PHILIPPINE RURAL DEVELOPMENT PROJECT

(PRDP)

I-PLAN Component

South Luzon Cluster

Value Chain Analysis Study

Roasted Cashew Nuts

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EXECUTIVE SUMMARY

The Philippine Rural Development Project (PRDP), a six-year special program of the Department of Agriculture (DA), focuses on value chain, enterprise/cluster development and vertical integration from production to processing and marketing with the aim of achieving an inclusive growth and creating a weather-resilient agri-fishery sector. The program’s allocation is P27.54 billion with 75% of the funds coming from the World Bank.

The PRDP covers 80 provinces in 16 regions. MIMAROPA (IV-B) is a region under the South Luzon Cluster and covers 5 provinces. Cashew was selected for Palawan for the value chain analysis, the province being the cashew capital of the Philippines. Ninety percent (90%) of the cashew production of the country is produced by Palawan. Cashew may not be the number 1 nut crop in the Philippines but it is still one of the most important commercially produced nuts. Globally, cashew is still among the top three spots for nuts. Demand for cashew remains high and local production cannot meet this.

During the conduct of the Cashew VCA, the Regional Program Coordinating Office (RPCO) interacted interacted with various stakeholders, from the farmers to producers and to buyers in Palawan, Metro Manila and Antipolo, through area/community visits, interviews and focus group discussions. Interviews were also conducted with the representatives of support government agencies such as the DA, Department of Trade and Industry (DTI), Western Palawan University, and the Provincial Government.

The study revealed that issues/concerns within the cashew nut value chain were mostly related to production and processing. For instance, cashew production level dropped by 82.5% over a 7 year period covering 2005 up to 2012. Majority of the bearing trees are 30 to 40 years old, thus, have surpassed its full bearing capacity. Due to old age, a significant number of trees have been infested by pests specifically termites. The decrease in production was mainly attributed to the very small economic benefits the farmers get from maintaining a cashew farm which is 5% only of the total income generated from the sale of cashew nuts. A number of practices in farming and processing need to be changed or enhanced to enable farmers to achieve higher productivity and increase their income. A factor that was not cashew production or processing related was the conversion of agricultural lands to non-agricultural uses such as construction of subdivisions or residential areas.

Farmers are only getting 5% of the share in income generated while the retailers are cornering 53% of the income share in the value chain. This big disparity in the share of income is the primary reason why the production level of cashew has been going down these past years, with a decline of 83% in the production level between 2005 and 2008. It should be taken into consideration that many of big wholesales-retailers are either processors themselves and in most instances have also business tie-up and or business activities at the sourcing level.

Some of the priority constrains identified by the stakeholders are:

. Limited access of farmers to improved varieties of cashew planting materials . Resistance of farmers to shift from traditional cultivar to improved varieties . Cashew farmers do not subscribe to fertilization . Sharp decrease in yield since majority of cashew trees are above 30 years old and vulnerable to pests (e.g. termite)

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. Difficult access to planting materials and other agricultural inputs due to poor/no FMR . Deficiencies in processing technology (lack of trained skilled personnel, lack of mechanized processing facility, storage facility, uncertain supply of raw materials) . Absence of new technology and better machines for processing . Buying price in competition with unregistered buyers (unregistered buyers has high buying price) . Low buying price of cashew product at the market because of low quality/no classification of product . Lack of sustainable financial support . Lack of knowledge and support to promote the product . Lack of networking in other business sectors and other areas . No price standardization

Despite the constraints, the stakeholders envisioned the cashew industry to be globally competitive and sustainable in the Province of Palawan and Puerto Princesa City with empowered cashew growers and processors catering the local and international market by 2020.

As the largest cashew producing area in the country, the stakeholders look forward to achieve an efficient cashew value chain in order to:

 Sustain the increase production of quality cashew in available expansion areas;  Increase productivity and profitability of cashew farmers and processors;  Provide quality support services; and  Empower cashew growers and processors.

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Section 1

INTRODUCTION

A. BACKGROUND INFORMATION AND OBJECTIVES

For centuries, Philippine agriculture has driven economic growth and it accounts for nearly 35%1 of the GDP. It directly provides employment to 11.2 million people, or 50 percent of the country’s employment.

New and evolving markets hold the promise of greater profits for smallholder farmers. Feeding the rapidly growing population will require more and higher quality agricultural commodities. Urban consumers will also increase demand for processed agricultural products, so adding value to farmers’ outputs will take centre stage in years to come. This will provide lucrative opportunities not just for the women and men who grow the food, but for a wide range of rural workers, especially the emerging generation of young people.

In a region to lead the market in global food production, the Philippines stands out as Asia’s most promising agribusiness destination with its strategic location as the Gateway to Asia. It is a major exporter of raw ingredient in the world market. It’s a perfect choice as a regional transhipment hub and is suitable for growth in trade and investments. Despite these opportunities, half of the Philippines population remains rural. In general, the agribusiness sector has not been the driver of overall economic growth, but it has the potential for making it more inclusive.

Consistent with the agricultural sector strategy (Agri-Pinoy) embodied in the Philippine Development Plan (PDP) for 2011-2016, advances the principles of inclusive growth, food staple sufficiency, natural resource management and area-based development, the Agri-Pinoy outlines the following overarching strategies: (i) institutionalizing regionally-based, spatial planning (ii) developing a systems approach for both planning and resource allocation; (iii) providing the critical infrastructure needed by priority value chains; and (iv) building a more resilient production base to accommodate fluctuations in global markets and effects of climate change. Complementing the Agri-Pinoy strategy is the implementation of the DA Climate Change policy thrusts appropriately framed in response to the urgent call for adaptation and mitigation actions to attain a climate change- resilient agriculture and fisheries sector. The Department is mandated to ensure food security and water sufficiency while addressing the pressures of extreme weather conditions to the agriculture and fisheries sector.

The Department of Agriculture (DA) has adopted value chain analysis (VCA) as basis for rural investments. Through the Philippine Rural Development Project (PRDP), the DA uses VCA for priority commodities to improve market linkage of farm products. The VCA is now the guide of

1 PRDP Project Appraisal Document

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local government units in identifying priority interventions that will enhance competitiveness of selected commodities. Value chain is defined as a full range of activities to bring product or services to markets.2 The VCA focuses on creating value along the chain as well as the rational distribution of benefits among participating actors such as producers, processors, and traders.

Cashew nut was selected as a priority commodity of Palawan, the province being the cashew capital of the country. It offers significant potential for high value addition and increasing income for large numbers of people in the rural sector, particularly for women. It is a high potential export-oriented agricultural crop and important source of supplemental income to more than 7,272 farmers and many others employed by the sub-sector. With the PRDP, DA is partnering with the private sector and the LGUs in providing key infrastructure, facilities, and technologies to boost farm production.

B. OBJECTIVES OF THE VCA

This report provides an overview and analysis of the cashew nuts value chain, with the aim of identifying main leverage points and key strategies to improve Palawan’s competitiveness and promote development in a pro-poor and sustainable manner. It will provide the basis for the formulation of the Provincial Commodity Investment Plan (PCIP) and will lay the foundation for PRDP’s cooperation with the private sector and other government agencies active in the cashew industry. Specifically, the value chain analysis aims to: a) Provide an in-depth understanding of the range of factors and relationships that affect the performance of the cashew nuts industry in Palawan including end markets, enabling environment and coordination/cooperation among firms; b) Identify in a participatory process the systemic chain level issues that hinder or promote the gainful participation of rural households, sustainability of the chain, and its competitiveness in general;

c) Set the competitive directions of the cashew nut industry in the province and generate a shortlist of interventions that will utilize the comparative advantages and opportunities to overcome disadvantages and constraints for the benefit of all players along the value chain; and

d) Identify and explore how to catalyse private and public sector stakeholders in the cashew industry to collaborate for improved industry performance

C. METHODOLOGY AND APPROACH

The study utilized the following data collection methods:

1. Key Informant Interviews (KII)

Interviews with the following key informants who had provided valuable information:

2Food and Agriculture Organization (FAO) Guidelines for Value Chain Analysis

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. DA and its attached agencies’ representatives . DTI representative . Private sector/Institutional buyer, Magnolia Ice Cream . Wholesaler/Retailer representative, Haring Mani . Antipolo-based Wholesaler/Processor, Jojo’s Cashew Nut & Gen. Merchandise . Roxas-based consolidators, traders, processors and retailers

2. Focused Group Discussions (FGDs)

. Cashew farmers/operators in Brgy. San Nicolas, Brgy. Tinitian, Brgy. Taradungan, Brgy. San Miguel, Brgy. Minara, Brgy. New Cuyo and Brgy. Sandoval.

3. Review of Secondary Data

. Production volume trend of cashew nuts in the Philippines and Palawan . Number of cashew bearing trees in the Philippines and in Palawan . Philippine imports of cashew nuts . Philippine exports of cashew nuts . Farmgate price trend of cashew nuts . Other relevant statistics

4. Farm and community visits, and visit to processing centers/areas

Ocular visit to cashew farms and exposure/observation of cashew processing gave the a first-hand experience in the processes involved in cashew processing and in seeing the processing equipment and tools.

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Section 2

OVERVIEW OF THE INDUSTRY

Cashew (Anacardium occidentale), a native of Brazil, was introduced in other parts of the world starting from the 16th century mainly with the intention of afforestation and soil conservation. From its humble beginning as a crop intended to check soil erosion, cashew has come out as a major foreign exchange earner in most of the countries.

Cashew is primarily grown in the continents of Asia, Africa and South America. Asiatic zones mainly include India, Vietnam and Indonesia as the major cashew producing countries followed by Philippines, Malaysia, Thailand and Sri-Lanka. African countries producing cashew are Côte d’Ivoire, Nigeria, Tanzania Mozambique, Kenya, Benin, Guinea- Bissau, Mozambique, Ghana, Senegal and Madagascar. Latin American countries producing cashew consist of Brazil, Columbia, Costa Rica, Honduras and Salvador. Though cashew is originally from Brazil, it gained greater popularity in India, Vietnam and other African countries than Brazil itself.

A. Product Description and Major Uses

Locally known as ‘kasoy’, cashew (scientifically known as Anacardium occidentale L.) is one of the most important nut crops in the Philippines. It is a versatile crop with many uses in the food industry. At present, only the nut is given attention by cashew growers as it commands a good demand in the market among domestic consumers. Cashew nuts are processed into different forms - dried, roasted, salted, fried, brittle, caramelized, and chocolate- coated. Cashew apples are also processed as prunes, wine, vinegar and juice.

Figure 1. Cashew Plants

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Farming concerns as well as natural/environmental factors have plagued the yield of cashew farmers. Interventions to step up production as well as improve quality of the cashew nuts are very much needed. Despite these setbacks, the cashew nut industry remains to be promising, both at the local and international markets. Demand is a steady for nutritious food items and an expanding market for processed and other value added cashew-based products are emerging. Cashew has a high potential for commercial cultivation.

Having the most commercial Figure 2. Cashew Fruits value, the cashew fruit is composed of the cashew apple (pseudocarp) and the seed (nut). Botanically considered as the fruit, the seed consists of the nut (kernel) and shell or pericarp.

Cashew nuts consist of 35-45% seeds and around 55-65% of shells. The shells contain 15-30% oil. A ton of nuts contains around 200 kg seeds and 180 kg oil (cashew nut oil or cashew nut shell liquid “CNSL“).

As shown in Figure 3, the cashew fruit has versatile uses. The cashew apple and nut are utilized as food while the cashew shell has varied uses ranging from medicinal to industrial.

Cashews are marketed as raw nuts from farmers to local traders and processors outside of locality. There are also farmers/growers who process cashew nuts into splits and whole kernels and sell directly to consumers, wholesalers or retailers. Most of the raw nuts are shipped to Metro Manila and are processed in Antipolo City, Rizal. Processors in Antipolo City produced products called “blue seal” (split kernels which are opaque white with low moisture content) and marketed to food manufacturers/processors like Selecta, Magnolia, Goldilocks, etc.

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Figure 3. Uses of Cashew Fruit

A variety of cooking method also gives rise to plain, salted, roasted, or toasted and adobo flavored cashew nuts. Besides the retailers and peddlers who sell cashew on a per weight basis, there are also commercial centers (such as local market and grocery stores) that distribute the nuts in packs. Food manufacturing companies buy wholesale amounts, de-shelled and ready to use. It is used in ice cream flavorings such as (Magnolia), chocolate bars (such as Hersheys), cakes and pastries (such as Joni’s and Goldilocks), and other delicacies or confectioneries. Households use cashew as an ingredient for preparing certain dishes. Others consume it as dessert or pulutan in the form of salted, spiced and adobo flavors or in bottle (as in Tobi’s). A few of the Filipino delicacies include cashew brittle, cashew cake, turones de casuy, cashew candy, pastillas de casuy (J & A of Cagayan de Oro City), and bandi. In Palawan, bandi is a native flat cake using cashew nuts instead of peanuts and is similar to panucha (Festin, 1991). Other cashew products such as juice, wine and CSNL are still at the development stage in terms of marketing. Antipolo sells cashew shells to CNSL manufacturers in Metro Manila.

As the main economic product, the focus of this study is the nut (kernel). The kernel is about 22-30% of the cashew nut by weight. The nut is sold either as whole or split/broken, consumed as table nut in dried or roasted form. It is also used extensively as an ingredient of ice cream, cakes and pastries among others. Ground nut is often mixed with cacao seeds to produce adulterated chocolate. The nut oil is used to harden chocolates while the residual nut cake can be mixed in fertilizer or in poultry feeds.

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Other parts of the cashew fruit, the shell and the apple, as well as the rest of the cashew plant have extensive uses. The shell, 70% of the cashew nut’s weight, produces a liquid substance commercially known as cashew nut shell liquid (CNSL). CNSL is used in the manufacture of industrial products. It is also used for termite proofing of timbers. After CNSL extraction, the shell is utilized as fuel.

On the other hand, cashew apple is very nutritious and is used both as food and feed. It is an excellent source of vitamin C. Ripe cashew apple has an exotic flavor and eaten fresh or processed into candy, syrup, vinegar, jam, chutney and champoy. Its juices Figure 4. Cashew Shell made into a refreshing drink (Brazil cajudo), may be fermented to make wine, and distilled to produce alcoholic beverage. After juice extraction, the pulp, which contains9-10% protein and 65 pectin on dry basis, can be used as feeds for hogs. Unripe apple is prepared as pickles or cooked as curried vegetable.

Various parts of the cashew tree have medicinal and other uses. The young leaves may be eaten as vegetable salad. Leaves contain high amount of vitamin A and vitamin C. Timber is used in furniture making, boat building, Figure 5. Roasted Cashew Nuts packing cases and in the production of charcoal. Bark is used in tanning.

The tree is a good species for reforestation, especially in areas with poor soil and low rainfall.

Most of the existing cashew tress are of local origin or native varieties aged from 30 to 40 years. Since majority of the cashew trees are already old, there is a need to replant or replace these trees. Based on the assessment made by the Provincial Agriculturist Office, 70 percent of the cashew plantations in Roxas, Taytay, Dumaran, Araceli, San Vicente, Linapakan and El Nido are ageing. In Puerto Princesa alone, six (6) cashew producing barangays namely Langogan, Napsan, Semporan, Concepcion, Bagong Bayan and Buenavista have senile cashew plantations. At present, there are on-going efforts made for the planting and replanting program

Page | 10 to address the senility. The government has started to introduce promising varieties but its planting materials are still scarce. There is also a need to expand production areas with recommended superior varieties.

At present there are five cashew cultivars recommended for planting in the Philippines (Table 1) and being propagated in government nurseries in Palawan, Rizal and Romblon, DA - Region VI, the Western Luzon Agriculture College (WLAC) and the University of the Philippines - Los Baños (UPLB). Most of the plants are grafted using the stocks of any variety with scions from the recommended varieties. Hence, the importance of planting grafted plants must be emphasized to cashew farmers and government extension workers. Selection of suitable cashew varieties and appropriate package of practices determines the final yield.

Table 1 Recommended/Promising Cashew Varieties in the Philippines

Apple Kernel Kernel Average Apple Color Nut Weight Variety Weight Wight (g) Recovery (%) Prod. Per (g) (g) Tree (kg)* Mitra 146.39 13.43 3.74 27.84 9.67 Orange Fernandez 117.48 11.93 2.94 24.64 6.90 Orange CIG 129.00 12.78 3.55 27.77 7.38 Orange Caliwag 79.48 11.71 3.10 26.47 7.02 yellow/ orange Recto 70.22 10.13 2.96 29.22 7.93 red/ orange Source: Cashew Varieties, STARRDEC Leaflet

As the leading production center in the country, Palawan produced 13,183 MT of cashew nuts (with shell) in 2012 from its 2.2 million bearing trees. Cashew is mainly marketed as raw nuts from farmers to local traders and processors, as well as, processors outside of the locality. Some growers/farmers process cashew nuts into roasted splits and whole kernels and sell either directly to consumers, wholesalers, or retailers. A small quality of the product is usually left for family consumption. Most of the raw nuts shipped to Metro Manila are processed in Antipolo, Rizal. Approximately 15%-25% of the cashew nuts produced in Palawan are processed and sold in Puerto Princesa City while the remaining volume is shipped to Metro Manila (Figure 6).

Figure 6. Geographic Flow of Products and Synergies between Provinces

Cashew nut/kernel Municipalities Other Provinces PALAWAN Municipalities (Bataan, Pampanga, Laguna, (El Nido, Coron, Taytay, Cebu, Ilo-Ilo Dumaran, Cuyo, Roxas) Cashew nut/kernel

Municipalities Cashew nut/kernel Municipalities

Puerto Princesa City METRO MANILA/ RIZAL Cashew nut/kernel (Antipolo City) Municipalities

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Palawan cashew nuts shipped to Antipolo and Metro Manila are sold, processed and repacked in Makati City, Novaliches, Valenzuela and other provinces like Pampanga and Laguna. Among the major processors of cashew in Manila include food processors supplying Ice Cream makers like Magnolia and Selecta. Palawan cashew also reach regular but smaller markets in Cebu and Iloilo (Figure 7).

According to respondents in Taradungan, during the lean season, traders from El Nido sourced cashew nuts from their area and directly transport the commodity from El Nido to Metro Manila via a small ferry (‘batil’). The “Antipolo cashew”, mostly coming from Palawan is a main market competitor for the Palawan cashew at the national level.

Figure 7 Palawan Cashew Product Flow and Distribution

Export Southern Market Exporters MM Municipalities Processors (1,208MT) 16% (65-75%) 1,396 farmers 2,092 hectares Antipolo MM Processors Palawan ( Mfr (6) Traders Northern (10%) (52) Municipalities Metro RCN (13,544MT) (8,099MT) 60% Manila W/ Shell 4,404 farmers Consumer MM RCN 7,535 hectares Retailers

Registered Island Municipalities PPC Palawan Processors (3,237MT) 24% Consumer Retailers Palawan 1,472 farmers (100) 5,066 hectares

15-25%

B. Production Trends

Global Production

Cashew (Anacardium occidentale), a native of Brazil, was introduced in other parts of the world starting from the 16th century mainly with the intention of afforestation and soil conservation. From its humble beginning as a crop intended to check soil erosion, cashew has come out as a major foreign exchange earner in most of the countries.

Cashew is primarily grown in the continents of Asia, Africa and South America. Asiatic zones mainly include India, Vietnam and Indonesia as the major cashew producing countries followed by Philippines, Malaysia, Thailand and Sri-Lanka. African countries producing cashew are Côte d’Ivoire, Nigeria, Tanzania Mozambique, Kenya, Benin, Guinea- Bissau, Mozambique, Ghana,

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Senegal and Madagascar. Latin American countries producing cashew consist of Brazil, Columbia, Costa Rica, Honduras and Salvador.

Though cashew is originally from Brazil, it gained greater popularity in India, Vietnam and other African countries than Brazil itself. In 60’s India had a major contribution to the world production along with Mozambique and Tanzania. From 1961 to 2013, area under world cashew nut production has increased at a rate of 4.25 per cent (CAGR).

East African countries like Tanzania, Mozambique, and Kenya introduced cashew. But in 70’s Mozambique left the race due to political issues and civil war in the country. In other Asian countries like Indonesia, Malaysia, Cambodia, etc cashew cultivation became popular (Figure 8).

Figure 8 2001-2013 Trend in RCN area: global area, region-wise share and list of top countries with highest average area (in thousand ha)

Other, 243 M ozambique, 76 Tanzania, 85 Guinea-Bissau, 216 Benin , 315 Nigeria, 324 Vietnam, 332 Indonesia, 575 Cote d'ivoire, 585 Brazil, 718 India, 874

0 100 200 300 400 500 600 700 800 900 1000

Source: FAO

From 2001-2013, global RCN production has seen a tremendous growth. India had a major contribution to the world production along with other Asian countries like Vietnam and Indonesia. The huge production increase has been mainly contributed by Vietnam, the newly emerged RCN producer during the period. Since 1990, Vietnam cashew industry has seen massive growth with respect to domestic cashew nut production and processing.

Cashew is produced commercially in 32 countries. World production in 2001- 2013 is at 1,998,000 metric tons and has doubled since 1990’s with most countries experiencing substantial increases particularly Vietnam. India pioneered the modern processing of nuts, and had been consistently the world’s leading producer for decade (Figure 9).

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Figure: Figure 9 2001-2013 Trend in RCN production: Global production, region-wise share and top countries with highest average production (thousand tons)

625 700 India Brazil 600 Cote d'ivoire

500 Indonesia Vietnam 400 Nigeria 262 265 Benin 300 170 161 Guinea-Bissau 125 200 100 105 76 Tanzania 69 70 Mozambique 100 Other

0

Source: FAO

Cashew occupies just over 7.5 million acres of land area in the world, which is extremely high given the level of production. This reflects the low intensity of production in most areas; many nuts are harvested from wild or naturalized stand of trees. Average yields worldwide are about 700 lbs/acre. The world cashew industry has shown a significant growth in the last decade (2001-2013) with respect to production (Figure 10). The annual growth rate recorded during the period was nearly 15.31 per cent. Tanzania remains the top yielder for a decade placed at 1,000 kgs/ha closely followed by Vietnam with 950 kg/ha. Tanzania became the largest cashew kernel exporter in 2006 and has been successfully holding on to its position in the world market.

Figure 10 2001-2013 Trend in RCN Yield: Global yield and top 10 countries (Kg/ha)

1200

1000 800 600 400 200

0

India Kenya Ghana Gambia Vietnam Tanzania Cote d'ivoireBurkina Faso Mozambique Guinea-Bissau

Source: FAO

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Cashews are grown in Africa, Latin America and South East Asia. In 2013, the leading producing countries are India, Côte d’lvoire, Vietnam, Brazil and Indonesia (Figure 11). Increasingly, Africa is gaining importance in raw cashew nut production. The main producing countries in Africa are, Tanzania and Mozambique. Agriculture Statistics of the Food and Agricultural Organization of the United Nations (FAO) show that in 2013, 30 countries produced Cashew nuts with shell, among them ten ECOWAS countries. They made up for 30% of worldwide cashew nut production. According to estimates from the World Bank, around 97% of the world cashew production comes from wild growth and small farms while the remaining 3% come from planned plantations.

Figure 11 Country Wise Percent (%) Share of RCN Area and Production, 2013

35 30

25

20 15 10 5 0

India Brazil Other Tanzania Indonesia Vietnam Cote d'ivoire Mozambique Area Production

Source: FAO

National Production

Cashew is a drought resistant crop. It can grow successfully in areas with a very distinct dry season or where the annual rainfall is as low as 50 cm. It can adapt to different soil types even on marginal and acidic lands where no other crop could thrive. It can likewise grow well in areas with high levels of rainfall (as much as 350 cm annually) provided the soil is well-drained. It bears fruit during dry season and never misses a year without bearing.3

In most regions of the country, cashew is grown mainly as a backyard crop or as a component of many small-scale diversified orchards. Bearing age of cashew is three to four years. Average yield is five metric tons of nuts and 821,000 apples per hectare. In the Philippines, each tree can produce between 10 and 14 kilos of cashew nuts with shell per year. Full bearing of local varieties is reached in 10 to 15 years and life scan ranges from 30 to 40 years or even more. Small-scale cashew cultivation does not need big care and maintenance expenses but requires start-up capital.

3http://www.agripinoy.net/growing-cashew-trees.html;http://www.wpu.edu.ph/cashew/module2/textentry-template.html

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Flowering starts from November to February or March. Harvesting starts from February to June. The peak season for cashew is from February to May while the lean season is from June to August.

From 2010-2013, the country produced about 136,708.79 metric tons. Among the ten (10) major producing areas of the country, MIMAROPA has been the leading producing region for cashew having an average production of 128,705.93. This presents 94% of the national production (Table 2).

As one of the flagship commodity of MIMPAROPA region, in 2013, there were 138,873 metric tons produced in the region followed by Central Luzon and Ilocos Region having 5,968.47 and 718.47 metric tons respectively. Northern Mindanao and SOCCSKSARGEN region only produce 44.39 and 10.08 metric tons respectively.

Table 2 Volume of Production Per Region 2007-2013

REGION 2010 2011 2012 2013

1. MIMAROPA 125,863.7 125,080.1 125,006 138,873.91 2. Central Luzon 7,241.8 6,821.12 6,092.63 5,968.47 3. Ilocos Region 692.23 683.74 707.95 718.70 4. Western 536.46 546.44 596.22 562.77 Visayas 5. Davao Region 55.88 49.46 44.36 39.39 6. Central Visayas 58.22 47.31 38.85 35.98 7. Cagayan Valley 49 45.2 38.70 29.59 8. CALABARZON 47.38 43.51 44.66 44.39 9. Northern 7.33 10.08 43.91 28.19 Mindanao 10. 10.14 9.38 11.5 10.9 SOCCSKSARGEN TOTAL 134,659.84 133,372.30 132,527 146,276 Source: Bureau of Agricultural Statistics

The Philippines has 28,600 hectares planted to cashew. MiMaRoPa (Mindoro, Marinduque, Romblon and Palawan) is the leading producing region with total production area of 25,978 hectares representing 91% of the national production areas and with 3,407,585 bearing trees. Central Luzon follows next (225,323) with Nueva Ecija as the leading producing province in the region with 190,156 bearing trees. Both regions suffered a decline in their number of bearing trees from 2010-2013. Northern Mindanao produced 4,736 trees in 2013 while 1,020 bearing trees in SOCCSKSARGEN. In terms of cashew productivity, country’s average yield per hectare is placed at 5.11 metric tons (Table 3). MIMAROPA region accounts for 5.35 metric tons higher than the country’s prevailing yield. Central Luzon registered at 4.20 metric tons while Northern Mindanao and SOCCSKSARGEN only yielded 0.20 and 0.87 metric tons respectively (Table 3).

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Table 3 National Production, Area and Yield, 2013 AR EA NO. OF BEARING YIELD REGION Harvested (HA) TREES (MT/HA) MIMAROPA 25,978 3,407,585 5.35 Central Luzon 1,422 190,156 4.20 Ilocos Region 460 67,697 1.56 Western Visayas 432.98 59,894 1.26 Davao Region 173 11,115 0.23 Central Visayas 20 5,500 1.80 Cagayan Valley 26 3,177 1.14

CALABARZON 27 3,385 1.64 Northern Mindanao 50 4,736 0.20 SOCCSKARGEN 10.74 1,020 0.87 28,600 3,754,265 Total 5.11

Source: Bureau of Agricultural Statistics

Local Production

While Palawan is the leading producer of cashew nuts in the country, there has been a significant and alarming drop in local production. Over a period of 7 years (2005-2012 , area planted, trees per hectare and yield per tree has decreased.

As can be seen in Table 4, the number of hectares planted to cashew dropped from 62, 859.5 hectares in 2005 to 14,692.8 hectares in 2012, a reduction of 77% while the number of trees decreased by 65% from 6.29M cashew trees in 2005 to 2.17M trees in 2012. The overall yield went down by 82% from 75,565 MT in 2005 to only 13,544 MT in 2012. This drop in volume of raw cashew nuts produced was also a direct result of the drop in the average yield per tree that went down by 50%. In 2005 yield per tree was pegged at 12kgs while in 2012, the yield per tree was only 6kgs. The data on Table 4 also show total number of farmers decreased by 79% from 34,749 farmers with cashew farms in 2005 to only 7,271 farmers left in 2012. Although it is interesting to note that the average area planted per farmer has increased from 1.56 hectares in 2005 to 2 hectares in 2012 which probably points to the farmers with smaller areas planted to cashew as the ones that moved out of the cashew farming.

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Table 4 Comparative production data 2005 vs 2012 Cashew Production in Palawan

No of No. of Yield No of Tree/ Yield/ Ave Hectares Trees (MT) Farmers Hectare Tree Farm Kgs Size

2005 62,859.5 6,291,144 75,565 34,749 100 12 1.56 2012 14,692.8 2,175,826 13,183 7,272 148 6 2.00

Diff. (48,166.7) (4,115,318) (62,382) (27,478) 48 (6) .44

%age (77%) (65%) (82.5%) (79%) 48% (50%) 28% Source: Palawan Agricultural Experiment Station

Figure 12 shows the 2012 production areas with hectarage planted and yield. Northern Palawan composed of the municipalities of Roxas, San Vicente, Taytay, Dumaran and El Nido had 7,535 hectares of cashew farms (51%) and produced 8,099MT of raw cashew nut or 61% of the total production of the province. Southern Palawan comprised of Puerto Princesa City and seven (7) municipalities, namely, Aborlan, Narra, Brooke’s Point, Quezon, Rizal, S Espanola and Bataraza had 2,092 hectares (14%) and produced 2,208MT (17%) of raw cashew nuts. The eleven (11) island municipalities had higher yield than Southern Palawan and recorded 2,876 MT (22%) volume produced with 5,066 (35%) in terms of area planted. These island municipalities are Agutaya, Araceli, Busuanga, Cagayancillo, Coron, Culion, Cuyo, Dumaran, Linapacan, Balabac and Magsaysay. In terms of the number of farmers engaged in cashew farming, the northern municipalities has 4,404 farmers (60%), the southern municipalities have 1,396 (19%) and the island municipalities have 1,472 farmers(31%).

Figure 12 Volume of Production, Area and Number of Cashew Farmers in Palawan

Volume (MT) Area Planted (Has) No. of Farmers

Island 2876 5066 1472

Southern 2208 2092 1396

Northern 8099 7535 4404

0% 20% 40% 60% 80% 100%

Northern Municipalities: Roxas, San Vicente, Dumaran, Taytay and El Nido Southern Municipalities: Puerto Princesa, Aborlan, Narra, Brooke’s Point, Quezon, S.Espanola, Rizal and Bataraza Island Municipalities: Agutaya, Araceli, Busuanga, Cagayancillo, Coron, Culion, Cuyo, Dumaran, Linapacan, Balabac and Magsaysay

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Key Producing Municipalities

Palawan is still the leading producing province in the country. A total of 25,900 hectares are planted to cashew in the province posting 138,708 metric tons production. Palawan accounted for 99.9% of the total cashew produced in the region. The biggest municipality-producers were Roxas, Taytay, Dumaran and El Nido that accounted for 61% of the total production of the province. Roxas and Taytay topped the list with 16% and 15% share of the province’s production volume (Figure 13). The average yield per hectare in 2012 was 0.9 MT of cashew nuts or 6 kilograms per tree.

Figure 13 Top Ten (10) Key Cashew Producing Area (Metric Tons)

Araceli, 217

Quezon, 217.83

Aborlan, 364.14

Coron, 555.67 Puerto Princesa City, 1,270.36

Linapacan, 1,640.16

El Nido, 1,919.70

Dumaran, 2,008.83

Taytay, 2,030.00

Roxas, 2,046.00

Source: Provincial Agriculture Office

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Section 3

NATURE AND STRUCTURE OF THE INDUSTRY

The island province of Palawan is the leading producer of cashew nut in the country, where total area planted to cashew is 25,900 ha with production volume of 138,708 MT of ripe fruit with nuts. Majority of the raw nuts are bought by agents/traders and shipped to Manila, and transported to the nearby city of Antipolo, Rizal for processing. A large number of processors in Antipolo City turn out products called locally as “blue seal”, which is split cashew kernels that are opaque-white in colour and with low moisture content. The product is sold in big volumes to manufacturers of ice cream, cakes and pastries in Manila.

There is relatively insignificant value adding activities to the cashew nuts in the production areas in Palawan, and the economic potential of the cashew apple is taken for granted by the cashew farmers. Although, simple small-scale cashew processing technologies are available in the area, very few are engaged in processing due to poor market access of cashew products to major demand areas. Cashew farmers get a farm gate price ranging from P25 to P35 per kg of raw nuts, representing a merely 5% of the value of the split cashew kernels and 4% for whole cashew kernels sold to consumers. Thus, farmers do not get a fair share of the value of their cashew produce.

The aim of promoting cashew value chains in agribusiness is to generate greater added value and to improve the competitiveness of locally produced cashews in domestic and international markets. Value addition regarding cashews is achieved both at the processing and packaging stage. The key criterion in this context is one of broad impact, i.e. growth that benefits the rural poor to the greatest possible extent, or at least does not worsen their position relative to other demographic groups.

Thus, adding value to commodities produced for export and domestic markets is believed to generate substantial profits and employment along the chain and, in this way, contributes to poverty alleviation.

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A. Key Value Chain

Figure 14 VC Map of Cashew in Palawan

Final Functions Input Production Trading Processing Marketing Sale Provision

Seedlings Seed sowing Transporting Purchase RCN Transporting Fertilizer Fertilization Sorting Sorting Quality Control Pesticide Weeding Quality Control Cracking

Provision Spraying Peeling Farm Harvesting Drying Implements Grading Task Roasting Packaging

Farmer Local Cashew 78 100 Processors/Wholesalers Managed Consumers Farmer Consolidators Retailers: Puerto RIC Nurseries (Puerto) Producers: Palawan-based Processor: Isla Kasoy Southern -268 MT (0.35) (140 MT) Municipalities 5 Rural -2,208 MT Consolidators/Processors Wholesalers/ Agricultural -1,396 Farmers Local Centers (RAC) (Palawan Based) Retailers -2,092 has Consumers Northern -338 MT (0.45%) (Puerto) 268MT (Metro Municipalities Manila, Cebu) Operators -8,099 MT 6 Consolidators/Processors/Retailers 19 LGU- -4,404 farmers (Antipolo Based) Managed -7,535 Has 1,200 MT Nurseries Island Municipalities Institutional Whole/Retailers -3,237 MT Buyers (Antipolo, (Magnolia -1,472 Farmers DA-PAES Bataan, Ice Cream) -5,006 has Laguna, Cebu, Ilo-Ilo) Farm Input 168MT Suppliers (fertilizers, Export Cashew Producers/Consolidators/Processors/wholesalers/Retailers pesticides) Market (Palawan-Based) Vietnam, US, 140MT Canada, Thailand 150MT

DA (PAES, BAR,ATI) DTI, DOST,DA-PHILMECH, SEA Kaunlaran Enablers (MESO) LGU, Micro Finance Institution, Palawan Cashew industry Council, GFIs, MFIs, Cashew Traders

PCIC

Regional Development Council, BIMP-EAGA, DA-DOLE Reintegration Program, SIKAT SAKA Program, Enablers National Convergence Initiative Convergence Program, ASEAN, Citizens Roadmap for Poverty Reduction (MACRO) Regional Physical Framework Plan, Palawan Council for Sustainable Development Page | 21

A comparison of the current VC map of cashew in Palawan and that of other more developed chains in other Asian countries show 6 major functions that are not present in the value chain in Palawan. These are in the areas of early stage of processing of the RCN, the grading system, the mechanism for trade at the farmer level and the processing and trade of CNSL. The more critical at this time would be the absence of the mechanism at the farmer level for the trade of the RCN as while farmers in other countries are organized and thus receive a much higher level of return – almost 100%, the farmers in Palawan trade as individuals and the study did not come across a group of farmers that traded as one.

At the industry level, the grading system and standardization comes in as second key concern as this would not only provide another venue for farmers to get a better return for their products but also prepare the industry for better competitiveness on a global standard. The 3rd area is on the value addition where two major difference occur, the first being the absence of value adding activities at the farmer level and 2nd the absence of value addition of other products aside from the nuts.

B. Value Chain Players

There are basically five (5) players in the cashew nut value chain. From the input supply to the market level, these are the farm input supplier, cashew producers, consolidators/traders, processors, wholesalers/retailers and buyers. Some of these players assume double or even more roles in the value chain such as being consolidators/processors, consolidator/processor/wholesaler any other mixture of roles.

Following is the profile of each of the player:

1. Cashew Input Suppliers

As a local initiative to develop the local cashew industry, five (5) Local Government Units of Palawan established the Rural Agricultural Centers (RAC). These were the municipalities of Roxas, Dumaran, San Vicente, El Nido and Taytay. The thrust of the center is to establish functional nurseries and produce quality cashew planting materials available to the farmers. The center is responsible for the provision of quality planting materials and technical assistance on production and post-handling and management. There were also unaccounted farmer managed nurseries. On top of the RACs, some LGUs in the southern, northern and island part of the Province had also managed nurseries to cater their local farmers.

Being the nodal center for cashew research and development, the DA’s Palawan Agricultural Experiment Station had also embarked into nursery establishment for promising cashew varieties as well as provided seeds and planting materials. The Station also assisted the small- scale nursery operators and LGUs establish their own nursery.

Farm input suppliers for fertilizers, pesticides and insecticides including other inputs such as farm implements were also existing in all part of the cashew producing municipalities. They supplied all the farm inputs requirements to all the LGU, PAES and farmer managed nurseries. The bulk of the transactions were confined in the two major commercial areas of the Province, Roxas and Puerto Princesa City.

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2. Cashew Producers

Cashew is generally a small holder/ farmer crop. There were more than 7,000 farmers engaged in cashew farming in the Province. Generally these farmers start harvesting when the cashew fruit drops to the ground, and collect the nuts. However, some farmers are not patient to allow nuts drop to the ground, they pluck them right from the trees or shaking the trees; resulting in immature and void nuts with low value. During harvesting, the nuts are picked mainly by women as often as practicable to avoid the seed coats becoming dark in color. The farmer supported by family members handpicks the nuts, sometimes they dry the nuts but the majority does not. The nuts are packed mainly in used jute bags and kept for the village-buying agent, traders and processors.

The top three (3) municipalities in terms of number of farmers were Roxas, Taytay and Puerto Princesa City (Figure 15). Northern Palawan had 7,535 hectares of cashew farms (51%) and produced 8,099MT of raw cashew nut or 61% of the total production of the province. It has 4,404 cashew farmers. The Southern Palawan which comprised of Puerto Princesa City and seven (7) municipalities had 2,092 hectares (14%) and produced 2,208MT (17%) of raw cashew nuts. There were 1,396 cashew farmers operating in this southern part of the province. The Island areas which comprised of 11 municipalities had higher yield than Southern Palawan recorded at 2,876 MT (22%) with 5,066 hectares (35%) area planted. In 2013, this part of the province was home to 1,472 farmers (31%).

Farmers spend one hour per week in their farms for cleaning and weeding especially during the flushing of cashew leaves which usually commences on the month of November. Farmers directly transport, sell their produce on public markets and terminals. Buyers offer the lowest price possible so oftentimes farmers can no longer gain profit.

Figure 15 Distribution of Cashew Farmers in Palawan

Others, 865

Roxas, 2498 Taytay, 814 Puerto Princesa Dumaran, 523

Linapacan, 430 El Nido, 369 Coron , 346

B Point, 321 Quezon, 202 San Vicente , 200

0 500 1000 1500 2000 2500 3000

Source: City Agriculture Office

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3. Assemblers/Traders

Assemblers or local traders are locally known as Local Buying Agents (LBAs). They comprised of licensed, buying agents who are generally large buyers, independent individual agents; agents employed by the processors; some work on a commission basis; and village merchants who generally work for a large LBA. LBAs are the closest to the farmers in the chain. Individual buying agents or small agents usually move from one village to the other to procure nuts from farmers, which they later sell to big agents (LBA) or to the agents at the market place.

There are over 78 consolidators based in Palawan with purchase volume of 268 MT in a year (Figure 16). Their primary function is to bring together the RCN purchased at the barangay level and sold to the municipal and city based processors. During peak season, around 241 metric tons are traded by cashew producers to traders/consolidators. Lean months only recorded 26.57 metric tons. There are consolidators/traders who come from Antipolo who buy cashew nuts from Palawan. The quantity of cashew nuts purchased by these consolidators/traders was about 1,200 MT per annum.

Figure 16 Volume of Traded RCN to Consolidator/Assembler Puerto Princesa City (MT)

300 250 200

150 100

50

0 Peak Season Lean Season Total

Roxas Puerto Princesa Total

Source: City Agriculture Office

There were also consolidators at the same time processors who were accounted for in the Province. Record shows that on average almost 338 metric tons of roasted cashew nuts were being processed by this type of agents. Aside from cashew farming, some farmers also went to consolidating of cashew nuts as a family economic enterprise.

Majority of the traders operating in the area has several buying strategies like on the spot buying, by appointment, advance payment basis, and on-station buying. Normally, agents practicing on the spot buying or go from house to house or from farm to farm to directly buy cashew nuts without prior appointment from cashew producers. Agent transaction though appointment are usually done through an agreement between the seller and the buyer at a specified volume and price. Agents also run through advance payment basis. In these strategies, the cashew producers get cash advance from the agents and consigns his products as payment for cash advance. Cashew growers are usually compelled to make cash advances to serve as their capital for clearing their cashew farms usually commencing in November. This

Page | 24 is the most common method practiced by growers in selling their produce. On station buying are currently done in the Province wherein farmers directly deliver their stocks on the agent’s buying station which are usually located in the homes. The common doers of this practice are the school children. Stations will buy any volume from less than 1 kg and above.

4. Cashew Processors

There are 100 registered cashew processors throughout Palawan while in Puerto Princesa City alone, there are 78 processors. Most of them are processing for the local market. Locally processed cashew is sold generally in the super markets, hotels, retail Shop and Pasalubong Centers. This figure does not include the unregistered groups which might as well be as many as those registered with DTI. The processors are either operating as purely processors or have done both forward and backward integration meaning some have already engaged in the business of trade of raw cashew nuts as well as sales and distribution of cashew kernel and other finished products. The 78 registered processors based in Puerto Princesa City utilize at least 338 MT of raw cashew nuts being processed into roasted, fried, brittle, ‘bande’, prunes and wine. Roasted nuts accounted for the biggest processed cashew products followed by fried salted nuts (Figure 17).

Figure 17 Consolidated Annual Volume of Cashew Raw Materials and Processed Products, Puerto Princesa City (MT)

Slice ,B Bande, 1.44 Fried Salted Nuts, 0.576 7.68

Roasted, 76.52

Source: City Agriculture Office

5. Wholesalers/Retailers

Most of the processors and consolidators/traders are also wholesalers and retailers. One example is Isla de Kasoy de Palawan that processes cashew nuts into dried or roasted nuts and various cashew delicacies and food products. In San Miguel, Puerto Princesa City, numerous shops and stores sell cashew nuts and other cashew products by wholesale and retail. In Metro Manila, almost all malls offer cashew nuts in snack size packs and other sizes. Major retailers and wholesalers in Puerto Princesa purchased about 268 metric tons of roasted cashew nuts and sold to institutional buyers within the City proper and Metro Manila. There are also retailers and wholesalers of roasted cashew nuts from Bataan, Laguna, Cebu and Ilo-Ilo which

Page | 25 purchased about 168 metric tons on average. However, there were also shipments of cashew nuts that were not recorded by the Philippine Ports Authority (PPA) in Palawan ports because a number of traders use small ferries (‘batil’) as medium of sea transport. A small ferry does not pass through the PPA. There were also informal traders who engaged in cashew trading whose transactions were unrecorded.

5. Institutional Buyers

The consumers are composed of individuals and institutional buyers like Magnolia, Selecta and other commercial institutions who are in the food industry that use the cashew kernels as an ingredient to the food products they manufacture. On top of the domestic market, cashew nuts from Palawan Province were also exported to US, Canada and Thailand. The Philippines is exporting shelled/peeled cashew, prepared/preserved nuts and cashew nuts mixed with sugar or honey. From 2007-2011, around 150,678 kg of nuts or dried cashew was exported valued at US$127,077.

C. Functions

The discussion in this section will focus on the key value chain player, the cashew farmer- producers. To be able to produce cashew nuts, the farmers have to undergo the following components of the production process, namely, production and propagation of planting materials, establishment of the cashew plantation, care and management of the cashew plantation/orchard, replanting or rejuvenation, harvesting, drying and storing of raw nuts, and marketing.

To increase production in terms of hectarage or number of trees and yield per tree, the ensuing vital issues/concerns that need to be addressed are:

. Limited source/supply of cashew planting materials of improved varieties . Limited access to technical assistance in terms of plantation maintenance (cleaning of plantation, etc.) . Lack of knowledge on how to combat occurrence of pests or termites . Insufficient knowledge of farmers on production and post-harvest technologies

For processors, achieving a high quality of cashew kernels is paramount. This will relate to the type of processing equipment (e.g. mechanized drying, splitting, etc.) and the skill of the workers doing the processing.

D. Horizontal Relationships and Supply Chain Governance

Farmers have no formal ties or coordination with consolidators/traders and processors. In fact, their business relationship is not bounded by a written agreement (e.g. Memorandum of Agreement). Negotiations are done verbally. Business transactions of the consolidators/traders, processors or wholesalers with institutional buyers are most likely covered by a written agreement.

At the farmer level, there is no existing cashew-related association or organized group.

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Information sharing among the players is highly exclusive among individual segment players. Within these players, there is limited information sharing on farming and processing technologies while price information is seldom shared among traders in cashew nuts. Collaboration on market information and supply-and-demand scenario are not usually extended and are confined to selective individuals as validated during the Stakeholders’ Consultation conducted by the City Agriculturist Office.

Competition among farmers was not observed. These players do not compete on best variety and on yield per tree from technology practice. This is showed with lack of investment in technology practice among cashew growers to increase yield levels per tree. Traders are more inclined to bring the buying price up if supply is limited and drop the market price during peak harvest season. More so, there is moderate level of competition among processors in producing best cashew product lines, pricing, and in packaging.

Trust is a social relationship based on cultural marketing norms. This is indicated on the level of assistance that each player extends to others. Field observations showed limited trust among cashew growers and traders, but moderate among processors. Limited trust among growers is indicated by minimal interaction in technology sharing. Moderate trust among processors is marked by sharing information on latest product trends and by having similar product lines. However, trust is seldom observed among traders. High competition on price is highly visible as each trader is on the “look out” on buying and selling prices in the cashew trading.

Despite these characteristics among players in the horizontal chain, the benefits from collective initiative are highly promising. These benefits can be observed in the economies of scale and increasing bargaining power among growers, upscaling the cashew value chain by improving market access of cashew nuts products.

E. Vertical Relationships

Vertical linkages relationship in supply governance structure depends on the characteristic of the players in each segment of the value chain. There are at least five (5) vertical linkages in the cashew trading to reach the end market or consumer. Major inter-firm vertical linkage path consists of nursery operators to cashew farmers, farmers to assemblers/consolidators, assemblers to processors, processors to wholesalers/retailers, wholesalers/retailers to end- market.

Trading flow of cashew showed the absence of fully integrated players along the value chain segments. Under the procurement mode or assessment of supply contract along the vertical value chain segments, weak linkage existed among key players. Procurement was governed by “suki” relationship in each segment players.

Information sharing is generally weak from nursery operators to growers and traders to processors. This is evidenced by lack of pre-hand information on promising cashew variety performance, and on the applications of appropriate cashew technologies. However, there is a moderate vertical linkage between growers to trader on price information base on putting up of current price information board in every trading place particularly in Puerto Princesa and Roxas. More so, processors to retailers share information on allowable retail margin mark-up.

Quality control is weak from nursery operators to growers due to the absence of accredited nurseries and proper seedling certification. Growers to traders exhibit moderate quality control

Page | 27 in the vertical transactional relations. Traders impose quality control based on visual inspection and sanctions quality with price premiums. Retailers to processors also showed strong quality linkages as retailers choose what products to purchase and sell to consumers based on over-all taste and packaging. Retailers often select best cashew products and packaging since higher price mark-up can be added with realizable income due to high marketability. Weak value added services is extended from input providers to growers, growers to traders, traders to processors. This is in the areas of knowledge, technology practices and logistics/transportation services. However, moderate services are extended to retailers on the knowledge of the cashew products, and on delivery and distribution of orders from retailers. As most processors are also retailers, they control and extend the flow knowledge on saleable products to other retailers.

F. Price and Cost Structure

Income and Profits

During the first three years of production, negative income will be experienced. This is due to expenses incurred in crop establishment on the first year and meanwhile cashew is not fruiting but the production is not enough to cover the expenses. Tree starts fruiting on the third year, be it sexually propagated. Price is assumed at Php35.00 per kilo based on the buying price for promising varieties (Table 5).

Intercropping annual crops or cash crops is recommended within the first 5 years for added income. However, choose crops that will be productive under shade like pineapple, ubi and ginger if area in between rows be utilized. Pineapple performs best if fertilization thrice a year will be strictly enforced. Earning above is based on nuts production alone since cashew apple is not fully developed to optimize its commercial value.

Table 5 Cost and Return for One Hectare Cashew Production Nut Nut Gross Expenses Estimated Production Production Income Per year Net Income Year Per tree Per hectare (Php) (Php) (Php) (kg.) (kg.) Php35.00/kg

1 0 0 0 10,181.00 -10,181.00 2 0 0 0 9,800.00 -9,800.00 3 1 156 5,460.00 11,224.00 -5,764.00 4 3 468 16,380.00 11,340.00 5,040.00 5 7 1,092 38,220.00 16,930.00 21,290.00 6 9 1,404 49,140.00 16,960.00 32,180.00 7 10 1,560 54,600.00 17,110.00 37,490.00 8 11 1,716 60,060.00 18,110.00 41,950.00 9 12 1,872 65,520.00 19,410.00 46,110.00 10 12 1,872 65,520.00 19,560.00 45,960.00 Source: MIMAROPA Roadmap

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Cost Structure of Cashew Seed at the Farmer Level

Based on a recent (March 2014) interview with a cashew farmer in Brgy. San Nicolas, Roxas, his average annual gross income was PhP15,180 and the net income was PhP10,680 per hectare. One hectare is assumed to have 100 cashew bearing trees. The farmgate price of his produce (cashew nut with shell) was PhP12/kg. which is almost equal to the 2003 farmgate price. Refer to Annex 3 for more details (Table 6).

Table 6 Cost structure – Farm Level

Cost Structure of Cashew Seed at the Processors Level

In an interview with one of the cashew processor in San Miguel Roxas, Palawan, his minimum gross profit was PhP135/kg. His selling price for a one kilo cashew nuts ranged between Php300-Php400 per kilogram. In terms of expenses, 39% went to the cost of the raw materials, 59% for the cost of processing and 2 percent for the labelling/packaging (Table 7)

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Table 7 Cost structure – Processor Level

From the net base value of PhP8per kg. at the farmer level, the barangay level consolidators add at least 25% value to the cashew seed when it reaches the Roxas-based traders/consolidators (Figure 18). In turn, the Roxas-based traders/consolidators mostly functioning also as processors increase the value of the cashew seed sharply to 180% taking into consideration the cost of processing, packaging and distribution. The cashew seed is processed into whole nut, split, brittle and tart. Upon reaching the Puerto Princesa and/or Metro Manila-based wholesalers/retailers, the value of the cashew nut products add up to another minimum of 328% inclusive of transhipment, repacking and distribution costs. Figure 8 shows the pricing structure of the cashew nut with shell and how its increments add value to the financial position each value chain player.

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Figure 18 Value addition of Cashew Nut with Shell to Value Chain Players

Relative Financial Position of VC Players

The data in figure 19 shows how much share each chain player gets per kilogram of cashew sold in the local market. The figures clearly reflects the main problem that besets the industry which is the farmers are only getting 5% of the share in income generated while the retailers are cornering 53% of the income share. This big disparity in the share of income is the primary reason why the production level of cashew has been going down these past years, with a decline of 83% in production level between 2005 and 2008. It should be taken into consideration that many of big wholesales-retailers are either processors themselves and in many instances have also business tie-up and or business activities at the sourcing level. This is very much the case for the trade and processing of the cashew kernel as many of the small processors of other cashew products (cashew coated on sugar, brittle and the likes) are smaller processors that get their supply of cashew kernel from the big traders that perform processing and retail of cashew kernel.

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Figure 19 Value Added for Production of Cashew Nuts

1000

221 347.5

152.5 88 100 33.76 79 53 Cost/Expenses 56 32 28 Income Value Added (%) 14.24 10 11 8 5 3

1 Farmer Assembler Consolidator Processor Retailer

.

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Section 4

MARKET ANALYSIS AND OPPORTUNITIES

Cashew is increasingly becoming the next important high-value crop in the Philippines as demand for the nuts as well as the apple is rising every day.

In the global arena, demand for cashew nuts has been severely hit due to the high price of the commodity and problems in several countries. For instance, consumption in the US and Europe has declined due to economic problems. On the reverse, a revival in demand is expected with prices coming down. Most of the competing nuts, except almonds, are currently costlier than cashew.4

The Philippines particularly Palawan will not be affected by the global scenario since the country’s cashew export volumes are very low.

A. Market Trends

World Export and Import Markets

The largest exporter of raw cashew nuts are found in Africa with Ivory Coast dominating the trade while the major exporters of cashew kernels are from Asia with Vietnam and India accounting for almost 50% of the trade (Figure 20-21).

Fig 20: Main exporters of raw cashew nuts (2001-2011) Fig 21: Main exporters of Cashew Kernel (2001-2011)

4http://www.financialexpress.com/news/global-demand-for-cashew-nuts-hit-due-to-high-prices/936112

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The major markets for cashew kernel are the US with 35% share followed by the Netherlands with 14% and Germany accounting for 8% of total cashew imports (Figure 22). The Cashew kernels sold in the United States are ranked as either the second or third most expensive nut traded. In the US market, the Macadamia nuts are priced higher while the prices for Pecan nuts would also be higher if the harvest is poor. The Cashew nuts hold a regular market in the United States and it used in great variety.

Figure 22 2011 Global importers of Cashew Kernel

Australia Other Other Asia Netherlands 4% 14% 2% 8% Japan China Germany 2% 3% 8% Arab Emirates Other Europe 5% 3% Canada 3% Other EU/EFTA 13%

US 35%

Source: ITC Trade Map, 2012

The cashew kernel market in Europe is for large white cashew kernel mainly used for snack foods. The Netherlands accounts for 36% of total cashew imports in the EU followed by Germany (21%) and by the UK (10%). The data in figure 23 show that most of the importing countries experienced a decline in their imports of the cashew kernel after 2007 except for Germany and Italy.

Among the EU importers, the Netherlands and the UK are the most promising markets for cashew kernel and both countries source their supply from developing countries. These two countries together with France have Fair Trade and Organic markets for cashew kernel with France as the major market for Fair Trade among the three. Germany on the other hand holds the biggest market for organic cashew kernels but sources only 20% of its supply from developing countries. There are 3 main cashew products that are traded in the international market, these are the raw nuts, cashew kernels and cashew nut shell liquid (CNSL). A fourth product - the cashew apple is generally processed and consumed locally.

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Figure 23 Cashew imports of EU 2001 to 2011

Source: ITC Trade Map, 2012

Prices vary widely from place to place, from season to season, and even within the same season. Table 8 above shows RCN production, producer prices, FOB, export prices and the average percentage of FOB prices obtained by farmers. The producer price is a function of many factors, the most important of which are international cashew supply and demand dynamics, domestic market conditions, the efficacy of the regulatory mechanism and the tax/levy structure for the agricultural sector. It can be noted from Table 8 that the highest average farm gate producer price obtained so far was in 2009. During the harvesting season, marketing companies liaise with private sector carting and haulage providers to ensure that the RCN purchased are transported to ports.

Table 8 World Farm Gate Producer Prices and Export Prices F0B for raw Cashew nuts (2003-2009)

Range of Range of FOB, Average percentage producer prices at Year (US$ /t) of FOB price obtained the farm gate (Export Price) by farmers (Ghana Cedi (GC)/kg)

2003 N/A N/A N/A

2004 0.20-0.30 600-700 69.2

2005 0.25-0.60 700-800 71.1

2006 0.30-0.45 500-600 69.5 2007 0.25-0.40 550-600 64.0 2008 0.35-0.60 700-900 54.5

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2009 0.40-0.60 500-600 63.7 Source: Cashew Handbook 2014

Philippine Export Markets

Although the domestic market for cashew kernels is steadily growing, it is dominated by a small number of traders. The total value of Philippine exports for 2011 has been US$ 175,651 which is 62% lower than 2010 valued at US$ 472,602. The largest exporting countries in terms of value in 2011 have been Viet Nam, US, Canada and Thailand with 150,859 kilograms. These countries’ share in world exports in 2011 has been 85% which indicates that the world demand for this product is concentrated. The Philippines is exporting shelled/peeled cashew, prepared/preserved nuts and cashew nuts mixed with sugar or honey (Table 9). From 2007- 2011, around 150,678 kg of nuts or dried cashew was exported valued at US$ 127,077. A fluctuated growth of exportation has been observed over the last five years (2007-2011).

Table 9 Philippine Exports Cashew Products

Cashew Export Products 2007 2008 2009 2010 2011

Nuts/Fresh or Dried/In

Shell Volume (kg) 47,500 15,014 - 540,650 150,226 Value(US $ FOB) 26,655 8,342 - 427,390 173,000

Prepared or Preserved

Volume (kg) 2,480 9,465 1,716 6,658 633 Value(US $ FOB) 14,382 50,493 6,209 45,212 2,651 TOTAL

Volume (kg) 49,980 24,479 1,716 547,308 150,859 Value(US $ FOB) 41,037 58,835 6,209 472,602 175,651

Source: National Statistics Office

The Philippines had exported only an average of 0.62% of its average annual production (740 MT) in the form of fresh or dried cashew nuts (Figure 24). The export volume drastically dropped between 2007 and 2009 and picked up in 2010. Export performance of the Philippines can be linked to the country’s cashew production performance.

Demand for agricultural exports including cashew is increasing, but local producers are unable to meet the volume of raw materials for export. Export orders including cashew nuts had risen substantially compared to previous months, and prices on the world market had also gone up, according to the Viet Nam Fruit and Vegetable Association (VFVA).

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Figure 24 Philippine Exports: Cashew Nuts

1600 1476 1400

1200 1074 1000

800

600 557 569 400 419 313 256 200 201 201 175 151 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: National Statistics Office

Philippine Cashew Importation

In spite of the local production of cashew in the country, the Philippines still import cashew from other countries in the form of shelled cashew, cashew nuts (prepared/preserved), and nuts mixed with sugar or honey as confectionery. Shelled cashews are sourced from three producing countries from 2007- 2011. The top suppliers of shelled or peeled cashew for the last 5 years are Vietnam, Singapore and Brazil. In 2011, around 298,286 kg was imported nuts/fresh or dried shell valued at US$1.5 Million (Table 10). Importation over the last five years (2007-2011) has been very erratic. In 2009, there was a highest recorded importation of fresh and dried shell (1,008,026 kg). In terms of prepared and preserved nuts, the country imported about 3,323 kg valued at US$14,909m.The Philippine imported cashew products over five year period was recorded at 579,950 metric tons on average valued at US$ 1,621,596.

Table 10 Philippine Imports Cashew Products Nuts/Fresh or 2007 2008 2009 2010 2011 Dried/In Shell

Volume (kg) 404,400 533,816 1,008,026 540,589 298,286

Value 965,208 1,972,287 1,699,192 1,716,885 1,517,867 (US $ FOB)

Prepared or Preserved Volume (kg) 23,312 8,231 77,520 2,251 3,323

Value 55,807 22,684 135,335 7,356 14,909 (US $ FOB) TOTAL

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Volume (kg) 427,712 542,047 1,085,546 542,840 301,609 Value 1,021,015 1,994,971 1,834,527 1,724,241 1,532,776 Source: National Statistics Office

The level of local production of cashew was insufficient to address local demand. To fill in the gap, the country imported cashew nuts in either fresh or dried form. Figure 25 reflects the volume of cashew nuts the Philippines had imported from other cashew producing countries. From 2003 to 2009, the volume of imported cashew increased steadily but dropped in 2010 up to 20115. The drop can be attributed to the big increase in local production that started in 2010.

Figure 25 Philippine Importation: Cashew Nuts, Fresh or Dried (MT)

1600 1400 1200 1000 800 600 400 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Bureau of Plant and Industry

Domestic Demand

The total supply of cashew in the country comes from domestic production and the various imports coming from different countries abroad. The highest production was in 2013 with 14,629 metric tons produced a drastic increase from 13,254 metric tons in 2012. But for the last four years (2010-2013), production slightly stabilized, growing at a rate of 2.9% only.

Meanwhile, total supply of cashew is not increasing vigorously over five year period which implies that the country has to import abroad to augment domestic production.

Domestic demand for cashew comprises the amount that goes to food consumption, processing, seeds, and feeds and waste. As shown in the BAS Supply and Utilization Account of cashew in the Philippines, per capita food consumption of cashew remains constant since 2010 at 0.14 kg per year (Table 11). Processed cashew exhibited an increasing trend from 2010 to 2013 at 2.9%. The same trend is observed for cashew used as seeds. With the increasing demand for food and processing, it is imperative to expand the cashew industry and focus investment on the value chain through efficient infrastructure and marketing assistance.

5UN Data

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Table 11 Supply and Utilization accounts of cashew, Philippines, 2006-2010 S U P P L Y U T I L I Z A T I O N TOTAL NET PER PER DISPOSABL YEAR GROSS FEEDS & PROCESSIN CAPITA CAPITA PRODUCTION IMPORTS EXPORTS SEEDS E SUPPLY WASTE G (grams / (kg/yr) day) 2010 13,468 209 13,677 541 112 66 33 12,925 0.14 0.38 0.14 13,037 2011 13,339 60 13,399 150 113 66 33 0.38 0.14 13,230 2012 13,254 196 13,450 6 113 67 34 0.38 2013 14,629 28 14,657 78 115 73 36 14,335 0.15 0.41 Source: Bureau of Agricultural Statistics

Local Market

The largest local market for dried or roasted cashew nut, whether whole or split, is Metro Manila. The flow of the cashew shows that 65%-75% of the raw cashew nuts and kernel go to Manila for further processing or distribution and retail. The local market in Palawan continues to rise based on the increasing number of tourist arrival in the province which is pegged to reach more than 600,000 in 2014. Cashew is one of the major items purchased as pasalubong by the tourists in the area.

This local consumption is complemented by the increasing volume requirement of the major processors in the country. This is clearly seen in the dramatic surge in import volume of cashew kernel.

A significant volume of raw nuts was shipped to Metro Manila and were processed in Antipolo City. Consolidators/traders from Antipolo purchased annually an average of 1,200 MT of cashew nuts in Palawan for utilization of Antipolo processors.

Figure 26 shows the distribution channels for cashew and raw and processed kernels and the prices they received at each market level. The growers received P15 to P35 per kg of raw nut sold to local processors via retailer-agents. Local processors pay P35-50 to P60-70 per kg for raw nut to retail agents. Some local cashew producers directly sold their raw nuts to processors in Antipolo and wholesalers. Exported cashew products were raw nut, fresh and dried and processed and preserved if exported, raw nut, either fresh or dried, fetched a price of at P57.50 kg or US$1.15/kg. Meanwhile, processed or preserved cashew nut commanded a price of P209.50/kg or US$2.19/kg.

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Figure 26 Distribution Channel For Raw And Processed Cashew And Kernels

RETAIL AGENTS Raw Nut – Php35-40kg* Php60-70kg**

Note: *Peak season (Apr - Jun) LOCAL PROCESSORS **Lean season (Jul – Dec) Split – Php120-300/kg* 220-300/kg**

CONSUMER

CASHEW FARMERS Split – Php 280-300/kg*

Raw Nut – Php15-35/kg* 350-500/kg** 35-50/kg* ANTIPOLO CITY PROCESSORS Whole nut-350-600/kg* Raw Nut – Php 40-55/kg* 480-650/kg ** Split – 140-245/kg**

WHOLESALERS

Raw Nut, Fresh & Dried

Php57.50/kg US 1.15/kg Processed/Preserve

Php 209.50/kg or EXPORT US $ 4.19/kg

B. Price Trends

Farm Gate Price

Figure 27 illustrates the ups and downs of the cashew nuts’ annual farmgate price in a four-year period (2010 – 2013)6. In terms of cashew nut without apple and with shell on a national account, the average annual farmgate was PhP27.75, with PhP29.29 in 2012 as the highest and PhP25.42 in 2010 as the lowest. For cashew nut without shell, the highest increase in price was Php364.37 in 2012 while the lowest price was Php224.84 in 2010.

While the volume of supply has been decreasing and the volume of demand has been increasing, prices tend to increase. However in the case of the cashew farmers, this situation is

6Bureau of Agricultural Statistics

Page | 40 not true as the farm gate price for RCN in 2011 was P24/kg while in 2013 this was placed at P20.37/kg. This situation clearly shows the current reality in the cashew industry in Palawan and that the farmers are excluded from the value chain.

It is important to take note of the local prices vis-à-vis the world market prices. Domestic prices of cashew kernel are at times much higher than world market prices and as commented by the processors based in Antipolo, the cashew from Vietnam are cheaper than the ones sourced from Palawan. This is something that should be seriously looked into as Vietnam and other Asian countries increase their production, the local cashew industry might find itself very uncompetitive against the cashew from other countries and may lose the industrial markets based outside of the province.

On the other hand, the farm gate prices for Raw Cashew Nuts are very much depressed and would only hasted the decline of the cashew farms as farmers continue to abandon their cashew trees or shift to other more economically rewarding products.

Figure 27 Farm gate Price of Cashew Nut with Shell

Source: Bureau of Agricultural Statistics

The average farm gate prices for RCN is around P 37.5 however in Palawan the highest buying price at the farm level is only half of this at P16/ kg (Table 12). The BAS data even shows a slight decline in 2013 from Php29.29 in 2012 to 29.04 in 2013. This clearly shows that the farmers do not get the real value of their product and whatever is the development in the industry, they seem to be excluded as evidenced by the static level of the farm gate prices of RCN. This is also the primary reason why farmers have not given proper care and maintenance to their trees which attributes for the drastic decline in area planted and production-productivity of cashew in Palawan.

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The comparison of global prices for Cashew Kernel again supports this situation where even as the local prices tend to be at par or even higher than world market prices, this does not translate to better prices for the farmers. As will be shown in the succeeding section of this study, the farmers only get 5% of the economic benefits gained from the cashew business.

Table 12 Comparative analysis prices of RCN and Cashew Kernel Palawan vs. World

Cashew Nuts Philippines World Market Low High Low High (Php/kg) (Php/kg) (Php/kg) (Php/kg) Farm Gate Prices Raw Php16 Php30 Php35 Php40 Cashew Nut Market Price Cashew P hp400 Php500 Php352 Php392 Kernel – Wholesale

Wholesaler, Retailer and Consumer Prices

There are more than twenty (20) wholesalers of cashew nuts listed online (at http://www.alibaba.com/showroom/wholesale-cashew-nuts.html) selling cashew nuts in various froms such as raw, roasted, fried and delicacies. Minimum order ranges from 1 kilogram to as high as 1,000 kilograms. Wholesale prices range from PhP250 to PhP300 /kg. and in foreign currency, from US$9.80 to 20/kg.

In ‘pasalubong’ centers in Puerto Princesa City, retails prices of dried nuts ranged from PhP360/kg. to PhP500/kg. Packaging varies from a 100 gram-pack, 200 grams, 250 grams, 500 grams or a 1 kilo pack.

The Office of the Municipal Agriculture in Roxas gave the following prices:

. Raw nuts - PhP30 per kg. . Roasted whole cashew nuts - PhP400 to 500 per kg.

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Section 5

Section SUPPORT SERVICES

These support5 services, both financial and non-financial, are geared towards the development of the cashew farmer-producers and processors to enable them to compete in the market in terms of volume and quality of products as well as uplift them from their relatively low economic status.

A. Financial Services

The Province of Palawan City of Puerto Princesa is home to several banking institutions, both public and private. Most of these banks adopt a proactive perspective towards achieving sustainable development on all fronts. These banks play a major role in supporting the cashew industry through sustained expansion of loans to priority sectors alongside efficient operations management, reliable customer service, and professional development. LANDBANK is by far the largest formal credit institution of the rural communities in the province. Its credit delivery system is able to penetrate a substantial percentage of the province’s total number of municipalities reaching the small-holder cashew producers, traders and processor.

Table 13 List of Financial Service Providers

Financial Service Providers Services

Land Bank of the Philippines Loan packages for micro- small and medium industries may have included cashew nuts in their loan portfolio.

Sikat Saka Program Implemented jointly by DA and the Land Bank of the Philippines to provide direct assistance to small cashew producers

Development Bank of the Philippines Loan packages for micro- small and medium industries may have included cashew nuts in their loan portfolio.

Cashew Traders Traders can provide financing as long as he can be assured of harvests and repayment. • financing is either in cash or in kind; • charges no interest but buys at a lower price

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Financial Service Providers Services

Alion Kapit Bisig SEA-Kuanlaran Provide micro finance and assist Association players particularly farmers and processors in the cashew industry

Department of Trade and Industry Provides cashew processors access to (DTI) financial support Department of Science and Offers processors access to non- Technology (DOST) interest bearing loans for cashew processing equipment Microfinance Institutions (MFIs) Provide financing program and institution capability building activities for farmers association and people’s organization to promote access and financial services

B. Non-Financial Services

The following institutions are continuously extending non-financial services to the cashew industry in Palawan:

Table 14 List of Non-Financial Service Providers

Financial Service Providers Services/Contribution to the Cashew Industry Western Philippines University (WPU)  Developed 32 product lines from cashew and one of the initiators of the roasted cashew whole nut industry in Palawan. It was nominated by the Southern Tagalog Regional Research and Development Consortium (STARRDEC) to be the Center of Excellence for Cashew Research and Development.  Invented eight agricultural machinery utility models which included the cashew sheller, cassava chipper and multi-purpose dryer Department of Agriculture-Regional  Provided access to market Field Unit IV-B information and development services and facilitate provision of

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Financial Service Providers Services/Contribution to the Cashew Industry production support services, credit facilitation, market infrastructure and access to industry information Bureau of Agricultural Research  Conducted location-specific research cum extension that deals with the improved cashew farming systems Department of Agriculture (DA) –  As a center for research and Palawan Agricultural Experimental development in the province, the Station (PAES station is the foundation of the cashew industry, owing to its culture of the premier varieties.  Working for the rehabilitation of cashew farms through its several high yielding cashew varieties, and for the improvement of farm productivity through integrated farming system  Prime source of several high yielding or promising cashew  Provide technical assistance and free seedlings  Genebank Collection and Maintenance

Department of Trade and Industry  Provides cashew processors the (DTI) needed access to skills upgrading and also connects them to the market through trade fairs and matching.  Through its OTOP-Philippines, the DTI TOP-Philippines offers a comprehensive assistance package to the micro, small, and medium enterprises (MSMEs) to manufacture, offer, and market distinctive products or services through the use of indigenous raw materials and local skills and talents.  Offer business counselling, appropriate technologies, skills and entrepreneurial training, marketing, and product designs and development. Philippine Center for Postharvest  Generates, extends and Development and Mechanization commercializes appropriate

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Financial Service Providers Services/Contribution to the Cashew Industry (PHILMECH) mechanization and postproduction technologies and practices to reduce losses Agricultural Training Institute  Leads in the provision of extension support services including the preparation of information and education materials and the conduct of Farmers' field Schools and other training courses to improve cashew production, processing and post- harvest handling and management Philippine Crop Insurance  Provides insurance protection to the Corporation (PCIC) province cashew producers particularly the subsistence ones Bureau of Agricultural Statistics  Collects, compiles and releases (BAS) official statistics related to production, area, no. of bearing trees, and industry cost and return analysis Department of Science and  Set up of livelihood/processing Technology centers and Shared Service Facilities (SSF) for DTI and Setup (DOST) Local Government Units  Distributes seedlings for farmers  Provides Technical Assistance  Facilitates access to finance and grants Palawan Cashew Industry Council  Coordinate and integrate ( Department of Agriculture (DA), implementation of the cashew Department of Trade and Industry (DTI), development program Department of Science and Technology  Recommend actions and (DOST), the local government unit, the suggestions to open up the many Palawan Chamber of Commerce & issues and concerns of the cashew Industry Inc., the Palawan Food nuts industry. Processors Association and a farmer sector representative)

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Section 6

ENABLING ENVIRONMENT

A. Formal Rules. Regulations and Policies

In an effort to promote the productivity and competitiveness of the cashew industry, several local and national enabling policies were identified. Some of these include the following: a) Creation of the Palawan Cashew Industry Council; b) Inclusion of cashew as the number 8 sub-network under the Philippine Research, Development and Extension agenda of the DA- Bureau of Agricultural Research; and c) Issuance the Philippine National Standards for Cashew kernel (PNS/BAFPS 59:2008)

In addition, there are relevant policies at the local, regional, national and sub-regional level that are currently adopted and practiced that stepped-up the competitiveness of the industry are as follows:

Authority Description of Relevant Policy

International Standard Organization  Provide accreditations and quality (www.iso.org) assurance programs and risk management strategies including food safety management and packaging The Association of Southeast Asian  Target to sign by 2015 the Regional Nations (ASEAN) Comprehensive Economic Partnership (RCEP), a free trade agreement that is expected to further open up new and bigger markets for local businesses. On the other hand, this will increase competition among cashew producing countries in the ASEAN region. This implies more than ever the need to improve competitiveness both in terms of quality and volume.

Brunei Darussalam-Indonesia-Malaysia-  Intensified its efforts to develop the Philippines-East ASEAN Growth Area BIMP-EAGA region agriculture and (BIMP-EAGA) Forged Initiatives fishery production through joint-

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venture agreements and by strengthening food industry research and development in order to achieve food self-sufficiency.  Proposed food and logistic corridor

Center for International Trade  An export marketing arm of the DTI Expositions and Missions (CITEM) committed to develop and nurture globally competitive small and medium scale enterprises (SMEs), exporters and implements an integrated approach to export marketing in partnership with the government and private sector

CITIZENS’ ROADMAP FOR POVERTY  Adopt a strategic, coherent and REDUCTION AND ACHIEVING THE activist trade and industrial policy. MDGs: Recommendations for the 2010- The government must establish an 2016 Medium-Term Philippine industrial development blueprint that Development Plan vertically integrates industries engaged in raw material extraction with those engaged in the production of finished consumer goods in order to scale the entire value chain, that horizontally integrates firms into strong industrial clusters, and that pragmatically maximizes trade opportunities. This is vis-à-vis a trade policy that promotes domestic markets, strengthen national industries, and create more jobs and welfare. This can be accomplished by adopting industrial policy and state driven integration of industries through state owned enterprises (SOEs) or state supported industries. National Convergence Initiatives (NCI)  In a joint Memorandum Circular No. 1, Series 2010 had adopted the watershed and ecosystem management approach to facilitate sustainable development and shall focus their interventions for small farmers, fisherfolks and marginalized upland dwellers.The objective of the proposed partnership is to develop and implement working coordination and collaboration models on Local Economic Development especially

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in identified LGU sites which will ultimately contribute to the attainment of sustainable economies in these areas

Regional Development Council  Establish “technology zone” in (MIMAROPA Regional Development various parts of the region to offer Plan 2011-2016) incentives for growth and investments to business within the identified industry clusters  Provide the businesses/industries with off-site infrastructure support facilities and value-adding resource- related services  Develop agri-tourism enterprises and ancilliary/supplemental businesses in existing and potential eco-tourism sites/areas  Strengthen existing and emerging MSMEs through stimulus packages, tax incentives, financial assistance, enterprise management training, market access and promotion and service/product design and delivery  Increase productivity of the identified industry clusters through the adaption of both indigenous and modern technologies, port-harvest facilities and processing centers and implementing support infrastructure and facilities Department of Agriculture-Department of  Formalized a partnership which Labor and Employment (DA-DOLE) seeks to empower Overseas Filipino Reintegration Program Workers (OFWs) and enable them to undertake agribusiness enterprises as part of the government’s Reintegration Program. This effort of the government is to attract returning OFWs to invest in agri-fishery businesses to recognize their invaluable contribution to the country’s economic status. Department of Agriculture-Regional  Massive distribution of high yielding Field Unit IV-B planting materials to farmers in expansion areas  Continue to conduct research, development and extension activities focussed on the improvement of the cultural

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management practices. The Bureau of Postharvest Research  Conducted benchmark studies on and Extension (BPRE) technical and socioeconomic aspects of the cashew post- production industry. Information generated served as basis for developing appropriate interventions toward the improvement of the post- production sector  Developed an improved and cost- efficient mechanization and post- harvest facilities that can reduce post harvest losses  Established a viable model of a cashew integrated processing enterprise as a means to strengthening linkages between the farmers and the market. Department of Trade and Industry (DTI)  Developed the Philippine National Standards for Cashew kernel (PNS/BAFPS 59:2008)  Harmonized with Codex requirements in Heavy Metals, Pesticide Residues and Hygiene.  Collaborated and provided direct technical assistance to processor and producers in marketing ventures and in the conduct of market analysis, identification and matching  Through its OTOP-Philippines, offered a comprehensive assistance package to the micro, small, and medium enterprises (MSMEs) Bureau of Agriculture Fishery Product  Develop product standards for Standards (BAFPS) cashew kernel which aims to provide common understanding on the scope, definition, minimum requirements, classification, size classification, tolerances, packaging, sampling, marking and labelling, contaminants and hygiene  Harmonize Codex requirements in Heavy Metals, Pesticide Residues and Hygiene. Bureau of Food and  Certified that the cashew products Drugs (BFAD) are safe for consumers Philippine Crop Insurance Corporation  Provides insurance protection to the (PCIC) province cashew producers

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particularly the subsistence ones Relevant Laws and Policies Food Safety Act of 2012  Outline measures to strengthen the Food Safety Regulatory System in the country to protect consumer health and facilitate market access of foods and for other purposes

B. Informal Rules and Socio-cultural Norms

There are traditions and perceptions that hinder value chain upgrading and competitiveness of the cashew industry.

1. There is a perception among farmers and processors that traders dominate the cashew nuts value chain. Big traders dictate the price at the farm and processing level. Based on the FGD and KII conducted, one big trader in Roxas, Palawan could influence the price of cashew nuts. For instance, when this trader started buying cashew, the price increases.

2. Despite the economic significance of cashew industry in the local and national economy, it was observed that farmers regard cashew as a traditional crop. Production efficiency and improvement is not being observed despite various information and extension campaigns given. Incentive for value upgrading despite the opportunity is not taken advantage of.

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Section 7

CONSTRAINST AND OPPORTUNITIES

This section discusses the constraints that affect the competitiveness of the cashew nut and spells out opportunities and potential interventions/strategies will improve the cashew nut in terms of supply volume and sustainability, skills of the cashew producers and processors, product quality, technology and marketing.

The table below enumerates various constraints and opportunities for each of the functions.

Table 15 Constraints/Opportunities and Potential Intervention Strategy

Potential Intervention Constraints Opportunities Strategy

INPUT PROVISION/SUPPLY Farmers have limited access Existence of DA-PAES and Enterprise approach to to improved varieties (planting LGU nurseries as source of establishment of barangay- material) quality planting materials for level seedling nursery bud-wood gardens managed by farmer/ farmer group Resistance of farmers to shift Presence of technology from traditional cultivar to demonstration areas at the improved varieties farmer level showcasing cashew promising technology AGRI-PRODUCTION Sharp decrease in yield Cashew-based farming Integrated farming system system has been well- technology (Modulized to Majority of cashew trees are developed and piloted provide the optimum “crop above 30 years old. combination” on a per hectare Vulnerable to pests (e.g. Presence of Agriculture SCUs basis) termite) as learning centers and ATI funds for training Tap / outsource chemical engineering technology center CNSL as having anti-termite for development of CNSL properties product/s CONSOLIDATOR Limited purchasing capital to Availability of low interest Linkage / access to financial buy in bulk and increase financial assistance from facility with friendlier terms for volume purchase Government Financing seasonal crop producers Institutions (GFIs)

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PROCESSING For every 1 kilo cashew nut, There is existing technology to Conduct FS and Market Study there is 3 kilos shell waste process cashew nut shell to to validate initial findings without proper disposal (56.6 industrial products. metric ton)

Unutilized cashew shell for Presence of Western Conduct product development other economic uses Philippine University to teach program on how to process cashew shells and DOST for support facility

Importation of processed Unsaturated domestic market Policy environment which cashew nuts (e.g. from for cashew nuts due to protects the internal cashew Vietnam) growing hotels, pasalubong processing industry centers and restaurants

Lack of skilled workers in the Basic equipment are already Link with IREAP for Enterprise use of decorticators and poor downloaded to community- Development program for processing system level processors processors

Underutilized/unutilized Tap PAES and WPU for FS for facility upgrade processing equipment and proper trial production runs facility (e.g. manual sheller for (e.g. Time & Motion runs) for whole nuts; coal-fueled dryer) downloaded equipment to improve usage skills

Lack / absence of crucial Availability of improved Conduct feasibility study on processing equipment (e.g. processing technology than the potential of upgraded mechanical dryer) can bring down cost. Buying processing facility price from farmer may also improve

High processing cost (labor Presence of post-harvest intensive) processing technology from the PHILMECH and WPU

DOST also set-up village level processing facility

Quality of cashew nut not at Establish a product standard par with outputs from for cashew (Raw seed level & mechanized nuts (e.g. high nuts level) moisture content; lower % whole nuts; low shelf-life)

Feedback from consumers/clients of a Puerto Princesa-based processor : Cashew from West Coast are

Page | 53 better in quality and taste MARKETING Importation of cashew nut Existing market at institutional Improve productivity of from Vietnam level (better collaboration with cashew at farm level (e.g. farmer-processor groups) variety, cultural practices, etc.) increase cashew supply to serve gap

Upgrade cashew nut as a product (eating quality, shelf- life, reliability of supply, competitive pricing, etc.)

Main bridge to Taradungan PRDP Program and DA- Link with PRDP IBuild damaged and unpassable Regular FMR Program (only motorcycles)

Several access roads to main highways are not all-weather roads contribute to increased logistical costs

Unreliable network signals for Presence of DTI to provide fast communication from updated price information and buyers to cashew production DA-AMAD for market areas (affects efficiency of matching product delivery) INTERFIRM RELATIONSHIPS/SUPPLY CHAIN GOVERNANCE There is no existing cashew- Various organizations can related association or provide organizational organized group at the development support farmers level

Farmers have no formal ties Presence of DA-AMAD or coordination with end regular market matching buyers (consolidators / program processors)

There is a localized but minimal coordination among Processors & Manufacturers through RPMA (Roxas Processors & Manufacturers Association) Priority constraints and corresponding strategies and approaches focus on input supply, production and processing that will provide cashew farmers reliable supply of cashew seedlings, better production practices and processing technology which will eventually make them competitive players in the cashew nut value chain and improve their socio-economic condition. Improved processing methods and equipment are desired to increase product quality and competitiveness in the market.

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Section 8

COMPETITIVENESS DIRECTIONS

A. Competitiveness Vision

During the stakeholders workshop, industry players collectively determined the directions they want to pursue for the next six (6) years in terms of product formats, markets, competitiveness, among others.

Figure 28 shows the cashew industry stakeholders’ illustrations of their competitiveness vision.

The stakeholders envisioned the cashew industry to be globally competitive and sustainable in the Province of Palawan and Puerto Princesa City with empowered cashew growers and processors catering to the local and international market.

As the largest cashew producing area in the country, the stakeholders look forward to achieve an efficient cashew value chain in order to:

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 Sustain the increase production of quality cashew in available expansion areas;  Increase productivity and profitability of cashew farmers and processors;  Provide quality support services; and  Empower cashew growers and processors.

B. Priority Constraints and Interventions

The succeeding table is a listing of the priority constraints and interventions how these interventions will address these constraints.

During the Validation of VCA data on November 28, 2014 at Asturias Hotel, Puerto Princesa City, the following constraints in the value chain were prioritized and rank which when addressed by the right interventions, would sustainably yield the highest impact and outreach among the target groups or players in the cashew value chain. Concerned location or areas in the Province of Palawan and Puerto Princesa were also identified; as to where these constraints heavily impacted or influenced.

Table 16 Summary of Priority Constraints/Opportunities and Interventions Constraints/ Opportunities Concerned Areas Intervention Strategy Who can do it and and Approach Potential Roles Public Private Input Provision/Supply Difficult access of farmers to Brgy. Languya, West Construction of FMR LGUs, DA improved varieties of planting Coast Brgys of Puerto materials and other inputs due Princesa to lack or absence of farm to Northern and Southern market roads (FMR) and Roxas logistical support Northern Municipalities Limited access of farmers to Northern Municipalities Establishment of LGUs, DA PO improved varieties of cashew (Roxas, San Vicente, barangay nurseries and planting material Dumaran, Taytay and scion and foundation El Nido) groves using promising varieties in clustered barangays Cashew farmers do not Southern, Northern and Farm visits of existing DA, LGU Farmer- subscribe to fertilization Island Municipalities sustainable farm Cooperato technologies rs

Training on production of organic fertilizers (organic and inorganic) Agri-Production

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Low cashew production due to Puerto Princesa Provision of cashew DA/LGU poor cultural practices, Cashew Producing planting materials seasonality of the crops, aging Municipalities (seedlings and clones) of cashew trees, effect of climate change resulting in low Rejuvenation/pruning of income aging cashew trees

Intercropping with compatible crops (e.g. pineapple, banana, ube, vegetables)

Establishment of additional scion foundation groves

Establishment of community-based organic fertilizer production center

Resistance of farmers to shift Establishment of demo DA, LGU Farmer- from traditional cultivar to farms in strategic Cooperato improved varieties locations rs

Conduct of GAP Training

Farm visit to ideal cashew plantation

Information Education Campaign

Provision of incentive to cashew farmers (plant now pay later scheme)

Insufficient updated data on Conduct province-wide OPAG, cashew survey on cashew CITY AGRI OFC, Establishment and Philippine maintenance of cashew Statistics database system Agency, MAOs Consolidation Uncertain supply of cashew Puerto Princesa Cashew nuts trading DA nuts due to lack of warehouse Central center and warehouse facility, limited purchasing with water and drying capital to buy in bulk and Roxas facilities for the top 10

Page | 57 increase volume purchased cashew producing Cashew Producing municipalities and Puerto Municipalities Princesa

Provide technical assistance on loan accessing to FIs Lack of transportation for Provision of vehicles hauling of cashew raw materials Uncertain supply of raw Marketing Agreement/ DA, AMAS, Processor materials Market Matching AMAD,LGU s/ Consolidat Organization of ors Processors/ Consolidators/Growers

Assigned assembler in the area Prevalence of unregistered Formation and/or buyers directly purchasing on- strengthening of cashew farm growers and processors’ associations into cooperatives

Formal trade agreements with growers and processors’ association Difficult access to remote areas West Coast Barangays Construction of FMRs LGUs, DA of Puerto Princesa, Languyan, Puerto Princesa Processing Lack of sustainable financial Project proposal, FS, NGU,NGA support for long period strengthening and other stocking of products organization, registration financial to SEC, DOLE or CDA institutions, PRDP Low buying price of cashew Product classification, DTI, DOST, product at the market because branding, packaging and BAFPS of low quality/no classification labelling improvement of product/ DTI standardization of product No new technology and better Funds sourcing to DOST, DTI, machineries for processing/ purchase better PRDP, Purchases of competitive and machineries for DOLE upgraded processing

Page | 58 equipment/machineries Lack of transportation/ FMR Brgy. Languyan, West Construction of FMR MLGU, Coast Brgys of Puerto PLGU, NGU Princesa North and South Roxas Safety measures (internal & Puerto Princesa Trainings and seminars DTI,DOST, external health) during cashew Roxas DOH processing/ Knowledge enhancement No Bodega & drying pavement Northern, Southern and Establishment of NGU,NGA Island Municipalities warehouse with drying and other pavement financial institution, PRDP No electricity in the area or Coordination with the BLGU, barangay/ Access to electricity electric company MLGU Accumulation of agricultural Northern, Southern and R&D on waste recovery DOST, DTI, waste due to unutilized cashew Island Municipalities and product development ACADEME , shell LGUs , DA-PAES PHILMECH DOST

Difficulty to produce whole nut Skills enhancement and (Inadequate skilled workers in product development the use of decorticator) - GMP - HACCP - Use of decorticator

Lack of mechanized processing Roxas Provision of cashew FDA facility Puerto Princesa compliant processing plant (sheller, dryer, roaster, storage facility) for top 10 municipalities and Puerto Princesa Marketing Generally low farmgate price of Palawan and Puerto Strengthen farmers’ LGU , CDA cashew/ no price Princesa associations into standardization cooperatives Most processors are not FDA Provide assistance for BAR , DA and Halal registered due compliance of FDA and AMAS- expensive and stringent Halal Certification AMAD , requirements LGUs

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Insufficient market Enhance product LGU, DA Processor information/inadequate promotion and AMAS – linkages/weak networking with advertisements in AMAD, DTI other business sectors to collaboration with compete in the national/global established business market entities

Tri-media or multimedia activities like festivals, trade fairs, etc., display center

Inappropriate packaging and Training and provision of DOST, LGU Processor labelling materials standard packaging and labelling No established common brand Branding workshop DTI, LGU , Processor for Palawan cashew DOST Trademark application

No established markets for Conduct market study for potential new products (cashew cashew oil oil) Enabling Environment No price standardization/ Consolidation of traders BLGU, Cashew representation of cashew in the area MLGU, Processor processors group to MDC PLGU s Absence of policy pertaining to Lobby to City Council for CLGU replacement of cut cashew the formulation of trees ordinance on promotion of planting of cashew as well as providing incentives (in kind or cash) to the farmers Prevalence of absentee farm Strictly implement tax on DA-BPI, owners and land speculators idle lands CLGU Support Services Poor access to credit Barangay Languyan, Capacitate FAs in CLGU, DA- institutions due to stringent West Coast Brgys of preparation of project ATI, DOST requirements Puerto Princesa, proposals and other Roxas, San Jose, related documents for Cashew Producing funding agencies Municipalities Extension workers have Puerto Princesa Capacitate agricultural DA-ATI, inadequate information on Central extension workers on CLGU updated technology on cashew cashew technology, production, post-harvest, production, marketing marketing and management and management

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Lack of transportation for Provision of vehicle CLGU, DA hauling of cashew raw materials Limited research and Enhancement of cashew DA-ROS, development for cashew and research development WPU, by-products center in DA-ROS- DOST, development of climate CLGU resilient variety, introduce/adopt climate- smart production technology and farm management and related research undertakings in partnership with research institutions Absence of laboratory for DA-PAES (Puerto Establishment of DOH & microbial analysis and nutrition Princesa) laboratory for the DOST facts microbial analysis and nutrition facts of cashew products Absence of pest and disease Puerto Princesa, Establishment of plant DA-RCPC clinic for cashew Roxas disease and pest laboratory with complete facilities and technical personnel

.

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Section 9

CONCLUSION AND RECOMMENDATIONS

In a region known to lead the market in national and global food production, Palawan stands out as the country’s most exciting cashew destination. It is an increasingly important export oriented income generating cash crop for rural population in the Province. It is becoming important as a sector providing employment and income source to women through small scale commercial processing.

The booming hotels, restaurants and pasalubong centers provide fertile ground for unlocking the potentials of cashew as the major food business of the Province. However, the province needs to improve the efficiency of the cashew nuts value chain and ensure conformity with market requirements. The potential for growth of Palawan cashew industry in the short and medium term is to broaden its market by creating new market channels through improved cashew product lines and steady supply volume, improved processing technology and equipment to achieve higher efficiency in yield, increase quality of the cashew nut and add more value.

Addressing the foregoing key constraints at critical points within the value chain will create opportunities for financial gains at all levels, most importantly, for the small cashew farmers. These will be through:

. Inter-firm cooperation (horizontal and vertical) through the establishment of a single brand — “Palawan Cashew brand” — under which all participating small cashew suppliers, producers, processing plants, workers, traders and wholesalers operate. This will also be the foundation of the Philippine standard for cashew.

. Production capacity upgrading through the development and implementation of an optimal production management model through farmer groups and other stakeholders, as well as intensive technical assistance, training and establishment of barangay level nurseries for easier access of farmers to improved cashew varieties

. Enabling environment support to establish the development of a government-backed financial assistance for cashew processors

. A formal body focused on working with the cashew industry in the creation of policies protecting the domestic cashew processing industry. Likewise, identify and develop a strong relationship with the cashew wholesalers and retailers industry; and

. An industry-driven environmental management to help implement and promote ecologically sustainable development

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The sum of these and all other efforts of the value chain players/actors will bring dramatic increase in the competitiveness of the Palawan cashew industry and improve real incomes of everyone in the chain.

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Annex 1

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Annex 2

Production Profile of the Cashew Industry in Palawan 2005 & 2012

2005 Production (MT), Municipalities Area (Has) No. of Trees Cashew Nuts No. of Farmers (without shell) Roxas 11,615.76 1,161,576 13,938.91 5,800 Araceli 5,230.56 523,056 6,276.67 5,000 El Nido 9,498.24 949,824 11,397.89 4,900 Taytay 7,441.92 744,192 8,930.30 3,500 Dumaran 7,441.92 744,392 8,930.30 3,500 Coron 6,593.28 659,328 7,911.94 3,100 Puerto Princesa 4,993.92 499,392 5,992.70 2,627 Linapacan 3,280.30 328,032 3,936.38 2,186 San Vicente 2,627.52 262,752 3,153.02 1,368 Busuanga 746.66 74,664 895.97 720 Aborlan 1,038.36 103,836 1,246.03 540 Quezon 626.28 6,528 751.54 330 Narra 609.96 60,996 731.95 320 Rizal 357.00 62,628 428.40 178 Magsaysay 134.64 13,454 161.57 134 Cagayancillo 73.44 7,344 88.13 115 Balabac 113.20 16,320 195.84 112 Brooke's Point 212.16 21,216 254.59 106 Cuyo 106.08 10,608 127.30 100 Bataraza 65.28 35,700 78.34 60 Agutaya 53.06 5,306 137.96 53 Grand Total 62,859.54 6,291,144 75,565.73 34,749 Source: DA-Palawan & DTI -Palawan

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2012 Production (MT), Municipalities Area (Has) No. of Trees Cashew Nuts No. of Farmers (without shell) Roxas 2,046 409,200 2,046.00 2,498 Taytay 2,030 406,000 2,030.00 814 Dumaran 1,570 286,976 2,008.83 523 El Nido 1,778 310,500 1,919.70 369 Linapacan 3,280.32 328,032 1,640.16 430 Puerto Princesa 1,058.63 105,863 1,270.36 703 City Coron 586.26 56,093 555.67 346 Aborlan 303.45 30,345 364.14 101 Quezon 435.65 43,565 217.83 202 Araceli 407.00 81,400 217.00 125 Narra 79.58 7,958 159.16 27 Busuanga 231.85 18,370 110.22 106 Cuyo 200.52 16,416 100.26 130 San Vicente 111 22,313 95.00 200 Rizal 75.68 7,568 90.81 25 Magsaysay 150.30 12,024 75.15 190 Bataraza 50.97 5,097 61.16 17 Agutaya 41.04 4,104 49.25 14 Culion 94.24 7,716 47.12 61 Brooke's Point 88.04 8,826 44.13 321 Balabac 34.60 3,460 41.52 12 Cagayancillo 40 4,000 40.00 58 Grand Total 14,692.84 2,175,826 13,183.47 7,271

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Annex 3

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Annex 4

International Quality Standards

Philippine Standard for Cashew Kernel

The development of the Philippine National Standards for Cashew kernel (PNS/BAFPS 59:2008) was undertaken in order to reflect the recent technology developments in the industry and the need for harmonization with Codex requirements in Heavy Metals, Pesticide Residues and Hygiene.

The PNS for Cashew Kernel aims to provide common understanding on the scope, definition, minimum requirements, classification, size classification, tolerances, packaging, sampling, marking and labeling, contaminants and hygiene

In all classes, subject to the special provisions of all classes and the tolerances allowed, they must be: a. Mature and ripe, sound, clean and practically free from any visible foreign matters b. Raw , uniform in size, shape and color c. Free from pest/disease damages d. Free from mould e. Free of any foreign smell and/or taste

Page | 70 f. Free from adhering testa or shell liquid g. Free from any rancidity h. Dry (moisture content of the kernel shall not exceed 5%) i. Unshriveled j. Classification

Table 9 Designation of Classes

Class Designation Quality Color

Superior Quality White characteristics of variety Pale Ivory Extra Class White whole of commercial type Pale ash-grey Light yellow Light Brown Light Ivory Class I Scorched Good Quality Light ash-grey Deep ivory Yellow Do not qualify for Light inclusion in higher Amber Scorched Class II classes, but which satisfy Light Blue seconds minimum requirements specified above Immature and speckled Deep Brown kernels are permitted Deep Blue Class III Dessert provided they do not Discolored affect the characteristics Black spotted shape of the kernel

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