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On	
  poverty	
  for	
  
smallholder	
  Filipino	
  rice	
  
farmers	
  
February	
  2014	
  
Chris	
  Tang,	
  MBA	
  2014	
  |	
  Zech	
  Lung,	
  MSMS	
  2014	
  
Christopher	
  Tang,	
  Hong	
  Kong	
  
2014	
  MBA	
  Candidate,	
  MIT	
  Sloan	
  
MicroBinance,	
  Hospitality,	
  Debt	
  capital	
  markets	
  
Email:	
  	
  chris.tang@sloan.mit.edu	
  
About	
  us	
  
	
  
Zech	
  Lung,	
  Singapore	
  
2014	
  MSMS	
  Candidate,	
  MIT	
  Sloan	
  
Engineering,	
  Infrastructure,	
  Project	
  management	
  
Email: 	
  zech.lung@sloan.mit.edu	
  
	
  
2	
  
Agenda	
  
1.  Executive	
  summary	
  
2.  Our	
  approach	
  
3.  Overview	
  of	
  the	
  rice	
  industry	
  and	
  value	
  chain	
  
4.  Why	
  are	
  smallholder	
  rice	
  farmers	
  poor?	
  
5.  Our	
  recommendation:	
  An	
  integrated	
  premium	
  
rice	
  producer	
  
3	
  
Executive	
  Summary	
  
1)	
  Why	
  are	
  smallholder	
  rice	
  farmers	
  poor?	
  
•  Rice	
  is	
  a	
  difBicult	
  crop	
  to	
  make	
  a	
  living	
  on	
  
•  Less	
  credit	
  is	
  available	
  for	
  the	
  agriculture	
  sector	
  
•  Lack	
  of	
  organization	
  is	
  a	
  problem	
  
2)	
  Our	
  recommendation	
  -­‐	
  An	
  integrated	
  
premium	
  rice	
  producer	
  with:	
  
•  A	
  premium	
  rice	
  brand	
  
•  Supportive	
  contract	
  farming	
  
•  Integrated	
  value	
  chain	
  
4	
  
Our	
  approach	
  
Methodology	
  
•  Research	
  about	
  the	
  rice	
  industry,	
  agriculture,	
  and	
  poverty	
  in	
  
the	
  Philippines	
  
•  Visits	
  to	
  industry	
  participants	
  at	
  different	
  stages	
  of	
  the	
  value	
  
chain	
  
•  Over	
  20	
  interviews	
  across	
  the	
  private,	
  public,	
  academic,	
  and	
  
nonproBit	
  sector	
  
Limitations	
  
•  Not	
  a	
  geographically	
  comprehensive	
  study	
  
•  Interviews	
  were	
  with	
  rice	
  industry	
  participants	
  across	
  
different	
  regions	
  
•  We	
  are	
  not	
  agricultural	
  experts	
  
5	
  
Where	
  we	
  went	
  
Jan	
  5	
  –	
  28,	
  2014	
  
Science	
  City	
  of	
  Muñoz,	
  Nueva	
  Ecija	
  
•  PhilRice	
  
•  Tilah	
  Seeds	
  
•  Gratia	
  Plena	
  
Angat,	
  Bulacan	
  
•  Gawad	
  Kalinga	
  Enchanted	
  Farm	
  
•  Reysan	
  Trading	
  Rice	
  Mill	
  
•  Bagong	
  Buhai	
  Ng	
  Mabini	
  Rice	
  Multi-­‐
Purpose	
  Cooperative	
  
	
  
Metro	
  Manila	
  
•  Marikina	
  Market	
  
Los	
  Baños,	
  Laguna	
  
•  IRRI	
  
•  Banca	
  Banca	
  Multi-­‐Purpose	
  
Cooperative	
  
	
  
Source:	
  IRRI	
   6	
  
0	
  
2	
  
4	
  
6	
  
8	
  
10	
  
12	
  
14	
  
16	
  
2003	
   2005	
   2007	
   2009	
   2011	
   2013	
  
Million	
  MT	
  
•  “Philippines	
  is	
  a	
  nation	
  of	
  rice-­‐
eaters.	
  Demand	
  will	
  always	
  be	
  
high.”	
  
	
  
-­‐	
  Joseph	
  the	
  rice	
  trader	
  
Philippine	
  Rice	
  Industry	
  Overview	
  
Strong	
  and	
  stable	
  demand	
  
Philippines	
  domes-c	
  rice	
  consump-on	
  in	
  2013	
  
was	
  almost	
  13	
  million	
  MT	
  
Source:	
  USDA	
  
Filipinos	
  consume	
  just	
  over	
  120kg	
  of	
  rice	
  annually	
  
0	
  
50	
  
100	
  
150	
  
200	
  
250	
  
China	
   India	
   Indonesia	
  Philippines	
   Thailand	
   Vietnam	
  
Per	
  capita	
  consump2on	
  (kg)	
  
18.0	
   22.4	
  
29.4	
   32.1	
  
0	
  
5	
  
10	
  
15	
  
20	
  
25	
  
30	
  
35	
  
2003	
   2004	
   2005	
   2006	
   2007	
   2008	
   2009	
   2010	
   2011	
   2012	
  
PHP	
  /	
  kg	
  
Prices	
  have	
  climbed	
  79	
  percent	
  over	
  the	
  past	
  10	
  
years,	
  most	
  notably	
  during	
  the	
  2008	
  rice	
  crisis	
  	
  	
  
Sources:	
  USDA,	
  CIA	
  World	
  Factbook	
  
7	
  
Philippine	
  Rice	
  Industry	
  Overview	
  
Imports	
  to	
  supplement	
  low	
  local	
  production	
  
Philippines’	
  rice	
  yields	
  have	
  trailed	
  behind	
  
Vietnam	
  and	
  Indonesia	
  
6.3	
  
2.9	
  
4.4	
  
3.1	
   2.6	
  
4.2	
  
6.6	
  
3.0	
  
5.0	
  
3.6	
  
2.9	
  
5.2	
  
0	
  
2	
  
4	
  
6	
  
8	
  
China	
   India	
   Indonesia	
  Philippines	
   Thailand	
   Vietnam	
  
MT	
  /	
  ha	
  
2000	
   2009	
  Source:	
  PhilRice	
  
•  Philippines	
  imports	
  about	
  10	
  
percent	
  of	
  its	
  rice	
  annually.	
  
The	
  top	
  importing	
  countries	
  are:	
  
–  Vietnam	
  
–  Australia	
  
–  Cambodia	
  	
  
–  India	
  
–  Thailand	
  
	
   0	
  
2	
  
4	
  
6	
  
8	
  
10	
  
12	
  
14	
  
16	
  
2003	
   2005	
   2007	
   2009	
   2011	
   2013	
  
Million	
  MT	
  /	
  ha	
  
DomesLc	
  producLon	
   Imports	
  
(2013)	
  
9.3%	
  imported	
  
Philippines	
  domes-c	
  rice	
  supply	
  in	
  2013	
  was	
  
almost	
  11.6	
  million	
  MT,	
  with	
  9	
  percent	
  imports	
  
Source:	
  USDA	
  
29.9	
  
44.1	
  
12.9	
  
4.5	
  
11.0	
  
7.4	
  
0	
  
10	
  
20	
  
30	
  
40	
  
50	
  
China	
   India	
   Indonesia	
  Philippines	
   Thailand	
   Vietnam	
  
Million	
  ha	
  
Philippines	
  has	
  the	
  smallest	
  rice	
  harves-ng	
  area	
  
compared	
  to	
  other	
  major	
  rice-­‐producing	
  Asian	
  
countries	
  
8	
  
Philippine	
  Domestic	
  Rice	
  Industry	
  
Challenges	
  
•  NFA	
  provides	
  subsidies	
  for	
  
imported	
  and	
  domestic	
  rice,	
  
presenting	
  a	
  lower-­‐cost	
  
alternative	
  to	
  rice	
  from	
  domestic	
  
commercial	
  producers	
  
	
  
•  Rice	
  smuggling,	
  owing	
  to	
  the	
  
large	
  difference	
  between	
  world	
  
and	
  domestic	
  prices	
  of	
  rice	
  
•  ASEAN	
  Economic	
  Community	
  
2015	
  will	
  lower	
  the	
  tariffs	
  on	
  
rice	
  imported	
  from	
  neighboring	
  
countries	
  and	
  challenge	
  the	
  local	
  
industry	
  
28	
  
33	
  
20	
  
25	
  
30	
  
35	
  
40	
  
NFA	
   Commercial	
  rice	
  
PHP/	
  kg	
  
The	
  retail	
  price	
  of	
  NFA	
  rice	
  is	
  around	
  15	
  percent	
  
lower	
  than	
  that	
  of	
  commercial	
  rice	
  
Sources:	
  USDA,	
  PhilRice	
  
‘Domestic	
  price	
  of	
  rice	
  had	
  been	
  higher	
  
as	
  much	
  as	
  75	
  percent	
  than	
  the	
  world	
  
price	
  since	
  2000.	
  	
  Although	
  the	
  gap	
  
closed	
  in	
  2008,	
  price	
  differential	
  
widened	
  again	
  to	
  30	
  percent	
  in	
  2012.’	
  
	
  
-­‐	
  Dr.	
  Flordeliza	
  Bordey	
  and	
  Aileen	
  Litonjua,	
  
PhilRice	
  economists	
  
15%	
  	
  
9	
  
Philippines	
  rice	
  value	
  chain	
  
Sources:	
  E.	
  Limon	
  
(1)	
  -­‐	
  the	
  trader-­‐coop-­‐financier	
  can	
  also	
  provide	
  inputs	
  to	
  the	
  farmer	
  as	
  well	
  
(1)	
  
10	
  
Why	
  are	
  smallholder	
  farmers	
  poor?	
  
Rice	
  is	
  a	
  difIicult	
  crop	
  to	
  make	
  a	
  living	
  on	
  
•  Rice	
  farmers	
  generally	
  earn	
  
very	
  little	
  with	
  the	
  size	
  of	
  their	
  
income	
  depending	
  on	
  their	
  farm	
  
yield	
  and	
  costs	
  of	
  labor	
  and	
  
inputs	
  
•  Labor	
  is	
  often	
  the	
  biggest	
  
expense,	
  as	
  a	
  lot	
  of	
  land	
  
preparation	
  and	
  harvesting	
  is	
  
done	
  manually	
  
•  Rice	
  farmers	
  often	
  have	
  other	
  
jobs	
  as	
  carpenters,	
  welders,	
  
tricycle	
  drivers	
  
	
  
Sources:	
  PhilRice,	
  Smart	
  Agriculture	
  book	
  (N.	
  Perlas),	
  Interviews	
  
(1)  PhP	
  15	
  kg	
  for	
  4	
  MT	
  of	
  palay	
  
(2)  Assumes	
  2	
  hectares	
  of	
  land	
  
	
  
6,039	
  
2,398	
   2,147	
  
1,699	
  
1,131	
  
0	
  
1000	
  
2000	
  
3000	
  
4000	
  
5000	
  
6000	
  
7000	
  
Pineapple	
   Mango	
   Cassava	
   Rice	
   Coffee	
  
USD	
  
Rice	
  famers	
  earn	
  less	
  than	
  other	
  single-­‐cropping	
  per	
  
year	
  crops	
  
Revenues USD*/*ha %
Revenue&(1) 1,364&&&&& 100%
Costs
Labor 262&&&&&&&&& 19%
Pesticides 107&&&&&&&&& 8%
Rentals&of&machines,&tools,&and&animals 66&&&&&&&&&&& 5%
Interest&payment&on&crop&loan 49&&&&&&&&&&& 4%
Seeds,&fertilizer,&and&soil&ameliorants 43&&&&&&&&&&& 3%
Other&(fuel,&trasport) 38&&&&&&&&&&& 3%
Irrigation 15&&&&&&&&&&& 1%
Total*cost 581********* 43%
Net*income 782********* 57%
Rice	
  farmers	
  can	
  typically	
  earn	
  ~USD	
  780	
  /	
  yr	
  /	
  ha	
  
(2)	
  
11	
  
Why	
  are	
  smallholder	
  farmers	
  poor?	
  
Credit	
  is	
  less	
  available	
  for	
  the	
  ag	
  sector	
  
•  Credit	
  is	
  not	
  available	
  for	
  the	
  
agriculture	
  sector.	
  In	
  2010,	
  
there	
  was	
  a	
  PHP	
  252	
  billion	
  (USD	
  
5.7	
  billion)	
  credit	
  shortfall	
  for	
  
agricultural	
  and	
  Bisheries	
  
	
  
•  Banks	
  were	
  mandated	
  by	
  law	
  
to	
  allocate	
  25%	
  of	
  their	
  
portfolio	
  to	
  agriculture,	
  but	
  
instead	
  opted	
  to	
  pay	
  penalties	
  
given	
  the	
  ‘high-­‐risk,	
  high-­‐cost’	
  
nature	
  of	
  agriculture	
  loans	
  
Sources:	
  Oxfam	
  
9.2%	
  
3.2%	
  
0%	
  
5%	
  
10%	
  
15%	
  
20%	
  
1980	
   2006	
  
The	
  propor-on	
  of	
  agricultural	
  loans	
  to	
  total	
  loans	
  
has	
  shrunk	
  by	
  65	
  percent	
  over	
  the	
  last	
  two	
  
decades	
  
7.0%	
  
0.9%	
  
0%	
  
5%	
  
10%	
  
15%	
  
20%	
  
1990	
   2006	
  
The	
  propor-on	
  of	
  agricultural	
  produc-on	
  loans	
  to	
  
total	
  loans	
  has	
  also	
  declined	
  by	
  87	
  percent	
  
-­‐	
  65%	
  
-­‐	
  87%	
  
12	
  
Why	
  are	
  smallholder	
  farmers	
  poor?	
  
Lack	
  of	
  organization	
  is	
  a	
  problem	
  
•  Lack	
  of	
  organization	
  among	
  
farmers	
  prohibits	
  them	
  from	
  
realizing	
  economies	
  of	
  scale	
  and	
  
stronger	
  bargaining	
  power	
  
•  Agrarian	
  reform	
  policy	
  has	
  
distributed	
  small	
  parcels	
  of	
  land	
  
to	
  farmers	
  but	
  with	
  limited	
  other	
  
support	
  such	
  as	
  credit,	
  
knowledge,	
  and	
  market	
  access	
  
Sources:	
  FAO,	
  BAS	
  data,	
  Interview	
  with	
  agriculture	
  experts	
  
1	
  
0.76	
  
0	
  
0.2	
  
0.4	
  
0.6	
  
0.8	
  
1	
  
1.2	
  
1985	
   2004	
  
The	
  average	
  farm	
  size	
  has	
  shrunk	
  to	
  0.76	
  ha	
  
‘85	
  percent	
  of	
  all	
  
Filipino	
  farms	
  are	
  no	
  
more	
  than	
  5	
  hectares…’	
  
	
  
-­‐	
  FAO	
  country	
  pro5ile	
  
13	
  
Our	
  Recommendation*	
  
Integrated	
  
Premium	
  
Rice	
  
Producer	
  
I.	
  Premium	
  
rice	
  brand	
  
III.	
  
Integrated	
  
value	
  
chain	
  
II.	
  
Supportive	
  
contract	
  
farming	
  
*	
  Inspired	
  by	
  SL	
  Agritech	
  CorporaLon’s	
  Doña	
  Maria	
  Premium	
  Rice	
  
14	
  
I.	
  Premium	
  rice	
  brand	
  
Rationale	
  	
  
•  Premium	
  rice	
  domestically	
  
earns	
  around	
  80	
  percent	
  higher	
  
than	
  popular	
  medium-­‐quality	
  
rice.	
  This	
  product	
  can	
  earn	
  even	
  
more	
  as	
  an	
  export	
  product.	
  
•  The	
  higher	
  price	
  point	
  allows	
  
higher	
  rewards	
  to	
  the	
  Filipino	
  
farmer.	
  Our	
  example	
  company	
  
awards	
  24	
  percent	
  higher	
  prices	
  
than	
  regular	
  traders.	
  
•  Premium	
  rice	
  insulates	
  the	
  
company	
  from	
  the	
  cannibalizing	
  
effects	
  of	
  subsidized	
  NFA	
  rice	
  
(PHP	
  28/kg),	
  which	
  affects	
  sales	
  
of	
  low	
  to	
  medium-­‐quality	
  
commercial	
  rice	
  (PHP	
  30	
  –	
  38/kg)	
  
	
  
‘Fancy	
  rice	
  commands	
  a	
  higher	
  
price	
  in	
  the	
  [export]	
  market	
  that	
  
can	
  reach	
  $1000	
  per	
  ton,	
  two	
  or	
  
three	
  times	
  more	
  than	
  regular	
  
rice’s	
  $300	
  to	
  500	
  per	
  ton	
  price.’	
  	
  
	
  	
  
	
  –	
  SL	
  Agritech	
  Corp	
  newsletter	
  
17	
  
21	
  
0	
  
5	
  
10	
  
15	
  
20	
  
25	
  
Regular	
  traders	
   SL	
  Agritech	
  
PHP/	
  kg	
  
SL	
  Agritech	
  is	
  able	
  to	
  award	
  24	
  percent	
  higher	
  
prices	
  to	
  farmers	
  for	
  their	
  wet	
  palay	
  
Sources:	
  Interviews,	
  Gintong	
  Bu2l	
  Jul-­‐Aug	
  2013	
  published	
  by	
  SL	
  Agritech	
  CorporaLon	
  
+24%	
  	
  
15	
  
I.	
  Premium	
  rice	
  brand	
  
Action	
  plan	
  	
  
•  Partner	
  with	
  academia	
  to	
  
conduct	
  R&D	
  on	
  breeding	
  
more	
  premium	
  varieties	
  of	
  
rice	
  
	
  
•  Increase	
  modes	
  for	
  the	
  public	
  
to	
  sample	
  your	
  rice,	
  such	
  as	
  
offering	
  ready-­‐made	
  rice	
  or	
  in-­‐
kind	
  sponsoring	
  at	
  events	
  
•  Create	
  a	
  unique	
  packaging	
  for	
  
the	
  product,	
  indicating	
  its	
  
premium	
  value	
  
China’s	
  Professor	
  Yuan	
  Long	
  Ping,	
  the	
  “father”	
  of	
  
hybrid	
  rice	
  
Ready-­‐made	
  rice	
  which	
  allows	
  for	
  easy	
  sampling	
  
This	
  premium	
  rice	
  from	
  Mauri-us	
  offers	
  a	
  good	
  
example	
  of	
  higher-­‐end	
  packaging	
  
16	
  
II.	
  Supportive	
  contract	
  farming	
  
Rationale	
  	
  
•  Promotes	
  specialization,	
  
allowing	
  farmers	
  to	
  do	
  what	
  they	
  
are	
  most	
  efBicient	
  at	
  doing	
  and	
  
what	
  they	
  want	
  to	
  do	
  
•  Realizes	
  increased	
  buyer	
  
power	
  through	
  bulk	
  
purchasing	
  of	
  fertilizer	
  and	
  
other	
  agricultural	
  inputs	
  
	
  
•  Consolidators	
  impose	
  
structure	
  on	
  what	
  is	
  a	
  
fragmented	
  group	
  of	
  land	
  
holdings,	
  delivering	
  inputs	
  and	
  
picking	
  up	
  palay	
  from	
  a	
  mix	
  of	
  
farmer	
  cooperatives	
  and	
  
individual	
  smallholder	
  farmers	
  
	
  
	
  
	
  
	
  
	
  
‘Why	
  would	
  I	
  want	
  to	
  
dry	
  my	
  rice?	
  I’m	
  happy	
  
just	
  selling	
  my	
  wet	
  
palay	
  to	
  the	
  trader.	
  It’s	
  
less	
  trouble.’	
  	
  
	
  -­‐	
  Mr.	
  Casiano	
  Estrella,	
  rice	
  
farmer	
  with	
  0.5	
  hectares	
  of	
  land	
  
17	
  
II.	
  Supportive	
  contract	
  farming	
  
Action	
  plan	
  	
  
•  Recruit	
  and	
  train	
  local	
  trusted	
  
community	
  members	
  as	
  
consolidators	
  
•  Provide	
  inputs	
  and	
  train	
  
farmers	
  in	
  more	
  effective	
  
agricultural	
  techniques	
  and	
  
construct	
  demo	
  farms	
  for	
  
showcasing	
  your	
  value	
  to	
  
overcome	
  farmers’	
  skepticism	
  
•  Guarantee	
  buyback	
  of	
  farmer’s	
  
rice,	
  removing	
  market	
  risk	
  for	
  
the	
  smallholder	
  farmer	
  
Consolidators	
  would	
  be	
  respected	
  and	
  trusted	
  
figures	
  in	
  their	
  farming	
  community	
  and	
  train	
  
farmers	
  
PhilRice	
  has	
  demo	
  farms	
  to	
  show	
  the	
  possibility	
  of	
  
achieving	
  higher	
  yields	
  with	
  lower	
  costs.	
  The	
  10-­‐5	
  
Challenge	
  refers	
  to	
  a	
  yield	
  of	
  10	
  MT	
  with	
  less	
  than	
  
PHP	
  5	
  /	
  kg	
  cost	
  of	
  palay	
  
18	
  
III.	
  Integrated	
  value	
  chain	
  
Rationale	
  	
  
•  An	
  integrated	
  value	
  chain	
  
chain	
  ensures	
  strict	
  quality	
  
control	
  of	
  the	
  product	
  
•  An	
  integrated	
  chain	
  allows	
  
better	
  planning	
  along	
  the	
  
different	
  links	
  of	
  the	
  value	
  
chain,	
  leading	
  to	
  improved	
  
utilization	
  of	
  equipment	
  and	
  less	
  
wastage	
  
	
  
•  An	
  integrated	
  value	
  chain	
  
ensures	
  less	
  erosion	
  of	
  value	
  
for	
  the	
  company	
  by	
  cutting	
  out	
  
the	
  middlemen	
  and	
  other	
  
operators	
  e.g.	
  mills	
  along	
  the	
  
value	
  chain	
  
19	
  
The	
  integrated	
  value	
  chain	
  would	
  cons-tute	
  input	
  
provision,	
  rice	
  trading,	
  milling,	
  and	
  wholesale	
  	
  
Input	
  Provider	
  
Farmer	
  
Rice	
  Trader	
  
Mill	
  
Wholesaler	
  
Retail	
  
III.	
  Integrated	
  value	
  chain	
  
Action	
  plan	
  
•  Purchase	
  assets	
  along	
  the	
  
value	
  chain	
  e.g.	
  dryer,	
  mill,	
  and	
  
warehouse.	
  Such	
  assets	
  and	
  
funding	
  may	
  be	
  applied	
  for	
  
through	
  government	
  programs	
  
from	
  the	
  Department	
  of	
  Agrarian	
  
Reform	
  and	
  the	
  Department	
  of	
  
Agriculture	
  
•  Integrate	
  management	
  
information	
  systems	
  to	
  
coordinate	
  all	
  links	
  of	
  the	
  
supply	
  chain	
  
This	
  rice	
  dryer	
  (background)	
  was	
  donated	
  by	
  the	
  
Department	
  of	
  Agriculture	
  to	
  an	
  organic	
  rice	
  
producer	
  
20	
  
Our	
  Recommendation*	
  
Integrated	
  
Premium	
  
Rice	
  
Producer	
  
I.	
  Premium	
  
rice	
  brand	
  
III.	
  
Integrated	
  
value	
  
chain	
  
II.	
  
Supportive	
  
contract	
  
farming	
  
*	
  Inspired	
  by	
  SL	
  Agritech	
  CorporaLon’s	
  Doña	
  Maria	
  Premium	
  Rice	
  
21	
  
Questions?	
  
22	
  
Appendices	
  
Input	
  
Provider	
  
Farmer	
  
Rice	
  
Trader	
  
Mill	
   Wholesaler	
   Retailer	
  
Appendix	
  IA:	
  Input	
  provider,	
  Nueva	
  Ecija	
  
Tilah	
  Seed	
  Center	
  
Source:	
  Interview	
  
INSERT	
  PHOTO	
  HERE	
  
•  Sells	
  more	
  Registered	
  and	
  
Certified	
  seeds	
  (90%)	
  vs.	
  Hybrid	
  
seeds	
  (10%)	
  as	
  the	
  latter	
  can	
  only	
  
be	
  used	
  for	
  one	
  planting	
  and	
  
requires	
  expensive	
  inputs	
  to	
  reap	
  
full	
  higher-­‐yielding	
  potential	
  
	
  
•  Transplanting	
  needs	
  40	
  –	
  80kg	
  
of	
  seeds	
  vs.	
  direct	
  seeding	
  
(120-­‐160kg)	
  per	
  hectare	
  
LocaLon: 	
  Muñoz,	
  Nueva	
  Ecija	
  
Established: 	
  1995	
  (started	
  because	
  of	
  dearth	
  of	
   	
   	
  
	
   	
  supply	
  in	
  seeds	
  e.g.	
  in	
  1980s	
  there	
  were	
  only	
  
	
   	
  18	
  seed	
  growers)	
  
Company: 	
  Family-­‐owned	
  
Customers: 	
  Over	
  5,000	
  customers	
  
Value	
  Prop.: 	
  Sells	
  seeds	
  (80%	
  rev)	
  and	
  ferLlizers	
  (20%	
  rev)	
  
Key	
  partners: 	
  Has	
  100	
  contract	
  seed	
  growers	
  and	
  provides	
  
	
   	
  them	
  with	
  seeds,	
  ferLlizer,	
  and	
  credit.	
  
Key	
  acLviLes: 	
  Has	
  a	
  demonstraLon	
  farm	
  to	
  showcase	
  their	
  
	
   	
  latest	
  seeds	
  
	
  
Pesos%/%kg USD%/%kg
Foundation 80 1.82
Registered 40 0.91
Certified 30 0.68
Prices	
  for	
  inbred	
  seeds	
  
24	
  
Appendix	
  IB:	
  Rice	
  Farmer,	
  Laguna	
  	
  
Mr.	
  Casiano	
  Estrella	
  
Input	
  
Provider	
  
Farmer	
  
Rice	
  
Trader	
  
Mill	
   Wholesaler	
   Retailer	
  
Source:	
  Interview	
  
PosiLon: 	
  Chairman,	
  Banca	
  Banca	
  MulL-­‐Purpose	
   	
  
	
   	
  CooperaLve	
  
Age: 	
   	
  70	
  years	
  old	
  
Farm	
  area: 	
  0.5	
  hectares	
  
LocaLon: 	
  Victoria,	
  Laguna	
  
	
  
•  Very	
  content	
  just	
  to	
  sell	
  his	
  wet	
  
palay	
  to	
  the	
  trader	
  at	
  PHP	
  13-­‐17	
  /	
  
kg	
  
•  Coop	
  does	
  not	
  have	
  land	
  for	
  a	
  
dryer	
  
•  Smallholder	
  farmers	
  can	
  make	
  a	
  
decent	
  living,	
  with	
  adequate	
  
credit	
  support	
  from	
  the	
  
cooperative	
  and	
  agricultural	
  
techniques	
  imparted	
  by	
  IRRI	
  
Palay	
  price	
  (PHP	
  /	
  kg)
Dry	
  season 15
Wet	
  season 13
Palay	
  prices	
  in	
  Los	
  Baños	
  
25	
  
Appendix	
  IC:	
  Farmer	
  Cooperative,	
  Nueva	
  Ecija	
  	
  
Bagong	
  Buhai	
  Ng	
  Mabini	
  Rice	
  MPC	
  
Input	
  
Provider	
  
Farmer	
  
Rice	
  
Trader	
  
Mill	
   Wholesaler	
   Retailer	
  
Name:	
   	
  Mr.	
  Florencio	
  Sudoy,	
  CooperaLve	
  Chairman	
  
CooperaLve: 	
  Bagong	
  Buhai	
  Ng	
  Mabini	
  Rice	
  MulL-­‐Purpose	
  
	
   	
  CooperaLve	
  (Est.	
  2005,	
  365	
  members)	
  
LocaLon: 	
  Muñoz,	
  Nueva	
  Ecija	
  
Total	
  area: 	
  675	
  ha	
  (average	
  plot	
  =	
  1.8	
  ha)	
  
FuncLon: 	
  Distributes	
  and	
  finances	
  inputs	
  of	
  members	
  	
  
	
   	
  Dries	
  rice	
  of	
  members	
  	
  (30	
  MT	
  /	
  8	
  hr)	
  
	
   	
  Stores	
  rice	
  (20,000	
  bag	
  capacity)	
  
	
   	
  Mills	
  rice	
  internally	
  for	
  personal	
  consumpLon	
  
	
   	
  Buys	
  rice	
  from	
  non-­‐members	
  
Assets:	
   	
  Dryer,	
  mill,	
  warehouse,	
  2.5	
  ha	
  plot	
  
Other	
  notes: 	
  Profits	
  are	
  either	
  distributed	
  to	
  individual	
   	
  
	
   	
  farmers	
  or	
  ploughed	
  back	
  to	
  the	
  cooperaLve	
  
	
   	
  for	
  collecLve	
  benefit,	
  such	
  as	
  educaLon,	
   	
  
	
   	
  community	
  development	
  aher	
  disasters	
  
•  Farmers	
  have	
  higher	
  yields	
  in	
  
the	
  dry	
  season	
  over	
  the	
  wet	
  
season	
  
•  Loan	
  size	
  for	
  members	
  is	
  
typically	
  PHP	
  9,000	
  (USD	
  205)	
  
with	
  a	
  8-­‐10%	
  interest	
  rate	
  per	
  
cropping	
  and	
  4-­‐5	
  month	
  payback	
  
period	
  
Source:	
  Interview	
  
26	
  
Input	
  
Provider	
  
Farmer	
  
Rice	
  
Trader	
  
Mill	
   Wholesaler	
   Retailer	
  
•  Village	
  mill	
  earns	
  more	
  
revenue	
  on	
  mill	
  by-­‐products	
  
e.g.	
  rice	
  bran,	
  hull,	
  so	
  has	
  no	
  
incentive	
  to	
  increase	
  milling	
  
efBiciency	
  
•  Earns	
  a	
  decent	
  but	
  equitable	
  
profit	
  
	
  
•  Challenges:	
  
–  Two	
  other	
  mills	
  nearby	
  
–  Thin	
  margins	
  
(commodity	
  service)	
  
Appendix	
  ID:	
  Small	
  mill,	
  Bulacan	
  
Reysan	
  Mill	
  
Revenue PHP/kg kg+/+day PHP+/+day
Milling&fee 0.4 4,000&&&&&&&&&&&& 1,600&&&&&&&&&&
Sale&of&rice&hull 4 800&&&&&&&&&&&&&&& 3,200&&&&&&&&&&
Sale&of&rice&bran 6 400&&&&&&&&&&&&&&& 2,400&&&&&&&&&&
Sale&of&rice&brokens 10 320&&&&&&&&&&&&&&& 3,200&&&&&&&&&&
TOTAL 10,400++++++++
Expenses PHP/kg kg+/+day PHP+/+day
Operators&salary&(2&pax) 0.4 4,000&&&&&&&&&&&& 1,600&&&&&&&&&&
Diesel 0.5 4,000&&&&&&&&&&&& 2,000&&&&&&&&&&
TOTAL 3,600++++++++++
Gross+Profit: 6,800++++++++++
The	
  miller	
  earns	
  up	
  to	
  double	
  the	
  revenue	
  on	
  mill	
  
by-­‐products	
  than	
  for	
  milling	
  fees	
  
LocaLon: 	
  Angat,	
  Bulacan	
  
Owner: 	
  A	
  wealthy	
  farmer	
  
Customers: 	
  Individual	
  rice	
  farmers,	
  ohen	
  
	
   	
  selling	
  rice	
  for	
  personal
	
   	
  consumpLon	
  
Value	
  Prop.: 	
  Mills	
  rice,	
  sells	
  mill	
  by-­‐
	
   	
  products	
  that	
  include	
  bran	
  
	
   	
  and	
  hull	
  
	
  
Source:	
  Interview	
   27	
  
Angelica)
(Bago) Sinandomeng
Sinandomeng)
(Laon)
Premium)
(Dinorado)from)
Mindoro)
Revenue&/&kg 37 34 32 46
Cost 35 31.6 30 44
Profit 2 2.4 2 2
Gross)Margin 5.4% 7.1% 6.3% 4.3%
Appendix	
  IE:	
  Rice	
  retailer,	
  Manila	
  
Vanity’s	
  Rice	
  Store,	
  Marikina	
  Market	
  
Input	
  
Provider	
  
Farmer	
  
Rice	
  
Trader	
  
Mill	
   Wholesaler	
   Retailer	
  
•  Thin	
  gross	
  margins	
  	
  
(4-­‐7	
  percent)	
  
•  Typically	
  sells	
  250kg	
  per	
  day	
  
(PHP	
  500	
  gross	
  proBit	
  per	
  day)	
  
•  Has	
  five	
  regular	
  suppliers	
  across	
  
the	
  different	
  types	
  of	
  rice	
  
•  Keeps	
  good	
  relations	
  with	
  
regular	
  customers	
  and	
  also	
  
delivers	
  to	
  restaurants	
  
Thin	
  gross	
  margins	
  of	
  4	
  –	
  7	
  percent	
  
Name:	
   	
  CrisLna	
  Pina	
  
LocaLon: 	
  Markina	
  Market,	
  Manila	
  
Customers: 	
  Individuals,	
  restaurants	
  
Source:	
  Interview	
   28	
  
Appendix	
  IF:	
  Rice	
  retailer,	
  Nueva	
  Ecija	
  
Norman	
  Trading	
  
Input	
  
Provider	
  
Farmer	
  
Rice	
  
Trader	
  
Mill	
   Wholesaler	
   Retailer	
  
•  Owner	
  is	
  required	
  to	
  sell	
  NFA	
  
rice	
  at	
  PHP	
  28/kg,	
  which	
  is	
  less	
  
than	
  commercial	
  rice	
  (PHP	
  
33).	
  The	
  cost	
  for	
  NFA	
  rice	
  is	
  PHP	
  
26/kg	
  plus	
  an	
  additional	
  ~PHP	
  1	
  
for	
  the	
  transportation	
  to	
  the	
  NFA	
  
rice	
  dispensary	
  
•  Her	
  biggest	
  concern	
  is	
  not	
  
securing	
  a	
  supply	
  of	
  rice	
  
•  The	
  rice	
  mills	
  deliver	
  rice	
  to	
  
her	
  shop	
  
Name:	
   	
  Myra	
  
LocaLon: 	
  Muñoz,	
  Nueva	
  Ecija	
  
Established: 	
  1981	
  
Customers: 	
  Individuals,	
  restaurants	
  
	
  
Source:	
  Interview	
   29	
  
Appendix	
  IG:	
  Integrated	
  rice	
  producer	
  
SL	
  Agritech	
  Corporation	
  
Input	
  
Provider	
  
Farmer	
  
Rice	
  
Trader	
  
Mill	
   Wholesaler	
   Retailer	
  
•  Premium	
  brand	
  has	
  the	
  
potential	
  to	
  help	
  the	
  
smallholder	
  rice	
  farmer	
  
•  Has	
  exported	
  premium	
  rice	
  	
  
to	
  Dubai,	
  LA,	
  Netherlands,	
  Hong	
  
Kong,	
  and	
  Indonesia	
  
•  An	
  integrated	
  value	
  chain	
  
allows	
  for	
  strict	
  quality	
  control	
  
•  This	
  company	
  formed	
  the	
  
basis	
  of	
  our	
  recommendation	
  
Name:	
   	
  SL	
  Agritech	
  CorporaLon	
  
Established: 	
  1998	
  
Company: 	
  Family-­‐owned	
  
ObjecLve: 	
  Promote	
  the	
  development,	
   	
   	
   	
  
	
   	
  commercializaLon	
  and	
  growth	
  of	
  hybrid	
  rice	
  
	
   	
  technology	
  
Products: 	
  Doña	
  Maria	
  Premium	
  Quality	
  Rice	
  (5	
  variants)	
  
	
   	
  SL-­‐8H	
  high-­‐yielding	
  seeds,	
  bactericide,	
   	
  
	
   	
  insecLcide,	
  plant	
  energizer	
  
Source:	
  Interview,	
  company	
  website	
   30	
  
Appendix	
  II:	
  Higher	
  yielding	
  rice	
  
Another	
  potential	
  solution	
  for	
  raising	
  incomes	
  
Revenues Inbred SL-8H
Yield&(kg&/&ha) 4,500&&&& 8,000&&&&&&
Price 0.36&&&&&& 0.36&&&&&&&&
Total5revenue 1,6365555 2,909555555
Costs
Seeds 55&&&&&&&&&& 109&&&&&&&&&&
Fertilizer 335&&&&&&& 365&&&&&&&&&&
Pesticides 71&&&&&&&&&& 71&&&&&&&&&&&&
Labor&(incl.&harvest&+&irrigation) 636&&&&&&& 778&&&&&&&&&&
Total5cost 1,0975555 1,323555555
Net5income 5395555555 1,586555555
Source:	
  SL	
  Agritech	
  presentaLon	
  
•  Higher	
  yielding	
  rice	
  of	
  10	
  –	
  17	
  
MT	
  /	
  ha	
  will	
  increase	
  revenue	
  
for	
  farmers	
  
•  While	
  the	
  costs	
  of	
  inputs	
  are	
  
higher,	
  the	
  net	
  income	
  is	
  
higher	
  because	
  of	
  higher	
  yields	
  
•  However,	
  this	
  is	
  only	
  an	
  
incremental	
  improvement	
  as	
  
traditional	
  traders	
  are	
  still	
  in	
  
control	
  of	
  the	
  value	
  chain	
  
Farmers	
  can	
  almost	
  triple	
  their	
  income	
  on	
  a	
  single	
  
harvest	
  using	
  high-­‐yielding	
  hybrid	
  seeds	
  
SL	
  Agritech’s	
  SL-­‐8H	
  high-­‐yielding	
  hybrid	
  seeds	
  
31	
  
Appendix	
  III:	
  Diversifying	
  rice	
  production	
  
Crops	
  with	
  potential	
  for	
  supplementing	
  incomes	
  
Source:	
  PhilRice,	
  Interviews	
  
•  Corn	
  
•  Mungbean	
  
•  Mushrooms	
  
•  Vermicast	
  (the	
  end-­‐product	
  of	
  the	
  breakdown	
  
of	
  organic	
  matter	
  by	
  an	
  earthworm)	
  
•  Ducks	
  
•  Fish	
  e.g.	
  tilapia	
  
32	
  
Why	
  not	
  our	
  original	
  solution?	
  
Selling	
  rice	
  dryers/storage	
  did	
  not	
  suit	
  the	
  Philippines	
  
• Government	
  distributes	
  these	
  devices	
  for	
  free	
  
through	
  DA/DAR	
  
• Farmers	
  are	
  often	
  happy	
  not	
  to	
  dry	
  their	
  palay	
  
as	
  it	
  is	
  troublesome	
  and	
  may	
  not	
  be	
  proBitable	
  
• Farmers	
  may	
  not	
  have	
  their	
  own	
  transportation	
  
• Economies	
  of	
  scale	
  and	
  lower	
  buyer	
  costs	
  cannot	
  
be	
  reached	
  this	
  way	
  
Selling	
  
dryers	
  &	
  
storage	
  
bags	
  on	
  
credit	
  
Training	
  on	
  dryer	
  operation	
  &	
  maintenance	
  
Connection	
  to	
  global	
  markets	
  
33	
  
34	
  

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Study on smallholder rice farmers - Feb 2014

  • 1. On  poverty  for   smallholder  Filipino  rice   farmers   February  2014   Chris  Tang,  MBA  2014  |  Zech  Lung,  MSMS  2014  
  • 2. Christopher  Tang,  Hong  Kong   2014  MBA  Candidate,  MIT  Sloan   MicroBinance,  Hospitality,  Debt  capital  markets   Email:    chris.tang@sloan.mit.edu   About  us     Zech  Lung,  Singapore   2014  MSMS  Candidate,  MIT  Sloan   Engineering,  Infrastructure,  Project  management   Email:  zech.lung@sloan.mit.edu     2  
  • 3. Agenda   1.  Executive  summary   2.  Our  approach   3.  Overview  of  the  rice  industry  and  value  chain   4.  Why  are  smallholder  rice  farmers  poor?   5.  Our  recommendation:  An  integrated  premium   rice  producer   3  
  • 4. Executive  Summary   1)  Why  are  smallholder  rice  farmers  poor?   •  Rice  is  a  difBicult  crop  to  make  a  living  on   •  Less  credit  is  available  for  the  agriculture  sector   •  Lack  of  organization  is  a  problem   2)  Our  recommendation  -­‐  An  integrated   premium  rice  producer  with:   •  A  premium  rice  brand   •  Supportive  contract  farming   •  Integrated  value  chain   4  
  • 5. Our  approach   Methodology   •  Research  about  the  rice  industry,  agriculture,  and  poverty  in   the  Philippines   •  Visits  to  industry  participants  at  different  stages  of  the  value   chain   •  Over  20  interviews  across  the  private,  public,  academic,  and   nonproBit  sector   Limitations   •  Not  a  geographically  comprehensive  study   •  Interviews  were  with  rice  industry  participants  across   different  regions   •  We  are  not  agricultural  experts   5  
  • 6. Where  we  went   Jan  5  –  28,  2014   Science  City  of  Muñoz,  Nueva  Ecija   •  PhilRice   •  Tilah  Seeds   •  Gratia  Plena   Angat,  Bulacan   •  Gawad  Kalinga  Enchanted  Farm   •  Reysan  Trading  Rice  Mill   •  Bagong  Buhai  Ng  Mabini  Rice  Multi-­‐ Purpose  Cooperative     Metro  Manila   •  Marikina  Market   Los  Baños,  Laguna   •  IRRI   •  Banca  Banca  Multi-­‐Purpose   Cooperative     Source:  IRRI   6  
  • 7. 0   2   4   6   8   10   12   14   16   2003   2005   2007   2009   2011   2013   Million  MT   •  “Philippines  is  a  nation  of  rice-­‐ eaters.  Demand  will  always  be   high.”     -­‐  Joseph  the  rice  trader   Philippine  Rice  Industry  Overview   Strong  and  stable  demand   Philippines  domes-c  rice  consump-on  in  2013   was  almost  13  million  MT   Source:  USDA   Filipinos  consume  just  over  120kg  of  rice  annually   0   50   100   150   200   250   China   India   Indonesia  Philippines   Thailand   Vietnam   Per  capita  consump2on  (kg)   18.0   22.4   29.4   32.1   0   5   10   15   20   25   30   35   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   PHP  /  kg   Prices  have  climbed  79  percent  over  the  past  10   years,  most  notably  during  the  2008  rice  crisis       Sources:  USDA,  CIA  World  Factbook   7  
  • 8. Philippine  Rice  Industry  Overview   Imports  to  supplement  low  local  production   Philippines’  rice  yields  have  trailed  behind   Vietnam  and  Indonesia   6.3   2.9   4.4   3.1   2.6   4.2   6.6   3.0   5.0   3.6   2.9   5.2   0   2   4   6   8   China   India   Indonesia  Philippines   Thailand   Vietnam   MT  /  ha   2000   2009  Source:  PhilRice   •  Philippines  imports  about  10   percent  of  its  rice  annually.   The  top  importing  countries  are:   –  Vietnam   –  Australia   –  Cambodia     –  India   –  Thailand     0   2   4   6   8   10   12   14   16   2003   2005   2007   2009   2011   2013   Million  MT  /  ha   DomesLc  producLon   Imports   (2013)   9.3%  imported   Philippines  domes-c  rice  supply  in  2013  was   almost  11.6  million  MT,  with  9  percent  imports   Source:  USDA   29.9   44.1   12.9   4.5   11.0   7.4   0   10   20   30   40   50   China   India   Indonesia  Philippines   Thailand   Vietnam   Million  ha   Philippines  has  the  smallest  rice  harves-ng  area   compared  to  other  major  rice-­‐producing  Asian   countries   8  
  • 9. Philippine  Domestic  Rice  Industry   Challenges   •  NFA  provides  subsidies  for   imported  and  domestic  rice,   presenting  a  lower-­‐cost   alternative  to  rice  from  domestic   commercial  producers     •  Rice  smuggling,  owing  to  the   large  difference  between  world   and  domestic  prices  of  rice   •  ASEAN  Economic  Community   2015  will  lower  the  tariffs  on   rice  imported  from  neighboring   countries  and  challenge  the  local   industry   28   33   20   25   30   35   40   NFA   Commercial  rice   PHP/  kg   The  retail  price  of  NFA  rice  is  around  15  percent   lower  than  that  of  commercial  rice   Sources:  USDA,  PhilRice   ‘Domestic  price  of  rice  had  been  higher   as  much  as  75  percent  than  the  world   price  since  2000.    Although  the  gap   closed  in  2008,  price  differential   widened  again  to  30  percent  in  2012.’     -­‐  Dr.  Flordeliza  Bordey  and  Aileen  Litonjua,   PhilRice  economists   15%     9  
  • 10. Philippines  rice  value  chain   Sources:  E.  Limon   (1)  -­‐  the  trader-­‐coop-­‐financier  can  also  provide  inputs  to  the  farmer  as  well   (1)   10  
  • 11. Why  are  smallholder  farmers  poor?   Rice  is  a  difIicult  crop  to  make  a  living  on   •  Rice  farmers  generally  earn   very  little  with  the  size  of  their   income  depending  on  their  farm   yield  and  costs  of  labor  and   inputs   •  Labor  is  often  the  biggest   expense,  as  a  lot  of  land   preparation  and  harvesting  is   done  manually   •  Rice  farmers  often  have  other   jobs  as  carpenters,  welders,   tricycle  drivers     Sources:  PhilRice,  Smart  Agriculture  book  (N.  Perlas),  Interviews   (1)  PhP  15  kg  for  4  MT  of  palay   (2)  Assumes  2  hectares  of  land     6,039   2,398   2,147   1,699   1,131   0   1000   2000   3000   4000   5000   6000   7000   Pineapple   Mango   Cassava   Rice   Coffee   USD   Rice  famers  earn  less  than  other  single-­‐cropping  per   year  crops   Revenues USD*/*ha % Revenue&(1) 1,364&&&&& 100% Costs Labor 262&&&&&&&&& 19% Pesticides 107&&&&&&&&& 8% Rentals&of&machines,&tools,&and&animals 66&&&&&&&&&&& 5% Interest&payment&on&crop&loan 49&&&&&&&&&&& 4% Seeds,&fertilizer,&and&soil&ameliorants 43&&&&&&&&&&& 3% Other&(fuel,&trasport) 38&&&&&&&&&&& 3% Irrigation 15&&&&&&&&&&& 1% Total*cost 581********* 43% Net*income 782********* 57% Rice  farmers  can  typically  earn  ~USD  780  /  yr  /  ha   (2)   11  
  • 12. Why  are  smallholder  farmers  poor?   Credit  is  less  available  for  the  ag  sector   •  Credit  is  not  available  for  the   agriculture  sector.  In  2010,   there  was  a  PHP  252  billion  (USD   5.7  billion)  credit  shortfall  for   agricultural  and  Bisheries     •  Banks  were  mandated  by  law   to  allocate  25%  of  their   portfolio  to  agriculture,  but   instead  opted  to  pay  penalties   given  the  ‘high-­‐risk,  high-­‐cost’   nature  of  agriculture  loans   Sources:  Oxfam   9.2%   3.2%   0%   5%   10%   15%   20%   1980   2006   The  propor-on  of  agricultural  loans  to  total  loans   has  shrunk  by  65  percent  over  the  last  two   decades   7.0%   0.9%   0%   5%   10%   15%   20%   1990   2006   The  propor-on  of  agricultural  produc-on  loans  to   total  loans  has  also  declined  by  87  percent   -­‐  65%   -­‐  87%   12  
  • 13. Why  are  smallholder  farmers  poor?   Lack  of  organization  is  a  problem   •  Lack  of  organization  among   farmers  prohibits  them  from   realizing  economies  of  scale  and   stronger  bargaining  power   •  Agrarian  reform  policy  has   distributed  small  parcels  of  land   to  farmers  but  with  limited  other   support  such  as  credit,   knowledge,  and  market  access   Sources:  FAO,  BAS  data,  Interview  with  agriculture  experts   1   0.76   0   0.2   0.4   0.6   0.8   1   1.2   1985   2004   The  average  farm  size  has  shrunk  to  0.76  ha   ‘85  percent  of  all   Filipino  farms  are  no   more  than  5  hectares…’     -­‐  FAO  country  pro5ile   13  
  • 14. Our  Recommendation*   Integrated   Premium   Rice   Producer   I.  Premium   rice  brand   III.   Integrated   value   chain   II.   Supportive   contract   farming   *  Inspired  by  SL  Agritech  CorporaLon’s  Doña  Maria  Premium  Rice   14  
  • 15. I.  Premium  rice  brand   Rationale     •  Premium  rice  domestically   earns  around  80  percent  higher   than  popular  medium-­‐quality   rice.  This  product  can  earn  even   more  as  an  export  product.   •  The  higher  price  point  allows   higher  rewards  to  the  Filipino   farmer.  Our  example  company   awards  24  percent  higher  prices   than  regular  traders.   •  Premium  rice  insulates  the   company  from  the  cannibalizing   effects  of  subsidized  NFA  rice   (PHP  28/kg),  which  affects  sales   of  low  to  medium-­‐quality   commercial  rice  (PHP  30  –  38/kg)     ‘Fancy  rice  commands  a  higher   price  in  the  [export]  market  that   can  reach  $1000  per  ton,  two  or   three  times  more  than  regular   rice’s  $300  to  500  per  ton  price.’          –  SL  Agritech  Corp  newsletter   17   21   0   5   10   15   20   25   Regular  traders   SL  Agritech   PHP/  kg   SL  Agritech  is  able  to  award  24  percent  higher   prices  to  farmers  for  their  wet  palay   Sources:  Interviews,  Gintong  Bu2l  Jul-­‐Aug  2013  published  by  SL  Agritech  CorporaLon   +24%     15  
  • 16. I.  Premium  rice  brand   Action  plan     •  Partner  with  academia  to   conduct  R&D  on  breeding   more  premium  varieties  of   rice     •  Increase  modes  for  the  public   to  sample  your  rice,  such  as   offering  ready-­‐made  rice  or  in-­‐ kind  sponsoring  at  events   •  Create  a  unique  packaging  for   the  product,  indicating  its   premium  value   China’s  Professor  Yuan  Long  Ping,  the  “father”  of   hybrid  rice   Ready-­‐made  rice  which  allows  for  easy  sampling   This  premium  rice  from  Mauri-us  offers  a  good   example  of  higher-­‐end  packaging   16  
  • 17. II.  Supportive  contract  farming   Rationale     •  Promotes  specialization,   allowing  farmers  to  do  what  they   are  most  efBicient  at  doing  and   what  they  want  to  do   •  Realizes  increased  buyer   power  through  bulk   purchasing  of  fertilizer  and   other  agricultural  inputs     •  Consolidators  impose   structure  on  what  is  a   fragmented  group  of  land   holdings,  delivering  inputs  and   picking  up  palay  from  a  mix  of   farmer  cooperatives  and   individual  smallholder  farmers             ‘Why  would  I  want  to   dry  my  rice?  I’m  happy   just  selling  my  wet   palay  to  the  trader.  It’s   less  trouble.’      -­‐  Mr.  Casiano  Estrella,  rice   farmer  with  0.5  hectares  of  land   17  
  • 18. II.  Supportive  contract  farming   Action  plan     •  Recruit  and  train  local  trusted   community  members  as   consolidators   •  Provide  inputs  and  train   farmers  in  more  effective   agricultural  techniques  and   construct  demo  farms  for   showcasing  your  value  to   overcome  farmers’  skepticism   •  Guarantee  buyback  of  farmer’s   rice,  removing  market  risk  for   the  smallholder  farmer   Consolidators  would  be  respected  and  trusted   figures  in  their  farming  community  and  train   farmers   PhilRice  has  demo  farms  to  show  the  possibility  of   achieving  higher  yields  with  lower  costs.  The  10-­‐5   Challenge  refers  to  a  yield  of  10  MT  with  less  than   PHP  5  /  kg  cost  of  palay   18  
  • 19. III.  Integrated  value  chain   Rationale     •  An  integrated  value  chain   chain  ensures  strict  quality   control  of  the  product   •  An  integrated  chain  allows   better  planning  along  the   different  links  of  the  value   chain,  leading  to  improved   utilization  of  equipment  and  less   wastage     •  An  integrated  value  chain   ensures  less  erosion  of  value   for  the  company  by  cutting  out   the  middlemen  and  other   operators  e.g.  mills  along  the   value  chain   19   The  integrated  value  chain  would  cons-tute  input   provision,  rice  trading,  milling,  and  wholesale     Input  Provider   Farmer   Rice  Trader   Mill   Wholesaler   Retail  
  • 20. III.  Integrated  value  chain   Action  plan   •  Purchase  assets  along  the   value  chain  e.g.  dryer,  mill,  and   warehouse.  Such  assets  and   funding  may  be  applied  for   through  government  programs   from  the  Department  of  Agrarian   Reform  and  the  Department  of   Agriculture   •  Integrate  management   information  systems  to   coordinate  all  links  of  the   supply  chain   This  rice  dryer  (background)  was  donated  by  the   Department  of  Agriculture  to  an  organic  rice   producer   20  
  • 21. Our  Recommendation*   Integrated   Premium   Rice   Producer   I.  Premium   rice  brand   III.   Integrated   value   chain   II.   Supportive   contract   farming   *  Inspired  by  SL  Agritech  CorporaLon’s  Doña  Maria  Premium  Rice   21  
  • 24. Input   Provider   Farmer   Rice   Trader   Mill   Wholesaler   Retailer   Appendix  IA:  Input  provider,  Nueva  Ecija   Tilah  Seed  Center   Source:  Interview   INSERT  PHOTO  HERE   •  Sells  more  Registered  and   Certified  seeds  (90%)  vs.  Hybrid   seeds  (10%)  as  the  latter  can  only   be  used  for  one  planting  and   requires  expensive  inputs  to  reap   full  higher-­‐yielding  potential     •  Transplanting  needs  40  –  80kg   of  seeds  vs.  direct  seeding   (120-­‐160kg)  per  hectare   LocaLon:  Muñoz,  Nueva  Ecija   Established:  1995  (started  because  of  dearth  of          supply  in  seeds  e.g.  in  1980s  there  were  only      18  seed  growers)   Company:  Family-­‐owned   Customers:  Over  5,000  customers   Value  Prop.:  Sells  seeds  (80%  rev)  and  ferLlizers  (20%  rev)   Key  partners:  Has  100  contract  seed  growers  and  provides      them  with  seeds,  ferLlizer,  and  credit.   Key  acLviLes:  Has  a  demonstraLon  farm  to  showcase  their      latest  seeds     Pesos%/%kg USD%/%kg Foundation 80 1.82 Registered 40 0.91 Certified 30 0.68 Prices  for  inbred  seeds   24  
  • 25. Appendix  IB:  Rice  Farmer,  Laguna     Mr.  Casiano  Estrella   Input   Provider   Farmer   Rice   Trader   Mill   Wholesaler   Retailer   Source:  Interview   PosiLon:  Chairman,  Banca  Banca  MulL-­‐Purpose        CooperaLve   Age:    70  years  old   Farm  area:  0.5  hectares   LocaLon:  Victoria,  Laguna     •  Very  content  just  to  sell  his  wet   palay  to  the  trader  at  PHP  13-­‐17  /   kg   •  Coop  does  not  have  land  for  a   dryer   •  Smallholder  farmers  can  make  a   decent  living,  with  adequate   credit  support  from  the   cooperative  and  agricultural   techniques  imparted  by  IRRI   Palay  price  (PHP  /  kg) Dry  season 15 Wet  season 13 Palay  prices  in  Los  Baños   25  
  • 26. Appendix  IC:  Farmer  Cooperative,  Nueva  Ecija     Bagong  Buhai  Ng  Mabini  Rice  MPC   Input   Provider   Farmer   Rice   Trader   Mill   Wholesaler   Retailer   Name:    Mr.  Florencio  Sudoy,  CooperaLve  Chairman   CooperaLve:  Bagong  Buhai  Ng  Mabini  Rice  MulL-­‐Purpose      CooperaLve  (Est.  2005,  365  members)   LocaLon:  Muñoz,  Nueva  Ecija   Total  area:  675  ha  (average  plot  =  1.8  ha)   FuncLon:  Distributes  and  finances  inputs  of  members        Dries  rice  of  members    (30  MT  /  8  hr)      Stores  rice  (20,000  bag  capacity)      Mills  rice  internally  for  personal  consumpLon      Buys  rice  from  non-­‐members   Assets:    Dryer,  mill,  warehouse,  2.5  ha  plot   Other  notes:  Profits  are  either  distributed  to  individual        farmers  or  ploughed  back  to  the  cooperaLve      for  collecLve  benefit,  such  as  educaLon,        community  development  aher  disasters   •  Farmers  have  higher  yields  in   the  dry  season  over  the  wet   season   •  Loan  size  for  members  is   typically  PHP  9,000  (USD  205)   with  a  8-­‐10%  interest  rate  per   cropping  and  4-­‐5  month  payback   period   Source:  Interview   26  
  • 27. Input   Provider   Farmer   Rice   Trader   Mill   Wholesaler   Retailer   •  Village  mill  earns  more   revenue  on  mill  by-­‐products   e.g.  rice  bran,  hull,  so  has  no   incentive  to  increase  milling   efBiciency   •  Earns  a  decent  but  equitable   profit     •  Challenges:   –  Two  other  mills  nearby   –  Thin  margins   (commodity  service)   Appendix  ID:  Small  mill,  Bulacan   Reysan  Mill   Revenue PHP/kg kg+/+day PHP+/+day Milling&fee 0.4 4,000&&&&&&&&&&&& 1,600&&&&&&&&&& Sale&of&rice&hull 4 800&&&&&&&&&&&&&&& 3,200&&&&&&&&&& Sale&of&rice&bran 6 400&&&&&&&&&&&&&&& 2,400&&&&&&&&&& Sale&of&rice&brokens 10 320&&&&&&&&&&&&&&& 3,200&&&&&&&&&& TOTAL 10,400++++++++ Expenses PHP/kg kg+/+day PHP+/+day Operators&salary&(2&pax) 0.4 4,000&&&&&&&&&&&& 1,600&&&&&&&&&& Diesel 0.5 4,000&&&&&&&&&&&& 2,000&&&&&&&&&& TOTAL 3,600++++++++++ Gross+Profit: 6,800++++++++++ The  miller  earns  up  to  double  the  revenue  on  mill   by-­‐products  than  for  milling  fees   LocaLon:  Angat,  Bulacan   Owner:  A  wealthy  farmer   Customers:  Individual  rice  farmers,  ohen      selling  rice  for  personal    consumpLon   Value  Prop.:  Mills  rice,  sells  mill  by-­‐    products  that  include  bran      and  hull     Source:  Interview   27  
  • 28. Angelica) (Bago) Sinandomeng Sinandomeng) (Laon) Premium) (Dinorado)from) Mindoro) Revenue&/&kg 37 34 32 46 Cost 35 31.6 30 44 Profit 2 2.4 2 2 Gross)Margin 5.4% 7.1% 6.3% 4.3% Appendix  IE:  Rice  retailer,  Manila   Vanity’s  Rice  Store,  Marikina  Market   Input   Provider   Farmer   Rice   Trader   Mill   Wholesaler   Retailer   •  Thin  gross  margins     (4-­‐7  percent)   •  Typically  sells  250kg  per  day   (PHP  500  gross  proBit  per  day)   •  Has  five  regular  suppliers  across   the  different  types  of  rice   •  Keeps  good  relations  with   regular  customers  and  also   delivers  to  restaurants   Thin  gross  margins  of  4  –  7  percent   Name:    CrisLna  Pina   LocaLon:  Markina  Market,  Manila   Customers:  Individuals,  restaurants   Source:  Interview   28  
  • 29. Appendix  IF:  Rice  retailer,  Nueva  Ecija   Norman  Trading   Input   Provider   Farmer   Rice   Trader   Mill   Wholesaler   Retailer   •  Owner  is  required  to  sell  NFA   rice  at  PHP  28/kg,  which  is  less   than  commercial  rice  (PHP   33).  The  cost  for  NFA  rice  is  PHP   26/kg  plus  an  additional  ~PHP  1   for  the  transportation  to  the  NFA   rice  dispensary   •  Her  biggest  concern  is  not   securing  a  supply  of  rice   •  The  rice  mills  deliver  rice  to   her  shop   Name:    Myra   LocaLon:  Muñoz,  Nueva  Ecija   Established:  1981   Customers:  Individuals,  restaurants     Source:  Interview   29  
  • 30. Appendix  IG:  Integrated  rice  producer   SL  Agritech  Corporation   Input   Provider   Farmer   Rice   Trader   Mill   Wholesaler   Retailer   •  Premium  brand  has  the   potential  to  help  the   smallholder  rice  farmer   •  Has  exported  premium  rice     to  Dubai,  LA,  Netherlands,  Hong   Kong,  and  Indonesia   •  An  integrated  value  chain   allows  for  strict  quality  control   •  This  company  formed  the   basis  of  our  recommendation   Name:    SL  Agritech  CorporaLon   Established:  1998   Company:  Family-­‐owned   ObjecLve:  Promote  the  development,            commercializaLon  and  growth  of  hybrid  rice      technology   Products:  Doña  Maria  Premium  Quality  Rice  (5  variants)      SL-­‐8H  high-­‐yielding  seeds,  bactericide,        insecLcide,  plant  energizer   Source:  Interview,  company  website   30  
  • 31. Appendix  II:  Higher  yielding  rice   Another  potential  solution  for  raising  incomes   Revenues Inbred SL-8H Yield&(kg&/&ha) 4,500&&&& 8,000&&&&&& Price 0.36&&&&&& 0.36&&&&&&&& Total5revenue 1,6365555 2,909555555 Costs Seeds 55&&&&&&&&&& 109&&&&&&&&&& Fertilizer 335&&&&&&& 365&&&&&&&&&& Pesticides 71&&&&&&&&&& 71&&&&&&&&&&&& Labor&(incl.&harvest&+&irrigation) 636&&&&&&& 778&&&&&&&&&& Total5cost 1,0975555 1,323555555 Net5income 5395555555 1,586555555 Source:  SL  Agritech  presentaLon   •  Higher  yielding  rice  of  10  –  17   MT  /  ha  will  increase  revenue   for  farmers   •  While  the  costs  of  inputs  are   higher,  the  net  income  is   higher  because  of  higher  yields   •  However,  this  is  only  an   incremental  improvement  as   traditional  traders  are  still  in   control  of  the  value  chain   Farmers  can  almost  triple  their  income  on  a  single   harvest  using  high-­‐yielding  hybrid  seeds   SL  Agritech’s  SL-­‐8H  high-­‐yielding  hybrid  seeds   31  
  • 32. Appendix  III:  Diversifying  rice  production   Crops  with  potential  for  supplementing  incomes   Source:  PhilRice,  Interviews   •  Corn   •  Mungbean   •  Mushrooms   •  Vermicast  (the  end-­‐product  of  the  breakdown   of  organic  matter  by  an  earthworm)   •  Ducks   •  Fish  e.g.  tilapia   32  
  • 33. Why  not  our  original  solution?   Selling  rice  dryers/storage  did  not  suit  the  Philippines   • Government  distributes  these  devices  for  free   through  DA/DAR   • Farmers  are  often  happy  not  to  dry  their  palay   as  it  is  troublesome  and  may  not  be  proBitable   • Farmers  may  not  have  their  own  transportation   • Economies  of  scale  and  lower  buyer  costs  cannot   be  reached  this  way   Selling   dryers  &   storage   bags  on   credit   Training  on  dryer  operation  &  maintenance   Connection  to  global  markets   33  
  • 34. 34