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September 29, 2010
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Philippine poultry industry: Buckling under pressure
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An eFeedLink Exclusive
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During an interview with Greg San Diego, President of United Broilers Raisers Association (UBRA), I asked how the poultry sector is able to cope with the looming threat of La Niña, another weather abnormality, which is expected to bring floods and more rains than the usual.
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"I am more concerned with the flood of chicken imports rather than the floodwaters", came an abrupt reply.
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His statement would have seemed to be exaggerated had it not been for the facts and figures which he presented during the Philippine Poultry Show, held between 24-26 September, at the Megatrade Hall in Manila. The statistics showed that the influx of cheap chicken import is causing a detrimental effect, not just to the industry itself, but to other segments involved.
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During a presentation, San Diego elaborated to the stakeholders that the supply glut is more troubling rather than the perils of La Niña. The UBRA President appealed to the government, represented by Senator Francis Pangilinan and Congressman Mark Zamora of the Senate and Lower House Agricultural Committee as well as Agriculture Assistant Secretary Davinio Catbagan, to stop the importation of chicken. If it continues, it would cause the industry's untimely demise. "It is not a threat", he reiterated, "but a realization that intervention has to be done quickly before it is too late."
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The deluge of imports
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In its agreement with the World Trade Organization in 1995, the Philippines was obliged to import at least 23.45 million kg of leg quarters annually under the minimum allocated volume (MAV). MAV is the quantity of an agricultural product which is allowed into the country at a customs duty lower than the out-quota customs tariff. The accord was good for ten years, which meant that in 2005, the importation should have ended. However, the government extended the MAV allocation wherein import volumes kept on increasing - apparently snubbing the mandated quantity.
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In San Diego's import timeline on chicken, shipments in 2005 totalled 28,054,136 million kg and rose to 32,680,196 million kg in 2006. The following year (2007), it soared to 45,074,959 million kg and then, rose slightly to 45,772,404 in 2008. Last year, chicken imports reached a high of 67,284,371 million kg, but San Diego said it was justified since there were not enough chickens at that time. As of August 15 this year, 64 million kg of chicken were imported – just three million shy from 2009's total volume. "On a monthly basis, we are importing 113% more than last year. This is why I have asked Agriculture Secretary, Proceso Alcala, to stop the importation because we have already reached the limit," said San Diego.
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Apart from leg quarters, these imports, San Diego revealed, also included mechanically de-boned chicken and entrails. He was rather perturbed that these were being used to manufacture hotdogs and longganiza (local chorizo). "This is mislabelling because pork is used for hotdogs; but if you were to use chicken, the product should be named chicken hotdog. Even in longganiza, imported chicken is being used instead of pork," lamented San Diego.
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To augment a possible supply gap over the Christmas season in 2009, UBRA agreed to an "out-quota" importation of five million kg of chicken. Much to everyone's surprise, total imports were at eight million kg - two million of which went to a local fast food chain. "They boast that they (fast food chain) are 100% Filipino-owned company. Yet, they are using imported chicken. What is upsetting is that the Filipino consumer is not benefitting at all because prices of their chicken meals are still the same. They made a huge profit because they bought their chickens cheap but they still based their meal cost on local chicken prices. Furthermore, the quality is not the same. Imported chickens have darker bones and the taste is not up to par compared to local chicken." complained San Diego.
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On top of this, another issue lies with the importation of grandparent (GP) and parent stocks (PS). According to San Diego, GP imports in 2009 were 12% higher than in 2008 and 50% higher for parent stocks for the same period. For egg breeders, imports in 2008 were only at 265,000 but grew to a whopping 1.74 million in 2009.Â
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San Diego highlighted that GP stocks are able to produce breeder hens in ten months and breeder hens in turn, become broilers with ten months. Taking this into account, San Diego refuted the Department of Agriculture's (DA) projection of 30% recovery rate for egg breeder stocks. "This is not the point. Even if you were to say that it would only be a 20% recovery, imports that are coming every year are more than double. I asked the government that if you are unable to stop the importation of frozen chicken, you could regulate the importation of breeders. We continue producing. Yet, imports are still coming in. We are in a lose-lose situation."
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To allay the situation, the government suggested exports to Singapore, Hong Kong and the Middle East. San Diego dismissed the proposal stating it would take some time before they can fully penetrate the export market. "We should forget Hong Kong in the meantime because of the hostage-taking incident. The real problem is export. It is beyond our control because the importing countries dictates the trade--volume, accreditation and everything else."
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San Diego proffered the cessation of importation to the new administration. "They (administration) are pronouncing that they will stop importing rice in three years' time. They could start with the chickens right now."
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...and its impact
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The DA has promised to review its import permits, which allows for 60 days for transaction, to appease poultry farmers. San Diego, on the other hand, hopes importation would cease by November this year.
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The crippling effect of imports not only affects poultry farmers but also its allied industries - feed millers and veterinary industries. Even the small market vendors selling chicken entrails and processing them into ubiquitous street delicacies are also affected. "These vendors who are selling IUD (chicken intestines), balum-balunan (chicken liver) adidas (chicken feet), helmet (chicken head), chicken wings and others are earning PHP15 (US$0.34) per head. With the 59 million broilers imported in 2009 that do not have the viscera, PHP829 million of sales was already lost. For packed feeds, farmers lost PHP3.62 million (US$82,500) in sales or 93 million bags. For the veterinary drugs and additives, lost sales amounted to PHP295 million (US$6.7 million)."Â
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For corn, 55% of its volume or over 99 million kilos are needed to manufacture feeds. At 2.8 tonnes per yield for every 1.3 hectares owned by farmers, 27,441 corn producing families became "market-less" due to frozen chicken imports.
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Overall, San Diego pegged total losses at PHP8.34 billion (US$185 million), due to the lack of chickens raised. "The government only earned nominal taxes from the imports compared to what was lost."
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The presence of Chinese poultry products in the supermarkets, which were banned since 2003 due to bird flu, is clear evidence that a reasonable amount of chickens are smuggled into the country. San Diego assured me that illegal importation is also accounted for in the total volume. "The Bureau of Animal Industry has stopped issuing import permits for Chinese poultry products since 2003. Last year, we have already discussed the issue in Malacañang, together with the former President and some customs officials. Unfortunately, Peking duck and century are still being openly sold in supermarkets and grocery stores." He remarked
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San Diego further elaborated by comparing the industry to that of Malaysia, which has a marginal difference in terms of interest rates. "In Malaysia, it is the stakeholders who control the imports. They (the stakeholders) are the ones who dictate to the government as to when they will import. To encourage agricultural production, the bank interest rate is only 3% compared to us with 38%."
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Government regulations
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The commencement of low-cost housing programmes and other road developments, in the early 90s, spelled doom for poultry raisers. Poultry farmers were asked to vacate or relocate their farms to pave way for infrastructure expansion. "Security of tenure is one of our big concerns." shared San Diego. "Our poultry farmers used to be happy when their thoroughfares were modernised, but now, they are contented with the crooked highways because once it is repaired, housing projects will follow and they will be asked to relocate."
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Double taxation is another problem. Poultry farmers are being taxed by the local government for transport and hauling. "Even the barangays with poor roads are charging our farmers. This was highlighted to the previous Secretary for the Interior and local government. A memorandum order was issued to halt it. Unfortunately, it has resumed since. In La Union, they (barangays) are asking for PHP1 (US$0.02) per head." Â
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In 1997, the implementation of Agricultural and Fisheries Modernization Act (AFMA) was seen to ease the tax burden of farmers. Strangely, the AFMA did not include value added tax on products, including poultry farm facilities. "That is the irony of it. AFMA has mandated the removal of taxes but the 12% VAT took its place." said San Diego.
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"Even the Agricultural Competitiveness Enhancement Fund (ACEF) - agricultural loans without interest or collateral - is absurd" said San Diego. "Yes, the ACEF does not have interest or collaterals but the government charges 30% to have it approved."
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Another unwelcomed development is the entry of Charoen Pokphand - the biggest broiler integrator in the world. Although the Thai conglomerate might be seen as an investor's prized gift, San Diego was not convinced. "The poultry group is coming within the year. They want the Philippines to become a benchmark for their exports because we are bird-flu free. Sadly, they only accept Thai chicken. It is unfortunate that our government is not contented with imports, and they have also imported our competitor, Thailand, which is the fourth largest chicken exporter in the world. "
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San Diego felt that the government should have carefully studied the possible repercussions before embarking on such "so-called" investments. He emphasised that the regulations would hinder the sector's competitiveness.
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Hope prevails
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In the hopes to resolve the problem with imports, San Diego proposed a suggested retail price of PHP100 (US$2.27) to PHP110 (US$2.50) a kilo to make prices competitive for both local and imported chicken. He also recommended a freezer for imported frozen chicken vendors as thawed chicken easily attracts bacteria. Unfortunately, pricey freezers tied with the rising cost of electricity have put a damper on vendors from selling frozen chicken.
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Another way is to eliminate the misconception of eggs as a health hazard. As health experts around the world are promoting egg as the cheapest source of protein, as well as being one of the most nutritious foods. San Diego suggested that this should be the same for the egg industry here.
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The government is also urged to use egg instead of milk--which is mostly imported--for their feeding programme. San Diego was happy to note that the per capita egg consumption in the Philippines has increased from 48 in 1998 to 94 in 2008 - according to the Food and Agriculture Organization.
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San Diego is also pleading with traders not to raise their prices in the market as they could make a hefty profit from the suggested PHP110 (US$2.50) per kilo retail price from the PHP50 (US$1.20) to PHP55 (US$1.25) farmgate price. "All sectors involved--consumers, traders and farmers will benefit from this pricing scheme," he added. Â
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San Diego hopes that the improving economy would stimulate the industry. "Our population now stands at 94 million which equates to 94 million mouths to feed. Hopefully, if the government helps us; and the stakeholders unite, we will survive this crisis."
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