November 5, 2015
Philippine corn supplies and feed demand
Although imports do not seem very high, this reflects corn's protected status. With meat consumptionrising strongly, wheat imports increasingly bridge the gap between corn harvests and feed demand.
An eFeedLink Exclusive Commentary

The Philippine government had hoped to keep the country nominally self-sufficient in feed grains but this no longer appears to be the case. After several years when corn production appeared to rise in tandem with optimistic government estimates, a combination of bad weather and market forces are disappointing the Philippines corn harvest hopes.
With corn harvests lagging and no wheat grown in Philippines, it crushes the best laid plans of the outgoing Benigno Aquino administration. It had hoped annual corn harvests would total 8 million tonnes by 2013, 8.8 million tonnes this year, and 10 million tonnes by the end of the decade.
Instead of increasing at the government's forecasted 6%+ annual rate, harvests rose an anemic 1.1% annually, from a USDA estimated 7.27 million tonnes in 2010 to 7.53 million tonnes in 2013. They then levelled out, peaking at 7.67 million tonnes in 2014 harvest, then flattening out at a projected 7.53 million tonnes this year.
Two factors worked together to undermine these corn harvest hopes. First, the government's optimistic projections were made when CBOT corn was trading in the US$5 to US$7/bushel range. The last two years have seen corn prices first trade below US$4.50/bushel and more recently, in the US$3.50-US$4.00/bushel range. In particular, in the last year, corn prices at their lowest level since the 2008 and input costs significantly higher than they were at that time.
Despite a protectionist policies that inflates corn's domestic price, this has brought corn growing returns near to break-even level, causing a reduction of 5% in the number of acres planted over the last two years.
At the same time, the El Nino, as expected, significantly reduced Southeast Asia's rainfall and with it, this year's Philippine corn harvest. With arid El Nino conditions expected to peak late this year and persist into early next year, crop yields are expected to keep falling as the 2014/15 marketing year (that ends April 30th) progresses.
All this coincided with a period of strong economic growth, pushing up meat demand. In particular, broiler production has risen by 20% over the last five years and 5.9% this year.  This has resulted in a widening gap between corn supply and demand.
Before 2013, the Philippines, despite importing some feed grain, was nominally self-sufficient in corn, swinging between nominal supply surpluses and deficits through the late 2000s. Even those years when demand exceeded harvests, the amount of corn used to grow livestock was less than the total harvest size: At that time, the feed grain supply deficit consisted entirely of corn demand used for human consumption, biofuel production or in food processing.
In 2014 however, for the first time, the total amount of feed grain used by livestock exceeded the size of the harvest. As recently as 2013, the country grew nearly half a million tonnes of corn more than the 7.20 million tonnes of feed grain (corn and wheat) consumed by livestock.
Last year, with livestock production striving to keep pace with rising meat consumption, the total amount of feed grain consumed by livestock jumped to 8.4 million tonnes, 700,000 tonnes more than the total corn harvest. This year, with the harvest stuck at 7.5 million tonnes and 8.7 million tonnes of grain used by feed mills, the gap has widened further.
But with corn production enjoying subsidized and its domestic price kept high via import controls, the Philippines, like China, tries to import alternative feed grains. Thus, even though the country's livestock are becoming increasingly dependent on imported grains, corn imports fell from 803,000 tonnes in 2013 to an estimated 500,000 tonnes this year.
On the other hand, while corn import volumes fell 26.5% over the last two years, wheat imports jumped 38% over this same time, from 3.48 million tonnes in 2013 to 4.80 million this year. From 2010 to 2015, the quantity of wheat imported will have risen 49% --and it is agribusiness, not human consumption that has powered this import binge.
What is more telling is that in the five years since 2010, the quantity of wheat used by feed mills has jumped 142%, from 0.95 million tonnes that year to a USDA estimated 2.3 million tonnes in 2015. The dependence on feed wheat has accelerated over the last two years, jumping 84% from 1.25 million tonnes consumed by livestock in 2013 to 2.30 million tonnes this year.
This rise in feed wheat imports is symptomatic of the fact that Philippine agribusiness is cornered between two contradictory imperatives:
Constantly threatened by chicken and pork imports grown on inexpensive feed, it would do the livestock farmers a world of good if they were allowed to freely allowed to import lower cost, higher quality corn. This is especially true now that domestic supplies are insufficient to meet feed demand. However, given the unacceptability of offending protected corn farmers, mass imports are the only political palatable means of bridging a growing gap between domestic corn supplies and feed demand.
Over the medium term, El Nino conditions are expected to break in early 2016. Provided that corn prices average closer to US$4.00/bushel, this means that next year, both planted area and yields should rise. That could put 2016's harvest a recovery after two years of stagnation. Hence, for 2016, a corn harvest in the 7.8 to 7.9 million ton range is plausible at this time. While the gap between domestic feed corn supplies and livestock demand will not close, it will over the short-term, not widen more than its present size.
Over the long run however, corn production increased at an annual 2.7% annual rate from 2005 to 2015 –and the pace of expansion decelerated to just 1.2% since 2010.  With Philippine meat consumption now increasing at a roughly 3% annual rate, the current trend is for domestic corn supplies to fall increasingly behind demand. All this implies that Philippines, like Vietnam before it, is on the road to both rising meat consumption, and with it, increasing dependence on imported feed grain.

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