VALUE CHAIN ANALYSIS AND COMPETITIVENESS STRATEGY: ABACA FIBER Mindanao

Transcription

1 PHILIPPINE RURAL DEVELOPMENT PROJECT (PRDP) I-PLAN Component Mindanao Cluster VALUE CHAIN ANALYSIS AND COMPETITIVENESS STRATEGY: ABACA FIBER Mindanao DEPARTMENT OF AGRICULTURE Mindanao Regions Página 0 October 2014

2 CONTENT CONTENTS Page EXECUTIVE SUMMARY 7 Section 1: INTRODUCTION 10 A. Background Information and Objectives 10 B. VCA Objectives 11 C. Methodology and Approach 11 Section 2: OVERVIEW OF THE INDUSTRY 13 A. Production Description 13 B. Production Trends 15 Section 3: NATURE AND STRUCTURE OF INDUSTRY 25 A. Value Chain Mapping 25 B Key Players and Function 26 C. Nature of Interfirm Relationship 33 D. Price and Cost Structure 35 Section 4: MARKETS AND MARKET OPPORTUNITIES 38 A. Markets and Market Trends 38 B. Price Trends 50 Section 5: SUPPORT MARKETS 53 A. Financial Services 53 B. Non-Financial Services 53 Section 6: ENABLING ENVIRONMENT 55 A. Formal Rules, Regulations, and Policies 55 B. Informal Rules and Socio-Cultural Norms 56 Section 7: CONSTRAINTS AND OPPORTUNITIES 59 Section 8: COMPETITIVENESS DIRECTIONS 66 A. Competitiveness Vision 66 B. Priority Constraints/Opportunities and Interventions 67 Section 9: CONCLUSIONS AND RECOMMENDATIONS 79 Annex 1, 2, 3, 4, 5, AND 6: PRIORITIZATION OF INTERVENTION STRATEGY PER REGION 81 1

3 LI T OF TABLE No. Title Page 1 Standard Grades of Hand- and Spindle Stripped Fiber 13 2 Uses of Abaca Fiber and Grade Requirements 14 3 Key Abaca Products Produced and Traded by Mindanao Regions 15 4 World Production of Abaca Fiber, 2008 to Abaca Production in the Philippines, PhilFIDA and BAS data, Abaca Production in the Philippines ranked according to Volume Top 10 Abaca Producing Provinces in the Philippines, Abaca Production in Mindanao, 2009 and Abaca Production Trends in Zamboanga Peninsula, 2009 to Abaca Production Trends in Northern Mindanao, 2009 to Abaca Production Trends in Davao Region, 2009 to Abaca Production Trends in SOCCSKSARGEN, 2009 to Abaca Production Trends in CARAGA, 2009 to Abaca Production Trends in ARMM, 2009 to Volume of Abaca Baling by Grade in Mindanao Regions, Jan Nov Breakdown of Postharvest Facilities in Davao Region, Licensed Abaca Intermediaries in Mindanao, Projected Abaca Fiber Requirement per Month: NPI List of Licensed Processors in Mindanao, 2013 to Cost and Return Analysis of Low Input System One Hectare Farm in Mindanao Regions, Relative Financial Position of VC Players in the Mindanao Abaca Industry World Export Volume of Abaca Fiber and Manufactures, 2008 to World Exports in Fiber Equivalent, 2008 to World Imports of Abaca and Manufactures, 2008 to Philippine Importation of Abaca Fiber Annual Domestic Consumption of Abaca Fiber by Subsector, 2003 to Projected Consumption of Fiber for Exports Weighted Average of Export Prices of Abaca Fiber: HANDSTRIPPED Weighted Average of Export Prices of Abaca Fiber: SPINDLE STRIPPED Farm Gate Price of Abaca Fiber, 2009 to

4 No. Title Page 31 GBE Prices of the Different Grades of Abaca Fibers, 2011 and Services Provided by Government Agencies Tariffs on Abaca and Abaca Products for Selected Major Importers Constraints and Opportunities Summary of Constraints/Opportunities and Interventions 71 3

5 LI T OF FIGURE No. Title Page 1 Uses of Abaca 13 2 Breakdown of Abaca Production in the Philippines by Island Group, Value Chain Map of Abaca Industry in Mindanao 25 4 Geographic Flow Of Abaca Fibers 26 5 Percentage Breakdown of Abaca Fiber Production by Method of Stripping, Jan Nov Relative Financial Position of VC Players in the Mindanao Abaca Industry 36 7 Percentage Breakdown of World Export of Abaca Fiber by Originating Countries, 2008 to Percentage Breakdown of Abaca Fiber Exports by Destination, World Abaca Exports by Product Group, 2008 to Percentage Distribution of World Abaca Cordage Exports by Destination, Percentage Distribution of World Abaca Pulp Exports by Destination, Abaca Handicraft Exports TADECO Livelihood and Training Center Glatfelter/New Tech Pulp Sustainability Initiative in Catanduanes Ahlstom Sustainability Certification Initiative in the Philippines Indicative Percentage Utilization/Consumption of Abaca in the Philippines, Denims with 40% abaca by Asia Textile Mills Synthesis of Competitiveness Vision, 2014 to

6 ACRONYM ACEF ACPC ACCESS AFMP AMCFP ASEAN ARMM BAFPS BACs BAS BAPC BSWM BPI CASI CSU DA DA-BAR DENR DOH DOST DTI FAO FEP FGD FSC GAP GBEs GATT GMP ha KRLTC KII LBP LGU MFIs MFI MHT MLGU MRDP MT NCCAP PCIP Agricultural Competitiveness Enhancement Fund Agricultural Credit Policy Council Accelerating Change in the Countryside thru Equity Sharing Strategy Agri-Fishery Microfinance Program Agro-Industry Modernization Credit Finance Program Association of Southeast Asian Nations Autonomous Region in Muslim Mindanao Bureau of Agricultural and Fisheries Product Standards Bank-Accredited Cooperatives Bureau of Agricultural Statistics Bukidnon Agricultural Productivity Center Bureau of Soils and Water Management Bureau of Plant and Industry Catanduanes Abaca Sustainable Initiative Caraga State University Department of Agriculture Department of Agriculture Bureau of Agriculture Research Department of Environment and Natural Resources Department of Health Department of Science and Technology Department of Trade and Industry Food and Agriculture Organization Farmer Entrepreneurship Program Focus Group Discussion Forest Stewardship Council Good Agricultural Practices (Global GAP) Grading and Bailing Establishments General Agreement on Tariffs and Trade Good Manufacturing Practices Hectare(s) Kawiagan sa Ranao Livelihood Training Center Key Informant Interview Land Bank of the Philippines Local Government Unit Micro Financing Institutions Most Favoured Nation Manila Hemp Trading (Abaca Pulp) Municipal Local Government Units Mindanao Rural Development Program Metric Tons National Climate Change Action Plan Provincial Commodity Investment Plan 5

7 PDP PhilFID PLGUs PRDP PSA RCEP SAS SPMI SOCCSKSARGEN SUCs VCA WII Philippine Development Plan Philippine Fiber Industry Development Authority Provincial Local Government Units Philippine Rural Development Project Philippine Statistics Authority Regional Comprehensive Economic Partnership Sustainable Agriculture Standard Specialty Pulp Manufacturing Incorporated South Cotabato, Cotabato, Sultan Kudarat, Sarangani and General Santos City State Universities and Colleges Value Chain Analysis Weather-based index 6

8 EXECUTIVE UMMARY This report provides an overview and analysis of the Abaca industry in Mindanao with the aim of identifying main leverage points and key strategies to improve competitiveness and promote development in a pro-poor and sustainable manner. It will provide the basis for the formulation of the P o i ial Co odit I est e t Pla a d ill la the fou datio fo P DP s oope atio ith the private sector and other government agencies active in the Abaca industry. Abaca fiber is superior over all other natural fibers because of its great strength and its resistance to the action of water. Considered the strongest of natural fibers, it is three times stronger than cotton. The p odu t is k o o ld ide as the Ma ila He p, ith the Philippi es as the top p odu er and exporter. The country trades five types of Philippine abaca products in the world market, namely: fiber, pulp, cordage, yarns and fabrics, and fibercraft. World production of abaca in 2012 reached 77.9 thousand metric tons (MT). The Philippines accounted for 83% of the world production. The second largest abaca producing country is Ecuador, where abaca is grown on large estates and production is increasingly mechanized. In the Philippines, the abaca sector consists mainly of smallholders. Production from other Southeast countries comprised 2% of the world production. The abaca industry is threatened by serious and aggressive moves by Indonesia to massively p odu e a a a u de its go e e t s efo estatio p og a. In the Philippines, abaca is grown in 56 provinces. According to the Bureau of Agricultural Statistics (BAS)/Philippine Statistics Authority (PSA) the country produced 68, MT of abaca fiber in. As pe PhilFIDA s data, Philippi es p odu ed a total of,. MT of a a a fi e. A a a is cultivated in 138,369 hectares in Although, Mindanao accounted for 32% of the area planted to abaca, the highest production was accounted by Bicol Region at 24,078 MT, followed by Eastern Visayas with 16,597 MT. Three of the six regions in Mindanao namely: Davao Region, Caraga, and ARMM are among the top 5 abaca producing regions in the Philippines. Mindanao regions accounted for 34% of the total production. National average yield in 2013 was 470 kilograms per hectare. The top 3 high yielding regions are ARMM (620 kg/ha), Caraga (560 kg/ha), and Davao Region (550 kg/ha). Bicol Region ranks 4 th in terms of average yield. Average yield of all Mindanao regions was at 490 kilograms per hectare, which is 4% higher than the national average. The top abaca producing province in the Philippines is Catanduanes. Among the top 10 producing provinces, it also has the highest yield at 820 kilograms per hectare. Abaca farms in Catanduanes are among the first who have achieved a Rainforest Alliance Certification on Sustainable Farming. Between the period 2009 and 2013, Philippine abaca production decreased by 1%. Total production in Mindanao in 2013, however, decreased by 7% over 2009 performance. Among Mindanao regions, Davao had the highest percentage decrease in production at 29% due to typhoon devastation. On the other hand, Zamboanga Peninsula registered the highest percentage increase at 198%. The abaca supply chain is typified by a multi-layer system of trading. The raw fibers are mostly collected by the provincial and municipal intermediaries who sell to Grading Baling Establishments (GBEs) and processors. For abaca farms situated in remote areas, barangay intermediaries consolidate the raw fibers of neighboring farmers, before selling them to municipal or provincial traders. For cooperatives engaged in trading, they sell either to GBEs or to higher level traders or directly to processors or manufacturers depending on the volume they have accumulated. 7

9 Intermediaries consist of traders, buying stations, and the GBEs. Traders are classified depending on the volume of fibers traded. The typical size of abaca farms in Mindanao ranges from 1 to 2 hectares. Many of the farms are located in upland and secondary forests and cultivated by indigenous people who obtained their land they are currently toiling from ancestral domain areas. Planting is generally dependent on available number of seedlings readily accessible to farmers. Farmers tend to pay less attention to their abaca farms especially during the first 18 months. The first harvest is done 18 to 24 months after planting. The stalks are considered mature and ready for harvest when the flag leaf finally appears. Subsequent harvests are done at 3 to 4 month intervals. Farmers across all regions indicate the lack of mechanical stripping machine and drying facility as the key constraint in producing high quality fiber. Tuxying is usually done in the farm. The amount of tuxy recovered by weight of the stalk and the quantity produced per unit of time are dependent on the skill of the tuxeros. Stripping is done either by hand or mechanical means. Cooperatives that are into trading have mechanical/spindle stripping machine provided by various funding organizations. Fiber recovery when spindle stripping machine is used is about 43% compared to 29% when stripping is done by hand. There are 6 abaca pulp mills operating in the Philippines; 1 in Laguna, 2 in Bicol; 2 in Leyte and 1 in Mindanao. These processors consume about 63% of the total abaca fiber produced and account for 71.2% of domestic consumption. Based in Iligan-Northern Mindanao, NewTech Pulp, Inc. (NPI) is the biggest pulping plant in the world with rated capacity of 60 MT per day. Out of 7 cordage manufactures operating in The Philippines, 2 companies operates in Davao Region, while the fibercraft subsector, including handmade papermaking and carpet manufacturing, consists primarily of micro and small enterprises that cater mostly the domestic market. Most of the fibercraft exports are located in Bicol and Cebu. While majority of the abaca farmers are members of associations and/or cooperatives, Relationship between abaca farmers and trade s, a d t ade s a d GBEs/la ge p o esso s is ge e all a s le gth although the e is a se la e of lo g-te elatio ship th ough the suki-system. Market relationships, in general, did not permit close cooperation between suppliers and buyers and hardly contributed to the systemic upgrading of the supply chain. World export volume in 2012 was about 44.5 thousand MT. Philippines accounted for 75% of the total e po t olu e a d E uado supplied the e ai i g %. E uado s e po ts o sisted ai l of raw fibers while exports from the Philippines comprised primarily of abaca manufactures, with fiber comprising only 13% of the exported products. Total export volume in fiber equivalent in 2012 was about 66.4 thousand MT. Philippines accounted for 83% while E uado s sha e as at %. E uado recently announced that it would cut down its abaca production by as much as 7,000 MT next year. Major importers of abaca products are the European countries, United States, and Japan. The Philippines would need a supply of about thousand MT of abaca fiber. This implies the need to double current production of abaca fiber. More importantly, there is a need to focus interventions towards the production of excellent and good quality fiber. To sustain and grow the world market for abaca, the industry has to ensure reliability of supply and improve its price competitiveness vis-à-vis synthetic substitutes and other natural fibers. Likewise, industry players also recognize that improved compliance to social and environment standards will 8

10 play an important role in sustaining and developing new markets as well as in ensuring the long-term sustainability of the industry. Achievement of these objectives requires a number of priority steps to be taken: a) Adequate supply of disease resistant planting materials, which give higher yields of superior fiber b) Improved soil nutrient management and fertilizer use c) Enhanced flow and quality of extension services to facilitate adoption of good agronomic practices and achievement of sustainability certification d) e) Increased availability and access to mechanized and efficient postharvest technologies necessary for the consistent production of high quality fiber Improved physical/infrastructure linkages to input, support, and product markets f) Improved incentives to produce quality fiber and pricing transparency and consistency g) Improved communication, coordination, and collaboration between and among value chain players 9

11 e tio : INTRODUCTION A. BACKGROUND INFORMATION AND OBJECTIVES1 The agricultural sector strategy (Agri-Pinoy) embodied in the Philippine Development Plan (PDP) for advances the principles of inclusive growth, food staple sufficiency, natural resource management and area-based development. Agri-Pinoy also includes the following new strategies: (i) institutionalizing regionally-based, spatial planning (ii) developing a systems approach for both planning and resource allocation; (iii) providing the critical infrastructure needed by priority value chains; and (iv) building a more resilient production base to accommodate fluctuations in global markets and effects of climate change. Complementing the Agri-Pinoy strategy is the National Climate Change Action Plan (NCCAP) which highlights the priority to be given to the rural sector in pursuing climate adaptation measures. The Philippine Rural Development Project (PRDP), a flagship project of the Department of Agriculture (DA), is aligned with the Agri-Pinoy strategy. It is a six-year project ( ) designed to esta lish the go e e t s platfo fo a ode, li ate-smart and market-oriented agrifishery sector. Externally, it will focus on expanding market access and improving competitiveness. Internally, it will introduce reforms in operating the DA bureaucracy. Specifically, it aims to achieve the following development objectives: At least, five percent (5%) increase in annual real household incomes of farmer beneficiaries; 30% increase in income for targeted beneficiaries of enterprise development Seven percent (7%) increase in value of annual marketed output 20% increase in number of farmers & fishers with improved access to DA services To facilitate the achievement of above objectives, the project has four main components, namely: I-PLAN: Investment for AFMP Planning at the Local and National levels I-BUILD: Intensified Building-Up of Infrastructure and Logistics for Development I-REAP: Investments for Rural Enterprises and Agricultural and Fisheries Productivity I-SUPPORT: Implementation Support to PRDP The design of PRDP and its implementation aspects draw heavily on the experiences of the Mindanao Rural Development Projects (MRDP 1 and 2), a program that has been successfully implemented over the past decade. The project adopts a value chain development approach as a platform for promoting inclusive, climate resilient, and sustainable growth in key agricultural subsectors and value chains..abaca is one of the priority products of Mindanao. World production is valued at around USD60 million a year. The Philippines is the top producer and exporter of abaca. In 2013, Mindanao accounted for 34% of the production. The industry sustains more than 1.5 million Filipinos who, directly or indirectly, depend on it for a living. Direct dependents include abaca farmers, classifiers/sorters, manufacturers, traders, exporters and hundreds of fiber craft processors who provide employment to thousands of Filipinos. Overview of PRDP was taken from the Program Information Document World Bank website 1 10

12 Abaca is a very suitable plant for incorporation in the rain forestation farming system. It can be successfully used as cover crop especially in former monoculture coconut plantations. Intercropping of abaca with coconut palms and other tree species on the hillsides will improve the conditions for biodiversity and prevent soil erosion. The water holding capacity of the soil will be improved and floods and landslides will also be prevented. B. OBJECTIVES OF THE VCA This report provides an overview and analysis of the abaca fiber value chain, linking the international context to the national, regional, and provincial contexts, with the aim of identifying main leverage points and key strategies to improve Mindanao s ompetitiveness and promote development in a pro-poor and sustainable manner. It will provide the basis for the formulation of the Provincial Co odit I est e t Pla a d ill la the fou datio fo P DP s oope atio ith the p i ate sector and other government agencies active in the abaca fiber industry. Specifically, the value chain analysis aims to: a) Provide an in-depth understanding of the range of factors and relationships that affect the performance of the abaca fiber industry in Mindanao and its regions in general, including end markets, enabling environment and coordination/cooperation among firms. b) Identify in a participatory process the systemic chain level issues that hinder or promote the gainful participation of rural households, sustainability of the chain, and its competitiveness in general. c) Under a participatory process, identify and prioritize interventions needed to overcome bottlenecks throughout the chain that would foster value chain competitiveness and climate change resiliency. d) Identify and explore how to catalyse private and public sector stakeholders in the abaca industry to collaborate for improved industry performance C. METHODOLOGY AND APPROACH An initial desk study was conducted to collect and summarize information from currently available reports and studies. It provided guidance to issues that needed to be the focus of field research. The field work component of the study was conducted using qualitative research techniques particularly Key Informant Interviews (KII) and Focus Group Discussions (FGDs). Key informants and participants to the FGDs consisted of farmers, traders, manufacturers, converters, and representatives from relevant government agencies. Key informant interviews were used for collecting data on individuals pe spe ti es, e pe ie es, a d ua titati e data. FGDs e e effe ti e i ge e ati g broad overviews of issues of concerns to the groups or subgroups represented and in the triangulation/vetting of information obtained from the KII. Constraints and interventions were identified and further elaborated based on iterative and inductive analysis of responses during the KII and FGD/Stakeholders Workshop primarily from the following perspectives: 11

13 Context of key informants and FGD participants Third party observations (e.g., government agencies, providers, VC facilitators with experience in abaca VC development projects, etc.) were important for suggesting important issues to explore and for substantiating the results of the interviews Experiences of other abaca producing areas such as Regions V and VIII and Ecuador Past assessment studies of the Philippine abaca fiber industry 12

14 e tio : OVERVIEW OF THE INDU TRY A. PRODUCT DESCRIPTION The most important part of the abaca is the stalk which is the source of the fiber. Abaca fiber is superior over all other natural fibers because of its great strength and its resistance to the action of water. Considered the strongest of natural fibers, it is three times stronger than cotton. The product is k o o ld ide as the Ma ila He p, ith the Philippi es as the top producer and exporter. The official standard grades of abaca fiber are divided into three (3) classes depending on the manner of extraction, namely: hand-stripping, spindle-stripping and decortication. Quality is determined by strength, cleaning, color, texture and length of the fiber. In terms of cleaning (which is a direct result of the stripping knife used), the standard grades for hand- and spindle-stripped are:2 Table 1.- Standard Grades of Hand- and Spindle Stripped Fiber Classification Grade Excellent S2, S3 Good I, G, H 2 FIDA Website 13

15 Table 1.- Standard Grades of Hand- and Spindle Stripped Fiber Classification Grade Fair JK, M1 Coarse L Residual Y1, Y2, O, T, WS Spindle-st ipped a a a fi e s a e i di ated and so on. the lette efo e the official grade, i.e., S-S2, S-I, Source: Phil FIDA Website The country trades five types of Philippine abaca products in the world market, namely: fiber, pulp, cordage, yarns and fabrics, and fiber craft. Table 2 shows the different uses of abaca and their corresponding grade requirements: Table 2.- Uses of Abaca Fiber and Grade Requirements Uses Grade/Type Cordage Products: ropes, twines, marine cordage, binders, cord Pulp and paper manufactures: Tea bags, filter paper, mimeograph stencil, base tissue, sausage skin, base paper Cigarette paper, currency paper, chart file folders, envelopes, time cards, book binders and parchment paper S2, S3, I, G, JK, MI, Y S2, I, G G, JK, M1, Y, OT Microglass air filters media, x-ray negative, optical lens wiper, vacuum filter, oil filter S2, I, G, JK Nonwoven: medical gas masks and gowns, diapers, hospital linens, bed sheets S2, I, G, JK Handmade paper: paper sheets, stationeries, all-purpose cards, lamp shades, balls, dividers, placemats, bags, photo frames and albums, flowers, table clock All grades including wastes Fiber crafts: handbags, hammocks, placemats, rugs, carpets, purses and wallets, fishnets, door mats, table clock S2, G Handwoven fabrics: Sinamay, pinukpok, tinalak, dagmay Sacks, hotpads, hemp, coasters Baskets Wallpaper High grades S3, H Lupis and bacbac S2, G, KJ, Y Furniture S2, bacbac Others - wire insulator components/composites and cable, automobile, automobile JK, M1, Y, OT Source: PhilFIDA Website Mindanao is a producer of both abaca fiber and finished products, with Davao Region and Caraga as its biggest producers in terms of volume and area planted. Key abaca products produced and traded by Mindanao are presented in Table 3. 14

16 Table 3.- Key Abaca Products Produced and Traded by Mindanao Regions Region Fiber Pulp Cordage Fibercraft Zamboanga Peninsula Northern Mindanao Davao Region Soccsksargen Caraga ARMM Source: KII/FGD B. PRODUCTION TRENDS 1. Global Production World production of abaca in 2012 reached 77.9 thousand metric tons (MT). The Philippines accounted for 83% of the world production. The second largest abaca producing country is Ecuador, where abaca is grown on large estates and production is increasingly mechanized. In the Philippines, the abaca sector consists mainly of smallholders. Philippine abaca has nine grades for each type of cleaning compared to the five grades of Ecuador. As such, Philippine abaca presents a wider spectrum of quality choices and answers the various needs of different manufacturers like the papermaking industry. Production from other Southeast countries comprised 2% of the world production. The abaca industry is threatened by serious and aggressive moves by Indonesia to massively produce abaca u de its go e e t s efo estatio p og a. It is also said that a a a p odu tio i Ke a a d Equatorial Guinea is also increasing. Table 4. World Production of Abaca Fiber, 2008 to 2012 Country World Philippines Ecuador Other Countries Volu e MT % Share 100% 100% 100% 100% 100% Volu e MT % Share 85% 82% 82% 86% 83% % Share 13% 16% 16% 11% 14% Volu e MT % Share 2% 3% 3% 2% 3% Volu e MT Note: Philippine production volume statistics above are not consistent with BAS data. It would seem that the FAO statistical bulletin took the PhilFIDA statistics. Source: FAO Statistical Bulletin on Fibers/September

17 In the Philippines, abaca is grown in 56 provinces. According to the Bureau of Agricultural Statistics (BAS)/Philippine Statistics Authority (PSA), the country produced 68, MT of abaca fiber in As per PhilFIDA s data, Philippines produced a total of 64, MT of abaca fiber. To be consistent with the other VCA reports, BAS data will be used in this subsection. Table 5. Abaca Production in the Philippines, PhilFIDA and BAS data, PhilFIDA BAS/PSA 2011 Production Volume 73, , Production Volume 64, , % Share to World Market 83% 88% (12%) (0.15%) % Change in Production: 2012/11 2. Domestic Production Table 6. Abaca Production in the Philippines ranked according to Volume Region Volume (MT) Area (Ha) Yield (MT/ha) % to RP Vol PHILIPPINES 64, , % Bicol Region 24,078 44, % Eastern Visayas 16,597 36, % Davao Region 7,269 13, % Caraga 5,828 10, % ARMM 4,974 8, % Northern Mindanao 2,244 5, % Western Visayas 1,741 6, % Soccsksargen 954 5, % Zamboanga Peninsula 590 1, % Central Visayas 415 3, % Mimaropa 121 1, % Central Luzon % Calabarzon % CAR % Source: BAS/PSA Abaca is cultivated in 138,369 hectares in Collectively, Mindanao accounted for 32% of the area planted to abaca. Total national production was reported at 64,952 MT with the highest production in Bicol Region at 24,078 MT followed by Eastern Visayas with 16,597 MT. Three of the six regions in Mindanao namely: Davao Region, Caraga, and ARMM are among the top 5 abaca producing regions in the Philippines. Mindanao regions accounted for 34% of the total production. National average yield in 2013 was 470 kilograms per hectare. The top 3 high yielding regions are ARMM (620 kg/ha), Caraga (560 kg/ha), and Davao Region (550 kg/ha). Bicol Region ranks 4 th in 16

18 terms of average yield. Average yield of all Mindanao regions was at 490 kilograms per hectare, which is 4% higher than the national average. The low productivity of abaca farms in the Philippines has been attributed to use of poor quality of planting materials and disease incidence. Viruses such abaca bunchy top, abaca mosaic, and abaca bract mosaic are the top three diseases affecting abaca farms. The top abaca producing province in the Philippines is Catanduanes. Among the top 10 producing provinces, it also has the highest yield at 820 kilograms per hectare. Abaca farms in Catanduanes are among the first who have achieved a Rainforest Alliance Certification on Sustainable Farming. With its high volume, lead firms tend to focus more on Catanduanes especially in connection with the achievement of the Rainforest Alliance certification. Northern Samar and Leyte ranked second and third, respectively. Six provinces from Mindanao comprised the rest of the top 10 abaca producing provinces in the country. Table 7. Top 10 Abaca Producing Provinces in the Philippines, 2013 Province Volume (MT) Area (Ha) Average Yield (MT/ha) Catanduanes 20,092 24, Northern Samar 7,434 12, Leyte 4,833 11, Surigao del Sur 3,625 5, Davao Oriental 3,484 6, Sulu 3,196 5, Davao del Sur 3,067 6, Southern Leyte 2,498 5, Lanao del Sur 1,696 2, Agusan del Sur 1,674 3,

19 Table 7. Top 10 Abaca Producing Provinces in the Philippines, 2013 Other Provinces 12,971 Legend 52, Mindanao Province Source: BAS/PSA Between the period 2009 and 2013, Philippine abaca production decreased by 1%. Total production in Mindanao in 2013, however, decreased by 7% over 2009 performance. The main reasons for the decline in production according to players and key informants interviewed were the viral diseases that affected some of the abaca farms and the destruction of farms caused by Typhoon Pablo. Among Mindanao regions, Davao had the highest percentage decrease in production at -29%. On the other hand, Zamboanga Peninsula registered the highest percentage increase at 198%, but with the lowest volume and area planted among Regions in Mindanao. Table 8. Abaca Production in Mindanao, 2009 and 2013 Regions Production Volume (MT) % Change 2013/ PHILIPPINES % MINDANAO % Zamboanga Peninsula % Northern Mindanao % Davao Region % Soccsksargen % Caraga % ARMM % Source: BAS/PSA Zamboanga Peninsula A Abaca production in the region increased from MT in 2009 to MT in Production was on an increasing trend until 2012 but slightly dipped in 2013 due to decrease in average yield. The decrease in yield was due to fungal diseases. Abaca production in the region is more or less evenly spread out among the four provinces. Zamboanga Sibugay had the highest average yield in Target area for expansion is about 1000 hectares. Trends in Zamboanga Peninsula, 2009 to

20 Table 9.- Abaca Production Trends in Zamboanga Peninsula, 2009 to Annual % Growth Rate % Area Planted 1, , , , , % Average Yield % Volume % Area Planted % Average Yield % Volume % Area Planted % Average Yield % Volume % Area Planted % Average Yield % Volume % Area Planted % Average Yield % Indicators ZAMBOANGA PENINSULA Volume Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City Source: BAS/PSA Northern Mindanao During the last five years, abaca production in Northern Mindanao increased by an average of 5.77% per year. From 2009 to 2013, production consistently increased. Percentage increase in yield was higher than the annual percentage growth in area planted. Bukidnon and Misamis Oriental are the main abaca producing provinces in Northern Mindanao. Production in Bukidnon slightly decreased between 2011 and 2012 slightly decreased because some farms were infested with a disease called virus named alkoheres. Camiguin has the highest average yield but area planted is very small. Misamis Oriental registered the 2nd highest average yield. 19

21 Table 10.- Abaca Production Trends in Northern Mindanao, 2009 to Annual % Growth Rate Volume 1, , , , , % Area Planted 5, , , , , % Average Yield % Volume 1, , , , , % Area Planted 3, , , , , % Average Yield % Volume % Area Planted % Average Yield % Volume % Area Planted % Average Yield % Volume % Area Planted % Average Yield % Volume % Area Planted % Average Yield % Indicators NORTHERN MINDANAO Bukidnon Camiguin Lanao del Norte Misamis Occidental Misamis Oriental Source: BAS/PSA 20

22 Davao Region Table 11.- Abaca Production Trends in Davao Region, 2009 to Annual % Growth Rate Volume 10, , , , , % Area Planted 10, , , , , % Average Yield % Volume % Area Planted % Average Yield % Volume 3, , , , , % Area Planted 3, , , , , % Average Yield % Volume 5, , , , , % Area Planted 6, , , , , % Average Yield % 1, , % Area Planted % Average Yield % Volume % Area Planted % Average Yield % Indicators DAVAO REGION Davao del Norte Davao del Sur Davao Oriental Compostela Valley Volume Davao City Source: BAS/PSA The Davao Region is the leading producer of abaca in Mindanao. Production in the region went down due to the devastation of farms caused by Typhoon Pablo in From a production of 10, MT of abaca fibers in 2009, the region was only able to produce 7, MT of fibers in During the last two years, efforts in the region were focused in rehabilitating production areas devastated by Typhoon Pablo and the expansion of abaca farms. 21

23 Davao Oriental and Compostela Valley remained the major producers of abaca in the region. Davao del Norte and Compostela Valley registered the highest yield in the country at 1.80 Mt/Ha and 1.25 Mt/Ha respectively in Davao City has the third highest yield at 1.14 MT per hectare but area planted to abaca was only 21 hectares. SOCCSKSARGEN Production volume increased from MT in 2009 to MT in During the last five years, area planted to abaca increased by 5.82% per year. Average yield though ranged from 170 to 190 kilograms per hectare. outh Cota ato a ou ted fo % of the egio s p odu tio. Most of the farms are located in the u i ipalities of Lake e u a d T oli. Sarangani is the second ranking abaca producing province in the region. Sultan Kudarat registered the highest average yield at 3.68 MT per hectare but area planted was only 4.25 hectares. Table 12.- Abaca Production Trends in SOCCSKSARGEN, 2009 to Annual % Growth Rate % Area Planted 4, , , , , % Average Yield % Volume % Area Planted % Average Yield % % Area Planted 1, , , , , % Average Yield % % Area Planted 2, , , , , % Average Yield % Volume % Area Planted % Average Yield % Indicators SOCCSKSARGEN Volume North Cotabato Sarangani Volume South Cotabato Volume Sultan Kudarat Source: BAS/PSA 22

24 CARAGA Caraga is in the process of rehabilitating its abaca plantations after being hit by successive typhoons during the last two years. The abaca industry in the region also had problems with pest and disease infestation. Surigao del Sur is the largest abaca producing province in the region and in Mindanao. In 2013, the p o i e a ou ted fo % of the egio s a a a output. Production volume and average yield in Surigao del Sur has been on a declining trend starting 2011 due to sporadic outbreak of the bunchy top disease. Agusan del Sur is another major abaca producer in the region. Production increased by an average of 4.45% per year. The increasing trend in production volume during the last five years can be primarily attributed to yield improvement. Table 13.- Abaca Production Trends in CARAGA, 2009 to Annual % Growth Rate Volume 5, , , , , % Area Planted 9, , , , , % Average Yield % % Area Planted 3, , , , , % Average Yield % Volume 1, , , , , % Area Planted 3, , , , , % Average Yield % Volume % Area Planted % Average Yield % Volume 3, , , , , % Area Planted 3, , , , , % Average Yield % Indicators CARAGA Agusan del Norte Volume Agusan del Sur Surigao del Norte Surigao del Sur Source: BAS/PSA 23

25 ARMM On the average, the region produced an average of 4,860 MT of abaca fiber per year. Sulu and Lanao del Sur are the main abaca producing provinces in the region. In 2013, Sulu accounted for 64% of the production. The towns of Patikul Sulu, Indanan, and Talipao are the major abaca producers in Sulu. During the last five years, farm productivity in Sulu increased by 1.49% per year. It is said that Sulu has one of the best quality of abaca. A a a f o La ao del u o p ised % of the egio s p odu tio. Production decreased from 1,770 MT in 2009 to 1, MT in The decrease was brought about by the decrease in yield due to disease infestation. Table 14.- Abaca Production Trends in ARMM, 2009 to Annual % Growth Rate Volume 4, , , , , % Area Planted 7, , , , , % Average Yield % Volume % Area Planted % Average Yield % Volume 1, , , , , % Area Planted 2, , , , , % Average Yield % Volume % Area Planted % Average Yield % Volume 2, , , , , % Area Planted 5, , , , , % Average Yield % Volume % Area Planted % Average Yield % Indicators ARMM Basilan Lanao del Sur Maguindanao Sulu Tawi-tawi Source: BAS/PSA 24

26 e tio : NATURE AND TRUCTURE OF THE INDU TRY A. VALUE CHAIN MAPPING The abaca supply chain is typified by a multi-layer system of trading. The raw fibers are mostly collected by the provincial and municipal intermediaries who sell to Grading Baling Establishments (GBEs) and processors. For abaca farms situated in remote areas, barangay intermediaries consolidate the raw fibers of neighboring farmers, before selling them to municipal or provincial traders. For cooperatives engaged in trading, they sell either to GBEs or to higher level traders or directly to processors or manufacturers depending on the volume they have accumulated. There are four main abaca marketing channels or supply chains in Mindanao: a) GBEs Supply Chain: GBEs, together with the licensed certifiers they employ, are the only entities duly authorized by the government to sort, grade and distribute baled fibers. These GBEs operate pressing machines for baling of fibers intended for trading in both domestic and international markets. The standard bale of fiber is equivalent to 125 kilograms and measures about 100 cm. X 55 cm. X 60 cm. GBEs sell both to the export market and to domestic processors/manufacturers. Among the GBEs operating in Mindanao, Chingbee, a Davao-based company, is the biggest buyer of a fi e. It is esti ated that the o pa u s % of the ou t s total a fi e suppl 25

27 from major abaca producing provinces in the different parts of the country. A significant percentage of the abaca fibers that pass through Chingbee is passed on to its sister company, Specialty Pulp Manufacturing Incorporated (SPMI), a pulp company based in Baybay - Leyte. b) New Tech Pulp: The pulp manufacturing company is based in Lanao del Norte. The company works with at least 21 consolidators in Mindanao. About 50% of its supply is sourced from Mindanao regions. The company also sources from Catanduanes. c) Davao Cordage Company: The Company, which is based in Davao, sources from GBEs and traders. It also accepts direct deliveries from farmers. While pulp processors require high grade fibers, cordage companies buy the low grade fibers. d) Fibercraft manufacturers: They usually source directly from farmers or farmer groups and small traders. Their volume requirement is low relative to pulp processors and cordage companies. The map below shows the geographic flow of products. B. KEY FUNCTIONS AND PLAYERS 1. Input Provision The following are the different types of planting materials used by abaca farmers: a) corms; b) suckers; and c) tissue-cultured plantlets. Majority of the farmers use the corms and suckers due to 26

28 accessibility and affordability. The corms and suckers are usually sourced from their own farms or from peers via barter. Problems associated with the use of corms and suckers are low yield and vulnerability to viral diseases such as the bunchy-top and mosaic virus. Price of tissue cultured plantlets ranges from PhP 8.00/ piece PhP 10.00/ piece for newly dislodged plantlets and PhP 25.00/ piece for potted ready for field planting. There are still many farmers especially among the indigenous communities who do not fully appreciate the benefits of using tissue cultured plantlets. Likewise, tissue cultured plantlets are not readily available especially so that many of the farms are located in upland areas due to limited capacity of existing tissue culture laboratories and/or lack of nurseries. The following are the existing tissue culture laboratories in Mindanao: a) Provincial Government of Bukidnon Plant Tissue Laboratory b) Abaca Diagnostic Laboratory and the Abaca Tissue Culture Laboratory in Bago Oshiro Fiber Research and Seed Station in Davao City c) Agusan del Sur Tissue Culture Laboratory under the Provincial Agriculture Office d) Plant Tissue Laboratory operated by Caraga State University (CSU) in Ampayon- Butuan City e) Lanao del Sur Tissue Culture Laboratory which is part of the Kawiagan sa Ranao Livelihood Training Center (KRLTC), Fertilizer marketing passes through three levels, namely: importers manufacturers distributors wholesalers dealers and retailers. Over the past years, fertilizer prices have become substantially more expensive for farmers. Price of fertilizer also varies depending on distance and road conditions. Organic fertilizer is also available in Mindanao regions but uptake has been relatively low due to doubts on its efficacy and the traditional reliance on chemical fertilizer. 2. Farming The typical size of abaca farms in Mindanao ranges from 1 to 2 hectares. Many of the farms are located in upland and secondary forests and cultivated by indigenous people who obtained their land they are currently toiling from ancestral domain areas. Planting is generally dependent on available number of seedlings readily accessible to farmers. Likewise, accessibility of seedling materials influence decisions on which variety/abaca specie to plant rather than systematic screening in terms of yield, fiber quality, site suitability, and disease resistance. Many of the land areas devoted for abaca are shared with various intercrops like trees, coconut and others. Farmers generally follow the square and the double row methods of planting. Under the double row method, cash crops are intercropped. During the recent decade, intercropping of abaca in coconut and other tree crops is increasingly being promoted by various government agencies and adopted by progressive farmers. Intercropping not only provides additional income to farmers but also prevents soil erosion and conserves forest water. Utilizing the open space between monocultured coconuts also minimizes further forest encroachment and the practice of the kai gi s ste. Past studies o ost a d eturn of intercropping abaca with established fruit trees showed that abaca-mango gave the highest net return followed by durian-abaca. Abaca intercropped with cacao had the highest fiber yields but the total net income derived from both plants was still lower than the other abaca-fruit tree combinations. Studies also indicated that fruit trees-abaca integration improved the surface soil acidity and organic matter content of the soil. 27

29 In preparing the land, underbrush and weeds are removed. Trees are usually retained for shade and wind protection. For a one (1) hectare land area, land clearing is usually done by five (5) persons in a span of four (4) days. In forested area, it is sometimes necessary to cut down some trees to avoid overshading. Farmers use wood or bamboo sticks along the contour line to prevent soil erosion and to conserve the inherent fertility of the soil. In some cases, leguminous tree species are planted along the contour line. Some farmers plow and harrow the area to reduce weed population. Technology and processes employed by farmers are generally based from experience and handed down from generation to generation. Fertilizer management is primarily guided by cash flows and price signal. Farmers do not conduct soil analysis to assess soil fertility. Indigenous communities generally combine the use of chemical inputs with traditional practices such as the placing of Hawaiian frogs in the farms to eat insects and spiders left in farms to make their webs. Another method that indigenous communities use to protect their farms from infestation is to create boundaries of bamboo forests in between corn/rice and the abaca farms. The bamboos serve as natural screens for flying insects that might bring diseases from the corn to the abaca or vice versa. Rituals are also performed by indigenous communities to ensure bountiful harvest. Farmers tend to pay less attention to their abaca farms especially during the first 18 months. Farmers, especially those who have not attended training on good agronomic practices, do not adopt improved cultural practices to accelerate growth. Weeding and underbrushing are usually done near harvest time. Disease infestation is a recurring problem that besieges abaca farmers in Mindanao. The first harvest is done 18 to 24 months after planting. The stalks are considered mature and ready for harvest when the flag leaf finally appears. Subsequent harvests are done at 3 to 4 month intervals. 3. Tuxying and Stripping Tuxying is usually done in the farm. The amount of tuxy recovered by weight of the stalk and the quantity produced per unit of time are dependent on the skill of the tuxeros. The quality or grade of abaca fiber is determined by the part of the stalk from which the fiber is obtained, the amount of serration of the stripping knives and the degree of tension holding the knife against the block, and the promptness and care exercised during the drying of the fiber. The outer sheaths of the abaca stalk contain a rather short, strong but discolored fiber; the middle sheaths produce a fiber of medium color and good strength, the sheaths near the centre of the stalk have a very white, fine fiber of medium strength. In the process of cleaning abaca fiber, the use of coarsely serrated stripping knives and the lack of proper tension on the stripping knife result in the production of coarse low-grade fiber. In many cases, stripping especially if this would be carried out via mechanical strippers is done only after the strippers have accumulated enough volume to offset hauling costs. Delayed stripping causes quality deterioration. Some farmers, however, contend that there are buyers who buy not only inferior quality ti re but also low grades and spurious abaca mixed with true abaca. Many farmers prefer to produce low grades of abaca because these are easy to strip and they get more fibers volume wise compared to high grades and that higher income is derived from its production. When stripping is done manually, farmers and strippers tend to earn more if they produce the low quality fibers because of the ease and speed in stripping and more fiber is produced as compared to high grade fibers. In many cases also, t ade s u all-i at the fa gate. U de a all-in procurement system, a flat price is paid per kilo regardless of quality and grade. Thus, the general tendency is to go for volume rather than 28

30 quality. Under the sharing system, strippers receive 40% to 50% of the harvest depending on the prevailing practice agreed upon. Stripping is done either by hand or mechanical means. Cooperatives that are into trading have mechanical/spindle stripping machine provided by various funding organizations. Fiber recovery when spindle stripping machine is used is about 43% compared to 29% when stripping is done by hand. In all regions in Mindanao, manual stripping is still the most dominant practice. About 74% of the fibers produced from Mindanao in 2013 were hand stripped. Almost always, manual stripping results to the production of a higher percentage of low quality fibers. As can be seen in Table 15, only 45% of the hand stripped fibers were of the S2 and S3 grades. With the spindle stripped fibers, 69% of the abaca balings were excellent grade fibers. Likewise, lower grade fibers comprised 21% of the hand stripped baled fibers compared to only 3% in the spindle stripped fibers. Although it is possible to produce high quality fibers via manual stripping, the process is laborious. Fibers are usually dried under the sun. Rainy seasons pose difficulties, as lengthened drying periods result to loss of quality. Farmers and strippers tend to bale the fibers even when these are damp, resulting to quality deterioration. Prompt and thorough drying gives the fiber its white and lustrous color. 29

31 Table 15. Volume of Abaca Baling by Grade in Mindanao Regions, Jan Nov 2013 Number of Bales (Bale = 125 kilograms) Region S2 and S3 I, G, and H JK and M1 Y and OT 39,011 29,199 12,636 6,381 % to Total Bales 45% 33% 14% -7% Zamboanga Peninsula Northern Mindanao 8,579 3, Davao Region 12,689 11,000 4,752 4,082 SOCCSKSARGEN 3,847 1, Caraga 1,137 6,448 6,261 1,381 ARMM 12,093 6,169 1, Spindle Stripped 20,927 8, % to Total Bales 69% 29% 1% 2% Zamboanga Peninsula Northern Mindanao Davao Region 939 1, SOCCSKSARGEN Caraga 7,620 3, ARMM 11,170 3, Hand Stripped Source: Calculated from PhilFIDA data Farmers across all regions indicate the lack of mechanical stripping machine and drying facility as the key constraint in producing high quality fiber. In Davao Region, for example, which is the largest producer of abaca in Mindanao and is considered to better equipped than other regions, the ratio between number of farmers and stripping machine is 1:162 (including the traditional stripping machine). As such, a greater percentage of the fibers produced by the region consist of low quality fiber. Table 16. Breakdown of Postharvest Facilities in Davao Region, 2014 Province No. of Farmers No. of Postharvest Facilities Solar Dryer Mechanical Stripping machine Davao del Norte 1, Davao del Sur Davao Oriental 5,778 7 Compostela Valley 2, Davao City 2, Traditional Stripper (stationary) 77 Source: PhilFIDA 30

32 4. Trading Intermediaries consist of traders, buying stations, and the GBEs. Traders are classified depending on the volume of fibers traded. A Class A trader sells more than 75,000 kilos of fiber per year; Class B trader more than 50,000 kilos per year; Class C trader more than 25,000 kilos per year and Class D trader 25,000 kilos and below (PhilFIDA website). There are 13 GBEs in the country. Ching Bee is the biggest abaca trader in the world. Main constraint faced by intermediaries is the high degree of variance in terms of volume and quality of fibers. In addition to problems at the farm and stripping levels, poor storage conditions also contribute to quality deterioration. Traders who are unable to consolidate at least 15 tons per delivery sell their fibers to higher level intermediaries. Table 17. Licensed Abaca Intermediaries in Mindanao, Region Company Name Classification Grading and Baling Establishments (GBEs) Ching Bee Trading Corporation 1st Class Tag Fibers, Inc. 3rd Class Davao Region Pulp Specialties, Inc. 1st Class Caraga Tag Fibers, Inc. 1st Class Davao Region Buying Stations Fiber Traders - Exporters Northern Mindanao Caraga Innovative Traders Multipurpose Cooperative Class C NewTech Pulp, Inc Class C Innovative Traders Multipurpose Cooperative Class A JTC Fibre Class A RGR Abaca Trading Class A Source: PhilFIDA 5. Processors Pulp Mills There are 6 abaca pulp mills operating in the Philippines; 1 in Laguna, 2 in Bicol; 2 in Leyte and 1 in Mindanao. These processors consume about 63% of the total abaca fiber produced and account for 71.2% of domestic consumption. NewTech Pulp, Inc. (NPI) is the biggest pulping plant in the world with rated capacity of 60 MT per day. The company needs 2,100 metric tons per month for the 24/7 operation of their plant. As of 2013, the company was able to secure only about 1,400 MT/ month from regional and provincial traders. To augment its supply, it imports abaca fiber from Ecuador. 31

33 Table 18. Projected Abaca Fiber Requirement per Month: NPI Year Abaca Fiber Requirement/Month , , ,000-28,000 Note: For every 1 ton of fiber, kilograms of pulp are produced (60% recovery) Source: KII Glatfelter, a specialty paper producer based in Pennsylvania USA, and the mother company of NewTech has obtained a Forest Stewardship Council (FSC) certification from Rainforest Alliance for its sustai a le a a a fa i g p a ti e i La ao del u. Glatfelte s F C e tifi atio is helping boost the positioning of abaca as a nature-friendly biodegradable fiber with good potentials for promoting inclusive growth. The company through NPI also assisted in helping farmers in Catanduanes achieve certification. Manila Hemp Trading (MHT) and SC Tan Export have also passed the Sustainable Agriculture Standard (SAS) Certification of the Rainforest Alliance. MHT secured SAS certification in October 2012, covering the barangays under the Catanduanes Abaca Sustainable Initiative (CASI) composed of four sub-groups from the towns of Bato, San Miguel, Burgos (Viga) and Rizal (Viga). The Specialty Pulp Manufacturing, Inc. (SPMI) in Leyte is an affiliate company of Ching Bee. SPMI is engaged in the manufacture, sale, and export of food grade and non-food grade bleached and unbleached specialty pulp, mainly from abaca, as well as other natural long fibers such as sisal, kenaf, and jute. The company specializes in abaca pulp which serves as a raw material for manufacturing high-quality specialty papers. Cordage Manufacturers There are 7 cordage firms operating in Metro Manila, Albay, Cebu and Davao. They use abaca as the principal raw material for rope, cordage, and twine manufacture. They blend abaca with other natural fibers depending on the specifications of the buyers. There are two cordage manufacturers in Mindanao, namely: Davao Rope Corporation and Pontmain Resources. Both companies are based in Davao Region. Davao Rope Corporation sells both to the export and domestic market. Pontmain Resources caters to the local market. Fibercraft Producers The fibercraft subsector, including handmade papermaking and carpet manufacturing, consists primarily of micro and small enterprises. Most of the fibercraft exports are located in Bicol and Cebu. The list of licensed processors in Mindanao is presented in Table

34 Table 19. List of Licensed Processors in Mindanao, 2013 to 2014 Legend Class C consuming more than 200,000 kilos a year Class A consuming 1 million and above kilos a year Class D consuming 200,000 and below kilos a year Class B consuming more than 500,000 kilos a year Class E all processor-exporters except those exporting pulp/paper Region Company Product Category Classification Zamboanga Peninsula Jaymark Handicraft Fibercraft Class D Northern Mindanao NewTech Pulp, Inc. Pulp Class A Nida s ha di aft Handicraft Class D San Roque Handmade Paper Papercraft Class D Tinabuan Arts and Crafts Bags and mats Class D Valdez Handicraft Bags and mats Class D Cooperative Handicraft In Nabunturan Fibercraft Class D Katakus Inc. Papercraft Class D Fibercraft Class D Pontmain Resources, Inc. Cordage Class D Davao Rope Factory, Inc. Cordage Class E Tadeco Livelihood and Training Center Fibercraft Class E Sibagat Abaca Weavers Association Fibercraft Class D Southern Mindanao Klowil Agricultural Multipurpose Cooperative Caraga Enterprise Source: PhilFIDA C. NATURE OF INTERFIRM RELATIONSHIPS 1. Horizontal Relationship Majority of the abaca farmers are members of associations and/or cooperatives. Cooperatives are engaged in any or all of the following businesses: a) Financial services: small loans to members b) Management and operation of nurseries c) Stripping and collective marketing services Membership in cooperatives helped farmers overcome the fundamental market disadvantage faced by them due to small size, limited resources, and marginalization. A key problem faced by marketing cooperatives is polevaulting. Members find it hard to commit their abaca to the cooperative for various reasons --- outstanding debt to a trader, higher price in the market, etc. Based on experiences in facilitating collective marketing, it is advisable to allow farmers to only commit a portion of their harvest to the group. This would give farmers the option to sell to a buyer of their choice. Adequate volume of abaca is required for profitable functioning of the groups. Unstable volume of production is a common problem threatening the economic sustainability of the groups and creating 33

35 a series of interrelated marketing weaknesses. Cooperatives, for example, are unable to link directly with NewTech since they could not meet the requirement of 50 MT per delivery. Groups also cannot afford to keep their inventories until it reach 50 MT due to limited capital and members expect cash payment after delivery. It may be possible for small cooperatives and associations to join together and collectively sell their abaca fibers. The dispersed location of farms in difficult terrains with limited road networks also makes abaca collection and delivery difficult and uneconomical for some members and groups. 2. Vertical Relationship Although there are quite a number of intermediaries at the municipality and provincial levels, the market for abaca fiber is still generally monopsonistic. The large intermediaries and processors of abaca products generally have the control of the market and have set-up their networks in major abaca producing areas. The big players generally are the price makers. Based on the price set by the large producers, traders at various levels set their buying price. To a significant extent, traders are able to improve thei a gi s i stitutio alizi g the all-i (one price for all grades of abaca fibers) procurement p a ti e. The all-i p o u e e t does ot o l edu e i o e ge e atio pote tial of fa e s ut also provides disincentives for upgrading. The Philippines has a well-established grading system which provides a clear definition of the distinguishing quality attributes of abaca fibers as well as provide the framework or guide for the price of a specific lot of abaca fiber. Unfortunately, however, the grading system is not strictly enforced at the local trading given the dominance of all-in procurement. Relationship between abaca farmers and traders and traders and GBEs/large processors is generally a s length although there is a se la e of lo g-te elatio ship th ough the suki-system. The incentive system in market governance revolves around price. The costs of switching to new partners are low for both parties. Market relationships, in general, did not permit close cooperation between suppliers and buyers and hardly contributed to the systemic upgrading of the supply chain. There is a high degree of information asymmetry with farmers getting the least information about markets and prices. Asymmetric information occurs when somebody knows more than somebody else in the market. This can make it difficult for the two people to do business together or to trust each other. Abaca farmers, for example, are not really aware on the buying price of GBEs or the large processors and the rationale of the price given to them by traders. Likewise, there is a lack of information on quality requirements as most of the farmers have been so used to selling low grade fibers which more or less has become the local norm. Suki relationships often are strengthened by the provision of credit by trader to farmer or by u e /GBE to lo al t ade. Lo al t ade s a e the ai sou es of loa s/ ash ad a es. Fa e s ho sell their fibers on a regular basis to one particular buyer are able to call on that buyer not only for loans for production but also for family emergencies, a i -ki d asi food o odities f o sto e owned by traders). The extension of loans is a way for buyers to ensure loyalty of suppliers and, consequently, their supply. However, price paid to farmers with debts is sometimes lower to cover ost of o e i te est ates. I a se se, u e s e e t o opso isti o t ol o e p i es paid to suppliers with debts. On the other hand, this informal credit mechanism enables farmers and traders to access financial services. 34

36 D. PRICE AND COST STRUCTURE 1. Income and Profit Table 20. Cost and Return Analysis of Low Input System One Hectare Farm in Mindanao Regions, 2014 Particulars Year 1 Establishment Year 2 1 to 2 harvests after 6th month Year 3 2 to 3 harvests Amount (PhP) % Amount (PhP) % Amount (PhP) % Materials 13,900 51% 2,000 19% 2,000 12% Seed pieces 9,600 35% 800 3% Fertilizer 3,500 13% 2,000 19% 2,000 12% Labor 12,800 47% 2,200 21% 2,200 13% Land clearing 4,000 15% 600 2% Planting 4,000 15% Underbrushing/ringweeding 4,000 15% 2,000 19% 2,000 12% Fertilizer applicatio 200 1% 200 2% 200 1% Transportation 800 3% 800 8% 1,150 7% Hauling/Transport cost 800 3% 500 5% 500 3% 300 3% 650 4% 5,400 52% 11,700 69% 10, % 17,050 12% Stakes Layouting and staking Transport/Hauling of abaca Harvesting/Tuxying/Stripping Total Expenses 27, % Yield (in kilograms) Unit Cost (PhP/kg) Unit Price (PhP/kg) Gross Income 13,500 29,250 Net Income 3,100 12,200 Profit Margin 23% 42% Source: KII/Workshops Table 20 shows the cost and returns of a one hectare farm using minimal external inputs. The farm has yields considered to be above average of typical low input system farm. The farmer attends to his othe ops i et ee ha est of a a a fi e. The a a a fa fu tio s like a pigg a k from which farmers draw lump sum income every 3 to 4 months. During Year 1 or the establishment phase, material costs comprise 51% of the total expense with planting materials accounting for the highest expense followed by fertilizer. Labor expenses account for 47% of total expenses. 35

37 At Year 3 or when the trees are already matured, profit margin is about 42%. Harvesting, tuxying, and stripping comprise about 69% of the total production cost. Improving the tuxying and stripping efficiency would increase the efficiency of fiber extraction and the corresponding production income of the farmer and stripper. Use of a mechanical stripping machine brings down the overall cost of harvest and postharvest operations by about 20%. High input farms can technically achieve yields of 3 MT per hectare. Under such scenario, farmers earn an annual net income of PhP 45,000 to PhP 50,000 per hectare. It is possible for farmers to earn a net income of PhP 45,000 to 50,000 per hectare with total production cost ranging from PhP 24,000 to 27, Relative Financial Position of Players Farming and stripping account for 84.4% of the production and trading cost of abaca fibers. The remaining 15.4% of the costs is incurred during the distribution stage. Transportation expenses comprise about 50% of the distribution costs. As can be seen in Table 21, fa e s pe e tage sha e to total p ofit (64%) is lower than its contribution to added unit cost (84%). This implies that farmers had production inefficiencies which are manifested in the low utilization of improved seeds, low investments in farm maintenance, and poor postharvest inefficiencies. The trader and the GBE appear to have better profitability and efficiency reflecting good returns on investments. According to traders and GBEs, volume is critical in abaca trading and distribution in order to be able to spread out their costs especially transportation expenses. 36

38 Table 21. Relative Financial Position of VC Players in the Mindanao Abaca Industry Player Farmer Trader GBE Total Product One kilo abaca fiber Costs (in PhP) Profit (in PhP) Margins (in PhP) Total Unit Cost Added Unit Cost % Added Unit Cost Unit Price Unit Profit % Profit Unit Margin % to Price % % % % % % % % % % % % Source: KII 37

39 e tio : MARKET AND MARKET TREND A. MARKETS AND MARKET TRENDS 1. Export Markets Table 22.- World Export Volume of Abaca Fiber and Manufactures, 2008 to 2012 Exporting Country/Product Export Volume (in Thousand Metric Tons) Ecuador Fiber Philippines Fiber Cordage Pulp Others/Fibercraft Total Exports / / / /11 Year-on Year % Change Ave % Change Ecuador -13% 7% -13% 14% -1% Fiber -13% 7% -13% 14% -1% Philippines -36% 57% 19% -31% 2% Fiber -45% 53% -13% -54% -15% Cordage -29% 32% 7% -33% -6% Pulp -34% 74% 43% -28% 14% Others/Fibercraft -24% 23% -13% 71% 15% Total Exports -31% 43% 12% -24% 0.06% Source: FAO Statistical Bulletin on Fibers/September 2013 World export volume in 2012 was about 44.5 thousand MT. Philippines accounted for 75% of the total export volume and Ecuador supplied the remaining 25%. As can be seen from Table 22, E uado s e po ts o sisted of a fi e s hile e po ts f o the Philippines comprised primarily of abaca manufactures with fiber comprising only 13% of the exported products. During the period 2009 to 2012, world export volume had an average of 0.06% year-on-year growth. Philippines posted an average of 2% year-on-year percentage change in export volume during same period. This was primarily due to significant percentage increase in export volume during 2010 and 2011 which compensated the decline in 2009 and Market reports from PhilFIDA and FAO attributed the decline in overall export volume in 2012 to global weakening in demand due to economic slowdown in major importing countries. 38

40 Table 23.- World Exports in Fiber Equivalent, 2008 to 2012 In Thousand Metric Tons Product 2008 Fiber Cordage Pulp Others (include fibercraft) Total World Exports Share per Exporting Country Philippines Ecuador Year-on-Year % Change Export Volume (in Thousand Metric Tons) / / / /11 Ave % Change -30% -29% -33% -26% -32% 26% 30% 73% 29% 50% -13% 8% 42% -17% 21% -21% -33% -28% 73% -25% -9% -6% 14% 15% 4% 62% 7% 27% -13% -30% 14% 6% -1% World Export Volume Fiber Cordage Pulp Others (include fibercraft) Total World Exports Export Volume by Country Philippines Ecuador -35% -13% Source: FAO Statistical Bulletin on Fibers/September 2013 Total export volume in fiber equivalent in 2012 was about 66.4 thousand MT. Philippines accounted fo % hile E uado s sha e as at %. Ecuador recently announced that it would cut down its abaca production by as much as 7,000 MT next year. Of the 66.4 thousand MT, pulp accounted for 65% while raw fiber comprised 23%. From the FAO statisti s, it ould see that all of E uado s fi e p odu tio as e po ted hile fo the Philippi es, export volume in fiber terms was about 85% of the total fiber production in 2012 (based on PhilFIDA data). Average percentage year-on-year change of Philippine exports in fiber terms for the period 2008 to as a out % hi h is highe tha the o ld s a e age of %. It a e see though that growth rate i o ld s e po ts see s to e i a de li i g t e d sta ti g. The pe e tage d op in export volume in 2012 year-on-year was lower though compared to Data from the PhilFIDA showed abaca exports earnings from January to December 2012 fell to US$108.2 million from US$140 million in 2011 year-on-year. Final products of fibers can be grouped into three major categories clothing, textiles, and industrial uses. These final products respond differently to changes in income and prices, depending on whether they are consumed as necessary goods, luxury goods, or durable goods. Therefore, world total fiber consumption is exposed to the influence of global economic developments. As can be seen in Table 24, major importers of abaca products are the European countries, United States, and Japan. The Great Recession of 2008/09 delivered the worst blow to the global economy since the 39

41 1930s and the abaca industry was not spared. All of the major importing countries had reduced imports in In 2010 and 2011, economies of these countries slightly improved and global trade of abaca also picked up momentum. In 2012, an economic slowdown was experienced in many of the European countries and United States which also affected demand for abaca products. With the global economy now on the upswing and the growing preference for green products, industry stakeholders are optimistic that export markets for abaca will also be robust. Table 24.- World Imports of Abaca and Manufactures, 2008 to 2012 Importing Countries Import Volume (in Thousand Metric Tons) Fiber Developed Europe (27) Japan Other Developed Countries 0.2 Developing Countries Manufactures Developed Countries Canada USA Europe (27) Japan Other developed countries Developing Countries Year-on-Year % Change 2009/ / / /11 Ave % Change Fiber -26% 32% -9% -30% -8% Developed Countries -29% 34% -9% -26% -7% Europe (27) -26% 25% -11% -18% -8% Japan -35% 58% -4% -41% -6% Other Developed Countries -100% Developing Countries -100% 8% 23% -13% -57% -10% Manufactures -29% 50% 31% -25% 7% Developed Countries -32% 67% 28% -32% 8% Canada -50% 0% 100% 0% 13% USA -41% 82% 21% -41% 5% Europe (27) -31% 72% 38% -32% 12% Japan -23% 45% 0% -20% 1% 0% 0% 100% 0% 25% Other developed countries 40

42 Table 24.- World Imports of Abaca and Manufactures, 2008 to 2012 Importing Countries Developing Countries Import Volume (in Thousand Metric Tons) % 2% 42% 1% 7% Source: FAO Statistical Bulletin on Fibers/September 2013 World fiber consumption in 2012 was approximately 83 million MT. Natural fiber consumption was at 31 million MT while chemical fiber (cellulosic and non-cellulosic) was at 52 million MT. In many cases, chemical fibers are cheaper than natural fibers. Cotton accounted for 77% of natural fiber consumption, while polyester, particularly polyester filament, dominated the chemical fiber universe. Bast fiber consumption (flax, hemp, jute, ramie, and allied fibers) totalled 4 million MT in 2012, and other natural fibers (abaca, agave, coir, kapok, silk, sisal and wool) added another 2.5 million MT. Abaca Fiber Philippine share to total world export of abaca fiber in 2012 was about 29% making Ecuador the leading supplier of abaca fiber. According to PhilFIDA, from among the four major grades of abaca, JK and G were the top exports. Share of raw fiber to total Philippine abaca exports dropped from 33% in 2008 to 13% in This was primarily because major buyers shifted to pulp imports rather than raw fiber, which is a good development as it promoted value addition which translates to a bigger share of the value in the chain. 41

43 The European Union and Japan are the largest importers of abaca fiber, accounting for 93% of the total in In Europe, the United Kingdom is the main buyer of abaca fiber. Abaca in the UK is used mainly for production of pulp and pulp-based products. In Asia, the biggest buyer of abaca fiber is Japan followed by China. Japan uses the fiber mainly for the production of the yen. Main use of the abaca in Japan is for the production of tea bags, capacitor paper, and handicrafts. China is fast becoming a leader in handicraft production due to its relatively low price compared to the Philippines and the upgrading of its designs with the assistance primarily from Filipino designers. Export value of raw fiber in 2012, which had a 9.6% share to total value of abaca exports, fell 59.3% to US$5 million from US$13.4 million in Cordage Among the intermediate abaca products exported by the Philippines, cordage and allied products has the smallest percentage share. During the period 2008 to 2012, cordage comprised an average of 17% of export volume of the Philippines and of the world or an annual average of 6,800 MT in fiber equivalents. Market for cordage during the same period seems to have not really moved so much even during when abaca exports were on an upswing. The cordage subsector face stiff price competition from synthetic fibers and other natural fiber. Export value of the cordage sector in 2012 also fell slightly by 4.2% to US$16.2 million from US$16.9 million in

44 According to the FAO Report on market situation of abaca, the United States accounted for about 32%of the total cordage market in Other key destination markets for cordage products are Singapore, Canada, the United Arab Emirates, the United Kingdom, Germany, Malaysia and Australia. 43

45 Abaca Pulp Percentage share of abaca pulp to Philippine exports increased from 44% in 2008 to 64% in 2012, or an average of 54% during the five year period. During the same period, pulp posted an average yearon-year growth of 14%. Annual average volume during 2008 to 2012 in fiber terms was at 40,920 MT. The export value of abaca pulp, which comprised 69% of total export sales in in 2012, fell by 28.3% to US$74.7 million from US$104 million in All of the pulp manufactured in the Philippines is shipped out of the country. Many of the specialty paper manufacturers prefer to export abaca pulp instead of raw fiber because this saves then from putting up anti-pollution control systems required in their countries. The United Kingdom and Germany are the top destinations for pulp exports. France is also a key market for pulp in Europe. The European Union accounted for 64% of export sales of pulp. The second biggest market for pulp in 2012 was Japan. According to PhilFIDA 2013 abaca factsheet,, abaca is processed into yen, capacitor paper, insulation paper, tea bag, masking tape, stencil paper, filter oil absorbent paper and other speciality paper products. China and Singapore had the third biggest share at 8% each. The United States accounted for 6% of the total volume of pulp exported in One of the key uses of abaca pulp in the United States is in the manufacture of cigarette filter of the Winston and Marlboro Lights cigarettes. Abaca Fibercraft Fibercraft and allied products comprised about 7% of abaca products exported by the Philippines. Among the different abaca products being exported by the Philippines, it is the only category which 44

46 posted a 71% increase in volume in 2012 over 2011 performance. According to PhilFIDA report, Hong Kong is the biggest market followed by Italy and China. Average annual export volume during the period 2008 to 2012 was at 1,700 MT (finished products) with a fiber equivalent of 1,840 MT. Sustainable Certification Major foreign buyers and users of abaca like the manufacturers of Lipton tea and other food products using abaca based casing and specialty paper have started to require their suppliers for product certification from international certifying bodies like Rainforest Alliance. Buyers would like to be assured that the raw materials that they are using conform to standards that meet certain economic, social and ecological considerations. The certification will guarantee the future of abaca. Many of the companies follow the Sustainable Agriculture Network Standard. 45

47 Philippine and foreign companies that are currently providing assistance to their suppliers to meet certification standards are New Tech Pulp (in Catanduanes), Ahlstrom (in Albay), Manila Hemp Trading (Catanduanes), and SC Tan Exports (Catanduanes). New Tech appears to be willing to expand their certification program in Caraga and other Mindanao Areas. 2. Domestic Market Philippine Importation of Abaca Fiber During the period 2008 to 2012, pulp processors imported from Ecuador an average of MT of abaca fiber to fill up the lack of supply of excellent/good grade fiber. Highest levels of importation were on 2008 and 2009 at MT and MT, respectively. In 2012, Philippines imported only 95 MT at FOB price of US$ 0.99/kilo or PhP 41.70/kilo (average exchange rate 2012: PhP 42.33). Table 25.- Philippine Importation of Abaca Fiber Year Quantity (in MT) Value (US$) FOB Price (US$/kilo) , , , ,031, , , Five Year Average Source: National Statistics Office 46

48 Domestic Utilization/Consumption In 2012, about 49,503 MT of abaca fiber was consumed by domestic processors of pulp, cordage, and fibercraft. Pulp processors accounted for 76% of the consumption. Cordage and fibercraft manufacturers comprised 13% and 11% of the consumption, respectively. In the domestic market, the acceptable range of fiber moisture content is 12% to 14%. Buyers though said that at times moisture content of abaca being traded reach 20%. Damp fibers lead to further quality deterioration that reduces pulp recovery while the presence of contaminants such as plastics, twigs, cigarette butts, etc. damages the pulp that could result in the rejection of the entire lot/batch. The practice of knotting the fiber strands damages the combing machine used by cordage companies and increases the cost of production if used for making pads/mattresses; knotted strand can also no longer be used for pulp production. Table 26.- Annual Domestic Consumption of Abaca Fiber by Subsector, 2003 to 2012 Year Volume (in MT) Pulp Cordage Fibercraft Total ,095 12,105 4,360 52, ,600 9,250 4,050 50, ,470 9,840 4,860 59, ,200 10,625 5,350 56, ,312 12,950 4,100 47, ,702 10,120 2,900 51, ,074 7,435 2,175 40, ,306 9,151 2,650 47,107 47

49 Table 26.- Annual Domestic Consumption of Abaca Fiber by Subsector, 2003 to 2012 Year Volume (in MT) Pulp Cordage Fibercraft Total ,779 9,900 2,293 63, ,435 6,562 5,506 49,503 Average 38,297 9,794 3,824 51,916 % Share Source: PhilFIDA Region XI Based on reports from PhilFIDA, the pulp sector consistently remained as the growth area of the abaca industry. A o di g to Ne Te h Pulp, the o pa s u e t suppl gap is at, MT pe month. The company has set the price of S2 fiber at PhP 57/kilo. They are currently working with 21 Class A traders in Mindanao. SPMI sources their fiber via Ching Bee. Pulp millers require excellent grade abaca fiber. The pulp ille s utilizatio le el is highl depe de t o the de a d fo pulp the spe ialt pape manufacturers abroad as abaca pulp is the principal raw material used in the manufacture of meat and sausage casings, tea bags, cigarette paper, currency paper and other specialty papers. During the first quarter of 2014, outbound shipments of abaca pulp totalled 7, MT, which is about 113% higher over the same period last year. Processing of abaca pulp into specialty papers is done in Europe, the United States and Japan instead of in the Philippines as there is no available processing facility in the country. Cordage and allied products have continuously been facing stiff competition from those made of synthetic and other cheaper natural materials. The market for cordage products has significantly weakened during the recent years. Exports from January to March 2014 decreased by 16.5% over the same period last year. Cordage manufacturers buy the lower grade abaca fiber. It is, thus, important that farmers and strippers to upgrade the quality of their fibers. Although there are numerous fibercraft processors, annual fiber utilization traditionally ranges between 3,000 to 5,000 MT per year. The local market for fibercraft is also limited. The more successful fibercraft processors are those who targeted the low volume high end or specialty/niche markets. China dominates the low to medium end markets for handicraft. High grades abaca fiber a d tinalak o knotted abaca is the most highly demanded products. The incorporation of abaca in textiles and fabrics may also help the subsector in increasing the demand for abaca fiber. The Asia Textile Mills Inc. (Asiatex) based in Calamba City is now into the manufacture of denims made of 40% abaca and 60% polyester. The abaca denims are initially being exported to Japan but are also available locally. Initially, Asiatex will need 15 Mt of abaca fiber annually. Aside from fabrics for denims, Asiatex is also developing fabrics made of 10% to 40% abaca that can be used for everyday wear such as shirts, blouses. Further research is being conducted to make the fabrics anti- i o ial a d sta ool a d f esh te tile efo e thei o e ial p odu tio. In the pipeline is the stretch denim which can be fashioned into jackets, skirts, vests, etc. and production of abaca yarns for knitted fabrics for cardigans and socks and for the hand weaving industry. Owing to the lack of spinning facilities in the Philippines, the abaca fiber is processed into yarns in Japan and then shipped back to the country for conversion into blended yarns and woven into fabrics in Calamba City. 48

50 Projected Consumption Table 27.- Projected Consumption of Fiber for Exports Ave Year-on Year % Change 2012/08 Adjustments Fiber -9% Cordage Pulp Product Fiber Equivalent in Thousand MT % % 5% % 15% (followed projections of NewTech) Others/Fibercraft 15% 15% Total Sources: Baseline data from FAO Statistical Bulletin complemented with insights and perceptions of stakeholders Assuming that pulp and fibercraft exports would increase at an average of 15% per year while fiber and cordage would have a conservative growth of 5% year-on-year, the Philippines would need a supply of about thousand MT of abaca fiber. This implies the need to double current production of abaca fiber. More importantly, there is a need to focus interventions towards the production of excellent and good quality fiber. 49

51 B. PRICE TRENDS 1. Export Markets The price of abaca fiber is generally dictated by the prevailing world market price of natural fiber, which in turn is dependent on the current supply and demand situation for the commodity and substitutes (natural fiber and synthetics). The highest price was attained in 2008 while the lowest was in In 2011 and 2012, price of abaca posted an increase except for hand stripped JK and spindle stripped G fibers. Among the different grades of fiber exported by the Philippines, JK fiber (fair) had the highest percentage decrease in price during the period 2008 to Lower grade fibers are more vulnerable to price fluctuations than fibers of excellent and good quality. Table 28.- Weighted Average of Export Prices of Abaca Fiber: HANDSTRIPPED Year FOB Price (US$/125 kg Bale) S2 I G JK Year-on-Year Percentage Change 2009/08-23% -13% -27% -18% 2010/09-6% -22% -4% -19% 2011/10 9% 19% 11% 17% 2012/11 5% 3% 2% -25% Source: PhilFIDA Table 29.- Weighted Average of Export Prices of Abaca Fiber: SPINDLE STRIPPED Year FOB Price (US$/125 kg Bale) S2 I G /08-23% -15% -24% 2010/09-10% -12% -4% 2011/10 15% 19% 18% 2012/11 1% Year-on-Year Percentage Change -4% Source: PhilFIDA 50

52 2. Domestic Market Table 30. Farm Gate Price of Abaca Fiber, 2009 to 2013 Province Bukidnon Davao del Sur Davao Oriental Compostela Valley Sarangani South Cotabato Agusan del Norte Agusan del Sur Surigao del Sur Sulu Average % 8% 10% -9% Year-on-Year % Change Source: BAS/PSA The strong demand for abaca pulp from 2003 to 2006 caused the escalation of abaca prices. During those years, price per kilo were generally about PhP 50/kilo. The devastation of many farms in 2006 and the consequent tightening of the supply further drove the prices up. The trend continued until 2008 due to tight supply of abaca. From 2003 to 2006, abaca prices were soaring and reached as high as PhP 64/kilo. The eake ed glo al de a d due to e essio espe iall i the ou t s ajo trading partners caused prices to fall y in 2009 and 2010 but improved in the succeeding years. In 2013, price went down due to decline in orders from key buyers especially among European Union countries. During the recent months, prices increased slightly due to rise in demand for abaca fiber from pulp processors. The abaca grading system does not just indicate the quality attributes of the fibers but it also reflect the price of a specific lot of abaca fiber especially at the level of the GBEs. Between farmers and traders, it is seldom that abaca fibers are priced based on grades. In most cases, fibers are bought all-i. The all-i a a a fi e s a e lassified a o di g to the i dust -accepted grades at the GBE level. At this level, each grade commands different price. Price is a reflection of the demand and supply situation of different abaca fiber grades in the abaca fiber industry. The method of stripping also has effect on the price. Generally, hand stripped fibers command a lower price than spindle stripped fibers. Table 31. GBE Prices of the Different Grades of Abaca Fibers, 2011 and 2012 Grade Spindle Stripped Hand Stripped % Difference HS/SS Spindle Stripped Hand Stripped % Difference HS/SS S % % I % % G % % 51

53 Table 31. GBE Prices of the Different Grades of Abaca Fibers, 2011 and 2012 Grade JK Spindle Stripped Hand Stripped % Difference HS/SS Spindle Stripped Hand Stripped % Difference HS/SS % % Source: PhilFIDA Region XI Among the different grades of abaca fibers, S2 commands the highest price. It is followed by I, G, and JK. G and JK are classified as good and fair grades, respectively. They are considered to be the cheaper substitutes for grades S2 (excellent grade) and I (good grade). 52

54 e tio : UPPORT MARKET A. FINANCIAL SERVICES Fa e s fi a es a e e li ited, hi h akes it diffi ult fo the to i est i i puts su h as seedlings or inputs, and which makes them vulnerable to price fluctuations. The financing needs of abaca farmers consist of the following: finance for inputs, consumptive credit, and finance for investment. In many cases, these are sourced from traders and informal money lenders. Cooperatives and farmer groups also need short and medium term financing for production loans, purchases of abaca fibers, and investments in postharvest facilities to support their members and to promote their own sustainability. Formal sources of financial services in Mindanao for abaca farming are the following: a) Land Bank of the Philippines; b) Rural Banks; and c) Micro Finance Institutions. Farmers prefer to borrow from traders/intermediaries over other possible sources such as Land Bank and rural banks due to the following reasons: a) traders do not charge outright interest rates although some embed interest rate on price paid for abaca fibers; b) loans are easy available without any collateral and papers; and c) repayment of loans from collectors is easy, as they do not generally have any terms and conditions except for a promise to sell the harvest to them. Cash advances and loans from intermediaries though generally translate to farm gate prices lower than the prevailing market price. Loans from intermediaries are also constrained by the funds that they own and are able to access. In many cases, these are also sourced from GBEs. B. NON-FINANCIAL SERVICES Abaca players in Mindanao regions access business development and extension services through the following means: 1. Informal: Information, knowledge and advice available to farmers and other VC actors through social relationships. This could include information and advice on price, market and technology trends through social networks or mediation through traditional cultural mechanisms. An example of this is the i fo al o -the-jo t ai i g p o ided pa e ts to thei so s a d daughte s. The eak ess though is that elde s i the o u it a e ot ge e all a a e of emerging good practices. On the other hand, they are very much knowledgeable on indigenous practices which are generally low-cost and environment friendly as well as suited to agronomic o ditio s i the a ea. t e gthe i g the apa it of e og ized leade s/e pe ts i the a ea would enrich the informal learning system. 2. Embedded: Services are provided within a buying or selling transaction, whereby the costs of the service provision form part of the overall cost calculation of the supplier, while the service user does not have to pay for service delivery. Embedded services are an added feature to the main business transaction. 53

55 Examples Nursery Operators: Advice and guidance provided to clients on how to set-up and take care of their farm Agri-vet Suppliers: Generic advice on how to use fertilizer Cooperatives/Intermediaries: Advice to farmers and strippers on proper postharvest operations (e.g., stripping and drying) 3. Fee-based services such as the rental of stripping machine. When farmers avail of the stripping service, cooperatives get 20% of proceeds as payment for stripping. 4. Standalone Free Services: These are generally provided by government agencies. The services are generally provided for free. Outreach of above providers is generally limited to farmers who are members of cooperatives. Table 32. Services Provided by Government Agencies Organization Services Philippine Fiber Industry Development Authority (PhilFIDA) - Technical assistance to farmers on the proper culture, management and protection of abaca - Training and info dissemination on fiber production, fiber extraction, fiber grading and classification, fiber processing and handicraft making - Product and market development - Technology development and transfer Agricultural Training Institute (ATI) - Training on Good Agricultural Practices (GAP) Department of Trade and Industry (DTI) - Product and market development - Investment promotion Department of Science and Technology (DOST) - Technology transfer for value adding of abaca - Funding for value adding projects State Universities and Colleges (SUCs) - Training of farmers - Research and development in support of the abaca industry Provincial Local Government Units (PLGUs)/ Municipal Local Government Units (MLGUs) - Organizational development support - Extension services 54

56 e tio : ENABLING ENVIRONMENT A. FORMAL RULES. REGULATIONS, AND POLICIES 1. All countries have set a zero Most Favoured Nation (MFN) duty for most products except for cordage and ropes of abaca, where the duties range from a low of 1.9% for the United States to a high of 5% in Egypt (FAO, 2013). A zero MFN duty for cordage may help in arresting the decline in export sales of cordage. Table 33. Tariffs on Abaca and Abaca Products for Selected Major Importers Major Importers Raw Abaca Fiber HS 5305 Abaca Cordage HS European Union 0 7 Japan Malaysia Singapore 0 0 Thailand 5 5 United States China Source: World Trade Organization 2. Individuals and organizations engaged in any of the following activities are required to secure a license from PhilFIDA: - Grading and baling commercial fibers whether for domestic and/or foreign consumption Buying fibers for their mother companies Buying and selling fibers for domestic and foreign consumption Processing/manufacturing fibers into semi-finished or finished fiber based or finished products whether for domestic or foreign consumption Converting semi-finished or finished products into other forms Classifying fibers at grading/baling establishments (GBEs), Class A traders or processing/ manufacturing plants Among the requirements for securing a license is for applicants to have the following equipment/facilities: Grading and Baling Establishments (GBEs): i) At least one baling press; ii) Storage of not less than 850 square meters; iii) Storage space with segregation partition for other commodities; iv) One metric weighing device with certificate of periodic calibration Buying Station/Trader Exporter/Local Trader: a) Adequate storage for fibers; ii) One weighing device with certificate of periodic calibration; iii) Certification from mother company that the firm is under it (if applicable) 55

57 Processor: i) Adequate processing/manufacturing area and storage for fibers; ii) One licensed classifier if it will utilize uninspected fibers; iii) Written description on how fibers are utilized Classifier: i) Certification of good moral character by the Chairman of the Barangay where applicant resides; ii) Certification of passing the practical examination on fiber classification conducted by PhilFIDA The high costs of capital investment for trading and baling operations are the key barriers to e t fo s all fa e s o ga izatio s that ai to pa ti ipate i the alue hai as t ade s o GBEs. Aside f o la k of a ess to e ha i al st ippi g a hi e, fa e s oope ati es generally find it difficult to come up with an adequate storage facility which is one of the requirements for securing a trading license from PhilFIDA. In many cases, fibers are stored in makeshift storage areas resulting to deterioration of quality of abaca fiber due to pest infestation, exposure to rain, etc For GBE operations, cooperatives lack the capacity to set-up storage, baling, and warehouse facilities. Likewise, they lack the necessary know-how on GBE operations including the preparation of documentation and accreditation requirements. Another constraint of cooperatives is the lack of working capital as farmers need payment upon delivery. 3. In order to boost the utilization of Philippine natural fibers in textiles, Republic Act 9242 othe ise k o as A A t P es i i g the Use of Philippi e T opi al Fa i s fo U ifo of Pu li Offi ials a d E plo ees a d fo Othe Pu poses as passed. The esse e of the law is to strengthen the demand for our natural fibers, specifically abaca, silk, pineapple and banana fibers. 4. The unstable peace and security situation in Sulu has not significantly reduced the volume of trade nor did it appear to affect the structure of their trading operations. There is only one area hi h is diffi ult to sustai as it has e o e a fa ou ite hidi g pla e of i su ge ts. Fo a of the abaca farmers in this area, their main concern is their limited access to resources that would help them expand their livelihoods. One of the root causes of conflict is poverty and hunger with many of the underlying causes coming down to lack of access. Some of the solutions to the root causes of conflict hinge on providing marginalized communities equitable and sustainable access to resources, knowledge, and skills to pursue a life of dignity. 5. The poor farm to market roads in many of the abaca producing municipalities result to high cost of transportation and/or dependence on traders which result to low bargaining power. B. INFORMAL RULES AND SOCIO-CULTURAL NORMS 1. Although scarcity mentality can push individuals to concentrate on pressing needs and give people a kee e se se of the alue of a peso, it a also sho te s a pe so s ho izo s a d narrows his/her perspective. Poverty can create a mindset that perpetuates scarcity which is exhibited in various ways such as poor farm maintenance, non-application of fertilizer, etc. There is a fundamental need to increasingly integrate behavior change interventions in upgrading initiatives and to be sensitive about the role deep poverty can sometimes play in ei fo i g eha iou s that ill egati el i pa t a i di idual s a ilit to t a sitio up a ds out of poverty. 56

58 The types of behavior change that a value chain development project may facilitate can be segmented as follows: a) Perform a new behavior behavior unfamiliar to the target group. The target group does not know about the issue or is not conscious of their underperformance. In many cases, facilitating adoption of the new behavior requires three types of interventions over time: information and capacity building to understand and have the skills to perform, motivation to take on the new behavior, and support to sustain the behavior. b) Perform existing behavior behavior familiar to the target group but not widely performed. Projects promote such behaviors to become the rule rather than an exception. The general objective is to increase the frequency, duration or intensity of the behavior. For example, if farmers sometimes practice grading and sorting, a project may want to persuade them to be more conscientious and consistently sort in a particular way. The primary need is for a supportive intervention, such as the creation of positive consequences through feedback and recognition. In some cases, value chain actors consciously choose not to perform the behavior, and then the primary need is for a motivational intervention. If the information that has been presented regarding the advantages of the new behavior has not produced the desired result, the target group needs to either be provided with more effective i fo atio tailo ed to the e e s pe spe ti e, o e e posed to i itiati es that demonstrate these advantages to motivate them to start taking action. Once started, they will need motivation to continue. Motivation may be created through the use of incentives such as premium prices and/or peer pressure. c) Decrease and ultimately stop behavior cease ongoing bad behavior. An example of this may be to decrease the tendency of farmers and strippers to focus on the production of low grade fibers as these are easier and faster to strip. Possible interventions may include: i) encouraging traders to strictly enforce quality control with pricing based on abaca grade; and, ii) access to mechanical stripper. A basic tenet of behavioral analysis is that behaviors are a function of a person and their environment something happens preceding behavior (the antecedent) that causes or influences the behavior, and the behavior then results in a consequence. A value chain development project cannot change a person, but it can influence the way they behave by shaping the environment within which they function. Both desirable and undesirable behaviors are learned through interactions with the social and physical environment. One of the models that can be used in framing and structuring behavior change strategies is the BJ Fogg Behavior Model. In the Bogg Behavior Model, behavior is a product of three factors: a) b) c) Incentives/Motivation a person must be sufficiently motivated to perform a target behavior Ability a person must have the ability to perform the behavior Trigger a person must be triggered to perform the behavior The three factors must occur at the same time or else the behavior will not happen. The model is also useful in the assessment of strategies that fail to achieve the intended behavioral outcomes. It is very helpful in thinking systematically about the elements of motivation and ability and the strategies used for triggering behavior. Using the model, one can stop a behavior by taking away one of the three factors such as reducing motivation, 57

59 taking away the ability, or removing the triggers. If a project can do any of these things successfully, there is a higher chance that the behavior will not occur or at least not in the same pattern or intensity. 2. I i t odu i g i p o ed te h ologies a d fa ilitati g upg adi g, the ti gi o pie e eal mentality may be positively harnessed. Breaking the upgrading or change process into small steps has a number of advantages. Smaller changes are easier to plan and manage. When VC players especially farmers look at a big change, they are easily overwhelmed by the size of it. When things are broken down into smaller pieces, it does not look as something that is really very difficult to do. A pause between stages gives time to re-think and re-plan. It also helps create a sense of closure and reduces tendencies to revert to old ways. 3. Resource-poor farmers are generally risk adverse. As such, it is oftentimes important to demonstrate the viability and benefits of the change initiative or improved technology. For activities to be effective in resolving doubts and hesitations of farmers and other VC players, these should: a) provide safe spaces for reflection and sharing; b) build relationships; and c) develop responses based on personal experiences, abilities, and perceptions. Visits and interactions with people exhibiting the desired behavior and demonstration farms can be very helpful in guiding target groups toward an acceptable resolution of their doubts about the change initiative. VC players especially farmers see information from peers who have undergone the process as more credible than information from other sources. 4. There is a need to fully understand the logic and functioning of indigenous production systems before seeking to inject modern or upgraded technologies and knowledge. Likewise, indigenous communities should be active participants in the upgrading initiative to ensure ownership and, consequently, commitment to the change process. 58

60 e tio : CON TRAINT AND OPPORTUNITIE Table 34.- Constraints and Opportunities Opportunities Constraints Province INPUT PROVISION Use of good quality tissue cultured planting materials of high yielding varieties can significantly contribute in increasing production volume and improving yield. PhilFIDA provides support for the production and distribution of disease free high yielding materials Lack of access to disease-resistant high yielding breeds Low productivity/low production volume/ Lack of know-how on standardized protocol for tissue culture production Majority of farmers not used to purchasing planting materials from nurseries and do not appreciate benefits of doing so. ZAMBOANGA PENINSULA Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City NORTHERN MINDANAO Bukidnon Camiguin Lanao del Norte Misamis Occidental Misamis Oriental DAVAO REGION Davao del Norte Davao del Sur Davao Oriental Compostela Valley Davao City SOCCSKSARGEN North Cotabato Sarangani South Cotabato Sultan Kudarat CARAGA Agusan del Norte/Butuan City Agusan del Sur Surigao del Norte Surigao del Sur ARMM Basilan Lanao del Sur Maguindanao Sulu Tawi-tawi Disease infestation and low productivity have adversely affected production causing irregularity and instability in supply of raw materials which contribute to price fluctuation, high cost of production which has implication on competitiveness of abaca vis-à-vis alternative products, and low income among farmers. Two of the root causes are the lack of supply of clean high-yielding planting materials and the prevalent use among farmers of corms and suckers of mixed varieties gathered from own farm or neighboring farms. The choice of planting material has a significant impact on oth ield a d fi e ualit. Fa e s de isio o hi h a iet to pla t is p i a il dete i ed by accessibility and affordability. Appropriate nutrient management High cost of chemical inputs both ZAMBOANGA PENINSULA 59

61 Table 34.- Constraints and Opportunities Opportunities together with use of clean high yielding planting materials and good agronomic practices can potentially result to 100% increase in yield Constraints to farmers and environment Low use of fertilizer among smallholders due to lack of understanding among farmers on cost benefits of proper and efficient use of fertilizer, risk aversion, and limited purchasing capacity Lack of access to soil analysis services/ Lack of technical knowhow on proper fertilizer management and application Province Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City NORTHERN MINDANAO Bukidnon Camiguin Lanao del Norte Misamis Occidental Misamis Oriental DAVAO REGION Davao del Norte Davao del Sur Davao Oriental Compostela Valley Davao City SOCCSKSARGEN Sarangani South Cotabato CARAGA Agusan del Norte/Butuan City Agusan del Sur Surigao del Norte Surigao del Sur ARMM Lanao del Sur Sulu Under fertilization and improper fertilization lead to the depletion of the nutrient reserve in the soil especially so that abaca is a perennial crop and, thus, causing significant reduction of the fiber yield. Application of fertilizer is of varying intensities determined mainly by their access to resources and not necessary related to soil nutrient requirements. Rising cost of chemical inputs make it almost impossible for farmers to access fertilizers There is a need to institute soil testing in order to provide information necessary to maintain optimum soil fertility conditions. Farming Demand for certified sustainable abaca farming is increasing and can potentially be a niche that the province can explore. This can also provide the platform for market driven upgrading. Good agronomic practices can help farmers in reducing incidences of pests and diseases and in improving farm productivity NewTech Pulp willing to provide Low technological capacity and lack of access to providers/services to improve agronomic practices, reduce incidence of insects and diseases ZAMBOANGA PENINSULA Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City Low uptake and adoption of good agronomic practices/sustainable farming practices NORTHERN MINDANAO Bukidnon Lanao del Norte Misamis Occidental Misamis Oriental Lack of capacity to comply with Rainforest Alliance certification requirements DAVAO REGION Davao del Norte Davao del Sur Davao Oriental 60

62 Table 34.- Constraints and Opportunities Opportunities Constraints Province Compostela Valley Davao City assistance to high volume suppliers in meeting certification requirements SOCCSKSARGEN North Cotabato Sarangani South Cotabato Sultan Kudarat CARAGA Agusan del Norte/Butuan City Agusan del Sur Surigao del Norte Surigao del Sur ARMM Basilan Lanao del Sur Maguindanao Sulu Tawi-tawi Productivity levels of majority of the farmers are only about 25% of optimum yield. Losses due to viral and pest infestation are high. Poor agronomic practices are responsible for many of the productivity issues faced by farmers. Majority of the abaca growers are smallholders and most of them do not have the resources and capacity to ensure production of abaca according to the principles of sustainable farming practices and to achieve certification, which is increasingly becoming important in the trade of abaca fiber especially to the pulp sector. In the medium term, non-achievement of certification status may exclude the participation of abaca farmers in Mindanao in the more lucrative and bigger markets such as the pulp sector. Although government agencies like ATI and PhilFIDA are providing training on GAP, the depth and breadth of their outreach is limited. This leaves a large segment of farmers without access to extension services. Adoption of good agronomic practices and sustainable farming practices among farmers has been slow and low. In many cases, there is still a lack of understanding among farmers on cost benefits of adopting GAP and sustainable farming practices. The Filipino farmers are calculating and generally reluctant to changes in their farming activities for this is their way of life. They have the "wait-and-see" attitude. Although many farmers are very much open to new ideas and technology, there are more farmers who would first want to see a working model or system before they follow the lead. To facilitate upgrading, farmers need both training and on-farm mentoring and monitoring including assistance in aligning current production system to sustainable farming practices at the least cost. Postharvest Operations Access to mechanical stripping machine, dryer, and storage will enable Mindanao abaca industry to produce better quality fiber and reduce postharvest losses and, thereby, increase income Lack of access to drying and postharvest facilities ZAMBOANGA PENINSULA Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City NORTHERN MINDANAO Bukidnon 61

63 Table 34.- Constraints and Opportunities Opportunities Constraints Province Camiguin Lanao del Norte Misamis Occidental Misamis Oriental generation potentials of strippers and farmers Rental of mechanical strippers can be a viable business for farmer groups DAVAO REGION Davao del Norte Davao del Sur Davao Oriental Compostela Valley Davao City SOCCSKSARGEN North Cotabato Sarangani South Cotabato Sultan Kudarat CARAGA Agusan del Norte/Butuan City Agusan del Sur Surigao del Norte Surigao del Sur ARMM Basilan Lanao del Sur Maguindanao Sulu Tawi-tawi Variety and harvest/postharvest handling are main determinants of fiber recovery and quality. The dominance of manual stripping results to losses in volume and quality. Manual stripping results to losses in quality and volume. Fiber recovery using a spindle stripping. Is 69% higher than when stripping is done manually. Manual stripping produces a higher percentage of coarse fiber compared to spindle stripping. With the use of spindle stripping, about 114 kilograms of fibers can be produced/stripped per day. Farmers also save on stripping cost when they have access to a mechanical stripper. When stripping is done manually, the stripper gets 50% to 60% of the output. Rental of a mechanical stripper usually entails payment equivalent to 20% of the yield. Lack of access to drying facilities (other than sun and air) extends the drying period during the rainy season. Almost always, this results to deterioration of fiber. In some areas, stationary mechanical strippers are available. The problem with stationary strippers is that these are usually located in areas far from the farm. To save on labor, farmers accumulate first a substantial volume of tuxied fibers before bringing this down for stripping. This causes loss of quality. Good roads will reduce cost of transaction and postharvest losses (quality deterioration) as well as enable farmers to better take care of their farms Poor farm to market roads ZAMBOANGA PENINSULA Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City NORTHERN MINDANAO Bukidnon 62

64 Table 34.- Constraints and Opportunities Opportunities Constraints Province Camiguin Lanao del Norte Misamis Occidental Misamis Oriental DAVAO REGION Davao del Norte Davao del Sur Davao Oriental Compostela Valley Davao City SOCCSKSARGEN North Cotabato Sarangani South Cotabato Sultan Kudarat CARAGA Agusan del Norte/Butuan City Agusan del Sur Surigao del Norte Surigao del Sur ARMM Lanao del Sur Maguindanao Poor/Lack of infrastructure results to inefficiencies, deterioration of quality, and limited access to markets.. It also causes delay in stripping as it would be costly to bring down small volume of fibers from farms to st ippi g e te. Fi e s also get dirty from mud) during transit from farm to sto age/fa e s ho e. I f ast u tu e i flue es the ost st u tu e as ell as p odu t ualit Marketing Demand for good quality fiber higher than lower grade fiber Grading system also recognizes price premium for good quality fiber Dominance of all-in procurement which provides disincentives for upgrading/lack of price incentives to produce quality fibers ZAMBOANGA PENINSULA Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City NORTHERN MINDANAO Bukidnon Camiguin Lanao del Norte Misamis Occidental Misamis Oriental DAVAO REGION Davao del Norte Davao del Sur Davao Oriental Compostela Valley Davao City SOCCSKSARGEN North Cotabato Sarangani South Cotabato 63

65 Table 34.- Constraints and Opportunities Opportunities Constraints Province Sultan Kudarat CARAGA Agusan del Norte/Butuan City Agusan del Sur Surigao del Norte Surigao del Sur ARMM Lanao del Sur Maguindanao Basilan Sulu Tawi-tawi The all in procurement provides disincentives for upgrading. This practice contributes to the deterioration of quality of abaca fiber produced in the province in two primary ways. First, it eliminates the possibility of using quality as a competitive strategy. Secondly, it fails to send price signals to farmers, traders and other intermediaries along the supply chain. Proper price signals would encourage production of quality fiber. Interfirm Relationships and Supply Chain Governance Longer term contractual arrangements can facilitate chainwide upgrading and improve flow of benefits to downstream players Horizontal collaboration can help in lowering cost of transactions both for upstream and downstream players Many of the players have been suki fo uite so e ti e a d this can provide opportunities for shifts to longer term contractual commitment and win-win relationships Dominance of spot transactions or a s le gth elatio ship. In spot transactions, there is little or no formal cooperation between farmers and traders with price as the main governance mechanism; spot selling and buying with no guarantee of future transactions. As soon as trader and farmer agree on the price and payment has been made, the transaction is considered close. ZAMBOANGA PENINSULA Zamboanga del Norte Zamboanga del Sur Zamboanga Sibugay Zamboanga City NORTHERN MINDANAO Bukidnon Lanao del Norte Misamis Occidental Misamis Oriental DAVAO REGION Davao del Norte Davao del Sur Davao Oriental Compostela Valley Davao City SOCCSKSARGEN Sarangani South Cotabato CARAGA Agusan del Norte/Butuan City Agusan del Sur Surigao del Norte Surigao del Sur ARMM Lanao del Sur Sulu Trade in abaca in Mindanao is generally characterized by flexible sourcing from diverse locations. Formation of market linkages that does not permit close collaboration between players contributes 64

66 Table 34.- Constraints and Opportunities Opportunities Constraints Province little to systemic upgrading of the chain. Dominance of spot transactions stifles innovation and results to weak supply chain governance. The smaller cooperatives and associations in Mindanao have to work together to come up with the scale and volume that would make them attractive partners of pulp processors and large buyers. With the increasing trend among pulp processors and large buyers to integrate backwards into farming communities with significant volume, farmers and groups who do not have sufficient scale of production to be able to sell directly to these buyers can become relegated to the position of residual or top-up suppliers. 65

67 e tio : COMPETITIVENE DIRECTION A. COMPETITIVENESS VISION To sustain and grow the world market for abaca, the industry has to ensure reliability of supply and improve its price competitiveness vis-à-vis synthetic substitutes and other natural fibers. Likewise, industry players also recognize that improved compliance to social and environment standards will play an important role in sustaining and developing new markets as well as in ensuring the long-term sustainability of the industry. Achievement of these objectives requires a number of priority steps to be taken: a) Adequate supply of disease resistant planting materials, which give higher yields of superior fiber b) Improved soil nutrient management and fertilizer use c) Enhanced flow and quality of extension services to facilitate adoption of good agronomic practices and achievement of sustainability certification d) Increased availability and access to mechanized and efficient postharvest technologies necessary for the consistent production of high quality fiber 66