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The Philippine Vegetable Industry:
Trends, Issues and Policy Implications1
1.0
Introduction
The Philippine vegetable industry is undergoing a gradual restructuring mainly brought
about by changing consumption patterns which in turn require changes in production and
the way vegetables are handled and delivered to consumption points. These changesmean opportunities and challenges for the players in the industry. Some of them gain and
some lose, depending on how they respond to these changes. Small-scale vegetable
farmers in particular appear to be increasingly challenged as market requirements in
terms of quality and standards become stricter.
Issues and concerns in this changing scenario of the Philippine vegetable industry are
examined in this paper with the objective of identifying ways to improve its performance
not only in terms of efficiency but also in terms of equity where small scale producershave the chance to compete and prosper.
This paper is part of a collaborative program of the International Federation ofAgricultural Producers (IFAP) through its local affiliate the Federation of Free Farmers
(FFF) in the Philippines and the Regoverning Markets Program (RMP) Southeast Asia.2
The RMP is a multi-donor funded global initiative with a goal of helping secure more
equitable benefits for producers in response to the unprecedented and dynamic changes in
agri-food markets within developing countries. The program aims to provide strategic
advice and guidance to the public sector, agri-food chain actors, civil society organiza-tions including economic organizations of producers, and development agencies on
approaches that can anticipate and manage the impacts of the dynamic changes in local
and regional markets particularly on small producers.
IFAPs collaborative program, entitled Participation of Producers in Dynamic Agri-food
Chains: A Program of Support to Producer Organisations, seeks to build on the research
outputs of the RMP, extract the major lessons learned, and utilize them to help its affi-liates undertake advocacy and market linkage activities in their own countries. The
Philippines has been selected as a pilot country for this program, and the Federation of
1
Prepared by Larry Digal (University of the Philippines Mindanao and Regoverning Markets Program) andRaul Montemayor (Federation of Free Farmers Philippines) under the project of the International Fede-
ration of Agricultural Products (IFAP) on the Participation of Producers in Dynamic Agri -Food Chains: A
Program of Support to Producer Organizations (Asia Component), September 2006-March 2007.
2www.regoverningmarkets.org
http://www.regoverningmarkets.org/http://www.regoverningmarkets.org/http://www.regoverningmarkets.org/http://www.regoverningmarkets.org/ -
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Free Farmers (FFF), as IFAPs affiliate in the country, has beendesignated to take the
lead in implementing a pilot phase in the country.
The paper is organized as follows. Key trends in the industry are discussed in section
2.0. Issues and concerns raised during a series of consultations conducted among
stakeholders in the industry and from those identified in previous studies are examined inSection 3.0. Existing private and public sector initiatives in the industry are alsopresented in this section. An example of an innovation in linking small vegetable farmers
to modern markets, the case of NorminVeggies in Southern Philippines, is discussed in
Section 4.0. From these three sections, industry strengths, weaknesses, challenges as wellas opportunities are extracted and summarized in section 5.0 which in turn form the basis
for development and policy options discussed in Section 6.0. Finally, concluding
comments are discussed in Section 7.0.
2.0 Demand and Supply Restructuring in the Vegetable Industry
2.1
Consumption patterns
2.1.1
Consumption exceeds domestic production of vegetables resul ting to increasing
imports
Consumption of vegetables in the Philippines has steadily increased over time. However,
the increase of about 1.6% per year (from 1990-2005) exceeds the annual growth ofdomestic production of 1.5% resulting in a deficit of about 408,000 metric tons per year
(Figure 1). Thus, it is not surprising to see imports increasing over time to fill up this
gap. Despite this, the country managed to export vegetables of 35,000 metric tons per
year during this period, albeit the growth rate for exports of 8% per year is lower than
that of imports of 11% per year (Figure 2).
Figure 1.Consumption and production of vegetables in thePhilippines,1990-2005 (FAO Statistics, 2007).
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Imported vegetables are posing increasing threats to Philippine vegetable growers (Maca-
basco, 2004). Imports of vegetables have grown sevenfold since 1996 to 2002. This isdue mainly to the reduction of tariff rates and the changing market dynamics of the
vegetable supply chain. Imported vegetables are said to be cheaper by 30-50% compared
to some of the locally produced ones. They are better packed and generally of better
quality. These attributes make them more attractive to the institutional markets and thesupermarkets that cater to the high-end consumer markets.
2.1.2
I ncreasing consumption of vegetables due to growing urban population and
demand for healthy food
Consumption of vegetables in the Philippines is increasing due to growing population
particularly in the urban areas and expanding demand for healthy foods such asvegetables. Considering the vegetable consumption estimate of the Food and Nutrition
Research Institute (FNRI) in 1993 of about 39 kilos of vegetables per year per person,
one expects the increase in consumption to be coming from the urban population. Asurvey conducted by Concepcion (2005) showed that vegetable consumption per person
in the cities of Davao, Cagayan de Oro and General Santos in 2004 was about 87 kilos
which is 123% more than the average consumption estimate in 1993. Urban consumptionof vegetables appears to be increasing as more consumers become health conscious.Disaggregating population into urban and rural and using the FNRI estimate of per capita
vegetable consumption reveals this trend. Urban consumption of vegetables is estimated
to be increasing at 4.42% compared to only 0.2% in the rural areas based on data from1980 to 2003 (Figure 3).
Figure 2. Imports and Exports of Vegetables in the
Philippines 1990-2005
0
200
400
600
800
1990
1992
1994
1996
1998
2000
2002
2004
Year
000M
Export Quantity
Import Quantity
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Figure 3. Increasing vegetable consumption (Source: National Statistics Office)
2.1.3 Expanding demand for qual i ty and processed vegetables due to increasing
income
Increasing incomes of Filipinos also contribute to increase in demand particularly for
high quality and processed vegetables. As Filipinos increase their income and more dual
income households exist, demand for convenience will grow. More Filipinos will shop
from supermarkets, consume ready-to-eat and processed foods and eat in fastfood outlets.A survey made by Concepcion and Digal (2004) showed that the area devoted by
supermarkets for fresh vegetables has increased over time. Data also indicated grocerysales which include food in modern distribution outlets such as supermarkets increasedby 22% from 2005 to 2006 (Table 1). In addition, fastfood outlets and other institutional
markets such as hotels have responded to this opportunity by increasing demand for high
quality vegetables and healthy foods. They offer products that require the use of fresh or
processed vegetables such as salads.
Table 1. Retail Market Indicators, 2004-2006 (Source: Planet Retail)
Retail market indicators
Year Growth rates (%)
2004 2005 2006 2004-05 2005-06
Retail sales (USD mn) 38,319 43,718 50,103 14 15
Retail sales / capita (USD) 444 498 560 12 12
Grocery retail sales ( USD mn) 24,172 27,284 30,948 13 13
Grocery retail sales / capita ( USD) 280 311 346 11 11
Modern grocery distribution, total sales (USD mn) 8,946 9,813 11,520 10 17
Modern grocery distribution, total sales /capita (USD) 104 112 129 8 15
Modern grocery distribution,Grocery sales (USD mn) 7,552 8,382 10,198 11 22
Modern grocery distribution,Grocery sales/capita(USD) 88 95 114 8 20
Vegetable Consumption in the Philippines 1980-
2003
0
1000000
2000000
30000004000000
1980
1983
1986
1989
1992
1995
1998
2001
Year
Vegetableconsum
total vegetable
consumption
rural vegetable
consumption
urban vegetable
consumption
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2.2 Suppliers Restructuring
2.2.1
Major ity of vegetables are stil l sold in the wet markets but the share of modern
markets such as supermarkets and fastfood chain is increasing
About seventy five (75%) of vegetables continue to be sold in traditional chain wheretraders dominate and bulk of the produce is sold in so-called wet markets. On the otherhand, the modern chain which includes supermarkets, fastfood chains, hotels and
restaurants, accounts for twenty five percent (25%). This share is expected to increase as
consumers demand for convenience and ready-to-cook vegetable packages. The flow ofvegetables and the dualistic feature of traditional and modern chain are illustrated in
Figure 4.
Figure 4. Traditional Chain vs Modern Chain
2.2.2 H igh concentr ation in retail and processing
The Philippines has the highest four-firm concentration ratio in Asia with approximately
28% of the total sales in the processing sector accounted for by the top 4 firms in the
sector (Roy 2006) (Figure 5). Although not disaggregated by industry (i.e., vegetable
processing is lumped with the Philippine food processing sector as a whole), the four-firm concentration ratio was recorded at 72% in 1994 from 64% in 1978, an increase of
about 39% (NSO, 1994, NSO, 1978, Digal 2001).
VegetableFarmer
Wholesalers from
Urban WetMarkets
Traders/Consolidators
Vegetable
Processors
SupermarketsFast Food ChainsHotels andRestaurants
Wet Marketretailers
Households
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Figure 5. Concentration ratio in Processing
The concentration ratio in the retail sector (i.e., supermarkets) as measured by the
National Statistics Office appears to be low at 1.1% in 1994 since this is computed based
on the sales of the top four individual supermarkets divided by the total salessupermarkets in the country. However, supermarket chains are treated as one unit, the
concentration ratio would be higher. Data from Planet retail (2005) showed that the
market share of 181 stores of the SM group accounts for 12% of total supermarket retail
sales (Table 2).
Table 2. Top 5 Grocery Retailers in 2005
Company No. ofStores
Sales Area(sq.m)
AverageSales Area
(sq. m)
RetailBanner
Sales 2005
(USD mn)
MarketShare (%)
SM Group 181 438,250 2,421 1,163 11.9
Mercury Drug 510 153,000 300 879 9
Robinsons 224 287,600 1,284 562 5.7
Rustan 183 214,348 1,171 449 4.6
SHV Makro 16 134,400 8,400 332 3.4
Sub Total 1,114 1,227,598 3,385 34.5
Other 6,428 65.5
Total 9,813 100Source: Planet Retail
http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=2784&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=3216&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=3780&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=2779&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=689&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=689&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=2779&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=3780&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=3216&PageID=5http://www.planetretail.net/RetailerProfiles/View.asp?CompanyID=2784&PageID=5 -
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2.2.3 Fragmenting farms
While retail and processing sectors are becoming concentrated, farms are getting smaller
and fragmenting. The average Philippine farm size in 1971 was recorded at 3.6 hectares;
this has since shrunk to 2.2 hectares as of 1991, or a decrease of 64% (Roy 2006) (Figure6). This is in contrast with the trend in developed countries such as the United States andUnited Kingdom where the average farm size has been increasing over time (Figure 7).
Figure 6. Shrinking average farm size, various countries.
Figure 7. Expanding average farm size, various countries
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2.2.4 Vegetable productivity increasing by 1.1% as volume (1.34%) increasing faster
than area (1.21%)
Average annual vegetable production for the last 25 years (1980 to 2005) is estimated at
3.6 million metric tons. Total area devoted to vegetable production during this period is
recorded at 438,962 hectares. This translates to an average annual yield of about 8.21metric tons per hectare. From 1980 to 2005, production, area harvested and yield all
posted positive growth rates. Production increased by 1.34%, faster than the growth in
the area devoted to vegetable production which was 1.21%. This produced a positiveyield growth of 1.09% per year. These trends are shown in Figure 8 with data translated
into indices with base year at 1980.
Figure 8. Vegetable, Production, Area and Productivity in the Philippines
3.0 Issues Affecting Vegetable Industry Stakeholders: Results ofConsultations and Issues Identified From Previous Studies
This section presents the issues identified in a series of stakeholder consultations held in
various regions in the country in February 2007. These consulations were done inBaguio for Northern Luzon regions, Manila for Southern Luzon, Cebu for Visayas and
Davao for the Mindanao regions. Issues identified in related studies are also discussed to
Trends in Production Volume, Yield, and Area Harvested of Vegetables in the Philippines: 1980-2005
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Year
Index
(base
year19
Production (Metric tons) Area Harvested (hectares) Yield (kg/ha)
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compare and validate issues raised during the consultations. Finally, current initiatives
by the government and private sector in the vegetable industry are also presented.
3.1 Key I ssues identif ied in stakeholder consul tations
Various issues were identified by over 300 stakeholders in the vegetable industry thatincluded farmers, traders, input providers, representatives from producer organizations,non-government and government organizations (local and national) and development
programs (i.e., Growth with Equity in Mindanao, Catholic Relief Service Small Farmers
Marketing Program). These issues can be grouped into marketing, trade, production,finance, infrastructure and organizational issues by area of consultation. These are
presented in Appendix 1 and can be summarized as follows:
1. Gap on information
There appears to be a dearth of information on marketing particularly data on
consumption, quantity and quality requirements needed by different types of markets(i.e., supermarkets, wet markets, and export markets). Supermarkets require a variety
of vegetables with specific quality requirements different from those sold in wet or
traditional markets. Moreover, information on production is needed such as volume
of production, soil and area suitability maps. Farmers plant vegetables without anyidea of the outcome on total volume of production resulting in overproduction and
dampening of prices.
2. Inadequate infrastructure facilities
Farmers complain about inadequate farm-to-market roads which increase marketing
costs due to spoilage and inaccessibility. Some farms do not have access to irrigationfacilities and water making it difficult for them to improve productivity. There are
areas that lack trading posts where farmers can bring their produce to sell to traders,
wholesalers and direct consumers.
3. Lack of promotion of vegetable consumption to address malnutrition particularlyamong children
Filipinos consume less vegetables compared to other countries, with a per capita
consumption of only 39 kilos based on 1992 data from the Food and Nutrition
Research Institute. It is therefore important to promote vegetable consumptionparticularly among children who suffer malnutrition.
4. High transportation cost (shipping)
The Philippine sea transport industry plays a crucial role in making domestic agri-
culture competitive. Because of the countrys geographic configuration comprising
more than 7,000 islands, it is heavily dependent on efficient water transport fordomestic and international trade and commerce. Presently, however, the industry is
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saddled with structural barriers and inefficiencies that result in part from the
Philippine Ports Authoritys (PPA) regulatory power. Port operations are usually
handled by monopolies. The majority of PPAs ports have become so inefficient thattheir productivity is down to half of those of their ASEAN counterparts (MARINA,
1998). Moreover, foreign vessels are restricted to ply along domestic routes due to a
cabotage law thereby limiting competition.
5. Lack of organization (clustering and strengthening of producer organizations)
Despite the clear advantages of organizing through clustering, there is difficulty forsmall farmers to venture into clustering due to many factors. These include among
others the lack of know-how on how to make clustering effective, inadequate support
from the government to start-up clustering and the strong dependence of small
farmers to traders.
6. Inadequate technology on vegetable processing
Farmers complain about high post-harvest losses in vegetables that significantly
lower their income. Processing could potentially extend the shelf-life of vegetables.
However, farmers lack the technology to venture into vegetable processing, particu-
larly those that do not require large capital investments.
7. Regulatory issues
A number of regulatory issues were identified that include certification of organic
vegetables, protection of farmers from buying fake seeds, exemption of vegetables
from the truck ban and illegal or excessive road toll fees. Farmers complain that the
lack of a credible certification system often most of the benefit from incentives thatare extended for farmers to venture into organic vegetable production
8. Transportation problems
Vegetable growers particularly those in the Northern part of the Philippines (Luzon
island) complain about the truck ban which is adding to the cost of delivering theirproduce to consumers in Metro Manila. Because of the truck ban, vegetable farmers
are oftentimes forced to sell their produce to middlemen and traders who tack on an
additional cost to the vegetables. Since the vegetable growers are not allowed to let
their trucks enter Metro Manila during the crucial truck ban hours 6 AM to 9PM some have to get smaller vans to deliver their produce. The cost of the smaller
vans, the drivers, helpers and fuel are added and eventually passed on to the
consumers. Even in cases where exemption from the truck ban is secured, separate
requests for exemptions have to be arranged with the different local government unitswho exercise control over the roads on which the trucks pass. To compound the
problem, for areas where there are no truck bans, vegetable farmers often have to pay
fees to pass through check points without delay and inconvenience. These fees arepaid without receipts and therefore considered illegal or grease money.
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9. Inadequate access to credit and crop insurance (risk management, i.e., access toACEF funds, credit without collateral)
Access to credit continues to be a concern particularly among small farmers who find
requirements from formal financial institutions too stringent and their processes toobureaucratic. It was suggested that farmers should have access to AgriculturalCompetitiveness Enhancement Fund (ACEF). This special purpose fund was created
by Republic Act No. 8178 or the "Agricultural Tariffication Act" which allocates to
the fund all tariff proceeds of the MAV (minimum access volume) importations tohelp the agricultural sector become globally competitive viable, efficient, and
sustainable. There have been complaints that the bulk of the ACEF loan releases
have not gone to small producers but instead have been cornered by large
agribusiness firms.
10.Inefficiency in the chain due to several layers
Farmers complain that their produce pass on too many hands before they reach the
markets especially when the products are sold in modern markets. In areas where
clustering is not being practiced, marketing functions are done by agents and traders.
Moreover, when marketing facilities such as trading posts or infrastructure facilitiesare inadequate, agents and traders emerge to facilitate marketing or provide marketing
functions such as information about buyers, transporting products or even perform
washing, grading, storing and packaging of produce.
11.Need for Research and Development to match market requirements and needs offarmers
The requirements of markets are changing. Farmers want to know how they can tap
opportunities and meet market requirements particularly in terms of quality.
However, these opportunities are often not known to them. Quality requirements ofdifferent types of markets such as supermarkets and processors are not clear or known
to them. Research and development is needed to provide farmers information and
technology so they are able to adjust to changing market requirements.
12.High post production losses
Losses particularly in vegetable production are substantial and seriously affect theincome of farmers. These losses can be attributed to many factors such as inadequate
post-harvest technology, poor farm to market roads, absence of cold storage facilities,
etc.
13.High cost of inputs (chemicals, seeds)
Farmers continue to complain about high cost of production inputs such as fertilizersand seeds. The cost of inputs becomes high especially when it is locked in with credit
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provided by traders. There are allegations that the fertilizer industry is inefficient due
the presence of cartels.
14.Lack of production programming and complementation across production areasresulting to gluts in the market and dampening of prices
The dearth of information on production and the lack of market informationcontribute to farmers producing vegetables in large volumes that dampen prices due
to oversupply.
15.Inadequate extension services
A number of farmers complain that local government units lack personnel to
adequately provide extension services. This problem is compounded by the fact thatthere are extension officers who are not even graduates of agriculture courses. There
is also no effective advisory system for farmers on how they can access market.
3.2 I ssues identi f ied in related studies
It is important to consider issues identified by other studies or organizations related to the
vegetable industry. As can be observed, a number of the issues identified by the stake-holders in the recent consultations are consistent with the issues identified by previous
studies and other organizations.
For example, in the Mindanao RoadMap prepared by the Department of Agriculture
(2005), issues identified include the high cost of doing business because of high cost of
transport and handling, and expensive packaging materials and production inputs since
most of them are imported. The problem on high post-harvest losses was also noted aswell as the instability of prices. Access to credit was considered a roadblock and this is
primarily due to the non-bankability of farmers. Another issue identified was the lack of
market information system and weak database. Finally, it was observed that most produ-cers are not agri-entrepreneurs.
The Small Farmers Marketing Program of the Catholic Relief Services (2005-2008), withfunding support by the United States Department of Agriculture, also highlighted a
number of issues not only faced by vegetable producers in the Philippines but also small
farmers in general. Problems identified include the following:
Fragmented farms & unorganized farmers for a market
Lack of business & market orientationthinking beyond the farm
High cost of production (inputs, packaging, freight & handling)
Unavailability of appropriate financing packages (trader finance limits roomfor price negotiation)
High postharvest losses (packing sheds, harvest containers, tools)
Infrastructure constraintsroads & irrigation
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Lack of farm technologies/knowhow (soil fertility & conservation measures,crop protection, fertilization, postharvest)
Isolation lack of market information, weak bargaining position (pricetakers), lack of access to extension services
It can be observed that post production losses are one of the most common issuesidentified in the consultation and other studies. A survey conducted by the project on the
vegetable supply chain in Mindanao by the University of the Philippines (2004) inMindanao revealed that losses from cleaning, grading and storing vegetables account for
the bulk of post-production handling costs. In cabbage alone, it accounts for more than
50% of the post-production cost from farm to wholesale and retail outlets in wet market(Table 3). On the other, hand while there are costs and losses incurred from grading due
to rejects, farmers also get better prices due to grading. In cabbage, for example, the
price of graded cabbage is 100% higher than that of ungraded cabbage (See Table 4)
(Digal 2005). Even better prices are fetched if products are naturally grown or organic(Mindanao Vegetable RoadMap 2004).
Table 3. Post-production cost, cabbage, 2004
Source: UPMin-ACIAR (2004)
Another recurrent issue which has become a perennial complaint particularly of farmers
in Southern Philippines is the high cost of shipping which has substantially constrained
their linkage with the upstream industries (Digal and Concepcion 2004). Based on theliterature and key informants interviews, this issue is multidimensional in that it is related
to the lack of competition in both cargo and port handling services (i.e., cabotage law
restriction on foreign vessels), inadequacy of consolidation facilities, corruption within
the Philippine Ports Authority, etc.
The issue on the lack of competition in the cargo service is highlighted as the problem on
port handling service is now being addressed by the government with its policy toencourage roll-on-roll off (RORO) technology. RORO being a substitute for lift-on-lift-
off technology (LOLO) enhances competition in the port handling business.
Activity Wholesale Retail
Cost/kilo % To total Cost/kilo % To total
Cleaning 0.49 4.7 0.30 3.4
Grading 0.59 5.6 0.11 1.2
Packing 0.55 5.3 0.17 1.9
Storing 0.19 1.8 0.17 1.9
Transportation 0.72 6.9 0.41 4.6
Loss (clean) 2.92 28.0 2.50 28.2
Loss (grade) 2.80 26.8 2.82 31.8
Loss (store) 2.19 21.0 2.39 26.9
Total 10.45 100.00 8.87 100.00
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Table 4. Price difference between graded and ungraded vegetables
Source: Digal (2005).
The high cost of inputs including packaging materials has also been identified as one
issue that constrains the competitiveness of vegetable producers. This does not only
increase the cost of products but also stunts the development of retail products. For
packaging materials, the current tariff is pegged at 15% which is expensive relative toother Asian Countries such as Thailand. For fertilizer, there are a number of countries
that have lower tariffs than the Philippines such as Indonesia, Malaysia and Australiawhich have practically zero tariffs.
In sum, the issues identified in the consultations, some of which have been identified in
previous studies, are issues that continue to affect stakeholders in the vegetable industryparticularly farmers.
3.3
On-going private and publi c sector ini tiati ves
There are current private and government sector initiatives to develop the vegetable
industry (Mindanao Vegetable RoadMap 2005) and address some of the problems and
issues described above. These are listed below:
3.3.1 Private Sector Initiatives
OrganizationNorminVeggies and Vegetable Industry Council for SouthernMindanao (VICSMIN) and the Philippine Vegetable Industry DevevelopmentBoard (PVIDB)
Application of supply or value chain approach (i.e., NorminVeggies)
Vegetables
Prices (PhP)% Difference between Graded
and Ungraded Prices
Ungraded (A)
FirstGrade
(B)
SecondGrade (C) B-A C-A
Cabbage (per kilo) 4.50 19.83 13.50 340.67 200.00
Carrots (per kilo) 12.00 17.33 16.44 44.42 36.98
Potatoes (per kilo) 13.75 20.93 18.00 52.22 30.91
Tomatoes (in crates) 49.31 125.71 103.16 154.96 109.21
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Operation of cold chain and consolidation facilities
Business linkagesmarket development, supporting business organizations andclearing house
Partnerships with resource organizations and government agencies
Formation of marketing and production clusters.
Data banking and benchmarking
3.3.2 Existing Interventions (private-public partnerships)
Production of biocon agents
Purchase of assorted vegetable seeds
Quality assessment of vegetable that pass cold chain highway
Extension support, education and training services
Market development service (Market matching)
Credit facilitation
Policy formulation, planning and advocacy
Provision of post-harvest facilities
Refrigerated Van
Refrigerated Truck
Pre-cooler
Ice crusher
Trading posts
Provision of irrigation facilities
drip irrigation
small farm reservoirs
water pumps
Provision of Protective Cultivation Greenhouse
Plastic sheets
4.0 Innovation of NorminVeggies
Organizing small farmers to meet the strict requirements of modern markets such as
supermarkets and fastfood outlets has been a challenge in development work. In thePhilippines, the usual response is to organize them into a cooperative but this approach in
most cases has not worked. There are, however, good examples to consider how this
challenge of organizing farmers can be tackled successfully. One such example is the
case of the Northern Mindanao Vegetable Producers Association (NorminVeggies), anassociation of vegetable farmers and stakeholders in Southern Philippines who saw the
need to organize and implement strategies and innovations to access dynamic markets in
the Philippines, particularly fastfood outlets, supermarkets and vegetable processors.
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4.1 How it started: organizing f or success
The key to NorminVeggies success is organizational innovation. It was organized in1999 by the farmers in order to have a concerted effort in the development of the
vegetable industry in Northern Mindanao. NorminVeggies is composed of members
from farmer groups, corporate farms, input suppliers and other support agencies. Thefarmer group is a combination of farmers who have the resources and those who needresources and support. NorminVeggies acts a vehicle for networking and dialogue with
government and development agencies to access development support. NorminVeggies
becomes part of this organizational innovation as it is able to access support for technicalassistance, marketing and others crucial particularly for asset poor members.
Another aspect of organizational innovation is the setting up of a business entity (Normin
Corporation or NorminCorp) to handle the market facilitation of members produce. It isnot a trading company. It is a facilitator which charges a fixed percentage based on sales
rather than a flat rate which makes transaction more transparent. Farmers know the price
paid for their produce and can calculate exactly how much income goes to NorminCorp.
In 2006, NorminVeggies with the assistance of the Department of Agriculture (DA) and
the United States Assistance for International Development (USAID) established the
NorminVeggies Consolidation Center (NVCC) at the Agora wet market in Cagayan deOro City to consolidate the produce of members. This move doubled the volume sold. In
addition, the benefit of cash payment right after withdrawal from NVCC meant more
stable incomes for the farmers. There is no more trimming to factor in after the distribu-tors get the vegetables because the ones left at the stall are also purchased by the local
retailers who slice the vegetables for the consumer market.
Finally, Normin adopts a clustering strategy that enables small farmers to be activeplayers in the supply chain and meet the basic requirements for volume, quality, timing,
assortment and consistency in supply.
A combination of these elements increases the chance of success for the inclusion of
small farmers in dynamic chains.
4.2 How small farmers benefit
The key benefit of farmers who are members of marketing clusters and sell to Normin-
corp is increased profit. This increase in profit is due to more stable markets, highervalue for quality vegetables, and a premium for reliability in supply. For these reasons,
Normincorp can get a price premium of 10% to 20% compared to that offered in the spot
wet market dominated by traders in the traditional supply chain.
For example, buyers want to source their carrots from Normincorp because of quality and
reliability. This means less cost for the buyers and higher recovery. Value for money
can be the main selling point.
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Given all the work put into quality management and delivery reliability, Normincorp can
negotiate with the supermarket supplier for a good price that is enough to compensate for
the effort. The price for carrots, even if pegged weekly, is always above the Agora wetmarket price. If the price of carrots at the wet market is P30 per kg, Normin quotes at
P38, to factor in the high recovery rate for the supermarket supplier. When the buyer
receives the carrots that are washed, air-dried, sorted, neatly packed in boxes, there areimmediate savings on handling labor since the vegetables are ready for chiller display.When the buyer compares this to the wet market carrots that are unwashed, unsorted and
in sacks, a P8 per kg additional price is still less than the costs associated with sorting,
washing and preparing carrots for display, as well as the high reject level for the procuredvegetables (estimated at 8 kg for every 60 kg sack).
For quality supply, the farmers additional cost is P3.50 (with this breakdown: P1.50 for
washing, sorting and the cost of using a box instead of a sack for packaging, P1 forNorminVeggiesstorage fee, and P1 for Normincorp as marketing facilitation fee). The
farmer still enjoys an additional income of P4.50 per kg. This is the case also for lettuce.
From Normincorp that has daily supply of lettuce, the price is 10% higher compared tothat in the wet market.
Higher income is also coming from the sorting of the vegetables. Carrots in the spot
market are usually sold all-in wherein the price is averaged from the big to the smallsizes. All-in carrots can mean a price difference of P18 per kg considering that big sized
carrots can command a price of P30. In most cases, the farmers resort to all-in trading
because carrots in the wet market are priced based on 6 sizes (large, big, medium,standard, small, super-small) with a price range of P30 for the large to P3 for the super-
small sizes. In many cases, traders are arbitrary in their own sorting and farmers have no
choice but to accept their classification. In comparison, Normincorp being the only one
in the wet market handling high quality carrots was able to impose just 3 size categories(big-medium, standard and small) with a price of P38, P30, P22 respectively. Super-
small carrots were excluded from sales to the high value market and instead were
unloaded to the wet market retailers that sliced vegetables as off-size carrots.
Increased sales, and accordingly income, is not only through better quality, sorting and
price, but also from better assortment and variety of products. The mix of independentgrowers who have financial resources and small farmers with limited financial resources
becomes a source of competitive edge. Independent growers produce capital intensive
vegetables such as salad vegetables while small farmers produce those that are not capital
intensive such as cabbage, carrots and sweet peas. A wide assortment of vegetablescombined with stable volume and quality achieved through market clustering is important
in supplying to supermarkets and restaurants (or their consolidators) which require
assorted vegetables.
The Visayas vegetable supermarket consolidator or distributor takes in from Normincorp
an assortment of 20 products from a single shipment. From the independent farmers are
supplied the following: iceberg lettuce, romaine lettuce, salad tomato, cherry tomato, bellpepper, strawberry, cucumber, sweet corn, young corn, herbs, etc. This set is combined
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with products from the small farmers, namely: carrots, cabbage, sweet pea, sweet pepper,
squash, table tomato, eggplant and other tropical vegetables. This range of products
gives Normincorp the bargaining power in terms of pricing and sales volume. Handlingthe transaction with a set of products provides leverage that all products have to be taken
in from both the independent and small farmers. This means for example that
Normincorp can agree to supply high-value difficult-to-get strawberry only if theordinary squash is also taken in.
Moreover, there are savings on costs. Since the production of those farmers involved in
the marketing clusters is programmed, storage fees are minimized. In other words,they are sold even before harvesting. As a group and as members of Normin, the farmers
access resources that would help reduce their cost such as assistance on production,
marketing, institutional strengthening and benefits derived from advocacy such as
increased access to government support programs. They also save on logistics costbecause of volume or economies of scale.
The increase in price, the sorting, and the leverage of Normincorp in negotiation withbuyers both for higher prices and lower transaction costs, together with the savings from
better management of trimmings/rejects with the NVCC facility, are altogether estimated
to translate to an increase in the profit of the individual farmers ranging from 25% to
35%. This has encouraged more growers to join NorminVeggies. Since the opening ofthe NVCC in May 2006, 10 new members have joined the association.
The key to these benefits is the organizational innovation which led to inclusion andincreased participation of the group in these dynamic markets. The cost involved in
organizing appears high for people who invest their time, efforts and money in meetings
and related activities. But by organizing, farmers are able to gain more benefits to lower
their cost thereby providing incentives to sustain the initiatives. They hire staff to run theorganization to minimize their efforts and continue the work of improving quality to get
better prices, access resources to reduce cost and ultimately increase profits.
4.3 Requirements for Successful L inkage
4.3.1 The clustering strategy
Normincorps regular supply is coming from 3 main clusters. Two of the 3 clusters are
single product clusters (lettuce and broccoli) while a third cluster supplying the Visayas
and Mindanao markets is a multiproduct one.
A cluster is an informal group of 5 to 10 small-scale farmers who commit to undertake a
common marketing plan for a particular product (or set of products) for pre-identified
markets. Each product cluster has a designated lead farmer who acts as the coordinatorof the production of all the farms involved in the cluster. Normally, the lead farmer is the
best farmer for that type of vegetable and is responsible for teaching the other farmers in
the cluster about applicable production techniques in order to maintain the qualityspecified by the market. Usually, the lead farmer is one of the independent farmers, since
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they are more educated and financially independent. The 3 clusters formed so far for the
year round markets are the lettuce cluster, broccoli cluster, and the Visayas market
cluster. These clusters are comprised of the core of 10 independent farmers and 50 smallfarmers. The 50 small farmers are organized into 4 sub-cluster based in 4 barangays in
the municipality of Impasugong, Bukidnon.
A marketing cluster can be formed to take advantage of an opportunity at a certain periodof time. For the high demand of tomato from Manila during July to December, a tomato
cluster is formed just for the period. The next year, it can be formed again but not
necessarily with the same members/farmers. Similarly, servicing the Manila supermarketdistributors with a set of vegetables will require the formation of a Manila cluster just for
the season of supply. It has nevertheless been observed though that cluster members tend
to be the same in the succeeding years.
The cluster may appear loose but what holds it together is the commitment to supply and
the cluster agreements. Important cluster agreements are the volume of supply per
farmer, delivery schedule, and compliance with a common quality standard whichnecessitates agreement on practices in plant/farm management, harvest and post-harvest
management. The cluster, therefore, is not just an ordinary grouping. It is one with a
marketing objective and a management system, requiring discipline from each farmer to
protect the reputation of the group in the market. Being a small group, it is capable ofquick response to buyer feedback and requirements.
Clustering is the strategy for farmers to become a valued supplier in the higher value andgrowth markets, particularly the fast foods establishments, the processors, and the
supermarket distributors with the consolidators. In the cluster, farmers get to talk about
the market and the value addition in the supply chain, and farmers in the cluster decide
together on the markets to be served. This empowers farmers and enables them tobecome a dynamic player in the market, share collective know-how (particularly the best
practices in the farm), resources, technologies, and market contacts, which otherwise
would be inaccessible or costly to them as individual farmers.
Indeed, the benefits of clustering include: (a) higher economies of scale and ability to
handle large product volumes at lower transaction costs, (b) access to good markets, (c)business deals with service providers, (d) effective linkage with government and private
resource organizations.
4.3.2 A new business model
Normincorp was established in December 2003. Its formation signified a new develop-
ment in the marketing set-up for small farmers. While established as a stock corporation,
it functions more like a cooperative and has a social enterprise character. It was a set upand operated with a keen business sense but also with full empathy for the small farmers.
An innovation is that Normincorp is not a trading company. Rather, it is a market
facilitator linking the farmer through the cluster direct to the buyer. The farmer is giventhe buyers price is therefore accountable for the product . He/she retains ownership of
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the product up to the institutional markets end. This encourages the farmer to supply the
best quality since the price is given to him/her and all sale proceeds are remitted directly
to him/her after deducting the market facilitation fee based on vegetables sold.Conversely, all rejects are individually charged to the concerned farmer. Labelling of
products per farm or farmer provides this traceability.
The Market facilitation fee is charged by Normincorp based on the value of the productand the type of vegetables. The table below shows the rates.
Table 5. Normincorp Facilitation Fees
Value/Kg (Php) Squash/
Ginger
Cabbages(flat, round,
wongbok)
Other
Vegetables &
fruits
Table Tomato
Up to 2.00 0.20 0.20 0.20
2.05 to 5.00 0.25 0.20 0.20
5.05 to 10.00 0.50 0.50 0.75
10.05 to 20.00 0.75 1.0020.05 to 50.00 2.00
>50.05 3.00
Up to 300/crate 5.00
>300/crate 10.00Note: same rates apply for storage fees charged by NorminVeggies at the NVCC
As market facilitator, Normincorp saw to it that production is programmed by clusters
with the lead farmers coordinating activities in accordance with marketing plans, that
quality farm and post-harvest management can be and is done by each farmer in thecluster, and that coordination can be provided for the sequence of activities that includes
order taking, outshipment logistics, billing/charging, collection and remittance to thefarmers. For these services, Normincorp earns a market facilitation fee based on the valueof the sale and uses the income to cover the marketing management overhead.
Breakeven operating levels require a significant volume of vegetables channelled through
the corporation. To operate in the Visayas market involves overhead costs of P50,000which in turn will necessitate sales of at least P500,000 per month. Including a Manila
operation doubles this overhead requirement.
Normincorp devised a Cluster Map that specifies which farmers will participate in the
cluster, what crop they will produce and at what volumes. This is matched with a
Planting/Delivery Calendar (also called a Crop Ruler). The process of developing thetools like the Cluster Map and the Harvest/Delivery Calendar came by trial and error andin response to the management needs for efficiency and effectiveness. While the market
was being developed, the farmers were going through the learning curve in farm supply
management. To facilitate this process, the incorporators of Normincorp contributedfunds other than the facilitation fees they generated from operations. At certain timeswhen there were drastic declines in sales volumes (due to weather problems or to dyna-
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mics of market competition), the incorporators shelled out additional fund contributions
to sustain the operations.
Without this readiness on the part of the incorporators to support the business
establishment needs, Normincorp would have folded up during its first year. It helped
that the incorporators were also farmers, albeit independent and relatively better off thanthe ordinary small farmers, who shared a common vision to promote solidarity amongsmall scale producers to make a difference in the industry. Because of their sacrifice and
determination, Normincorp is presently financially sustainable from the market facili-
tation fees it earns from vegetable sales.
4.3.3 Supply chain management
NorminVeggies attempted to build a positive brand image by assuring the market ofreliability in quality and regularity of supply, as well as reasonableness in pricing.
Quality management was worked back to the farm itself. For example, when the market
asked that carrot should be deep orange with a small inner core, the carrot cluster lookedinto the seed varieties to be used. When a particular size became a requirement, the
cluster checked planting distances and cultural management practices. No carrot came
out for the Visayas supermarket distributor that was not washed and air-dried as this was
the quality specification agreed upon. To guide the quality management in the field andin post-harvest handling, the cluster came up with a Quality Assurance Planthat guided
each farmer.
For the market, i.e., the buyers for supermarkets or consolidators for the Visayas, Normin
related quality to reliability of supply from the farmers through the cluster. They tried to
build the image that NorminVeggies can be a valued supplier with whom buyers would
find the least problems or headaches with their buying transactions. This was oppositeto the prevailing market image of small farmers as unreliable. NorminVeggies farmers
were prepared to do the extra things which included flexibility in packing requirement,
lead time for them to be informed of changes in price or shortage in supply. This wasparticularly important for consolidators of supermarkets or the fastfoods who stood to
incur huge losses in case products were not delivered on time or at very low quality.
Delivery reliability implied that inter-related activities such as production scheduling,
post-harvest requirements, logistics (transport, seaport and airport operations), farmer and
buyer communication, invoicing, payment collection and sale remittances to farmers
were properly attended to. Normincorp set up an office in Cagayan de Oro as its contactpoint, and hired a fulltime cashier, part-time accountant, and a logistics in-charge who
handled the outshipment activities. In Manila, a marketing facilitator was also hired to
attend to the distribution needs in the area. The Vice-president of NorminVeggies
provided overall coordination as Manager of the group marketing program.
Whenever a shipment was prepared for the Visayas market for transport by boat on the
regular Tuesday and Saturday schedules, all the cluster farmers involved in the productsconcerned harvested simultaneously and brought their vegetables to an agreed
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consolidation area near the port by 5:30 pm at the latest. For the small farmers, the trucks
of the independent farmers nearest them handled the transport to the consolidation point.
Later on, the consolidation point was changed to the NorminVeggies ConsolidationCenter (NVCC) when it was leased by NorminVeggies.
There is usually no time to check the quality of vegetables. It is presumed that the clusterfarmer, guided by a quality assurance plan, will comply with the agreed quality standards.In case the buyer has complaints, it is however easy to identify the source of the products
in question since the vegetables are segregated by product and supplier, and all boxes
carry the name and label of the farmer who produced the vegetable. Each farmer alsofills up aPacking Listthat is recorded and kept at the Normincorp office.
When NVCC opened for spot market trading, the traders from the neighboring provinces
in Mindanao, particularly those servicing the supermarkets and the fastfoods, started toprocure the high quality vegetables from the center. From a core of 5 Normincorp
buyers who have been steady buyers from Visayas, new buyers came to NVCC and the
number of weekly buyers increased to 10 in just a span of about 3 months operation.New buyers are coming in expressing interest to procure at the consolidation center for
outshipment areas.
4.3.4 Networking and linkages
Each farmer continues to operate his/her own small farmholdings but through Normin-
Veggies additionally enjoys access to competence enhancing linkages with (a) business,(b) government, and (c) private resource organizations. Good relations are maintained
with the service providers for outshipment and packaging, with government agencies like
the Department of Agriculture (DA) and the Department of Trade and Industry (DTI),
and with their main private resource organization partner, GEM/USAID.
There is synergy in activities because of collaborative efforts. The co-sponsorship of the
government and private sector in the trainings, technology and product/marketdevelopment has enabled the association to achieve important breakthroughs. For
example, NorminVeggies was able to pursue cold chain development efforts by
successfully negotiating for an interest-free 5-year loan from the DA to acquire a reefertruck and 2 chillers. During the simulation for cold storage shipment, the GEM support
allowed the farmers to travel and directly observe the results of refrigeration and also to
be in consultation with the buyers. While the bulk of resources came from the farmers,
these types of assistance filled the gaps that enabled the farmers to keep abreast of marketdemands and maintain staying power in the market.
4.3.5 Development interventions
Normin had always wanted small farmers to be part of the marketing cluster. Several
attempts were made by individual small farmers to join but many eventually fell out due
to failure to deliver and poor reliability and sustainability. The hurdles small farmersface in marketing their produce are simply too complex for small farmers to handle on
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their own. What is needed is the support of development agencies that address the
vulnerabilities of small farmers and open the door of opportunity for them to be part of
the clustering effort.
The opportunity to work with small farmers as a group came when Kaanib Foundation,
Inc. (a member of NorminVeggies) together with Lutheran World Relief Servicesrequested Normincorp to evaluate their vegetable production assistance to an organizedgroup of vegetable farmers and asked for recommendation about how to make the project
take off the ground.
KFI and LWR allowed Normincorp to redesign the development interventions, not just in
marketing but in production assistance. A new group of 10 individual farmers who had
the experience in vegetable farming were formed. These were those who were not deeply
indebted to the localitys trader/financiers, and who were open to working in a groupalong the concept of clustering. It was important that each farmer in the group
understood delivery reliability by agreeing to take turns in planting weekly so that a
stable volume could be produced weekly from them. This became the base of thefarmers clustering.
These 10 farmers increased to 25 by the last quarter of 2005, and into 30 farmers in
March 2006, with staggered production of cabbage and carrots. This supply goes into theVisayas markets as part of the multiproduct cluster marketing. In effect, this group of
farmers called the Kitanglad Small Farmers Cluster is a sub-cluster of the Visayas market
cluster. In their January 2006 meeting, they came up with the plan to produce anadditional crop, namely sweet pepper.
KFI made available a production fund that creatively financed the farmers in a way
similar to the financier/traders. The fund was not made known as a project fund but itwas financing from KFI coursed through Green Haven Farm, a private agribusiness firm,
and Normincorp. This way, it was immediately perceived as a business transaction, and
not a dole out. The credit support covered the material inputs, one sack of rice afterplanting, and a budget for harvest and post-harvest handling. Together with this credit
fund support was funding to hire a vegetable technician to guide the farmers and an
administrative person to handle the recording and marketing operations.
There was no talk of interest payments for the loans. Adopting the 50:50 sharing of net
proceeds scheme followed by the local traders/financiers, the farmers had to give 30% of
the net sale proceeds (i.e. after deducting the farm inputs and other costs borrowed) ascost of money. This 30% was deposited in the local cooperative (Kauyagan Savers
Cooperative) and, together with the grant fund from LWR for production credit, will in
the future constitute a loan fund to be managed by the local coop. In January, the farmers
agreed to make it a 35% deduction from the net sale proceeds, with the 5% as fund sourcefor their sub-cluster.
The KFI intervention that is extended directly to the farmers is the irrigation support forwhich they pay a rental fee per cropping for the use of the facility.
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It was quite a challenge assisting the small farmers even if KFI/LWR fund support was
available. Aside from the problem of credit availability, there were major infrastructureproblems. Poor farm-to-market roads isolated their production areas and made it
expensive to transport their inputs and products. There were countless times when the
farmers cabbage and carrots could not be delivered in their required quality andpackaging standards as farmers did not have the ready access to water just to wash thecarrots.
Harvest operations were at times hampered by rains, and the products could not bebrought out from the fields that did not have all-weather roads. Every failure of product
delivery, or a delivery of poor quality, exerted pressure on the rest of the Visayas cluster
farmers since marketing was done as a group and the failure of an individual farmer was
viewed as a failure of the whole group. Expectedly, this brought about tensions anddoubts among the independent farmers as to the capability of small farmers to be in the
cluster.
Lately, however, KFI/LWR has extended support so that a consolidation area with a
packing facility can be put up at the location near and central to the farmers. This way,
farmers can harvest a day in advance and bring the products to this consolidation area
where they can implement the required quality management procedures. Hopefully, thisneeded support system will ease up some of the tensions between the small farmers and
the better-resourced independent farmers and grouping them in clusters.
The other challenge had to do with changing small farmers values and attitudes. Used to
relying on the trader/financier for the one-time, big-time plantings where their capital
risk is very high, it takes time for farmers to understand that the secret to viability is
planting in small areas with high quality production and coming up with a crop-mix of atleast 3 vegetables. Convincing them of the economic module size of 500 square meters
per vegetable for 4 types of vegetables was difficult. It took the success of a few of them
to finally convince the rest that given their limitations, manageable areas with hightechnical care and adequate inputs ultimately yielded higher returns.
Time was also needed to change their discipline in terms of compliance to qualitystandards. Used to heavy application of agrochemical inputs under financing from the
local traders, small farmers tended to apply all the inputs on hand thinking this was the
best way to ensure that their crops would not be damaged and they would be able to pay
back their loans from the financier.
A technician was provided as part of the development support to guide small farmers
closely on integrated pest management using newer, safer inputs. Given their higher cost,
it was necessary for the technician to control the access of chemical inputs so that usagecould be kept to the minimum and chemical withdrawal periods were strictly followed.
This was important because the small farmers in the cluster had to comply with the
clusters definition of quality which involved not only freshness but also food safety.
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The technician also helped diagnose problems as they arose so that farmers did not
immediately resort to chemical spraying when it was not necessary.
Technical guidance was very important not only in production but especially also in post-
harvest operations. Even when the farmers were shown how harvesting and post-harvest
handling ought to be done through visits to other farms, they still needed to be guidedvery closely because at times, the problem was not the know-how but the discipline touphold the standards of performance and quality.
Given time, however, the farmers grew to appreciate the value of this discipline. Withthe cost and returns computations given out to them where they could see in detail how
their product was unloaded, they realized that sorting paid in terms of the price
differentials, and that rejects or trimmings deducted from them affected their earnings
considerably.
Showing the farmers their costings was a major eye-opener for them; for many years,
their trader/financiers just wrote the figure of their net income (or loss) on a small pieceof paper, and they had no clear idea on how their farming actually turned out. This time,
they learned to be critical about their farm practices in terms of how they translated to
cost that reduced or increased their earnings.
Through all these processes, it was critical that the incorporators of Normincorp gave all
out support to the farmers. All sorts of innovative practices were tried out to maintain a
system whereby cabbage and carrots would continue to be supplied by small producers.This at times meant that Normincorp would purchase at the wet market when there was a
supply gap from the small farmers in a particular week, instead of allowing an
independent or large-scale farmer to take over the production of these products earlier
allocated for small farmers. Since products from the wet market were usually of poorerquality, private farms were for some time asked to plant extra volumes of vegetables
allotted to the small farmers as a supply back-up in case the small farmers were unable to
fulfil their delivery commitments.
After a year of operations, the management of the credit fund is now fully under KFI with
NorminCorp now just focusing on the marketing activities. KFI has recently providedirrigation support which enables farmers to continuously produce even during the
summer months. Farmers pay service fees for the facility through rentals per cropping
season. Two months ago, KFI ventured to expand its vegetable production support to
include another 20 farmers in two other barangays. This support is in partnership withanother development resource organization, the Catholic Relief Services (CRS). In all,
KFI extends assistance to 50 farmers grouped into 4 clusters based in 4 barangays in the
municipality of Impasugong. There is discussion on a proposal whereby Catholic Relief
Services will put in a leverage production fund that the local cooperative (KauyaganSavers Cooperative) can manage based on the experience gained from the credit scheme
tried out in the LWR project.
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5.0 Strengths, Weaknesses, Opportunities and Challenges
Based on the above discussion, it is apparent that the Philippine vegetable industry isconfronted with inherent weaknesses and challenges that need to be addressed. There
are, however, opportunities to be tapped as well as strengths to build on to help the
industry address the emerging issues and challenges. To categorize the issues that havebeen identified, factors that are considered to be basically internal or within the vegetable
industry, such as production or supply issues, are treated as strengths and weaknesses.
On the other hand, opportunities and challenges, such as marketing and consumptionissues, are factors classified as external to the vegetable industry. (Table 6).
Table 6. SWOC of the Philippine Vegetable Industry
Opportunities Increasing demand due to increasing population,
income & changing lifestyles towards healthyfood
Increasing demand for high quality vegetables formodern markets in urban areas such as
supermarkets (i.e., ready to eat vegetable packsand high quality, reasonably priced, reliable and
consistent delivery at the right volume) and
fastfood outlets (processed and pre-cut vegetables)
Higher price and increasing demand for naturallygrown (organic/pesticide free) vegetables
Off-season vegetable export window (i.e., Taiwanduring cold season)
Challenges Increasing concentration in
processing and retailing
Requirements on qualitystandards, volume,traceability, reliability of
delivery particularly frommodern markets
Growing importation ofvegetables
Strengths Increasing productivity
On-going private sector initiatives (see section 3.3.1)
On-going private-public sector initiatives (see section 3.3.2)
Presence of typhoon-free production areas inSouthern Philippines
Development options/strategies:
How do can we use strengths to
exploit opportunities?
Development
options/strategies:
How do we use
strengths to addres
challenges?
Weaknesses Unstable/fluctuating prices due to many factors which include: majority of the farmers/traders supply to traditional markets with pricing
based on spot markets (unlike modern markets where prices can be
negotiated and more stable)
lack of information on production and volume which result inoverproduction and underproduction
Fragmenting farms
Gap on information particularly on:
marketing consumption, quantity and quality requirements needed bythe market
production-real time statistics on volume & soil/area suitabilitymaps(GIS based)
Inadequate infrastructure facilities
farm to market roads, irrigation
Additional trading post (i.e., in barangays aside from La Trinidad)
Irrigation facilities Lack of promotion of vegetable consumption to address malnutrition
particularly among children
High transportation cost (shipping)
Lack of organization (clustering and strengthening of producerorganizations)
Inadequate technology on vegetable processing
Regulatory issues
certification of organic vegetables
protection of farmers from buying fake seeds
Vegetables are not exempted from truck ban but DHL (courier) isexempted
Development options/strategies:How do we use opportunities to
address weaknesses
Developmentoptions/strategies:
How address
challenges and
minimize
weaknesses?
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Illegal toll fees (tong gates)
Inadequate access to credit and crop insurance (risk management, egaccess to ACEF funds, credit without collateral)
Inefficiency in the chain due to several layers
Need for Research and Development to match market requirements andneeds of farmers
High post production losses
High cost of inputs (credit,packaging, shipping/freight, chemicals, seeds)
Inadequate extension services lack of personnel in extension and some extension officers are not even
graduate of agriculture courses)
advisory system on how small farmers can access market
Fragmented farms & unorganized farmers for a market
Lack of business & market orientationthinking beyond the farm
Lack of farm technologies/knowhow (soil fertility & conservationmeasures, crop protection, fertilization, postharvest)
6.0 Development and Policy Options
Based on the SWOC matrix, development options can be mapped out by answering the
basic question of how the vegetable industry can make use of its strengths and
opportunities to address the weakness and challenges it faces.
Discussed below are key development options and policies which are reflected in the
policy resolutions provided to the organizers of the 5th
National Vegetable Congress3and
the Philippine Vegetable Industry Development Board for their policy advocacy
initiatives (See Appendix 2 for these resolutions).
1. Establi sh f unctional , accessible, effi cient and effective production and market
in formation system
This system should be accessible to users particularly producers and traders who make
decisions on what, when, where and how much vegetables to produce. The lack ofinformation on markets and volume of production (including soil and area suitability
maps) contributes to problems such as producing vegetables that do not meet marketrequirements in terms of type and variety of vegetables, quality, volume, form and
delivery or frequency specifications. Information on prices that are timely, accurate and
in accessible form encourages competition and market efficiency and helps minimize oravoid overpricing or underpricing of commodities. That is, the process of price discovery
is enhanced.
The proposed agribusiness centers to be established by the Department of Agriculture are
welcome moves towards enhancing efficiency by providing timely and accurate market
information. While there is clearly a need for an efficient and effective agribusinessinformation system (on vegetables and other crops), it is also important to pay attentionto the design and management of this system or agribusiness center to ensure its
sustainability. Partnerships with industry associations in the implementation of this
information system is essential.
3To maximize the impact of their studies, the consultants offered to provide support to organizers of the 5 th
National Vegetable Congress by developing policy options to help the vegetable industry and which could
be presented during the annual congress which was held on 7-9 March 2007 in Tagaytay City.
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2. Improve profi tabil ity through cluster formation & development
The organizational innovation of Normin has several elements: product consolidation
through cluster strategy, a new business model in the form of Normincorp, supply chain
and marketing management, networking and linkage, and development intervention forgreater inclusion of small farmers.
The clustering strategy enables small farmers to be active players in the supply chain,
meet the basic demands for volume and quality consistency in supply, and engage thedynamic markets like the fastfood chains, processors and supermarkets.
It takes time to develop a functioning cluster. It starts with a random group of farmers
producing as individuals. Through time, those who can work in the cluster (particularlyin the sharing of best practices, commitment to quality and delivery reliability, willing-
ness to pay the costs of management) will become evident. Those who cannot will leave
as willingly as they came in. When growers come to understand and experience thebenefits of cooperation, only then can there be cohesion in the cluster.
The cluster is not an ordinary grouping. Rather, it is one that has marketing goals and
management systems. A business organization taking bold steps as a social enterprise isneeded to realize the goals that benefit a wide base of growers that include small farmers.
A core group of enterprising and agribusiness-oriented farmers is necessary to provide
the internal muscle to the organization and pull the small farmers along.
Small farmers have the productive potential because of their number and spread. How-
ever, infrastructure gaps, low productivity, attitudinal problems, and other constraints
mean that they need development interventions from private resource organizations andgovernment to address their limitations. There is also a slow maturation period required
as small farmers gradually are trained, learn new values and skills, and are primed for
business-like operations.
The key to successful marketing is effective management rather than the level of
sophistication of the marketing system. This implies that what counts are organizationalmanagement (or how farmers can get their acts together) and operational efficiency (a
high level of coordination in a sequence of activities that move products cheaply from the
growers to the buyers).
Staying power in marketing is a result of how fast growers can keep up with continuous
changes in an evolving supply chain. Competition from vertically integrated suppliers
like corporate groups can exclude small farmers from the market. There is a need to
constantly invest in technology development, market research, communication, and goodfinancial management.
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Competence enhancing investments can be within the reach of small farmers through
linkages with government agencies that can provide supportive programs and policies,
with the business sector, and with private resource organizations.
In sum, the development of clusters requires the provision of a package of development
interventions on:
Infrastructure - These include critical-farm-to-market road projects, provision ofadditional cold chain facilities to minimize post-harvest losses, establishment of
additional but strategic trading posts
Support services - The Department of Agriculture can provide co-financing andtechnical resources, together with industry groups and resource organizations, for the
establishment of market information systems that are accessible to the small farmers,
consolidation centers and critical support services like soil test kits, biocontrol agents,
pesticide analysis laboratories, and cold chain systems (portable coolers)
Capability building - This includes the provision of effective and efficient extension
services through the development and deployment of highly trained DA technicians,including those under the local government units (LGUs), working in complement-
tation with industry groups/NGO projects. This can be supplemented by showcasingfarms with best practices, cross site visits and on-field seminars, and documentation
and publication of training materials like practical kits/tools. There should be a
focused agricultural research and development program involving by a consortium ofcollaborating organizations (government-academe-industry groups, NGOs) to
identify, prioritize and implement research projects.
Best practices - production and postharvest technologies
Management - farm quality management approach, supply chain management, agro-enterprise development
3. Strengthen and expand the food lane program for vegetables
Fresh vegetables are among the most perishable agricultural crops, and they are highly
sensitive to environmental conditions that lead to nutrient losses. Delays in transporting
these vegetables lead to significant losses in quality and volume. To facilitate the
transport of vegetables from the production areas to the urban markets in Metro Manila, afood lane program was launched by exempting vegetable delivery vans from the truck
ban in Metro Manila roads. The truck ban is among a variety of programs implemented
by Metro Manila government agencies to ease traffic congestion in the metropolis
especially during rush hours; it bans certain delivery trucks and vans from using major
roads from 6AM to 9PM during weekdays.
Although the food lane was intended to assist truckers of vegetable products, it has beenfraught with implementation problems, and truckers of vegetables have not been
completely spared from extortion. There is a need for close monitoring to ensure that the
food lane program is consistently and uniformly implemented through trucking routes
from source to destination market. It is therefore recommended that the food laneprogram coverage be extended throughout the country for all fresh vegetables subjected
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to land transport. The Department of Interior and Local Government (DILG) should
ensure the resolute and consistent implementation of the food lane program in all
municipalities, and provide guidance in the issuance of ordinances where appropriate.Transport vehicles used for vegetables should be marked prominently to ensure
consistent exemption from truck bans and similar ordinances and protect them against
extortion.
4. Strengthen the appli cation of grades and standards to serve as a common language
for transactions covering vegetables
Article 2 of Republic Act No. 7394, otherwise known as The Consumer Act of the
Philippines, declares that it is the policy of the State to protect the interest of the
consumer, to promote his general welfare and to establish standards of conduct for
business and industry. In addition, evidence shows that on-farm sorting and gradingactivities can enhance vegetable growers income. Smallholder vegetable producers need
guidance in producing quality vegetables meeting market requirements. Product grades
and standards play a key role in providing such guidance.
In this regard, it is important for the Department of Agriculture (DA), in collaboration
with the Department of Trade and Industry (DTI) and in consultation with the Philippine
Vegetable Industry Development Board, Inc. (PVIDB) and regional vegetable industryorganizations, to formulate and implement programs strengthening the application of
Philippine National Standards (PNS) covering vegetables. Moreover, the National
Consumer Affairs Council (NCAC) should monitor and coordinate programs promotingthe use and application of standards for vegetables.
The DA through the Bureau of Agriculture and Fisheries Product Standards (BAFPS) and
the Agribusiness Marketing Assistance Service (AMAS) should play an active role indisseminating the standards covering vegetables and promoting their use. These national
standards should also be harmonized with international norms, particularly those of the
Codex Alimentarius. Further, the regulatory units of the DA and DTI, in consultationwith the PVIDB and regional vegetable industry organizations, should designate
mandatory minimum standards for vegetables and define compliance and sanctions for
non-compliance with these standards.
5. Government to commit P 1 bil li on funds fr om the agricultur al competit iveness
enhancement fund (ACEF) to provide incenti ves and r isk management measures
for new loan portfolios designed to enhance the productivity and prof itabi li ty of
smallholder vegetable producers
While the production and marketing of short-gestating high-value vegetable crops is
recognized as appropriate to small farms, smallholder vegetable farmers are mostvulnerable to risks inherent to vegetable production and marketing. Clustering and
partnerships can play a strategic role in risk mitigation and modernization of vegetable
production in small farms. However, liquidity constraints faced by smallholder vegetableproducers limit their productivity and capacity to innovate to meet existing and emerging
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Institute and its RFUs, should provide guidance in the formulation and implementation of
an integrated, multidisciplinary extension programs.
The DA and LGUs should allocate funds and provide technical support for regional-level
trainors training and provincial-level farmers training on Good Agricultural Practices
(GAP) applicable for vegetable production. Capacity building in production and post-harvest systems must be undertaken and sustained by LGUs, more specifically theprovincial government, with counterpart resources from the municipal governments. It is
also critical that smallholder vegetable producers entering into contracts, agreements or
clustering arrangements with corporate groups are given priority in the identification oftarget beneficiaries in research and extension programs.
A nationwide program to promote the consumption of vegetables should be established
with the cooperation of the Departments of Health, Education, and Social Welfare,together with consumer groups and the mass media.
7.0 Concluding comments
Clearly, there are many issues as well as opportunities that affect the performance of the
various stakeholders and players in the vegetable industry, particularly the small farmers.The downstream sector players such as retailers, fastfood outlets and processors are
constantly adjusting to meet changing consumer requirements. This has wide-ranging
effects on how upstream players such as farmers can and should operate.
However, the ability of farmers to respond these changing market requirements and
opportunities is hindered by a number of issues that range from production to marketing.
This paper highlighted several development and policy options to address these issues as
well as best practice that can be undertaken to support the small vegetable farmers inparticular. A follow-up program to this initial research and advocacy activity is being
planned out with the objective that these results in the adoption of favorable policies andprograms and in the establishment of profitable and sustainable linkage activities between
small producers and modern markets.
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References
Concepcion, S. and Digal, L. (2004). Upstream and Downstream Linkage: the Case ofVegetable and Mango Industries in the Philippines, Regoverning Markets Program
Country Report.
Digal, Larry (2005), Quality Grading in the Food Chain: The Case of Vegetables inSouthern Philippines. Journal of International Food and Agribusiness Marketing, Vol 17
(1).
Digal, Larry (2001), Analysis of the Philippine Retail Food IndustryJournal of
Philippine Development, Vol XVIII,2
FAO Statistics (Faostat), www.fao.org.
Macabasco, Ditas (2004), A Closer Look at Philippine Vegetable Imports, AgrifoodTrade Service, http://www.agr.gc.ca.
Mindanao RoadMap Presentation (2005), Department of Agriculture.
Planet retail Philippine Country report (2005). www.planetretail.com
Roy, Davesh (2005). International Food and Policy Research Institutes work on ModernMarketing Channels, June 13th, 2006, Indian Institute of Management Ahmedabad
University of the Philippines in Mindanao and Australian Center for International
Agricultural Research ACIAR, Improving the Efficiency of the Agribusiness Supply
Chain and Quality Management for Small Agricultural Producers in Mindanao ASEM2000/101, unpublished research documents, 2004.
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Appendix 1. Issues and recommendations raised by stakeholders during regional consultations, February 2007
Marketing/Trade Production Finance Organization and Others
Baguio How to respond thechallenge of trade
liberalizationConstruct additional
trading post in other
barangays andmunicipalities aside
from La Trinidad
Eliminate 1 hour delayand eliminate seven
layers (handlers andtraders) in marketing
vegetables
Mindanao is alwaysthe 2
ndoption after
Benguet. Exporters
from Taiwan preferBenguet in terms ofcost, number of days of
delivery.
gap in marketinginformation
(vegetableconsumption)
Complementation and needfor production
programming due to glutof products
Internal competition
(Principle of comparativeadvantage)Mindanao
should not compete with
Luzon (Baguio)Cluster Marketing and
production presented in the4
thNVC didnt happen.
PVIDB?
Government to update datain the production of
vegetable such as
suitability of soil (GIS),rainfall distribution, realtime statistics on volume
and suitability maps.
Government to provide
road for strategic areas
Farmers who failed areusually uneducated. Actual
Provincial government tohelp farmers thru
municipality and nationalcounterpart in financing
Extend Micro credit
program
Clustering is a secret/keywhich is a private sector
initiative There is opportunity inprocessed vegetable
Farmer organizationstrengthening
Small farmers cannot attend
National VegetableCongress. Only the big
corporations
Barangay must be supported
in uniting small farmers in
the barangay
Strengthening of extension
services. Municipality has
the option to convertposition of extensionofficers to non-extension
positions. Some extension
officers are not evenagriculture graduate
Benguet Federation should
be strengthened
There are unorganized
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training for the farmersrather than theories