Page last updated at 05:38 CST6CDT, Friday, 02 March 2018 PH
A leading agribusiness guru in the Philippines, Dr. Rolando Dy, has done it again. He has added to a long list of publications on the Philippine agribusiness sector a most valuable factbook on agricultural logistics in the Philippines. With a generous funding from the family of the late Engr. David M. Consunji, considered the father of the Philippine construction sector, he has come out with a literature review of existing materials on logistics, with a special focus on agricultural logistics. In all listings of the sunrise industries in the Philippines over the coming decades, supply chain or logistics is always included. Within this broad sector is agricultural logistics which, in turn, is an important part of the agribusiness industry.
Because of the long-term neglect of the entire agricultural sector over the last forty years or so of Philippine development, It is no surprise that Dr. Dy characterizes the Philippine logistics system as “cost-inefficient, unresponsive to customers and market requirements and unreliable”, quoting from the Philippine Development Plan 2011 to 2016. This sad state of affairs explains to a large extent the high costs of food products. In fact, compared to developed countries, distribution and processing costs in the Philippines are 20 to 30 percent higher, with logistics costs accounting for almost 30 to 40 percent of total marketing costs. The light at the end of the dark tunnel may be found in the present Government’s much vaunted Build, Build, Build program which is meant to improve public infrastructures, especially in the countryside where the worst damage on consumer welfare has been inflicted. As Dr. Dy comments in the book, “The ineffective logistics prices coupled with inappropriate post-harvest handling have, likewise, resulted in huge post-harvest losses.” Already suffering from low productivity at the farm level, farmers are hit with a double whammy with post-harvest losses as high as 48 percent for fruits, 16 to 40 percent for vegetables, 14.8 percent for rice and 7.2 percent for corn. No wonder that the highest rates of poverty are among the farmers.
The impact of inefficient logistics on inflation is quite obvious. According to the Department of Trade and Industry (DTI), logistics costs account for 24 to 53 percent of wholesale prices while shipping and port handling costs cover 8 to 30 percent, depending on the goods’ route, and roughly 5 percent of the retail price of goods. A study of Cecilio Costales found that logistics cost accounts for almost 30 to 40 percent of the total cost of distribution, processing and marketing of commodities. These high costs are due to product delivery delays, high percentage of unfilled orders, and long lead time with adverse impact on product quality and output price. Another study by Jun T. Castro indicated that total transport and logistics cost is about 24 to 43 percent of the wholesale price. Contributing to these high costs are post-harvest services, non-port handling, port services, shipping and trucking. Almost 40 percent of harvested fruits and vegetables are spoiled and 20 percent of corn produce are wasted during transport.
As has been emphasized over and over again during the current Administration, the Philippines has underinvested in infrastructure, especially in the countryside. Spending averaged only two to three percent of GDP, compared to the five percent norm for the other ASEAN countries. It was only in the last years of the Administration of former President Benigno Aquino III that infrastructure spending reached 4 percent in 2015 and 5 percent in 2016. Under the Government of President Duterte, the target is to spend 7 percent of GDP on infrastructure by 2022. In a study conducted by Price Waterhouse in the Philippines, transport costs were found to be especially high in the Philippines because of paucity of railroad networks, the lowest cost of transportation anywhere in the word. To make matters worse, ports are congested, resulting in higher storage costs and repetitive trips. Roads are in poor conditions and existing weight limits increase costs and the number of trips for delivery trucks. Major airports lack runway capacity (especially in the National Capital Region) which leads to a natural ceiling on the number of flights available.
The inadequacy of infrastructure is especially critical in the island of Mindanao which is touted as the country’s food basket. In the study of Castro already cited above, the major issues to be addressed to transform Mindanao into a real food basket are as follows:
--Paving of provincial and local roads is critical in order to expand agricultural areas and to prevent agricultural products from spoiling. All roads leading to production sites should be upgraded to all-weather status.
--There is poor linkage to other modes of transport such as ferry services and seaports.
--Focus should be geared towards improving connectivity in intermodal transfers. For example, roads linked to seaports should be improved to enhance the functions of the port as a gateway.
--Inadequate maintenance is a crucial issue affecting the sustainability of roads in Mindanao, particularly those providing basic access to production sites, farms, markets and trading centers. A major part of the maintenance problem has been attributed to lack of resources by local officials.
--Road structures, such as drainage systems and traffic signals, are usually not provided, thus compromising road quality and safety.
Dr. Rolando Dy has done a great service to the present Administration by enumerating these logistics issues and challenges that should be addressed in the next five years or so in order to help the Philippines achieve its potentials as a major provider of agribusiness products for its own growing population and for the high-income markets of Northeast Asia, especially China and Japan whose major concern in the coming decades will be food security. The Philippines has much to do to catch up with its Southeast Asian neighbors, especially Thailand, Malaysia and Vietnam, in improving the competitiveness of its agribusiness sector. Lowering its logistics costs is an indispensable part of the solution. The book Agricultural Logistics in the Philippines is available in the leading book stores as well as in the University of Asia and the Pacific. For comments, my email address is email@example.com.