BMI View: We hold a positive view on Philippines agribusiness sector in the long term, given the country's potential for new sectors expansion, such as palm oil. We particularly like the outlook for sugar production, and believe the livestock sector will continue to show healthy growth rates. The Philippines' vast consumption market, along with strong government support will foster domestic and foreign investment and favour output expansion. However, backyard farming and infrastructure problems, especially transport costs, will continue to hamper the sector's growth. These inefficiencies will become increasingly crippling as South East Asia moves towards the ASEAN Economic Community, which is supposed to lead to trade and investment liberalization in the region. Although the Philippines' government appears to have taken the measure of the challenge and is now supporting rice and sugar production, agriculture in the country remains uncompetitive. As such, the sector is at risk of low cost imports from its neighbours over the medium term.
|BMI Market Value By Commodity (2007-2019)|
Sugar production growth to 2018/19: 19.6% to 2.9mn tonnes. Sugar production growth will be driven by improvements in yields. The government approved the Sugarcane Industry Development Act, which is aimed at diversifying the sugar sector towards more value-added products and will provide financing to farmers.
Poultry production growth to 2018/198: 14.1% to 976,000 tonnes. Poultry production will record steady but unspectacular growth. Growth will be driven by investment, both domestic and foreign.
Rice production growth to 2018/19: 8.9% to 12.9mn tonnes. Production growth will be fuelled by continued improvements in infrastructure and yields as the government looks to attain self-sufficiency and support output.
Agribusiness market value: 5.4% increase to USD32.4bn in 2015, forecast to grow on average 4.7% annually between 2015 and 2019.
2015 real GDP growth: 6.0% (down from 6.1% in 2014; predicted to average 5.4% over 2015-2019).
2015 consumer price inflation: 2.9% y ear -o n -y ear (down from 4.1% year-on-year in 2014; predicted to average 3.3% over 2015-2019).
Regional economic and financial integration in South East Asia is making progress. The Association of South East Asian Nations (ASEAN) has officially set the full implementation of its ASEAN Economic Community (AEC) for 2015, which is supposed to lead to trade and investment liberalisation and the harmonisation of business processes within the region over the coming years. Although we see the target of creating the single market and production base by 2015 as too ambitious, given the lack of consensus on key issues, we believe overall economic integration will eventually be implemented.
We believe some countries' agricultural sectors will be affected by the AEC, as their uncompetitive production will face cheaper imports. With the elimination of trade tariffs, the competition between countries will increase and production in the less competitive states may decline. The problem is more significant for uncompetitive countries that are not self-sufficient in some commodities and already import part of their consumption needs. Indeed, these countries already face growing imports from the ASEAN region, and, more specifically, smuggled imports. Production of some commodities in the Philippines, especially rice and sugar, are at risk of such a scenario.
The Philippines' government appears to be aware of the challenge and is making some progress to address issues in the agricultural sector, including in sugar. However, agriculture in the county remains broadly inefficient and production commands high prices, making products from the Philippines uncompetitive.
In March 2015, the Philippines' government approved the Sugarcane Industry Development Act, which is aimed at diversifying the sugar sector towards more value-added products, while providing financing to farmers. The country's sector is at risk with the implementation of the AEC, as it will face heightened competition from other ASEAN countries, among them Thailand, a behemoth in the global sugar industry. However, the government seems to be aware of the challenge and is trying to reform some of the most vulnerable sectors, including sugar. Moreover, the Sugar Regulatory Administration (SRA) also plans on developing the block farming technique of production in order to increase the number of large farms and boost productivity. Although these changes are steps in the right direction and will improve efficiency in the sector, the country is still far from being competitive relative to Thailand.
The ongoing year has seen a good start in terms of investment in the sugar sector, with biomass attracting the majority of investment. In January 2015, two large sugar companies, Roxas Holdings and Victorias Milling Corp, announced plans to invest in the biomass sector. Roxas Holdings will develop a 40-megawatt cogeneration facility with Global Business Power Corporation, a leading power producer in the Visayas; while Victorias Milling Corp will create a wholly owned subsidiary that will undertake power-related projects. In previous years, various companies also invested in the sector, including LT Group Inc (LTG) and PT Indofood Sukses Makmur Tbk.