Freeman Cebu Business

The Philippine coffee industry (Part 2)

C&C VIEWS - Ed F. Limtingco - The Freeman

According to the Institute for Development and Econometric Analysis, Inc. (IDEA) latest Industry Trends, domestic demand for coffee has increased for the last five years. This is not surprising, since coffee is considered to be a staple for the Filipino family, even for lower economic classes, as 90 percent of the total domestic demand comes from consumption of instant coffee. Estimates of growth in 2008 showed that domestic demand is expected to increase by 3.1 percent annually. Measurement of the US Department of Agriculture of the Philippine demand for green coffee has shown that domestic demand far exceeded the estimates. Growth levels from 2010 to 2012 were almost at 30 percent. The increases in demand were largely attributed to improved economic performance of the country.

Per IDEA, what is problematic is that the volume of coffee produced in the country is not able to meet demand. Green coffee production in 2009 reached 21,600 metric tons while demand for the same period amounted to 101,400 metric tons. Despite coffee production in certain areas, the country remains to be a net importer of coffee. Volume of green coffee imported by the country increased from 2008 to 2012, except in 2011, where imports fell slightly from its 2010 levels. Coffee imports come from neighboring Southeast Asian countries such as Vietnam, Indonesia, and Thailand, whose prices are relatively lower than domestically produced coffee.

Furthermore per same published report, as producers struggled to become competitive in the world market, gaps in domestic consumption were met by cheaper coffee imports. Thus, import dependency ratio of the country for coffee. Which was at 39.97 in 2008, increased to 47.50 in 2009, 45.30 on 2009, declining slightly in 2010 and 2011, at 45.30 and 45.10, respectively. As seen from the values, while import dependency ratio declined in 2010 and 2011, it remained at high levels, indicating the country's inability to meet domestic demand for coffee.

To meet the domestic demand and eventually a larger share of the world demand in coffee, as what the country achieved in the 1800s, policies should be directed in increasing and improving the productivity of the coffee producers. This will be dealt with in the next section. Keep in mind that these policies does not consider the country's revealed comparative advantage in coffee, which indicates whether or not a country should specialize in coffee production.

The coffee industry suffered from continuous decreases in production. Total amount of coffee produced in 2005 was 105602 metric tons, after which production decreased to 97,224 metric tons in 2008, 94,341 metric tons in 2010 and to 88,943 metric tons last year. Much of the decline came from lower production of the Robusta variety-production in 2005 was a 75,179 metric tons, which eventually declined to 70,118 metric tons in 2008, 67,933 metric tons in 2010, and 63,825 metric tons in 2012. Production of Arabica, Excelsa, and Liberica also declined in the same periods.

On a global level, coffee production in the country contributes 0.012 percent to the total coffee output, a large setback from the 1,800 production levels, according to the researchers of IDEA. (to be continued)

Editor's Note: For comments, rejoinders and questions on credit and collection matters, Mr. Ed F. Limtingco can be reached at [email protected].

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