PHILIPPINES LOGISTICS STUDY Prepared by John Arnold and Theresa Villareal November 2002 Abbreviations ADB Asian Development Bank AFMA Agricultural and Fisheries Modernization Act ASEAN Association of Southeast Asian Nations ASYCUDA UNCTAD's Customs Automation System BGA Ball Grid Array BOC Bureau of Customs BOI Board of Investments C & F Cost & Freight CDO Cagayan de Oro (Port) CEP Cargo Entry Permit CFS Container Freight Station CRF Clean Report of Findings CY Container Yard DA Documents Against Acceptance DP Documents Against Payment DPWH Department of Public Works and Highways DR Direct Remittance DSA Domestic Shipowner's Association DSMP Domestic Shipping Modernization Program DTI Department of Trade and Industry DUCC Davao Union Cement Corportation DWT Deadweight Ton ED Export Declaration EDI Electronic Data Interchange EDP Entry Processing Division FDC Food Development Center FOB Freight on Board GMC General Milling Corporatioin GVA Gross Value Added GRT Gross Registered Ton IAN Import Advice Note IBRD International Bank for Reconstruction and Development ICCO International Cocoa Organization Ics Integrated Circuits IED Import Entry Declaration IEIRDTD Import Entry and Internal Revenue Declaration Transit Document IPP Investment Priorities Plan JBIC Japan Bank for International Cooperation II LC Letter of Credit LGUs Local Government Unit MAV Minimum Access Volume MTADP Medium-Term Agricultural Development Plan NFA National Food Authority NGO Non Governmental Organization NSO National Statistics Office OA Open Account OP Order of Payment PCB Printed Circuit Board PDIG Permit to Deliver Imported Goods PEZA Philippine Economic Zone Authority PPA Philippine Ports Authority SAFDZs Strategic Agricultural & Fisheries Development Zones SF Self- Funded SMC Saigon Maritime Company SME Small to Medium Enterprise STAND Science and Technology Agenda for National Development TEU Twenty-foot Equivalent Unit URC Universal Robina Corporation USAID US Agency for International Development VAN Value-added Network WTO World Trade Organization III Table of Contents Executive Summary......................................................................................................................i Introduction................................................................................................................................. 1 Scope........................................................................................................................................... 1 Supply chains .............................................................................................................................. 1 Logistical Constraints ................................................................................................................. 3 Organization of the Report.......................................................................................................... 4 Economic Situation......................................................................................................................... 6 Agriculture .................................................................................................................................... 10 National Production.................................................................................................................. 10 Corn........................................................................................................................................... 15 Other Crops............................................................................................................................... 17 Prices for Agricultural Commodities ........................................................................................ 18 Fertilizer.................................................................................................................................... 21 Role of National Food Authority.............................................................................................. 23 Problems of Low Productivity................................................................................................. 23 Tariffs, Quotas and Other Restrictions ..................................................................................... 25 Supply chain: Corn In Northern Mindanao .................................................................................. 26 Supply of Fertilizer ................................................................................................................... 26 Marketing and Distribution....................................................................................................... 29 Transport ................................................................................................................................... 32 Conclusion................................................................................................................................ 37 Supply chain: Small-Scale Rice Production................................................................................. 39 Supply chain for Palay to Rice to Retail Market ...................................................................... 39 Packaging, Storage and Handling. ............................................................................................ 42 Conclusion................................................................................................................................ 42 Supply chain: Northern Mindanao Vegetables ............................................................................. 43 Supply Chain For Fertilizer and Agric-Chemicals ................................................................... 43 Supply chain: Farm to Market .................................................................................................. 43 Supply chain: Processed Fruits Exports........................................................................................ 51 Overview of the Processed Fruit and Food Industry................................................................ 51 Supply chain: Distribution Of Processed Food............................................................................. 59 Supply chain: Exports Of Electronic Products ............................................................................. 61 Exports ...................................................................................................................................... 63 Imports ...................................................................................................................................... 64 Supply chain for Electronic Exports ......................................................................................... 65 Ports and Shipping ........................................................................................................................ 67 Regulation................................................................................................................................. 70 Regulation................................................................................................................................. 70 Vessels ...................................................................................................................................... 70 Freight Rates ............................................................................................................................. 71 Regulatory Reform.................................................................................................................... 73 Customs..................................................................................................................................... 75 Customs..................................................................................................................................... 76 General Findings and Conclusions ............................................................................................... 77 Overview................................................................................................................................... 77 Consolidation of Cargo ............................................................................................................. 78 IV Integration of Logistics ............................................................................................................. 79 Improved Inter-island Shipping ................................................................................................ 81 Institutional Reforms................................................................................................................. 83 Inter-island Shipping Projects....................................................................................................... 87 Bulk System.............................................................................................................................. 87 Container Systems..................................................................................................................... 88 Annexes......................................................................................................................................... 89 Annex C: Foodgrain.................................................................................................................. 95 Annex C: Foodgrain.................................................................................................................. 96 Annex C: Foodgrain.................................................................................................................. 97 Annex D : Commercial Crops................................................................................................. 104 Annex E : Industry.................................................................................................................. 109 Annex E : Industry.................................................................................................................. 110 Annex E : Industry.................................................................................................................. 111 Annex F: Ports and Shipping Data.......................................................................................... 112 Annex F: Ports and Shipping Data.......................................................................................... 113 Annex G : Trade Documentation............................................................................................ 118 Annex G : Trade Documentation............................................................................................ 119 PROCESS FLOW................................................................................................................... 119 Documents Issued:.............................................................................................................. 122 V Executive Summary This report examines the logistics for selected commodities produced in the Philippines and shipped to internal and foreign markets. Most of these are agricultural products produced in Mindanao. By identifying problems in agricultural logistics, strategies can be developed for increasing the market share, farm income and downstream processing in Mindanao. The logistics for electronics manufactured in Luzon were also examined to determine if there were any bottlenecks in these relatively sophisticated supply chains. The agricultural commodities selected were corn, rice, vegetables and fruits. Mindanao, especially the Bukidnon plateau, is a major producer of white and yellow corn. White corn is grown primarily for household consumption but is also used as an input for processed foods. Yellow corn is grown for animal feed, and is used both milled and non-milled. In recent years, imported animal feeds from Thailand have replaced yellow corn as the low-cost feed in the Luzon markets. The Thai agro-industry is larger and more efficient and does not contain corn, thus avoiding the protective import duty. It is also less expensive to ship large consignments of feed from Thailand because of economies of scale in shipping and simpler supply chains. Delivery of corn from a farm in Mindanao to the market in Luzon involves multiple transactions and handlings. From the farm-gate to the local mill, traders are involved at the Barangay and municipal/provincial level. One or more wholesalers are involved in the transfer from the mill to the retail feed dealers or directly to the hog or poultry farm. The corn is shipped in relatively small consignments. The logistics costs account for about 20 percent of the delivered costs to Cagayan D'Oro but about 40 percent of the delivered cost to Manila. The relatively high port and shipping charges for movement of small consignments of bagged corn, often in containers, account for the increased costs for shipments to Manila. Rice is grown primarily for home consumption and for sale in deficit areas in Mindanao. Yields have not improved significantly over the last decade, but the government's effort to obtain self- sufficiency has increased the acreage of irrigated rice by about 33 percent. As a result, total rice production has increased by about 20 percent. The market price for domestic rice is two to three times higher than that of Thailand and Vietnam. This is because of lower yields and less efficient production and distribution. As a result there is a significant amount of imported rice consumed in the country. Most of this is smuggled to avoid high tariffs and National Food Authority's (NFA) controls over rice imports. The high cost of rice production and distribution is due to the small scale of farming and processing. The solar drying used by farmers and the small mills for processing paddy produce low yields and poor quality. Since there is a limited amount of storage, farmers sell at harvest thus minimizing the price they receive. The mills have enough storage to allow for several months milling but not for the storage of rice. Private warehouses for rice are small and costly. The transfer of paddy from farm to mill and then the subsequent transfer of rice from mill to market involves multiple transactions and handling. This, combined with the small shipments of i bagged rice, increases the delivered cost and losses in transit. Despite these inefficiencies, logistics, including milling, account for only about 10 percent of the retail price of rice in local markets (5 percent excluding milling). For rice shipped to other markets in Luzon, this percentage is more than double. Vegetables are grown for home consumption and sale in local markets. The farmers sell to traders who then transfer the vegetables to the regional market for sale to wholesalers. The grower is responsible for post-harvest processing including sorting, cleaning, and packaging, but additional processing is performed by traders and wholesalers. The more perishable crops such as tomatoes experience significant losses due to excessive handling in the transfer from the farm to the market, improper packaging by the grower, and exposure during transit. These problems increase further with inter-island shipping of the products. Larger buyers limit these losses by providing growers with packaging material and arranging for transport and post harvest processing. The logistics costs for tomatoes account for about 16 percent of the delivered cost for local markets and about 25 percent for Luzon. This does not include the costs associated with losses, which ranges from 2 percent to 15 percent depending on delays and packaging. Fruits are grown primarily for sale in local markets where they are purchased by processors and exporters. The volume of exports of processed fruits has increased rapidly in the last several years. The traditional exports of pineapples and bananas by multinational corporations have increased slowly. These have been supplemented by exports and inter-island shipments of coconut and local fruits, e.g., mangoes, papayas, calamansi, tamarind, etc. These are exported or shipped to Luzon primarily in the form of juices and preserved fruit. Most of the processing plants are located in larger towns close to the growing areas. With the exception of plantation operations, these are small- to medium-scale enterprises (SMEs). They employ simple technology and manual processes and are able to adjust their processes and capacity according to the change in availability of fruits during the year. Waterborne shipments use containers or, in the case of juice, drums. The logistics are costly because of the size of the shipments but more important is the principal problem of inadequate quality control and lack of standards. The processing of local fruits differs significantly from the processing associated with exports from the large bananas and pineapple plantation operations in Mindanao. The latter are managed by large multinational companies. They have large-scale automated production facilities that operate throughout the year and maintain stringent quality control. These companies are also involved in the marketing and sale of the product and can therefore adjust the quality and level of production to the requirements of their markets. The Philippine electronics industry, centered in the CALABARZON area in Metro Manila, produces a range of semiconductor products and assembled components. It accounted for 66 percent of the total value of exports in 2001 with a growth rate averaging close to 30 percent per annum (this is likely to be lower in the coming years). Shipments are managed by the importer and usually involve small consignments shipped by air on a weekly or bi-weekly basis. The time required for movement of goods from the point of production to the airport for loading is about 2 hours provided there are no road works in the vicinity of the airport. The cost for logistics is less than 5 percent of the delivered price of the products. Most of this is for airfreight. The cost of inbound logistics for the imports used in the manufacture of these products adds perhaps 2 ii percent-3 percent. Most of the inputs are also transported by air. Both the inbound and outbound supply chains are efficient and have allowed the industry to increase its market share. The major logistics bottlenecks examined in this report apply to agricultural commodities. These include: · Limited market information available to farmers and traders · Few options for farmers in selling their products · Lack of technical services to improve the growing, processing, and marketing of agricultural goods · Small-scale production, processing, and transport which increase delivered costs · Limited transport services in many parts of Bukidnon and other farmland areas · Inefficient inter-island shipping · Cumbersome government regulations and public monopolies that increase the cost of inter-island transport. Since most of the agricultural products are produced on small farms, post-harvest processing is done either at the farm using simple but inefficient technologies, or at the village level where the technology is more efficient but the scale of production limits quality and yield, or at a regional center where the scale of production justifies the use of modern equipment with higher yields and quality that is suitable for urban markets. However, the efficiencies achieved by large-scale processors are lost in the transaction costs from the farmer to the factory. These include the costs of the intermediaries involved in the transfer of goods, and for damage to the goods in transit. In the absence of adequate storage facilities, the farmer has limited options because the agricultural products cannot be stored or are too costly to store and also because financial obligations require that the products be sold shortly after harvesting. The buyers are typically small traders who consolidate and sell to local processors or to wholesalers who, in turn, sell to large-scale processors. Each of the intermediaries is responsible for transport to the point of the next transaction. The large number of transactions increases the delivered cost and isolates the producer from the consumer. As a result, the type and quality of agricultural products sold by the farmer often do not match the needs of the consumer. The inefficiencies in processing, storing, transporting, and marketing agricultural products can be improved in two ways. The first is through improvement in backward linkages from the retailer to the farmer. The major fruit exporting companies in Mindanao have accomplished this through production contracts with the farmers. These contracts provide the farmer with inputs and sufficient financial incentives to guarantee the processor and/or exporter an adequate supply of agricultural products. This same arrangement insures that the processing is designed to yield products of the type and quality required by the market. While the large fruit exporting companies began as multinationals, there has been a gradual transfer of responsibility/ ownership to local companies that collect and process the agricultural products. This approach is now being replicated by some of the larger food-processing companies in Luzon. They are contracting with the farmers directly and establishing processing facilities in Mindanao rather than transporting the goods to Luzon for processing. iii The second alternative is to improve the downstream linkages from the farmer to the processor and the wholesaler/trader. The current system of information flow from the market through various intermediaries and eventually to the farmer would be replaced with a direct linkage. Under the new system, the farmers would be provided with information on the demand in the central markets for agricultural products of different quality and both current and future prices offered by processors. The local processors would obtain information from the wholesalers/retailers or food companies on the market demand including quality standards and price. Local shipments would be consolidated by farmers' groups or consolidators who provide warehousing and logistics services. Inter-island shipments would be consolidated by the processors acting together in cargo pooling arrangements or by large-scale wholesaler/retailers buying under contract for the large food companies and distributors. This approach assumes that the major participants in the supply chain are willing to bypass intermediaries and provide information in an unbiased manner. Given the past history, this may not be achievable. An alternative would be to develop a commodity exchange operating in the major markets in Mindanao. This would provide a clearinghouse for both agricultural products and information. The Businessman's Council or another organization with broad representation in the agro processing industry would manage this exchange collectively. The ability of the farmer to obtain a higher income from his labor depends on his access to information concerning improved agricultural techniques and access to inputs at a reasonable cost. It does not appear that the government extension services have been effective in this regard. Traders and buying agents have been the traditional source of information and inputs for the farmer, in part because these are linked with financial incentives, that is, future sale of their crops. The introduction of contracts between the farmers and the larger food processors has provided another source of information which is also linked to financial incentive. Any efforts to expand the information available to the farmer should also provide some form of financial incentive such as better prices for the product or lower costs of production and logistics.1 The mechanisms currently available for disseminating both technical and financial information are constrained by the poor quality of telecommunications services in Mindanao. Internet access is limited to the urban centers and could serve the larger markets but not the farmers. Telephone connections, although increasing, are still limited in the rural areas. This would be a costly form of mass communication despite the Philippines experience with call centers. Radio, and to a lesser extent television, remain the major sources of communications at the farm level. So far, programming directed at farmers has been limited but could be extended. Any efforts to improve this or other methods of dissemination of information should be coordinated with efforts to improve the content and timeliness of the information. Transport services to the more remote villages are often limited to carabao-drawn carts, jeepneys and other small capacity vehicles, although these are generally used over relatively short distances. The difficulties with this form of transport are not just availability and cost but more important, damage to the commodities in transit and during transfer to larger vehicles for 1Farmers are generally conservative and the process of innovation is slow due to the penalties associated with unsuccessful innovations. In this environment too much information can cause confusion. Therefore some mechanism for validating and prioritizing the information needs to be put in place. iv delivery to the market. This two-stage movement, from the growing areas to the provincial road and from there to central markets or large processors, increases the time and cost of delivery and reduces the quality of the delivered product. However, shipments of these products from the central markets to urban markets on other islands involve greater cost and time. These shipments involve smaller consignments and therfore more costly. Grain is shipped as bagged cargo rather than bulk. It often moves in containers even though this adds to the cost of transport without providing benefits in terms of reducing door-to-door costs or delivery time or even damage. Bagged cargo can be shipped efficiently with proper logistics, but neither the ports nor the shipping lines are configured to provide efficient handling of bagged cargo. The scheduled inter- island shipping services employ vessels that mostly carry a combination of passengers and freight. These vessels cannot spend a long time in port, and the ports in turn, do not have equipment for rapid loading of bagged cargo. Bulk shipments are not used because of the lack of port facilities and because the logistics are not designed to aggregate cargo to a degree that would justify the chartering of a bulk vessel. The inefficiency of the ports not only limits cargo-handling productivity but also limits the types of vessels that can operate profitably. Bulk carriers spend a long time in port because of the lack of bulk handling equipment. RoRo vessels cannot achieve quick turnaround times and low cargo handling costs because of the inefficient cargo-handling concessions. Government regulation of the sector has made the situation worse. The monopoly power granted to the Philippines Port Authority (PPA), constraints on entry of new shipping lines to the inter-island services. Regulation of freight rates for selected commodities have prevented the inter-island transport system from adapting to the needs of its users. Its logistics costs are high because of increasing losses, damage and delays as well as passing on inefficiencies in the form of higher freight rates. A number of other recommendations for improving the logistics of goods being shipped to and from Mindanao are presented in this report but few are new. The problems related to inter-island shipments affect not just Mindanao but the entire country and have existed for some time. The possible solutions include ending the economic regulation of inter-island shipping, creating separate port authorities independent of the Philippine Port Authority, and allowing competition in the provision of port and inter-island shipping services, have not been achieved despite a decade of effort. Therefore, it is proposed to allow for the development of parallel shipping services between Mindanao-Manila and Mindanao-Cebu, which would: · utilize private port facilities that provide specialized but common-user cargo handling services. · operate without oversight or taxation by the Philippine Port Authority. · utilize chartered vessels to transport grains as bulk and neo-bulk cargoes and perishables and higher-value goods as RoRo cargo. · undertake bulk shipments as voyage charters arranged by the buyers. The Ro-Ro operations would involve time charters with a third party carrying cargo as a common- user. This initiative is currently under review by the government. A summary of the initiatives developed in this study is summarized in the following matrix. v Proposed Initiatives for Improving Logistics for Philippines Initiative Activities Implementation Goals Role of Development Agency Agency Establish Commodity Develop exchanges to provide DTI/ Increase farmers' income, Crop Technical Assistance, Exchange marketing information and support Private Sector Diversification, Improve quality of crops Start-up Capital financial transactions for farmers. sold E-commerce Extend commodity exchange Commodity Exchange, Reduce transaction costs Technical Assistance functions to internet. ISPs, Private Sector Increase Farmers income E-xtension Develop extension services for MoA/Universities Reduce losses and improve quality for Technical Assistance, cooperatives and farmers groups Private Media agricultural products shipped domestically Start-up Capital Improve post- harvest processing, Companies and internationally packaging Farmer Contracts Develop and promote contracting of Chamber of Commerce, Reduce farmer's risk Technical Assistance farmers. Businessmen's Council Encourage crop diversification Improved Village Local road maintenance LGU, Village Council Reduce logistics costs including transport Technical Assistance, Transport Use of Larger vehicles and cargo losses Start-up Funds Warehousing Establish Warehouses for third party DTI/DBP Consolidate cargo, reduce transport costs Financial Support concession Private Sector and cargo losses Cargo Pooling Expand cargo pooling arguments, Private Sector Increase the size of shipments of grain and Technical Assistance Support efforts to develop other agricultural products in order to logistics/consolidation providers reduce transport costs Cold Chain Develop cold chain distribution Traders, Buyers Reduce cargo losses, Increase farmers' Start-up Capital system for perishables income by improving product quality Local Production Establish rural production facilities DTI/Private Sector Generate non-farm employment, Increase Technical Assistance Facilities value added retained in Mindanao Start-up Capital New Bulk Handling Establish small- consignment, bulk- DoF/DBP/ Reduce handling and shipping costs Technical Assistance Facilities handling private terminals Private Sector Capital Investment New Inter-island Develop RoRo Service between DoF/DBP/ Create a lower cost transport system for Policy Reform Shipping Services Mindanao and Luzon/Visayas Private Sector general cargo shipments, Reduce Technical Assistance Reduce economic regulation of impediments to competition in inter-island Capital Investment shipping shipping, vi Introduction SCOPE The objectives of the Philippine Logistics Study are to2: · Assess the current patterns of trade both domestically and internationally · Identify those trades with direct impacts on the poor, · Identify logistics impediments and bottlenecks · Assess their importance relative to the total supply chain, market price and household budgets, · Determine mechanisms for reducing these impediments and the impact of this reduction · Estimate the cost of implementation of these mechanisms. The focus of this study is the inbound and outbound supply chains for the agricultural activities in Mindanao. The original impetus for the study was the oft-quoted story of the high cost of shipping food grain from Mindanao to Luzon that was said to exceed the cost of imports from Vietnam and Thailand. The local shipping industry has pointed out flaws in that analysis, but the fact remains that there are significant inefficiencies in the inter-island transport system. There is also the issue of economies of scale that ultimately affect both the cost of production and the cost of shipment. SUPPLY CHAINS In order to examine these issues, five supply chains for Mindanao were examined for the following products: · Yellow Corn (Fertilizer to Corn to Livestock) · Rice (Fertilizer to Palay to Rice to Retail Market) · Vegetables (Fertilizer to Vegetables to Regional Markets) · Processed Fruits (Picked Fruit to Processing Plant to Export Market) · Processed Food (Imported Foods to Manila Wholesaler to Local Market) In addition, the outbound logistics for exports manufactured at the export-processing zone in Cavite, Luzon was examined. The latter is a relatively simple chain but provides an important insight into the functioning of these zones.3 Mindanao, specifically Northern Mindanao, is a major corn growing region in the Philippines. Corn is the second most important crop in the Philippines. It provides income to about one third of the Filipino farmers. White corn made into grits serves as a staple food for about one fifth of the national population, mostly in the Visayan and Mindanao Regions. The food industry processes this corn into higher value consumer products, such as cornstarch, corn oil and snack 2The study of Philippine logistics was initiated on March 17, 2002. Initial interviews were conducted with the national agencies and private sector organizations and farmers' associations in Mindanao, importers, freight forwarders and exporters. 3 The World Bank earlier funded the development of the Subic Airport, which provided essential airfreight services for the industries that located in the free trade zone. 1 foods. The major use of yellow corn is in feed for the country's hog and poultry industries. The corn is shipped from Cagayan de Oro (CDO) to Cebu and Manila in sacks and at times in containers as backhaul cargo. It is milled and then transported to the poultry and piggery farms that produce meat for the Manila/Cebu markets. The livestock industry is centered in Luzon because of the demand for fresh meat and the lack of refrigerated transport. The grain trade is managed by the Grain Traders Association, which comprises several regional organizations. In recent years, the yellow corn shipped to Luzon has declined as the livestock industry has taken advantage of lower cost of imported feeds shipped in bulk from Thailand.4 Rice is an important staple for the Philippines. Mindanao accounted for 18 percent of the total palay production of 12.4 million tons in the year 2000. Unlike corn, rice remains within the Mindanao regions, which is a rice deficit area. The National Food Authority (NFA), which is mandated to provide food security to the country, is supposed to help farmers by purchasing palay during the harvest seasons. Due to lack of funding, NFA is able to buy on average only 3 percent of total production. Instead, NFA has been importing since 1980 as a means to stabilize supply and ensure sufficient buffer stocks. The major suppliers are Vietnam, Thailand and China. Since the price is less than for locally produced rice, NFA is, in effect, driving down the price of domestic crops. Processed fruit exports are handled by the large plantation companies in Mindanao, e.g. Del Monte and Dole Philippines. Their exports include fresh pineapples, bananas and processed fruits. These companies have split up over the years into locally controlled production companies and international trading companies that provide outbound logistics and marketing for both fresh and processed fruit. While these companies still control the pineapple plantations, bananas are produced by local farmers for sale to the large companies. Even the pineapples are grown under contract with the employees. These exports are loaded at private facilities. A variety of vegetables are grown on Bukidnon plateau in Northern Mindanao. These are sold as fresh vegetables in the local market and shipped to regional markets. The principal vegetable export is cabbage. Tomatoes are grown throughout the year. A factory was established to produce tomato paste but proved unviable and is now being auctioned off. Imports of food and other consumer goods are shipped to Mindanao either directly or through traders in Manila. Formerly, all imported goods were required to be transshipped through the port of Manila but in recent years the shipping sector has been liberalized and imports can now be offloaded at regional ports including Davao, Cagayan De Oro and General Santos in Mindanao. The cargo must be cleared through Manila but this involves a relatively simple procedure for clearing documents. The manufactured exports from Cavite in Luzon include electronics and other medium to high value goods. These are moved by truck to the airport or seaport in Manila for shipment overseas. 4The Philippines established a 30% duty on imported yellow corn in order to protect local production, however, the same duty does not apply to other grains which can be used as feed and which are imported from Thailand at lower cost. These grains can be shipped in bulk form in large consignments and unloaded efficiently at bulk facilities such as those at Marivelles, Harbor Center and along the Pasig River. 2 LOGISTICAL CONSTRAINTS The major difficulty with the logistics of inter-island movements is the regulated nature of the port and shipping industry. The network of public ports is controlled by the Philippine Ports Authority (PPA), which acts as both landlord and regulator. It leases out selected berths and storage facilities to private operators and grants cargo-handling licenses to stevedoring companies that operate on common-user facilities. It has a policy of limiting the number of cargo handlers to a maximum of two in any one port, with the exception of Manila. The monopolization of cargo handling was to have been formalized during the previous administration under Executive Order 59, which would have granted an exclusive contract for the handling of cargo in all ports. The shippers were able to resist this rather blatant attempt at monopolization for private gain. There are a large number of private ports in the Philippines but most are small. They are allowed to handle their own cargo, and in some circumstances third party cargo, but these are prevented from competing with the public ports. PPA collects a tax (wharfage charge) on the cargo handled at these facilities and prevents them from providing common-user services. Under the previous management of the PPA, there was a proposal to transfer all private ports within 100 km of a public port to control of the PPA. Again, the shippers resisted this attempt at monopolization. Through its monopoly power, the PPA has been able to raise its fees without offering any improvement in services or facilities. PPA charter also allows it to share in the cargo handling rates that it regulates (10 percent on domestic charges and a higher percentage for foreign), resulting in an increase in port rates (cargo handling charges have increased even when cargo- handlers have not asked for an increase). Despite its considerable income, the Authority has been unable to properly maintain its facilities or to develop modern facilities to meet the growth in traffic. A decade of efforts to reform the PPA and to introduce modern port management techniques have failed and the Authority continues to exercise its monopoly power to the detriment of the country. Recently, the government granted a rollback of 20 percent in recognition of the excessive levels of PPA's fees. The inefficiency of the ports adds to the cost of inter-island shipping in three ways: · A limit on the competition in cargo handling services · Insufficient investment in cargo-handling equipment to speed vessel turnaround · Lack of facilities to encourage use of modern shipping technology e.g. container, dry bulk and RoRo cargoes The inter-island shipping industry is constrained not only by the condition of the ports but also by the regulations that govern its operation. Shipping is covered under the Public Services Act, which limits the profits of shipping lines, requires licensing of routes, and regulates rates. The sector was liberalized in the mid 90's, when the rates were deregulated with two exceptions: rates on routes where there is insufficient competition and rates for third class passengers and basic commodities (not shipped in containers). Because of the low rates on third class cargoes, the shipping lines shut out this cargo during peak periods. Alternatively, they carry the cargoes as backhaul cargo in containers, which allows for a different rate. Also regulated are the rates of return earned by the shipping lines. These are set below commercial discount rates and 3 discourage investment in new vessels. The shipping lines have attempted to operate as a cartel taking advantage of government oversight over new entries. Despite the barriers to entry, there has been considerable turnover in the industry over the last five years. This has lead to discounts in freight rates below the range prescribed by the regulatory authority. In order to increase their revenues, the shipping lines have taken control of a number of the stevedoring companies licensed to operate in the various ports. Their argument for being involved in cargo handling is that they need to invest in modern cargo handling equipment to reduce vessel turnaround. However, there has been little improvement in berth productivity. Instead, the shipping lines have been able to take advantage of the relatively high cargo handling charges.5 ORGANIZATION OF THE REPORT The Report begins with an overview of the Philippine economy and external trade. Chapter 2 focuses on agriculture, agricultural markets and tariff policies. Chapter3 presents the supply chain for corn in Northern Mindanao comprising several distributions and marketing channels that affect wholesale price of yellow corn. Imports of corn substitutes and relatively low price of domestic yellow corn have motivated small farmers particularly in Bukidnon in Northern Mindanao to shift to higher value crops, which provide better returns. Chapter 4 discusses the supply chain for rice, highlighting the dependency of small farmers on traders at barangay, municipal and provincial levels. In recent years, the relatively high production costs of rice compared to that of Thailand and Vietnam triggered an increase in imports to meet the demands ofthe large consumer market. Despite this, the retail price for rice remains high because of several layers of marketing. Chapter 5 presents the supply chain for vegetables in Northern Mindanao and discusses how the trade is evolving to meet quality standards set by institutional buyers based in Metro Manila. The market trend encourages farmers to shift to more advanced and appropriate technology to yield better quality vegetables that can compete with imports. Chapter 6 examines the processed fruits for exports. The example presented is the simple supply chain of large pineapple grower/exporter such as Del Monte Inc. based in Northern Mindanao, which has centralized procurement operations. Chapter 7 presents the supply chains for processed food imported by Manila wholesalers for distribution to local markets. Chapter 8 illustrates the supply chain of electronic products exported from Calabarzon techno- parks, south of Manila, and shipped out thru Ninoy Aquino International Airport (NAIA) at Manila. Chapter 9 examines the ports and shipping sector in some detail to determine the source of inefficiency in inter-island shipping. Chapter 10 presents the general findings and conclusions of the supply chain study and recommendations for reducing inefficiencies and logistics costs, particularly in Mindanao. If the benefits from investments in the agricultural resource base of Mindanao are to be realized and the balance in trade for Mindanao is to improve, the government needs to improve the logistics systemparticularly in the shipping and port services sector. 5An increase in productivity would effectively increase the capacity of the interisland fleet which already suffers from over capacity and would reduce the unit costs for cargo handling which might lead to a reduction in cargo handling rates 4 Chapter 11 presents selected projects for improving inter-island shipping. 5 CHAPTER I ECONOMIC SITUATION The Philippine economy continued to grow throughout the latter half of 1990s despite the regional economic crisis and the problems created by a change in government. This is part of a long-term pattern of economic growth which has seen a 25 percent increase in per capita GNP over the last 15 years (Figure 1.1). There was a slight contraction in 1998 but the GNP has recovered as the volume of trade continued to increase. Figure 1.1: Figure 1.2: Economic Growth - 1986-1999 GNP By Origin GDP and GNP per Capita 1,200 13,500 1,000 13,000 12,500 Pesos 800 Services 12,000 Persos 1985 600 of Industry 11,500 Agriculture 1985 11,000 400 Billions 10,500 200 10,000 1986 1988 1990 1992 1994 1996 1998 2000 2002 - GDP/capita GNP/capita 1996 1997 1998 1999 2000 2001 Most of the growth has been in the services sector (Figure 1.2). Over the last seven years, services grew by 23˝ percent in constant terms led by trade, transport and communications (Figure 1.3). Agricultural output increased by only 10 percent and industry by 11 percent. Figure 1.3: Figure 1.4: GNP by Origin Foreign Trade 1980-1999 1,200 50 Other Services 1,000 40 Finance, Housing US$ 800 Trade 30 Pesos Transport, Commun 1985 600 Utilities 20 Construction 400 F.O.B.billion Manufacturing 10 Billions Mining 200 Agriculture 0 1980 1983 1986 1989 1992 1995 1998 2001 - 1996 1997 1998 1999 2000 2001 Exports Imports The growth of trade has been quite strong over the last 15 years averaging about 10 percent per year for both imports and exports (Figure 1.4). This was slower than in the period from 1970- 1981 when trade increased by 550 percent. However, over the subsequent four years, it declined by 50 percent due to political troubles. In the late 1990's, the Asian financial crisis and 6 mismanagement by the previous government caused a 50 percent decline in the exchange rate relative to the dollar (Figure 1.5) and a sharp drop in imports. Exports continued to grow until 2001, when the contraction in the global economy, especially in demand for electronics, caused a sharp drop-off. The growth in trade has been lead by non-traditional exports that include semi-conductors (electronics), industrial manufactures, garments and processed foods. Non-traditional exports increased from US$ 7.35 billion in 1991 to US$ 35.1 billion in 2000. The traditional exports comprising of agricultural commodities such as coconut oil, banana, pineapple products, processed foods and vegetables have been steady at US$ 1.7 billion (Table 1.1). Table 1.1 Traditional and Non-Traditional Exports, 1991-2000 (in FOB value, US$ million) Year Traditional Non-Traditional Exports Exports 1991 1,388 7,353 1992 1,542 8,152 1993 1,395 9,777 1994 1,505 11,723 1995 1,970 15,096 1996 1,831 18,213 1997 1,913 22,514 1998 1,647 26,786 1999 1,326 32,332 2000 1,687 35,095 The major commodities exported as measured by value, are electrical and electronic equipment and machinery. They have provided a significant portion of the country's economic growth in recent years and currently account for about 3/5 of the total trade (Figure 1.6). The principal destinations for these goods are the US, Western Europe and Japan (Figure 1.7). Crude petroleum, chemicals and semi-processed raw materials accounted for 52 percent of the total value of imports in 2000 (Figure 1.8). Imports of machinery and equipment, including the inputs for the electrical and electronic exports, accounted for about 44 percent. The primary origins for the machinery and equipment were East Asia (Figure 1.9) Figure 1.5: Figure 1.6: ExchangeRate Export Categories by Value - 2000 55 Other (16.40%) 50 Fish (0.69%) Chemicals (0.86%) 45 Coconut Products (1.56%) 40 Garments (6.73%) 35 Pesos:US$ 30 Electrical Equip (58.24%) Machinery, Transport (15.52%) 25 20 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 7 Figure 1.7: Figure 1.8: Import Categories by Value - 2000 Export Destinations by Value - 2000 Others (4.30%) Power Generation Equip (7.87%) 0.304 (30.40%) 0.299 (29.90%) Chemicals (8.32%) Semi-process Raw Mat. (34.17%) Crude Petroleum (9.72%) 0.04 (4.00%) 0.078 (7.80%) 0.147 (14.70%) Inputs to Electrical Equip (13.41%) 0.05 (5.00%) 0.082 (8.20%) Telecoms, Electrical Equip (22.22%) Philippines has become a net agricultural importer although it remains a net exporter of Figure 1.9: fruits, vegetables, and vegetable oil. Shipments Import Origins by Value - 2000 of agricultural products to foreign markets contributed only 5 percent to the total export Japan (19.20%) trade in 2000 versus 7.5 percent the previous Others (36.30%) year. Exports dropped by 20.9 percent but imports decreased only slightly. Coconut oil US (15.50%) remains the leading agricultural export although demand for this product has decreased Singapore (6.10%) EU (9.20%) considerably over the last decade. In 1999, it Taiwan (6.20%) S. Korea (7.50%) accounted for 19.5 percent of agricultural exports, generating US $ 342.28 million. The export shares of banana, pineapple and mango have also been decreasing. Figure 1.10: Wheat and meslin emerged as the Population by Province number one agricultural import with a volume of 1.95 million tons, valued at $ Carga (2.74%) 351.53 million, in 1999. The volume of ARMM (3.15%) Central M. (3.40%) rice imports peaked at 2.14 million tons Southern M. (6.79%) CAR (14.78%) in 1998 but then dropped to 0.56 million Northern M. (3.59%) Ilicos Region (5.49%) tons in 2000. Also in the list of top ten Western M. (4.04%) Cagayan Valley (3.68%) agricultural imports are milk and cream product, soybean cake oil and soybean. Eastern V. (4.72%) Cenral Luzon (10.50%) Milk and cream products increased in Central V. (7.46%) volume from 1999 to 2000 by 11.1 Western V. (8.12%) Southern Tagalog (15.42%) percent and soybean imports by 71 Bicol (6.11%) percent. Mindanao Mindanao accounts for about one-quarter of the population (Figure 1.10) and 37 percent of the country's land area but only 1/6 of its gross domestic product. About 60 percent of the land is classified as forests and much of it is mountainous (Figure 1.12). As a result, the population 8 density ranges from 111 to 263 persons per square kilometer (Table 1.2), about Figure 1.11: 5/6 of the average for the country Gross Regional Product (excluding the capital region). The average household size, 5.2, is similar to 60,000 Western the national average. The economic 50,000 growth in Mindanao has been slower Northern 40,000 than for the country as a whole. The two Pesos Southern largest regions, Northern and Southern 30,000 1985 Mindanao achieved less than 10 percent Central 20,000 growth in GRP in real terms over the last Million ARM decade (Figure 1.11) while the country 10,000 as a whole experienced a 35 percent 0 increase in GDP. The centers of 1986 1988 1990 1992 1994 1996 1998 2000 economic activity in the four largest regions of Mindanao are Cagayan D'Oro (Northern), Zamboanga (Western), Davao (Southern), General Santos (Southern), and Cotabato (ARMM). Each of these is also the major port for the region. For this study, the area of focus is Northern Mindanao and, in particular, the province of Bukidnon. Table 1.2: Population and Land Use in Mindanao Western Northern Southern Central ARMM Carga Population 3.09 2.75 5.19 2.60 2.41 2.095 million Household Size 5.18 5.06 4.86 5.16 6.13 5.32 people/household Pop Density 193 196 263 179 211 111 per sq km Land Classification Total Area 1,600 1,403 2,714 1,437 1,161 1,885 mn ha Forest 837 746 1,637 890 618 1,342 mn ha Dsiposable 763 657 1,080 547 543 542 mn ha Source : NSO Figure 1.12: Topographical Map of Mindanao 9 Chapter 2 AGRICULTURE6 NATIONAL PRODUCTION Philippine agriculture sustains the growth Figure 2.1. Growth in Gross Value Added and stability of the economy. It Agricultural, Fishery and Forestry: 1993-1999 contributed around 19 percent to the country's GDP and more than 20 percent In Percent of total export earnings in 2000. It employed 40 percent of the total labor 8 force. It is estimated that two thirds of 6 6 rural population depends on agriculture. A 4 3.8 2.6 2.9 majority of the country's poor live on 2 2.1 0.9 subsistence agriculture and fisheries. 0 -2 -4 In 2000, the gross value of agricultural -6 production was estimated at P574.9 billion -6.6 -8 in current prices, a 2.2 percent increase 1993 1994 1995 1996 1997 1998 1999 from 1999. The GVA (Gross Value Added) from agriculture declined sharply in 1998 but recovered in 1999, overall growth has averaged 2 percent in constant prices (Figure 2.1). Within the broad agriculture sector, forestry contributes about 20 percent of the GVA while fisheries less than 1 percent. About 66 percent of the value added in the agricultural sub-sector derives from crop production and a little more than 25 percent from livestock as shown in Figure 2.21. Figure 2.2 Average Share of GVA in Agriculture Sector and Subsector, 1993-1999 Agricultural activities service Poultry 6% Forestry Palay 1% 12% 20% Livestock Fishery 19% 15% Corn Agriculture 7% 80% Coconut including Copra Sugarcane5% 3% Banana Other Crops 2% 30% 10 Aggregate production in the crops sub-sector was valued at P305.7 billion in current prices for 2000, down by 2.1 percent from the previous year due to decreasing prices. This sub-sector has grown slowly and unevenly at an annual average rate of 1.6 percent between 1995 and 1999. Total crop production in the year 2000 reached 67.7 million metric tons (Table 2.1). Gross value of agricultural production was estimated at P574.9 billion in current prices, a 2.2 percent increase over 1999. Rice and corn are the major food crops. Coconut, sugarcane, banana, pineapple, mango, tobacco and abaca are the major commercial crops. The principal export crops are sugarcane and coconut. While the production of coconut-based exports has increased in the last few years, sugar-related exports have declined. In 2001, approximately 2Ľ million tons of coconut products worth $532 million were exported along with 225 thousand tons of sugar and molasses valued at about $32 million. Table 2.1. Agricultural Production by Crop Rice Sub- Sector In thousand Metric Tons 1998 1999 2000 National palay production grew by an annual average growth of 2.9 percent Major Crops Palay 8,555 11,787 12,389 during the period 1990 to 2000 from 9.3 Corn 3,823 4,585 4,511 million tons to 12.4 million tons. The Coconut 11,598 11,118 12,733 increase in production over the last decade Sugarcane 17,333 22,337 21,711 has been concentrated in irrigated rice Banana 3,493 3,869 4,156 (Figure 2.3). The amount of irrigated Pineapple 1,489 1,530 1,524 land planted in rice has increased at about Coffee 109 119 117 2.5 percent annually, or about 50 thousand Mango 865 803 781 hectares per year over the last two decades Tobacco 62 57 49 (Figure 2.4). Abaca 71 73 76 There are about 2.1 million rice farmers in Other Crops Peanut 25 26 26 the Philippines; an average farmer owns Mongo 28 29 27 and tills about 1.5 hectares of rice land. Cassava 1,734 1,890 1,771 About 40 percent of palay is harvested Camote 555 557 554 from March to April and the remainder Tomato 133 145 148 from October to December. Due to Garlic 13 9 14 frequent droughts and decline in Onion 87 85 84 investments in irrigation, the rate of Cabbage 86 87 88 growth in production has declined in the Eggplant 164 160 166 past years. In 1998 there was an 18 Calamansi 42 62 70 percent reduction in area harvested and 24 Rubber 223 215 188 percent, decline in production to 8.6 Cotton 3 3 5 million tons as a result of El Nino and La Other Fibercrops 4 3 3 Nina weather phenomena. The resulting Others 7,747 7,909 8,084 rice shortage was eased by rice imports Source: Bureau of Agricultural Statistics from Vietnam and Thailand. Thereafter production returned to its growth path. 6 The information on agricultural production and pricing for the major crops was obtained from "CGPRT Cross in the Philippines, A Statistical Profile, 1990-1999" M. Chowdhury and M. Araf, UN Escap, 2001 11 Figure 2.3: Figure 2.4: Production of Major Crops Irrigated Paddy Area in Philippines Average for Philippines 2800 10 2600 8 Irrigated Rice 2400 tons 6 Rainfed Rice hactares2200 metric Thousands 4 White Corn 0002000 2 Yellow Corn 1800 0 1990 1992 1994 1996 1998 2000 1600 1980 1985 1990 1995 2000 The major growing regions for irrigated rice Figure 2.5 are Cagayan Valley, Central Luzon, Ilicos, Production of Irrigated Paddy 2000 and Western Visayas. Each of the first two had more than 400 thousand hectares Carga ARMM producing in excess of 1.5 milliontons. Central Mindanao Southern Mindanao Illicos and Western Visayas together produce Northern Mindanao another 1.5 million tons on a little over 400 Western Mindanao Eastern Visayas thousand hectares. Mindanao has a total area Central Visayas Western Visayas of about 700 thousand hectares producing 2.4 Bicol million tons with the largest growing areas in Southern Tagalog Cenral Luzon Central and Southern Mindanao (Figures 2.5). Cagayan Valley Ilicos Region CAR Most of the rainfed rice is grown in three 0 500 1,000 1,500 2,000 regions, Western Visayas, Southern Tagalog Tons Thousands and Ilicos. The yields are much lower than for irrigated rice. Together they produce about 1.35 million tons on approximately 575 thousand hectares. Total production for Mindanao is only 670 thousand tons on 300 thousand hectares. (Figures 2.6) Figure 2.6 Central Luzon has consistently contributed Production of Rainfed Paddy 2000 about 15 percent of the total rice production folllowed by Cagayan Valley and Western Carga Visayas. The major rice surplus area are ARMM Central Mindanao Cagayan Valley, Ilicos, Central Luzon, Southern Mindanao Northern Mindanao Western Visayas and Central Mindanao as Western Mindanao Eastern Visayas shown in Tables 2.2 The main deficit areas Central Visayas other than Metro Manila, which required an Western Visayas Bicol average supply of 897 thousand tons during Southern Tagalog Cenral Luzon the period 1999­2000, are Southern Tagalog, Cagayan Valley Bicol, Central Visayas, Eastern Visayas, and Ilicos Region CAR 0 100 200 300 400 500 600 700 12 Tons Thousands Southern Mindanao, each requiring more than 120 thousand tons of rice a year. As a result, there is considerable internal trade in rice. Cagayan Valley and Ilicos provide rice to the capital region. The Central Region in Mindanao ships its surpluses to other parts of Mindanao. In the Visayas, there is trade between the Western Region and the Eastern and Central Regions. The average yields for Palay have remained Table 2.2: Per Capita Production steady since 1990 (Figure 2.7). Northern Rice White Corn Mindanao registered the highest yield of about Luzon 3.34 mt per hectare followed by Central Ilicos Region 288 10 Mindanao at 3.25 mt per hectare. Cagayan Valley 635 18 Cenral Luzon 235 1 Southern Tagalog 102 1 Within Mindanao, the area planted under rice Bicol 144 4 has been increasing slowly. Central Mindanao Visayas is the largest producer of irrigated rice and a Western 259 6 significant producer of the other three crops Central 38 23 (Figure 2.8). The production of rice in both Eastern 143 12 Southern and Central Mindanao has been Mindanao increasing rapidly over the last decade even Western 145 40 though yields have been declining. ARMM is Northern 122 55 the largest producer of rain-fed rice in Southern 137 69 Mindanao followed by Southern and Eastern Central 341 150 ARMM 142 184 Mindanao but yields have been relatively flat. Carga 147 31 Total Area 162 25 Rice is the main staple food for more than 70 Surplus areas in bold, deficit in Italics million consumers with a daily demand for about 32 thousand tons. Southern Tagalog is the largest rice-consuming region accounting Figure 2.7 for about 14 percent of the national Yield for Major Crops consumption. Central Luzon (11 percent), the Average for Philippines National Capital Region (10 percent) and 3500 Western Visayas (10 percent) are the other Irrigated Rice major rice consumption areas. The 3000 Department of Agriculture has projected 2500 Rainfed Rice demand to grow at about 3 percent per year hectare based on the population growth of 2.3 percent. White Corn per2000 kg Yellow Corn 1500 Rice accounts for about 12 percent of the household spending and 25 percent of the food 1000 basket of household food budget. Any 1990 1992 1994 1996 1998 2000 increase in the price of rice has a significant effect on household income. Rice farmers and their families are disadvantaged because they sell most of their rice at harvest time when they need the cash and do not normally have enough storage space to store rice for their consumption for the rest of the year.7 7 Recent surveys of the Social Weather Stations (SWS) indicate that 85% of Filipinos and 78% of rural households source their household rice from the open market. This indicates that the proportion of households benefiting from rice sold at subsidized (relative to domestic) prices by the NFA is only a small portion of the total population. 13 Figure 2.8 : Distribution of Production of Four Major Crops in Mindanao Irrigated Rice Rainfed Rice W. Mindanao (11.33%) E. Visayas (11.76%) W. Mindanao (16.55%) E. Visayas (23.21%) Carga (8.28%) N. Mindanao (12.37%) N. Mindanao (0.62%) S. Mindanao (7.92%) ARMM (4.89%) Carga (9.90%) Central Mindanao (17.52%) S. Mindanao (23.94%) Central Mindanao (27.43%) ARMM (24.28%) White Corn Yellow Corn E. Visayas (2.81%) E. Visayas (0.16%) W. Mindanao (7.82%) Carga (4.11%) W. Mindanao (0.19%) Carga (0.49%) ARMM (19.75%) N. Mindanao (9.52%) N. Mindanao (30.67%) ARMM (28.10%) S. Mindanao (22.88%) Central Mindanao (24.45%) S. Mindanao (24.29%) Central Mindanao (24.77%) Filipino consumers pay two to three times higher a price for rice, than Thai or Vietnamese households.8 The higher price is due to the high costs of production and distribution.9 It is for this reason that rice imports have become a cheaper alternative to locally produced rice. The relatively high prices of rice contributed to low average levels of consumption and the consequent worsening of nutritional status, especially among the very young. Thus, NFA has had to resort to selling rice in half-kilo bags in order that the very poor can afford to pay cash. Even the cheapest rice in the Philippine market, the regular-milled rice sold at P14.00 per kilo by the National Food Authority in its "rolling stores" located in the depressed areas, is too expensive for the very poor10. Over the years Philippines has adopted rice production policies aimed at self-sufficiency. Current production is about 162 kg per capita. This is less than the requirement for pure rice-based consumption (180-200 kg per capita) but when supplemented with other grains should be sufficient. Nevertheless, from 1990 to 1999 the country imported rice from Thailand and 8In August 2001, the retail price of regular-milled rice in major Manila wet markets was P 16.73 per kilo (DA-BAS) and in peso terms for the same quality of rice, Vietnamese households pay only P 6.06 per kilo while Thai households pay P 7.64 per kilo. Referecne PIDs study, July-August 2001, B.J. Tolentino and E. Noveno, 9The study indicated that the on the average, it costs Filipino farmers P7.45 (all types irrigated and rainfed) to produce a kilo of palay (unhusked rice). In mid-1990s, Filipino farmers spent P 5.71 to produce a kilo of palay while Vietnamese farmers spent only P 2.33 per kilo and Thai farmers P 4.30 per kilo. 10Cross-country evidence shows that Filipinos eat relatively little rice with 95 kilos of rice per capita per year which amounts to about 3 cups of milled rice per day or a cup of milled rice per meal. Compared to other Asians, this consumption is low ­ Vietnamese consume up to 165 kilos of rice per capita per year, Myanmar citizens eat as much as 213 kilos of rice per capita per year. (Rice Facts Index: www.riceweb.org) 14 Vietnam (Table 2.3), much of it through informal trade since imports are subject to a 50 percent tariff. By law, it is only the NFA11 that may import rice or license such imports into the country. In fact, smuggling is rampant as a result of price differentials relative to Thai and Vietnamese rice as well as spotty enforcement and the archipelagic nature of the country. 12 Table 2.3: Philippine Rice Imports and Exports 1990 to 1999 Imports Exports Year Volume Value Volume Value (metric tons) (Mn. US$) (metric tons) (Mn. US$) 1990 620,794 123 1991 - - 10,000.00 1 2.34 1992 - - 29,672.33 1 6.91 1993 209,994 38 1994 - - 1995 257,263 76 1996 892,943 278 1997 720,210 231 1998 2,136,161 624 1999 781,716 221 Note: Details may not add up to totals due to rounding 1 - Loan Payment to Indonesia Source: National Food Authority CORN White corn is grown for household consumption. It accounts for 1.2 percent of the market basket and 2.4 percent of the food basket of the Filipino. Yellow corn is grown primarily for livestock feed. Local corn production has decreased by an average of about 3 percent per year during the past 10 years. In 1990, 4.9 million metric tons was produced on 3.8 million hectares. Since then the area planted declined at about 6 percent annually to 2.50 million hectares in 2000. The production of white corn has declined over the last decade (Figure 2.3) but yields have remained relatively constant. Meanwhile, production of yellow corn has increased as a result of improved yields. In 2001, Mindanao produced 61 percent of total corn grown in the Philippines. This includes 80 percent of the white corn, approximately 1.5 million tons produced on about 1.15 million hectares (Figure 2.9). Mindanao also produces about half of the yellow corn grown for livestock feed, about 1.3 million tons on 460 thousand hectares (Figure 2.10). However, yellow corn production is not increasing except in ARMM. Cagayan Valley produces another 900 thousand tons but the yields are much higher so that only 260 thousand hectares were planted. Bukidnon 11PL480 grain is supplied to the Department of Agriculture , which transfers it to the NFA for distribution. 12Economists estimated that from 1996 to 1998, total cost to Philippine society of the policy of rice price interventions implemented by NFA averaged about P 26 billion a year. 15 accounted for 96 percent of Northern Mindanao's yellow corn production and 62 percent of its white corn. (Table 2.4.) Table 2.4 Northern Mindanao Yellow and White Corn Production, 2001 Region 10-Northern Mindanao, 2001 Northern Mindanao Bukidnon 2001 2001 Production (MT) 505,938 434,540 White 149,172 91,755 Yellow 356,766 342,785 Area Harvested (Ha) 320,888 155,618 White 120,845 50,862 Yellow 110,043 104,756 Yield/ Hectare 4.47 5.07 White 1.23 1.80 Yellow 3.24 3.27 Source: DA-BAS, Cagayan de Oro The major demand for corn is as livestock feed. The principal consuming areas are Southern Tagalog (12.2 percent), Central Visayas (11.6 percent), Southern Mindanao (11.1 percent) and Central Luzon (10.1 percent). The Department of Agriculture estimates that the national daily requirement for corn is 14,600 mt or an annual requirement of about 5 million metric tons. Demand for livestock feed has exceeded production, resulting in deficits that reached 1 million metric tons in recent years. Corn imports amount to only .56 million metric tons since the livestock and poultry industries use less expensive corn substitutes particularly bran/pollard a by- product of wheat. Figure 2.9 Figure 2.10 Production of White Corn 2000 Production of Yellow Corn 2000 Carga Carga ARMM ARMM Central Mindanao Central Mindanao Southern Mindanao Southern Mindanao Northern Mindanao Northern Mindanao Western Mindanao Western Mindanao Eastern Visayas Eastern Visayas Central Visayas Central Visayas Western Visayas Western Visayas Bicol Bicol Southern Tagalog Southern Tagalog Cenral Luzon Cenral Luzon Cagayan Valley Cagayan Valley Ilicos Region Ilicos Region CAR CAR 0 100 200 300 400 500 0 200 400 600 800 1,000 Tons Tons Thousands Thousands Substantial imports of corn and feed substitutes are sourced from the United States, Thailand, China and, recently, Argentina, but only the United States and Argentina are considered to be 16 stable sources of imported corn. Total imports in 2000 were 0.51 million metric tons versus only 0,2 million in 1999. There is now a shift in production from corn to vegetables and other higher value crops in Northern Mindanao including vegetables for domestic markets. This will cause an increase in imports of livestock feed. Locally grown yellow corn is protected from direct competition by tariffs of 35 percent-65 percent. However, it competes with lower value livestock feed, e.g. wheat, barley and sorghum, which are imported under much lower, 7 percent- 10 percent, tariffs. OTHER CROPS The most important export crops for Mindanao are fruits, specifically pineapples and bananas. Mindanao produces nearly all of the country's pineapples, 70 percent of its bananas, about 65 percent of its coffee, cassava and corn and about 60 percent of its coconut crop. The pineapples are grown on plantations managed by the large companies, while bananas are grown on small farms or on land leased to farmers by the large corporations. The fruits are processed to produce juices, pineapple chunks and fruit cocktails for both domestic shipments and exports. Increasingly, the large plantation companies are moving out of production and focusing on food processing, logistics and marketing. The large companies responsible for the export of these crops include Dole, Delmonte, and Marsman. Delmonte grows pineapples in Bukidnon and ships them out as fresh fruit and processed food to the US and East Asia through Cagayan D'Oro. It also grows bananas in Southern Mindanao, which are shipped out of Davao to Japan and China. Dole grows pineapples in ARMM and ships them out of Cotabato. There is also an increasing production of vegetables including potatoes, tomatoes, lettuce, carrots, and peppers. At present about 60 thousand hectares in Northern Mindanao are planted in vegetables, primarily in Bukidnon where the climate and soil permit a year-round growing season. The vegetables can be shipped competitively to Luzon during its rainy season. They are sold through central markets where buyers from Luzon purchase them for shipment to the retail markets. Palm oil is also produced and shipped via barge to the markets in Luzon. Potatoes: The largest crop by volume is potato. The sizes of potato tubers include small, medium and large.13 The most common form of potatoes grown for commercial purposes is the Atlantic variety, which is used for potato chips. Their yield is 2.0- 2.5 tons per ha. Other varieties yield about 12.3 tons. Bananas: The fresh banana industry supports some 5.9 million farms and farm households. Exports of fresh bananas accounted for 32 percent of fruit exports in 2000 and 22 percent in 2001 Banana is harvested year round and plants bear fruits within 10 to 12 months. There are four common varieties, Saba, Lakatan, Latundan and Cavendish. Saba is generally processed into banana chips. Lakatan and Latundan are table fruits. Cavendish is mainly for export. Banana production increased by 2 percent annually from about 3 million mt in 1990 to about 3.8 mt in 2000. Southern Mindanao contributes 50 percent of total production followed by Central Mindanao (9 percent), CARAGA (6 percent) and Western Visayas (7 percent). 13One hectare produces 2.5 tons (16-18 pieces per kilo or 20-30 pcs per kilo depending on the size. 17 Central Mindanao registered the highest yield in 1997 at 37.5 mt/ha about 4 times the national average. The area planted in bananas increased from 300 thousand in 1990 to 328 thousand in 1997 in 2000. Except for the large corporate/commercial planters in Southern Mindanao (Davao), banana production is predominantly a small family activity. The typical size of a planting is Ľ ha. or less. Banana is also inter-cropped with coconut usually on one-hectare farms. Fresh bananas are exported primarily to Japan, which accounted for 61 percent of total export volume. Other markets include China, United Arab Emirates, Taiwan and Korea. Philippines exports account for about 80 percent of the Asian trade and about 10 percent of the world trade. The per capita domestic consumption of fresh banana in 2000 was about 17.9 kg. Pineapples: Pineapple is the second most important fruit in terms of quantity and area planted. It provides livelihood to about 420,000 farmers nationwide. The Philippines is the third largest producer of pineapple, after Thailand and Brazil.14 Production consistently increased from 1993 to 1997, but dropped in 1998 (due to weather disturbances). In 1999, the total value was US$22.5 million, which increased to US$24.6 million in 2000. Preserved pineapple juices accounted for 12 percent in 2000 and 20.3 percent in 2001. The principal destinations include Japan, Korea, China, Hong Kong, New Zealand, Taiwan, United Arab Emirates, Indonesia and Singapore. Yield levels of pineapple farms have improved at a rate of 5 percent per year but output at only 3 percent. Commercial production is concentrated in Northern and Southern regions of Mindanao with over 90 percent of domestic production. The biggest processing companies, e.g. Del Monte and Dole are also located in this region.15 They produce year-round by leasing the farms from employee owners and farmers. PRICES FORAGRICULTURAL COMMODITIES The distance of production areas to consumer markets affects the prices in different regions. Surplus regions located far from the major markets generally receive lower farm prices because of the high cost of transportation, transit losses and limited number of buyers. Similarly retail prices in deficit regions are higher due to the cost of transport from surplus regions. Central Luzon, although a surplus region for rice, had the highest farm price because it is closest to the Metro Manila market. Retail prices in deficit regions like Northern Mindanao and Central Visayas exceed the Manila price. The historical price of rice for wholesale, retail and farm gate prices are presented in Table 2.6. 14Up to 1998, Philippines, Thailand and Brazil accounted for about 45 percent of the world production of pineapple. Other producers are India, China, Nigeria, Indonesia, Colombia, United States and Mexico. 15In Luzon, the Southern Tagalog and the Bicol regions significantly produce pineapple and sold as fresh produce to Metro Manila consumers. 18 Table 2.6 National Yearly Average Prices of Cereals 1990-2001 (P/Kg) Year Palay Rice-Special White Corn Yellow Corn FarmgateWholesale Retail Farm Wholesale Farm Wholesale 1990 4.74 8.77 9.44 4.24 4.70 4.26 4.81 1991 4.77 9.08 9.97 3.76 4.23 3.68 4.40 1992 4.82 9.48 10.43 4.56 5.29 4.99 5.99 1993 5.40 10.78 11.83 4.63 5.03 4.62 5.60 1994 5.90 12.11 13.29 5.27 5.95 4.98 6.20 1995 7.24 15.04 16.32 6.47 7.08 6.28 7.46 1996 8.13 17.39 19.00 6.78 7.89 6.16 7.68 1997 7.92 16.88 18.55 6.17 7.09 5.97 7.63 1998 8.11 17.39 19.02 5.62 7.13 5.65 8.32 1999 7.87 17.45 19.15 6.32 7.10 5.39 8.47 2000 8.70 17.77 19.45 7.01 7.91 6.50 9.20 2001 8.69 17.34 19.04 7.94 9.11 7.25 9.62 Source: National Food Authority Under the current system, the prices paid to the farmer for both rice and corn are relatively low. The farmers do not have storage facilities and must sell their crops during harvest. There is no future's market so they are subject to the price prevailing at the time of harvest (April/May and November/December). Farm gate prices for the major crops typically fluctuate in a +15 percent range during the year as shown in Figure 2.11. There are similar fluctuations in the price at the wholesale level allowing for a lag between the times of harvest and milling. In Mindanao, these are less severe for rice (Figures 2.12) than for corn (Figure 2.13 and 2.14). 19 Figure 2.11: Figure 2.15 shows the seasonal price Farmgate Price for Major Crops variation of ex-farm (palay) and well-milled 1998-1999 rice for the Philippines and Metro Manila. In 10.0 2001, Metro Manila Well-Milled Rice (WMR) was about 13.5 percent higher than 9.0 the average Philippine price of rice, 17 8.0 Rice percent higher than wholesale price and more than double the price for palay. When 7.0 White corn milled, there is a 40 percent-50 percent Pesos/Kilogram 6.0 Yellow Corn reduction in weight. The wholesale price of rice ranges from P14.80 to P19.60 5.0 depending on rice variety and milling 4.0 Jan 1997 Jul Jan 1998 Jul quality. Retail price of rice is about 10-15 Apr Oct Apr Oct percent higher than wholesale price of rice. Figure 2.12: Wholesale Price for Special Rice 20 19 18 Kilogram per 17 Pesos 16 15 Jan 1998 Jul Jan 1999 Jul Apr Oct Apr Oct Western Northern Southern Central ARM 20 Figure 2.13: Figure 2.14: Wholesale Price for White Corn Wholesale Price for Yellow Corn 10 11.0 9 10.0 Western 8 9.0 Kilogram Southern 7 Kilogram 8.0 per per 7.0 6 Central Pesos Pesos 6.0 5 ARMM 5.0 4 Jan 1998 Jul Jan 1999 Jul 4.0 Apr Oct Apr Oct Jan 1998 Jul Jan 1999 Jul Apr Oct Apr Oct Western Southern Central ARMM Data came from DA-BAS Northern Mindanao. There are also regional differences in the farm-gate, wholesale and retail price of rice within Mindanao (Annex B). Palay farm gate prices are much lower in CARAGA, Southern Mindanao (Davao City) and Western Mindanao due to the distance from market centers. Northern Mindanao farmers receive relatively better palay price in most cases due to better road access and condition. The prices for crops are highly Figure 2.15 volatile on a year-to-year basis as Rice Price Fluctuation show in Table D.5. In 2000, coconut farmers experienced a 45 percent 23 price drop. Coffee and banana 21 experienced reductions of 27 percent and 21 percent, respectively while 19 sugarcane and mango dropped by 17 Ex Farm Phil about 18 percent. Prices paid to 15 Whlse Phil tobacco growers were down by 11 Peso/Kg 13 Whlse Manila Retail Phil percent but rubber and cotton were 11 Retail Manila 39 percent and 19 percent, 9 respectively. Calamansi, peanut and 7 cassava enjoyed price increments ranging from 6 percent to 13 percent. May Jan.99 Sept. Jan.00 MaySept. May Jan.01 Sept.Jan.02 Onion and garlic prices depreciated by as much as 589 percent and 27 percent, respectively. Less dramatic declines were observed in the price for mango, tomato and eggplant. FERTILIZER The fertilizer industry in the Philippines plays a key role in increasing crop production. It contributed to the improvement in crop yields over the last four decades, especially in the 1970's when the country became a net exporter of rice. Rice accounts for 53 percent of total fertilizer consumption, while corn accounts for about 10-15 percent, and vegetable and other crops about 21 35 percent. The level of use of inorganic fertilizers in the Philippines has increased (Figure 2.16) due primarily to the increase in the area of irrigated crop production. The average application rate has changed little over the last decade (Figure 2.17). Figure 2.16: Figure 2.17: Fertilizer Consumption in Philippines Use of Inorganic Fertilizers 3,000 For Rice Cultivation 2,500 250 2,000 tons 200 Hectare 1,500 metric per150 0001,000 100 500 Kilograms 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 50 1990 1991 1992 1993 1994 1995 1996 1997 1998 Production Imports Irrigated Rainfed With the deregulation of the Fertilizer Industry in 1986, the patterns of fertilizer marketing and distribution have changed markedly. Both the production and importation of fertilizer is done through the private sector. At present, there are four domestic producers of compound phosphate fertilizers with annual capacities as shown in Table 2.7: Table 2.7: Fertilizer Producers in Philippines Name of Manufacturer Location Capacity % Share (MTPY) Phil. Phosphate Fertilizer Corp Isabel, Leyte 1,170,000 69.2 AFC Fertilizers & Chemicals Inc. Toledo City, Cebu 320,000 18.9 Soiltech Agricultural Products Poro Point, La Union 100,000 5.9 Farmix Fertilizer Corporation Batangas City 100,000 5.9 Raw material inputs including rock phosphate, anhydrous ammonia, sulfuric acid, muriate of potash (KCI), and ammonium chloride are imported. Only a portion of the sulfuric acid is locally sourced. The annual level of fertilizer imports has been relatively steady over the last decade at about 1.1 million tons. Most of the increase in consumption has been met through local production. Imports include urea and potash as well as some ammonium sulfate. The country exports locally-produced fertilizers to other countries in the region as shown in Table 2.8 The volumes produced, imported and consumed for the period 1991 to 2000 are shown in Tables B.1. through B.6. 22 Table 2.8: Types and Destinations of Fertilizer Exports NP/NPK Diammonium Merchant Grade Gypsum (by- Fertilizer: Phosphate Phosphoric Acid product): (DAP): (MGPA): Thailand China Indonesia Japan China Thailand Australia Indonesia Kampuchea Vietnam Taiwan Malaysia Nepal Indonesia China Vietnam Indonesia Iran India Taiwan Vietnam Myanmar Malaysia ROLEOF NATIONAL FOOD AUTHORITY The National Food Authority (NFA) is the lead government agency responsible for the stabilization of supply and prices of grains particularly rice and corn. The NFA's mandates are: · Food security in the staple cereals in times and places of calamity or emergency, both natural and man-made. · Stabilization of supply and prices of staple cereals both at the farm-gate and consumer levels. Farm-gate price levels should enable farmers to derive reasonable returns on their production investment. NFA is engaged in palay procurement, drying, milling and distribution. It has exclusive authority to import rice and can allocate import quotas to local importers in cases of production shortfalls (Agricultural Tariffication Act of March 1996). NFA sells rice at below market price to the poor sector of the society. It intervenes directly and indirectly in the rice and corn market. The timing and intensity of its intervention depend on the dictates of the domestic and/or global market. Figure 2.18 presents the volume of palay and corn procured by NFA from 1974 to 2000. Figure 2.19 shows the quantities distributed (sales) by NFA over the same period. These indicate that NFA is a major player in the rice industry but not in the trade for white and yellow corn where the private sector is more actively involved. Tables C.3, C.6, and C.7 show the importation of corn by NFA and the private sector. PROBLEMSOF LOW PRODUCTIVITY Low productivity remains the key challenge confronting the agricultural sector. The primary reason for low productivity (and associated low profitability) is the inadequacy of rural infrastructure, particularly rural roads and irrigation. Another problem is the absence of an adequate policy framework and institutional arrangements to resolve the highly distorted pricing system (e.g. food price support and consumer subsidies). Other factors include: 23 · The downward trend in prices for traditional export crops · Deterioration of intersectoral trade · Natural calamities · Lack of internal markets · High transport costs. Figure 2.18 Grain Procured by NFA 1,000 800 600 Tons 400 Metric Thousands 200 0 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Palay Rice White Corn Yellow Corn Figure 2.19 Grain Distributed by NFA 1,400 1,200 1,000 800 600 Thousands 400 200 0 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 Metric Tons Rice White Corn Yellow Corn The inadequacy of rural infrastructure, together with low rates of growth in the agriculture sector, have limited the growth of farm and non-farm employment opportunities in the rural areas and increased the incidence of rural poverty. In order to address the above-mentioned concerns, Congress passed the Agriculture and Fisheries Modernization Act (AFMA) in January 1998. The Act provides programs to be implemented from 1999 to 2004 covering: 24 · Irrigation · Post-harvest facilities · Other infrastructure · Credit and financing · Information and marketing assistance · Product standardization and consumer safety · Human resource development · Extension services · Rural non-farm employment · Trade and fiscal incentives. The Act also provides for the identification of Strategic Agricultural and Fisheries Development Zones (SAFDZs) that will serve as centers for development, and for the formulation of medium- and-long term comprehensive Agriculture and Fisheries Modernization Act (AFMA). The AFMA includes commitment to poverty alleviation and social equity as guiding principles of the country' agricultural development. TARIFFS, QUOTAS AND OTHER RESTRICTIONS Liberalization of agricultural trade is required under WTO agreements. The Agricultural Tariffication Act (RA 8178), signed into law in March 1996, repealed various laws that imposed quantitative restrictions on imports of sensitive agricultural products such as: · Live poultry, hog, sheep and goat and bovine animals · Beef, pork, poultry and goat meat · Cabbage, onion, potatoes, garlic · Coffee · Corn and corn substitute · Sugar. In its place were introduced a differentiated tariff and a minimum access volume (MAV) that determines the quantity of an agricultural product that may be imported at the favorable (in- quota) tariff rate. Executive Order 313 stipulated that the MAV and rates were to be applied for rice and 14 other products from 1996 to 2000. These are consistent with the rates committed to the WTO, as shown in Tables A.4 and A.5. 25 CHAPTER 3 SUPPLY CHAIN: CORN IN NORTHERN MINDANAO SUPPLYOF FERTILIZER Corn farmers are provided fertilizer and other inputs, e.g. pesticides/fungicide, by traders and dealers on credit and are charged against their crop upon harvest (at prevailing prices). Fertilizers are imported from countries such as Indonesia. The importers/ distributors receive fertilizer shipments at the port of Cagayan de Oro and distribute them to the agricultural production areas. Table 3.1 presents the sea freight of fertilizer destined to Bacolod, Batangas, Dumaguete and Iloilo from Cagayan de Oro. Table 3.1 shows the share of the different components of the sea Table 3.1: Freight Rates for TEU of Fertilizer freight charges in door-to-door Shipped from Manila to CDO costs. Sea freight is higher in longer distance routes such as P /TEU % Manila, where it is 63 percent of Per CBM (Inclusive Of VAT) 850.6 the total transport charge. Handling Per CBM (Exclusive Of VAT) 773.27 costs in Cagayan de Oro (CDO) Freight 15,310.74 69.1 range from 6 percent to 10 percent Stamp 10 .1 of the total door-to-door cost. Wharfage (CDO) 69 .3 Trucking at CDO comprises about 30 percent of the door-to-door cost Wharfage (Destination) 69 .3 for 10-foot vans and 22 percent-28 Handling (CDO) 596.75 2.7 percent for 20-foot vans. Handling (Destination) 823.35 3.7 Weighing 33 .2 Figure 3.1 illustrates how fertilizer Trucking (CDO) 1,713.00 7.7 is delivered to farmers. Farmers Trucking (Destination) 3,540.00 16.0 order from dealers prior to planting Door To Door 22,164.84 100.0 season. The dealers thenorder Door To Pier 18,624.84 84.0 from the CDO-based Pier To Door 20,451.84 92.3 importers/distributors, normally on Pier To Pier 16,911.84 a "suki" or "long-term" 76.3 arrangement for which they are Pier To Pier Origin Charges 16,809.84 75.8 given volume discounts. Note: In Bags/Barrel Distributors at CDO deliver the "order" against a down payment with the balance due in 60 days. Farmers' cooperatives also order from distributors directly. The dealers normally hire a truck for "pooled" order to minimize trucking cost. A truck typically has 5 to 10 tons in 50 kgs. bags. The cost for transport is about P20.00/bag and is paid by local dealers. Travel takes about 2 hours depending on distance, traffic and road conditions. The fertilizer is unloaded and transferred to dealers' storage area (near his store) in pallets. This requires 3 to 4 persons and takes 2 to 3 hours at a cost of P1.00 per bag. 26 Dealers prepare smaller consignments, 10-20 bags to a maximum of 60 bags, for sale to farmers' groups, who hire a jeepney to pick up the consignment (about P 5.0 bag). Transport time is about 1 hour. The unloading cost at the farm is P0.50 to P1.0 per bag, depending on distance of farmers' bodega or warehouse. 27 Figure 3.1 Fertilizer Supply chain for Fertilizer Shipped from CDO Fertilizer in Bags Trucking ­ CDO to Misamis Unloading at Dealers' Store Loading to Truck at CDO warehouse. Oriental and Bukidnon Dealers Ave. Range 500 bags Ave. Range: START Ave. Range Time: 3 hours ; 2-4 hours Time: 4 hrs. 3-5 hrs Time: 2 hours; 2­ 4 hours Cost P1.00/bag; P1.00 ­ Cost: P1.00/bag; P1.50/bag P1.00-P1.50/bag Cost: P20.00/bag; (depending on the number of loaders) P20-30 per bag Jeepney for delivery to Corn Farms (or pick-up by farmers) 50-100 bags Ave. Range: Time: 1.5 hours; 1-2 hours Cost: P 5.00/bag; P3.00 - P6.00/bag Transport to Farms (20-40 kms.) Unloading to Farms (20­ 40 Ave. Range: kms.) Ave. Range: Time: 1 hour; 1 ­ 1.5 hours Time: 1.5 hours; 1-2 hours Cost: P1/ bag; P 10 ­ Cost P1.00/bag P 15/bag END 28 MARKETING AND DISTRIBUTION Yellow corn is grown as a commercial crop and sold by the farmer to local agents who, in turn sell it to larger traders or the buyers for the mills. Local grain traders buy from corn farmers and sell to the integrator/ miller in Cagayan de Oro and Cebu. The mills grind the corn and sell the feed to dealers (wholesaler/retailer) who sell directly to hog and poultry raisers based in Cagayan de Oro and Cebu. The mills sell the grain to distributors who sell it to the livestock farms. Figure 3.2 shows the flow of corn from Bukidnon to Cagayan de Oro, the inter-relationships of traders with livestock raisers, feed millers and corn oil manufacturers for yellow and white corn grain, grits and corn by products. Alternatively, corn is consolidated and shipped in bags or in bulk to Luzon where it is milled into feed. The bulk consignments are loaded at facilities in Cagayan D'Oro and General Santos and off-loaded at bulk terminals along the Pasig River. Since there is little reduction in volume as a result of the milling, there is no advantage to locating the mills closer to the farms. Furthermore, it is easier to prepare and sell feed mixes when located closer to the market. A flow chart showing the participants in this chain is presented in Figure 3.3. The participants include · Grain traders ­small, medium, and large scale traders who deal with farmers and other traders in the locality (barangay, municipal and provincial) · Integrator/feed millers ­ who manufacture feeds for commercial and non-commercial sale.16 · Corn Millers ­ who mill both white and yellow corn grits and sell these to wholesalers and manufacturers of cornstarch (mainly based in Cebu) and corn snack foods (Cebu and Manila). · Commission agents/ Canvassers · Wholesalers/ shippers/ truckers ­ who distribute corn grits to wholesalers/retailers within and outside the province · Wholesalers/ retailers · Feed Dealers · Retailers In Southern Mindanao, especially South Cotabato, more than 150 wholesalers/millers and the National Food Authority (limited scale) are involved in corn marketing. These interact either directly with farmers or indirectly with smaller traders or commission agents/canvassers based in General Santos City, Marbel and other corn-producing municipalities. The corn brought by traders from South Cotabato is transported and unloaded at an informal trading center in General Santos where millers, large traders and agents negotiate the price. These traders/agents already have purchase orders from customers based in Cebu and Manila 16 Commercial feed millers manufacture feeds for sale to backyard and commercial hog and poultry raisers (eg. Lim Ket Kai) and non-commercial or independent feedmillers process feeds mainly for their own consumption/ utilization. Some large feedmillers produce primarily to support their integrated hog and poultry business operations. SMC, Vitarich, RFM, GMC, URC and Purefoods (acquired by SMC) are integrators 29 Figure 3.2 Flow of Corn from Bukidnon to Cagayan de Oro Processing and Distribution Procurement Grains (Grains/Grits & Mill by-Products) Trader/Shippers Mills/Traders Farmers Barangay Traders Grit Wholesalers Municipal/ Prov'l. Traders Mills/Traders Livestock Raiser Feedmiller Corn Oil Manufacturer Location: Cagayan de Oro Municipalities of Bukidnon: Misamis Oriental Gingoog, Misamis Oriental Malaybalay and Don Carlos Manolo Fortich Bukidnon Legend: Yellow & White Corn Grain Corn Grits Mill by-products (tik-tik, corn bran, etc.) Source: Interviews of farmers, traders and corn millers. 30 FIGURE 3.3 PRIVATE MARKETING CHANNELS Farmer Grain Trader Commission Agent Corn Miller Integrator/ Wholesaler/ Food Miller Shipper/Trucker Manufacturer Wholesaler/ Feed Dealer Retailer Retailer Hog and Poultry Consumer Source: Interview with Traders 31 The large-scale corn traders have about 60 percent market share; the small-to-medium scale traders about 30 percent. Corn is brought to the warehouse of large millers/traders or to the pier for transshipment. The rest is split between small-scale, barangay-based traders and the NFA. The yellow corn logistics are summarized in Figure 3.4 indicating the cost and time for the different marketing and distribution activities. TRANSPORT Normally the corn is shipped in 50 kg. bags from the farm to the final destination. Bulk transport is used only in situations when: · the end-user in Manila can handle bulk corn · tramp vessels are available · the shipper has sufficient volume. Even then the bagged corn is loaded manually on to the ship by emptying the bags into the hatches of the tramp vessel in General Santos. The corn is transported from the farm in trucks although there are still cases where corn is transported using tricycles, carabao and horse-driven carts or jeepneys (depending on the condition of the farm-to-market road and the season). Transit time is a minimum of 5 hours for 100 sacks. Figure 3.5 shows the distances and modes of transport between the corn producing areas in Bukidnon and Cagayan de Oro. After the corn is harvested, it is dried, shelled and then sold to traders/millers who have buying stations in the locality. The traders use their own trucks to transport corn from farms/ buying stations to their warehouses and from warehouses to the pier or wholesalers/ retailers. The trucks used are mostly reconditioned 6, 10, and 12 wheeler open trucks with 150 to 500 sack capacity. Tarpaulin sheets are used to protect the bagged corn piled from pilferage and adverse weather conditions. From Bukidnon, the trucking rate ranges from P20- P 30 per sack to Cagayan de Oro (about 2 to 5 hours) depending on the location of the farm, traffic and the road condition. Sea transport from Mindanao to Manila requires at least 2 days and is normally done using liner vessels and 20 foot containers. The 50-kg. sacks are manually loaded in containers either at the wharf or the shipper's premises. At Manila North Harbor, the containers are loaded on to trucks. At least 5 hours is required to clear the cargo. The corn is then transported to the consignee's premise. The trip time depends on traffic conditions and the location of the warehouse, but requires a minimum of 5 hours. At the warehouse, the bagged corn is taken out of containers and the empty containers are returned to the shipping line within 8 hours. The freight rate for corn in containers shipped from CDO is shown in Table 3.2 Comparative freight rates for corn and other feed moving in containers on shorter distance routes, such as CDO-Iloilo and CDO-Dumaguete are lower but the handling costs are higher as shown in Tables C.8 and C.9. 32 Table 3.2: Freight Costs for Corn Shipped Cagayan D'Oro (CDO) to Manila 10 Foot 20 Foot Freight 6,922 13,845 Stamp 10 10 Wharfage (CDO) 34 69 Wharfage (Destination) 34 69 Handling (CDO) 298 597 Handling (Destination) 411 823 Weighing 22 33 Trucking (CDO) 1,201 1,713 Trucking (Destination) 2,480 3,540 Door to Door 11,413 20,699 Door to Pier 8,933 17,159 In Northern Mindanao, the corn traders noted that the price of corn in Mindanao is higher, P 8.00 per kilo, than in Manila, P 7.40, so the farmers prefer to sell their produce to integrators and traders in Cagayan de Oro and no longer ship them out to Manila. Manila-based feed millers/integrators are importing yellow corn substitutes, which costs less than the locally produced corn.17 17In Mariveles, Bataan, the Asian Terminals Inc.owns and operates an integrated bulk handling and storage facility for grains. Large foreign vessels carrying imported feedgrains (mostly corn and soybean meal) in bulk are unloaded, moved by conveyors and stored in bulk in silos. These are then loaded unto barges (bulk) for transport to major users in Manila or bagged and transported in trucks to medium and small users in neighboring provinces. . 33 Figure 3.4 Yellow Corn Logistics Farmers Harvesting at Farm(1 ha) 40.5 sacks, 2.1 mt Solar or Manual Drying at Farm Bagging Time Ave Range Time Ave Range 30 sacks at 50 kg/sacck 1.5 days 1-25 days 2 days 3-5 days Time Ave Range Cost P1,500/day P2000-3000 Cost P400/day P300-500 1 hour 1-1.5 hours Cost P5/bag P4-7/bag Pick-up/Hauling by Traders Pickup by Traders Barangay-Highway (400m) Barangay (Municipal) 10-20 sacks Loading to Carabao Time 1-2 hours Cost P150 for 30 sacks (30 per trip) P2-5 /bag for 5 bags per trtip Trucking from Bukidnon to CDO Piling at Road by Farmers Time Ave Range Loading to Truck by Farmers (300 sack)s 2 hours 2-5 hours Time Ave Range Cost P20/bag P15-25/bag 2 hours 1.5-3.0 hours Cost P1/bag (3 persons loading) Feed Millers Buying Station/Warehouse Shipping Freight to Manila Unloading Unloading from Truck Unloading: Vessel to Truck at Pier Average Range Average Range Average Range Time 1.5 hours 1-2 hrs Time 1 hour 1-1.5 hrs Time 30 mjn 15-45 min Cost P1.5/bag Cost P1.5/bag P1.50-1.75/bag Cost P283/box + wharfage P69/box Trucking Pier to Warehouse in Manila verage Range Feed Millers Trucking from CDO Warehouse to Time 1.5 hrs 1-3 hours Milling, Bagging 500 sacks Pier (360 bags (18 tons per TEU) Cost P2000-3000/box door to door Time Ave Range Average Range Handling P824/TEU or P0.5/kg) 24 hours 20-28 hours Loading 15-30 min 30-60 min Cost P25/bag P30-50/bag Cost P1.5-.81.75/bag Trucking 30-60 min Cost P1.0-1.5/bag Unloading Feed Millers/Dealer Warhousing, Milling Dealers/Consumers at CDO Feed AT Pier Site: Handling Truck to Time 1day Dealers Purchase of Livestock Feed temporary storage Time 1-2 hrs 10-50 sacks Cost P3.0//bag Wharfage P0.75/bag Dealers/Consumers at CDO Feed Dealers Purchase of Livestock Feed 10-50 sacks End Loading to Vessel (1 container) Average Range Time 30 min 15-45 min Cost P597/box End 34 Figure 3.5 Distances from Cagayan de Oro and Mode of Transportation Within Corn Producing Areas 35 With break-bulk shipments, the transport costs comprise about 20 percent of the wholesale price of corn. The freight cost increases as a result of prolonged loading and unloading, traffic congestion during transport, unnecessary transport of damaged grains and impurities, avoidable handling (e.g. re-bagging due to poor condition of bags) and quantity losses from spillages, pilferage and quality deterioration. Speed money is sometimes paid on the road. PACKAGING AND HANDLING18 Corn is transported using 50-kg. plastic polypropylene bags. These are re-used 4 to 5 times, or for a period of up to 2 years.19 The bag costs P12.00 to P15.00 each. The bags are handled by laborers using pushcarts, gangplanks, nets and slings (attached to the vessel winches in the piers). These involve multiple movements. For example, at the mill, there are five moves.: · Truck -> weighing scale · Scale -> pile · Pile -> mill · Re-piling · Re-bagging Labor is paid per bag per movement (average about P1.50 per move). The damages, spillages and other losses average 1 percent-2 percent but vary depending on the weather condition, distance between pile and points of loading and unloading, height of the pile at the warehouse, condition of the bags/sacks used, number of movements, and undue pressure when the bags are dropped onto the floor. The NFA has directed all businessmen dealing in grains to comply with a set of industry packaging and labeling standards.20 The packing type dictates the type of handling, transport and storage system and the extent of product losses and damages. Packaging cost is about 0.5-0.9 percent of total logistics cost, 21which accounts for about 25 percent of the wholesale cost. If losses from spillage, pilferage and quality deterioration are added then logistics cost will be about 35 ­ 40 percent of the wholesale cost. 18 At the port, the arrastre and stevedoring services are provided by private cargo handling company (ies) franchised by PPA and they vary accordingly to handling capability and in most cases, provide only labor with no mechanized facilities. 19 The old bags could no longer hold 50-kg. and substantial quantities are spilled during handling and transport. 20 For corn the following specifications of packaging have been recommended: the size is 100 x 60 cm, weight is 110 grams, bursting strength is 1,725 kPa, breaking load is 393 and warp filing is 344, thread count is 12, warp filing is 11, seaming (mm) turned edges is 25 and number of stitches is 12, seamed and must not be glossy. It was able to enforce millers to comply with the packaging standards but not farmers and traders. 21 Logistics cost include packaging (sack depreciation and plastic containers), handling (physical handling of bagged products from point to point, including stevedoring and arrastre charges in the case of sea movements), transport (trucking, sea freight and wharfage in the case of sea transport) and warehousing (storage costs at different point in the market). 36 Handling costs include labor for moving products within the storage areas and to/from the transport vehicles. It also includes cargo-handling labor in the ports. For corn transported by land and sea, the handling cost is only about 3 percent of wholesale cost due to low labor costs. However, the labor is inefficient and the handling creates damages with the result that the total cost of handling is much higher. Use of mechanized handling facilities increases the direct costs but lowers the complementary costs. The shippers interviewed, including NFA, noted that the manual handling and use of second hand plastic bags in the movement and storage of corn have contributed to the increase in costs and product losses. Quantity losses are due to spillage and pilferage during handling and storage as well as quality deterioration. Lack of quality control at each supply chain level has resulted in lower commodity price, and thus reduction in income. STORAGE AND WAREHOUSING Prior to storage, the farmers and traders have to ensure that the moisture levels are low. Most farmers rely on solar drying due to inadequate number of mechanical dryers. This technology does not provide adequate quality control, especially during peak production and the rainy months. Added to this are losses during unbagging and re-bagging for drying, cleaning, shelling. Only 3.8 percent of the grain storage facilities are bulk storage. Most are conventional warehouses in which bagged corn is stacked. These have capacities of 200-1000 bags with the height of the pile varying, depending on the warehouse layout. Wooden pallets are used where the area is prone to flooding or when the corn stocks are to be stored longer than the normal time. About 90 percent of the total warehousing capacity of 6.3 million metric tons is owned by the private sector. The NFA leases warehouse space. The small farmers do not have storage facilities but rather store corn stocks in their houses (for about 4-6 weeks). Since the corn products are shipped from the farm in break-bulk form and sold to the consumer in bags, it is more convenient to transport bagged cargoes assuming manual handling throughout the supply chain. Only the large feed mill operations, such as San Miguel Corporation, Universal Robina, and Purefoods, have bulk handling and storage facilities, which they use to meet their own requirements. Grain traders do not invest in bulk grain handling system despite the availability of technology and the continued operations of grain terminals by feed millers and flour millers.22 CONCLUSION The problems with corn grain logistics are high cost, inefficiency and poor service. In General Santos, the cost of transporting grains to Manila is about 25 percent of the wholesale price due to: a multi-layered distribution channel, inefficient regional product sourcing, poor packaging, inadequate and inefficient port and shipping facilities and services, poor land infrastructure, and inappropriate technology. The use of less efficient break-bulk transport is due to a variety of causes including the small scale of mills and trading operations, the lack of common-user, bulk- handling facilities, and the limited volumes being shipped. The only bulk facilities are those owned by the large feed millers who use them for their own cargo. Investments in bulk logistics 22NFA bulk systems suffered from poor management and losses, but private facilities in General Santos and Northern Mindanao are being efficiently utilized. 37 systems have been hampered by a lack of consistent government policy for agricultural development and government control over port infrastructure to the detriment of the private sector users. There is also the problem of poor road infrastructure and the limited road connections between the corn production areas and the national road network. 38 CHAPTER 4 SUPPLY CHAIN: SMALL-SCALE RICE PRODUCTION SUPPLY CHAIN FORPALAY TO RICE TO RETAIL MARKET The logistics for rice differs significantly from corn. The inbound logistics for fertilizer are similar but the outbound logistics are different as most of the rice is grown for household consumption. About six intermediaries are involved in the rice distribution and marketing channels: assembler-wholesalers, commission agents, millers-wholesalers, wholesalers, wholesaler-retailers and retailers. In general, Palay passes from producers to the rice millers through middlemen such as Figure 4.1 Outbound Supply chain for Rice assembler-wholesalers and commission agents (Figure 4.1). Small farmers who Farmer Cooperative have limited marketable surplus prefer to sell to local buyers or nearby millers. Substantial portion of their harvest is Commission custom-milled for home consumption. Local Mills Agents Local commission agents buy from farmers and sell directly to the mills or to traders, who sell it to the mills. There are relatively Farmer/Local Assemblers/ Large Mills few cooperatives selling direct to the mill. Sale Wholesalers Assemblers/wholesalers may opt to sell rice to wholesalers-retailers after having it Wholesale/ custom-milled. In some cases, farmers Wholesaler Retailaer follow a more direct route wherein Palay is given to wholesalers-retailers and retailers directly (as loan repayment). Thus, Palay and rice can change ownership several Retailer times during the marketing process. The palay is transported in bags and kept in Customer large warehouses owned by the traders or the mills. There are both small mills, which provide rice for regional consumption, and larger mills, which provide rice for shipment to Manila. Most of this activity is under the control of the private sector. The grain millers are organized under the Confederation of Grain Millers. The seven largest millers control about 50 percent of the rice trade. Since most of the rice is double cropped, the mills must have storage facilities for at least six months production. The supply chain for rice sold in Mindanao markets is shown in Figure 4.2 The government, acting through the National Foodgrain Agency, operates Rice Processing Centers. These centers were set up to provide food security but because of budget limitations the 39 Agency handles a relatively small share of the rice production.23 Milling is performed throughout the year. Milled rice is sold to consolidators such as San Miguel and Phari or to other wholesalers who transport it to the market and sell it to retailers. The size of the consignments and bags decrease as it moves down the supply chain. The wholesaler typically buys in truckloads (35 tons, 50 kg. sacks), and then sells in smaller amounts in 25 kg sacks. The rice is shipped from Mindanao either as large break-bulk consignments or in containers. The major gateways are Davao and Zamboanga. The consignment sizes are limited by the production capacity of the mills and the limited coordination between mills. As a result, most shipments are partial loads. Even full vessel loads rarely exceed a few thousand tons.24 Smaller consignments are often shipped in containers in order to ensure timely transport. These consignments are shipped directly to the retailer. Bukidnon produces about 74 percent of the rice shipped out of CDO port. 25 The largest shipments are in the months of June through August (Table 4.1). Sample data from CDO port shows major outflows to Bacolod (38 percent), Cebu (26 percent), Jagna, Bohol (24 percent) and Manila (10 percent). Average consignment is about 10 tons in 50 kgs. plastic sacks. Table 4.1 Commodity Flow Of Rice Exit Cagayan De Oro Port February To August 2001 (000s Tons) Destination Markets February March April May June July August Total Bacolod - 0.5 0.7 1.1 47.0 0.7 1.1 51.1 Cebu 14.5 0.4 3.6 0.8 0.5 0.3 14.9 35.0 Iloilo - - 0.3 0.1 - 0.3 - 0.7 Jagna - - - 10.0 10.0 12.5 - 32.5 Manila 1.0 0.1 0.1 0.1 12.0 0.2 0.5 14.0 Tagbilaran 0.3 0.1 - 0.3 - - 0.1 0.8 Total 15.8 1.1 4.7 12.4 69.5 14.0 16.6 134.1 Percentage 11.7 0.8 3.4 9.3 51.9 10.4 12.3 Source: Cagayan de Oro, PPA 23 The NFA was originally intended to be a buyer of last resort for the farmers and to use its purchasing power to maintain a floor price for palay. However, limitations on budget and storage prevented it from having a significant role in the market place. Instead, it acts as the sole importer of rice and uses the profits from this activity to fund purchases of domestic rice. The domestic rice was formerly milled by NFA at its Batangas facility but this has been sold and they now sell the palay directly to the private mills. 24The other reason for limited consignments is the slow handling rate at the Philippine ports. Given the short voyage time, larger vessels would not offer a competitive advantage since most of their time would be spent in port loading and unloading the grain. 25Cagayan de Oro is the major trading center with four major markets: Agora, Cogon, Carmen and Puerto. Agora was originally established for fish trading; across the facility are private stalls which undertake fruits and vegetables trading. There is limited space allotted for wholesaling and "bagsakan" and a lack of storage facilities. 40 Figure 4.2 Rice Supply Chain for Local Consumption Start Farm : Palay Harvesting 2.5 has. (at 120 Threshing/ Bagging Hauling to Buying Station of Municipal Traders sacks/ ha) Ave. Range Loading to Jeepney 300 sacks (4 persons to load) Ave. Range Time: 7 hours; 6-8 hours Ave. Range Time: 18 hrs; 17-20 hrs Cost: P4.00/bag; Time: 2 hrs.; 2-3 hours Cost: P4.00/bag; P3.50 ­P5.00/bag Cost: P10.00/bag; P 10.00- P -12.00/bag P4.00 ­P5.00/bag Pick-up & Loading by Traders/Financiers Storage at Traders Warehouse for Trucking from Mis. Oriental (Brgy/ Mun.) to CDO- Own Transport Further Drying To CDO Miller (300 sacks) Ave. Range Ave. Range Ave. Range Time: 1.5 days; 1-3 days Time: 1.5 hrs; 1-2 hours Time: 1.5 hrs; 1.5-2 hrs Cost: P 35/50 P 30­ P 40 Cost: P 10/bag P 10­P12/bags Cost: P25.00/bag; P20-P30/bag Per sack Bagging Milled Rice Unloading from Truck tand Ave. Range Milling (300 cavans) Piling in Miller's warehouse Time: 3 hours; 3­ 4 hours Ave. Range 300 sacks (4 persons) Cost: P 0.60/bag Time: 23 hours; 20 ­ 25 hours Ave. Range Bag costP 5.00/sack; Cost: P1.00/kg ;P 0.90­ P 1.20/kg Time: 1 hr. 1-2 hrs. P0.50 ­P0.75/bag Cost: P 1.00/sack Jeepney Transport to Stores (located at Unloading: Jeepney to Retail Stores and Consumers (retail) market) Grocery Chains Buying 1 sack for 1 month Ave. Range Ave. Range Buying a kilo every day, etc. at Time: 1 hour; 30 min- 1.5 hours Time: 45 mins.; 30mins ­ 1 hour Retail store Cost: P 6/bag ;P 5 ­ P 8/bag (2 persons) Price: P 21/kg. depending on distance 2 persons Cost: P 1.00/bag P 0.80- P 1.20/bag END OFPROCESS 41 PACKAGING, STORAGE ANDHANDLING. Prior to milling, the rice farmers and traders have to ensure that the moisture levels are low. Most farmers, in the absence of mechanical dryers, use solar drying. This limits the quality especially during peak production and rainy months. Bagging and re-bagging of rice reduces both quality and quantity. Typical rice warehouses store only about 50 tons of bagged rice neatly piled. In the case of small farmers, there are no storage facilities and rice stocks are stored in their houses (for about 4 weeks storage period). Rice is traded in break-bulk form since the retailer and consumer sector require product delivery in bags. The bags are handled manually by laborers who are paid about P1.50 per bag- movement (this is the average per move). Losses due to damage, spillage and other factors are estimated to average 1 percent Logistics costs are high due to, traffic congestion, prolonged loading and unloading, speed money, damaged grains and impurities, double handling (e.g. re-bagging due to poor condition of bags), quantity losses from spillages, pilferage and quality deterioration. When all these factors are considered, the total logistic cost is about 40 percent of the wholesale cost of rice. CONCLUSION The major logistics problems in rice transport are a multi-layered distribution channel; poor post- harvest processing and packaging; inadequate and inefficient port and shipping facilities and services; and poor land infrastructure. The marketing and distribution channels cause deterioration and unnecessary transport and handling cost. 42 CHAPTER 5 SUPPLY CHAIN: NORTHERN MINDANAO VEGETABLES SUPPLY CHAIN FOR FERTILIZER AND AGRIC-CHEMICALS The logistics chain for vegetables comprises fertilizer input to vegetables production and sale of production to regional markets. Tomatoes and potatoes were selected for analysis of the downstream supply chain. The supply chain for fertilizer supplied to vegetable farms is similar to that for rice and corn. However, most farmers get their inputs not from fertilizer dealers but more from traders/financiers based in Cagayan de Oro. They provide fertilizer and other inputs to the small farmers, with only 1 ha. or less, after the planting season (about 8 bags per farmer per week) on a credit basis. These traders purchase fertilizer from dealers and charge Figure 5.1 Fertilizer Logistics for Tomato the farmer P520 per bag, which includes Growers transport and handling cost added to the dealers' price of P490 per bag. The Department of Agriculture in Northern START Mindanao estimated that the average cost of organic fertilizer per hectare is P6,000 and Fertilizer in Bags Loaded to Elf truck inorganic fertilizer is P 2,300. An illustration at dealers' warehouse destined to of the supply chain is shown in Figure 5.1.26 Bukidnon. 200 bags (for 10 farmers) Ave. Range Time: 1 hr. 30 min-1 hr. SUPPLY CHAIN: FARM TO MARKET Cost: P1.00/bag (depending on the number of loaders) The parties involved in marketing vegetables include: Trucking ­ CDO to Misamis Oriental and Bukidnon Farms Ave. Range: · Farmer-traders Time: 2 hours; 2 -3 hours · Contract buyers Cost: P20.00/bag; P20-30 per bag · Financier-wholesalers · Assembler-wholesalers Unloading at the Farms · Wholesalers Ave. Range · Wholesalers-retailers Time: 1 hourr ; 1-1.5 hours Cost P1.00/bag; · Retailers.27 About 50 bags for P ick-up by Nearby Farmer-traders based in the barangays Farmers finance the production of smaller farmers Ave. Range: Time: 30 min. ; 30 min.-1 hour and bring the vegetables to Agora Market in Cost: P 5.00/bag; P3.00 - P6.00/bag Cagayan de Oro. END 26Fertilizer per bag costs P550 delivered in remote farms. CDO price ranges from P 480-500 per bag. 27Survey interviews in CDO with vegetable traders and producers in March 2002. 43 Alternatively, the vegetables are procured by the contract buyers at agreed price for the entire production volume ("pakyaw"). Two common financing schemes are (1) full finance (i.e. all inputs-seeds, pesticides and fertilizer are advanced) and (2) partial finance (only specific inputs are financed). The farmer-traders buy vegetables at discounted prices and deduct the cost of inputs advanced to the farmers. The contract buyers may initially finance the farmers' production activities in terms of the imported seeds and other inputs to assure the supply particularly during peak selling periods. These buyers also supply packaging materials and storage facilities. The financier- wholesalers or "bodegeros" Figure 5.2 Participants in Vegetable Supply Chain provide capital to buyers to procure from farmers. Assembler- Growers wholesalers known as "viajeros" have the financial and logistics capability to procure vegetables directly from farmers/producers and traders. They transport Financiers/ Farmer/Trader Contract Buyers vegetables to major demand Wholesalers centers such as CDO, Cebu City and Davao City. They have private trading stalls and either own or rent CDO "bodegas." In Misamis Oriental, Market Wholesalers the vegetable growers prefer selling to assemblers-wholesalers (75 percent) in Cagayan de Oro who then ship the major volumes Assemblers/ Wholesalers to assemblers-wholesalers and wholesalers in Divisoria trading market and other major markets in Metro Manila. The relationship between the various parties Manila Markets involved in this supply chain is shown in Figure 5.2. Potatoes: Potato farmers/growers use 40-63 sacks of fertilizer per ha. at a cost of P 550 per bag. The seeds cost about P 60,000 and overall production costs are about P80-90 thousand per hectare. The seeds are imported from Colorado, USA, shipped to Cagayan de Oro and trucked to Bukidnon28 in 40 foot containers with 25 tons maximum weight. Okijo ships 200 tons of imported seeds to farmers. They also provide farmers with fertilizer inputs. The growing season is June to July. Potatoes are harvested 90 days after planting. Prior to harvesting, potato tubers are "hardened" in the soil. About 20 percent are left in the soil. Labor cost is P 50-90 per person per day to harvest and requires 40-60 person-days per hectare. The contracted farm gate price is P 14.35 per kilogram, a margin of26 percent over the production cost, The harvested potatoes are placed in 33 kg. plastic sacks. The farmers usually encounter difficulty in bringing the produce from farm-gate to barangay road. Hauling cost by carabao/cow from farm to main road is P 2.00 per bag for a 300-400 m distance. The farmers 28Department of Trade and Industry approves importation. 44 generally transport only 5-8 bags, which may take up to one hour. The cost of filling a sack with potatoes is P1.0 per sack. It takes 10 minutes to fill a sack, including separating undersized and regular size potatoes. At the road, the potatoes are sold to traders, who trim, repack, and weigh the potatoes for shipment to the market. The sacks are then loaded (at P 1.00 per sack) on to trucks destined for the warehouse of the vegetable buyer in CDO. The trucks used are 8 and 15 tons. The cost for transports to CDO is P0.30 - P1.00 per kilo depending on the distance. Loading takes one hour or less. Trucking to Baloi takes 2 hours with a charge of P.30-.50 per kg. For double the distance, travel takes 4 to 5 hours and trucking cost increases to P1.00 per kilo. Losses due to damage during handling are reported to be 10 percent. Part of the harvest is sold under contract to URC in Impasugong, Bukidnon where it has a bodega beside the main highway. The rest is sold in the Agora market to processors and to CDO wholesalers who in turn sell to Iloilo and Bacolod wholesalers. Buying agents from the provinces of Zamboanga del Norte, Zamboanga del Sur, Lanao del Sur and Lanao del Norte also buy potatoes in the wholesale markets in CDO. At CDO, the sacks are unloaded at a cost of P 7.00 per sack, and sorted prior to shipment to Manila. The sorted potatoes are then placed in 10 and 20-foot ventilated vans depending on the size of orders from Manila buyers. The smaller vans hold 8 tons while larger hold 16-17 tons. These are then transported to the port, a distance of about 7-8 kms distance. The sea freight to Manila for vans is P 9,000 and P 16,000-17,000, for 10 and 20-foot vans, respectively. For break-bulk, the consignment size ranges from 250-300 bags and the freight rate is P1.50-2.00 per bag of 30 kgs. For container vans, the rate is P3.00 per bag. Tomatoes: For tomato growers, fertilizer inputs cost P8,600 per ha., pesticides P7,600 and transport of inputs P1,000. The resulting P5.27 production cost per kilogram is 70 percent of the farm gate price of P7.53 per kg. The yield per hectare is 9,201 kgs. Total cost of production is about P49,000 to P50,000 with net returns of P21,000 per hectare. Post-harvest treatment by growers includes cleaning, sorting, and packing. If cleaning is necessary, the common practice is to wash the fruit with water. Growers harvest the tomatoes by carefully handpicking the mature ones and then separating good quality fruits from those with visible defects. This process not only improves price and shelf life but also facilitates packing, handling, and selling. Packaging is done using bamboo baskets (kaing). The Kaing has become the de facto unit of measure in the sale of tomatoes to traders (wholesalers, viajeros, agents, retailers, etc.) Each fully loaded kaing weighs about 35 kg. Because of the decreasing supply of bamboo, these baskets have become expensive. Fully-ripe tomatoes are packed in separate containers meant for retailers who prefer tomatoes for immediate consumption. Tomatoes at similar stages of ripeness are placed in a container. The ripest ones are placed on upper layers to minimize compression. Traders generally rely on the growers to clean, sort, and pack the tomatoes in order to avoid frequent handling. They then wash the fruit with water to remove soil particles and insecticide and improve appearance and then re-sort them to remove rejects and to select those that suit buyers' requirements. 45 Growers do not store tomatoes because the produce is sold immediately after harvest. They may store the tomatoes at home for a few days until market day or until traders-buyers come to pick up their produce. Agora-based traders send jeepneys or small trucks to pick up the produce or may use area-based vehicles and pay the necessary charges. They bring the vegetables to Agora market where trading takes place. The bagsakan area at Agora public markets serves as the major trading center. Traders with market stalls or bodegas temporarily store tomatoes awaiting buyers. Neither growers nor traders are familiar with modern packaging, storage and transport using cold chain logistics. For shipment to market, the tomatoes are mixed with Figure 5.3. Carrots at Bagsakan Area other vegetables but packaged separately prior to trucking to Agora market. They are placed in crates of 15 kgs prior to sorting in the wholesaler's stall (Figure 5.3). The wealthier farmer-traders supply vehicles to haul vegetables to the wholesale market in CDO. They charge P12-P15 per crate from barangays near to Cagayan de Oro and P25 or more for greater distances. These vehicles include jeepneys (60 crates), single-tire Elf (150 crates), double-tire Elf (180 crates) and Forward trucks (300 crates). Trucking cost ranges from P0.30 - P0.50 per kg. The break-even price for wholesalers is P140-150 per crate (farm-gate price ranges from P5-7 per kilo). They hire jeepneys for P400 to transport from Agora market to airport. If they own the jeepney, they spend P200- P 250 for the gasoline and about P100 for driver. Labor cost is P2.00 per crate to load to jeepneys and unload at the airport. There are viajeros that buy vegetables in Cagayan de Oro and ship them to Iloilo, Bacolod and Samar. A supply chain for shipment of tomatoes to Manila is shown in Figure 5.4. The tomatoes are sorted into small, medium and large sizes at Agora market for shipment to Manila. Quality control is strict with the slightest bruise causing rejection. Final inspection is done by random sampling at the pier before the tomatoes are loaded into container vans for shipment to Manila. The peak harvest is July through September since Luzon tomatoes start arriving at the Manila markets in October. Buying agents/shippers pay P300 per crate for airfreight during these months. Growers can enter into marketing agreements with agribusiness firms such as Eden Corporation29, which provide cash advances and guarantee a floor buying-price. The growers are offered guaranteed buying prices. Eden Corporation advances the cost of crates and trucking from the farms to Cagayan de Oro. The prices are based on wholesale prices in Manila with the fixed margin of Eden and the cost of transport factored into the buying price. Tomatoes are inspected by Eden at the farms before they are brought to Cagayan de Oro pier. Eden contracts with tomato growers from July to the end of November or December depending on wholesale prices. 29Eden Corporation is a Mindanao-based agribusiness firm engaged in the production, shipping and trading of various agricultural commodities, offers marketing agreements to selected tomato growers. 46 Figure 5.4 Tomato Supply Chain for Shipment to Luzon Start of Farm Level- Tomato Harvesting 1 ha. 9,200 kgs. Sorting and Bagging Loading to Truck Process Time: 10-12 hours Time: 5-8 hours Time:30-45 min. Cost: P300/person x 5 persons Cost: P6-8/ crate Cost :P1-1.50/ crate = P1,500 Unloading at Vegetable Traders' area Transport to Pier of 260 Crates for sorting of crates/ selling/shipping Trucking to CDO Time: 30-45 mins. mins. Time:1.5-2 hours Cost: P2/ crate out or direct loading to elf truck Time: 30-45 min. Cost: P.20-.3/kg. Cost: P1.00 /crate Unloading at Pier 260 crates and Loading of van to vessel Shipment to Manila loading to van Time: 5-10 min. Time: 2.5 days Time: 1-1.5 hrs. min Cost: P542.5 (arrastre) and Cost:P8,200 per van Cost: P 2 for unloading and loading P164.50 for stevedoring (door-door) to van per crate Unloading at Manila Time: 1-2 hrs. (if there are delays) Cost: P823.35 per van END 47 During June to December, the weekly volume of tomatoes shipped to Manila is 50 to 70 thousand crates. Shipments from Cagayan de Oro to Manila take 2 days in an enclosed van of 10 tons. Shippers report a 1 percent spoilage rate if there are no delays but this can reach 15 percent when cargo is shut out. There is little damage reported for other vegetables mixed with tomatoes (in separate cartons). Traders suggest that there is a need to establish a vegetable landing post similar to that in Baguio City in a 5-ha. area. This would be managed by a private sector cooperative.30 If tomatoes are shipped by sea transport, shippers/traders pay P20 per crate sea freight, and P 2.00 per crate for loading and unloading at the port (P1.00 per move). The door-to- port rate per container van, which holds Table 5.1 Rate Scale (P) 258-260 crates, is P8,200 from Cagayan de Oro to Manila. Tomatoes are also Classification Weight 1 2 3 shipped by air in consignments of 5-10 Minimum 1 kg 70 80 90 tons daily from June to December. Add-on per kg > 1 kg 35 40 50 Vegetable growers such as Vava Veggie Scale O-D Pair ship by air to institutional buyers in Metro 1 A-A,B-B,C-C Manila with shipments based on 2 A-B,B-C specifications for size and color of tomatoes from MacDonalds, Wendy's etc. 3 A-C Airfreight forwarders such as Airfreight Zone A (NCR, NCL and Calabarzon), Zone B (South Luzon 2100 (a licensee of Federal Express) and Visayas) and Zone C (Mindanao provide the following door-to-door rates based on the total weight of all packages on one air waybill. The origins and destinations are classified into zones as shown in Table 5.1. The cargo airlines offer discounts to shippers (20-30 percent) depending on the volumes shipped and the established customer relationship. The cargo airlines require that shippers pay in cash prior to shipment. They no longer allow "credit" since a substantial number of vegetable shippers defaulted on their airfreight bills. There is seasonality in the shipment of vegetables from Cagayan de Oro to major regional markets and Table 5.2 Volumes by Destination peak months are June through August. The volumes Destination Feb-Aug 2001 % in June, about 12.5 thousand tons are about 10 times Markets Volume (000 ton) share the February volumes. The major destinations are Manila 35.5 82.01 shown in Table 5.2 Bacolod 2.45 5.65 There are farmers that lease out their farms rather Cebu 1.2 2.77 than plant the vegetables themselves. If they lease it Iloilo 3.2 7.30 to Dole for banana, they are paid P12 thousand per Jagna .12 0.27 ha. per year. Del Monte pays P5thousand per ha. for Tagbilaran .87 2.01 pineapples, and P3-5 thousand per ha. for vegetables. Low prices and the high cost of inputs have 30In Singapore a vegetable trading post is located in an 11 ha. Property and paying lease to the government. 48 discouraged many farmers from planting. Most farmers therefore lease out their farms rather than plant the vegetables themselves because of the low prices and the high cost of inputs.31 Some farmer-financiers finance small farmers fully or partially. The quality of the vegetables suffers from heat in transit, although most shippers limit this by shipping shortly after harvest. Some of the larger companies employ a cold chain system for the perishable crops but this has yet to be widely adopted. One provider of this service, Mincool, is financing farmers in Bukidnon to generate sufficient volumes for cold storage. Vegetable traders are more concerned about establishing a large trading area classified according to type of vegetables with reefer trucks to transport the produce to airport where these are shipped. Even with the cold storage facilities, the cold chain is not complete, since the portion from harvest to the wholesaler is not covered. Figure 5.5 shows the trucks that transport vegetables from Bukidnon Misamis Oriental provinces to Cagayan de Oro wholesale market. Conclusions A number of conclusions can be drawn as to the effect of logistics on the growth in vegetable production in Mindanao. Deterioration of vegetables such as tomatoes can reach about 50 percent particularly if there are cargo shutouts. A combination of factors contribute to this situation: (a) multi-layered distribution channel; (b) inefficient regional product sourcing; (c) poor packaging practices; (d) inefficient port and shipping facilities and services; (e) inappropriate technology which results in product deterioration. Some of the issues that need to be addressed in the outbound logistics for vegetables are: · The complex marketing and distribution channels of major agricultural products that result in unnecessary transport, multiple handlings, and high transaction and handling costs. · Use of modern technology in packaging, handling, storage and transport is lacking32, and lack of consideration for preserving product quality. · Trading posts such as the so-called "bagsakan areas" are not spacious enough to accommodate peak unloading of agricultural products. Figure 5.5 shows trucks that are being used to transport vegetables · Vegetable farmers are mostly small, unorganized, and controlled by traders. They cannot take advantage of improved logistics due to lack of financial capability. Cooperatives are more Figure 5.5 Trucks that Transport Vegetables focused on production rather than marketing. Traders would not want to invest in better 31Annual land lease rates in nearer barangays average from P10-12 thousand per hectare and lower rates in more remote barangay. 32Plastic crates are not being used which are stackable. 49 transport and storage facilities since they get relatively "good profits".33: · Production constraints affecting production of small farmers include high cost of inputs, lack of post harvest technology for highly perishable crops, quality of seed, and inadequate location-specific production technology. · Alternative technology is being promoted34 including crop diversification, pressure and gravity irrigation systems, greenhouse farming, low input production technology such as mulching (use of indigenous materials/ plastic), organic fertilization and organic pesticide. · A lack of industry standards or practices concerning product quality, product grades, packaging, storage/ transport conditions that affect temperature and humidity as well as compatibility of mix loads. · The absence of modern technology in packaging, handling, storage and transport35, and lack of attention to preserving product quality. Specific problems for farmers/growers include: low prices set by traders operating in the local public market; high price for packing materials; short shelf life, long transport times. Specific problems for Traders/ Wholesalers/ Retailers include: lack of national standards for sorting and grading of tomatoes, expensive kaing due to limited/ decreasing supply of bamboo, short shelf life, limited cold chain practice in Northern Mindanao. 33Traders do not see the need to invest in new ways of handling the products since they do not realize the potential for additional margins from improved logistics efficiencies. 34Discussed in the Fourth Mindanao Food Congress. 35Plastic crates are not being used which are stackable. 50 CHAPTER 6 SUPPLY CHAIN: PROCESSED FRUITS EXPORTS OVERVIEW OF THE PROCESSED FRUIT AND FOOD INDUSTRY Fruit processing for export was developed in 1998. In 2000, the total export earnings were US$ 83.0 million and in 2001 US$ 80.6 million. The most commonly processed fruits are pineapples, mangoes, bananas, calamansi, tamarind, passion fruits, papayas, oranges, guavas and sour soup. These are exported as · Fruit mixed with water, sugar and other materials for fruit and fruit-based juice drinks, purees, concentrates, flavoring and ingredients for processed food products such as ice cream and bakery products. · Dried and dehydrated fruits used as ingredients in bakeryand confectionary products, such as ice cream and bakery products, breakfast cereals and snack packs · Preserved fruits used in salad preparations, mixed with other fruits, spreads, packed in brine, made into sauce or pasta, pulped, pickled and quick frozen. The majority of these exports are shipped in bulk or containers. (catering to regular markets in the US, Japan, Europe and Hong Kong). Retail packages are also sold in the domestic markets such as Manila, Cebu and major tourist centers. Region IV and XI are coconut producing regions and process desiccated coconut, coconut chips, coconut water, coconut milk (liquid/powder) and copra meal, cake and pellets as animal feeds. Rice and corn are processed into snack food, cereals, noodles and pasta products and as ingredient of sauces, dry soup mixtures, bakery products and confectionery products. Cacao and cocoa powder are processed into bakery products (e.g. cookies, biscuits, etc.) breakfast cocoa, confectioneries, (e.g. candies and chocolate bars) and tonic drinks. Coffee beans are processed into coffee and coffee mixtures. Cattle milk is processed into milk, cottage cheese, cream, butter and margarine. Fresh milk from carabao, cows and goats are used as raw materials in cheese processing, confectionery, milk drinks and bakery products. Fruit production is centered in the rural areas but the fruit processing plants are located in urban centers such as Metro Manila, Cebu and Davao. Mango processing is concentrated in Cebu, with small operations in Davao and Iloilo. Banana chips production is concentrated in Mindanao and Visayas. There were about 380 exporters of processed fruits and vegetables in 2000 of which 80 percent are based in Metro Manila. However, the pineapple processors Dole Philippines and Del Monte Philippines, which dominate the fruit processing industry, are based in Region X or Northern Mindanao and have the largest impact on regional investments and employment. Processed fruits are exported through the international ports of Manila South Harbor, MICT and regional ports such as Cagayan de Oro and Del Monte port of Bogo, Misamis Oriental. Available statistics on direct exports are in FOB US$ value. The top five importing countries for 51 Philippine processed fruits were USA, Japan, Singapore, Korea and Malaysia, which accounted for US$ 53.68 million of the export earnings of US$ 80.6 million in 2001. Prepared and preserved fruits accounted for about 51 percent of the exports and fruit juices 48 percent while dried fruits took up less than 1.15 percent of total exports for the same period. Philippine fruit processing companies are Table 6.1 mostly small to medium sized enterprises. Their output can vary depending on Product Line Rates Capacities No. of availability of raw material and on market (MT per year) Firms demand. The relatively low capital Dehydrated fruits 40,274 26 requirement for producing the products Preserved Fruits 149,785 56 contributes to the flexibility in production Fruit Purees 173,814 16 capacity. As of 2000, the rated capacities of Juices and 22,016.622 11 BOI-registered fruit processing companies Concentrates excluding Del Monte Philippines and Dole Coconut water and 85.5 mn liters 15 Philippines were as shown in Table 6.1 cream Multinational companies such as Dole Philippines and Del Monte Philippines produce the principal exports of processed food. Del Monte exports were discussed in the previous chapter. The estimated production capacities for other companies, that were granted incentives by the Board of Investments, are presented in Table 6.2. Most production units are locally designed and fabricated. They are primarily cottage and small- scale enterprises with very little capital, simple technology and low capacity utilization rates since raw materials supply usually follows seasonality. Automated assembly-line production system is seldom applied except in the production of Table 6.2: Exports of Processed Food Products by dried mango, fruit purees, Country of Destination, 1996 ­ 2000 (FOB Value in US$'mn) fruit cocktails, mixed fruits, pineapple products and fruit 1996 1997 1998 1999 2000 % Share Ave. 1999 Growth juices. Tropical fruits such as Total 632 590 520 492 513 100.00 -4.94 mangoes, papayas and USA 307 248 225 214 212 41.36 -8.58 pineapple are dehydrated Japan 44 43 36 40 37 7.24 -3.98 Korea 25 34 34 26 26 5.02 -2.39 using tunnel or drum drying Hongkong 25 27 24 18 26 4.99 3.64 with sugar concentration or Canada 15 16 14 15 24 4.66 14.80 pureeing. Vacuum drying is Taiwan 12 24 22 22 22 4.32 21.82 used for banana chips and on Indonesia 4 9 7 5 21 4.15 98.94 Others 199 189 158 152 145 28.26 -7.52 a limited scale for jackfruit and mangoes. The small to medium (SMEs) export-based fruit processing enterprises use manual or semi- mechanized systems. Del Monte, previously a fully owned multinational company, is wholly automated in order to minimize contamination and waste as well as reduce labor. Semi- automated processing is used by other firms to limit investment in capital equipment and take advantage of the relatively cheap skilled labor force. Production of preserved fruits, especially bottled ones, also employs low technology with manual sorting, syrup preparation, bottling and packaging. Mangoes are dried using an oven but the 52 other fruits are sun-dried. Most banana chips produced by subcontractors are fry-dried, cooked in coconut and sugar. Pureeing is mechanically done although there are two plants that use automatic pureeing machines for pineapple and mango. Preserving and bottling fruits are essentially manual operations that involve sorting, cooking, syrup preparation, bottling and packing. Hence, fruit processing is more labor intensive than capital intensive. Mechanical equipment is used only for pureeing, oven drying and product testing and evaluation. The SMEs employ food technologists to ensure the product quality. Cottage-based firms are supervised by the companies that do subcontracting. The SME's, as well as government agencies (DA, DOST, DTI, NGOs and local governments), conduct their own training for food processing, packaging, labeling, marketing, laws and regulation, and quality standards, among others. The Department of Trade and Industry (DTI) assists the fruit processing industry through: · Market development by managing accreditation of subcontractors; · Trade facilitation - market matching, promoting bulk buying and strengthening trade houses, and product promotion by exposing manufacturers to various markets, trade fairs at the provincial, regional and national levels and · Trade missions Other agencies are also active in the promotion of the processing of fruits and vegetables.36 Inputs to fruit processing include sugar and packaging materials that are locally available. However the cost of fruit and other inputs has increased due to post harvest losses and transport costs. Packaging materials include glass bottles, metal closures, tin cans, corrugated crates, tetra bricks, flexible plastics, paper and aluminum aseptic containers. These containers are locally produced but more expensive if sourced from the domestic market37. Bananas: The Philippine exports of banana chips increased steadily from 1993 to 1997 then dropped in 1998. The average annual export value is about US$19 million. It had been growing at 6 percent p.a. with top markets such as Hong Kong (20 percent), United States (18 percent), United Kingdom (14 percent), Germany (11 percent) and Japan (10 percent). The Philippines exporters supply 59 percent of total trade in banana chips followed by Thailand (23 percent), Indonesia (15 percent) and China (3 percent). Data on Philippine supply and utilization of all banana varieties showed that about one-third of total banana supply was exported. The processing of Saba banana increased at 2 percent per year from 1993 to 1998. The demand from 36Fruits and vegetables are included the Department of Agriculture Medium Term Agricultural Development Plan (MTADP) and the Department of Science and Technology Agenda for National Development (STAND). Fruits and vegetables are also priority products in the Agricultural and Fisheries Modernization Act (AFMA), which is implemented by DA. The Food Development Center (FDC) also provides technical assistance to the sector..A Congressional Commission on Agricultural Modernization was recently established to improve agriculture, agribusiness and related industries and formulate reforms in agricultural development and public expenditure policy and strategy. 37The minimum order requirement set by local suppliers limit the ability of manufacturers to develop new packaging materials. In July 1998, the tariff on imported packaging materials were reduced from 25% to 15% and in 2000, to 10%. As amended by EO 465 effective 22 January 1999. 53 banana processors rose from 562 thousand tons in 1993 to 606 thousand in 1998. The demand for banana chips is expected to continue growing with Philippines dominating the export market. Pineapples: Philippines is the second largest supplier of canned pineapple products in the world, next to Thailand.38 It is a major supplier of fresh, dried and canned pineapple to United States and Canada. Canned pineapple exports to Hong Kong grew by almost 50 percent from 1994 to 1996. These are concentrated in the period from February to August and amount to about US$ 5.9 million annually. Japan is another major market. Philippines supplies 83 percent of their fresh pineapples. The remaining 17 percent are processed into juice and preserves throughout the year.39 The major buyers of dried pineapple are Australia, United States, Hong Kong and Germany. The major markets for pineapple juice are Japan, Netherlands, US, Singapore and Canada. These products are in cartons of 16 to 24 cans, 50 to 100 grams each depending on the orders of the importer. Packaging material is P27 per carton. . The average consignment ranges up to 500 tons. The FOB value is US$350-400 per ton on the average and sea freight ranges from US$80- US$120 per ton depending on the destination for direct shipments of canned products from Cagayan de Oro Misamis Oriental (mainly Del Monte pier at Bogo port). . International vessels of about 10000 DWT are used to carry shipment two to four times per month depending on the volume of orders. The vessel first loads fresh pineapples in Davao40 then goes to Bogo port where Del Monte cannery is located. Del Monte sells 40 percent of its canned pineapple in the domestic market because of strong competition with other countries. The canned pineapple products are shipped in orders of 10 to 15 20' containers. If the order is small, they store the fresh pineapple and the inventory stocks are sold in the domestic market. 41 The current rates being charged for sea transport of processed food exports including processed fruits, destined to Europe, Asia and the United States are quoted in FOB US$ (Valid until 20 June 2002) and paid by the consignee. These rates are subject to a bunker adjustment fee of US$37/TEU. They are also subject to standard local charges as follows which the Philippine exporter is required to pay. · FCL: Terminal Handling Cost - $104/20-footer and $138/40-footer · LCL: LCL Charge - $8.50/cbm; · Arrastre/Wharfage ­ P150/cbm; and · Docs Fee - $20/B Shown in Figure 6.1 is the procedure for export of processed fruit exports such as Del Monte products. The general flow of export procedures that are followed by processed fruit exporters are presented in Annex G. The exporters pay the following fees: 38According to DTI 39Taiwan can only supply 6 months of the year while Thailand only 3 months. 40The pineapple fresh fruits are trucked to Davao for sorting and packaging for exports. 41Del Monte did not provide specific details of their shipments, freight and order cycle. 54 · Bank commission 0.25 percent or minimum of P500 · Handling fee 0.25 percent and correspondent bank charges; · Advising fee of P600, · Amendment fee of P400 and · Documentary stamp of P0.30 per P200. Source: Philippine Food Exports Association (PHILFOODEX) of canned processed foods and processed meat. The average consignment is a 20' container load, shipped weekly. Production cycle is about 2 weeks allowing for an order cycle time of 4-8 weeks depending on destination. The following is a summary of the charges paid for exports and imports of cargoes to different service providers: 55 Table 6.3: General List Of Charges By Service Providers For Import And Export Cargoes Shipping Line's Fees Forwarder's Fees Brokerage's Fees On-Dock CY/ CFS Operator Off-Dock CFS Operator's Fees LCL Charge Terminal Handling Charge Documentary Stamps Arrastre Stripping Charge 1/ Terminal Handling Charge Turn-over Fee 1/ Brokerage Fee Wharfage Storage Charge 1/ Documentation Fee Collect Fee 1/ Trucking Charge Stuffing 2/ Arrastre 1/ Container Cleaning Manifest Fee 1/ Value-added tax Stripping Charge 1/ Wharfage 1/ Container Deposit Bill of Lading Fee Delivery or Releasing Storage Charge 1/ Insurance 1/ 1/ Telex Release 1/ LCL Charge Documentation Fee Documentation 1/ Export Declaration International Cocoa Freight-related surcharges Documentation Organization or CCD 2/ Dangerous Cargo Charge 1/ (Bunker Adj. Factor, Peak season surcharge, Other Clearance Charges (Cert. On-Line release System Currency Adj. Factor) Of Origin, Phytosanitary, Handling Charge 1/ Handling 1/; Value-added Tax; Fumigation, etc) 2/ Forklift Charge 1/ For import cargoes 2/ For export cargoes Source: Philexport and Philippine Shippers' Bureau survey of importers and exporters 56 Figure 6.1 Processed Fruit Exports Procedures Shipping Line Start Filing of Export 1. B/L from the shipping line with Documents authorized signature. Bureau of Customs 2. Processed Export Dec. 1 copy 1. Authority to load 3. Amendment if there's any 2 copies 2. Certificate of Origin (CO),(GSP 4. 2 Xerox copy of C.O. Pink triplicate Form A, Asean PTA, General CO) 1. Export Declaration 2. Commercial Inv./ Proforma 3. Stuffing Report Preloading Procedures 4. (CEP) Cargo Entry 1. Bank Delivers EDI Permit 2. Exporter/Broker submits ED3 with Commodity Clearance, Certificate of Identification BOC Validates EDI Post Loading Procedure: 1. Exporter/Broker pays P60.00 Exporter/ Broker files appropriate (Documnetary Stamp) CO/ Certification with the 2. Processor consolidate and checks ED1, following documents: For Sea Freight, ED3 and Clearances § ComercialInvoice exporter/broker 3. Signing officer signs Authority to Load § Loaded on Board Bill of proceeds to PPA 4. Releasing clerk perforates entry number Lading/ Air Waybill on EDs and all attached documents § CopyofProcessedED 5. Clerk realeases authority to load to § Amendment if any. exporter/broker END OF 57 Figure 6.2 Export Processing Flow Start Exporter submits export documents to receiving Receiving cleark reviews export documents Exporter submits export Document complete/ documents to receiving entries satisfactory No Yes Exporter pays for corresponding processing Routing of documents to commodity clearance office No Commodity Clearance Required Commodity officer checks documents Commodity Officer affix signature/seal Route documents to BOC for issuance of Authority to Load BOC personnel check documents BOC personnel affect signature/seal Documents routed to End exporter 58 CHAPTER 7 SUPPLY CHAIN: DISTRIBUTION OF PROCESSED FOOD Processed food accounted for about 40 percent of total food imports in 2000. Table 7.1 Processed Food Imports, 2000 and 2001 Its aggregate value was US$ 151 In FOB US$ million million in 2000 and increased to Product 2000 2001 US$165.8 million in 2001. The largest Other wheat including spelt 26.9 31.1 component was oil cake and other Milk in solid form, etc 24.1 12.3 solid residues valued at US$32.4 Oil cake & other solid residues 8.8 32.4 million in 2001. Wheat products Meat of bovine animals 7.6 6.8 accounted for US$31.1million and Milk and cream, solid form 6.9 7.0 Preparations for complete feeds 4.9 dairy products US$26.3 (Table 7.1) Rice semi-wholly milled 4.6 Preparations for manuf of lemonade 3.8 3.5 The major sources of these imports are Milk & cream, solid form 3.5 6.95 USA (29 percent), Australia (20 Fresh apples 3.0 2.9 percent) and New Zealand (8 percent). Others 57.0 60.0 Other countries, including Canada, TOTAL 151.2 165.8 India, China, Thailand, New Zealand, Netherlands, Australia and the United States provide dry skimmed milk and other materials for dairy processing. Butterfat also known as anhydrous milk-fat is imported from the United Kingdom, Northern Ireland, Belgium, Australia, and New Zealand. The imported processed foods are packaged in glass, bottles, metal closures, tin cans, corrugated boxes, tetra bricks, flexible plastic, aluminum aseptic containers, paper e.g. glassine, grease- proof and parchment The food importers pay the following fees for foreign L/C with terms that can be 30, 45 or 60 days. · Import fee of 1/8 of 1 percent per month or minimum P500; · Cable charges of P500; advising fee is $50 · Confirmation fee is 1/8 of 1 percent of the value of L/C and correspondent bank charges of import bills; documentary stamp is P0.30 / 200 or fraction thereof. 59 Figure 7.1 Imported Processed Food to Manila Wholesaler to Local Market Opening Bank issues Customer OR Start Importer in Manila order every 15 days ­ Importer applies for L/C (opening to importer, sends the copy of L/C, processed milk products bank) and completes the Import Seller's proforma invoice and IED Entry Declaration (IED) to the SGS Manila Liaison Office Ave. ­ Range Ave. Range together with a copy of any Time 15 days; 10-20 days Time: Not later than 10 days before exempting authority. Cost: Import Value: 1 container van: scheduled shipment date. Ave. Range US$1,500-US$3,5000 Time: Cost: L/C Import Entry Liaison Office registers the L/C and Declaration IED and issues a numbered Import Advice Note (IAN); one copy of IAN is sent to importer and another to the Inspection Office. Inspections Office performs physical inspection, verifies declared tariff heading, Seller advices the inspection office of the Inspection Office sends advice of determines HCV, report tariff rates and; if date and place of inspection and sends the inspection requirement to warranted, issues a CRF to the seller, document of the Inspection Office giving shipper/consignor/seller of the transmitting copies to the Liaison Office. CRF at least 7 days advance notice. goods. indicates invoice value and acceptable HCV. Seller presents the CRF to the Opening Bank advices importer of the Importer of his broker prepares Import advising corresponding (A/C) bank arrival of the documents; importer collects Entry from the authenticated customs copy which will send documents and the the documents together with an of the CRF; pays the additional customs CRF to the Opening Bank. authenticated customs copy of the CRF duties, if any, and the taxes due; presents supplied to the Opening Bank direct from to BOC the normal documents required for the Liaison Office. clearance, together with the authenticated customs copy of the CRF. Opening Bank issues to Importer/Broker presents OP BOC verifies documents and calculates importer the CB Release End to the Opening Bank and pays differences between deposit and duties Certificate and Customs OR; balance of duties and taxes due as well as internal revenue taxes; Sends a copy of OP to the due. issues Order of Payment (OP) to Liaison Office importer. 60 CHAPTER 8 SUPPLY CHAIN: EXPORTS OF ELECTRONIC PRODUCTS The Philippine electronics industry began in the mid-1970s when the industrialized nations relocated their production facilities to the third world countries to reduce production costs and avail government incentives. There are approximately 588 electronic companies, mostly export- oriented and registered with the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA). Majority of these companies are located in Metro Manila and the CALABARZON areas. Other locations are Baguio City and Mactan, Cebu. More recently, companies have relocated to Subic Bay Freeport and Clark Special Economic Zones due to established infrastructure and facilities. About 42 percent of the companies belong to the semiconductor/ components. Another 25 percent belong to the Allied industries. Philippines provides a liberalized investment climate for these industries: (1) Foreign investors may be allowed up to 100 percent ownership in all areas of investments except financial institutions and those included in the Foreign Investments Negative list. (2) 100 percent ownership is allowed for investments located in the economic zones under PEZA, special economic zones and free ports such as Subic, Clark, etc. (3) Certain benefits are provided in preferred areas as listed in the Investment Priorities Plan (IPP). For areas not listed in the IPP, a firm is entitled to incentives if it has the capability to export at least 50 percent of its output, if Filipino-owned, and at least 70 percent if foreign-owned. . Major incentives are: · tax exemptions and concessions · 100 percent ownership in all areas of investments except financial institutions and those included in the Foreign Investments Negative list · income tax holiday for BOI-registered companies (projects with pioneer status are exempted from payment of income taxes for 6 years, others for 4 years) · off-zone infrastructure facilities · simplified import, export and sub-contracting procedures and maintaining a high level service orientation. Electronic firms are predominantly multinationals, engaged in labor-intensive back-end assembly operations. Filipino-owned companies are primarily involved in third party subcontracting work and account for 31 percent of the total number of firms. Leading IC assemblers are Ionics Circuits and Fairchild Semiconductors. Japanese firms account for about 33 percent followed by 61 South Korea, United States and Taiwan with 11 percent, 8 percent and 5 percent shares, respectively.42 Major players in the Philippine electronics industry are subsidiaries of world's biggest semiconductor companies such as Intel, Motorola, Texas Instruments, Philips, etc. Leading companies are able to assemble integrated circuits with pin counts ranging from 64 to more than 1000 using the latest packaging technology. Cypress and Fairchild Semiconductor have started sophisticated back-end wafer fabrication processes. Filipino-owned companies are engaged in Printed Circuit Board (PCB) assemblies and module sub-assemblies for computer hardware. Leading local companies are IMI, a unit of the conglomerate Ayala Corporation that assembles magnetic heads for Japanese companies and lonics Circuits, which began notebook PC assembly for IBM Corporation. Major investments include: Intel Corporation's US$550 million over 3 years for a Pentium micro processor assembly and test factory; Fujitsu Ltd. US$124 million investment in plant and equipment to assemble hard drives and optical drivers; NEC Corporation's US$63 million investment in a new plant to make 4-layer printed circuit boards; and Amkor Anam's US$126 million investment in one of the first facilities in the world to produce ball grid array (BGA) IC's. The electronics industry has remained the country's top exporter, and accounted for about Table 8.1 Electronic Exports, 68 percent of the Philippine exports in 2001. 1994 to 2001 (billion US$) Year Philippine Electronic % share to Exports have grown more than 35 percent Exports Exports total exports annually since 1990 and totaled US$21.9 billion 1994 13.4 4.9 36.5 in 2001. Largest markets include US, Japan, 1995 16.0 7.4 46.1 Netherlands, Singapore and Taiwan. Shown 1996 18.7 9.7 51.9 below is the industry's share in total exports of the 1997 25.3 15.0 59.3 country: 1998 29.5 20.0 67.4 1999 35.0 25.4 72.6 A road map43 for the future of the electronics 2000 38.1 27.2 71.4 industry was drawn up in order to sustain an 2001 32.2 21.9 68.0 average annual growth of 30 percent per year, Sources :Philippine Statistical Yearbook,1994-1998 improve the value added of the industry by a National Statistics Office 1999-2001. factor of two and make the Philippine electronics industry world-class. It includes a portfolio of niche products that would be attractive to investors and would capitalize on the existing industry and infrastructure capabilities in the Philippines. These products are mainly computing and communication products related to the new multi-media, digital and networking. Although these .42Department of Trade and Industry, Bureau of Export Trade Promotion and PEZA. 43It was identified that a wafer fabrication facility can be established to feed the existing back-end assembly operations of Philippine-based IC manufacturers. This will improve the value added of the electronics sector where most of the materials are imported. Advantages are: savings in foreign exchange with the reduction of importation of raw materials and acceleration of technology transfer with the training of Filipino engineers in the operation of the state-of-the-art equipment and systems. 62 products represent a move to more advanced production technology, they also target products with limited technological life. Many of the products and markets are already mature or in decline. Exports generated from the 68 operating PEZA economic zones in year 2000 totaled US$20.0 billion, which is 26.7 percent higher than the US$ 15.8 billion exports in 1999 and represents about 52.6 percent of the total export earnings of US$38 billion in year 2000. The existing capabilities of the Philippine electronics industry that caters to export markets include Packaging of Integrated Circuits (Ics) and Special Products, simple chips, and product assembly (Annex E). The production capacity of electronics industry is measured in terms of the production floor space and the number of units produced per week. However, due to lack of data, it is difficult to measure the industry's capacity because of the different devices and lead counts being handled by each company. It is reported that the utilization of capacity for the electronics industry is between 75 percent to 80 percent. For its raw material inputs, the electronics firms source their inputs both locally and overseas. In 1999, the electronics industry employed nearly 280,000 persons of which approximately 98,000 people are employed in semiconductor manufacturing. The components sector employ 70 percent followed by the EDP industry (17 percent) and consumer electronics (8 percent). Major markets for semi-conductors include Taiwan, Germany, Honking, Japan, Korea, Malaysia and Netherlands. Consignment volumes of various types are within the range of ˝ - 1 ton shipped on a weekly basis. Value of consignment ranges from US$100 to US$2,500 per kilogram and the freight ranges from US$2 per kilo (Singapore) to US$ 26 per kg. (France). EXPORTS Electronic exports more than doubled from US$ 10.6 billion in 1996 to US$ 27.2 billion in 2000. Its share of total export value has risen from 51.7 percent in 1996 to 71.3 percent in 2000. Average growth of electronics exports is much higher at 27.2 percent as compared to the average growth of the aggregate total merchandise exports of the Philippines of 16.8 percent from 1996 to 2000. Of the electronic exports, semi-conductors and components accounted for 55 percent of total exports or 71.3 percent of total electronic exports valued at US$ 21 million in year 2000 (almost 3 times the value of 1996 exports). Figure 8.1 displays the electronics exports by product while Figure 8.2 shows exports by destination. The top 10 importing countries experienced 37 percent growth in imports of electronics from the Philippines. Figure Figure Electronic Exports by Product Electronic Exports by Destination Others (10.19%) Consumer Products (2.22%) Telecoms (2.15%) Thailand (3.46%) United States (26.17%) Germany (3.97%) EDP (18.19%) U.K. (4.23%) Malaysia (4.33%) Hongkong (5.65%) Japan (12.85%) 63 Taiwan (9.35%) Semiconductors, components (77.45%) Netherlands (9.86%) Singapore (9.94%) IMPORTS Among imports44 of electronic products, parts for electronic integrated circuits comprise the major imports with FOB value of US$ 198.334 million in 2001, which is 20.7 percent higher than the 2000 FOB value of US$164.1 million. Parts of semi-conductors comprise 80.7 percent of total imports of electronic products (valued at US$ 245.89 million). Electronics manufacturers hire customs brokers for imports of electronic parts and products, and pay the following charges (customs clearance/ brokerage fee per Customs Administrative Order45) for airfreight: · Processing fee ­ P 850/ AWB. · Handling fee ­ P 300.00 and · Documentation - P500 · Customs stamps and entry - P 305.00 · Notary fee - P 100 · Delivery charges within Metro Manila ­ pick-up close van P 1,500, 6-wheeler truck P 2,000 and 10-wheeler P 2,500.00). This does not include storage, consolidation and bank charges. For sea transport, the fees are as follows: · Processing fee ­ P1,200 / 20' container. P500 for succeeding container per BL. · Handling fee ­ P500.00 and · Documentation - P500 · Notary fee - P100 · Delivery charges within Metro Manila ­ 1 x 20 ft. (P3,500). In addition, there are handling and wharfage charges of P2,328.70 and P2519.35, respectively. The customs brokers46 indicated that each step requires an authorized payment. The major difficulty in clearing and processing imports is mis-declarations of the invoice value, BL and permit/s (if any) given by the importer to the broker. Delivery of cargo by airfreight is 1 to 2 days, sea freight 1 to 2 days (as long as stripping is done) and containerized ­ 1 to 2 days. 44On imports, the importer must classify the commodity or item that he intends to import based on the following classification of imports: (a) liberalized (b) regulated and (c) prohibited items Application for Importation. An importer can apply for its importation through Letter of Credit and Non-L/C Import Arrangement, namely: Open Account (OA), Documents Against Acceptance (D/A), Documents Against Payment (D/P), Direct Remittance (D/R), Self-Funded (S/F), No-Dollar Import Arrangement and Importations on Consignment Basis. The release of shipment at the Bureau of Customs. 45Interview with broker. 46Customs brokers are required to be accredited by the Civil Aeronautics Board of the Philippines, Philippine Shippers' Bureau, Philippine Ports Authority and Seafreight Forwarders Association. Once the forwarder and broker are accredited, this will ensure that the shipment is in good hand and guaranty a good and quality services. 64 SUPPLY CHAIN FORELECTRONIC EXPORTS Semi-conductor manufacturers are subcontractors to foreign companies based in United States, Japan, Taiwan and other countries. They are based in technoparks in Laguna. The minimum value of consignment is about US$ 100,000 and considering the high value of their export shipments, they have their own logistics company to ship out the electronic products via NAIA.47 They have a regular weekly schedule of shipments. The semi-conductors are packed in cartons or Figure 8.3. Supply chain of Electronic plastic shipping tubes based on the Exports/Semi-Conductors specifications given by the mother company. Loading To Van Prior to the government road improvement START Time: 30-45 Mins projects in Laguna and Cavite, it took about Cost: P1000-P1500 2.5 hours to 3 hours to reach NAIA. Following the rehabilitation of critical Trucking:Plant to NAIA sections, the travel time was reduced to 1.5 Time: 1.5 to 3 hrs. hours. The manufacturers have formed a (Ave.1.5 hrs.) Cost: P2,000-P2,500 Federation of Manufacturers to lobby for major infrastructure improvements in these areas to support the technoparks.48 The supply NAIA Customs Clearing chain of electronic exports (semi-conductors) and Unloading Time: 15-30 mins. is shown in Figure 8.3. Shipments are made Cost: P2,500-P3,000 weekly based on scheduled production and shipment. Order cycle times are longer as Loading to Container for they require a change in the production END Shipment and Sealing scheduling. Time: 30-45 mins. Manufacturers use their own vans with a capacity of about 2 tons and shipment volume ranges from 0.5 ­ 1.5 tons. The shipment is escorted to prevent "hijacking" since it is a high value shipment. Philippine Airlines carried a substantial portion of exports in 2001, about 2.1 million kgs of semi-conductors, mostly to the United States. Based on National Statistics Office (NSO) statistics, the total value of the shipments carried by Philippine Airlines was US$165 million. Other airlines that carry semi- conductors are Air France, Cathay Pacific, Singapore Airlines and Northwest Airlines. The exporters arrange their own finance and prepare their export documents, which include the export declaration, pro forma commercial invoice, stuffing report and Cargo Entry Permit. The Banker submits the ED1, export declaration and the exporter or his broker submits the ED3 form together with a certificate of identification and commodity clearance. The Bureau of Customs (BOC) validates the export declarations prior to loading and sealing the container. A new BOC- 47Data on logistics such as costs and time are highly confidential. 48There are two options to reach NAIA: (1) Carmona-South Super Hi-way route and (2) Palapala, Aguinaldo to NAIA. 65 PEZA Import Cargo Transfer System49 has replaced the PEZA Police Transshipment Services with the posting of Surety bonds to cover import duties and taxes due on import shipments of economic zone locator enterprises during the transshipment period. This new system will be implemented only for import shipments of economic zone locator enterprises in the semi- conductors and electronics product sectors entering the country through the Ninoy Aquino International Airport (Customs Collection District 3). The legally binding full declaration (i.e. import entry and internal revenue declaration transit document (IEIRD-TD) was converted to the UNCTAD's Customs Automation System (ASYCUDA) -Transit document 49Authorized representatives of the economic zone locator enterprises are fully responsible for the security of the import cargoes during the transshipment process from the ports of entry/discharge to economic zones. They will officially acknowledge receipt of import cargoes from the CPCO and ensure their safe and speedy/ timely delivery to the premises of the economic zone locator enterprises. 66 CHAPTER 9 PORTS AND SHIPPING The principal public ports operated by the PPA in Mindanao are Cagayan D'Oro, Davao, General Santos and Zamboanga. The volume of imports and exports transferred through these ports decreased dramatically from 1995 to 1998 as shown in Table 9.1, but has since stabilized. At the same time the volume of Table 9.1 Mindanao's Port domestic cargoes continued to grow strongly through 1997. Foreign Traffic Despite a drop of about 25 percent in volume in 1998, it has resumed growing, albeit slowly as shown in Figure 9.1. Exports Imports 1995 8.52 3.42 The berth performance for these four ports in the years 1999- 1996 6.69 2.57 2000 is summarized in Table 9.2 (details in Annex F). In 1997 5.71 2.46 Northern Mindanao, the public port of Cagayan D'Oro 1998 4.43 2.49 handles primarily domestic shipping serving Luzon and Visayas. Throughput averaged about 2.2 million tons of domestic cargo, primarily containerized, and 475 thousand tons of foreign cargo, approximately equal portions of bulk, break-bulk and containers. During 1999-2000, the number of vessel calls decreased by 30 percent offset by a 66 percent increase in the average size of the vessels calling the port to an average deadweight of 2650. This increased the average turnaround time to 28 hours in 2000. The largest private ports are Del Monte, which handles an average of 225 thousand tons, and Alsons, which averages 1.7 million tons. The former serves primarily foreign Figure 9.1 vessels, averaging 9700 DWT, loading Domestic Cargo Handled in containerized fruit and offloading input materials Major Ports of Mindanao 1991-2000 both in containers and break-bulk. These are turned around in about 26 hours. In contrast, 20.0 Alsons serves mostly small domestic vessels, GRT 15.0 Zamboanga less than 1000, that stay an average of three days in tons port transferring primarily bulk cargo. Iligan metric 10.0 General Santos In Southern Mindanao, Davao handles about 2.1 Million 5.0 million tons per year. About half this amount is Davao containerized domestic cargo and another 16 0.0 1991 1993 1995 1997 1999 Cagayan D'Oro percent is foreign containerized cargo. Average vessel size is a little over 4300 DWT, and time in port averages about 40 hours. The three large private ports are DUCC, Tefasco and Tedeco. The first two are bulk ports. The third handles a mix of foreign break-bulk cargo and domestic containers. They handled 0.75, 0.47, and 1.42 million tons, respectively, in 2000. DUCC serves mostly small domestic vessels, about 750 GRT, that average 4 ˝ days in port. Tefasco serves larger vessels, averaging 6400 GRT, turning them around in just under 3 days. In Tedeco, the vessels average about 5000 GRT and remain an average of 2 ˝ days in port. 67 Table 9.2 Port Performance Statistics for Base Ports (excl Anchorage) N. & S. Harbor Manila Cagayan D'Oro Davao General Santos 2000 1999 2000 1999 2000 1999 2000 1999 Number of Vessels Domestic 5,908 6,279 2,347 3,336 583 705 998 1,050 Foreign 1,889 2,136 188 185 240 225 161 207 Average DWT Domestic 2,645 1,659 4,351 4,219 4,030 5,293 Foreign 12,070 12,875 11,427 12,104 4,748 3,956 Cargo Handled (000s tons) Imports 3,959 4,263 334 393 557 373 145 167 Exports 416 410 119 104 204 193 50 26 Domestic Unloaded 6,998 8,118 983 931 891 852 562 525 Domestic Loaded 8,601 15,273 1,210 1,263 512 598 824 704 Time at Berth (hours) Domestic 51 51.2 28 23 34 35 41 40 Foreign 34.4 32.5 39 40 61 50 40 58 Berth Productivity (tons per berth hour) Domestic 52.0 72.8 33.1 28.5 71.2 59.0 33.8 29.5 Foreign 61.7 66.9 52.2 50.4 30.6 16.1 General Santos handles primarily domestic cargo. The total tonnage handled was 1.6 million tons in 2000 of which about 66 percent was containerized. The vessels average 4000 GRT and stay 1˝ to 2 days in port. The private ports serving this region include Cargill's bulk terminal, which handled a little more than Ľ million tons in 2000, and Dole Philippines, which also handled about Ľ million tons but mostly exports, with equal portions of containers and break bulk cargo. The average cargo handling productivity for these ports is shown in Table 9.2. These rates are comparable to the break-bulk productivity in Southeast Asian ports during the 1970's and 80's. The relatively small size of the vessels, the small amount transferred per vessel call and the limited cargo-handling technology reduce the berth productivity but this does not explain why productivity is so low, since many of the vessels are handling containers, RoRo and bulk cargoes. Foreign vessels generally perform better than the domestic because of the larger volumes handled per call and better on-board equipment. In Davao, the rates are higher because vessels handle 2-3 thousand tons on average and there is a high level of containerization. Mindanao is a net exporter of agricultural commodities. About 3 million tons are loaded at the ports of Davao, General Santos, and Cagayan D'Oro for both domestic and foreign destinations. Their shares are 55 percent, 22 percent and 23 percent, respectively (Table 9.3). These ports also offload between Ľ and ˝ million tons of rice and other agricultural commodities, both imported and domestic. 68 For Davao, about 80 percent of the outbound cargo is fruit, mostly bananas. About 80 percent are exported, primarily to Japan, South Korea and Middle East. The rest are shipped to Cebu and Manila. In General Santos, about half of the agricultural commodities loaded were Table 9.3: Total Shipments of Agricultural Products fruits and vegetables from Major Mindanao Ports 1998-1999 (000 tons) produced by the larger plantations. About 60 percent Davao General Cagayan were for export and the Santos D'Oro remaining 40 percent for Domestic 442.6 452.8 494.5 domestic markets. Most of Inbound 16,955 9,041 38,333 the remainder was yellow Rice 49% 17% 33% Outbound 425.7 443.8 456.2 corn shipped to Luzon. Rice 6% 10% 7% Corn 35% 62% 64% The extent of Fruits, Vegetables 59% 27% 29% containerization of these Foreign 1,347.5 262.2 253.7 commodities was relatively Inbound 73,986 77,658 113,284 high in General Santos (63 Rice 94% 82% 84% percent) and Cagayan D'Oro Outbound 1,273.5 184.5 140.4 (59 percent) but more modest Fruits, Vegetables 100% 98% 100% in Davao (29 percent). A 1,790.2 715.0 748.2 large amount of corn and rice is transported in containers Source : PPA - as reported in "Further Deregulation of Freight Rates but fruits are shipped for Non-Containerized Basic Commodities" GEM Program 2001 primarily in boxes and crates, even for exports that are transported in special purpose vessels. Bulk shipments are negligible for Cagayan D'Oro and Davao but account for about 25 percent of the cargo handled in General Santos, primarily through private facilities. The majority of the containers handled in the Mindanao ports are domestic. The average weight per container is 10.7 tons. The heaviest are export containers from General Santos and outbound domestic containers from Cagayan D'Oro, both carrying agricultural products, and inbound domestic containers to Davao carrying consumer goods. The lightest are imports to Cagayan D'Oro and Davao, which have a high proportion of empties (Table 9.4). 69 Table 9.4: Container Statistics for Mindanao Ports Philippines Cagayan de Oro Davao (Sasa) General Santos 2000 1999 2000 1999 2000 1999 2000 1999 No. of Containers (000 TEU) 2,994 2,813 148 140 145 130 115 104 Domestic 1,395 1,359 140 131 88 87 111 101 Foreign 1,599 1,456 8.5 8.8 58 42 4.6 3.7 Cargo (000 M.T.) 34,500 33,001 1,744 1,563 1,553 1,441 1,069 911 Domestic 20,507 20,014 1,664 1,490 1,144 1,125 1,002 864 Foreign 13,993 12,986 79 72 409 316 67 47 Cargo (M.T./TEU) All Base Ports Cagayan de Oro Davao (Sasa) General Santos Domestic Inbound 13.7 13.9 9.8 9.4 15.6 15.2 5.8 5.8 Domestic Outbound 15.7 15.6 14.0 13.4 10.4 10.6 12.2 11.5 Imports 11.4 11.7 6.5 5.1 7.3 6.8 13.1 14.2 Exports 6.0 6.1 12.1 11.3 6.9 8.1 15.5 11.8 REGULATION The domestic freight rates were deregulated under an Executive Order during the Ramos Administration50 with the exception of Class C non-containerized, non-unitized essential cargoes. Since their rates are extremely low, the shipping lines shut out the cargoes during the peak season in favor of higher rated cargo. Due to the high rate of containerization, only about 1/6 of the basic commodities shipped from these ports qualify for regulated rates. Also regulated are the freight rates on those routes served by monopolies or cartels. MARINA, the maritime regulatory agency, continues to publish rates for all major routes but has simplified the procedure for filing new rates so that rate changes can be made within a two week period and addressed through a legal hearing procedure. The Authority allows the lines to quote rates within a +10 percent to ­15 percent band and provides an automatic bunker adjustment factor. Because of the current surplus capacity, the lines have had to offer discounts in excess of that permitted. The shipping companies continue to be restricted to a 12 percent rate of return on capital,51 forcing them to manipulate their accounts in order to continue in business. VESSELS The types of vessels operating on the inter-island trade can be determined from the domestic vessels calling at North Harbor, in Manila. Their average sizes are shown in Table 9.5. The largest vessels are the passenger cum cargo super ferries that provide a regularly scheduled inter- island service. The larger vessels include both the passenger and container vessels. The smallest 50There remains some confusion as to whether the order contracts the Public Service Act which includes trucking and ocean shipping. Efforts to revise the Public Services Act are before the legislature but have have not been acted upon in the last three years. 51Although the prime rate is 14% and loans for the industry are at 16% 70 GRT DWT Type Avg Min Max Avg Min Max Tankers 532 117 1,363 753 300 1,840 Passenger/Cargo 5,889 69 15,223 3,215 95 21,643 Container 2,610 243 4,938 3,878 346 8,518 General Cargo 1,567 30 8,343 2,528 45 12,478 LCT 866 123 2,252 2,135 150 5,000 Barge 956 213 1,915 1,386 400 2,975 vessels are product tankers which provide fuel and other oil products for local markets Two thirds of the inter-island vessels are operated by the five major shipping lines as shown in Figure 9.2. The smaller lines tend to serve lower density routes. FREIGHT RATES The rates for container movements between Table 9.6 :Freight Rates for Domestic Manila and Mindanao are relatively high as Container Movements (P per TEU) shown in Tables 9.6. The rates for container per TEU are about 25 times the rate per MT for Freight Per naut. general cargo. The rates per TEU-nautical mile Manila to mile vary between P 26 ˝ and P 30˝. Cebu is higher Cebu 12,546 32.0 because of the shorter distance to Manila and Cagayan D'Oro 15,409 30.6 Davao lower because of the longer distance. Zamboanga 15,615 30.5 General Santos 21,007 29.1 A survey in late 2000 of container rates for Davao 23,716 26.6 bananas and corn shipments indicated an average freight rate from Mindanao to Manila of about P Source : Domestic Shipowners Assoc. 2001, 18.5 thousand per TEU or P 500 per cubic meter. Note : excludes VAT The high cost of corn transport is due to the small size of the consignments, and also because traders do not co-mingle their products. The sea freight between Davao and Manila, including the fuel adjustment factor but Figure 9.3 excluding VAT, accounted for almost 80 percent of the port-to-port charges (Figure Container Freight Rate 9.4) or P 13 per TEU-nautical mile). This is Davao-Manila 2000 exclusive of the port charges for wharf handling, storage or stuffing/unstuffing and Stevedoring (7.80%) any extra payments required to ensure safe Wharfage (8.02%) and efficient transport of the goods. For imports, there are also payments to customs VAT (11.99%) officials to clear the cargo. However, these have declined in recent years as a result of Sea Freight (58.13%) the customs reform. AFRA (14.06%) 71 Figure 9.2 : Among the factors that lead to high inter- North Harbor Vessel Calls By Line island freight rates is the oligopolistic pricing of wharf handling services in PPA ports. As a result, the rates for arrastre Share of Vessel Calls services (wharf handling), are differentiated while those for stevedoring are not. Another 20% factor is the restriction on the shipping lines WG&A that can provide inter-island services. For 37% Sulpicio export containers, there is a box re- Negros positioning charge to Mindanao of about Solid $150. When export/import containers are 19% Lorenzo transshipped through Manila, there is the Other $50 per box charge for moving the container 4% 6% from North Harbor to South Harbor. 14% Some of the factors leading to high costs of shipping are: · 10 percent VAT · 34 percent income tax · high interest rates relative to rest of region · high fuel costs · inefficient use of vessels due to long port turnaround times relative to travel times · restrictions on domestic freight rates Table 9.7 : Annual Frequency of Vessel Calls by Type for The liner operators have Vessels Traveling between Mindanoa and North Harbor relatively old fleets with the result that their operating costs Passenger/ General include relatively little Cargo Container* Cargo depreciation as shown in Figure Cagayan D'Oro ? 16 7 105 9.4. Because these vessels have CDO? CDO 21 2 86 relatively old technology and ? Cagayan D'Oro 13 4 68 carry a mix of cargo and Davao? 12 1 17 passengers, the crew sizes are Davao? Davao 2 20 134 relatively large, and account for ? Davao 16 47 over 33 percent of total operating Gen. Santos? 8 9 102 costs. Port charges paid by the Gen. Santos? Gen Santos 1 7 54 vessel are a relatively small part ? Gen. Santos 3 23 of liner operating costs but a Zamboanga? 41 4 15 relatively large proportion of the Zamboanga? Zamboanga 8 21 costs for shippers as shown in ? Zamboanga 29 1 18 Table 9.8. Note: Distinction between Containers, General Cargo and 72 REGULATORY REFORM The issue of improving inter-island shipping and national port services has been a concern of government for the last decade as the quality of service provided deteriorated and the costs increased. Route licensing was introduced in 1972 to reduce over-tonnage on the main routes and divert tonnage to inadequately served routes. Each vessel is issued a Certificate of Public Convenience specifying the exact route and schedule that it will operate. Figure 9.4: Under the current system, the application of a new entrant (an DSA Liner Operating Expenditures - 1996 applicant for route that has no existing 2%2%2% 5% franchise) is considered if demand Fuel and Lubricants 2% 1% Employee Costs warrants additional capacity but 7% Depreciation priority is given to capacity provided Charter Hire 35% R&M by existing operators. In contrast an 4% Supplies existing operator may add 50 percent Stevedoring to his capacity every three years. Pilotage 12% Port Charges Insurance In 1989, the Presidential Task Force on 2% Commision Expenses Inter-island Shipping recommended 10% 16% Licenses, Fees and Taxes Miscellaneous deregulating entry into inter-island shipping, de-monopolizing port cargo handling services and deregulating the fares and freight rates. In the same year, MARINA abolished ad valorem rates and reclassified agricultural commodities into Class C cargo. It also widened the range in which tariffs could vary from +10 percent to ­15 percent. In 1993, MARINA simplified the procedures for granting route franchises. In 1994, Executive Order 185 required at least two operators per shipping route but gave priority to incumbent carriers. Table 9.8 Port-to-Port Rates for General Cargo ( P per MT) Cargo Handling Origin Destination Freight Total % Handling Cagayan D'Oro Cebu 51.3 59.2 306 416.5 27% Manila 51.3 92.6 603 746.9 19% Zamboanga Cebu 62.1 59.2 448 569.3 21% Manila 62.1 92.6 689 843.7 18% Cotabato Cebu 75.5 59.2 549 683.7 20% Manila 75.5 92.6 842 1,010.1 17% Davao Cebu 75.5 59.2 595 729.7 18% Manila 75.5 92.6 929 1,097.1 15% Source: Ted Gambito In 2000, the implementing guidelines of Executive Order 185 were revised to allow easier entry of new operators on any route that has been served by any operator for at least five years. However, entry is restricted if it would create "ruinous competition", which is defined as 73 requiring the existing operators to continue carrying less than the average annual breakeven load factor. Table 9.9 Cagayan D'Oro Charges for Arrastre and Stevedoring loose pallets Prime Commodites-break bulk min max min max Domestic Rev ton 56.6 85.3 43.1 65.5 Imp/Exp Rev ton 91 68 Container FCL loaded empty Domestic 20' 707 381 40' 1249 595 Imp/Exp 20' 919 815 40' 1748 1308 Source : PPA Published Tariffs In order to introduce new tonnage to the domestic shipping industry, the government granted exemption for import duties and taxes for vessels and spare parts under the Investment Priority Program from 1990 to 1996. The government also established a bareboat chartering program in 1994, which issued Philippine Registry to Figure 9.5 foreign flag vessels for a fixed period. In 1995, MARINA lifted the age and size restrictions on Shipping Lines Entering and Exiting the Domestic Shipping Industry acquisition of vessels for domestic operation. In 15 the same year, the government initiated the Domestic Shipping Modernization Program 10 (DSMP) program administered by the 5 Development Bank of the Philippines to provide 0 financing for the acquisition of vessels for -5 domestic operation. Most of the loans went for large passenger cum cargo vessels and tankers -10 that lead to a dramatic increase in passenger -15 1991 1992 1993 1994 1995 1996 1997 1998 1999 vessel capacity. As a result of acquisitions in the mid-1990's, there has been a substantial increase in the domestic fleet tonnage together with a decline in the average age of vessels. This increase did not produce savings in transport costs or overcome the inefficient cargo handling in the ports. Instead, rates increased substantially with little improvement in the quality of service. This has created increasing dissatisfaction among the manufacturers and agricultural producers who face increasing competition from imports and declining markets and financial conditions. Despite all these initiatives, the shipping sector remains heavily regulated and under the control of a few large lines. The average age of container vessels remains about 25 years. The average age of general cargo vessels has steadily increased to 12 years. As of 1998, the five largest shipping companies52 handled approximately 91 percent of the cargo on the primary and 52WG&A., Sulpicio Lines, Negros Navigation, Lorenzo Shipping Corp., and Solid Shipping Corp. 74 secondary routes. About one-third of the primary and secondary routes have only one operator and less than 1/6 report substantial competition. The liberalization did increase the turnover in the shipping industry with 27 new shipping lines established during the period 1993-1998.53 Only 16 of these survived and many of the older companies ceased operating. Of those that did survive, about 40 percent are expanding their capacity while 33 percent are reducing their capacity. Attempts at reform in the port sector have had even less of an impact. In 1994, Executive Order 212 enforced the Open Competition Policy in cargo handling operations that required at least two cargo-handling operators in each port (previously PPA had a one-operator-per-port policy). This Order was intended to increase private sector participation in the port sector, but was not enforced due to the opposition of existing arrastre companies and subsequent court challenges. In 1997, Executive Order 410 was issued, effectively repealing EO 212 and strengthening the role of PPA in privatization and de-monopolization of the government ports. The rationale for this reversal was that the private sector had failed to become more actively involved in the port sector and the PPA had prepared a 25-year port development plan that required private sector involvement. Towards the end of the Estrada administration, Executive Order 59 was issued which would have created a single cargo handling monopoly for all ports. CUSTOMS The Bureau of Customs (BOC) has introduced major reforms over the last few years that have reduced the delays and amount of informal payments involved in importing goods. One major modification has been in the method of valuation of imports. Formerly, valuation was based on a system of published reference prices. The pre-shipment inspection performed by SGS until March 2000 provided information on the price at the origin that could be used to modify the reference prices. . The reference price system had been employed to overcome a high incidence of under-reporting and a lack of customs efficiency. This method of valuation was changed to transaction value in January 2000 in order to meet the WTO requirement (Republic Act 8181/9135). Now that import duties are based on the C&F transaction value, verification must be provided for both the commodity and the freight. Customs has also refined its procedures for duty free industrial zones, though the latter continue to be a major source of leakage. Customs has allowed private bonded warehouses, but limited them because of the large volume of smuggling. It has allowed some inland container clearance depots but not dry ports. For re-exports, it has introduced duty drawbacks and established one- stop shop for tax credits. As part of the reform program, Bureau of Customs (BOC) has improved its enforcement database and introduced risk management. It uses ASYCUDA ++ for managing its activities and has introduced an automatic payment system and a procedure for online release of goods to speed cargo clearance. As a result, customs has greatly reduced cargo clearance times, in most cases, to only a few hours. There are three physical inspection procedures: 53Some of these were established by existing shipping lines 75 · Green line - no inspection other than random sampling · Yellow line -- inspection of documents · Red section ­ physical inspection, 100 percent Cargo is cleared by either licensed customs brokers or nominees of importers, (referred to as attorneys because they have the power of attorney). Both operate under a regulated fee structure. EDI services are provided in three ways: · A proprietary Value-added Network (VAN) system · A privately-operated network stations for direct trader input · Entry and encoding system inside the port, again privately operated The Customs Modernization Act allows for electronic filing of customs documents. BOC has proposed to convert to the Web-based ASYCUDA World, which is now being tested by UNCTAD. These improvements benefit the larger, better-organized importers and exporters. About 10 percent of the transactions still have to be processed using the older, slower, paper- based system with its greater potential for irregularities There are 13 major customs gateways/districts, which include major seaports and airports, e.g. Leyte, Subic, Clark/L'Union, Zamboanga, General Santos, Cagayan, Manila, Cebu, Davao, Batangas, Ilo-Ilo. However, BOC computer system requires upgrading but lacks the budget. CUSTOMS The PPA remains entrenched as an inefficient public monopoly with low port productivity and serving mostly old and small vessels. Most of the shipping routes remain under the control of shipping cartels. Investment and productivity in both sectors has been nominal. In the absence of competition in the supply chain, the costs remain high with rent-seeking by all participants in the chain. The continued regulation of freight rates for agricultural commodities has had a negative impact on the trading of these goods. Because rates are so low, shipping lines are reluctant to carry the cargo especially during the harvest when there is a shortage in capacity. The lack of capacity adds to inventory costs and cargo losses. The high rate of containerization of agricultural commodities is a rather costly alternative for obtaining capacity to carry these commodities. 76 Chapter 10 GENERAL FINDINGS AND CONCLUSIONS OVERVIEW There have been some successes in local efforts to generate non-farm employment. There has also been a gradual shift in the market structure towards processing agricultural products into higher value goods for shipment to Luzon. However, there are substantial business-related factors that prevent a significant improvement in the livelihood of the small farmers. These include a lack of : · Post harvest management (to avoid selling crops immediately following harvest) · Management skills (and information) · Developed markets (quality standards, uniform market prices) · Financial instruments (to hedge against uncertainty) The result is the traditional small-scale agriculture with growing reliance on credit and manufactured inputs that places the farmer at increasing risk. This review has focused on the movement of goods to and from Mindanao. The inefficiencies in the movement of agricultural products from Mindanao farm gate to food producers and retailers in the Visayas and Luzon is due to the continuance of: · poor road transport · inadequate port infrastructure · inefficient cargo-handling operations · high cost shipping · small consignment sizes · lack of cargo consolidation activity As expected, a wide range of performance was observed from the efficient and well-integrated logistics of large exporters to the costly logistics of the small scale farming operations. The most efficient logistics, those of the electronics industry in Luzon and the pineapple and banana plantation operations in Mindanao, have a number of things in common: · Relatively high value goods · Significant foreign participation · Concentrated production · Relatively short travel distances · Few intermediaries · Continuous flows · Modern communications and computerization · Highly integrated logistics 77 Since these characteristics do not apply to non-plantation agriculture, it is necessary to develop new strategies to address the problems of this sub-sector. Four areas of intervention have been identified. These are · Consolidation of cargo, · Integration of logistics, · Improved Inter-island Shipping, and · Institutional reforms The high cost of domestic transport cannot be blamed on a single mode or link but rather on the entire chain. Road transport is expensive because ofthe condition of the roads and the relatively small volumes being transported. Non-plantation production is widely dispersed making it difficult to consolidate shipments until the cargo reaches the port. Even then, the vessel consignments remain relatively small. The result is that inter-island shipping is carried out by relatively small vessels, e.g. bulk carriers of 2000 tons. Inefficient and under-equipped cargo- handling services result in relatively long turnaround time for vessels in port, often exceeding the vessel travel time. Limitations on cargo handling service providers, one or two in most ports, and the unconstrained ability of the PPA to raise tariffs without any improvement in service produce a relatively high cost for port services. Ocean freight rates continue to be high because of the inefficient deployment of small and old vessels, and inefficient management of the vessel fleet. The logistics services for international trade have improved with the increase in number of third party logistics providers over the last 5 years. Local companies previously offering only transport or warehousing services have expanded their operations to more complete logistics services. Foreign logistics companies (from US, Europe and Asia) have set up local offices either on their own or in joint operation with local companies, to take advantage of the logistics business opportunities. They compete with local logistics service providers and help to professionalize the industry. In recent years, the attention of the principal donors (USAID, ADB, JBIC and IBRD) has shifted away from transport, logistics and agriculture, except where these are directly linked to poverty reduction. They continue to fund road rehabilitation projects even though past investments have failed to produce good quality roads or a sustainable road network. They are no longer involved in port development because of the dysfunctional nature of the Philippine Port Authority. Their involvement in the shipping sector has been limited to USAID's efforts in the early 1990s to liberalize the sector and JBIC's funding of a lending program for vessels managed by the Development Bank of the Philippines. CONSOLIDATIONOF CARGO Transport and logistics have considerable economies of scale. One of the major causes for the high cost of the logistics is the small scale of agricultural production, processing, storage activities and the small consignment sizes for shipping and storage. The problem begins with the small farm size and the lack of effective groups to consolidate the crops that have been harvested. It continues with the small size of the post-harvest processing activities and ends with small consignments transported to the ports and from the ports to the major markets. There are 78 two options for increasing consolidation: · Downstream from farmers groups through the traders to the wholesalers and · Upstream from the food processing industries through the buying agents to the contracted farmers The first approach is now being addressed through efforts by farmers at cargo pooling. Both farmers' groups and cooperatives have undertaken cargo consolidation, but these efforts have been limited and their effectiveness has been uneven. Stronger local coordination requires better information on technology and markets. This can be provided directly by the regional markets and through extension services taking advantage of modern communications technology. The second approach has been employed by San Miguel and other large, Luzon-based food processing companies. They have moved the point of consolidation back from the factory to the mills, from the mills to regional buying operations and from the buyers to direct contracts with the farmers. INTEGRATIONOF LOGISTICS The supply chains for Mindanao agricultural products have three notable characteristics. They are · Technically simple · Loosely integrated · Procedurally complex If the farmers are to develop a competitive advantage in the selling of agricultural goods in both the domestic and foreign markets, then it will be necessary to improve the quality of the logistic services and to integrate the supply chains. These efforts should be market driven; that is, the market should determine the relative benefits of various improvements and the extent to which the chain can be integrated from producer to final consumer. Among the specific components of the supply chain to be improved are: Post harvest processing ­ there is a lack of standards for grading, sizing, packaging, handling (stacking, palletizing, provisions for air circulation), and transporting (temperature and humidity control, compatibility with other cargoes) commodities such as fruits and vegetables destined for both domestic and international markets. There is limited use of cold chain systems to integrate cleaning, grading and packing at the farm site with transport in refrigerated trucks to the retailers' refrigerated storage or to vessels with refrigerated storage. 54 Appropriate packaging and containers for fruits and vegetables - The packaging currently used for agricultural products, particularly fruits and vegetables, does not allow for adequate air 54Mincool which has a cold storage in Cagayan de Oro has notified the Land Bank, from which it obtained its loan, that it will instead procure a refrigerated truck in lieu of refrigerated van, which is needed by local farmers/ traders. This was not allowed in the existing loan contract. 79 circulation and control over ripening. Farmers and traders have proposed the use of better containers to reduce both logistics costs and cargo losses. These include: · Rectangular, stackable and reusable plastic crates to maximize space utilization in trucks and storage,55 prevent damage, and provide additional air circulation, · Corrugated cartons with holes for air circulation for use in the local market for products other than mango and bananas. · Zeolite packaging to extend the life of exports to 30 days to allow time for shipment to international markets. · Multi-modal mini containers with 1-ton capacity that can be transferred between LCT and land-based transport without port facilities. This system can be tied to small-capacity portable grain storage systems that will be able to provide logistics to small rice and corn farmers. This may be appropriate to island provinces in Mindanao such as Camiguin island in Northern Mindanao, etc. · Styrofoam air pallets for perishables · Bar codes to record the product's "age" at any point along the supply chain. Bulk transport systems for grains ­ The lack of storage at the farm level requires shipment to mills shortly after harvest. Most grains are transported in sacks and handled manually. Since production is small, sacks are appropriate for movement up to the mill, but beyond, they cause losses and inefficient handling.56 A more efficient systemof integrated bulk transport has been proposed, which includes silos, conveyors and special purpose terminals at General Santos, Cagayan de Oro, and Cebu, to complement the bulk facilities in Manila. These systems would reduce losses and provide better protection from elements. Simplified marketing and distribution channels ­ There are multiple transactions and players involved in the movement between the market and the farmers for fertilizer and other inputs and for products including grains, fruits and vegetables. Many of these transactions provide no benefit but rather add to the cost of logistics by introducing additional transport and handling costs and additional participants seeking a profit margin. Establishment of commodity exchanges ­ Commodity exchanges would provide the farmers with the information and transparency that is missing in the agricultural supply chains. They could be used to promote export markets, to perform pilot testing and research, to improve product quality (freshness, the shelf life extension, packaging design and packing materials), to extend marketing services, and to procure agricultural inputs. They would provide farmers with information on the 55Rectangular crates make use of around 80%of floor space, compared to 60%for circular containers, and 30% improvement in quantity loaded. 56These bags are sometimes used for shipping but are frequently emptied into bulk carriers or containers incurring significant losses 80 quantity, quality, and prices of products demanded by the market and the proper packaging and handling systems for specific products.57 These exchanges should be located in Cagayan de Oro, Davao and General Santos in order to provide better trading opportunities for farmers. They should be privately managed and operated with participation from farmers' associations and cooperatives.58 The city governments could provide some equity financing, e.g. the Agora market complex in CDO is owned by the City Government. These exchanges could be linked with consolidation and packing facilities as well as with a national commodity exchange facility. A number of national organizations exist to support these exchanges including the Distribution Management Association of the Philippines, Philippine Exporters Confederation (Philexport) and local business and shippers organizations Restructuring NFA - The NFA acts as a regulator, enforcer and competitor. It is difficult to understand what benefits it provides to the economy. It has failed to provide facilities for post harvest processing and storage. It is not effective as a food security program but dominates the import of grains. Its role in buying and selling favor the short-term gainers/traders and lowers domestic grain prices therefore reducing rural incomes. By controlling certain trades, it prevents traders from investing in more efficient bulk logistics systems. IMPROVED INTER-ISLAND SHIPPING The liberalization of the shipping sector over the last decade has been accomplished through a series of executive orders and MC's. These include reducing the level of regulation of rates and routes and allowing the introduction of new operators. However, the remaining regulations discourage the carriage of basic commodities and lead to cross-subsidization of cargo and passengers. Market regulation and the dominance of the major lines have prevented the elimination of the excess capacity and the introduction of more appropriate and efficient vessels. The trades are served by frequent calls by smaller vessels although there appears to have been a dramatic increase in vessel size in 2000 (Table 10.1) 57Commodity exchange facilities have been relatively successful in Japan, Thailand, Taiwan and South Korea. In Taiwan, there is the Taiwan Provincial Fruits Marketing Cooperative established in 1947 with a computerized auction system with bidders provided with individual electronic push button connected to the mobile platform with electronic screen indicating transaction number, quality class, bid price, quantity and seller. 58The Food Terminal in CDO is an example of such an exchange offering a variety of facilities and services for a wide range of products, eg. fruits and vegetables, poultry, etc. However, it suffered from a number of problems. It was subject to regulations imposed by government agencies such as the Commission of Audit, Bureau of Animal Industry, and the Price Control Council, which restricted its ability to respond to market forces. It also experienced changes in ownership, from the Development Bank of the Philippines to Human Settlements Development Corporation to the National Food Authority. There were also changes in mission. During the Aquino administration, the focus was on commercial viability through estate leasing and warehousing with the goal of being privatized. In the Ramos administration, the focus shifted to increasing the occupancy of its land and buildings, especially the central refrigerated warehouse, in order to enhance its attractiveness to prospective buyers. 81 Table 10.1 CharacteristicsTable 10.2 :Berthing atCargoBase Port Rates of Vessels Average the Handling Shipcalls tons/berth-hour Avg. Gross Registered Tonnage Domestic Foreign Avg. Length (meters) 2000 Total Domestic Foreign Total Domestic 2000 Foreign 1999 Total 2000 Domestic 1999 Foreign Cagayan de Oro 2,535 2,347 Cagayan de Oro 188 4,452 4,090 20.1 17.7 8,972 512.5 100 462.597 131 Cotabato 1,642 1,641 Cotabato 1 74 1.4 74 1.269 1.7 26 26 20 Davao 823 583 Davao 240 7,142 6,483 30.7 33.1 8,740 41.2 125 37.1 122 133 General Santos 1,159 998 General Santos 161 5,025 5,182 26.2 22.8 4,047 41.7 111 26.8 114 94 1999 Cagayan de Oro 3,521 3,336 185 2,837 2,478 9,301 72 68 135 Cotabato 1,449 1,449 0 30 32 0 10 11 0 Davao 930 705 225 1,783 1,280 10,838 33 25 167 General Santos 1,257 1,050 207 1,773 1,665 3,712 40 36 98 On the port side, the initial attempts at devolution of regional ports, which saw the formation of the Cebu and Subic Port Authorities and the transfer of smaller ports to the Local Government Units (LGUs), stalled under the Estrada administration. The PPA, despite changes in leadership, has been unable to reform itself. It continues to encourage monopolies in cargo handling and to approve increases in both port and handling charges without improving services or facilities. The berth productivity remains low as shown in Table 10.2 while the handling charges account for nearly 25 percent of the port-to- port shipping costs, exclusive of other port charges (Table 10.3). The frustration with PPA's performance is growing both among the users and within the government. An alternative strategy has been developed by the USAID supported Agile project. This involves the development of a parallel transport system utilizing private port facilities and unregulated shipping.59 This strategy does not attempt to reform the PPA or the existing regulated shipping market, rather it creates an alternative service. For higher valued goods, this would be based on a hub and spoke network utilizing RoRo operations with back-to-back transfers at the transshipment facilities. The backbone route would connect special purpose facilities in Cagayan D'Oro, Cebu and Manila. Cagayan D'Oro would act as the hub for Mindanao with collection/distribution services to Davao, General Santos and Zamboanga. The vessels would be either second hand or chartered. It would operate outside of the regulatory and market constraints of the PPA and MARINA. This implies that the vessels could load and unload using their own crew and that the vessels would carry vans and trailers without tractors. It also implies that the port facilities will be relatively simple, a wharf for ramp operations and a parking lot for marshaling units. Both, shipping services and the ports would be privately operated and not pay fees to PPA. 59 Economic regulation, regulation of safety would continue 82 The parallel network would also provide shipping for small-scale bulk and neo-bulk cargoes. Since the volumes are not sufficient to justify large vessels and cargo-handling equipment, this service would utilize the available tramp fleet and charters. The cargo handling facilities would be privately operated and equipped with mobile cranes and portable conveyors sized to allow vessels to turnaround in 1 ˝ to 2 days. The system would operate independent of the PPA and Marina. The current status of this initiative is that the concept has been presented to senior cabinet officials and backing has been received from the Mindanao Business Council, various industrial associations and legislators. A market/cost analysis has begun. Initial attempts have been made to identify a potential investor who would provide shipping services and develop the port facilities. The policy framework and proposals for revisions to existing policy are under development. The Bank could participate in the development of this parallel network by supporting these policy changes as well as providing infrastructure financing for port facilities that would be privately operated. This project is discussed in greater detail in the following chapter. INSTITUTIONAL REFORMS A number of legislative and regulatory reforms to remove structural barriers and inefficiencies have been under consideration for a decade and remain relevant60 · Revise PPA Charter - PD 857 mandated PPA to regulate the cargo handling rates in public ports and receive a portion of the revenues generated (typically 10 percent for domestic charges and higher for imports /exports rates). Since their revenues increase as port handling rates rise, there is a clear conflict of interest. There is no incentive to promote competition, as this would reduce rates. As owner, operator, and regulator of some 331 public ports in the country, PPA has a significant competitive advantage over approximately 490 private ports. It has shielded public ports from competition and created a major obstacle for private investment in port development. Some of the recommended changes have included: (a) Limit PPA's role to port planning and development, (b) Increase private sector representation on the PPA Board and (c) Provide proper incentives to private sector participation in port management, operations and investments in port facilities. · Deregulate domestic shipping rates ­ Shipping rates are only partially deregulated. MARINA prescribes upper and lower limits on rates. Domestic Shipowner's Association (DSA) publishes only the upper limit, thus misinforming shippers as to the allowed rates. Whatever the objectives of regulation, they have not benefited the shippers. The class C rates were intended to protect low value cargoes but shipping lines often shut-out cargo shipped under these rates and shippers have had to ship under more costly tariffs to meet their delivery schedules. Given a competitive market, deregulation should have lowered freight rates but the opposite happened due to limited competition and the market power of the ship owners. While it is clear that MARINA's efforts at rate regulation have not 60These are from various shippers'organizations and form part of the resolution of the Fourth Mindanao Food Congress to reform the sea-transport industry and imp rove the agricultural marketing/ logistics system in Mindanao. 83 been helpful to the economy, any effort to deregulate these rates must be accompanied by elimination of constraints on competition in the provision of shipping services for all commodities. · Eliminate cabotage - There is an ongoing debate on whether to eliminate cabotage in order to create competition thus allowing foreign vessels to transport cargo between domestic ports. The arguments for and against have been debated ad nauseum. Most countries, including the US, retain cabotage as a strategic policy. However, Indonesia, another nation in ASEAN, benefited from opening domestic trade to foreign shipping. It is unclear whether the removal of cabotage would attract substantial foreign flag activity; but the continuing debate at least provides some threat of competition. · Revoke EO 59 ­ This order would create a single monopoly to control cargo handling in every public port. The contract would be awarded without public bidding. It is a proposal borne of cronyism with no economic justification other than to enrich selected politicians · Revise the deregulation rules for shipping - MARINA MC 153 (which revised the implementing rules of EO213 on shipping rate deregulation) prescribed the removal of consultative councils for discussion of rates. This shifted the burden from the shipping lines having to justify a rate increase to cargo owners having to disprove the need for a rate increase. Shipping lines can increase the freight rates through notices in the newspaper. The increase in freight rates for unregulated containerized cargoes affected the transport costs for regulated bulk and break-bulk cargoes, which were frequently shipped under the non-regulated containerized cargo rates in order to avoid being shut out.61 · Campaign Against Corrupt Practices - In Northern Mindanao, trucks traveling to Cagayan de Oro from Bukidnon and other areas are stopped and required to pay a fee of P50 to P200. Such disruption on the road not only results in higher logistics cost but also leads to delays in reaching the markets and product deterioration. While these six reforms are important and necessary, they would challenge vested interests and require a continuity in public policy, that has not been achieved over the last decade. Dismantling the economic regulation of the shipping industry and the public monopoly in the port sector would require more than executive orders or changes in regulations. The Public Services Act would have to be revised and public institutions downsized. Assuming a continuous effort on the part of government, at least five (more likely ten) years would be required to pass the necessary legislation, overcome the opposition of vested interests, and respond to the legal challenges, injunctions and court delays. Corruption and crony capitalism that has prevented effective investments in transport infrastructure for over a decade continues to represent a major risk to any reform. The unacceptable performance of the PPA - poor maintenance and safety, conflict of interest as a 61Based on the consultation of the Mindanao Business Council with MARINA last 19 February 2002. 84 regulator, rent-seeking behavior as a public monopolist, lack of transparency, restrictions on private sector cargo-handling activities and general inefficiency - continue unabated. The inability of DPWH to construct and maintain good quality roads continues. Despite the Bank's efforts to re-engineer the organization and change its way of doing business, problematic contractors and consultants continue to perform substandard work. SUMMARY The development of more effective logistics for Mindanao must address both the distribution of post-harvest processing and resulting small-scale shipments and the inefficiencies which result from government's failure to introduce effective deregulation of the logistics market, most notably in inter-island shipping. Earlier attempts by the Bank to encourage reforms in the port sector as part of its lending program were unsuccessful and lead to the Bank disengaging from the sector. This may be the time for re-entry through support of private development and management of the shipping and port sector. The Bank could support this effort by reducing the risk premium and other financial impediments. Alternatively, it could introduce the necessary policy reforms, in sectoral adjustment loans or covenants in on-going lending for poverty reduction programs in Mindanao. While it is important to address these problems and to pursue reform in the public sector, the need for short-term development in Mindanao argues for local, private sector initiatives that would bypass the current system. By limiting these initiatives to a regional activity and transferring regulatory responsibility to the regional government, it should be possible to limit the political resistance from the PPA, the shipping cartel, and other vested interests. These initiatives should allow for their participation but on a competitive basis. 85 Table 10.4 : Proposed Initiatives for Improving Logistics for Philippines Initiative Activities Implementation Goals Role of Development Agency Agency Cargo Consolidation Expand cargo pooling arguments, Increase the size of shipments of Technical Assistance Support efforts to develop grain and other agricultural products logistics/consolidation providers in order to reduce transport costs New Bulk Handling Establish small- consignment, bulk- Reduce handling costs and decrease Technical Assistance Facilities handling private terminals shipping costs for bulk cargoes Capital Investment New Inter-island Develop RoRo Service between Create a lower cost transport system Policy Reform Shipping Services Mindanao and Luzon/Visayas for general cargo shipments Technical Assistance Capital Investment Deregulate Inter- Eliminate economic regulation of Reduce impediments to competition Policy Reform island Shipping shipping between existing providers of inter- island shipping, encourage new investments and improvements in technology, reduce barriers to entry Decentralize Port Restrict PPA to planning and establish Increase efficiency of port operations, Policy Reform System a system of independent port improve maintenance of authorities and municipal ports infrastructure, encourage investment in new facilities Establish Commodity Develop commodity exchanges to Increase the income of farmers Technical Assistance Exchange provide marketing and financial support for local farmers Improve post- harvest Develop extension services for Reduce losses and improve quality for Technical Assistance processing, packaging cooperatives and farmers groups agricultural products shipped domestically and internationally 86 Chapter 11 INTER-ISLAND SHIPPING PROJECTS Various studies have been carried out proposing investments in port facilities to allow for more efficient cargo handling. However, they fail to address the problem of the production system not being able to provide the concentrated volumes required to make these investments viable. Efforts to improve the efficiency and market power of the farmers through government efforts to promote cooperatives, introduce floor prices for basic commodities, adjust import duties from substitute goods, invest in downstream processing and introduce new crops have either met with limited success or completely failed. Rather than restructuring the current system, it is proposed to introduce a parallel system intended solely to serve the movement of cargo between Mindanao and Manila/Cebu. This system would be designed for the transport of two types of cargo, bulk and unitized. BULKSYSTEM At present, grains are transported from Mindanao as break-bulk or containerized cargo. They absorb the higher cost of this form of transport because an efficient alternative is not available. The production systems for grain are small-scale and do not allow for the consolidation of shipments to provide the larger consignments required for bulk shipping. There are bulk ships available for charter, but there are relatively few port facilities equipped for the handling of bulk cargo efficiently. The time spent in port loading and unloading these vessels using ship's gear and arrastre gangs adds significantly to the cost of ocean freight. This problem is being addressed by some of the larger food processing companies. They are consolidating corn shipments from Mindanao and shipping them to bulk-handling facilities along the Pasig River. Given that large volumes are required to justify the investment in a public bulk handling facility (+1 million tons per year), it is proposed to utilize the existing private bulk-handling facilities in Luzon, e.g. North Harbor. The development of an effective bulk shipping system requires a complete logistics solution from farm to market. The proposed project for bulk cargoes would have two components: · First, a consolidation activity at Davao, Cagayan D'Oro and General Santos, to be operated by the private sector under a long term supply contract negotiated by the representatives of the Mindanao agricultural community. · Second, a bulk loading facility at each port developed either through a joint venture with the large food processing companies or construction of a silo and conveyor system using an existing private or other non-PPA port facility. 87 The inter-island shipping is the easiest component to develop, as it would utilize chartered bulk carriers, which are readily available. A third party logistics provider (3PL) would procure, consolidate and also provide storage, inventory control and sales. The scale of this activity should be sufficient to develop full shiploads. The vessels would be chartered by either the consolidator or the operator of the bulk facility. Although these are relatively small bulkers, their size is well-suited to the typical consignment size. For bulk carriers in the range of 5000 DWT with 4-6 holds, this would require consignments of homogenous cargo to the order of 1000 tons. This could not be done through direct loading. Therefore, a terminal would be required equipped with loaders (portable or fixed) having an average handling rate of 100-150 tons per hour and multiple silos with 1000-2500 ton capacity. This could be accomplished through portable conveyors and simple grain silos but the terminal should be capable of expansion at relatively little cost. The terminal should be privately operated and independent of PPA just as the vessels would operate independent of Marina tariff regulations. The individual farms produce surpluses to the order of tons and consolidators operate at the 10 to 100 ton level. Therefore a new consolidation activity would be required to develop 1000 ton consignments. The grain would be procured from the existing consolidators. This would require the hiring or purchase of a large number of trucks. Assuming an initial level of operation of 10,000 tons per week during peak season, this would imply about 200 trucks (25 tons per truck, 3 days per round trip, 2 trips per week). The grain would be purchased on an FOB basis for the Mindanao loading port or on a CIF basis for delivery to Manila. Over time, the procurement activity could be extended inland to rural areas for purchases ex-market. The implementation of this program would begin with an analysis of the market and development of a strategy for capturing a significant market share. This would be followed by an investigation of the most efficient mechanism for collection and consolidation and the least cost configuration for loading facilities in Cagayan D'Oro. It would then be necessary to determine whether a 3PL could profitably develop this facility or whether it would be necessary to use public funds. Finally, it would be necessary to attract a private 3PL provider to undertake the activity. It is assumed that only a single provider would be granted the franchise/terminal lease, but that there would be substantial competition from the existing shipping lines and from the large food companies that have already initiated bulk shipments from Mindanao. CONTAINER SYSTEMS Container cargoes are shipped on old pure container vessels, passenger-cum-cargo RoRo vessels, and general cargo vessels. None of these vessels operate efficiently as container carriers. The container vessels are self-sustaining with extremely low handling rates. The passenger cum cargo RoRo vessels are newer but are designed for and operated as passenger services. The general cargo vessels carry containers on the deck and have relatively long turnaround times in port. In order to develop an efficient container operation, it is necessary to have vessels designed to carry containers and to achieve fast turnaround in port. Two alternatives have been considered, a pure cargo RoRo service and an efficient LoLo service. The RoRo service would transport containers on trailers between dedicated terminals. The terminals would consist of a berth designed for the RoRo vessel ramps (either straight stern or side slewing stern) and a parking lot with sufficient space for unloading and loading a full vessel. 88 There would be no need for storage, customs or other fixed facilities. Assuming a 15-knot vessel and an average berth time of three hours and with an additional one hour for port entry, the round trip voyage time for Cagayan D'Oro - Manila would be 2 ˝ - 3 days while Davao - Manila would be 5 days. In order to provide efficient logistics, the terminals in Luzon and the Visayas would have to be located away from the existing ports and near to major highways allowing for easy access to the region. The LoLo service would use cellular container vessels to transport the boxes between dedicated berths equipped with mobile cranes. The facility would require a single berth and 2 hectare yard with space for 1000 TEU. The equipment would include two mobile cranes and yard equipment (3-4 reach-stackers or top loaders). Assuming that the vessels carry 250 TEU and that two mobile cranes can handle 35 moves per hour, the round trip voyage time would be 3 ˝ - 4 days. The design of an efficient transport system requires consideration of the trade-off between vessel size and frequency of movements. Larger vessels are less costly per TEU-kilometer but have slightly longer voyage times because of the additional time in port. More importantly, they will have an impact on frequency if their capacity is large relative to volume. For example, a 75,000 TEU inter-island trade (total loaded boxes in both directions) could be served by three 150 TEU, two 250 TEU vessels62 or one 500 TEU vessels operating 2 round trips per week (assuming a loaded:empty ratio of 4:1). The first would provide a daily service, the second an every other day service, and the third a twice weekly service. While the third would be less expensive to operate, the first would provide savings to the users from more frequent sailings. These savings include reduced inventory requirements, less loss on perishable items and tighter order cycle times. In addition, the smaller vessels offer the potential of greater competition by lowering the barriers to entry. A container service offers the advantage that the operation of the terminals and the vessels would be separate thus increasing the potential for competition. At the same time, it requires a separate investment in the container terminal and equipment. The shipping lines would provide the containers so their capital cost would include the cost of the boxes. Small size container vessels are available both second hand and special purpose new-buildings. The latter are more expensive but more efficient. They include hatchless vessels that require less time in port. Used Ro-Ro vessels cost to the order of $2.5-$3 million for 5000 GRT and $4-$6 million for 8000 GRT. The market for RoRo vessels is generally split between car-carriers and large cargo vessels operating on ocean routes, and ferries and cargo ships operating on short sea routes. The majority of the pure RoRo vessels constructed over the last three decades are in this size range (Figure 11.1). More recently, the average size of new-buildings has been in the range of 10,000 DWT (Figure 11.2) The choice between these two systems would be based on four considerations: 62 Approximately 8.5 lane meters per TEU 89 · The average cost per TEU at different traffic volumes · The availability of suitable sites for terminals · The ability to operate outside of the PPA's jurisdiction and MARINA's regulation · The logistics at either end of the voyage. A RoRo system involves vessels that are 2-3 times as expensive as container vessels. However, they are able to make between 50 percent and 75 percent more Figure 11.1 voyages per year. The RoRo system requires containers to be transported on trailers. Depending on the logistics requirements, these trailers would be owned either by the vessel or the trucking companies. If the former, the boxes would have to be placed on trailers prior to loading which would require yard equipment and additional marshalling area. The same would apply for the unloading operation. There is also the capital cost for the trailers while on board the vessel, which is 2-3 times that of the container. On the Figure 11.2 other hand, the land required for the terminals is about the same. The RoRo system requires special tractors to move the trailers on and off the vessel whereas the LoLo system requires mobile cranes and yard equipment. There would be more staff required at the container facility because there is more equipment to operate and additional workers are needed to guide the movement of the boxes. Both systems would require berths located in a sheltered area, but the berth for the RoRo system would be less costly. A summary of the relative cost advantages of the two systems is shown in the following Table 11.1 90 Table 11.1: Relative Advantage of the Different Systems Factor RoRo LoLo Vessel Cost ++ Berth and Depth ++ Sensitivity to Wind, Waves + Size of Terminal Yard Equipment + Terminal Labor ++ Voyage Time + Voyage Reliability + + Better, ++ Much Better In order for either of these systems to operate independently of the PPA and MARINA, they must be designated as a completely separate system serving a specific market. The existing domestic shipping lines would no doubt protest that they should be allowed to operate with the same freedom. Therefore, it is important that this service be distinct and that existing vessel operators be allowed to participate on a competitive basis. The pure cargo RoRo operation represents a unique offering and, to the extent that it is integrated with a trucking service, it might be presented as an extension of that trucking operation. It would be more difficult to claim that the LoLo operation is unique since there is already a substantial container service provided by the existing shipping lines. The RoRo system, if operated efficiently, will cost less than the existing inefficient, regulated system and will provide a better quality of service. However, the competitive advantage of the RoRo system is dependent on the continuation of the market distortions created by the government involvement in the port and shipping sector. Under an open and competitive system, and with better management, the existing shipping lines could compete with the RoRo service. If these operators invested in more appropriate vessels and used better terminals, they would have a cost advantage over the RoRo system The selection and design of an appropriate container transport system should be based on logistics analysis to determine the system that offers the best combination of low cost and flexibility for the origin-destination movements. The Ro-Ro system has a higher capital cost per TEU capacity but offers the potential of higher productivity assuming that the movement of the cargo can be integrated from origin to destination. A Ro-Ro service could most efficiently be provided as an integrated service. The vessel operator would also provide the terminal in Mindanao and possibly in Cebu and Luzon. The cost of these terminals is relatively small. They should be designed to service the needs of specific vessels. In order to justify the creation of an integrated service, it would be necessary to obtain a contract for a specific volume of cargo or to ensure that there would be adequate traffic to justify the capital investments. It is assumed that the trailers would be provided by the shippers if there is 91 adequate backhaul cargo. Otherwise, the shipping line would provide lowboy trailers for moving the cargo on and off the vessel. The design of an efficient system must address the various questions raised. This implies an analysis not only of the relative costs for the vessels and terminals but also of the total costs to the users. It also implies a policy analysis to determine which system will be more effective at encouraging competition and which will offer the best chance of circumventing the monopoly power of the PPA and the oligarchy of existing shipping lines. 92 ANNEXES ANNEX A: TRADE STATISTICS Table A.1. FOREIGN TRADE, 1971 to 2000 (F.O.B. value in million U.S. dollars) Exports Imports Average Average Balance of Percent Exchange Percent Exchange Trade Total to Total Rate 1 to Total Rate 2 Year Trade Value Trade (P/U.S.$) Value Trade (P/U.S.$) 1971 2,450.08 1,189.25 48.54 6.399 1,260.83 51.46 6.481 (71.58) 1972 2,502.03 1,168.43 46.70 6.580 1,333.60 53.30 6.721 (165.17) 1973 3,433.81 1,837.19 53.50 6.721 1,596.62 46.50 6.806 240.57 1974 5,868.25 2,724.99 46.44 6.754 3,143.26 53.56 6.838 (418.27) 1975 5,753.65 2,294.47 39.88 7.212 3,459.18 60.12 7.303 (1,164.71) 1976 6,207.16 2,573.68 41.46 7.403 3,633.48 58.54 7.496 (1,059.80) 1977 7,065.65 3,150.89 44.59 7.366 3,914.76 55.41 7.458 (763.87) 1978 8,157.07 3,424.87 41.99 7.329 4,732.20 58.01 7.421 (1,307.33) 1979 10,742.92 4,601.19 42.83 7.341 6,141.73 57.17 7.433 (1,540.54) 1980 13,514.70 5,787.79 42.83 7.474 7,726.91 57.17 7.568 (1,939.12) 1981 13,666.08 5,720.40 41.86 7.860 7,945.68 58.14 7.959 (2,225.28) 1982 12,687.51 5,020.59 39.57 8.497 7,666.92 60.43 8.604 (2,646.33) 1983 12,491.92 5,005.29 40.07 11.072 7,486.63 59.93 11.193 (2,481.34) 1984 11,460.26 5,390.65 47.04 16.582 6,069.61 52.96 16.848 (678.96) 1985 9,739.62 4,628.95 47.53 18.586 5,110.67 52.47 18.859 (481.72) 1986 9,885.38 4,841.78 48.98 20.356 5,043.60 51.02 20.403 (201.82) 1987 12,457.21 5,720.24 45.92 20.556 6,736.97 54.08 20.564 (1,016.73) 1988 15,233.57 7,074.19 46.44 21.065 8,159.38 53.56 21.065 (1,085.19) 1989 18,239.53 7,820.71 42.88 21.703 10,418.82 57.12 21.738 (2,598.11) 1990 20,392.19 8,186.03 40.14 24.200 12,206.16 59.86 24.375 (4,020.13) 1991 20,890.88 8,839.51 42.31 27.516 12,051.36 57.69 28.003 (3,211.85) 1992 24,343.24 9,824.31 40.36 25.310 14,518.93 59.64 25.901 (4,694.62) 1993 28,972.21 11,374.81 39.26 26.732 17,597.40 60.74 27.250 (6,222.59) 1994 34,815.46 13,482.90 38.73 26.271 21,332.57 61.27 26.625 (7,849.67) 1995 43,984.81 17,447.19 39.67 25.605 26,537.63 60.33 25.791 (9,090.44) 1996 52,969.48 20,542.55 38.78 26.220 32,426.93 61.22 26.271 (11,884.38) 1997 61,161.52 25,227.70 41.25 29.205 35,933.82 58.75 29.647 (10,706.12) 1998 59,156.24 29,496.35 49.86 40.276 29,659.89 50.14 40.922 (163.54) 1999 65,779.35 35,036.89 53.26 38.781 30,742.46 46.74 39.369 4,294.43 2000 69,465.65 38,078.25 54.82 43.710 31,387.40 45.18 44.480 6,690.85 1- BSP buying rate. - BSP selling rate. 2 Notes: 1. Details may not add up to totals dueto rounding. 2. Exports include domestic exports and re-exports 3. Starting August 4, 1992, the average exchange rate refers to the weighted average rate under the Philippine Dealing System (PDS). Sources: National Statistics Office and the Bangko Sentral ng Pilipinas. 89 Figure A.1 Value of Trade 1970-2000 40,000 35,000 30,000 25,000 US$ 20,000 Million 15,000 10,000 5,000 0 1970 1975 1980 1985 1990 1995 2000 Exports Imports Table A.2. Minimum Access Volumes Committed to the WTO (1995 to 2005) PRODUCT UNIT 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Poultry fresh/ chilled/ frozen MT 7.3 15.2 16.2 16.7 17.7 18.8 19.8 20.9 21.9 23.0 10.4 (000) Potatoes fresh/ chilled MT 465 965 1,035 1,102 1,171 1,240 1,309 1,378 1,447 1,516 772 Coffee, roasted/ not decaff/ not MT 5 927 993 1,060 1,126 1,192 1,258 1,324 1,391 1,457 745 Husks & skin... Maize, other than seed MT 65.1 135.0 144.6 154.3 164.0 173.6 183.2 192.8 202.5 212.1 108.5 (000) Rice MT 29.9 61.5 65.1 97.1 112 119.5 134.4 164.3 194.1 224.0 142.2 (000) Sugar MT (00) 19.2 39.8 42.7 45.5 48.4 51.2 54.1 56.9 59.8 62.6 32.0 Source: Department of Agriculture, AGILE Study Report, June 1999 90 Table A.3. In-Quota Tariff for Sensitive Agricultural Products: Average by Product Group, 1995 to 2000 HS INITIAL COMMITMENTS FINAL RATE APPLIED TARIFF RATE RATE PRODUCT GROUP HEADING 1995 1996 1997 1998 1999 2000 2004 0102.9 Other live bovine animals 30 30 30 30 30 30 40 0103.9 Live swine 30 30 30 30 30 30 40 0104.2 Other live goats 30 30 30 30 30 30 40 0105 Live poultry 40 40 40 40 40 40 40 0201 Beef fresh/chilled ** 30 30 30 30 20 10 30 0202 Beef frozen ** 30 30 30 30 20 10 30 0203 Pork fresh/chilled/frozen 30 30 30 30 30 30 30 0204.5 Goat meat fresh/chilled/frozen 30 30 30 30 30 30 40 0207 Poultry fresh/chilled/frozen 50 46.47 42.35 42.35 42.35 42.35 40 0210 Meat & edible meat offal, salted... ni 30 30 30 30 30 Ni 0701.9 Potatoes fresh/chilled 50 50 45 45 45 45 40 0703.1 & 2 Onions, shallots, and garlic ni 30 30 30 30 30 Ni 0704.9 Cabbages, kohlrabi, kale...fresh/chilled ni 30 30 30 30 30 Ni 0714.1 & 2 Cassava & sweet potatoes fresh/chilled* ni Ni 0901 Coffee, roasted/not decaff/not husks & skin 50 50 45 38 38 38 40 1001.9 Other wheat and meslin* ni Ni 1002 Rye* ni Ni 1003 Barley* ni Ni 1004 Oats* ni Ni 1005.9 Maize, other than seed 35 35 35 35 35 35 35 1006 Rice 50 50 50 50 50 50 50 1007 Grain sorghum* ni Ni 1008.9 Other cereals* ni Ni 1103.1 Cereals groats, meal and pellets, except wheat ni Ni 1104.2 Other worked grains* ni Ni 1601 Sausages and similar products,**... ni 30 30 60 50 10 Ni 1602 Other prepared or preserved meat,... ni 30 30 32 31.33 30.67 Ni 1701 Sugar 50 50 50 50 50 50 50 2101.1 Solluble coffee ni 30 30 30 30 30 Ni 2302.1 Bran,... & other residues... of maize* ni Ni 2306.7 Oil-cake & other solid residues... of maize* ni Ni 2309.9 Other prep. of a kind used in animal ni Ni feeding* Simple Average 38.21 35.57 34.87 34.77 33.23 30.2 38.93 No in- and out-quota rates are provided but only a single tariff for all imports for all imports for a given year; ni - not included in Sect 1-B of Scheduled LXXV Source: Section 1-B, Phil. Schedule LXXV, GATT-UR; EO No. 313, 29 March 1996; EO No. 465, Jan. 1998 91 ANNEX B: FERTILIZER STATISTICS Table B.1 Fertilizer Use in Philippines and Northern Mindanao ITEM AREA % AREA APPLICATION PLANTED APPLIED Bags/Hectare PHILIPPINES 1990 3,441,500 79% 3.90 1991 3,487,797 82% 3.62 1992 3,287,393 79% 3.91 1993 3,346,255 82% 4.07 1994 3,735,303 81% 4.07 1995 3,814,081 84% 3.97 1996 4,009,489 86% 4.35 1997 3,390,637 99% 4.44 1998 3,301,039 81% 4.36 1999 4,090,493 84% 4.32 2000 4,149,509 71% 4.43 NORTHERN MINDANAO 1990 93,510 77% 4.29 1991 108,760 90% 3.68 1992 93,877 80% 4.26 1993 96,763 77% 4.72 1994 102,675 96% 4.54 1995 99,677 96% 4.70 1996 94,070 97% 5.40 1997 85,030 96% 5.73 1998 94,515 88% 5.78 1999 97,047 89% 5.49 2000 97,371 68% 5.32 92 Table B.2: Production, Importation And Consumption Of Fertilizers, 1991-2000 Plant Nutrients Fertilizer Products (`000 nutrient tons) (`000 metric tons) Year Phos- Potas- Total Nitrogen phorous sium Total Urea Ammosul NP & P NPK Potash Others Production 1991 432.0 152.6 190.1 89.3 1,007.8 - - 363.0 636.2 7.6 1.0 1992 394.9 142.4 183.2 69.3 930.0 - - 429.2 494.1 6.7 ... 1993 418.2 157.5 186.1 74.6 1,035.5 - - 431.6 597.3 6.6 ... 1994 451.0 168.9 205.1 77.0 1,098.9 - - 427.3 665.3 6.3 ... 1995 575.8 215.3 264.4 96.1 1,389.7 - 19.5 502.2 861.0 7.0 ... 1996 637.9 255.7 273.4 108.8 1,607.3 - 185.6 489.5 917.5 9.0 5.7 1997 522.7 213.0 217.1 92.6 1,321.9 - 172.7 357.3 777.0 8.6 6.3 1998 464.4 184.6 192.7 87.1 1,180.6 - 113.2 320.4 731.6 14.5 0.9 1999 445.7 186.2 180.8 78.8 1,163.4 - 215.3 388.8 542.6 15.1 1.6 2000 400.8 168.2 150.1 82.5 1,064.9 - 176.3 269.4 597.9 15.4 5.9 IMPORTATION 1991 438.0 300.6 29.5 107.9 1,102.2 436.0 410.8 64.2 5.7 178.6 6.9 1992 452.7 357.7 32.3 62.7 1,163.3 567.4 389.0 72.9 7.4 114.2 12.4 1993 473.4 363.5 43.7 66.2 1,099.2 638.1 239.1 93.7 - 110.4 17.9 1994 466.0 390.1 38.7 37.2 1,130.7 672.0 253.5 99.3 2.0 59.9 44.0 1995 528.4 383.5 37.4 107.5 1,237.5 651.9 282.1 84.7 - 179.2 39.6 1996 557.5 368.2 66.0 123.3 1,190.6 660.1 166.3 143.4 - 205.5 15.3 1997 545.5 369.6 39.1 136.8 1,235.6 640.5 240.9 87.5 6.2 226.3 34.2 1998 330.5 293.6 15.3 21.6 786.7 550.7 162.8 33.2 - 35.9 4.1 1999 545.8 381.9 51.4 112.5 1,222.4 682.0 217.5 110.0 5.0 186.2 21.7 2000 548.0 364.5 79.3 104.3 1,259.9 577.7 294.3 192.0 16.0 172.3 7.6 Note: Details may not add up to totals due to rounding. Source: Fertilizer and Pesticide Authority. 93 Table B.2 (Cont) Year Phos- Potas- Total Nitrogen phorous sium Total Urea Ammosul NP & P NPK Potash Others Consumption 1991 437.5 298.7 71.3 67.5 1,125.1 395.0 288.7 175.9 188.1 68.9 8.5 1992 504.3 362.3 73.2 68.8 1,261.3 540.8 252.4 188.5 202.8 67.3 9.5 1993 565.6 401.2 96.5 67.9 1,387.3 602.2 241.0 241.8 235.0 57.0 10.3 1994 601.8 402.6 106.6 92.6 1,474.5 580.2 217.6 250.7 340.6 74.0 11.4 1995 595.0 394.7 129.1 71.2 1,469.4 544.3 182.9 310.4 394.7 25.4 11.7 1996 665.1 426.0 145.7 93.4 1,635.1 568.7 224.5 333.5 447.5 50.0 10.9 1997 809.2 548.5 148.3 112.4 2,032.4 742.3 413.3 324.7 453.9 80.7 17.5 1998 628.4 408.8 121.1 98.5 1,544.9 577.0 214.2 285.1 373.1 77.2 13.4 1999 744.3 480.6 142.8 120.9 1,864.0 639.5 360.4 324.0 413.2 105.4 21.6 2000 733.2 488.0 124.1 121.1 1,840.1 667.8 366.8 261.4 423.9 103.3 16.9 94 Table B.3 Type of Fertilizer Used in Philippines and Northern Mindanao ITEM TOTAL QUANTITY APPLIED (Bags of 50 kgs.) Urea Ammosul Ammophos Complete Others PHILIPPINES 1990 50% 7% 14% 28% 2% 1991 48% 11% 12% 29% 0% 1992 48% 11% 13% 28% 0% 1993 50% 9% 12% 29% 1994 48% 10% 14% 27% 1995 47% 12% 12% 29% 1996 45% 11% 13% 30% 1% 1997 45% 10% 13% 30% 2% 1998 48% 10% 13% 28% 1% 1999 46% 10% 12% 31% 1% 2000 45% 9% 12% 32% 1% NORTHERN MINDANAO 1990 49% 18% 11% 19% 3% 1991 39% 21% 19% 18% 4% 1992 40% 25% 21% 15% 1993 40% 25% 17% 18% 1994 42% 16% 23% 19% 1995 42% 18% 22% 18% 1996 37% 16% 20% 17% 10% 1997 37% 15% 15% 24% 8% 1998 36% 13% 17% 25% 9% 1999 34% 18% 19% 23% 6% 2000 36% 19% 19% 23% 3% Table B.4: Fertilizer Use for Cultivation of Corn Area Area All Area Area All Planted Applied Fertilizer Planted Applied Fertilizer All Philippines Northern Mindanao 1990 3,955,180 60% 3.73 268,560 85% 4.62 1991 3,725,965 57% 3.81 280,128 74% 4.79 1992 3,481,257 57% 3.78 234,294 74% 4.36 1993 3,220,601 56% 4.06 321,931 78% 4.34 1994 3,089,675 63% 3.79 331,137 81% 4.22 1995 2,708,803 64% 3.71 299,877 84% 4.83 1996 2,781,619 72% 3.95 318,847 89% 5.80 1997 2,760,533 68% 4.02 304,548 92% 6.03 1998 2,421,370 70% 4.02 259,265 90% 6.41 1999 2,687,255 72% 4.16 256,754 90% 6.28 2000 2,530,337 52% 4.45 251,340 68% 6.49 95 Table B.5 FREIGHT RATES FOR FERTILIZER As of March 1, 2002 10 FOOTER CDO -MLA CDO - BAC CDO - CDO - DGTE CDO - ILO BATANGAS Per CBM (Inclusive Of VAT) 850.6 609.42 766.18 422.76 594 Per CBM (Exclusive Of VAT) 773.27 554.02 696.53 384.33 540 Freight 7,655.38 5,484.80 6,895.65 3,804.77 5,346.00 Stamp 10 10 10 10 10 Wharfage (CDO) 34 34 34 34 34 Wharfage (Destination) 34 34 34 34 34 Handling (CDO) 298.1 298.1 298.1 298.1 298.1 Handling (Destination) 411.4 311.85 400.7 315.7 331.54 Weighing 22 22 22 22 22 Trucking (CDO) 1,201.10 1,201.10 1,201.10 1,201.10 1,201.10 Trucking (Destination) 2,480.00 1,346.00 2,530.00 950 1,425.00 Door To Door 12,145.98 8,741.85 11,425.55 6,669.67 8,701.74 Door To Pier 9,665.98 7,395.85 8,895.55 5,719.67 7,276.74 Pier To Door 10,944.88 7,540.75 10,224.45 5,468.57 7,500.64 Pier To Pier 8,464.88 6,194.75 7,694.45 4,518.57 6,075.64 Pier To Pier Origin Charges 8,019.48 5,848.90 7,259.75 4,168.87 5,710.10 20 FOOTER CDO -MLA CDO - BAC CDO - CDO - DGTE CDO - ILO BATANGAS Per CBM (Inclusive Of VAT) 850.6 609.42 766.18 422.76 594 Per CBM (Exclusive Of VAT) 773.27 554.02 696.53 384.33 540 Freight 15,310.74 10,969.59 13,791.29 7,609.54 10,692.00 Stamp 10 10 10 10 10 Wharfage (CDO) 69 69 69 69 69 Wharfage (Destination) 69 69 69 69 69 Handling (CDO) 596.75 596.75 596.75 596.75 596.75 Handling (Destination) 823.35 623.7 801.39 631.4 663.08 Weighing 33 33 33 33 33 Trucking (CDO) 1,713.00 1,713.00 1,713.00 1,713.00 1,713.00 Trucking (Destination) 3,540.00 1,920.00 4,680.01 1,355.00 2,035.00 Door To Door 22,164.84 16,004.04 21,763.44 12,086.69 15,880.83 Door To Pier 18,624.84 14,084.04 17,083.43 10,731.69 13,845.83 Pier To Door 20,451.84 14,291.04 20,050.44 10,373.69 14,167.83 Pier To Pier 16,911.84 12,371.04 15,370.43 9,018.69 12,132.83 Pier To Pier Origin Charges 16,809.84 12,269.04 15,268.43 8,916.69 12,030.83 Note: In Bags/Barrel 96 ANNEX C: FOODGRAIN Figure C1: Figure C.2: Area Planted in Irrigated Paddy 2000 Area Planted in Rainfed Paddy 2000 Carga Carga ARMM ARMM Central Mindanao Central Mindanao Southern Mindanao Southern Mindanao Northern Mindanao Northern Mindanao Western Mindanao Western Mindanao Eastern Visayas Eastern Visayas Central Visayas Central Visayas Western Visayas Western Visayas Bicol Bicol Southern Tagalog Southern Tagalog Cenral Luzon Cenral Luzon Cagayan Valley Cagayan Valley Ilicos Region Ilicos Region CAR CAR 0 100 200 300 400 500 0 50 100 150 200 250 300 Hectares Hectares Thousands Thousands Figure C.3: Figure C4: Area Planted in White Corn 2000 Area Planted in Yellow Corn 2000 Carga Carga ARMM ARMM Central Mindanao Central Mindanao Southern Mindanao Southern Mindanao Northern Mindanao Northern Mindanao Western Mindanao Western Mindanao Eastern Visayas Eastern Visayas Central Visayas Central Visayas Western Visayas Western Visayas Bicol Bicol Southern Tagalog Southern Tagalog Cenral Luzon Cenral Luzon Cagayan Valley Cagayan Valley Ilicos Region Ilicos Region CAR CAR 0 50 100 150 200 250 300 0 50 100 150 200 250 300 350 Hectares Hectares Thousands Thousands Figure C.5 Figure C.6 Production of Irrigated Rice Yield for Irrigated Rice Mindanao Provinces Mindanao Provinces 800 4000 Western 700 Western 600 3500 Northern Northern tons 500 Southern 400 Southern 3000 metric Thousands 300 kg/hectare Central 200 Central 2500 100 ARM ARM 0 2000 1990 1992 1994 1996 1998 2000 1990 1992 1994 1996 1998 2000 97 Figure C.8: Figure :C.7 Yield for Yellow Corn Production of Yellow Corn Mindanao Provinces Mindanao Provinces 3500 Western 600 3000 Western 500 Northern 2500 400 Northern Southern tons 2000 300 Southern 1500 kg/hectare Central metric Thousands 200 Central 1000 ARM 100 ARM 500 0 1990 1992 1994 1996 1998 2000 1990 1992 1994 1996 1998 2000 Figure C.9 Figure C.10 Production of Rainfed Rice Yield for Rainfed Rice Mindanao Provinces Mindanao Provinces 250 3500 Western Western 200 3000 Northern Northern tons 150 2500 Southern Southern 2000 metric Thousands 100 kg/hectare Central Central 50 1500 ARM ARM 0 1000 1990 1992 1994 1996 1998 2000 1990 1992 1994 1996 1998 2000 Figure C.11: Figure C.12 Production of White Corn Yield for White Corn Mindanao Provinces Mindanao Provinces 1000 2000 Western Western 1800 800 1600 Northern Northern tons 600 1400 Southern Southern 400 1200 metric Thousands kg/hectare Central Central 1000 200 800 ARM ARM 0 600 1990 1992 1994 1996 1998 2000 1990 1992 1994 1996 1998 2000 98 Table C.1: Rice Production by Region (tons) 1999 2000 Region Production Surplus (Deficit) Production Surplus(Deficit) Philippines 8,053,117 (676,203) 7,661,307 (783,056) Metro Manila - (855,131) - (938,950) CAR 143,891 (31,674) 166,282 (14,907) Ilocos Region 703,227 116,499 783,129 189,811 Cagayan Valley 1,110,726 658,171 1,160,339 704,108 Central Luzon 1,197,725 235,370 1,227,469 221,424 Southern Tagalog 784,861 (382,682) 784,535 (529,331) Bicol 468,161 (133,297) 436,990 (159,192) Western Visayas 995,623 (136,281) 1,045,419 163,532 Central Visayas 135,437 (209,373) 139,875 (226,148) Eastern Visayas 329,158 (123,130) 336,412 (120,350) Western Mindanao 211,995 1,590 291,152 (9,153) Northern Mindanao 215,804 (68,552) 218,582 (40,479) Southern Mindanao 442,546 (91,350) 461,175 (129,037) Central Mindanao 516,090 215,219 576,422 (271,352) ARMM 223,927 69,890 223,093 (108,511) CARAGA 182,136 (74,253) 200,243 (60,226) Source: Bureau of Agricultural Statistics Table C.2: Rice Planting and Production Area Quantity Value Yield 000s ha %Growth 000mt %Growth Pmillion %Growth (mt/ha) 1990 3,318 3.2 9,319 3.8 43,988 -0.6 2.8 1991 3,425 -6.62 9,673 -5.63 43,723 -1.66 2.8 1992 3,198 2.64 9,129 3.34 42,996 16.73 2.9 1993 3,282 11.24 9,434 11.7 50,190 17.79 2.9 1994 3,651 2.94 10,538 0.02 59,119 31.4 2.9 1995 3,759 5.12 10,541 7.05 77,685 17.51 2.8 1996 3,951 -2.75 11,284 -0.13 91,284 -3.59 2.9 1997 3,842 -17.5 11,269 -24.09 88,011 -21.46 2.9 1998 3,170 26.18 8,555 37.78 69,123 33.34 2.7 1999 3,999 0.96 11,787 5.11 92,171 14.52 2.9 2000 4,038 3.2 12389 3.8 105,558 -0.6 3.1 99 Table C.3: Rice Imports, 1993-2000 Country of Origin NFA - Volume NFA -Value Private Year (MT) (US$ Million) Imports 1993 Thailand 209,994 38.24 1994 NO IMPORTATION 1995 257,263 76 Australia 4,310 DONATION Thailand 2 169,043 50 Vietnam 60,680 18 India 23,229. 7 1996 892,943 279 Thailand 157,100 1234 Vietnam 364,179 53 India 159,572 23 Pakistan 68,650 41 Myanmar 121,920 26 U.S.A. (PL 480) 21,521 11 1997 720,210 231 Thailand 212,484 64 Vietnam 335,445 101 China 159,546 62 U.S.A. (PL 480) 12,734 4 1998 2,136,161 624 809 Vietnam 578,752 176 Thailand 211,097 63 China 2 1,317,411 380 India 28,900 7 1999 781,716 223 52,206 Vietnam 474,540 139 Thailand 224,901 9 China 53,400 66 India 28,875 8 2000 557,243 107 19,788 Vietnam 313,261 57 183,061 39 China 25,500 5 U.S. Gulf 35,420 7 100 Table C.4: Production of Yellow Corn in Philippines Area ('000 has.) Quantity ('000 mt) Value 000 ha % Growth 000 m.t. % Growth P million % Growth 1990 3,820 -6.02 4,854 -4.1 19,513 -82.93 1991 3,590 -7.19 4,655 -0.78 3,331 551.62 1992 3,331 -5.47 4,619 3.88 21,708 -0.54 1993 3,149 -4.56 4,798 -5.81 21,591 5.7 1994 3,006 -10.43 4,519 -8.65 22,822 13.97 1995 2,692 1.61 4,129 0.55 26,010 4.21 1996 2,736 -0.36 4,151 4.36 27,104 2.62 1997 2,726 -13.64 4,332 -11.75 27,814 -22.75 1998 2,354 94.74 3,823 -30.89 21,486 22.05 1999 4,585 -45.24 2,642 -9.6 26,224 13.53 2000 2,510 0.34 2,389 31.57 29,773 50.75 Table C.5: Northern Mindanao Yellow and White Corn Production, 2001 Region 10-Northern Mindanao, 2001 NORTHERN BUKIDNON CAMIGUIN MISAMIS MISAMIS MINDANAO OCCIDENTAL ORIENTAL Production (MT) 505,938 434,540 504 20,753 50,141 White 149,172 91,755 490 20,715 36,212 Yellow 356,766 342,785 14 38 13,929 Area Harvested (Ha) 230,888 155,618 474 24,926 49,870 White 120,845 50,862 463 24,900 Yellow 110,043 104,756 11 26 Yield/ Hectare 4.47 5.07 2.33 2.29 White 1.23 1.80 1.06 0.83 Yellow 3.24 3.27 1.27 1.46 101 Table C.6: Philippine Corn Imports by Country of Origin, 1990-2000 Imports NFA Private Volume Value Volume Value Year Country of Origin (metric tons) (mn U.S.$) (metric tons) (mn U.S.$) 1990 69,099 11.02 a 284,828 44.71 Indonesia 10,069 1.59 U.S.A. 32,686 4.81 Thailand 42,782 6.89 230,868 36.65 China 16,248 2.53 21,274 3.25 1991- 1994 No Imports 1995 206,585 34.77 U.S.A. 156,410 27.06 Argentina 50,175 7.71 1996 558,131 107.64 a U.S.A. 429,706 80.96 Argentina 128,425 26.68 1997 174,895 28.37 a 159,166 - U.S.A. 53,397 9.74 55,000 China 121,498 18.63 104,166 1998 317,292 44.50 a 50,536 - U.S.A. 187,375 28.28 50,536 China 49,130 6.63 Argentina 80,787 9.59 1999 177,080 - China 50,000 Argentina 42,377 PNW 39,913 Gulf 44,790 2000 59,650 7.72 a 506,583 - Vietnam 53,750 6.99 280,771 China 5,900 0.73 100,057 PNW 125,755 Notes: 1. Details may not add up to totals due to rounding. 2. No corn exportation for CY 1990 to 2000. aCost and freight. Source: National Food Authority. 102 Table C.7 Freight Rates of Feeds, Bran and Corn in 10-footer Van from CDO As of March 2001 Table C.10 % Share to DoorCDO­ to Door Freight CDO-MLA CDO­BAC 10 footerBATANGAS CDO-DGTE CDO-ILO Freight CDO ­MLA CDO - BAC 6,922 4,962 CDO - 6,236 CDO ­ 3,440 CDO - ILO 4,837 Stamp 10 10 BATANGAS10 DGTE10 10 Wharfage (CDO) Freight 3463.03 34 62.74 60.35 34 57.05 34 61.44 34 Wharfage (Destination) Stamp 34 0.08 340.11 0.09 34 0.15 34 0.11 34 Handling (CDO) Wharfage (Cdo) 298 0.28 2980.39 298.10 0.3 0.51 298 0.39298 Handling (Destination) Wharfage (Destination) 411 0.28 3120.39 400.70 0.3 0.51 316 0.39331 Handling (Cdo) 2.45 2.61 4.47 3.43 Weighing 22 223.41 22 22 22 Handling (Destination) 3.39 3.51 4.73 3.81 Trucking (CDO) Weighing 1,201 0.18 1,2013.57 1,201 0.19 1,201 0.33 0.25 1,201 Trucking (Destination) Trucking (Cdo) 2,480 9.89 1,3460.25 13.74 2,530 10.51 18.01 950 13.8 1,425 Door to Door Trucking (Destination) 11,41320.42 8,21915.4 10,766 22.14 14.24 6,305 16.388,192 Door to Pier Door To Door 8,933 100 6,873100 8,236 100 5,355 100 100 6,767 Door To Pier 79.58 84.6 77.86 85.76 83.62 Pier To Door 90.11 86.26 89.49 81.99 86.2 Pier To Pier 69.69 70.86 67.34 67.75 69.82 Pier To Pier Origin Charges 66.03Table 66.91 C.8 63.54 62.5 65.62 Freight Rates of Feeds, Bran and Corn in 20-footer Van from CDO 20 Footer CDO -MLA CDO - BAC As of March 2001 CDO - CDO - CDO - ILO BATANGAS CDO- DGTE Freight CDO-MLA 69.08 CDO-BAC68.54BATANGAS 63.37CDO-DGTE 62.96 CDO-ILO 67.33 Freight Stamp 13,845 0.059,924.420.06 12,471.31 0.05 6,880.77 0.08 9,673.43 0.06 Stamp Wharfage (Cdo) 10 0.31 100.43 0.32 10 0.5710 0.43 10 Wharfage (CDO) Wharfage (Destination) 69 0.31 690.43 0.32 69 0.5769 0.43 69 Handling (Cdo) 2.69 2.74 3.76 Wharfage (Destination) 69 693.73 69 4.9469 69 Handling (Destination) 3.71 3.9 3.68 5.22 4.18 Handling (CDO) 597 597 597 Weighing 0.15 5970.21 0.15 0.27 0.21597 Handling (Destination) 823.35 801 631 Trucking (Cdo) 7.73 62410.7 7.87 14.17 10.79663 Weighing Trucking (Destination) 3315.97 33 12 21.5 33 11.21 33 12.81 33 Trucking (CDO) Door To Door 1,713 100 1,713100 1,713 100 1,713 100 100 1,713 Trucking (Destination) Door To Pier 3,54084.03 1,920 88 4,680 78.5 88.79 1,355 87.192,035 Door to Door Pier To Door 20,69992.27 14,95989.3 20,443 92.13 11,358 85.83 89.21 14,862 Door to Pier Pier To Pier 17,159 76.3 13,03977.3 15,763 70.63 10,003 74.62 76.4 12,827 PierPierDoor to To Pier Origin Charges18,98675.84 13,246 76.66 18,730 70.16 73.77 9,645 75.76 13,149 Pier to Pier 15,446 11,326 14,050 8,290 11,114 Pier to Pier Origin 14,554 10,633 13,180 7,589 10,382 Charges 103 ANNEX D : COMMERCIAL CROPS Table D.1 TOMATO: Volume of Production in Metric Tons by Region/Province, PHILIPPINES, 1990 - 2000 P REGION/PROVINCE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 P PHILIPPINES 183,961 177,231 165,420 138,490 150,637 155,822 162,640 166,353 132,987 145,365 148,106 146,031 N. MINDANAO 21,941 22,512 19,125 19,425 21,997 25,833 28,139 27,114 16,447 19,841 20,727 20,961 Bukidnon 16,859 17,854 16,110 15,977 18,445 22,395 24,357 23,756 14,298 16,915 18,213 18,615 Camiguin 55 69 68 73 76 81 87 73 71 66 28 18 Misamis Occidental 887 1,003 724 657 704 585 475 444 215 373 260 269 Misamis Oriental 4,140 3,586 2,223 2,718 2,772 2,772 3,220 2,841 1,863 2,487 2,226 2,059 CABBAGE: Volume of Production in Metric Tons by Region/Province, PHILIPPINES, 1990 - 2000 P REGION/PROVINCE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 P PHILIPPINES 117,204 170,942 150,783 155,095 151,340 129,991 98,073 95,864 85,840 87,477 87,579 89,536 N. MINDANAO 1,993 1,917 2,155 2,180 2,198 2,803 2,772 2,567 2,346 2,390 2,413 2,376 Bukidnon 1,462 1,313 1,510 1,532 1,542 2,146 2,247 1,966 1,784 1,744 1,782 1,788 Camiguin Misamis Occidental 125 128 137 137 136 137 161 159 124 154 142 128 Misamis Oriental 406 476 508 511 520 520 364 442 438 492 489 460 EGGPLANT: Volume of Production in Metric Tons by Region/Province, PHILIPPINES, 1990 - 2000 P REGION/PROVINCE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 P PHILIPPINES 112,704 104,044 110,449 111,670 123,465 130,701 157,601 195,029 163,838 159,748 166,146 169,817 N. MINDANAO 1,346 1,754 1,764 1,813 1,852 1,841 1,847 1,867 1,402 1,683 1,515 1,475 Bukidnon 167 315 320 351 354 363 363 386 322 381 397 397 Camiguin 45 79 86 100 104 100 101 79 81 68 45 38 Misamis Occidental 208 335 335 330 333 317 305 316 294 441 352 353 Misamis Oriental 926 1,025 1,023 1,032 1,061 1,061 1,078 1,086 705 793 721 687 104 Table D.2 TOMATO: Area Planted/Harvested in Hectares by Region/ Province, Philippines, Calendar Year 1990-2001 REGION/PROVINCE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 P PHILIPPINES 20,037 19,476 18,241 15,625 17,493 17,896 16,861 17,105 14,909 16,808 16,692 16,645 N. MINDANAO 1,413 1,490 1,226 1,246 1,400 1,622 1,732 1,725 1,047 1,425 1,555 1,544 Bukidnon 1,031 1,091 976 967 1,110 1,347 1,442 1,460 880 1,182 1,330 1,330 Camiguin 10 18 13 14 14 14 14 14 13 12 6 4 Misamis Occidental 104 128 87 82 90 75 60 60 29 46 36 37 Misamis Oriental 268 253 150 183 186 186 216 191 125 185 183 173 CABBAGE: Area Planted/Harvested in Hectares by Region/ Province, Philippines, Calendar Year 1990-2001 REGION/PROVINCE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 P PHILIPPINES 8,626 10,986 10,082 10,370 10,678 8,529 7,956 7,858 7,532 7,637 7,672 7,772 N. MINDANAO 280 271 291 283 278 348 374 355 315 320 322 320 Bukidnon 192 174 196 197 198 275 287 275 234 228 232 232 Camiguin Misamis Occidental 25 25 27 27 27 27 30 30 32 36 34 35 Misamis Oriental 63 72 68 59 53 46 57 50 49 56 56 53 EGGPLANT: Area Planted/Harvested in Hectares by Region/ Province, Philippines, Calendar Year 1990-2001 REGION/PROVINCE 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 P PHILIPPINES 16,425 14,465 15,535 17,416 17,762 17,643 18,074 18,955 16,090 19,378 19,936 20,387 N. MINDANAO 441 456 545 625 640 635 606 608 487 506 454 447 Bukidnon 98 125 179 201 200 204 200 200 142 154 155 155 Camiguin 19 30 32 44 50 48 49 49 47 35 20 15 Misamis Occidental 82 107 118 127 130 123 93 93 123 132 100 100 Misamis Oriental 242 194 216 253 260 260 264 266 175 185 179 177 105 Table D.3: Processed Fruits Exports by Commodity Processed Fruit Gross ton FOB (US$mn) Freight % to FOB Export 2000 Bananas 141,971 26,454 13,753 31.9 Centrifugal Sugar 32,591 13,061 1,920 15.7 Pineapples 19,312 7,204 1,801 8.7 Desiccated Coconut 7,665 6,362 1,006 7.7 Pineapple Juice Concentrate 4,328 2,621 410 3.2 Oil Cake and Others 66,852 2,617 2,524 3.2 Pineapple fresh 12,418 2,250 1,365 2.7 Banana Chips/ Crackers 2,198 1,749 193 2.1 Mixture of Fruits 3,230 1,548 249 1.9 Chewing Gum 499 1,205 29 1.5 Others 26,112 17,889 3,324 21.6 Grand Total 317,177 82,961 26,575 100.0 Processed Fruit Gross ton FOB Freight % to Export 2001 (US$mn) FOB Bananas, Fresh 94,149 17,482 7,075 21.7 Pineapple Processed 30,252 11,747 2,969 14.6 Desiccated Coconut 7,734 6,096 1,183 7.6 Mixture of Fruits 7,846 4,708 607 5.8 Pineapple Juice Concentrate 7,506 4,584 781 5.7 Oil Cake and Others 59,236 3,348 1,958 4.2 Milk and Cream, Solid Form 1,788 3,340 105 4.1 Pineapple fresh 12,850 2,813 1,352 3.5 Pineapple Juice Other 10,757 1,880 1,027 2.3 Other Food Preparation 876 1,705 60 2.1 Others 30,561 22,910 2,992 28.4 Grand Total 263,556 80,614 20,109 100.0 106 Table D.4: Processed Fruit Exports by Country, 2000 and 2001 Country Of Origin Quantity Gross tons FOB Freight % to 2000 (US$'mn) FOB United States of America 54,423 59,221 26,783 4,752 32.3 Japan (excludes Okinawa) 75,142 75,804 18,440 10,108 22.2 China, Peoples Republic 48,101 48,123 8,610 2,628 10.4 Korea, Rep. Of South 72,792 73,234 5,735 3,296 6.9 Taiwan 18,418 18,515 3,608 1000 4.3 Hongkong 3,078 3,507 3,455 287 4.2 United Arab Emirates 10,658 10,682 2,148 1,387 2.6 Canada 2,960 3,562 1,918 368 2.3 Malaysia 511 732 1,241 37 1.5 Singapore 1,669 1,872 1,205 149 1.5 Others 20,462 21,926 9,817 2,562 11.8 Grand Total 308,214 317,177 82,961 26,575 100.0 Country of Origin Quantity Gross tons FOB Freight % to 2001 (US$'mn) FOB United States of America 32,648 39,468 18,566 4,458 23.0 Japan (Excludes Okinawa) 62,668 63,265 16,220 5,463 20.1 Singapore 30,522 34,484 11,144 2,323 13.8 Korea, Rep of South 43,479 43,605 4,204 1,635 5.2 Malaysia 1,725 2,088 3,549 - 4.4 Taiwan 10,592 10,907 3,391 1 4.2 China, Peoples Rep. 16,189 16,227 2,975 1,339 3.7 United Arab Emirates 14,117 14,149 2,652 1,124 3.3 Canada 3,070 3,560 2,293 489 2.8 Netherlands 16,907 17,214 2,014 654 2.5 Others 16,860 18,589 13,606 1,807 16.9 Grand Total 248,778 263,556 80,614 20,109 100.0 107 Table D.5: Weighted Average Farm-gate Prices in Agriculture, Philippines: 1985, 1998-2000 Sub- Sector Peso per Kilogram Percent Change 1995 1998 1999 2000 1985- 1998- 1999- 2000 1999 2000 Agricultural Crops 4.4 -5.7 Major Crops 3.4 -8.7 Palay 3.29 8.08 7.82 8.52 159 -3.2 8.9 Corn 2.96 5.62 5.72 6.60 123 1.8 15.4 Coconut 1.52 3.47 3.78 2.09 38 8.9 -44.7 Sugarcane 0.32 0.82 0.84 0.70 119 2.4 -16.7 Banana 1.79 4.95 5.90 4.66 160 19.2 -21.0 Pineapple 1.85 6.92 6.47 6.82 269 -6.5 5.4 Coffee 23.2 55.4 51.9 37.7 63 -6.3 -27.4 Mango 7.29 18.12 22.94 18.82 158 26.6 -18.0 Tobacco 15.1 47.5 55.1 48.9 223 15.9 -11.3 Abaca 6.5 18.4 19.8 18.0 179 7.6 -9.0 Other Crops 7.1 4.8 Peanut 8.5 15.8 15.2 17.2 102 -3.8 12.9 Mango 11.8 23.5 25.1 20.5 74 6.9 -18.4 Cassava 1.41 3.78 3.53 3.82 171 -6.6 8.2 Camote 1.90 5.27 4.82 4.70 147 -8.5 -2.5 Tomato 3.56 8.51 9.35 7.98 124 9.9 -14.7 Garlic 46.1 51.9 98.5 71.6 55 90.0 -27.3 Onion 6.3 20.0 38.2 15.7 150 90.4 -59.0 Cabbage 4.61 7.40 8.86 7.98 73 -31.2 -9.9 Eggplant 4.77 10.84 10.00 9.78 105 41.1 -6.3 Calamansi 5.2 8.1 62.0 10.8 108 -6.4 6.3 Rubber 4.5 31.4 214.6 8.1 79 -28.2 39.1 Cotton 5.8 9.2 3.5 23.0 298 -38.7 19.5 Other Fibercrops 5.05 6.00 3.09 8.36 66 -6.2 -3.4 Others 2.68 6.00 7.08 7.09 165 7.3 10.1 Source: Bureau of Agricultural Statistics 108 Table D.6: Philippine Exports of Processed Foods, 1996 to 2000 FOB Value in US$'000 1996 1997 1998 1999 2000 Total 632336 589737 520019 491987 512521 Processed Fruits 198828 195814 180377 179063 201377 Nuts & Coconut Products 93572 96643 82345 99089 80591 Sugar & Sugar Preparations 140090 98730 99639 71253 57039 Animal Feeding Stuff 72835 64900 45902 27358 31246 Cereal & Flour Preparations 21325 36542 25500 34368 29564 Confectionery & Honey 22459 21552 18710 18420 28461 Misc. Edible Preparations 17842 11822 11770 12591 21486 Sauces, Condiments, Spices 18602 18385 17564 17921 19481 & Mixes & Mftrs. Beverages 14755 15732 13862 12625 14214 Daily Product & Bird Eggs 1849 1162 1243 2013 13804 Cocoa (processed) 20513 19084 16615 10551 7635 Processed Vegetables 5275 4284 3696 4302 3547 Coffee (processed) 3319 3201 1373 887 1757 Meat & Meat Preparatioms 218 1095 515 937 1615 Tea & Mate 285 233 361 484 561 Margarine, Shortening, 563 550 537 119 135 Vegetable Fat & Oils 109 Table D.7: Estimated Rated Capacities of BOI- Registered Companies Sub­Sector Capacities Unit Fruit & Vegetables 186,068 Metric Tons Beverages 16,416,751 Liters Coconut Oil & Meal 1,147,465 Metric Tons 217,155 Liters Other Vegetable Oil 6,840 Metric Tons Other Coco Products 50,890 Metric Tons 21,904,200 Liters 16.3 Million Packs Processed Fish 32,866 Metric Tons 10,720,523 Cases 478,500 Cartons Processed Meat 95,711.15 Metric Tons Cereal-based 123,958 Metric Tons 4,312,888 Pieces 33,228,000 Packs Confectionery & Honey 10,758 Metric Tons 465,574,000 Pieces 20,000 Kilograms Condiments 9,510 Metric Tons 341,795 Cases Sugar Raw Sugar: Registered 13,40 Tons Industry 175,40 Tons Refined Sugar: Registered 4,75 Metric Tons Industry 7,63 Metric Tons Dairy: Milk 16,47,65 Metric Tons Feeds: Animal Feeds 2,39,42 Metric Tons Aquaculture Feeds 1,05,87 Metric Tons Ruminant Feeds 311,40 Metric Tons 110 ANNEX E : INDUSTRY Table E.1: Products Produced by Philippine Electronics Industry Sub Sectors Products 1. Components - Integrated circuits (Multinationals) - Transistors - Diodes, resistors - Capacitors, coils, - Transformers - Printed circuit boards - Wafer probe/ inspection Philippine Companies - Die bonding Subcontracting - Wire bonding - Molding - Deflash trim form (DTF) - triplating 2. EDP - software development - data encoding and conversion - systems integration and customization 3. Telecommunications - switching equipment - transmission equipment - corded and cordless telephones 4. Consumer electronics - TV sets - Electronic games - Car stereos - Radio cassette players - Karaoke machines 111 Table E.2 Electronic Exports by Product FOB Value in Million US Dollars 1996 TO 2000 Averag 1996 1997 1998 1999 2000 e % % % % % Growth Value Share Value Share Value Share Value Share Value Share % Total Electronics 10,609 51.7 14,959 59.3 19,880 67.4 25,399 72.5 27,166 71.3 27.2 Semiconductors, other components 8,606 41.9 11,703 46.4 16,093 54.6 20,380 58.2 21,012 55.2 25.8 Electronics Data Processing 865 4.2 2,074 8.2 2,687 9.1 4,124 11.8 4,934 13.0 60.6 Office Equipment 14 0.1 27 0.1 27 0.1 29 0.1 53 0.1 44.9 Medical and Industrial 23 0.1 24 0.1 22 0.1 23 0.1 30 0.1 7.7 Control and Instrumentation 4 0.0 3 0.0 7 0.0 10 0.0 13 0.0 68.7 Communication and Radar 282 1.4 265 1.1 317 1.1 287 0.8 239 0.6 -3.1 Telecommunications 528 2.6 619 2.5 440 1.5 297 0.9 584 1.5 13.1 Consumer electronics 287 1.4 245 1.0 286 1.0 249 0.7 301 0.8 2.5 Audio Video Products (B. Lines) 230 1.1 186 0.7 230 0.8 192 0.6 237 0.6 2.9 Household Appliances (W. Lines) 32 0.2 34 0.1 32 0.1 29 0.1 33 0.1 1.8 Other Consumer Products 25 0.1 25 0.1 24 0.1 28 0.1 30 0.1 5.3 Source: National Statistics Office (NSO). Table E.3 Electronic Exports by Market FOB Value in Thousand US Dollars 1995 TO 1999 1996 1997 1998 1999 2000 Average Growth Value % Share Value % Share Value % Share Value % Share Value % Share % Total Electronics 10,609 100.0 14,959 100.0 19,880 100.0 25,399 100.0 27,166 100.0 27.2 Top 10 10,003 94.3 14,200 94.9 17,903 90.1 22,299 87.8 24,398 89.8 37.2 1. United States 3,528 33.3 5,294 35.4 5,860 29.5 5,989 23.6 7,110 26.2 20.4 2. Japan 1,708 16.1 2,238 15.0 2,579 13.0 2,859 11.3 3,490 12.9 19.8 3. Singapore 929 8.8 1,283 8.6 1,488 7.5 2,168 8.5 2,701 9.9 31.1 4. Netherlands 801 7.6 1,263 8.4 1,844 9.3 2,626 10.3 2,679 9.9 37.0 5. Taiwan 477 4.5 948 6.3 1,547 7.8 2,764 10.9 2,539 9.4 58.1 6. Hongkong 404 3.8 711 4.8 947 4.8 1,546 6.1 1,535 5.7 42.9 7. Malaysia 579 5.5 475 3.2 1,002 5.0 1,320 5.2 1,176 4.3 28.5 8. U.K. 498 4.7 661 4.9 1,411 7.1 1,404 5.5 1,149 4.2 31.9 9. Germany 474 4.5 675 4.5 729 6.7 969 3.8 1,079 4.0 23.7 10. Thailand 605 5.7 651 4.4 496 2.5 653 2.6 939 3.5 14.8 OTHERS 606 5.7 759 5.1 1,977 9.940 3,101 12.2 2,768 10.2 57.9 112 ANNEX F: PORTS AND SHIPPING DATA Table F.1 Container Characteristics and Direction of Movement PHILIPPINE PORTS B A S E P O R T All Cagayan Davao General Base Port de Oro (Sasa) Santos Zamboanga 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 Containers (% TEU) Domestic 48.0% 49.8% 46.6% 48.3% 94.3% 93.7% 60.4% 67.4% 96.1% 96.5% 100.0% 100.0% Inbound 50.9% 50.7% 50.1% 50.3% 50.9% 50.7% 50.6% 49.4% 49.9% 50.5% 51.1% 50.4% Empty 28.9% 25.5% 30.9% 27.5% 38.6% 38.0% 12.4% 14.2% 58.4% 58.9% 15.9% 13.4% Loaded - FCL 61.7% 66.1% 59.1% 63.8% 61.4% 62.0% 87.6% 85.8% 39.4% 38.8% 62.5% 82.9% Loaded - LCL 9.4% 8.4% 10.0% 8.8% 0.0% 0.0% 0.0% 0.0% 2.2% 2.3% 21.5% 3.7% Outbound 49.1% 49.3% 49.9% 49.7% 49.1% 49.3% 49.4% 50.6% 50.1% 49.5% 48.9% 49.6% Empty 23.4% 21.4% 23.6% 21.8% 16.0% 14.3% 38.7% 38.5% 19.2% 19.7% 42.1% 49.1% Loaded - FCL 67.1% 69.9% 66.6% 69.1% 84.0% 85.7% 61.3% 61.5% 77.8% 77.0% 43.8% 48.9% Loaded - LCL 9.5% 8.7% 9.8% 9.1% 0.0% 0.0% 0.0% 0.0% 2.9% 3.3% 14.1% 2.0% Foreign 52.0% 50.2% 53.4% 51.7% 5.7% 6.3% 39.6% 32.6% 3.9% 3.5% Import 50.3% 50.2% 50.5% 50.4% 48.7% 50.2% 51.0% 51.4% 31.8% 42.7% Empty 6.2% 6.3% 5.1% 4.9% 52.3% 60.0% 37.0% 43.5% 3.7% 4.7% Loaded - FCL 93.6% 93.4% 94.6% 94.7% 47.7% 40.0% 63.0% 56.5% 96.3% 95.3% Loaded - LCL 0.3% 0.4% 0.3% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Export 49.7% 49.8% 49.5% 49.6% 51.3% 49.8% 49.0% 48.6% 68.2% 57.3% Empty 51.6% 51.5% 52.7% 52.9% 1.9% 6.5% 38.9% 29.6% 25.5% 28.1% Loaded - FCL 48.2% 48.3% 47.0% 46.9% 98.1% 93.5% 61.1% 70.4% 74.5% 71.9% Loaded - LCL 0.2% 0.3% 0.3% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Cargo (% tons) Domestic 61.2% 62.5% 59.4% 60.6% 95.4% 95.4% 73.7% 78.1% 93.7% 94.9% 100.0% 100.0% Inbound 48.1% 48.3% 46.8% 47.5% 42.1% 42.0% 60.6% 58.4% 32.2% 33.8% 64.1% 63.6% Outbound 51.9% 51.7% 53.2% 52.5% 57.9% 58.0% 39.4% 41.6% 67.8% 66.2% 35.9% 36.4% Foreign 38.8% 37.5% 40.6% 39.4% 4.6% 4.6% 26.3% 21.9% 6.3% 5.1% Import 64.9% 65.1% 65.8% 66.3% 33.9% 31.5% 52.4% 47.1% 28.2% 47.3% Export 35.1% 34.9% 34.2% 33.7% 66.1% 68.5% 47.6% 52.9% 71.8% 52.7% 113 Table F.2: Port Performance Data for Public Base Ports and Major Private Ports in Mindanao (Berths only) CagayanD'Oro Alsons DelMonte Davao DUCC 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 1.NumberofVessels 2,535 3,521 965 952 98 154 823 930 223 245 Domestic 2,347 3,336 892 921 - - 583 705 188 204 Foreign 188 185 73 31 98 154 240 225 35 41 2.GrossRegisteredTonnage 4,452 2,837 1,377 1,132 9,348 8,287 7,142 6,749 1,859 1,785 Domestic 4,090 2,478 848 848 6,483 6,059 756 779 Foreign 8,972 9,301 7,839 9,569 9,348 8,287 8,740 8,911 7,780 6,788 3.NetRegisteredTonnage 2,346 1,528 888 713 4,254 3,800 3,507 3,423 1,085 1,026 Domestic 2,175 1,350 622 561 3,194 3,087 473 490 Foreign 4,480 4,743 4,147 5,233 4,254 3,800 4,266 4,476 4,371 3,694 4.DeadweightTonnage 3,344 2,248 2,168 1,871 9,668 9,948 6,414 6,127 3,489 3,076 Domestic 2,645 1,659 1,410 1,444 4,351 4,219 1,612 1,568 Foreign 12,070 12,875 11,424 14,578 9,668 9,948 11,427 12,104 13,572 10,580 5.LengthofVessels(m.) 100 72 59 56 134 132 125 123 67 68 Domestic 97 68 55 54 122 118 61 62 Foreign 131 135 115 129 134 132 133 138 103 101 6.BeamofVessels(m.) 16.2 13.8 12.0 11.2 20.3 19.9 19.2 19.0 12.3 11.9 Domestic 15.8 13.4 11.4 10.9 18.5 18.4 11.1 10.6 Foreign 21.1 20.1 19.1 20.5 20.3 19.9 20.8 21.1 18.9 18.2 7.DraftofVessels(m.) 4.6 3.7 3.3 3.6 5.1 5.6 5.7 5.4 3.7 3.8 Domestic 4.6 3.6 3.1 3.5 5.3 5.1 3.5 3.6 Foreign 5.4 5.0 4.8 5.7 5.1 5.6 6.8 6.3 5.0 4.9 8. Service Time (hrs.) 29.0 24.0 67.7 73.4 26.2 27.3 41.7 38.5 107.6 104.8 Domestic 28.2 23.1 69.3 74.3 33.8 34.9 104.7 106.1 Foreign 39.1 40.2 48.1 46.2 26.2 27.3 60.8 49.9 122.9 98.2 114 Table F.3 Port Performance Data for Public Base Ports and Major Private Ports in Mindanao (Berths only) ­ cont. Tefasco Tedeco GeneralSantos Cargill DolePhils. 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 1.Number of Vessels 218 200 376 312 1,159 1,257 133 75 267 276 Domestic 1 - 231 209 998 1,050 112 61 - - Foreign 217 200 145 103 161 207 21 14 267 276 2.Gross Registered Tonnage 6,374 6,414 4,636 5,070 5,025 4,966 3,271 3,797 8,072 7,933 Domestic 455 3,285 3,581 5,182 5,291 574 605 Foreign 6,401 6,414 6,789 8,092 4,047 3,318 17,653 17,708 8,072 7,933 3.Net Registered Tonnage 3,191 3,247 2,384 2,339 2,527 2,535 1,736 2,127 4,352 4,466 Domestic 257 1,668 1,833 2,599 2,692 362 384 Foreign 3,204 3,247 3,525 3,366 2,085 1,734 9,060 9,718 4,352 4,466 4.Deadweight Tonnage 7,089 7,477 5,788 6,346 4,129 5,073 5,840 6,884 8,814 9,195 Domestic 614 4,642 5,122 4,030 5,293 1,403 1,531 Foreign 7,119 7,477 7,615 8,829 4,748 3,956 29,506 30,210 8,814 9,195 5.Length of Vessels (m.) 132 135 101 105 111 111 78 82 136 137 Domestic 57 86 89 114 116 62 63 Foreign 132 135 125 139 94 87 160 165 136 137 6.Beam of Vessels (m.) 18.4 19.1 16.8 16.7 17.1 17.3 11.9 13.5 22.5 23.3 Domestic 11.0 15.2 15.6 17.4 17.7 9.4 10.7 Foreign 18.4 19.1 19.2 18.7 15.7 15.3 25.2 25.6 22.5 23.3 7.Draft of Vessels (m.) 5.0 5.1 4.5 4.6 5.3 5.0 4.1 3.9 4.8 5.1 Domestic 5.0 4.6 4.7 5.4 5.1 3.7 3.4 Foreign 5.0 5.1 4.3 4.2 5.0 4.4 6.0 6.0 4.8 5.1 8.Service Time (hrs.) 69.8 69.5 64.9 67.4 40.9 42.7 51.6 43.5 22.5 24.3 Domestic 59.0 50.7 52.3 41.0 39.7 50.4 42.7 Foreign 69.8 69.5 87.5 98.0 39.6 58.0 57.8 47.3 22.5 24.3 115 Table F.4 : Berth Throughput for Public Base Ports and Major Private Ports in Mindanao (Berths only) CagayanD'Oro Alsons DelMonte Davao DUCC 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 9.ServiceTime(hrs.) 29.0 24.0 67.7 73.4 26.2 27.3 41.7 38.5 107.6 104.8 Domestic 28.2 23.1 69.3 74.3 33.8 34.9 104.7 106.1 Foreign 39.1 40.2 48.1 46.2 26.2 27.3 60.8 49.9 122.9 98.2 1.TotalCargoThroughput(m.t.) 2,646,301 2,691,398 1,941,804 1,555,166 210,853 237,242 2,191,519 2,032,702 753,318 681,361 2,193,303 2,193,680 1,230,115 1,171,104 1,171,104 - 1,402,883 1,449,795 319,839 289,767 Inbound 0 0 0 0 63% 59% 13% 4% Breakbulk 0 0 0 0 21% 21% 11% 0% Bulk 0 0 1 1 1% 2% 89% 100% Containerized 1 1 - - 78% 77% 0% 0% Outbound 1 1 1 1 37% 41% 87% 96% Breakbulk 0 0 0 0 12% 22% 76% 73% Bulk 0 0 1 1 0% 0% 24% 27% Containerized 1 1 - - 88% 78% 0% 0% b.Foreign 452,998 497,718 711,689 384,062 210,853 237,242 761,610 565,539 433,479 391,594 Import 74% 79% 16% 4% 34% 39% 73% 66% 41% 41% Breakbulk 36% 38% 0% 0% 70% 77% 37% 16% 0% 0% Bulk 56% 56% 100% 100% 0% 0% 24% 44% 100% 100% Containerized 8% 6% 0% 0% 30% 23% 38% 40% 0% 0% Export 26% 21% 84% 96% 66% 61% 27% 34% 59% 59% Breakbulk 9% 5% 0% 0% 7% 11% 2% 3% 2% 0% Bulk 47% 47% 100% 100% 0% 0% 3% 10% 98% 100% Containerized 44% 48% 0% 0% 93% 89% 95% 87% 0% 0% TransitCargo 0 0 0 0 0 0 27,026 17,368 - - 116 Table F.5 : Berth Throughput for Public Base Ports and Major Private Ports in Mindanao (Berths only) ­ cont. Tefasco Tedeco GeneralSantos Cargill DolePhils. 2000 1999 2000 1999 2000 1999 2000 1999 2000 1999 9.ServiceTime(hrs.) 69.8 69.5 64.9 67.4 40.9 42.7 51.6 43.5 22.5 24.3 Domestic 59.0 50.7 52.3 41.0 39.7 50.4 42.7 Foreign 69.8 69.5 87.5 98.0 39.6 58.0 57.8 47.3 22.5 24.3 1.TotalCargoThroughput(m.t.) 470,455 423,962 1,417,310 1,216,107 1,580,970 1,421,767 270,320 155,939 249,725 271,224 a.Domestic 1,000 1,049,412 921,172 1,385,836 1,228,445 104,390 55,039 Inbound 100% 63% 53% 41% 43% 92% 92% Breakbulk 0% 11% 13% 27% 28% 0% 0% Bulk 100% 2% 1% 15% 16% 100% 100% Containerized 0% 86% 86% 57% 56% 0% 0% Outbound 0% 37% 47% 59% 57% 8% 8% Breakbulk 22% 12% 10% 13% 0% 0% Bulk 0% 0% 7% 6% 100% 100% Containerized 78% 88% 82% 81% 0% 0% b.Foreign 469,455 423,962 367,898 293,902 195,134 193,322 165,930 100,900 249,725 271,224 Import 2% 1% 20% 27% 74% 87% 24% 20% Breakbulk 100% 100% 100% 87% 72% 61% 57% 62% Bulk 0% 0% 0% 13% 15% 26% 0% 0% Containerized 0% 0% 0% 0% 13% 13% 43% 38% Export 98% 99% 80% 73% 26% 13% 100% 100% 76% 80% Breakbulk 100% 100% 100% 100% 4% 5% 0% 0% 43% 36% Bulk 0% 0% 0% 0% 1% 0% 100% 100% 0% 0% Containerized 0% 0% 0% 0% 95% 95% 0% 0% 57% 64% TransitCargo - - - 1,033 - - - - - - 117 Table F.6 Shipping Rates, Class A Cargo 2000 Class A rate, 2000 Cargo Handling Origin Destination Freight Total % Cebu-Tagbilaran 59.15 65.50 228.30 352.95 35.32 Cebu-Bacolod 59.15 66.05 340.00 465.20 26.91 Cebu-Surigao 59.15 51.50 302.54 413.19 26.78 Cebu-Calbayog 59.15 51.45 302.54 413.14 26.77 Cebu-Cagayan de Oro 59.15 51.30 305.98 416.43 26.52 Cebu-Iloilo 59.15 67.75 354.59 481.49 26.36 Cebu-Tacloban 59.15 61.45 371.60 492.20 24.50 Manila-Iloilo 92.55 67.75 506.50 666.80 24.04 Manila-Bacolod 92.55 66.05 506.50 665.10 23.85 Manila-Tacloban 92.55 61.45 532.49 686.49 22.43 Manila-Calbayog 92.55 51.45 506.50 650.50 22.14 Manila-Cebu 92.55 59.15 553.94 705.64 21.50 Cebu-Zamboanga 59.15 62.10 448.17 569.42 21.29 Manila-Tagbilaran 92.55 65.50 602.47 760.52 20.78 Manila-Cagayan de Oro 92.55 51.30 603.47 747.32 19.25 Manila-Surigao 92.55 51.50 629.55 773.60 18.62 Cebu-Davao 59.15 75.50 594.57 729.22 18.46 Manila-Zamboanga 92.55 62.10 689.37 844.02 18.32 Cebu-Cotabato 59.15 47.15 549.42 655.72 16.21 Manila-Davao 92.55 75.50 928.83 1,096.88 15.32 Manila-Cotabato 92.55 47.15 842.86 982.56 14.22 AVERAGE CARGO HANDLING COST 22.36 118 ANNEX G : TRADE DOCUMENTATION Figure G.1 ONE STOP EXPORT DOCUMENTATION CENTER PROCESS FLOW FILING OF EXPORT DOCUMENTS REVIEW OF DOCUMENTS IF INCOMPLETE, RETURN BY OSEDC CLERK TO EXPORTER FOR COMPLETION PROCESSING OF PAPERS AND PAYMENT OF FEES EXPORT DOCUMENTS TO BOC IF INCOMPLETE RETURN REVIEW OF DOCUMENTS TOEXPORTER FOR BY BOC COMPLETION ISSUANCE OF AUTHORITY TO LOAD BY BOC APPROVED DOCUMENTS RETURN TO EXPORTER 119 Table G.1 Shipping Fees Following are the export fees that are paid by exporters exclusive of handling and transport: I. Phil-export Processing Fee Members P 50 Non-members P 75 II. Bureau of Customs (BOC) Export of Declarations/Special Permit to Load Processing Fee Free Documentary Stamp/Document P 65 Certificate of Origin P 65 Certificate of Shipment, Short & Non-Shipment P 65 Stuffing P 65 * Certificate of Origin Form General (White) P 6 GSP Form A P10 ASEAN_PTA (Form C) P10 III. Department of Agriculture A. Bureau of Plant and Industry Phytosanitary Certificate (Plant Products) Fumigation Certificate (non-plant products) Certification Fee P2.00/ton B. Bureau of Fisheries and Aquatic Resources Application Fee P25 Permit Fee P80 Gathering Fee P15 Inspection Fee 0.5% FOB Value IV. Philippine Ports Authority Direct Shipment 20-footer container P259.70 40-footer container P391.65 Cargoes in sacks, bags, bulk P16.90/M.T. Tran-shipment 20-footer container US$ 11.93 40-footer container US$ 17.77 Cargoes in sacks, bags, bulk US$ 0.769 Others (not mention above) US$ 0.641 V. Department of Trade and Industry Certification of Handcrafted Products P6.0 Commodity Clearance P11.0 120 Table G.2 One Stop Export Documentation Center EXPORT DOCUMENT I. SEA FREIGHT 1. Export Declaration ­ Filled up with authorized signatory from the Bank agent and Exporter Representative. At least seven (7) copies. 2. Commercial Inv./ Proforma ­ Quantity, description and value of goods in Ed with signatory from the exporter/ Rep. At least 2 copies 3. Stuffing Report ­ Filled up with exact seal and container No., Size of the van, and description of cargoes. At least 4 copies. 4. (CEP) Cargo Entry Permit ­ Filled up with signature from the exporter/ rep. At least 4 copies. Product required clearance ­ A certification/ clearance from concerned agencies with corresponding products. II AIR FREIGHT: Same requirement as Sea Freight except for a transmittal for transloading at NAIA instead of Stuffing Report. CERTIFICATE OF ORIGIN: SEA FREIGHT 1. B/L from the shipping Line with Authorized signature. (1 carbon copy) 2. Processed Export Dec. (1) copy 3. Amendment if there's any. At least 2 copies 4. 2 Xerox copy of C.O. Pink triplicate. AIR FREIGHT 1. One copy of processed Export Dec. 2. One copy of processed transmittal for transloading at NAIA 121 BUREAU OF CUSTOMS - Documentation Documents Issued: 1. Authority to load 2. Certificate of Origin (CO), (GSP Form A, Asean PTA, General CO) 3. Certificate of Shipment Pre-loading Procedure: Steps 1. Bank delivers EDI 2. Exporter/Broker submits ED3 with Commodity Clearance (if needed), Certificate of Identification (for products with imported raw materials) 3. BOC validates EDI 4. Exporter/ Broker pay P60.00 (Documentary Stamp) 5. Processor consolidate and checks ED1, ED3, and clearances 6. Signing officer signs Authority to Load. 7. Releasing clerk perforates entry number on EDs and all attached documents 8. Clerk releases Authority to Load to exporter/broker. 9. For Sea Freight, exporter/broker proceeds to PPA, Counter 10. For airfreight, load cargo at NAIA Exporter/Broker buys CO form if needed Post Loading Procedure: 10. Exporter/ Broker files appropriate CO/ Certification with the following documents: - Commercial Invoice - Loaded on Board Bill of Lading/ Air Waybill - Copy of Processed ED Amendments if any. 122 Table G.3 Import Procedures (Souce: PHILEXPORT) Import Procedures (using L/C): a) Importer applies for the L/C to the Opening Bank; the application states the type, quality, unit price and total value, freight charges, country of supply and PSCC Code No. of the goods to be imported; conditions are: · Import is subject to inspection by inspector nominated per Memorandum Order No. 63 prior shipment · Recipient of the L/C is responsible for facilitating the smooth inspection of the goods · The Bank makes payment only upon submission of the CRF by the seller The L/C is opened not later than 10 days before the scheduled date of shipment. b) Upon issuance of the L/C, importer completes the Import Entry Declaration (IED) stating: tariff heading and import duty charges; pays the estimated advance customs duties to the opening bank; for those exempted for payment of advance duties, importer furnishes the Opening Bank with a letter of exemption from the authorized Government agency. c) Opening Bank issues Customs OR to importer, sends the copy of L/C, Seller's proforma invoice and IED to the SGS Manila Liaison Office together with a copy of any exempting authority. d) The Liaison Office registers the L/C and the IED and issues a numbered Import Advice Note (IAN); one copy of IAN is sent to importer and another to the Inspection Office. e) Inspection Office sends advice of inspection requirement to shipper/consignor/seller of the goods. f) Seller advices the inspection office of the date and place of inspection and sends the document of the Inspection Office giving at least 7 days advance notice. In exceptional cases, seller may request inspection before receipt of IAN by Inspection Office but no Clean Report of Findings (CRF) is issued unless IAN is received by Inspection Office. g) Inspections Office performs physical inspection, verifies declared tariff heading, determines HCV, report tariff rates and; if warranted, issues a CRF to the seller, transmitting copies to the Liaison Office. CRF indicates invoice value and acceptable HCV. h) Goods that are transshipped are subject to verification at the point of transshipment by the inspection office located thereat. (Transshipment is the act of unloading the cargo from one carrier and loading the cargo on another carrier, such loading occurring after 72 hours from the time of unloading.) i) Seller presents the CRF to the advising/Corresponding (A/C) bank, which will send documents, and the CRF to the Opening Bank. j) Opening Bank advices importer of the arrival of the documents; importer collects the documents together with an authenticated customs copy of the CRF supplied to the Opening Bank direct from the Liaison Office. k) Importer of his broker prepares Import Entry from the authenticated customs copy of the CRF; pays the additional customs duties, if any, and the taxes due; presents to BOC the normal documents required for clearance, together with the authenticated customs copy of the CRF. l) BOC verifies documents and calculates differences between deposit and duties due as well as internal revenue taxes; issues Order of Payment (OP) to importer. 123 m) Importer/Broker presents OP to the Opening Bank and pays balance of duties and taxes due. n) Opening Bank issues to importer the CB Release Certificate and Customs OR; sends a copy of OP to the Liaison Office. o) Importer/Broker presents to BOC as authenticated customs copy of the CRF and other documents for clearance; BOC issues delivery permit for release of goods, retains authenticated Customs copy of the CRF. p) Liaison Office transmits to BOC by official messenger the original Customs copy of the CRF not later than the day following its receipt from SGS issuing office abroad. Import Procedures for importation affected without L/C (Open Account, Documents Against Acceptance and No Dollar Import Arrangement): a) Importer submits to CB written details of his proposed importation together with seller's proforma invoice indicating: § The bank/branch which will receive the CRF § Importer's name and address, telex/telephone § Importer's tax account code § Currency of transaction § Value of goods to be imported; unit price · Country of supply if different from that of seller · Name and address of seller, telex/telephone · Type, quality and quality of goods · Freight charges and internal revenue taxes due · PSCC and tariff heading of goods to be imported · Copy of duty/tax exempting authority, if any. Details are submitted at least 10 days before scheduled date of shipment; importer instructs seller to arrange for inspection by the Inspection Office and advises seller of his responsibility to facilitate smooth inspection. b) Liaison Office issues an IAN, one copy to importer and another to the Inspection Office c) Inspection Office sends advice of inspection requirement to seller. d) Seller indicates date and place for inspection; provides necessary documentation to the Inspection office, giving at least 7 days advance notice. In exceptional cases, seller may request inspection prior to the receipt of the IAN but no CRF is issued until the Inspection Office receives IAN. e) Inspection Office performs physical inspection verifies, declares tariff heading, determines HCV, report tariff rates and, if warranted, issues a CRF to the seller; transmit CRF copies to the Liaison Office by courier, or by telefax if urgent by request. CRF indicates the invoice value and acceptable HCV on the basis of the criteria for dutiable value in Sec. 201,TCC. f) If goods are transshipped from a country listed in a Joint Order through another country also listed therein, the goods are inspected in the country of supply and the transshipment by the Inspection Office located thereat. g) The Liaison Office receives the CRF, including the authenticated Customs copy and transmits these to the Importer's Bank. 124 h) Importer/Broker prepares Import Entry from the authenticated customs copy of the CRF with the additional custom duties, if any, and taxes due; prepare the proforma OP. Importer presents to BOC the normal documents required for clearance together with the authenticated Custom copy of the CRF. i) The BOC verifies the documents, examines the cargoes and assesses the total amount of customs duties and taxes due; issues OP to the importer. j) Importer/Broker presents OP to the Importer's Bank and pays the assessed duties and taxes. k) Importer's Bank issues to importer the CRBC and Customs OR; sends a copy of the OP Liaison Office. l) Importer/Broker presents to BOC the authenticated Custom copy of the CRF together with the other documents required for clearance; BOC verifies documents and issues Delivery Permit for the release of goods, retaining the authenticated customs copy of the CRF. IAN ­ stands for Import Advise Note wherein a unique REFERENCE NUMBER is assigned by SGS to a transaction and this should be made available to the seller and exporter as soon as possible because a Clean Report of Findings (CRF) cannot be issued without this NUMBER. This document will confirm that SGS inspection office in the country of supply. Whenever, an importer/exporter makes any telephone call or written communication with SGS concerning a shipment, this NUMBER should be quoted. 125 Table G.4 GENERAL IMPORT PROCEDURES:63 A. Pre-Arrival of Goods 1. Pre-shipment 64 Arrangement between Importer and Exporter a) Obtain a quotation from supplier, stipulating the specifications of the goods to be imported. b) Agreed on the price, the manner of payment, the mode of shipment and other relevant details. c) Upon reaching an agreement, supplier then issues Proforma invoice covering the importation (stipulated therein are all the details of the agreement) d) Upon receipt of Proforma Invoice, importer checks contents, if OK, uses it for LC application, if there are changes, he returns the invoice to supplier for confirmation before proceeding to the bank. e) If importation is subject to SGS inspections, advice seller to contact SGS in the country of supply and arrange for an inspection schedule. Moreover in opening an L/C, include a clause requiring SGS inspection. After inspection, SGS in the country of supply issues a Clean Report of Finding (CRF), if warranted, to the seller and sends copies to SGS Manila Liaison Office (MLO). The SGS MLO shall send a copy of the authentic CRF to your AAB. Secure a copy of the CRF from the agent bank and present the same to the BOC, together with other import documents, upon arrival of the importation. f) Importer goes to a commercial bank and applies for L/C 1) bank checks Pro-forma Invoice if goods to be imported are: § freely importable ­ bank checks Philippine Standard Commodity Classification (PSCC) manual if coding is correct. § Regulated ­ aside from checking with PSCC manual for correct coding, requires importer to secure permits from government agencies involved. § Prohibited ­ bank will not issue L/C. 63Comprehensive Import Supervision Scheme (CISS) requires that all goods valued at US$500 FOB and above destined for importation to the Philippines shall be subject to inspection by duly authorized inspector of the government at the countries of supply, as to the quality, quantity, price/HCV, verification of tariff rate. Moreover, goods declared as of quality, under such descriptive terms as stock lots, siderims cull-rolls, seconds mill lots, scraps, off grade, reconditioned, used junk or similar terms conveying or purpoting to convey the condition of the article as not being brand new or first quality shall be subjected to pre-shipment inspection regardless of value.The government has contracted Societe Generalle de Surveillance (SGS) to undertake the CISS. 64The pre-shipment inspection is initiated upon issuance by SGS Manila Liaison Office of an Import Advice Note. This is triggered by the submission to SGS of a copy of the L/C opened by the Authorized Agent Bank (AAB) for L/C transactions and endorsement to SGS by the Foreign Exchange Department of the report of proposed importation (RPI) for non-L/C transactions. For purposes of the latter, the importer shall submit said RPI to the Imports Division duly accompanied with a copy of the pertinent proforma invoice or import permit if applicable. 126 2) If in order, bank further secures copies of importers business documents such as business name and permits, SEC registration, if corporation and most recent ITR. 3) Bank computes charges and importer either pays in cash as in Cash L/C or pays at a later date as in Sight L/C. g) Importer (or Customs Broker or Bank Representative) proceeds to Bureau of Customs to file Import Entry Declaration (IED) and pays full or deposit percentage of assessed amount. An Official Receipt (OR) is issued and he attaches this to L/C, Pro-forma Invoice, permits, IED and other documents before submitting to bank. h) Bank sends opened L/C to correspondent bank by mail, telex or fax. i) Importer waits for arrival of required documents from exporter. j) Importer waits for arrival of shipment. B. Arrival of Goods 2. Documentation Prior to or upon arrival of the shipment, file an import entry, together with the supporting documents with the Entry Processing Division(EDP) of the Bureau of Customs (BOC). The EDP shall process the entry and its supporting documents, then forward the same to the Formal Entry Division through either the Examiner's Group to prior examination (for documents files when the imported goods are already on port), or the Appraiser's Group to prior appraisal (for documents filed prior to the arrival of the shipment or while in transit). Documentary Requirements for the Release of Importation For Consumption Entries § OrderofPaymentformpreparedbythebrokerorimporter § ImportentryandInternalRevenuesDeclaration(BOCFormNo.214) § PermittoDeliverImportedGoods(PDIG-BOCFormNo.194) § ProformaOrderofPayment For Warehousing Entries § BondProcessingForm § Import Entry and Internal Revenue Declaration(BOCFormNo.217) § WarehousingPermit(BOCFormNo.198) § Proforma Chargeable Bond Other Requirements § Bill of Lading § CommercialInvoice § PackingList § Copy of Tax Exemption Authority (for tax-exempt importation) § ExaminationSlip(ifany) § SGSClean Report of Finding (for imports from all ports of origin) 3. Examination and Appraisal 127 The Examiner's Group conducts an examination of the imported commodities covered by the import entry while the Appraiser's Group determines the taxes, duties and other charges due on the importation based on the entry and its supporting documents. 4. Liquidation After approval by the appraiser/examiner, the documents are forwarded either to the Liquidation and Billing Division, to verify/check the computation of taxes and duties, or to the Bonds Division, if the entry is under bond, to determine how much more or less the duties and taxes to be charged to the bond. 5. Payment Payment for the taxes, duties and other charges due on the importation are made with the Collection Division, which issued the Customs Official Receipt to the importer or Customs Broker. B. Release of Goods The imported goods are released to the importer or Custom Broker (for consumption entries) at the Piers and Inspection Division and/or transferred (for warehousing entries) either to the: § Consignee's Bodega, Custom Bonded Warehouse or Container Yard- ContainerFreight Station; § Customs Common Bonded Warehouse (CCBW) § Firm'sBondedManufacturingWarehouse(BMW);orEPZAWarehouse 128