Bernardo M. Villegas
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Leapfrogging Productivity Increase in Agribusiness

          When President Duterte recently said that the economy is in the doldrums, he would have been accurate if he had been referring to the agricultural sector.  Agriculture has been in the doldrums in the Philippines for decades.  It has been the slowest growing sector as compared to industry and services.  In contrast with the neighboring ASEAN countries’ agricultural sectors, our own is pitifully behind, especially when compared with agribusiness behemoths like Thailand, Malaysia and Vietnam.  The reason for this shameful state of the sector which accounts for 75 percent of the Philippine poor is not hard to find.  We fragmented agricultural lands through CARP and then abandoned the farmer beneficiaries to their own devices.  We did not help them with farm-to-market roads, irrigation systems, post-harvest facilities and all the support services that small farmers need to make their lands productive and profitable.  Hopefully, we are seeing the Build Build Build program of the present Administration addressing this problem.  The great bulk of the capital budget of the Government for infrastructure is being spent in the countryside, not in the urban areas.  If this healthy trend is continued by future Governments at least for the next twelve to twenty years, the Philippine agribusiness sector may have a chance of meeting the greatest challenge of Asia in the coming years:  food security.

         Another imperative for the coming decade or so is to restructure the agrarian reform program to make way for the consolidation of the small farms into larger farming units to attain economies of scale. This can be done through contract farming, cooperatives or the nucleus estate system used by Malaysia and Indonesia to attain very high productivity in the growing of palm oil and rubber. The process has begun in Mindanao, following the already tested examples of banana and pineapple plantations.  A most exciting possibility is the adoption of one of these approaches of consolidating small farm lots into bigger plantation units in the coconut industry, as is already happening in some pioneering plantations in Palawan and Quezon province.  The lead organizations here should be the Land Bank and the Cooperative Development Authority, among others.  There is room here also for professional management group that can act as the consolidator of small farms.  We need not only technology experts here but also specialists in organizational and people management who can meet the challenge of motivating our individualistic farmers to adopt the cooperative mode in the various phases of agribusiness, from farming to retailing the finished products.  This is no easy task and will take time.  Increasing agribusiness productivity should be a long-term commitment of all the stakeholders.

         Since we are the laggard in the productivity of the agribusiness sector (which covers not only farming but post-harvest, logistics and processing), we may have to leapfrog the increase in productivity by applying digital technology to this primary sector of the economy.  China—which is the most worried about feeding 1.3 billion people in the coming years—may be showing the way in the use of digital technology in agriculture.  I hope our managers and technical experts are closely watching what is happening in the Chinese agricultural sector.

         A recent article in the Financial Times entitled “Alibaba looks to bring home bacon with artificial intelligence in farmyard” contains very interesting information on how Artificial Intelligence (AI) can help to significantly increase Chinese food production in increasingly limited land (two thirds of China is mountain or desert).  For example, Alibaba, the China tech group that is using AI to help cities and its own ecommerce operation run more efficiently, is taking the same technologies—including voice recognition and smart sensors—to monitor hogs’ activity and prune costs at apple orchards.   Since China is the biggest consumer of pork in the world, there is need for their hogs producers to be very productive.  Alibaba is helping the industry to attain higher productivity by using AI tech and smart sensors to monitor the activity and health of the hogs.  The data that will result from this monitoring will be turned into a real time report card:  more exercise for slothful ones that need to burn fat and grow more meat or increasing feed for pregnant sows.  AI technology can also help to detect sick hogs and collect data—such as the quality of feed—allowing the farmer to create the optimal environment for the herd, crops, or orchards.

         AI can help boost the productivity of hog production in a very significant way.  The use of AI could lead to three more piglets born per sow and cut the newborn death rate.   That would lift the number of pigs per sow per year to 32, bringing China to the level of advanced pig-farming countries.  This increase will be a timely aid to the hog farmers in China as they face higher tariffs that will be imposed on pork imports from the US in view of the trade war started by President Trump.  Already one of the largest hog breeders in Sichuan province, the Tequ Group, is contemplating using the Alibaba technology to attain its goal of breeding 10 million pigs by 2020, “a scale that no ordinary automation system could cope with, let alone a human system,” said Tequ chairman Degen Wang. I hope that the largest poultry project in the Philippines—that of Cargill in partnership with Jollibee in the province of Batangas—will already be using some AI technology.  We need some pioneering ventures to show the way.

         China is not alone in applying digital technology to the agribusiness sector.  One of the largest milk producers in New Zealand, Fonterra (from whom the Philippines imports large volumes of skimmed milk) is using data analytics to route its fleet of milk tankers, while Salesforce, the biggest “software as a service” group, is counting more farming groups among its clients. Other examples of application of digital technology to agriculture are the use of smart tractors that send an alert when a part is faulty or know at which row to switch from corn to soybeans and how to manage the whole supply chain.  As we build more infrastructures in the countryside to help the small farmers to be more productive and restructure our agrarian reform program to allow for consolidation of small farms into bigger units, we should already follow the example of the Chinese in applying modern digital technology to squeeze more productivity from the various stages of agribusiness:   from farming to post harvest to wholesaling to processing and finally to retailing.  As Ms. Bova of Salesforce commented to the Financial Times: “The biggest problem we have is that there will be billions more people on the planet, and how do we feed them in a sustainable way?  It is almost impossible without technology stepping in.”  For comments, my email address is bernardo.villegas@uap.asia. (Errata:  In a previous column, I erroneously referred to Mr. Edwin Bautista as CEO of BDO Bank.  Mr. Bautista is the President of Union Bank.  The CEO of BDO bank is Mr. Nestor Tan.)