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Philippines: fighting for more export share.

Philippines: Fighting for more export share

It has only been since 1975 that the Philippines has begun exporting coffee. The country's main exports are coconut and sugar. Coffee has proved to be an excellent source for cash revenues for a country whose wealth has been plundered by the Marcos regime.

Politics is a strong factor in this country's economy and is responsible for the erratic production and exports of coffee. The year Marcos left threw all industries into havoc. The Philippines exported 40,000 metric tons of coffee in 1985 when ICA quotas were suspended. In 1986, exports plunged to 20,000 MT and exports are now averaging 25,000 MT for 1987-1988.

Nestle is the country's major coffee manufacturer where 95 percent of the population consumes soluble coffee. Nestle not only manufacturers soluble coffee but also exports green coffee. The company is 45 percent owned by San Miguel Corp., a grower/exporter.

Nestle has not merged with Hills Bros., unlike the U.S., as the licensing agreements have not expired. Nestle is the #1 coffee company in sales, followed by CFC Corp. which has the brand names - Blend 45 and Great Taste.

The Philippines continues to produce more coffee every year and it is now at a point where production is almost double. Almost 85 percent of the Philippines' coffee is Robusta, Arabica accounts for five percent and Excela and Liberica, which account for seven percent of production, is preferred by the Middle Eastern countries.

The 1988/89 coffee crop posted a record harvest or more than 1.3 million bags, up 30 percent from the drought-reduced 1987/88 crop. The 1988/89 crop would have been even larger had there been no typhoons hitting the major producing province of Batanoos and Cavite in the last quarter of 1988. Production estimates of as high as 1.4 million bags are being projected by local growers.

The Philippine grower has been helped by both Nestle and the local ICO certifying office in education and technical assistance in advanced coffee farming. More monies are being spent on pesticides and fertilizers are being distributed among the growers. At Nestle's research and development center, the company is cloning superior Robustas. Nestle also offers a premium of 300 pesos/bag as an incentive for better grade coffees.

The U.S. is the largest importer of Philippine coffee with a 60 percent share of the country's exports. Japan ties with Singapore, each importing 20 percent, Europe, in total, imports under 10 percent. About 90 percent of the U.S. share of coffee goes to the West Coast. Freight rates to the East Coast are prohibitively 100 percent higher than the West Coast.

The Philippines support the International Coffee Agreement but are unhappy with quota distribution. The Philippine ICO contingency has been clamoring for an increase in their quota. As it stands, the country only accounts for 0.87 percent of the total global quota. Exporters repeatedly told us, during our visit, that while domestic consumption is rising, production is excessively high and the country needs the revenues. A quota increase of at least 200-300,000 bags is definitely in order for them. According to some exporters, overproduction has caused low prices for coffee.

Several exporters felt the Philippines wasn't ready for a free market, should the ICA not be renewed. The financing or setting of stable prices are much needed for third world countries and some exporters expressed their belief that the U.S. always protects the third world countries.

The ICO's presence is felt in the Philippines through the ICO certifying agency in Manila. Antonio Reyes and Ernesto Santiago distribute quotas locally. ICO stamps are allocated to exporters on past performances, export and track records and their commitments. There are presently 96 coffee exporters registered and some are producers/exporters. The agency keeps a keen eye on exporters who try to ship on paper and do not actually ship coffee. Reyes and Santiago were happy to tell me there have been no such instances since 1986. The agency also checks to make sure each exporter is performing on their quota allocation.

The ICO agency intend to make the Philippines a reliable service and holds spot inspections to check on coffee. Third party shipments are not allowed. If the exporter can't make quota, he surrenders the stamps and then the stamps are bid on again.

The Philippines has a basic quota basket of which 70 percent of the Philippines' quota is allocated by a past five year performance and price performance. Additional percentages are gained if exporters have a farm, have forward and backward linkage, owns a milling/processing facility to get better quality or if he's outside Metro Manila.

The remaining 20 percent of export quotas are bid out through auction. About 330 metric tons or two container loads are bid out at a time. A ceiling is placed on all coffee bids, which is the determined ICO price within three days. Consensus of the trade seems to like this method.

Several tradesmen told us the quotas are more political than objective. The Philippine has not seen a quota increase in years and they are especially hurt when quotas are reduced, as quota usually cuts into Robusta allocation.

The Philippines wants the ICA but needs a better and larger quota allocations for its coffee. The country is trying to market their coffee to China and Russia. Programs are underway to continue growing a better coffee product and the trade would also like to export more processed coffee.

This country is anxious to increase its coffee presence in the world market.

PHOTO : Roberto Tan, president, left, and David Domingo, attorney, of Pearl Island, is one of the

PHOTO : largest exporters in Manila. Their office houses a coffee bar for employees and guests.
COPYRIGHT 1989 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Title Annotation:coffee trade
Author:McCabe, Jane Phillips
Publication:Tea & Coffee Trade Journal
Date:Jul 1, 1989
Words:967
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