I.          Before Petroleum Oil Now Palm Oil Brings Prosperity

Increase in the demand and price of petroleum oil in the 1970s wiped out poverty in the Arab world and brought economic prosperity to many Arab countries.  Now another oil, the palm oil, produced by the oil palm trees, emerges as a potent tool in overcoming rural poverty in countries located in latitudinal zones of the tropics suitable for palm oil production.  Among the four member countries of the ASEAN which are located in this latitudinal zone, only the Philippines failed to use this tool putting itself at the tail end of rural prosperity and overcoming rural poverty.  May be our leaders are now aware of this development in our southern neighbors.  Hence this special report.

The technique of using palm oil as a tool against poverty was first developed in Malaysia, making Malaysia on top of agricultural progress and prosperity among the members of the ASEAN.  It was fine tuned with resounding success in the economically depressed and politically volatile region of Southern Thailand.  It was also massively used and provided a devastating knocking out blows to rural poverty in Indonesia.  Today, both Thailand and Indonesia are ahead of the Philippines on the way towards achieving the millennium goal set by the United Nations, five years from now to overcome poverty.   Palm oil farmers in the countries of Malaysia, Indonesia and Thailand are among the highest income earners in the ASEAN; only a small number of palm oil farmers are found in Mindanao, Philippines.  For the Philippines, to use palm oil  as a tool against rural poverty particularly in Mindanao where a large population of our country are living below the poverty line,  is already late if one considers the millennium goal against poverty but better late than never.

Should the Philippines join its three ASEAN neighbors in using oil palm as a tool against poverty and bring prosperity and peace to the rural communities of Mindanao?  If so some few recommendations are discussed below.  These recommendations are products of the author’s intensive research since 2007 on the many books and publications he obtained from the book store and library of the Malaysian Palm Oil Board and other sources.  Moreover, the author, in an effort to document the innovative practices in palm oil production for the book he is writing had visited and revisited during the last three years some palm oil research and production centers in these three major producing palm oil countries and culminated with interactions with the key leaders of the palm oil industry this year, 2010, during the three international palm oil conferences, namely:  (1) The International Oil Palm Planters Conference in Krabi, Thailand on March 24 to 27, 2010, (2) The International Oil Palm Conference 2010 – on Transforming the Oil Palm Industry in Jogyakarta, Indonesia on June 1 to 3, 2010 and (3) International Conference on the Future of Palm Oil Business in Kuala Lumpur, Malaysia on October 18 to 20, 2010.  These recommendations are enriched by the author’s experience as a small time palm oil farmer of 18.5 ha for the last seven years.

II.        The Link Between Petroleum and Palm Oils

Like petroleum oil, palm oil is now a strategic commodity with immense importance in the world trade.  Well-known international vegetable oil traders and experts like Mr. G.M. Teoh of Malaysia, Mr. Murali Krishna of India and Dr. Marcel Djama of CIRAD, France have pointed out during the recent International Conference on the Future of Palm Oil Business that since 2007, the price of palm oil is tied-up with the price of petroleum oil – meaning, an increase in the price of petroleum oil triggers an increase in the price of palm oil.  As example, in the middle of the year 2008 when petroleum oil reached a historic high price level of US$ 140/barrel, the price of palm oil followed to a historic highest price of Malaysian Ringgit (RM) 4,178 in the world market (one US$ is equal to RM 3.1).  Unknown to many, countries with emerging economies like China and India became heavy importers of both petroleum oil for energy and palm oil for food and biofuel,.  Hence, the close relationship between the two oils.  The multiple uses of palm oil with high demand including as a substitute for diesel fuel once this product is unreasonably priced high may, however, trigger an increase in the price of palm oil ahead of petroleum oil as predicted and discussed below.

III.       Oil Palm:  A High Productive and Versatile Crop

The F1 hybrid of the oil palm tree which produces the crude palm oil (CPO) has certain unique features not found in other vegetable oil crops, hence considered by many as “the recent great agricultural success story” similar to the success story of rice at IRRI in the 1960s which ushered the global green revolution.  Among these features is that the oil palm is a highly productive crop and its main product oil and many by-products are versatile in their uses.

The palm oil yield is 6.20 tons of vegetable oil/ha per year in terms of CPO and palm kernel crude oil (PKCO).  Other vegetable oil crops have lower yields.  Soybean has an oil yield of only 0.4; rapeseed 1.5; and sunflower 1.2 t/ha per year (Table 1).   This means that one has to plant 12 ha of soybean to produce the amount of vegetable oil produced in a hectare of oil palm.  In like manner, one needs to plant 4 ha of rapeseed, 5 ha of sunflower, or 4 ha of coconut trees to produce the volume of vegetable oil produced in just a hectare of oil palm trees.  New generations of planting materials of oil palm in the form of ramets developed jointly by MPOB and SH Biotech in Sabah shows potential yield of 10.0 tons of oil/ha per year.  Among the vegetable oil crops, palm oil is the cheapest.

Table 1.  Productivity and percent contribution of various vegetable oil crops.

Crops Oil Yield/ha Percent World Production
1.  Palm Oil 6.20 35
2,  Soybean 0.40 27
3.  Rapeseed 1.50 15
4.  Sunflower 1.20 8
5.  Others 15
TOTAL 100

Note:  Coconut share in the world vegetable oil production is only 4%.  The average yield is only 1.5 t/ha.

As a perennial crop, oil palm trees grow fast and is early maturing; the first fruit matures in just 28 months after field planting as compared to four to five years for coconut trees.  Oil palm trees remain productive for 22 to 30 years when the newly developed dwarf hybrids are used for planting.  Palm oil is much easier to grow than the coconut trees in terms of culture and processing for oil.  As a perennial crop it is less affected by climate change compared to the annual vegetable oil crops.  It also helps mitigate climate change as it is a heavy sink of CO2 in the atmosphere and induce higher rainfall.  For example, when over 5,000 hectares were planted to palm oil in the upland and hilly areas of  Bohol, the amount of rain in the vicinity where oil palm is grown increased from 1400 to over 1500 mm, bringing benefits to the rice farmers of the island who need more water for their rice fields.  The yield of palm oil in Bohol is rather low mainly because palm oil requires a minimum rainfall of 1800 mm for optimum yield which is not available in Bohol.

Palm oil is versatile, 80% is used for food, 19% for oligochemistry and 1% for biofuel.  Palm oil is a healthy oil known for reducing obesity, the reason why many food processors in USA mix soybean oil with palm oil to help overcome obesity.  Palm oil reduces the amount of bad cholesterol and improves human sight due to its high amount of Vitamins A and E.  The by-products resulting from the processing of fresh fruit bunch (FFB) to oil is now found useful in the production of quality organic fertilizer and generation of biogas and electricity.  The leaves and trunks can be processed cheaply to produce quality papers and biodegradable plastic products such as lunch boxes and other products thereby replacing in the market the non-biodegradable synthetic plastics which are very destructive to the environment.  It is predicted that the second generations of biofuel will come from the processing of oil palm biomass – empty fruit bunches, trunks and leaves.  The technology is now available and found highly profitable.  Considering the high productivity and farm income of oil farm farming is found to be effective in reducing rural poverty.  Palm oil industry is gender sensitive; in Nigeria more women than men find employment in the palm oil industry.

The success in the production of this highly productive and versatile crop made many countries producing rapeseeds, soybean and other vegetable oil crops apparently threatened.  Governments of these countries are suspected to fund NGOs involved in anti-palm oil expansion in the ASEAN as an indirect trade war.  Manageable problems brought about by increase in palm oil production such as deforestation, apparent pollution of rivers by palm oil processing waste, health problem and reduce biodiversity, loss of habitat for the orangutans are being blown-out beyond proportion and fed to the media which reach the Philippines.  These problems are now effectively addressed by palm oil producing countries.  For example, the Indonesia sustainable palm oil (ISPO) was created to address concerns in Indonesia.

IV.       Palm Oil Production is Limited to Few Countries

While production of palm oil is carried out in tropical Asia, Africa, and Latin America, 90% is produced by three members of the ASEAN, namely: Indonesia, Malaysia and Thailand (Table 2).  This is because high productivity of oil palm is concentrated in the tropical zone; within 10o North or South of the equator, where the whole of Malaysia, Indonesia, part of Thailand, and Mindanao, Philippines are located (Fig. 1).  Among these countries, Thailand has the least area suitable for palm oil production – less than ½ of the Philippines.  Palm oil can be grown in many parts of the tropical world but not as productive as when grown within 10o North and South of the equator.

For comparison, the Arabs derived their wealth from the vast petroleum oil reserve, while the four members of the ASEAN, namely: Indonesia, Malaysia, Thailand, and the Philippines are blessed with favorable environment to produce a renewable palm oil for high income and wealth.  Unfortunately, the Philippines has ignored this opportunity.  At present the Philippines has only 46,608 ha planted to oil palm as compared to 7.5 million ha for Indonesia, 4.5 million ha for Malaysia and 625,000 ha for Thailand.  More than 50% of the expansion in these three major palm oil producing countries occurred within the last ten years.

Table 2.  Leading countries in the production of palm oil in terms of area and production in 2009.

COUNTRY

PRODUCTION PERCENT OIL PRODUCTION
AREA (Ha) (1000) CRUDE PALM OIL (CPO) PRODUCTION (MT)
1.  Indonesia 7,500.00 24,500 49%
2.  Malaysia 4,500.00 18,600 37%
3.  Thailand 625.00 1,500 4%
4.  Nigeria 460.00 850 2%
5.  Colombia 390.00 810 2%
6.  Others 1,126.00 3,077 6%
TOTAL 14,601.00 49,337 100%
Fig. 1.  Member countries of the ASEAN within 10o North and South of the equator which are suitable for palm oil production.  These include the whole of Malaysia and Indonesia, Mindanao, Philippines and a small part of Southern Thailand.

V.        Expect a Future High Price of Palm Oil

From the second half of 2011 and onward there will be a bull run in the price of palm oil consequently increasing the income of palm oil farmers.  This is the resounding and unanimous conclusion reached by well-known international vegetable traders and market analysts who participated during the “International Conference on the Future of Palm Oil Business” held in Kuala Lumpur, Malaysia on October 18 to 20, 2010.  The conference was attended by hundred of distinguished scientists, national agricultural development planners and strategists from many tropical countries, palm oil farm managers, international vegetable oil traders, and palm oil processors and biofuel experts from Asia, Africa, and Latin American countries.  Five participants came from the Philippines including this author.  None came from the Philippine Government agricultural planners and implementors.

The reasons for the increase in palm oil price starting next year may be summarized, namely: (1) increase in demand for palm oil in China, India, and other countries of emerging economies, (2) slowing down in the production of other major vegetable oil crops such as soybean and rapeseeds due to inadequate lands and climate change; (3) increase in the price of petroleum oil to which the price of palm oil is now tied-up, and (4) increasing use of soybean and rapeseed oil as biofuel in USA and Europe, respectively.  Both India and China consume 42% or 40 million MT of the current palm oil available in the export trade.  This percentage is expected to rise to 55% in 2015.  Increasing demand of vegetable oil is also noted in such countries as Pakistan, Europe, USA and Bangladesh (Table 3).

Table 3.  Leading importing countries of palm oil absorbing 69% of what is traded globally.

COUNTRY VOLUME (MMT) PERCENT
1.  India 8,200 22%
2.  China 7,150 20%
3.  Europe 5,300 14%
4.  Pakistan 2,300 7%
5.  United States 952 3%
6.  Bangladesh 900 3%
7.  Others 12,175 31%
TOTAL 37,377 100%

Intensive study made by the Association of Indonesian Producers of Vegetable Oils shows that the worldwide demand for vegetable oil this year of 139 million MT is expected to rise to 263 million MT in 2020!  CPO is predicted to control half of the international market.  As predicted, the price of palm oil will rise from the present Malaysian Ringgit (RM) 2800 to RM 3400 or equivalent to US$ 1100/MT.

VI.       Possible Impact of the Palm Oil Price Increase

Considering the predicted increase in the price of palm oil, it may be good to look at the impact on the three members of the ASEAN:  Indonesia, Thailand, and the Philippines particularly on the trade balance and rural communities with substantial population below the poverty line.  Malaysia will not be included in the analysis as it has leaked out poverty long time ago and is the most progressive agricultural country in the ASEAN.  This is mainly due to the successful program of FELDA (Federal Land Developing Authority).  FELDA is a special program of the Malaysian government which provides technical, material and financial support high income to oil palm and rubber smallholders with farms of three ha or less for high income.  Palm oil is the banner commodity of Malaysia, grown in 67% of the cultivated lands of this country.

1. Indonesia

Today, four million Indonesians enjoy quality employment in the palm oil industry contributing significantly to the reduction of unemployment and poverty in that country.  This number constitutes about 10% of the Indonesian work force.  Of the 7.5 million ha of oil palm farms, 48% are owned by smallholders, 42% by private estate and 10% by government estate.   As pointed out by an Indonesian palm oil expert, Dr. Benget Besalecto, more than 80,000 small landholders of palm oil with average area of less than three ha each enjoy the highest income among farmers in Indonesia.  Dr. Besalito added that palm oil is now a top agricultural commodity in the country in generating through export US$ 15 billion annually, providing the highest amount of taxes to the local and national governments.  The cultivation of palm oil is responsible for the opening of roads in remote isolated areas of Indonesia.  It also helped Indonesia overtake the Philippines in socio-economic progress as in the pathway towards overcoming poverty as shown in Table 4.

Table 4.  Some comparative socio-economics indicators between Indonesia and Philippines.

INDICATORS INDONESIA PHILIPPINES
1.  Economic
GDP at current prices (2009, in US$B) 546.4 182.7
Per capita GDP (2009, in US$) 2,362 1,750
Growth rate of GDP (2009) 4.5 1.1
Inflation rate (2009) 2.8 4.4
Unemployment rate (2005-2008) 8.4 7.4
Unemployment (2010, World Factbook) 7.14 8
Poverty index (% living under $2/day) 53.8 57.4
Budget deficit as % of GDP 2.3 3.9
Gross domestic investment as % of GDP 31 14
Foreign investments inflow (2008-2009, US$B) 14.2 3.5

From:  Tadem, Eduardo C.  Why Indonesia Outperforms R.P. Phil Daily Inquirer, October 31, 2010.

What happens to Indonesia’s economy in recent years surprised many leaders of developing countries.  It was an almost 180o turn on what Indonesia was over a decade ago.  During the 1997 financial crisis, Indonesia was at the center of political and social unrest heading towards economic decline as all economic indicators at that time were below the economic levels of the Philippines.  Since then, the Indonesia Government invested heavily with priority on agricultural development with oil palm farming as the flagship commodity.  This was carried out with a loan obtained from the World Bank.  This contrasts with the investment priority of the Philippine government during this period which promoted investment on quick profit ventures – property development like condominiums and shopping malls.  Today, as pointed out by Dr. Eduard Climaco Tadem, a professor of Asian Studies at UP Diliman, Indonesia has attained a level of economic stability and prosperity – performing better than the Philippines in many parameters including overcoming poverty.

All indicators show that the best is yet to come to the Indonesian rural economy and in overcoming poverty.  First, increase in the price of palm oil would mean more income for their oil palm farmers.  Secondly, almost 50% of the 7.5 million ha of oil palm trees were planted during the last 10 years.  Thirdly, Indonesia is in the midst of accelerated expansion of palm oil at the rate of almost 500,000 ha per year and to cover another 2.5 million ha to produce 40 MMT of CPO by 2020 and earned over US$ 30 billion through export.  Meaning the full potential of the expansion of oil palm to buoy up the economy is still coming.  How Indonesia succeeded in the expansion of palm oil is interesting and may provide insights for the Philippine leaders.  One should remember that several decades ago Indonesia also aggressively promoted the planting of coconut trees thereby overtaking the Philippine as the number one producer of coconut oil in the world.  Considering the low productivity of the coconut tree, Indonesia is now giving more importance to oil palm than to coconut.  The success of Indonesia in expanding oil palm production to overcome poverty may be summarized as follows:

  1. Priority investment in agricultural development oil palm as the flagship commodity rather than quick profit ventures in property developing.
  2. Strong proactive role of the national and local governments to support the expansion of oil palm farming.
  3. Special program for smallholders implemented almost similar to FELDA in Malaysia.  These benefited 800,000 smallholders with an average area of less than three ha.
  4. Strong decentralized agricultural development program leading to greater participation in the local levels.
  5. Creating a favorable climate for foreign investments under a regime of much controlled corruption and business facilitation.
  6. Strong R & D support for hybridization and production of F1 hybrid.  There are ten companies producing F1 hybrid seeds in Indonesia with the capacity to produce F1 hybrid seeds enough to plant 500,000 ha annually.

2.   Thailand

Starting in 1988 this author frequented Southern Thailand gathering materials for the book on the culture of seedless and aromatic longkong now used by fruit growers in the Philippines.  He personally witnessed the change in the economy and lifestyle of people in the farming communities where oil palm farming was introduced.  Depressed villages in 1988 generally became progressive and dynamic as evidenced by the emergence of busy market places and malls, good roads and beautiful houses.  In the 1990s the farmers who were using bicycles were later found riding on motorcycles in late 1990s and starting 2005, pick-ups like Dmax and Toyota became the standard vehicles of farmers in these communities.  Pick-up vehicles are used by small oil palm farmers with less than three ha farm in delivering FFB to processing plants once every 10 to 14 days.

The best is yet to come in the oil palm communities of Thailand.  First, is the predicted increase in the price of the commodity.  Secondly, more than 60% of the 625,000 ha of oil palm trees were planted during the last ten years with 60,000 smallholders.  Thirdly, expansion of plantation is still being carried out at accelerated rate even above the 10o North latitude.  The plan is to increase palm oil planting to 872,000 ha to produce 2.51 million tons of CPO, 25% for biodiesel.  These means that many of the oil palm trees have still to attain their yield potentials to give benefits to the farmers in Thailand.  From a previously palm oil importer, Thailand has become a net exported since 2006.  In 2009, Thailand exporter 430,000 MT valued at over US$ 400 Million (Table 5).  One would expect a more vibrant economy and progressive oil palm communities in Thailand.  The high income from palm oil is expected to buoy up the already fast rising economic progress of that country which overtook the Philippines several years ago.

Table 5.  World leading exporter of palm oil in 2009.

COUNTRY EXPORT     (1000 t) PERCENT
1.       Indonesia 16,913 48.33
2.      Malaysia 15,872 45..36
3.      Thailand 430 1.22
4.      Colombia 305 0.87
5.      PNG 406 1.16
6.      Others 866 2.47
TOTAL 34,988 100.0

Source:  Review of the Malaysian Oil Palm Industry by MPOB, 2009.

Strong government assistance is noticeable in Southern Thailand in promoting oil palm farming.  The King of Thailand has a special project promoting palm oil planting among the ethnic group known as the “sons of the soils.” Here are the scenarios in Thailand which the author believe are transplantable in the Philippines to promote oil palm planting among smallholders for poverty alleviation.

1.      Quality high yielding F1 hybrid ready to plant seedlings of palm oil are available to farmers at a cost of 1/3 to 1/2 of those sold in the Philippines.  There is not much difference in the price of oil palm seedlings to that of grafted mango or durian plants in Thailand.  Some of the F1 hybrid plants in Thailand have higher yield potentials than those available in the Philippines.

2.      Oil palm hybrid seedlings are readily available in many privately owned and local government big to small (less than 1000 m2) nurseries side by side with fruit nurseries.  Many oil palm seedlings are sold in small plastic bags 10 x 10 or 10 x 12 inches for easier transport to remote places.  Even Univanich, a foreign company in Thailand engaged in the production of F1 hybrid seeds and ready to plant seedlings, has seedlings in small plastic bags to cater to the needs of small farmers in remote areas.  Take note that in the Philippines, PCA issued Administrative Order No. 03 series of 2004 making it impossible for small nursery operators, LGU or private, to put up an oil palm nursery.

3.      The presence of two seed companies in Thailand – Univanich and CIRAD palmelit, which simplify the procurement of hybrid seeds at low cost by small nursery operators and LGUs as no plant quarantine is involved.

4.      Palm oil farmers in Thailand are highly knowledgeable in organic fertilizer preparation.  The use of organic fertilizer in the country is a common scenario which replaced expensive inorganic fertilizer consequently reducing the cost of palm oil production.

5.      There is an increasing use of Mucuna bracteata for covercrop in oil palm plantations.  This covercrop generates 300 kg of nitrogen per year to fertilizer the oil palm trees, thereby reducing the use of inorganic fertilizer.

6.      Small palm oil planters can easily deliver their FFB to the processing plants using their Toyota or Dmax, pick-ups and are immediately paid upon the delivery.  They do not need a middleman.

7.      Cemented and asphalted roads are reaching even the remotest village in Southern Thailand.

8.      Irrigation facilities are cheap.  Irrigated oil palm yields ten tons higher the non-irrigated particularly in provinces with low rainfall similar to Bohol.

3.   Philippines

At present the Philippine has a meager 46,608 ha of oil palm plantation.  The projected increase in the price of palm oil next year and in the coming years is a welcome news to the current more or less 2,000 Filipino oil palm farmers who are already among the highest income farmers of the country.  This means a projected annual net income of P 122,000 to P 220,500/ha per year or a monthly income of P 10,167 to     P 18,375/ha per month (Table 6).  However, the projected increase in the price of palm oil is not good for the economy of the country if it chooses to import rather than produce palm oil.  As demand for palm oil in the Philippines increases, there will be an increase in the cost of importation of palm oil.  Projection shows that the current importation of CPO of 150,093 MT will increase to 220,058 MT in 2020 at a cost of US$ 220 million (Table 7).

An unwelcome scenario which is likely to happen in the future is when the price of petroleum oil will increase to the 2008 level of US$ 140/barrel.  Consequently, the price of palm oil will jump to US$ 1,340/ton.  This scenario will give a double blow to the Philippine economy – increase import cost of both oils.  In contrast, the scenario will be a double blessing to the three ASEAN neighbors with large palm oil plantations – windfall income from the export of palm vegetable oil and palm biofuel!  As calculated by oil experts, palm biofuel becomes highly competitive at that level of price of petroleum oil.

Table 6.  Minimum income of palm oil farming at a projected world price of US$ 1,100/ton of crude palm oil (CPO).

PRODUCTIVITY LEVEL
PEAK MID LOW
Production of FFB (t/ha/yr) 35 25 20
Price/on (P)* 7,000 7,000 7,000
Gross Income 245,000 175,000 140,000
Less Expenses 24,500 21,000 18,000
Net Income:
Yearly 220,500 154,000 122,000
Monthly 18,375 12,833 10,167

Table 7.  Actual (2006-2009) and projected (2010-2020) importation of CPO and PKO of the Philippines.

YEAR VOLUME OF IMPORTATION (MT)* TOTAL
CPO PKO*
2006 118,291 8,106 126,397
2007 123,499 8,282 131,781
2008 129,155 8,463 137,618
2009 135,071 8,647 143,718
2010 141,257 8,836 150,093
2011 146,907 9,029 155,936
2012 152,783 9,226 162,009
2013 158,894 9,427 168,321
2014 165,250 9,633 174,883
2015 171,860 9,843 181,703
2016 178,734 10,058 188,792
2017 185,883 10,278 196,161
2018 193,318 10,502 203,820
2019 201,051 10,731 211,782
2020 209,093 10,965 220,058

*    Crude Palm Oil Estimated to grow on the average of 4% annually

**  Palm Kernel Oil Estimated to grow 2.18% annually

Note: Data from 2006 to 2008 are actual data from Garin, 2008, Administrator PCA.  The Philippine Oil Palm Industry:  Data of 2009 to 2020 are projected based on historic annual importation.

VII.     Export or Import Palm Oil:  What is the Choice of the Philippine?

Rather than supporting the Indonesian and Malaysian oil palm farmers through palm oil import, the Philippine Government may select to support the Filipino farmers to produce this vegetable oil to bring a vibrant rural economy, overcome poverty, help overcome rebellion in Mindanao, and generate foreign exchange through palm oil export.

The author believes that the implementation of the modified Indonesian and Thailand models for smallholders in Mindanao would put an end to the murmurings of smallholders stating that “Ang palm oil farming ay para sa mayaman lamang” as the poor cannot afford the high cost of planting materials and fertilizers.

At present, the conservative estimate of the potential areas suitable for oil palm plantation in Mindanao is 304,350 ha (Table 8).  This potential, however, can be increased to almost a million ha with the exclusion of unproductive cropped lands, forested areas in the plain and replacement of senile and unproductive coconut trees in area suitable for palm oil production.

Table 8.  Conservative estimate of potential areas for oil palm production in Mindanao.

Region Area (Ha) Percent (%)
Region 9 38,960 12.8
Region 10 77,730 25.5
Region 11 8,290 2.7
Region 12 23,810 7.8
Region 13 143,010 46.9
ARMM 12,550 4.3
TOTAL 304,350 100

Source:  Philippine Palm Oil Industry Development Plan for 2004-2010.

Assuming that the conservative estimate of 304, 350 ha is planted to oil palm in the next five years,  by the year 2020, this area will produce a modest estimated 766,000 MT of palm oil.  Subtracting the domestic requirement of 219,986 MT means a surplus of 546,032 MT for export with a value of over US$ 500 million.  The challenge is for the government to allocate resources for expansion of the oil palm farms in Mindanao, as follows.

1. Paradigm Change Needed

Expanding the current oil palm planting from 46,608 ha to 304,350 ha is a gigantic but not a difficult task if the Philippine Government provides a more proactive role in support to the private sector.  At present the participation of the government in the palm oil industry is through the Philippine Coconut Authority (PCA).  Reflecting the ongoing government support to the palm oil industry, the PCA leadership mentioned  “the oil palm industry shall be developed with the initiative of the private sector” and that the palm oil industry “shall compliment the coconut industry” (Garin, 2009*).

The author believes that it is not wise for the government to entrust to the private sector dominated by the foreign investors, the leadership of developing the palm oil industry.  More so if the crop is to be used as a tool against poverty, help overcome rebellion, create a vibrant rural economy, generate foreign exchange equal or better than the coconut industry and cushion the country in times of high price of petroleum oil.  The private sector, particularly the foreign investors are here with profit as the main motive.

Don’t misunderstand this author!  The country needs the foreign investors for the expansion of the palm oil industry.  Many small landholders who planted oil palm in Mindanao consider these foreign investors as heroes giving them the opportunity to earn more income with less tedious labor than when they were growing rice or corn.  The author is grateful to these foreign investors for providing start up planting materials which triggered him to make a serious research of the palm oil industry worldwide to help others.  The opportunity to tailor and accelerate the expansion of palm oil farms to overcome poverty and in the spirit of good governance is mainly in the hands of the government.

2. Example of Possible Government Action

The government should take a bold step in making palm oil farming more affordable and accessible to the poor using the model in Thailand.  Based on the author’s experience, the current cost of planting and maintenance of oil palm during the immature stage of almost three years is P 102,344 (Table 8).  The bulk of expenses goes to planting materials and fertilization.  If the government could intervene like training of small private and LGU nursery operators on the mass production of quality planting materials, training farmers on organic fertilizer production, planting of covercrop like Mucuna

_________________

*     From the paper read by PCA Administrator Oscar C. Garin entitled “The Phil. Oil Palm Industry:  Taking the Challenge” during the 6th National Palm Oil Congress, June 26-28, 2009.  Palawan City.

bracteata then the expenses can be reduced to less than one half of the current cost.  What is left is mostly labor expenses which the farmers can provide.  The government can design other strategies to make palm oil planting affordable to the poor like the plant-now-pay-later program, making more affordable and readily accessible loans, and generation and implementation of pro-poor technologies.

Table 8.  Cost of planting materials and maintenance of palm oil for three years in Mindanao.

MATERIALS AMOUNT PERCENT OF TOTAL COST
I.         Establishment

  1. Planting materials (130 F1 hybrid seedlings @ P200
  2. Fertilizers
  3. Labor (clearing and planting)
26,000

4,480

11,900

25

5

12

II.     Maintenance (3 years)

  1. Fertilizers
  2. Other supplies
  3. Labor (field sanitation, fertilization, etc.)
42,304

3,000

12,000

42

4

12

TOTAL 102,344 100

3. Opportunity Role for the PCA

The government role through PCA should make oil palm not as a compliment but a partner of the coconut industry similar to what Thailand and Indonesia are doing.  Palm oil is a crop with much greater potential to help the rural economy than coconut, to produce vegetable oil, generate foreign exchange, etc.  Oil palm should be nurtured by PCA as a new found baby until such a time it reaches full maturity to render its full potential in bringing a vibrant rural economy in Mindanao.  While PCA may not have been so successful in bringing economic prosperity to many coconut communities to no fault of its own considering the low productivity of the coconut trees, oil palm is the ace card PCA can offer to win the war against rural poverty.  PCA may play an active role in promoting oil palm production in uncropped and forested areas and in making palm oil a replacement crop to less productive and senile coconut trees for much higher farm income.  By changing unproductive coconut farms to oil palm, PCA more than triple the amount of vegetable oil production for export, increasing the income of the farmers and shield the country from the unwanted increase in the price of petroleum oil, as palm oil is readily convertible to diesel fuels.  PCA has vast resources – manpower, materials, land resources like seed farms and others to help the growth of the palm oil industry.

The author’s farm, Triple P Farm and Nursery, is a living testimony that palm oil gives much higher income than coconut.  In 2003, the author replaced four of his family eight ha coconut to oil palm farm.  Today, the four ha oil palm farm is giving more than four times the net income of four ha of coconut in spite of the current high price of copra!

VIII.    Recommended Government Role in Oil Palm Expansion

Here are some few recommendations of what various government agencies should do to push the expansion of oil palm in Mindanao.

1. National Government

    • Negotiate with the World Bank or other banks for the funding of palm oil expansion particularly putting up of ten palm oil processing plants, one plant per major palm oil province.
    • Channel substantial HVCC funds for the expansion of the palm oil farming like procurement and raising of planting materials – study tours, training of technicians and farmers.
    • Negotiate for more foreign investments in oil palm including the putting up of hybrid seed production farms in the country, establishment of plantations and putting up of processing plants.  Provide these investors with more incentives and protection.
    • Develop a “Center for Excellence” in palm oil at the University of Southern Mindanao in Kabacan, Cotabato and provide funds for R & D towards the development of pro-poor technologies and superior F1 palm oil hybrids.
    • Provide funds and offer attractive incentives to promote both public and private R & D for fine-tuning of oil palm production and processing technologies most suitable to Philippine condition.
    • Respond positively to the desire of some MILF leaders for assistance to establish model oil palm farms in depressed Muslim communities.  This many accelerate the return of Mindanao to a peaceful condition.
    • Create and mechanism and incentives for OCW’s to invest in palm oil rather than in the property markets.

2. Department of Agriculture

    • Provide leadership in the preparation of the Master Plan for the development of palm oil industry – 500,000 ha up to the year 2020 with the strong involvement of PCA, DAR, DENR and LGUs.
    • Provide substantial fund through DA-BAR for R & D on oil palm tailor towards the needs of smallholders specially on the development of locally adopted, high yielding F1 hybrids
    • Simplify and make facilitative policies to allow the importation of large quantities of F1 seeds by LGUs and small nursery operators under the assistance of BPI for quarantine regulations, DOF and DTI for tax exemption.
    • Develop expertise within DA on various aspects of the palm oil industry.
    • Send key regional government specially DA officials in Mindanao for study trip to the southern neighbors – where many ongoing agricultural developments are more relevant to the development of Mindanao.

3. The Philippine Coconut Authority

    • Conduct a more proactive role in the development of the palm oil industry stated above from the preparation of the master plan to the implementation.
    • Develop oil palm experts at PCA by conducting reorientation trainings of PCA personnel in Mindanao on palm oil – nursery operations, farm production and processing.
    • Accommodate in various PCA stations and seed farms the research on hybridization and culture of imported F1 palm oil hybrid seeds to plantable size seedling at minimal profit.
    • Revise Administrative Order No. 3, series of 2004 guidelines on import procurement and production of F1 hybrid to make it LGU and small nursery operators friendly to address the current high cost and shortage of F1 hybrid seedlings of palm oil for planting.

4. DOST through PCARRD

    • Allocate more funds for R & D in palm oil.
    • Provide funds for short and long term trainings including graduate degree on palm oil breeding, production, and processing.  Help DA develop a center of excellent for palm oil at USM.
    • Provide fund for advance research on oil palm tissue culture commercialization including the needed infrastructure.

5. LGUs, Provincial/Local

    • Search for and allocate funds for the putting up of commercial palm oil nurseries and provincial or municipal palm oil processing plants.
    • Allocate a good portion of the IRA for putting up palm oil nurseries and combine resources to put up processing plants.
    • Provide fund support for study trip to Thailand, Indonesia and Malaysia, training and on-farm demo of technicians and farmer leaders
    • Implement a plant-now-pay-later program and special program – oil palm against poverty.

6. Congressmen in Various Mindanao Districts

    • Allocate a good amount of the “CDF” for the development of palm oil industry in their districts like putting up of palm oil nurseries processing to nursery, demo farms and processing plants.
    • Lobby with the national government for the allocation of funds and other resources for the expansion of oil palm farming in Mindanao.


IX.       Development of the Oil Palm Trees in Pictures

Fig 2. The same oil palm trees shown in Fig. 1 in October 2010 or 28 months after planting.  The trees are now tall and produced the first mature fruits.

Fig. 3. Ms. Marisa E. Garcia, a palm oil researcher at the base of 28 months old oil palm trees.  The plant is bearing fruits in bunches, some already ripe for harvesting.  Starting at 28 months, the trees produce 18 bunches of fruits of five to seven kg/year.  At P5.30/kg it is capable of giving a minimum gross income of P 63,300.00/ha per year.
Fig. 4. Dr. Pablito P. Pamplona infront of four years old palm oil trees producing bunches of fruits weighing 10 to 15 kg and a computed average yield of over 20 tons/ha per year.
Fig 5. A six years old palm oil trees producing 20 to 35 kg of fruit bunches and a computed average yield of over 30 t/ha per year, the reason why Mr. Joseph Anthony Pamplona, the Managing Director of TPFN is very happy.

X.     PICTURES OF INNOVATIVE PRACTICES IN OIL PALM PRODUCTION IN INDONESIA AND THAILAND

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