The business of tree crops
Fly over Indonesia, Malaysia, Thailand and Vietnam and one will not fail noticing the wide expanse of tree crops. That can also be said for the Philippines, but with a big difference (which will be discussed later).
Poverty reduction in Southeast Asia owes in large part to the tree crops business. Millions of hectares were developed since the 1960s that benefited the investors as well as the poor. The jobs and incomes caused dramatic expansion of domestic markets.
Malaysia started with rubber in the colonial years, and later shifted to oil palm. In terms of harvested areas, there were some 1.3 million hectares of the former and 4.0 million hectares of the latter in 2010. Indonesia had 5.4 million hectares of oil palm, 3.4 million hectares of rubber, almost 3 million hectares of coconut, 1.3 million hectares of coffee, and 1.65 million hectares of cocoa. Thailand had 1.9 million hectares of rubber and 568,000 hectares of oil palm. Vietnam had 438,000 hectares of rubber and 514,000 hectares of coffee. By contrast, the Philippines has some 3.4 million hectares of coconut, 100,000 hectares of rubber, 120,000 hectares of coffee, 80,000 hectares of oil palm, and minimal areas of cacao. Between 1980 and 2010, Indonesia had 3.6 times expansion, Malaysia double, Thailand 2.1 times, and Vietnam, 7.8 times. The Philippines had a miniscule 1.1 times.
Meanwhile, tree crops exports surged 8.9 times for Indonesia, 5 times for Malaysia, 6.5 times for Thailand, and 125 times for Vietnam. The Philippines had 4.8 times. The successes of these countries can be shown by their high level of agri-food exports, and also in their high productivity from intensive land use. The latter generate on-farm and nonfarm jobs, exports and incomes.
In 2010, Vietnam had almost $4,000 per hectare from its export of coffee and rubber alone. This is principally explained by high farm productivity. Next would be Malaysia at $3,300 per hectare anchored by palm oil. Thailand at $3,000 per hectare from rubber, and Indonesia at $1,300 per hectare from palm oil, rubber, cocoa and coffee. The Philippines is at the cellar at less than $800 per hectare.
The low farm yields, led by the huge unproductive coconut lands made the revenues per hectare dismally low. In the process, the rural markets in the Philippines have weak purchasing power. The Philippines got stuck at No. 5 in the tree crops scorecard since 1980. There have been some improvements in export intensity ratio (3.3 times) given the country’s low base in 1980 compared to Indonesia and Malaysia (2.5 times), but the more dramatic achievements were made by Thailand (6.5 times) and Vietnam (16 times).
Ingredients for Success
What are the success factors that accelerated tree crops development among the Southeast Asian neighbors? Let us cite a few stand-outs.
Access to land. Ready-to-use lands were made available in Malaysia and Indonesia. Corporate sector entities such as Sime Darby and KLK in Malaysia, and Indo Agri-Resources and Indo-Food in Indonesia invested heavily. There was also a relatively clear delineation of land ownership in Thailand and long-term land leases of government lands in Vietnam. Government land agencies such as the Federal Land Development Authority (Felda) were given access to State lands in Malaysia for development for the landless rural poor while the Federal Land Consolidation Authority (Felcra) was tasked in consolidating and developing idle and under-utilized farm lands.
Access to long-term finance. Malaysia and Thailand have long histories of rubber export cess or levy collection that eventually funded rubber replanting and diversification into other crops. Loans from the World Bank and Asian Development Bank were tapped in the early years for funding and independent progress reviews. Equity funds from overseas helped develop the plantation sector in both Indonesia and Malaysia. Government banks like Bank Rakyat Indonesia and Vietnam Bank for Agriculture and Rural Development massively provided loans for small holders.
Life cycle management. Trees in these countries are replanted after the end of their economic life. It is normally 30 years for rubber and 25 years for oil palm. In the Philippines, there is a minimal program of replanting old coconut trees (40 years and over) in part due to lack of funds and weak absorptive capacity. The smallholder rubber industry faces similar resource constraints.
Use of modern seedlings. Cess collection funded rubber research in Malaysia and Thailand. The Rubber Research Institute of Malaysia and its counterpart, the Rubber Research Institute of Thailand, are second to none. Government support was strong in Indonesia and Vietnam. Special mention can be made about the Western Highlands Agro-forestry Research Institute in Dak Lak province, which developed high yielding coffee plants. In the Philippines, most of the seedlings for coconut, rubber and coffee farms are of poor genetics, and therefore, have low productive capacity.
Plantation management. Modern plantation operations owe much to the foreign firms that invested in Malaysia. The schemes under the Felda and Felcra adopted modern plantation practice to land development that brought high productivity and income to the landless and the small farmers. In Thailand, the Office of Rubber Replanting Aid Fund is active in providing technical services to rubber farmers along with the Rubber Research Institute of Thailand. Meanwhile, Malaysia-based corporate plantations transferred their plantation expertise to new lands in Indonesia.
The way forward
A competitive tree crops business owes its existence from the right mix of land access, certified seedlings, well-funded research and development, and modern plantation management. The models can vary. There are large estates in Malaysia and Indonesia, small holders in Thailand and Vietnam, centrally managed smallholder schemes of Felda and Felcra in Malaysia, and nucleus out-growers schemes in Indonesia.
Sadly, many elements are missing in the Philippines. These are: limited land access, lack of certified seedlings, lack of dedicated research and development institutes, inadequate access to long-term finance, and weak diffusion of best-farm practices. The results are poor land utilization, low yields, limited tree crop exports, low farm income, and lethargic rural markets.
Things are changing under the Aquino government. There is indeed a realization that changes for the better are needed. However, since tree crops are long-gestating and the country has been a laggard, there must be accelerated and concerted action as well as getting the institutions moving. Engaging the agribusiness firms and experts in develop-maintain-transfer schemes to establish high plantation standards must be explored. The end is not increased output per se, but profitable farming.
(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is the Executive Director of the Center for Food and Agribusiness of the University of Asia & the Pacific. Feedback at [email protected] For previous articles, visit <map.org.ph>.)