FBA Issue 31: March / April 2010

 

Tomorrow has arrived: AFTA meets an unready Philippine agribusiness sector 

 

 

 

Dreaded by business leaders, livestock and feed producers are hoping that the seemingly adverse outcome of the AFTA is't as much as it is perceived to be. While the results are yet to be seen, industries involved are anticipating AFTA's inevitable consequences.

 

 

A feed milling official believes that even with cheaper raw imports, such as ASEAN corn, the feed industry will still be held back by the high cost of power, labour and fuel as well as the absence of concrete trade policies. "We still have to deal with the issue of high rates of electricity, fuel and workforce and once we settled this, we can fully declare that we can already compete but at this rate, we still have lots of things to do and AFTA should be out of the picture and let us first fix major holes," he said.

 

With AFTA-CEPT now affecting the higher levels of the feed-to-protein chain, cheaper pork and chicken will flood the market. Due to their relatively high input costs, this will definitely place local meats in danger, as they are more expensive and the peso has strengthened in recent years. Albert RT Lim, chairman of the National Federation of Hog Farmers laments that local pork production cost currently stands at P85/kg, 35% higher than Thailand's P48/kg.

 

As pork imports were formerly held back by a 40% tariff, Lim says a drastic reduction from that level to between 0% to 5% will definitely jeopardize hog producers, particularly backyard farmers who comprise 70% of the country's swine production. Similarly, Gregorio San Diego of the United Broilers Raisers Association said small poultry growers cannot effectively compete against Thailand and Malaysia, where conglomerates such as CP long consolidated their respective national sectors.

 

Even if these countries are affected with bird flu, they would eventually recover and the local market would be swamped with cheaper imports. Currently, the farm gate price for live chicken is P66/kg, 41% higher than Thailand's P48/kg.

For this reason, Lim and San Diego had previously called a moratorium or at least a five-year delay of the AFTA, admitting unpreparedness for 2010. AFTA however, went through as scheduled. The position of these two sectors' is fully supported by the corn industry, which is another important business segment in the Philippines. The Philippine Maize Federation expressed fears that without tariff protection, the corn sector could collapse under the full unrestricted entry of imported corn.

 

 

But AFTA found an ally in the Philippine Meat Processors Incorporated (PAMPI). PAMPI executive director Francisco Buencamino says that this trade agreement would open up the market for local meat processors to export their products. It would make the industry competitive by facilitating the importation of less expensive raw meat for further processing.  Buencamino says PAMPI members are now gearing up for AFTA and are busy upgrading all their facilities and plants.

 

In addition, domestic integrators such as such as San Miguel Corporation are also seeing an opportunity to increase their exports of bird-flu free poultry products. Southeast Asia's biggest food and beverage company is looking forward to an expansion to boost their production capacity, even eyeing Thailand, the world's fifth biggest chicken producer, as a potential export market.

 

In sourcing raw feed materials, poultry and pig farmers are somehow seeing the light of AFTA. According to UBRA vice president Atty Elias Inciong, feed costs will fall as alternative feed grains such as Thai tapioca pellets, formerly slapped with a 35% duty, now enter tariff free.  Even NFHF’s Lim admits that less expensive feed inputs such as imported soymeal and ethanol by-product DDGS will become more affordable. Moreover, local feed manufacturers and livestock growers can now buy lower-priced farm and meat processing equipment and other investment capital more cheaply from Malaysia, Singapore and Thailand.

 

Taken together, these effects will lower the production expenses of Philippine agribusiness.