Agri-Food Trade Service

The Sweet and Bitter Sides of the Philippine Cacao Industry*

January 2010

Danica Iza P. Ching
Researcher
Center for Food and Agri Business
University of Asia and the Pacific

Cacao (Theobroma cacao spp.) grows up to an elevation of 1,000 meters above sea level under the shades of bigger trees. It thrives best in areas where climate has an evenly distributed rainfall throughout the year. Upon reaching maturity, the cacao pods sprout from its trunk and branches. Embedded inside the pods are layers of 20-60 cacao beans. Various products can be extracted and/or processed from cacao beans.

Cacao is popularly used for chocolates and flavoring materials. It is utilized in the manufacture of cosmetics and pharmaceuticals as well. Cacao beans are processed into cocoa powder, cocoa butter, licor, paste, etc. Cocoa powder and cocoa butter are widely used in food products. Cocoa butter is also utilized as a base for moisturizers, cosmetics, and suppositories. Cocoa seed and cocoa seed coat are used to treat intestinal conditions, diarrhea, liver, bladder and renal disease, and diabetes. Most of the beans produced by small holders are mostly made into tablea, a native chocolate confection.

The cacao plant was introduced in the Philippines by a Spanish mariner named Pedro Bravo de Lagunas sometime in 1670. The first plantings were done in San Jose, Batangas. The country was the first in Asia to plant cacao and prepare chocolate drinks from cocoa beans. Commercial cacao farms were set-up in the country in the mid-1950s. In the 1960s, cocoa bean production expanded into an industry as processing facilities were established by a group of Filipino investors. More cacao commercial farms were put up in Mindanao. In the mid-1980s, the industry started to take-off as more investments were poured on commercial farms and on grinding facilities.

In 1992, the growth of the industry ceased when the Comprehensive Agrarian Reform Program was implemented. It resulted in the breakdown and redistribution of commercial farms into small farm units. In addition, the outbreak of the cocoa pod borer pest was unchecked which caused some plantations to be wiped out and abandoned. This started the crucial thinning out of the cacao industry in the country.

Performance

Cacao is regarded as a commercial crop in the country. There are three common varieties grown:

• Criollo or Porcelana Cacao - less bitter, more aromatic, expensive, rare, highly susceptible to pests and diseases;
• Forastero - beans are harder than Criollo; and
• Trinitario - a hybrid of Criollo and Forastero.

Production fell by an average of 2.0% per annum (p.a.) from 5,648 tons in 2004 to 5,149 tons in 2008. Likewise, area planted declined by an average of 2.1% p.a. from 10,845 hectares (ha) in 2004 to 9,751 ha in 2008 (Figure 1).

Figure 1. Cacao Production and Area Planted, 2004-2008

Of the total cacao output in 2008, 66% or 3,470 tons came from the Davao Region, 11% or 551 tons from Northern Mindanao, 4% or 213 tons from CARAGA, 3% or 135 tons from Eastern Visayas, and 3% or 129 tons from Zamboanga Peninsula. The major cacao-producing provinces were Davao del Sur (1,669 tons), Davao City (832 tons), Davao Oriental (481 tons), Bukidnon (455 tons), and Davao del Norte (319 tons) (Figure 2).

Figure 2. Leading Cacao Regions in terms of Production, 2008
Total volume: 5,149 tons

Meanwhile, in terms of area planted, the leading regions were Davao Region at 4,945 ha or 51%, Northern Mindanao at 941 ha or 10%, CARAGA at 855 ha or 9%, ARMM at 625 ha or 6%, and Zamboanga Peninsula at 527 ha or 5%. The top provinces area-wise were Davao del Sur (1,385 ha), Davao City (1,288 ha), Davao del Norte (920 ha), Davao Oriental (682 ha), and Compostela Valley (670 ha) (Figure 3).

Figure 3. Leading Cacao Regions in terms of Area Planted, 2008
Total area: 9,751 ha

Yield posted a minimal increase of 0.1% p.a. from 0.52 beans tons per ha in 2004 to 0.53 tons per ha in 2008, while the number of bearing trees fell by an average of 0.7% p.a. from 4.3 million in 2004 to 3.9 million in 2008. The bearing trees were mostly found in the Davao Region (Figure 4).

Figure 4. Cacao Yield and Number of Bearing Trees, 2004-2008

In Davao Oriental alone, around 10,000 seedlings of cacao were distributed at the Mati Municipal Nursery to three barangays namely: Dawan, Don Salvador Lopez and Mayo under the Cacao Industry Program (BAS Situation Report, December 2009).

Farmgate Price

From 2004 to 2008, the farmgate price of cacao generally increased from P55.45 per kilogram (/kg) to P59.73/kg. The local price of cacao is continuously increasing because domestic production is insufficient to meet demand (Figure 5).

Figure 5. Cacao Farmgate Prices, 2004-2008

Trade

The Philippines is an active trader of various types of cocoa products. These include cocoa bean, whole/broken, raw/roast, cocoa powder not containing added sugar/other sweetening matter; cocoa paste, not defatted (licor); cocoa butter, fat/oil; chocolate confectionery; chocolate or cocoa powder, chocolate blocks, other than those in sub-item 073.10-01; cocoa paste, wholly/partly defatted (cocoa cake); and sweetened cocoa paste (Table 1).

* Philippine Standard Commodity Classification
Source: National Statistics Office (NSO)

Import. Local supply of cocoa is inadequate for the needs of industrial users. Thus, most local processors of cocoa and chocolate products have to import cocoa beans and cocoa grindings.

From 2004 to 2008, the volume of cocoa imports grew an average of 1.0% p.a., while value fell by 10.3% p.a. (Figure 6).

Figure 6. Total Philippine Imports of Cocoa and Cocoa Products, 2004-2008
(Volume in tons, Value in US$'000)

Imports consisted mainly of cocoa powder not containing added sugar/other sweetening matter with 63% share to total cocoa volume imports in 2008. It was followed by cocoa cake with 29%, chocolate confectionery and cocoa butter with 3% each, and cocoa bean and licor with 1% each (Table 2).

Source: NSO

In 2008, the major suppliers of cocoa bean in terms of volume included Indonesia, Malaysia, Singapore, the United States (US), China, Hong Kong, Canada, the Netherlands, Belgium, France, Germany, Switzerland and South Africa. Majority of the imports were cocoa powder not containing added sugar/other sweetening matter with 63% of the total share (Table 3).

Export. Cocoa is an export-competitive crop. Despite the supply deficiency, the country still exports cocoa and cocoa products.

Source of basic data: NSO

In 2008, around 50% of cocoa volume exports were cocoa butter, 39% were chocolate confectionery, 7% were cocoa bean, and 4% were cocoa powder not containing added sugar/other sweetening matter (Table 4).

From 2004 to 2008, volume and value of cocoa exports fell by an average of 17.3% and 12.8% p.a., respectively (Figure 7).

Figure 7. Total Philippine Exports of Cocoa and Cocoa Products, 2004-2008
(Volume in tons, Value in US$'000)

Source of basic data: NSO

The US, Thailand, Hong Kong, Taiwan, Malaysia, Singapore, China, Papua New Guinea, Australia and France were the leading buyers of cocoa from the Philippines in 2008. Half of the exports were cocoa butter (table 5).

Source of basic data: NSO

Challenges and Prospects

The Cacao Roadmap Strategy for the Philippines as developed by the Cocoa Foundation of the Philippines, a non-government organization, details the challenges faced by the local cacao industry in the country (Table 6). These challenges cover the whole supply chain from input, production, processing to marketing.

The industry needs to seriously address these problems through active collaboration among different government agencies and the private sector. Cacao growers should be given: access to quality planting materials, assistance on proper crop management up to post-harvest to meet the quality standards required by the markets, here and abroad as well as market linkage and applicable credit schemes. They should also improve their productivity, control pest and diseases, produce good, high-quality beans through fermenting, and expand cacao production with plant materials using high-yielding varieties, among others.

Source of basic data: Cacao Roadmap Strategy of the Philippines

Despite the constraints, there is a bright prospect for the local cacao industry. It was only in July 2008 that cacao was given priority, and was officially regarded as a High-Value Commercial Crop by the Department of Agriculture (DA).

Very few farmers have ventured into large-scale production of cacao. Local chocolate manufacturers depend almost entirely on imported cacao beans. On that note, cacao growers aim to stop cacao importation by 2015. Cacao is highly suitable to intercropping and mixed farming systems, especially with coconut. Cocoaphil recognizes this and plans to intercrop at least 50 million cacao trees with coconut to produce at least 100,000 tons or US$300 million worth of export-quality cacao beans by 2015 (http://business.inquirer.net). This will generate P60,000 to P80,000 additional annual income per hectare. The potential area expansion for cacao is huge. Around 2,000,000 ha of coconut lands are suited to intercrop with cacao, which can add more than US$1,500 per hectare of income from 500 mature trees per year. If this happens, the Cocoaphil believes that the country can produce enough cacao to have a surplus beginning 2015 (http://www.agribusinessweek.com).

There is a very high local and world market potential not only for cacao, but also for chocolates. Demand abroad is expected to boost the exports of cacao, cashing-in more dollar earnings, and providing more livelihood and jobs for Filipinos, especially in the rural areas. The domestic grinders require at least 30,000 tons of dried fermented cacao beans each year (http://www.agribusinessweek.com).

The international demand for cacao beans grows at about 90,000 tons annually. Southeast Asian regional grinders need an additional 220,000 tons, which they have to import mostly from West Africa (http://www.agribusinessweek.com). World prices of cocoa beans surged from US$1,007 per ton in 2007 to US$3,200 per ton in 2008. Global consumption of chocolate has been rising 3% annually.

Local and international opportunities of the local cacao industry include the presence of niche market like the Organic, Fairtrade and Rainforest Alliance; guaranteed international buyers and grinders in Southeast Asia prefer Philippine cacao rather than cacao from West Africa due to cost issues; organic cacao; increased government revenue; and improved agricultural trade balance.

The government should establish the Philippine National Standard for this crop, which will monitor the cacao bean quality, integrate all Research and Development efforts for cacao, look for ways to use the wastage from post-harvest, and develop new cocoa technologies.

In the coming years, the local cacao industry vies to position itself as one of the country's leading agricultural exports. Hopefully, this will be realized. Given the good prices of cacao and huge demand from here and abroad, the cacao industry presents a sweet opportunity that we should not fail to recognize.

References

• Bureau of Agricultural Statistics
• National Statistics Office
• Cocoa Foundation of the Philippines
• http://cagayandeoro.da.gov.ph
• http://www.philonline.com.ph/~webdev/da-amas/cacao.html
• http://www.agribusinessweek.com
• http://www.bar.gov.ph/news/cacaoindustry.asp

* Published in the January 2010 issue of the Food and Agri Business Monitor, a monthly magazine of the Center for Food and Agri Business, University of Asia and the Pacific, Pasig City, Philippines.