Bernardo M. Villegas
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Chinese Appetite for High-Value Crops

          Some economic analysts are worried that China is experiencing some kind of hard landing because of too much debt of its corporate sector, especially the state enterprises.  Some even say that the reported GDP figures of slightly over 6% annually are being doctored, that more realistic rates are closer to 4 to 5%.  As far as the ASEAN Economic Community (AEC) is concerned, these worries are exaggerated.  Even a 4% annual growth on the basis of some 500 million moneyed consumers is nothing to scoff at.  That figure is the biggest consumer market of any nation in the world (some 200 million more than American consumers who have significant purchasing power, considering that more than 10% of Americans are below their national poverty line).  Even more, the remaining 900 million Chinese will soon graduate to middle class status as the Chinese government is doing its very best to bring development to the inner provinces.  Just imagine what consuming power will be in the hands of 1.4 billion Chinese!

         A recent Bloomberg article entitled “Farming the world:  China’s epic race to avoid a food crisis” should give the Philippine government and the private sector food (no pun meant) for thought.  The article opens with the following lines: “China’s 1.4 billion people are building up an appetite that is changing the way the world grows and sells food.  The Chinese diet is becoming more like that of the average American, forcing companies to scour the planet for everything from bacon to bananas.”  Southeast Asia, especially Thailand, Vietnam and Malaysia are ahead of the game in exporting food products to China.  Because of a long-term neglect of countryside and agricultural development, the Philippines at the moment is not a serious contender, unless we put our act together and significantly improve agricultural productivity.  The only crop in which we excel in exporting to China is banana.  We are way behind our ASEAN neighbors in exports of other agribusiness products to China.  In fact, Vietnam in less than a decade was able to develop its coffee sector so that it now surpasses Brazil as the Number One coffee exporter in the world.  Our agribusiness export pale into insignificance when compared to our ASEAN neighbors.

         China should have an interest in endowing the Philippines with the infrastructures needed to modernize our agricultural sector.  As the Bloomberg article points out, “…China’s efforts to buy or lease agricultural land in developing nations show that building farms and ranches abroad won’t be enough.  Ballooning populations in Asia, Africa and South America will add another two billion people within a generation and they too will need more food.  That leaves China with a stark ultimatum:  If it is to have enough affordable food for its population in the second half of the century, it will need to make sure the world grows food for nine billion people.”  We should leverage on our agricultural resources to get soft loans for China to build the farm-to-market roads, irrigation systems, post-harvest facilities and other support services needed by our farmers to be more productive.  China should redirect much of its attention in helping the Philippines towards improving rural infrastructures. It would be to its enlightened self-interest to move the Philippine agricultural sector up the value chain, emulating Thailand and Vietnam in the export of high-value crops.

         We should take note of what the Chinese are planning to do in its agricultural sector.  As the Bloomberg report indicated:  “China has a goal of being self-sufficient in staple foods like rice, corn and wheat.  To ensure farmers grew those crops, it paid a minimum price for the grains and then stored the excess in government silos.  Farmers responded, saturating their small plots with fertilizers and pesticides to reap bumper crops that filled government reserves to bursting. Total state grain reserves were estimated to be more than 600 million tons last year, enough for more than a year’s supply.  About half the stockpile is corn, which the government is trying to sell before it rots, forcing provinces to turn the grain into motor fuel.”  It is predictable, though, that as the Chinese become richer and graduate to middle class status, they will consume more vegetables, fruits, and livestock rather than the staple foods.  It would be wise for the Philippines and the other ASEAN countries to position themselves to be the providers of these high-value crops.

         A recent example is the increasing popularity of avocado in the Chinese market.  As happened in the banana market in the last century, our Northeast Asian neighbors are getting “addicted” to tropical fruits.  The Philippines has the potential of being a major exporter of avocado, a fruit that currently is just being cultivated in the backyards of many rural households.  As reported in the Food and Agribusiness Monitor of the Center for Food and Agribusiness, in the publication entitled Philippine Agricultural Investment Opportunities:  “Avocado growing is a profitable undertaking given a good variety and following recommended cultural management practices.  A hectare of avocado with 125 trees entailed an investment cost of P38,000 (years 1 to 3).  The tree starts to bear fruit in the fourth year….The cumulative net income from years 4 to 7 stood at P292,700 or an average of P73,200 per hectare per year.  The average yield is estimated at 7.2 tons/ha/year.” At present, the key exporter is Dole Philippines.  The company has about 370 hectares planted to avocados in Mindanao.  Its present export markets are Malaysia, Indonesia, Hong Kong and the Middle East.  It is a no-brainer that in the coming years, China will be the biggest export market.  The Chinese appetite for all types of high-value crops should be an incentive for the Philippines to finally put its act together in improving the productivity of the agricultural sector, especially as regards high-value crops.  But let us first produce for own needs and then do a good job in increasing the productivity of the agribusiness sector so that we can have sufficient for our own needs and a surplus for export.   For comments, my email address is bernardo.villegas@uap.asia.