INCLUSIVE AND SUSTAINABLE GROWTH OF THE PHILIPPINE COCONUT INDUSTRY THRU AGRIBUSINESS ENTREPRENEURSHIP (By: ROY S. KEMPIS)

This paper follows the proposition that “Inclusive and Sustainable Growth can be pursued as an ultimate economic policy option with agribusiness entrepreneurship as one of its policy implementation options”. In view of this, it is the agricultural enterprise and the businessman behind it that shall be in an initial position to start the ball rolling to attain Inclusive and Sustainable Growth in the agricultural sector.

The Philippine Coconut Industry has been chosen as the area of interest owing to the fact that from this sub-sector, comes the country’s top agricultural export – coconut cooking oil. Ironically, poverty in coconut regions is also prevalent. . By tradition, Philippine coconut farming is focused on copra production; copra being the raw material in producing coconut oil (cooking oil) – the Philippines’ popular cooking oil and number 1 agricultural export. Other coconut-based industries developed: tuba, lambanog, coco coir, VCO, and coconut sugar to name some. . Copra is sundried coconut meat inside the shell of the coconut fruit. . The coconut fruit comes from the coconut flower, and traditionally, this fruit produced for the average Filipino farmer and consumer young coconuts for “buko” water or juice; mature coconuts for copra and “hatok” or “gata” for “hinatukan” (or “ginata-an” dishes. . Over several centuries, even before the Spaniards came, the country has been using coconut. . At the same time, the Filipinos were already concocting “tuba” or coconut wine from the coconut sap obtained from the unopened inflorescence of the tree such that the same wine reached Mexico during the days of the galleon trade. Mexicans also call their coconut wine as “tuba”, until now. . Eastern Visayas especially the province of Leyte produces the best traditional tuba in the Philippines. It is proud of its “bahalina” – a 6 months to 2 year-old aged coconut wine. . In 2010, Leyte became much prouder because a world-class premium wine was introduced by a returning balikbayan. Mr. George Paraliza, a wine hobbyist in the US who worked as an executive of an oil refinery for 40 years, developed what is now a known brand “Vino de Coco”. Producing and marketing it in a start- up winery in Tacloban City, it has attracted so much interest, attention, and appreciation from local and foreign nationals who had the opportunity to buy it direct from Tacloban. Several distributors have evolved in cities of the country but the launching on July 25, 2013, of an exclusive distributorship for the whole country and China has punctuated the commercial birthing of the wine. From a monthly production of 22,500 bottles, it is now embarking on producing 74,520 bottles per month. . Three varietals are available: Dry Red, Sweet Red (the best seller), and Sweet White Coconut Wine (Images and descriptions were obtained from www.vacalvinodecoco.com).

Dry Red Sweet Red Sweet White

Dry Red Coconut Wine is a true wine drinker’s drink. As with most dry wines, it lacks sweetness due to most of its sugar being converted into alcohol. The red color comes from the “barok” (tannin) added at the gathering of sap. The smooth taste is very pleasing to the palate. It complements any meal. Hearts get warmer. It offers a smooth entry with a delightful finish. Preferred amongst most wine enthusiasts, it is often described as a pleasant heart warmer.

Sweet Red Coconut Wine is intended of after dinner. The “barok” (tannin) added at the gathering of sap gives it the red color. Sweet wines have a unique following. Some are looking for a sweet wine as their introduction to the world of wine, sort of transitionary path from sweet flavored soda to a more sophisticated beverage. With this wine, smiles get wider. It provides a semi-sweet version of the Dry Red. This varietal delivers the right amount of sweetness that will make your smile nice and wide.

Sweet White Coconut Wine with no “barok” (tannin) added, gives a light, sweet unique taste that leaves an enjoyable sensation on the palate. You can enjoy this wine, anytime. And stories get shared. This is the newest varietal and brings a crisp and refreshing addition to the line up. Sure to please, this white wine is sweeter and flowery evoking a positive feeling that makes you want to share fun stories.

Ladies and Gentlemen: I am an agricultural development economist based in Pampanga and for the past 35 years have been a faculty member of Pampanga Agricultural College, now (as of June 11 2013) known as Pampanga State Agricultural University; 21 years as Senior Lecturer of UP Clark, and; who briefly taught management research at De La Salle University in Taft Avenue, Manila. So I am based in Luzon, but I know “tuba”, since I drink it. This started in my teens and growing years as a Leyteno. In Leyte, you can say, every one does drink tuba including women folk. No festive occasion is started and ended without “tuba”. Call it a cultural beverage, so to speak where many coconut farmers, workers, farm owners have found livelihood in its production. And now it is commercially available, marketed and distributed in the Philippines, China and the U.S. although, still sparingly consistent with its present wine making and bottling capacity.

What does this mean to me (and for any Leyteno, or coconut sap gatherer (the “parasanggot” in Waray or “mananguete” in Cebuano, the coconut worker, coconut farm owner, etc?

I say MANY, but FOREMOST

(1) We are proud to say that when you taste and drink Vino de Coco:

(a) you can forget about grape wine (which are imported and thus, by reducing imports, dollar savings may tend to increase);

(b) with reluctant apologies to the rest of the local wine products such as those from Mango, Guava, Bignay, Rice, Sugar Cane, Duhat, and other Fruits, you can reduce and/or cease and desist in making wines of these fruits and commodities and instead, export them fresh and thus, earn more dollars, and;

(c) this can be one of the game changers of the coconut industry’s deplorable socio- economic circumstances. The other 4 remain with coconut oil, coconut sugar, VCO, and lambanog.

The production of coconut wine and coconut sugar (including lambanog) uses coconut sap while coconut cooking oil and VCO and its variants use coconut meat from coco nuts. But all 5 have a common denominator: they are dependent on the tree’s inflorescence or flower. To think of this, there are millions of hectares planted to coconut but this situation has attracted policy makers and technology generators to strike a balance between competing interests and uses. We just hope that PCA succeeds in its Sequential Coconut Toddy and Nut Production Technology (or SCTNPT), and other measures of optimizing the collection of sap and the production of coco nuts.

In the commercial front, there is however innovation in business approaches but there are likewise actual attempts of banging each other, exemplified in the VCO and Coconut Sugar Industries’ languages. All these however, boil down to securing the supply of raw materials, that is, sap for coco sugar and coconut for VCO. Having this competition, would it be healthy for the coconut industry. I believe if the competition is constructive, healthy and balance with the guidance and proper handling of the issues by PCA, indeed it is possible that the citizenry in the coconut producing areas would end up uplifted from their present socio-economic levels.

Now, let me focus on the arithmetic (to make it simple) or mathematics (to make it contemporary) to show how “Entrepreneurship for Inclusive and Sustainable Growth” is done, using in this case the example of Vino de Coco as the carrier enterprise that can support the rural economy of the coconut industry, at least in Leyte or Eastern Visayas. The business can be viewed as a winery surrounded by coconut farms and trees that produce coconut sap (and coco nuts). From the capacity (until H1 of 2013) of 22,500 bottles of wine produced per month to the expansion of 74,520 bottles (starting H2 of 2013), a doubling of investment from Php16 M to PhpPhp31 M can thus, result in increasing production about 4 times over (Table 1).

Table 1. Starting this year, Vino de Coco Production shall be in the following capacity.

Particulars Until H1 of 2013 Starting H2 of 2013 1. Production Cases/Month 1,875.00 6,210.00 Bottles/Case 12.00 12.00 Bottles/Month 22,500.00 74,520.00 No.Working Days/Mo 24.00 24.00 Bottles/Day 937.5.00 3,105.00 No. ml/Bottle 750.00 750.00 Total ml/Day 703,125.00 2,328,750.00 ml/Liter 1,000.00 1,000.00 Production li/Day 703.13 2,328.75 2. Basic Inputs or Ingredients (a) Sap No.Jugs/Day 35.16 116.44 No.Working Days/Mo 24.00 24.00 No.Jugs/Month 843.75 2,794.50 (b) Sugar Total Kilos Sugar/Month 1,845.00 6,108.00 25:75Ratio Red Dry & Sweet Red&SweetWhite Combined 0.75 0.75 Effective Total Kilos Sugar/Month 1,383.75 4,581.00 (c) Bottles, Caps & Labels Bottles 22,500 74,520.00 Caps 22,500 74,520.00 Labels Front of Bottle 22,500 74,520.00 Back of Bottle 22,500 74,520.00 Cartons 1,875.00 6,210.00 Packing Tape 13.00 41.96 Bubble Plastic Wraps 3,750.00 12,420.00 Damage Allowance 0.005 0.005 (d) Labor: Head Worker 1 1 Assistant 1 1 Staff 2 8 Source of Raw Data: DJCRATER, Inc. with the Permission of Its President/CEO George V. Paraliza The direct and indirect effect of the above investments are explained below:

. The direct job creation is 10 at the winery for a Php31 Million Investment. (Four on Php16 M investment, and an additional 6 employees for another Php15 M investment)

. It sustains jobs of parasanggot at a capacity of 15 trees tapped per day – For a daily requirement of 703.13 li of sap and assuming each tree produces 1 li of sap per day – 703.13/15 = 47 coconut sap gatherers are created as sources. For the expansion, 155 coconut sap gatherers are needed.

If a tree produces an average of 2 li/day, then the employment effect is 24 for the present operations; for the expansion, this will be 78 coconut sap gatherers. Figures in between (when each tree can provide 1.5 li of sap per day) can suggest an employment of 36 for present operations and for expansion – 117 sap gatherers employed. So, a range of sap workers employed shall be 24-36-47 for present operations; 78-117-155 employed for expansion.

. To illustrate the income effect, the coconut sap gatherers sell the sap for Php14/li; at an average of 15 li per day collection, this is equivalent to Php210/day (min. wage of plantation workers – Php235-241/day (Regional Wage Board for Region VIII). If they collect at an average of 2 li/day, their take home gross pay is Php420/day (Table 2).

So, a sap gatherer may look at a range of Php210 (1 li/day) – 315 (1.5 li/day) – 420 (2 li/day) gross income.

Thus, productivity of the tree plus the skill and stamina of the sap gatherer will also be important factors sustaining their (self) employment and income.

Table 2. Sap gathering and its employment and income effect. Sap Gathering Present Expansion Gross Income Capability (li/tree) Employment Employment Effect (Php/day) 1 47 155 210 1.5 36 117 315 2 24 78 420

An examination of the value chain of Vino de Coco is presented in Table 3. It shows a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. At least 7 activities can be observed in the data set below: from sap collection up to marketing and distribution in the U.S and China. These activities generate income or create value represented by price received for each activity in the amount of Php9.75 (per bottle equivalent) for sap gathering up to Php704 (per bottle equivalent) when the wine is exported to China and/or the United States of America.

Table 3. Income distribution proxied by prices received by owners of goods and services in the value chain (activities) to produce, market, and distribute Vino de Coco.

Value Sap Market Manufacturing> Sub- Retailing Dist.&Sales in Sales in Chain Collection> Search> Dist> SRP> Rest/Hotels> China/US Nodes

Price/Incom Php9.75 Php26 Php148 Php238 Php338 Php676 Php704 e Received at Each Node % Share of 1.38 3.69 21.02 33.81 48.01 96.02 100 Income of Each Node from the Highest Possible Income Peso Value 16.25 122 90 100 338 28 Increase Source of Raw Data: DJCRATER, Inc. with the Permission of Its President/CEO George V. Paraliza

In a scale of 1 to 100 (%), only about 1.38 percent of the possible value of the wine is received by the coconut sap gatherer; the manufacturer, at 21.02 percent, and therefore, the rest of the 79% can be divided by those involved in marketing and distribution. In view of this data and information, it would be prudent for the manufacturer to venture once again in marketing and distribution according to its capacity to support such activity. As presented in Table 3, there at least 4 marketing and distribution activities. Venturing and investing into at least one marketing and distribution activity can increase his share of the total value possible for the wine.

The above data and presentation offers a glimpse to what can be done thru a so called measure to “internationalize (wages or) prices” of sap to increase the share of the value of the bottled wine (and the income effect to the “parasanggot”) in the value chain, as Vino de Coco finds more international markets and distributors.

This statement brings us to the theme of the 49th PAEDA Biennial Convention “Inclusive and Sustainable Development Issues and Challenges for Agriculture, Fishery and Natural Resources” and specific to my choice in the List of Topics which is Item #8 on Entrepreneurship for Inclusive and Sustainable Growth.

A student of mine, Ms. Bea Joven puts this theme more succinctly. She defined the concept of inclusive growth as that growth which should not only include the economic standing of a country but also its people especially the poor. It benefits all sectors of society, including the poor, the near poor, the middle class and even the rich. Along with the economic growth of the Philippines, the reduction of both poverty and inequality is needed for real inclusive growth to take place. Inclusive growth is shared growth, when a business prospers, all the people behind it must all be affected positively.

Her classmate Ms. Ma. Aissa V. Armena, a career woman who together with her husband intends to put up a coco sugar production in Ligao, Albay empahasizes that Inclusive Growth is a must from an economic point of view (for it will eventually broaden the base for domestic demand) as well as in terms of politics (more people will have a stake in stability and reform). And, she believes that with the proper agricultural reforms and support from government, businessmen who have interests in agribusiness somehow may contribute to the growth for farmers to be prosperous.

True inclusive development would mean that even the poorest Filipinos get a chance to move into the modern, high-productivity sectors. For that, greater reforms shall be needed.

It is indeed a great achievement that we have made a national growth of 7.7% (in the 1st Qtr of 2013) and 7.5% in the 2nd Qtr. As a matter of fact, everyone who made this possible deserves to be congratulated. We can try for 8% GDP growth or even better but what is more important is that it should be a growth for everybody in the country, or at least every sector should contribute and also participate in its fruits.

Capt. Dante Aquino from the PMA and a helicopter pilot in the PAF adds that contributing in having “inclusive growth” as an agribusinessman need not have to start in something big by engaging in manufacturing business or employing hundreds of people in a farm. We can start in small business as long as it contributes to the welfare of the person.

Ma. Pilipinas Panlaqui of the TRC observes that many countries, especially the developing ones have been shifting to the concept of “inclusive growth” as an economic development paradigm. From the strategic agenda of the Asian Development Bank (ADB), inclusive growth embraces both income and non-income dimensions of well- being. It also has to be along with regional integration and environmentally sustainable growth.

Moreover, ADB described inclusive growth based on 3 pillars:

 High, sustainable growth to create and expand economic opportunities;  Broader access to these opportunities to ensure that members of society can participate and benefit from growth; and,  Social safety nets to prevent extreme deprivation.

A budding agribusinessman would be able to contribute to inclusive growth based on the first pillar, as described above by ADB.

On the marketing and distribution side, direct and indirect employment shall happen first, on the level of the Exclusive Distributor, followed by sub-distributors, and merchandisers of retail outlets. Based on the prevailing values received by the participants in the value chain, it is more likely that workers and employees involved in marketing and distribution will receive more compensation than their counterparts in the coconut farming sector.

Thus, it is imperative to find more sources of income that coconut farm workers, sap gatherers, farm owners and Vino de Coco company DJCRATER, Inc. can design and implement for their mutual benefit.

For coconut farms in Leyte, there is still available space under the coconut trees to carry out additional production activities. The connection of Pampanga and Leyte shall now come in. The experience of Pampanga can be shared with Leyte coconut farmers in the areas of native pig and native chicken raising. With improved breed selection, feeding management, access to genetic material, variety of business and marketing models, training and technical assistance with Pampanga State Agricultural University leading in R&D as well as private groups that may participate in the commercial aspect of providing resources and techniques of stocking and operating native livestock and poultry projects inside the coconut farms including buy back schemes so that the farmers have ready market, additional incomes for them shall be realizable and attainable.

At this juncture, let me show you images of “Tuba”, then. This is followed by images of “Native Pig Raising” R&D in PSAU and commercialization in Luzon and ‘Native Chicken Raising in PSAU.

The above images were obtained from the internet: (a) http://www.sulit.com.ph/index.php/classifieds+directory/q/coconut+wine and (b) A publication entitled “Sanggutan Festival” on Jun 28, 2012 by Jennina June Leira Lanza using an image by Mr. Gerry Ruiz of Calle Zaragosa Productions.