Investment Opportunities in
Philippine Agriculture
George M. Drysdale
Chairman and CEO
Marsman Drysdale Group
Worldwide Trends in Agriculture
 World grain supply is constrained
 Grain consumption rising with population growth
 Bi...
Overview : Philippine Agriculture
Total Land Area 29.8 M Has
Agricultural Land Area 9.7 M Has
Agricultural Gross Output (2...
Philippines
Share of Agricultural Exports to Total Exports
1980-2012
38%
21%
5%
6%
8% 8% 8%
11%
10%
0%
5%
10%
15%
20%
25%
...
Major Philippine Crops
2008-2012
-
50
100
150
200
250
300
2008 2009 2010 2011 2012
BlnPhp,CurrentPrices
Rice
Corn
Coconut
...
Leading Philippine Agricultural
Exports
1990 2000 2008 2009 2010 2011
Indonesia 4.2 7.8 32.9 25.3 36.0 47.0
Malaysia 7.5 8.0 27.8 20.9 28.9 39.0
Philippines 1.7 2...
ASEAN: Foreign Direct Investment Inflows
2006-2011
Source: ASEANSecretariat
Philippines
Cambodia
2006 2007 2008 2009 2010 ...
Share of Agriculture in the National
Government Expenditures
2008-2012
7.18%
5.68%
5.85%
3.54%
5.48%
3.00%
3.50%
4.00%
4.5...
Constraints to Philippine Agriculture
 Underinvestment in Agricultural Sector
 Research and Development is low priority
...
Investment Opportunities
 High value crops
- Coffee, Avocado, Squash, Red Hot Chili,
Peanuts, Mongo Beans
 New varieties...
Policy Recommendations
 New Free Trade Agreements present immense new market
opportunities (Trans-Pacific Partnership)
 ...
Summary
 Philippine Agriculture has enormous potential
- Favorable geographic location to export markets
- Large supply o...
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Investment opportunities in philippine agriculture presentation to the FINEX 45th National Conference by George Drysdale

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Investment opportunities in philippine agriculture presentation to the FINEX 45th National Conference by George Drysdale

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  • Worlwide Trends in AgricultureChina and India needs agricultureAgricultural commodities have three main uses, i.e., food, feed and fuel – and demand for each of these uses is increasing. This increase is being driven by global population growth (increasing demand for food), economic growth in emerging markets (demand for feed) and biofuel policies which are being implemented by governments across the globe (demand for fuel).Source:Daily ReckoningInvest In Agriculture: Reason #1Grain inventories are falling to their lowest levels in more than 40 yearsObviously, we can’t continue to dip into inventories. The natural response you would expect to see is rising prices for grains and for the farmland that produces them. Global grain inventories, drought pending, are expected to rise this year, but will still remain well below historical level. The big thing to keep your eye on here is stocks-to-use ratio. That compares the amount we have on hand to the amount we’re using. The higher the number, the closer we are to having fully stocked granaries. Based on USDA numbers, the stocks-to-use ratio for 2008-2009 looks to be the second lowest in history. U.S. ending stocks are projected to nearly double, going from 7 million metric tons to nearly 14 million metric tons. Many countries, even grain powerhouse Argentina, are still holding onto local supply by restricting exports.Invest In Agriculture: Reason #2While grain consumption is on the riseThe world consumes, on average, 2,600 bushels of grain crop per second. That’s almost twice what we ate back in 1974. And that amount could easily double to 5,200 bushels per second over the next 20 years. The amount of pressure on the global food supply network is enormous. You can see the steep downward trend in wheat supply in the chart below.Why are we eating so much more grain? The big factor here is meat. Hundreds of millions of people in China and India are joining the middle class. As people get wealthier they eat more meat. And more meat requires more grains to feed cattle and hogs. It takes 10 pounds of grain to produce one pound of meat. Because of that, most of the demand growth for coarse grain and oilseed meal will come from livestock in developing economies or the countries feeding them. So long as the middle class expands, you can be sure meat and grain consumption will follow.Invest In Agriculture: Reason #3Biofuels are driving agriculture demand up to new levelsMost every oil-consuming country has biofuel targets in place that will kick in over the next five years. These places include the U.S., the EU, Canada, Japan, Brazil, India and China. To meet their targets, according to work by Agcapita, we‘ll have to commit some 240 million acres to biofuel production. That represents about 50% of the arable land in North America and about 6% of all the arable land in the world.Let’s consider ethanol alone for a moment, courtesy of some World Bank stats. From 2004-2007, U.S. biofuel use increased by 50 million tons, while world production increased only 51 million tons. That leaves only 1 million tons left over to cover a 33 million ton increase in the rest of corn demand the world over. Meaning we didn’t cover usage and caused the price to rise. By 2008, U.S. farmers were already planting every available acre with corn, the second biggest planting in 60 years, and producing one of the largest corn crops in history.This helped push U.S. farmland values up to new record highs. Massachusetts farmland fetched the highest price at $12,200 per acre. As you can see, the biofuel craze puts more pressure on farmland demand. And, there are other pressures as well…Invest In Agriculture: Reason #4While arable land per capitais fallingWe are losing quality topsoil faster than we are replacing it. Quality soil is loose, clumpy, filled with air pockets and teeming with life. It’s a complex microecosystem all its own. On average, the planet has little more than three feet of topsoil spread over its surface. The Seattle Post-Intelligencer calls it the shallow skin of nutrient-rich matter that sustains most of our food. Replacing it isn’t easy. It grows back an inch or two over hundreds of years.This is not lost on certain farseeing investors. Jeremy Grantham, head of the money manager GMO, recently told his clients: Our farmers are in the mining business! Yes, the soil is incredibly deep, but it is still finite. For every bushel of wheat produced, we lose two bushels of topsoil.We lose topsoil to development, erosion and desertification. Globally, it’s clear we are eroding soils at a rate much faster than they can form, notes John Reganold, a soils scientist at Washington State University. Estimates vary, but in the U.S., the National Academy of Sciences says we’re losing soil 10 times faster than it’s being replaced. The U.N. says that on a global basis, the rate of loss is 10-100 times faster than that of replacement.In any case, it seems safe to say that good dirt is in short supply. This ensures a growing scarcity of good farmland, and plenty of countries including Saudi Arabia, China, and South Korea, that will pay for it at any price.This little graphic below summarizes where we are in terms of arable land per person. For the first time ever we’re in danger of slipping below one acre per person:Of course we don‘t need 2.8 acres per person anymore, because of advances in agriculture over time. But gains in yield per acre are slowing. Over the last 40 years, we’ve increased the yield per acre by 2.1% per year. But the pace of those gains is slowing. Since 2000, the increase in yields per acre has averaged less than 1% per year.We may see new innovations in seeds or other technology that we can scarcely imagine now. But any solution will take time and money to implement. Meanwhile, the world’s agriculture markets just get tighter and tighter…nvest In Agriculture: Reason #5Low water supplies cut down farm productivityChina is a biggie to watch when it comes to food supply dynamics. It feeds 20% of the world’s population on only 10% of the world’s arable land and with only 6% of its water. China’s water tables are falling too. In parts of its traditional breadbasket in the north production of wheat and corn is in jeopardy. Chinese officials are well aware of this urgent need.As the Financial Times reports: The country is investing heavily in agriculture. Its agriculture budget increased 27% in 2007, 38% in 2008, and about 20% in 2009. No other big country, barring India, has increased spending on farming so much, says the FT. Still, increasing output will be a challenge.
  • Break up of Exports 2012 FOB (Top 4) In US $Coconut Oil 1,016,090,000Banana, Fresh 646,660,000Tuna 455,100,000 Pineapple & Pineapple Products 414,910,000Banks are required to grant loans to agri company equivalent to 25% of loan portfloio, otherwise the bank will be penalized. Penalty is ½ of 1% of the shortfall.Main Export discussBreak up the 770 B what are they. 40th largest economy in the world Population – 97M GDP 2011- $224.75 B; 2012 - $257.51B (7% Increase) ; 2013 Estimate - $275.62B (7% Increase)Economy is mostly in services (33%) and manufacturing (54%) Total Loans Granted P35,857.12B - Agriloan was P705.11B or 2%
  • Following the dwindling relative importance of agricultural exports to the National Income, agricultural exports also exhibited a Decreasing share to total exports.In the early 1980s, agricultural exports which are composedof processed agricultural products (e.g. Coconut oil and pineapple products) and agro-industrial products accounted for one-third of the country’s total export value.From its share of 37.68% in 1980, it decelerated to 20.78% in 1990 andto as low as 5.21% in 2000 in view of the increasing non-traditional manufactured exports such as electronics — primarily semiconductors and data processing machines.In 2010, however, the share of the agriculture exports to total exports has slightly increased to 7.96% due to an all -time high increase in agricultural exports value by 30.78%.
  • What happened 2000-08 and components
  • Cam Indo Malay Phil Thail Vietnam exclude Singapore
  • 1. Underinvestmentin the sector – Investments, for instance, in irrigation deteriorated in the 1980s until early 1990s. The lack of rural infrastructure investments also resulted in the country’s poor transport network and inefficient ports and shipping. The poor transport system increases the logistical costs for agricultural producers, which is estimated to comprise a third of the final cost to buyer (Dy, 2005).2. Research and development (R&D) a low priority of the government – As mandated by the Agriculture and Fisheries Modernization Act, the government must allocate 1% of agriculture’s GVA for R&D. Nonetheless, on the average, less than 0.5% of the sector’s GVA was allocated for agricultural R&D (Dy, 2005).3. Lack of agricultural credit support – Most agricultural credit was mostly used to fund expensive activities such as post-harvest facilities, marketing and credit subsidies. 5. Structural Weakness in the implementation of Comprehensive Agrarian Reform Program (CARP) – Contributed to the sector’s underdevelopment as landowners postponed investing in their lands due to uncertainties in property rights (Habito et. al, 2003). CARP prohibits the consolidation of farmlands, thus scale farming is a permanent issue. Under the law an individual can own up to five hectares only. Other factors identified to contribute to the decline of investment in the sector are the land policy that limited foreign ownership/lease of land, poor regulatory framework, the changing DA leadership, global market access and the prevalence of corruption in the government.
  • Investment opportunities in philippine agriculture presentation to the FINEX 45th National Conference by George Drysdale

    1. 1. Investment Opportunities in Philippine Agriculture George M. Drysdale Chairman and CEO Marsman Drysdale Group
    2. 2. Worldwide Trends in Agriculture  World grain supply is constrained  Grain consumption rising with population growth  Biofuels are driving agricultural land demand (and cost) higher  Continuous development is steadily decreasing per capita supply of arable land  Water shortages are reducing farm productivity  Demand increasing for fresh fruit and vegetable products  Philippines ideally positioned – geographically, climactically - to meet these opportunities
    3. 3. Overview : Philippine Agriculture Total Land Area 29.8 M Has Agricultural Land Area 9.7 M Has Agricultural Gross Output (2012) US$ 19 B Agriculture Output as a % of GDP (2012) 8% Labor Force employed in Agriculture(2012) 32% Agricultural Loans - % to Total Lending (2012) 2% Agricultural Exports 2012 (FOB) US$ 5.0 B (2% of GDP) Agricultural Imports 2012 (CIF) US$ 8.1 B Source: Bureau of Agricultural Statistics
    4. 4. Philippines Share of Agricultural Exports to Total Exports 1980-2012 38% 21% 5% 6% 8% 8% 8% 11% 10% 0% 5% 10% 15% 20% 25% 30% 35% 40% 1980 1990 2000 2007 2008 2009 2010 2011 2012
    5. 5. Major Philippine Crops 2008-2012 - 50 100 150 200 250 300 2008 2009 2010 2011 2012 BlnPhp,CurrentPrices Rice Corn Coconut Sugarcane Banana Pineapple Mango Cassava Rubber
    6. 6. Leading Philippine Agricultural Exports
    7. 7. 1990 2000 2008 2009 2010 2011 Indonesia 4.2 7.8 32.9 25.3 36.0 47.0 Malaysia 7.5 8.0 27.8 20.9 28.9 39.0 Philippines 1.7 2.0 4.0 3.2 4.1 5.4 Vietnam - 4.0 14.6 13.4 13.7 22.9 Thailand 7.8 12.2 31.7 28.0 35.1 48.0 - 10.0 20.0 30.0 40.0 50.0 US$(B) ASEAN : Export of Agricultural Products 1990-2010
    8. 8. ASEAN: Foreign Direct Investment Inflows 2006-2011 Source: ASEANSecretariat Philippines Cambodia 2006 2007 2008 2009 2010 2011 Cambodia 0.5 0.9 0.8 0.5 0.8 0.9 Indonesia 4.9 6.9 9.3 4.9 1.8 19.2 Malaysia 6.1 8.5 7.2 1.4 9.2 12.0 Philippines 2.9 2.9 1.5 2.0 1.3 1.3 Thailand 9.5 11.3 8.5 4.9 9.1 7.8 Vietnam 2.4 6.7 9.6 7.6 8.0 7.4 - 4.0 8.0 12.0 16.0 20.0 US$(B)
    9. 9. Share of Agriculture in the National Government Expenditures 2008-2012 7.18% 5.68% 5.85% 3.54% 5.48% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 2008 2009 2010 2011 2012
    10. 10. Constraints to Philippine Agriculture  Underinvestment in Agricultural Sector  Research and Development is low priority  Lack of agricultural credit support and ability of farmers to access capital  Comprehensive Agrarian Reform Program (CARP) has led to underinvestment and restriction on farmland consolidation  Limits to foreign ownership of land  Corruption (PDAF, etc.)
    11. 11. Investment Opportunities  High value crops - Coffee, Avocado, Squash, Red Hot Chili, Peanuts, Mongo Beans  New varieties of coconut (higher yields and faster maturities), coconut water  Intercropping (cacao with coconut)  Convert commodities to specialty products  Move up value chain (more finished products)  Agri - tourism
    12. 12. Policy Recommendations  New Free Trade Agreements present immense new market opportunities (Trans-Pacific Partnership)  Aggressively work with DA to develop: - Quarantine protocols - Treaties with importing countries - Reduction of duty rates for Philippine Agricultural Products  Invest in Agricultural Education - Average Philippine farmer is 57 with only 5 years education - Emphasize Agricultural Training in High Schools  Reduce domestic shipping/logistics costs - Review cabotageprovisions - Complete Roll-on / Roll-off system  Modify Land Ownership Rules to encourage more scale
    13. 13. Summary  Philippine Agriculture has enormous potential - Favorable geographic location to export markets - Large supply of arable land  Agriculture has been underinvested in Philippines for last 3 decades  ASEAN neighbors (Thailand, Indonesia, Malaysia, Vietnam) have seen huge export growth  Emphasizing some basic policy changes (logistics, protocols, FTAs, land consolidation, agri-credit) can be important drivers of accelerated agricultural growth

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