Sugar Plantation Industry 2011 by BOI.pdf
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INVESTMENT OPPORTUNITY IN SUGARCANE PLANTATION
Introduction
The government is promoting the development of tracks of land in SouthernPhilippines into sugarcane plantations. A foreign investor engaged in food or beverageproduction which consumes a lot of sugar may invest in sugarcane production in thePhilippines to supply its sugar requirements. Although Philippine sugar cannot beexported directly, some forms of cost leverage on the foreign investors sugar from thePhilippines can be arranged. We also consider bioethanol as another source of revenue forthe sugar industry. Its demand in the domestic market is high and will further rise as thegovernment mandates the increase in the blend of bioethnol with all gasoline solddomestically.
Promotion of agribusiness projects like sugarcane plantations will make use of our
undeveloped or idle lands or existing farmlands where investments are needed to make
them more productive. Owners of undeveloped alienable and disposable lands, cultural
ancestral domain claimants (CADCs) and beneficiaries of agrarian reform programs
(ARBs) are important stakeholders.
Sugarcane production is highly desirable and very profitable. Supporting
computations done by an industry player prove its desirability. Furthermore, sugarcane
production is one of the governments priority activities that would be eligible for a
package of incentives under the Omnibus Investments Code.
Investment Opportunities
Most of the sugar produced in the country go to the domestic market. On top ofthis, we set aside about 200,000 tons to preserve preferential access to sugar exports tothe US. The Philippines tries to always honor its commitment to the US because it is agenerally favored market.
Normally, the industry is producing enough of what the country needs. It is forthis reason that area expansions in the industry are geared for the production of alternative
products. But sometimes, an El Nino-induced drought may damage crop resulting to low
harvest. The Sugar Regulatory Administration (SRA) determines if there is a need toimport sugar when the crop year ends and sugar millers had reported their actual sugarproductions. When the SRA sees that there will be a tight domestic supply, importationbecomes necessary for the government to ensure it keeps preferential export quotas to theUS and to maintain a buffer stock. Newcomers in the industry will have this market incase such phenomenon happens. But we dont want them to exist just to address theshortage in sugar when there is tight domestic supply.
The Mill District Development Committees (MDDCs) are optimistic onincreasing the countrys production of ethanol. The Biofuels Act of 2006 which aims toachieve a three-pronged objective of energy security, countryside development, and
environmental protection mandates the use of ethanol and/or ethanol-blended gasoline forthe transport sector.
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The enactment of the Biofuels law created a sure market for locally-produced
ethanol but our existing capacity cannot supply the demand. To address this gap and to
comply with the mandate, oil companies import their additional requirements from other
countries particularly from Brazil.
Meanwhile under the said law, fuel companies are currently required to blendethanol with gasoline at 10% this year with some exemptions. Current ethanol demand isestimated at about 219 million liters versus domestic production of merely 80 millionliters, derived from sugarcane and molasses.
The table below shows the production and importation trend of the industry since
2008 vis-a-vis the demand based on the mandate of the law.
Source: Department of Energy
As of December 2008, three companies had registered with the DOE as bioethanolproducers. One additional bioethanol plant will operate this year and another two havesecured certification from DOE for their plant site.
The SRA has certified 4,990.07 hectares of existing sugarcane plantations asfeedstock areas for bioethanol.
General Profile of the Sugar Industry*
Total area planted to Sugarcane ~ 383,000 hectares
- Average size of farm holding ~ 5 hectares
- Estimated number of farm owners = 55,000
- Estimated number of farm workers ~ 580,000 individuals
Number of operating Sugar Mills = 29 mills (as of February 13, 2011)
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- Average capacity of sugar mill ~ 6,900 tons cane/day (TCD)
- Average duration of milling season ~ 180 days per annum
Number of Refineries = 12 refineries (as of February 13, 2011)
- Average refining capacity ~ 12,000 LKg Sugar/Day
Annual raw sugar production (5-year average) = 2. 2 million metric tons
Annual refined sugar production (5-year average) = 20.437 million 50Kg/bag
Sugarcane is one of the major crops of the Philippines. It is cultivated in 19
provinces across the country. From 2002 to 2006, sugarcane production contributed an
average of P24.91 billion/per year to national agricultural production. Based on the latest
statistical data, about 392,300 hectares are for sugarcane production which accounts for7.43 percent of agricultural lands for major crops.
Sugarcane areas are divided into small farms with an average farm size of 5
hectares. A hectare of sugarcane usually requires 1.5 workers. This puts the labor force
directly employed by the industry, including sugar mills and refineries, at 600,000
workers, with an additional 5 million indirectly dependent on sugar production for
livelihood.
On the average, the country milled 20.42 million tons cane per season in CY 2008-
2009 and CY 2009-2010 and has, at present, 29 operating mills and 12 operatingrefineries strategically located in the various sugar producing areas.
*Source: Philippine Sugar Millers Association, Inc.
Constitutional Provisions and Statutory Laws Relevant to Agribusiness Ventures
with Foreign Investors
Foreign corporations or associations can not be owners of alienable lands of the
public domain. They may hold such lands only through lease for a period not exceeding25 years, renewable for not more than 25 years and not to exceed 1,000 hectares in area.
Modality Options Open to Investors in Agribusiness Commercial Plantations
Agribusiness Venture Agreements (AVAs) in agrarian reform areas involves a
contract signed between a lessee and a lessor wherein the lessor (agrarian reform
beneficiary) binds itself to give the lessee (investor) control over the use and supervision
of the land for a specific period of time and for a certain amount.
Management Contract
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This is a form of agribusiness agreement whereby Agrarian Reform Beneficiaries
(ARBs) or their cooperative/farmers organizations that assume full and exclusive
ownership of the land, hire services of the former land owner or contractor-investor to
manage and operate the farm in exchange for fixed wages or commission, as the case may
be.
Joint Venture
In a joint venture arrangement, the agribusiness firm and the cooperative agree to
form a third party or a joint venture (JV) company. The JV leases the land from the
cooperative while the agribusiness firm provides the technology, financing the
management of the operations. The cooperative members now become hired laborers in
the farm and if operations include processing, qualified household members can be hired
in the processing plant as well. The market could be the JV company and or the
agribusiness firm, depending on the terms and conditions agreed upon.
In case of the ARBs, the land is their equity in the joint venture and its value is
based on the computed valuation.
Nucleus Estate Scheme
This is an integration of contiguous individual lots to form a single estate or
several nucleus farms. The management of the nucleus estate can be handled by a
cooperative or a company. Two possible set-ups are as follows:
The company negotiates the lease of the land to individual owners over fixed
term. The nucleus farm can be managed by the anchor firm as core plantation.
Company-Managed Farm
Management is centralized. The company handles the production, financing and
management of the nucleus farm. The cooperative members are hired as laborers.
This is a grower-type arrangement between the company and cooperative. The
cooperative is contracted as a supplier of raw materials for the company. In thiscase, the members of the cooperative surrender their right to operate the land they
owned to the cooperative that subsequently manages the nucleus farm. The
member-owner of the nucleus farm provides the necessary labor.
Cooperative-Managed Farm
Identification of Possible Plantation Areas
The Philippines Agricultural Development and Commercial Corporation(PADCC), the designated agribusiness marketing, investment promotion and projectdevelopment corporate arm of the Department of Agriculture, extends assistance toinvestors for their projects basic requirements, namely:
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Identification of possible plantation areas, which include:- assistance and provision of general support identification and evaluation of
suitable agricultural lands- endorsement of the project to interested and qualified landowners- provision of complete data and information necessary in the
implementation of the project Consolidation, packaging, and contract negotiation with the land owners
Facilitation of endorsements, accreditations, licenses, and permits from concernedgovernment agencies.
Keys to a More Sustainable and Globally-Competitive Sugarcane Industry
Tariff rates on imported sugar from competing ASEAN countries will begradually reduced from the current 38% to only 5% by 2015. By 2012, tariff rate will
further go down to 28%, to 18% by 2013, and 10% by 2014. This schedule of tariffreduction is expressly provided under Executive Order 892.
In the light of the implementation of the ASEAN Free Trade Agreement (AFTA),sugarcane farmers need help from the government in providing the necessary equipmentand infrastructure particularly tractors, trucks and irrigation systems to increase
productivity and enhance long-term competitiveness in the world market. Other farmersalso clamor for more farm-to-market roads in major sugar producing provinces for fasterand more efficient transport of canes to the mills. Investors may provide funds to bankrolltheir equipment needs or they may enter into any of the different modalities presentedherein.
Incentives Under the Omnibus Investments Code (E.O. 226)
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ANNEX
PHILIPPINE SUGAR INDUSTRY
Total Volume of Production and Area Harvested with Sugarcane
Source: Bureau of Agricultural Statistics
Raw and Refined Sugar Production
CY 2005-2006 CY 2006-2007 CY 2007-2008 CY 2008-2009 CY 2009-2010
Raw Sugar
(in metric
tons)
2,138,075 2,233,453 2,455,027 2,100,048 1,970,784
Refined Sugar
(in 50K bag) 20,036,314 21,645,089 21,843,627 18,977,540 19,684,060
Source: Sugar Regulatory Administration (SRA)
Number of Sugarcane Farms by Farm Size
(Crop Year 2005-2006)
Mill District
(in hectares)
0.01-5 5.01-10 10.01-25 25.01-50 50.01-100 over 100 Total
Philippines 44,895 6,059 4,843 2,396 1,378 808 60,379
Luzon
1. Carsumco
(Cagayan)
2.
Basecom(Pasudeco)
3.
Tarlac
4. Batangas
5. Don Pedro
6.
Pensumil
(Bisudeco)
10,118
450
295
1,142
2,392
4,983
856
1,221
110
162
146
430
285
88
1,041
101
142
184
405
167
42
503
47
71
83
238
56
8
288
29
49
31
155
20
4
231
44
21
107
50
5
4
13,402
781
740
1,693
3,670
5,516
1,002
Negros
1. Aidsisa/
HawPhil
2.
BacMur/
FFTalSilay
17,114
277
881
2,265
54
235
1,797
89
138
1,022
100
108
619
47
87
284
17
38
23,101
584
1,487
Sugarcane 2006 2007 2008 2009 2010
Volume of Production
(in 000 metric tons) 24,345.1 22,932.80 26,601.4 22,932.8 18,421,429.2
Area Harvested
(in 000 hectares) 392.3 383.0 398.0 404.0 362.8
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3.
Binalbagan
4. Dacongcogon
5. Danao/ Sagay
6.
La Carlota
7. Lopez
8.
Ma-ao9.
San Carlos
10.Sonedco
11.
Victorias
12.Bais-Ursumco
13.Tolong
1,064
3,426
642
190
240
107587
1,015
67
5,885
2,733
280
450
272
72
82
66121
119
50
292
172
245
117
240
97
120
93134
103
178
180
63
131
49
104
69
83
6340
33
155
76
11
68
18
39
58
49
4315
19
112
43
21
44
7
37
19
1313
9
49
36
2
1,832
4,060
1,304
523
593
385910
1,298
611
6,512
3,002
Panay
1. Monomer
2.
Capiz/ Pilar
3. Passi
4. Santos-Lopez
2,767
305
639
1,266
557
417
55
141
122
99
329
32
113
120
64
104
15
28
43
18
79
8
8
6
57
15
2
4
5
4
3,711
417
933
1,562
799
Eastern Visayas/
Mindanao
1.
BogoMedellin
2. BogoDurano
3. Ormoc Hideco
4.
Bukidnon
5. Davao
6. Cotabato
14,896
161
136
763
7,499
4,128
2,209
2,156
56
11
199
1,453
306
131
1,676
33
14
205
1,074
203
147
767
15
4
71
602
38
37
392
10
4
61
249
46
22
278
25
2
73
144
28
6
20,165
300
171
1,372
11,021
4,749
2,552
Source: SRA
Wholesale Sugar Prices in Metro Manila per 50K Bag (in PhP)
CY 2003-2010
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Source: SRA
Retail Sugar Prices in Metro Manila (in PhP)
CY 2003-2010
Source: SRA
Potential Areas for Sugarcane Plantations in Mindanao
Province Potential Area (in hectares)
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Agusan del Norte/Sur 35,000
Lanao del Norte 38,110
Southern Bukidnon 10,000
Maguindanao 60,000
South Cotabato 15,000
Sultan Kudarat 70,000
General Santos/ Saranggani 22,000
Zamboanga del Norte 6,250
Source: Philippine Agricultural Development and Commercial Corporation
Directory of Sugar Mills
Crop Year 2010-2011
Mill District / Region Rated Capacity
Planter-Miller Sharing (TCD)Luzon
1 Universal Robina Corp. - CARSUMCO II 3,800
Piat, Cagayan
60/40
2 Sweet Crystals Integrated Sugar Mill Corp. - III 3,500
San Fernando
65/35
3 Sweet Crystals Integrated Sugar Mill Corp. - III 2,500Planas, Porac, Pampanga
65/35
4 Central Azucarera de Tarlac III 7,000
67.5/31.5
1-CATPA
5 Batangas Sugar Central, Inc. IV 5,500
Balayan, Batangas
65/35
6 Central Azucarera Don Pedro, Inc. IV 13,000
Nasugbu, Batangas
65/35
7 PENSUMIL, Inc. Mill V 3,500
Camarines Sur
60/40
Negros
1 Central Azucarera de Bais, Inc. VII 9,000
Bais City, Negros Oriental
67/33
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2 Binalbagan-Isabela Sugar Co., Inc. VI 12,000
Negros Occidental
66.33/30
3 First Farmers Holding Corp. VI 4,800Talisay, Negros Occidental
70/30
4 Hawaiian-Phil. Co. VI 7,500
Silay City, Negros Occidental
68/32
5 Herminio Teves & Co., Inc. VII 3,000
Sta. Catalina, Negros Orienta;
68/32
6 Central Azucarera de la Carlota, Inc. VI 18,000
La Carlota City, Negros Occidental
65/35
7 Lopez Sugar Corp. VI 7,000
Sagay City, Negros Occidental
70/30
8 Universal Robina Corp. - URSUMCO VII 8,000
Manjuyod, Negros Oriental
67/33
9 Sagay Central, Inc. VI 4,000
Bato, Sagay, Negros Occidental
70/30
10 Universal Robina Corp. - SONEDCO VI 9,000
Kabankalan City, Negros Occidental
70/30
11 Victorias Milling Company, Inc. VI 15,000
Victorias City, Negros Occidental
69.5/30.5
12 OPTION MPC VI 500
Sagay City, Negros Occidental
70/30
Central and East Visayas
1 Bogo-Medellin Milling Co., Inc. VII 2,800
Medellin, Cebu
64.5/33.5
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2 R. D. Durano III & Co., Inc. VII 2,000
Dungo-an, Danao City, Cebu
65/35
3 Hideco Sugar Milling Co., Inc. VIII 5,000
Kananga, Leyte66/34
Panay
1 Capiz Sugar Central, Inc. VI 4,500
Pres. Roxas, Capiz
65/35
2 Universal Robina Corp. VI 4,500
San Enrique, Iloilo
65/35
3 Central Azucarera de San Antonio VI 8,000
Passi City, Iloilo
35/35
Mindanao
1 Busco Sugar Milling Co., Inc. X 18,000
Bukidnon
64/36
2 Crystal Sugar Co., Inc. X 10,000
Maramag, Bukidnon
60/40
3 Davao Sugar Central Co., Inc. XI 5,000
Hagonoy, Davao del Sur
60/40
4 Cotabato Sugar Central Co., Inc. XII 4,500Matalam, North Cotabato
62/38