rice farmers reacted favorably to this innovation.Since November 1969, the famous IR-8 (miracle rice) started to be graduallyreplaced by IR-20 and IR-22. These new varieties require less fertilizer(particularly nitrogen), the grains are more translucent and break less thanIR-8 and are more resistant to diseases. They also are dry when cooked andit is assumed that these new varieties will be more acceptable to Asianconsumers than IR-8 and IR-5.

3. The high-yielding varieties of paddy (sturdy, short-strawed) needconsiderable amounts of fertilizers. In 1964, the application of fertilizerson rice was only 9.4 kg per ha, but this figure must have increased con-siderably after the introduction of high-yielding varieties. Nevertheless,only 30 percent of all rice farmers use fertilizers, and only at about one-half of the recommended rates. On these farms, expenditures on fertilizeraccount for about one-quarter of total production costs (?l4oo - FP50 onsingle-cropped ricefields). The cost of fertilizers (mostly urea andcompounds) increased from about P120 per ha to F180 per ha after the factualdevaluation in February 1970 and consequently, rice farmers considerablyreduced their purchases of fertilizers. This might affect the favorabledevelopment in crop yields.

Appendix IPage 2

4. Increased irrigation of rice land is another factor which has improvedrice cultivation. In 1968/69, 109,929 ha of rice land have been put underirrigation, of which 72,130 ha by pump system. Today about 750,000 ha or 30 per-cent of the total rice area are under irrigation, of which about one-third canbear two crops yearly, while 500,000 ha receivre only sufficient water for onecrop. The aim is to reach 1 million ha of irrigated rice land at the end ofthe Four-Year Plan. Rice production would grow by 6.5 percent per year and thePhilippines would gradually develo:D an exportable surplus. WVith the increaseduse of high-yielding varieties, the planned growth rate seems attainable.Assuming a yearly shift of 5 percent of the area from traditional to new varietieswith average yield 2.5 times higher than the former, output would increase, byabout 6 percent with one quarter of the area under new varieties, graduallylevelling off to 4.5 percent by the time theses varieties cover one-half of theacreage. The planned expansion in irrigated area, allowing for double croppingwould push these rates considerably up. With the second crop being harvestedduring the monsoon, the advisable extent of expansion in irrigation is to acertain degree determined by the availability of drying facilities. As alreadymentioned, plant breeding in search of the most suitable varieties is progress-ing further at the International Rice Research Institute in Los Banos 1/ and atthe Government's Bureau of Plant Industry.

5. In the past, the Government has paid less attention to corn than torice, although the price of both commodities is supported. Corn is the staplefood for 7 million Filipinos and -ts nutritional content equals that of rice.But the yields of corn are less than one-half of the average rice yields perhectare and the price of corn is substantially lower than of rice. Recentincreases of corn consumption in Central Luzon have been the consequence ofincreased price of rice relative -:o corn and not to a basic change in the con-sumption habits. In the Philippines, about 60 percent of corn (white flint)is used for human consumption, 30 percent (yellow) for animal feeding, and therest for industrial uses, and see(is.

6. The corn farms are smaller, with an average of 1.2 ha, than those ofrice (2.5 ha) ard often spread over marginal and deforestated land with lowproductivity. Ihe corn area of 2.3 million ha absorbed only 4.1 percent oftotal fertilizers used in the PhiLippines, wiile rice with 3.3 million haaccounted for 25.6 percent of total fertilizer application in 1967. The ideallyrequired expenditure on fertilizers for corn rose from i144 to P200 per haafter the factual devaluation. The introduction of high-yielding varietiesis slow; in 1968 an area of only 5h,000 ha was involved.

1/ The expenditures of the Rockefeller and Ford Foundations for ITUrT amountedto $15 million in 1962-1968, but the value of rice harvested in Asia mighthave been close to $1 billion higher in :1968/69 thanks to the new varietiesthan it would have been in their absence. See Lester R. Brown, Seeds ofChange, (The Green Revolution and Development in the 1970's), New York,1970, p. 49.

Appendix IPage 3

7. Recently, the authorities have embarked on a Feeding Program forlivestock. This program calls for increased efforts to grow feedgrains, inparticular yellow corn. Consequently, the goal of the corn program is toplant 150,000 ha with high-yielding varieties in 1971 and to reach a levelof 500,000 ha in 1980. Projections for corn in the Four-Year Plar assumean average production growth rate of 8 percent. This is not much higherthan recent performance. Price increases of inputs may, however, adverselyaffect the planned growth, although to a lesser extent than for rice.

8. Assuming an increased output of corn, Mindanao and Visayas mightdevelop into surplus corn producers. In such a case, corn might be shippedto other islands for livestock feeding there, or the livestock industry couldbe expanded in the areas of corn production, depending i.a. on transport costs.

9. In 1966, the Rice and Corn Administration (RCA) was established withthe purpose to maintain a low consumer retail price for both rice and corn andto support a "fair" level of farm prices. RCA purchased paddy and corn fromfarmers against receipts of delivery orders (called "quedan") to designatedwarehouses, usually private mills and FACOMAS cooperatives. Rice and cornbought by RCA is usually of low quality and is sold to low-income groupsduring shortage periods to prevent increases in consumer prices. Since RCAsells products to the public below cost, it carries large losses. Averageannual losses amount to about P100 million (including excessive acdministrativecosts of P20 million).

10. In 1966, the support price of paddy was increased from ?12 to P16per cavan 1/, and in 1970 to P17.50 per cavan for rice and P13650 per cavanof corn. 27 This price support level was regarded as too low by the leadingagricultural cooperatives. 3/ In May 1970, they requested a support price ofP27 per cavan, on the basis of the recent rise in input prices following thefactual devaluation. In the years of RCA intervention, this organizationpurchased about 5-10 percent out of the total crop. The floor prices provideda certain security to farmers at the time of introduction of high-yieldingvarieties, although in years of abundant supply e.g. in 1968 difficulties arose.In that year, the abundant supply of rice made the market prices decline belowthe support prices. RCA accumulated stocks of 462,000 mt (10.5 million cavan)in storage, which would have further depressed prices if sold on the market.RCA exhausted its fund 4/ for purchase of rice. The government suspended theoperation of RCA through most of 1968. The organization was able to export only42,000 mt and released stocks during the following drought.

1/ 1 cavan of rough rice (paddy or palay) = 46 kg (gross).2/ 1 cavan of corn = 56 kg (gross).3/ Agricultural Cooperative League of the Philippines, which claims a

membership of 300,000 rice farmers organized in 285 cooperatives.4/ RCA borrows the "revolving fund" for stabilization from the Philippine

National Bank (7 percent interest).

Appendix IPage h

Ilo Although RCA intervened favorably in the market in the early period ofthe introduction of new varieties, it now lacks e nds for greater interventionind has insufficient effect on the market as a stabilizing factor. RCA is the

only organization which can import rice in times of shortage, but exports can behandled by private firms. The present agricultural policy intends to export riceof high-quality, long-grain varieties and to import an equal quantity of lower-graded rice for the ]ow income groups. Most other rice importing countries alsoattempt to reach self-sufficiency, while Japan, as the most important importer,has developed a highly protective policy. The quality of Filipino rice is notyet known on export markets and the experience with IR-8 has not been satisfactory.I4ore favorable results are expected from IR-20 and IR-22, but this will have tobe proven by the actual experience.

B. Sorghuna and So;ybeans

12. The introduc:tion of sorghum is a complete novelty in the Philippines,while soybeans are already grown, but on a small area. The natural conditionsare very favorable for both crops on these islands. The crash feed-programprovides possibilities for development in 19 pilot provinces particularly ontne island of Luzon nearby large commercial mills. These crops will be plantedas succession crops to rain-fed low-land rice and irrigated rice with inadequatewater supply for a second rice crop. The sorghum program started last year;200 ha were planted up to March 1970 cf which production of 440 mt is expected.The current demand by commercial feed mills for soybean is 60,000 mt. (whichwould involve 20,000 ha of sorghum). The soybeans area (Western Visayas)comprises 1,4 8 0 ha with an expected production of' 1,250 mt. Imports of soybeanflour amounted to 65,000 tons last year at a value of P45 million.

13. Under the auspices of the Nlational Food and Agriculture Council,agreements have been reached be-tween i'eedgrain producers and two soybean mealolants near Manila for processing of soybeans. I'hese two plants with an annualcapacity of 100,000 tons have not been operating since 1967, when a tariff ofP250 was introduced on soybean imports. The tariff on soybeans and soybeanmeal should be realistically adjusted to avoid that progress in the livestockand poultry production would be slowed down. The Feed Program provides for thefollowing expansion in area:

Years Yellow Corn Sorghinrm Soybeans Credits(1,000 h7ectares) (Million Pesos)

1970-71 56 12 2 9.84L1971-72 67 28 6 13.7741972-73 8C 44 12 18.511973-74 96, 60 24 24.75

Total 299 144 44 66.84

Appendix Page

C. Livestock

14. The feedgrain program is geared primarily to hog and poultry raising,with small quantities going into cattle and carabao raising. Feeding costsrepresent about 60-70 percent of total production cost of pork and poultry.The most important feeding ingredients in the program are yellow corn, sorghum,soybeans and further rice bran, copra meal, fish meal and molasses. The Develop-ment Bank of the Philippines intends to finance 15 large-scale piggery projectsa year for the next ten years at a cost of about P18-20 million. These 150projects could raise the herd from 8,000 to 177,000 hogs and produce 73,000 tonsof purk meat within ten years. The FY 1971-74 Development Plan fcresees a yearlyincrease in poultry, pork meat and egg production of about 50,000 mt, whichwould correspond to increased feed requirements of some 300,000 mt per year.The successful implementation of the Feed Program would result in an additionalfeed supply of about 180,000 mt. Domestic shortages of feed are therefore tobe expected.

15. Many cattle farms are managed by traditional methods as during theSpanish period, on large haciendas. Some of the large ranches started tointensify cattle production, and coconut plantations in Mindanao became interestedin livestock production. The Development Bank of the Philippines intends tofinance a minimum of 20,000 ha of ranch land a year for a period of 13 years,at a yearly cost of about F3.6-4u million. These 260,000 ha of ranch land wouldprovide for 430,000 heads of cattle and 41,000 mt of beef. Furthermore, theGovernment, with the assistance of a UNDP mission, will formulate a proposal fora pilot cattle improvement project, which would involve intensification of cattleproduction on existing large ranches and on coconut plantations in Mindanao andNegros.

16. The production of "toned" milk belongs to the innovations of the dairyindustry as carabao milk has a high content of butter fat (8-12 percent), evenhigher than buffalo milk in India where manufacture of toned milk developed duringthe last 20 years. The dairy plant at the Agricultural College in Los Banos hasstarted the manufacture of toned milk in May 1970. The program of the Bureauof Animal Industry has developed large-size projects for increased output ofmilk from 9,400 tons in 1968 to 311,000 tons in 1973 (mainly tonel milk). Thistarget does not seem feasible as the milk resources are not available, and theproject of toned milk may be scaled down, in spite of the fact that demand formilk and dairy products is growing rapidly. In 1965 imports of dairy productsamounted to US$26 million and in 1969 to US$37 million.

D. Coconut Products

17. About 84 percent of total coconut products are exported, but theproduction is not increasing sufficiently to satisfy both exports and domesticconsumption. The Philippines have a predominant role in the world market ofcoconut products; the country produced 42 percent of the world's copra and sharedfor 63 percent in international trade in 1967. In the same year it accountedfor about 50 percent of coconut oil and desiccated coconuts, and ~,0 percent of cpracake and meal in international trade. Coconut growing forms one of the least

Appendix TPage 6

developed sectors cf Philippine agriculture and is managed along traditionallines. Some reasons for low productivity are:

(1) Annual yields of coconut are 30 ]luts per tree. This couldbe raised to 120 nuts by proper application of fertilizersas the plantations renove considesrable quantities of plantnutrients from the soil. 1/ Out of a total area of 1.8million ha under coconut in 1968, fertilizers were appliedonly on 4,000 ha, totalling about 2,000 tons. According tothe estimates of ESSO, coconuts would need an application of600,000 tons to obtain adequate yields. Since 1960, averageyields of coconuts declined by about 2 percent annually.This; was due to antiquated techniques and a complete lackof technical inputs, rejuvenatiozn of plantations and cadang-cadang infestations.

(2) Lack of credits makes it impossi'ble for the growers topurchase fertilizers. About 42.14 percent of the totalcoconut area belong to farmer/tenLants with less than5 ha per farm and an income of less than P400 per year.The agricultural reform has not yet entered into theproblem of leaseholding or ownership of coconut growers.Given the long gestation period of coconuts, credits shouldbe of a long-term nature of about 5 years and this type isnot available at all.

(3) The introduction of quickly producing dwarf varieties hasnot been started nor examined sufficiently.

(4) Weather conditions have a strong effect on the output ofcoconuts, particularly typhoons, and the effects remainnoticeable during a period of 18 to 24 months.

18. The precarious situation was finally realized and the "PresidentialCoconut Action Group" (PCAG) was established with the task to arrange variousmeasures for promotion of production. Among these are setting up of 100 demon-strations farms (Cwth a size of only 1 ha) by Philcoa, of which only 8 areoperating now;'' furthermore, the promotion of plowing which can increase yieldsby 40 percent, the propagation of seeds, rejuvenation and rehabilitation ofplantations; many trees of over 60 years old are still regarded as economicallyproductive and are not replaced on small farms. Increased attention is paidto inter-cropping (rice, corn, pineapples, vegetables, papaya, coffee, etc.),control of diseases, marketing of ccconut by-products (coir, husks, charcoal, etc.)An increase in prodluction is also expected from the newly established largecoconut plantations (some with a size of 7,000 ha) in Mindanao by several corpo-rations which absorb smallholders into wage-earners on large farms.

1/ A plantation o: 173 trees per ha harvesting 40 nuts/tree/year removesfrom the soil: 91 kg N, 41 kg P205 and 135 kg K20.

Appendix IPage 7

19. The copra projections in the Four-Year Plan appear to be conservativewith an annual production increase of 3.5 percent from 1971-74, since the actualgrowth rate was 5.3 percent from 1961 to 1968. The growth rate of desiccatedcoconut of 3.9 percent appears to be high, as the production in the past yearsdeclined (-0.7 percent from 1961 to 1968). The export market in the UnitedStates, the main market for this product shows favorable aspects, but not asignificant upward trend.

20. The Four-Year Plan assumes a further shift from exports of copra tococonut oil. Exports of copra were 1,060,000 tons in 1960 and declined to659,000 tons in 1969, 1/ while coconut oil exports increased from 60,00 tonsto 240,000. In the same period, the number of oil mills in the Philippinesincreased from 4 to 32 (working at about 30-80 percent of plant capacity,according to seasons) and the number of copra exporters declined from 30 firmsto 3 or 4 large exporters. According to the export projection of the: Four-Year Plan, 484,000 metric tons of coconut oil and 699,000 tons of copra shouldbe exported in 1974. The shift from copra to coconut oil is also favored byhigh prices of coconut oil in the world market, which product belongs to thehighest-priced major oils in the last decade. International prices of bothproducts were as follows:

Years Copra a/ Coconut Oil b/(-US dollars per metric ton)

1965 226.5 359.91966 184.9 311.11967 207.5 326.41968 232.5 399.21969 202.0 361.21970March 242.0 405.0

a/ Philippines, bulk, c.i.f. Europe.b/ Ceylon, 1 percent bulk, c.i.f. Europe.

Prices of copra and coconut oil rise steeply when supplies are short, anddecline sharply at abundant supplies. Coconut oil has certain qualities forwhich a specific demand exists. It has a steady demand in bakeries,confectionery, ice-cream industry and for other edible products inthe United States. In Western Europe, it is traditionally used for margarine

1/ It should be emphasized, however, that export statistics may not accuratelyreflect the actual exports. Prior to the 1970 factual devaluation, asubstantial part of copra exports is believed to have remained unrecorded.A similar phenomenon took place prior to the devaluation in the early 'sixties.

Appendix IPage 8

and shortening, with soybean oil, palm and gro-undnut oil, etc. as competingproducts. Other lower priced synthetics started to compete vigorously withcoconut oil on the market. Hence, a substantial expansion of coconut oilsupply on the world market will be followed most probab-ly by, a drop (coconut prices. Cn the other hand, coconut oil- might then recapture someformer markets which were lost due -to high prices. The Four-Year Plan considersthat the United States is "unlikely to absorb the total Philippine coconut oilavailabilities" but might take aboub 350,000 mt, while for the remaindermarkets have to be found in Europe. However, expansion of the coconut oilindustry is not regarded favorably by the processing industries ofcopra importing countries. The Dutch Association of Margarine Industryrequested EE to introduce import levies on coconut oil.

E. Sugar

21. Sugar plantations and sugar industry belong to the advanced agro-industries in the Philippines. However, the sugar production has failed tomeet its commitments to the United States since i965. The area of sugarproduction increased from 270,000 ha in 1964 to 340,000 ha in 1969, but withlower yields and deteriorated cane quality; th:is was partly due to the plantingof cane on marginal lands with low productivity. Droughts and typhoons arealso partly responsible. The United States has the legal possibilities toreduce the quota if it is not filled, but it waived this privilege. 1/ However,the failure of the Philippines to fill additio:nal sugar quotas became a nationaleconomic emergencyr problem and the President created a "Sugar Production Council"in June 1968 with the task to introduce a crash program to invigorate sugarproduction.

22. In 1968/'69, 133,000 ha of high-yielding varieties of sugar were planted;average yields on these fields reached 6,180 kg (103 piculs) 2/ per hectarewhile the average is 5,000 kg or 8, piculs. The high-yielding varieties shouldbe expanded to 25(,000 ha by 1972.

23. The app:Lication of fertilizers increased, particularly of potash andphosphoric acid; --he use of nitrogen declined, however. In 1967 sugar accountedfor 52 percent of all fertilizers used in the Philippines. If the recommended

1/ Section 202 (d) of U.S. Public Law 89-331 (Sugar Act Amendrment of i965)stipulates that whenever in any calendar y-ear a foreign country failsto fill at least 90 percent of its qu.ta as established under the Act,the quota for such country for the subsequent calendar year shall bereduced by the amount of the quota it failed to fill. Crop disasteror some other grave causes, however, may be sufficient reasons for thepenalties invoked by the law to be waived. Such waivers have been grantedto the Philippines.

2/ 1 picul = 60 kg.

Appendix IPage 9

rates are applied, sugar yields can increase by 600 kg (10 piculs) per hectare.Sugar plantations on the island of Negros, which produce over 70 percent ofsugarcane in the country, applied 1 to 1.5 mt. of fertilizers with expendituresof about P300 per hectare or 40-50 percent of their total production costs.After the factual devaluation, the costs of fertilizers on typical sugar farmsincreased from P315 to P4175 per hectare, which might become a serious obstacleto higher yields in the future harvest.

24. Lack of irrigation in sugar area is one of the most importantlimiting factors of increased production as only 5 percent of total sugar areais irrigated. To grow sugarcane on irrigated land would increase yields byabout one metric ton (18 piculs) per hectare. Irrigation would also help toextend the milling season; the season is now very short (on the average 135-160 grinding days, according to Philsugin). The size of farms terds to becomesmaller because of inheritance. About 70 percent of total acreage still belongs tofarms with a size of over 50 ha and farmers are owners of the lanc_. The smallerfarms have difficulties in making investments. In Negros, some districtsstarted a consolidation of small farms into large units to reach a higherefficiency. It should be added that the sugar planters are the best organizedfarmers in the country and the Sugar Producers Cooperative includes 27,000 ofthe 30,000 sugar planters as members.

25. The development of sugar industry depends solely on the United Statesas a pulling force on production, as U.S. is the only buyer of sugar with afavorable quota system and considerably higher prices than on the world market.In 1969 the price of sugar in the U.S. was about 3.36 cents per pound higherthan on the world market (3.37 cents per pound). Production costs in thePhilippines are 2-4.5 cents per pound. Consequently, the Philippines is notusing its quota of 60,000 tons in the International Sugar Agreement, such asexports would be unprofitable. The United States Department of Agricultureassigned the basic quota for 1970 (including a set portion of the increase inU. S. consunption requirements) at 1,126,020 short tons; the additional quotacompensating for other countries' deficits is about 384,843 short tons and thetotal 1.5 Tmllion short tons (raw value) or 1,370,000 mt. At present,Philsugin expects to fulfill completely the basic quota and to ship 60,000to 100,000 additional quota. Future arrangements with the United States dependmainly on the increased level of production, which will provide a more favorablenegotiating position for the Philippines than at present with the non-fulfil-ment of commitments. The expiration of the Laurel-Langley Agreement in 1974is another issue creating uncertainties.

26. The projections of sugar production in the Four-Year Plan are ratherconservative and considerably lower than those of the Philsugin. 1/ The annualgrowth rate of 3.8 percent can be reached by realizing the various input factors

1/ The Four-Year Program's production projection for 1972 amounts to1,929,000 mt., while those of the Philsugin is much higher wi-;h2,360,000 mt. See the Sugar Production Program 1968-1972 preparedby Sugar Products Task Force, Manila 1968.

Appendix IPage 10

in the crash program, although the actual growth rate was 3 percent in theperiod 1968. The export projections of raw sugar barely cover the basicquota to the United States, and not the additional quotas. The projectionsof production include molasses with a relatively high growth rate of 3 percent.This by-product used to have high export prices in 1964 and 1965, which declinedsince, from $100 to $60 per ton. Use of molasses for livestock feeding startedrecently in the Phi:lippines. Bagasse has been used only marginally as fuel,but some attempts and projects have bleen made for the manufacture of board frombagasse, which is cheaper than manufacture from wood. Such a complementaryindustry would be beneficial for workers during the seasons that mills areinoperative which in Negros is the case during 5 months out of 12.

F. Tobacco

27. A great difference exists between native cigar-filler tobacco produc-tion which follows traditional methods, and Virginia tobacco production whichwas introduced in 1.953, to substitute for heavy imports of cigarettes. In 1955,the area of Virginia tobacco was only 3,260 ha; it reached 49,000 ha in 1968,while native tobacco covers about 55,000 ha. Native tobacco is grown onalluvial soils and Virginia tobacco on sandy soils, mostly in Nor`hern Luzon.The cigar-tobacco farms are very small in size (0.5 to 1.0 ha), while thoseproducing Virginia tobacco are larger (2 ha); many rice farmers became Virginiatobacco growers. Fertilizers are not used on cigar tobacco at all, whilefertilizers make up? 50 percent of total expenditures for Virginia tobacco. Thefarmers of Virginia tobacco are organized in cooperatives (FACOMAS) but noneexist among native tobacco farmers, whose income is less than P800 per year.

28. The average yield of native tobacco was 700-800 kg per ha while1,200 kg could be reached by fertil-zer application. The yields of Virginiatobacco are not higher (730 kg/ha). Low yields and high production costs arerestricting the competition on the :Lnternational market. Both crops aresupported by the Government. The subsidy of cigar tobacco is PlO million forfive years, while the Virginia Tobacco Administration used to be financed bythe Central Bank, to which it is in heavy debt (about P230 million). In spiteof all efforts to promote Virginia tobacco, this product scores low on leafclassification, and recently foreign technicians were called in to advise onproper grading and gradual elimination of low grades from the market. Farmersare negligent in the classification when they deliver tobacco to the cooperatives(FACOMAS). Gradual introduction of higher grades may need about 5 years.

29. Virginia tobacco has great difficulty in finding customers on theinternational market; 7,000 tons were exported in 1969. Large exports occurredonly in 1968 due to crop failure in Indonesia, but at very low prices. Stocksof 1,200 tons of Virginia tobacco accumulated in the beginning of 1970 out ofa production of 20,000 tons in 1969). These latrge stocks of low-graded aromatictobacco were bought by the Virginia Tobacco Administration at the high supportprices prescribed by the governmnent.

Appendix IPage 11

30. The production of native tobacco was 37,000 tons in 1969, 40 percentof which was exported. There are no stocks. The Philippine cigar-leaf tobaccois of excellent quality but a very expensive product. Under the Laurel-LangleyAgreement, Philippine cigars enjoy a fixed tariff-free quota for imports tothe United States, but this was never filled. In 1968, the quota was 80 millioncigars, but actual eXports were only 10.3 million. In that year, the total exportvalue of cigars was only $535,000, while the exports of unmanufacbured cigartobacco amounted to $13.5 million.

31. The Four-Year Plan prefers expansion of native tobacco (annual growthrate 3.6 percent) over that of Virginia tobacco (1.4 percent), which might bedue to various reasons mentioned above. But there is an urgent need to re-organize the whole price support system, which has not promoted the productionof higher quality tobacco for domestic and foreign markets. The productionneeds also a vigorous introduction of modern methods as the production costsare extremely high and productivity low.

G. Abaca

32. About 80-90 percent of the production of abaca is exported but inrecent years exports experienced stiff competition from other hard fibres andsynthetics, particu:Larly in the rope industry. Therefore, the prices of abacadeclined, which was followed by a severe reduction in production. In Mindanao,the main abaca area ,many farmers shifted from this product to coconuts andbananas. The production of abaca declined so severely that it cculd not meetthe normal demand in foreign markets and increased demand of the pulp and paperindustry. Consequently, the prices of abaca increased again in 1968, which gavean impetus to production.

33. The value of total abaca exports was US$10.5 million in 1968 and$12.5 million in 1969, only a fraction of the $67 million reacher- in 1952. TheUnited States take about 40 percent of abaca exports which enter duty free underthe Laurel-Langley Agreement. Since the export possibilities of abaca do notshow favorable long term prospects in the international market, nore attentionshould be devoted to the expansion in use of abaca products in the domesticmarket. Two pulp factories started to use long-fibre abaca in the Philippines,and one project to produce 1 million sacks from abaca substituting imports ofjute sacks is under consideration.

34. The responsible government agency, the Abaca Corporation of thePhilippines, has not played a significant role in stabilizing the market bypurchasing products at the "protected" price level; its purchases amounted toless than 7 percent of total production. The agency has not been operativefor the last two years. It started to operate again in 1970.

35. The problems of finding a solution for abaca on the domestic marketare becoming urgent, as about 5 million people obtain their living from thisproduct. If farmers cannot shift to other occupations in agriculture and

Appendix IPage 12

industry, they will soon represent a social problem of high unemployment.The Four-Year Plan shows an annual production growth rate of 1.4 percent,which is rather hILgh in comparison with the 1961-1968 performance of -1.6 percent.

H. Bananas and Pineapples

36. In 1968, a most important innovation started when the commercialcultivation of bananas (Grant Caverndish variety) was introduced by an Americancompany (StanfilcTo .Two other American companies followed. The companiessigned contracts with individual farmers; production takes place under theguidance of experts, to reach acceptable produLcts for the export market. Onecompany signed 200 contracts with farmers eachi of whom works a plantation ofabout 12 ha. The banana growers obtain pre-production loans on 10 months'terms for fertilizers, seeds, etc. The Development Bank of the Philippinesgranted loans to planters who have marketing and management contracts with theStanfilco (about P2,800 per ha.). The intention of the Philippine banana agro-industry is to penetrate gradually into the Japanese market in competitionwith the present exporters in Taiwan, Ecuador and Honduras. In 1969, thefirst Philippine exports of bananas arrived in Japan with a share of 3 percentof total shipments. It is expected that Phil.ippine exports of bananas to Japanwill reach a share of 52 percent in 1973, i.e. about 1,000 million pounds.This production can be reached by planting 13,000 ha of bananas in the Philippines.The value of exports would amount to US$33 million (excluding ocean transportationcosts). The export tax on bananas is not applicable in 1970, but it isexpected to become 6 percent in July 1971.

37. Pineapples are growm in large commercial plantations, managed byforeign companies, according to the most scientific methods. The area ofcommercial pineapples covers about 27,000 ha, mainly in Mindanao. The valueof exports in 1969 was US$15.6 million (f.o.b. Philippines) and their destinationwas as follows:

US $ millionUnite6. StatesContinental Europe 4.6UnitecL Kingdom 2.0Japan 0.8Other.s C.4

I. Forestry and Forest Products

38. The forests in the Philippines cover half of the country's area, butforests are abominably devastated by shifting agriculture and unauthorizedlogging. It is estimated by FAO forest experts that the clearance of forestsby shifting agriculture (kaingin) and legal and illegal encroachment on theforests represent about 100,000 ha yearly. 1/ In Northern Luzon, over

1/ The Philippine Forestry Economics, FAO, Rome 1970, p. 42.

Appendix IPage 13

1 million ha of cleared forest cannot be expected to be regenerated inhigh forest. The official Forestry Statistics register only a small partof actual clearing as the forestry officers do not report it. Punitivemeasures against kaingineros have been passed under Republic Act, butpolitical pressure and slow court procedures seldom bring any results.

39. According to the Four-Year Plan, 5 million ha of open land, includingsome 1.5 million ha of critical watersheds are in need of reforestation. Sofar, about 153,000 ha. have been planted. The current annual planting rateis only 30,000 ha. At this rate two centuries would be needed to reforestthe open mountain areas. It is estimated, however, that by a moderate amountof silvicultural work: in over-cut forests, the yield would safely boe increasedto a level of 14 million m3 and even high yields of 18-20 million m3 are withinthe capacity of the forests in the next 20 years. 1/ The Division of ForestEconomics in the Bureau of Forestry estimates the potential cut at 15 million m3.

40. The intention of the Four-Year Plan is to shift exports from logs asraw material to manufactured products (lumber, veneer, plywood). This shouldbe reached by reducing log exports to 40 percent of allowable cut, from 68percent in the period 1962-1968. The shift from logging to manufacturing ofwood products will be extremely difficult to achieve since log exports are aprofitable operation while other wood products sustain losses or make onlysmall profits, as the following table shows: 2/

Annual average profit or loss from1963-1966 on the basis of financial

Type of Operation statements; before deduction of tax

Logging + 25.8%Sawmill - 33.3Plywood and veneer + 1.7%

Higher capital returns in logging are due to a low capital/output ratio(labor intensive industry) as well as to favorable demand for logs in Japan,Korea and Taiwan. The wood-processing industries operate with a high costof production, low capacity plant utilization, restricted market outletsoutside the United States and heavy freight costs.

41. In 1966, out of 623 sawmills only 321 were operating, at 37-42 percentof their capacity. Plywood and veneer plants numbered 12 in 1957 and 32 in1970; they used 80 percent of their capacity. The greatest problem for exportsof wood products resides in the high freight rates, in comparison with competingcountries. One of the main causes of heavy freight rates is the dispersion ofwood-processing plants over various islands which requires many loading placesand considerable time for final shipments. Plywood shipments from thePhilippines to the UJnited States need 20 days for loading, while in Japan this

1/ The Philippine Forestry Economics, op. cit.2/ Status of the wood and wood-processing industries (Part 1) prepared

by the Economic Development Foundation, Manila 1968, p.5.

Appendix IPage 14

operation is completed in 5 days. The freight rates from South Korea and Taiwanto the United States are 42.5 percent and 27.5 percent lower than those fromthe Philippines. The lunber shipping rates from Japan to the United Stateswere 17.6 percent lower in contract rates and 28.3 percent in non-contract ratesthan shipments from the Philippines. The reduction of inter-island shipping andshipping rates by concentration of p-Lants in selected loading places is aprecondition for increased exports of wood products. The problem of localconversion of logs into manufactured products is further hampered by the factthat quality logs are exported and only the inferior ones are processed, whichare often below world standards.

42. In 1969, a mission of wood-processing industries visited Europe tofind new markets there. European im?orters showqed interest in those parts ofwood products that can be used for furniture and not for housing as in theUnited States. This would mean reconzverting certain plants to obtain suitableproducts. Actual efforts have not yet been made in this respect.

J. Fisheries

4,3. Fish is orLe of the main food items in the diet of the Philippineislands. The consumption of fish increased from 20.6 kg per capita in 1964to 28 kg in 1968. The available resources would permit a much higher catch,export possibilities and substitution of large imports of canned fish. ThePhilippine sea fisheries have 1.6 million kmo at their disposal. Of this,only the coastal waters and shallow seas have been exploited, but not yet theoffshore and deep sea. The fresh water covers 9,000 jm2 but heavy fishing hasdepleted some areas. The 5,000 km2 of brackish swampland are only partlyutilized. About 80 percent of the total fish catch is sold to the consumersas unprocessed fish, about 19 percent reach the stalls of retail dealers asdried fish, and onLy- 1 percent is being delivered as canned, smoked or processedfish.

44. Fisheries started to be developed after World War II and the product-ion tripled between 1951 and 1968. The fish industry has to face many problemsamong which:

(1) lack of research information on the potentials of thefishery resources;

(2) inadequate and antiquated equipment of fishing boats;(3) lack of trained personnel to operate the fish industry;(4) inadequacy of fish marketing facilities such as refrigera-

tion units;(5) inad3quate safeguards to prevent water pollution;(6) illegal methods of fishing; and(7) limited credit assistance to the fishery industries.

Appendix IPage- 15

The Philippine Fishery Commission is executing a stocking progran in inlandwaters and a massive fish fingerling production project with assistance ofFAO experts. The Commission has expanded extension services by manpowertraining in fish pcond operation, and established fish refrigeration unitsfor markets, etc. T'he potentials are large in fresh water fishing where atpresent 500 kg per ha are obtained but where yields could be increased 6 times.Recently, particular attention has been paid to the large tuna sbocks in thewaters around Sulu Archipelago. A project is prepared for frozen tuna, whichcould be exported to available markets in the United States, Japan and Italy.It is proposed to convert sardine boats into tuna boats for catching about10,000 tons of tuna. There is also a proposal to develop shrimp fishing forexports.

45. Philippines exported a few hundred dollars worth of fish; but importedlarge quantities of canned fish as the following data show:

LMports of fish and fish preparations a/(F.o.b. value in thousand US dollars)

1965 13,8841966 15,6701967 19,5261968 22,112

a/ Chilled or frozen fish is imported fromthe United States and Hongkong, shrimpfrom Hongkong, mackerel from Japan, salmonfrom Canada, sardines from Portugal, tunafrom Japan, etc.

Imports of canned fish represented 9 percent of total food imports in 1965,and nearly 20 percent in 1968. In addition, fish meal was imported, for anamount of F7.3 million in 1967 and p8.9 million in 1968. Imports of cannedfish have become more expensive following the factual devaluation, and thismay give a new impetus to the canning industry.

46. The Four.-Year Plan projects a rather conservative growth rate forfishery production at 8 percent from 1971 to 1974, while the actual rate was10.9 percent between 1961 and 1968. The Philippine Fisheries Commission usesmuch higher projections than the Four-Year Plan; it is the intention of theCommission to reach in 1972 the targets planned earlier for 1995. Accordingto the Philippine Fishery Commission, the target of fish output is1,936,000 tons for 1974, which is 449,000 tons more than in the Four-Year Plan.

I

I

Appendix II - Table 1

Actual Production for 1968 and 1969 and Phyaical Targetsof the Agricultur Proram PT 1971-1974

1968 a 1969Commodity Actual!! ActuQla" 1971 972 1973 1974

Food Crops 9,294 9,353 10,950 21,620 12,342 13,127Palay 4,561 4,445 5,510 5,868 6,249 6,655Corn 1,619 1,733 2,039 2,202 2,378 2,568Fruits and Nuts 1,372 1,376 1,531 1,618 1,715 1,818Rootcrops 1,305 1,338 1,392 1,413 1,434 1,456Vegetables 251 272 328 348 369 391Coffee 44 44 52 55 59 63Sorghum - 4 9 15 30Soybean - - 2 5 16 34Others 143 145 97 102 107 112

Commercial Crops 3,948 4,146 4,406 4,583 4,718 4,910Copra 1,542 1,737 1,678 1,737 1,798 1,861Desiccated Coconut 56 50 100 104 108 112Sugar (Centrifugal and Moacovado) 1,658 1,665 1,836 1,929 1,976 2,079Molasses 503 505 550 566 583 600Abaca 103 105 141 143 145 147Tobacco - Virginia 17 20 24 24 25 25Tobacco - Native 48 37 54 56 58 60Rubber 14 22 17 18 19 20Others 5 6 6 6 6 6

Total Crops 13,242 13,498 15,356 16,203 17,060 18,037

Forestry (logs)! 4,711 5,003 4,847 4,944 5,043 5,144

Fishery 938 1,036 1,180 1,275 1,378 1,487Commrcial 407 512 553 598 645Fishponds 87 109 118 127 137Municipal and Sustenance 444 559 604 653 705

LivestockPopulation (no. in 000)

Cattle 1,644 1,823 1,887 1,953 2,021Carabao 4,173 4,626 4,788 4,956 5,129Poultry 71,395 92,458 100,779 109,849 119,735Hogs 6,090 7,779 8,440 9,157 9,935Others 906 933 942 951 960

Slaughtered (no. in COO)Cattle 212 235 243 251 260Carabao 30 33 34 35 36Poultry 32,566 42,174 45,970 50,107 54,617Hogs 6,715 8,577 9,306 10,097 10,955Others 84 87 88 89 90

Dressed Weight (in MN) 361,687 457,255 494,604 535,091 578,987Cattle 23,299 25,833 26,737 27,672 28,641Carabao 4,197 4,654 4,817 4,985 5,160Poultry 35,823 46,391 50,567 55,118 60,078Hogs 295,440 377,362 409,438 444,240 482,001Others 2,926 3,015 3,045 3,076 3,107

Fresh Mi1k 9.40b" 25.9 26.2 29.3 33.2

Poultry Eggs 95.83- 130.0 138.5 157.0 167.2

a/ Bureau of Agricultural Economics, Bureau of Forestry, Philippine Fisheries Commission; pr)liminary estimates.Program of Production cf Animal Protein, prepared by the Bureau of Animal Industry, April, 1970.In million board feet.

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Appendix II - Table 2

Average Growth Rates of kJor Agricultural Products(percentage )

Four-Year Bureau ofProjections Development

Actual Growth Rates of 1969 Plan AnimalHusbandry e/

l96l-68~~" b/ C/ dl191-11961-68_- 1965-68 - 196_9 169-72/ 1971-7-

Food Crops 3.3 3.9 o.6 7.6 6.2Palay (paddy) 0 17 -- 1= Corn 4.2 7.2 7.0 8.8 8.0Fruits and Nuts 10.0 4.2 0.3 5.8 6.oRootcrops -1.5 -5.3 2.5 1.2 1.5Vegetables 4.5 2.8 8.7 6.1 6.oCoffee 4.5 -0.1 7.3 6.4 6.6Sorghum - - - - 72.2Soybeans - - - - 127.5

Export Crops 3.9 1.6 5.o 5.1 3.7Copra ITT 7l7 7.Desiccated Coconut -0.7 -3.6 -11.7 4.2 3.9Sugar (centifugal and

Mhscovado) 3.0 0.8 0.-4 7.6 3.8Molasses 5.1 6.7 0.4 2.7 3.0Abaca -1.6 -8.3 1.5 1.6 1.4Tobacco - Virginia -6.7 0.4 14.4 0.8 1.4Tobacco - Native 6.o 18.5 -22.3 4.3 3.6

Fishery (Total) 10.9 12.0 10.5 7.6 8.0

Fore stryfLogs 7.7 22.0 14.2 f5. / 2.0Lumber -0.3 -6.6 SK n.a. n.a.Plywood 15.1 5.2 -f n.a. n.a.Veneer 26.0 17.1 -g/ n.a. n.a.

Live stock_PopulationCattle 3.8 3.5 3.6Carabao 3.9 3.5 3.6Poultry 11.0 9.0 6.3Hogs 10.5 8.5 10.3Others 1.0 1.0

a/ Bureau of Agricultural 3conomics.bET/ Background paper for the World Bank mission. Jointly prepared by Department of Economic Research,

Central Bank of the Philippines and Operational Planning and Statistics Office Presidential RconomicStaff, May 1970.

c/ The Revised Agricultural Development Program BY 1969-73, Presidential Economic Staff,Agricultural Program Office, January 1969, p.32.

d/ Four-Year Davelopment Plan for the period FT 1971-74. Prepared to Interagency Committee,March 1970 - Table IV-1-].

e/ Program of Production of Animal Protein Foods and Policy on Animal Production, prepared by theBureau of Animal Industry, April 1970.

fl Timber cut will decelerate by 5.0 percent yearly from a high attained in 1968 and domesticprocessing of logs will accelerate from 40 percent in 1969 to 80 percent in 1973.

EL/ Forestry Statistics show an increase of lumber production from 432,921,000 bd. ft. in 1967/68 to620,975,000 bd. ft. in 1968/69, decline of plywood from 695,034 to 523,866 sq. ft. and decline ofveneer from 1,205,910 sq. ft. to 627,271 sq. ft. in the same period.

n. a. = not available