vegtable farming

8/10/2019 Vegtable Farming

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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

vegtable farming

Documents