Oil Palm VCA (MAGUINDANAO) PDF

PHILIPPINE RURAL
DEVELOPMENT
PROGRAM (PRDP)
I-PLAN Component
Mindanao Cluster
VALUE CHAIN ANALYSIS AND

COMPETITIVENESS STRATEGY:
OIL PALM IN MAGUINDANAO
DEPARTMENT OF AGRICULTURE
ARMM
APRIL 2014 0
CONTENTS
Page
EXECUTIVE SUMMARY 4
Section 1: INTRODUCTION 8 - 10
A. Background Information and Objectives 8
B. Objective of the Value Chain 9
C Methodology and Approaches 9
Section 2: OVERVIEW OF THE INDUSTRY 11 - 17
A. Product Description 11
B. Production Trends 13
Section 3: NATURE AND STRUCTURE OF INDUSTRY 18 - 31
A. Value Chain Mapping 18
B. Key Players and Functions 19
C. Nature of Inter-Firm Relationships 27
D. Price and Cost Structure 29
Section 4: MARKETS AND MARKET OPPORTUNITIES 32 - 36
A. Markets and Market Trends 32
B. Price Trends 35
Section 5: SUPPORT SERVICES 37
A. Financial Services 37
B. Non-Financial Services 37
Section 6: ENABLING ENVIRONMENT 38 - 39
A. Formal Rules, Regulation and Policies 38
B. Informal Rules and Social-Cultural Norms 39
Section 7: CONSTRAINTS AND OPPORTUNITIES 40 - 42
Section 8: COMPETITIVENESS DIRECTION 43 - 50
A. Competitiveness Vision 43
B. Priority Constraints/Opportunities and Interventions 43
Section 9: CONCLUSIONS AND RECOMMENDATION 51
MB/II: April 2014 Version

LIST OF TABLES
List of Tables Page

1 Summary of Constraints/Opportunities and Interventions 5
2 Area Planted to Oil Palm (in hectares) 15
3 Top Oil Palm Fresh Fruit Bunch (FFB) Producing Provinces and Regions 15
4 Production Volume: Oil Palm FFB (in metric tons) 16
5 Number of Productive Oil Palm 16
6 FFB Yield per Hectare (in MT) 16
7 Area Planted to Oil Palm 17
8 Breakdown of Area Planted to Oil Palm by District 17
9 Potential Land Areas in Mindanao for Oil Palm 17
10 Accredited Nurseries in Central Mindanao 20
11 Breakdown of Farmers by District 21
12 Contractual Arrangement between Farmers and Oil Mills 27
13 Farm Establishment and Maintenance Costs (Year 1 to Year 3) 29
14 Average Income of Farmers during the 6th to 25th Year 29
15 Relative Financial Position of VC Players 31
16 Quality Standards of FFB 35
17 FFB Price Formula (Buluan) 36
18 Constraints and Opportunities 40
19 Priority Constraints/Opportunities and Interventions 47

ARMM Autonomous Region for Muslim Mindanao
CARP Comprehensive Agrarian Reform Program
CPKO Crude Palm Kernel Oil
CPO Crude Palm Oil
DA Department of Agriculture
DAR Department of Agrarian Reform
FFB Fresh Fruit Bunches
FGD Focus Group Discussion
KARBEMPCO Kenram ARB Multipurpose Cooperative
KIDI Kenram Industrial Development Inc.
KII Key Informant Interview
MAPARBEMCO Mapantig ARB Multipurpose Cooperative
MDF Medium Density Fiber
MinDA Mindanao Development Authority
MRDP Mindanao Rural Development Project
NCCAP National Climate Change Action Plan
PDP Philippine Development Plan
PKC Palm Kernel Cake
ACRONYMS

POME Palm Oil Mill Effluent
PPA Production and Purchase Agreement
PRDP Philippine Rural Development Project
EXECUTIVE SUMMARY
The Philippine Rural Development Program (PRDP), a flagship program of the Department of
Agriculture (DA), is designed to establish the governments platform for a modern, climate-smart
and market-oriented agri-fishery sector. The design of PRDP and its implementation aspects draw
heavily on the experiences of the Mindanao Rural Development Projects (MRDP 1 and2), a program
that has been successfully implemented over the past decade. The program adopts a value chain
development approach as a platform for promoting inclusive, climate resilient, and sustainable
growth in key agricultural subsectors and value chains.
Entry point for the implementation of value chain interventions is at the provincial level with an aim
to gradually scale these up to other viable areas within the region. In ARMM, Maguindanao was
identified as the priority and pilot area. . The oil palm is one of the selected priority products on
which the PRDP will concentrate during Year 1 of PRDP implementation.
This report provides an overview and analysis of the oil palm value chain, linking the international
context to the national, regional, and provincial contexts, with the aim of identifying main leverage
points and key strategies to improve Bukidnons 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 and will lay the foundation for PRDPs cooperation with the private
sector and other government agencies active in the oil palm industry.
Although considered an emerging industry in the Philippines and while its size is small compared to
Malaysia and Indonesia, Mindanao has been cultivating and processing palm oil for the past three

decades. It is geographically located in the palm oil belt, with the appropriate climatic and soil
conditions for the production of palm oil. Prime areas for oil palm plantations are those located
within 5 degrees of the equator. Based on BAS data, Mindanao accounted for 77% of the 53,014.75
hectares nationwide that have already been planted with oil palm.
The top 3 oil palm producing regions are CARAGA, SOCCKSARGEN, and ARMM. Maguindanao, which
is the lone oil palm producing province in ARMM, accounted for 11% of the 2012 oil palm FFB
production in the Philippines. It is the 3rd top FFB producing province in the Philippines. In 2012,
average FFB yield per hectare in Maguindanao was at 31.23, which was the highest in the Philippines
and at par with progressive plantations in Malaysia and Indonesia.
The oil palm industry represents one of the most effective avenues for poverty alleviation and
improving economic stability in Maguindanao. As soon as the oil palm starts bearing fruits 26
months after planting, it provides the farmer a regular monthly income higher than other crops. The
palm oil industry provides employment to unskilled and semi-skilled people. This connotes that an
efficient and strong palm oil sector in Maguindanao will enable the poor to be part of the solution to
poverty challenge through provision of gainful employment and a means of livelihood.
The Maguindanao palm oil industry has two lead firms, namely: Buluan Oil Mill and Kenram
Industrial. Both firms implement outgrowership (individual and cooperative) and leasehold
programs. News reports from MINDA indicate that a Malaysian firm has expressed interest in
investing US$575 million to develop some 66,000 hectares of land in ARMM for oil palm plantations.
Maguindanao, Sultan Kudarat, and the Cotabato provinces are increasingly referred to as Central
Mindanao oil palm hub. Caraga and the Central Mindanao hubs are among the more preferred
zones by palm oil investors.
Global edible oil consumption has increased from 123 million metric tons in 2007 to 158 million
metric tons in 2012 or about an 18% growth over the last 5 years. In the edible oil production mix,
palm oil, at 48.7 million metric tons, is the single largest consumed vegetable oil in the world. The
demand for palm oil is increasing and the share to world vegetable oil consumption is projected to
reach 70% by 2015. The growth is fuelled by increased population, incomes, and per capita
consumption especially in developing countries. In 2010/11, the average person consumed 6.8
kilograms of palm oil per year and this figure is forecasted to rise to 8.65 kg/yr in 2025/26 (FAPRI
2011).
Philippines imports about 85% of its total palm oil requirement from Malaysia (95%) and Indonesia
(5%). The remaining 15% is locally produced. Currently, Philippines is the third largest importer of
Malaysian Palm Oil (MPO) after China and Japan. Palm oil importation is now at the 500,000+ MT
level and it is projected to grow at a minimum rate of 11% a year for the next 10 years. To cover the
countrys palm oil importation, the Philippines has to plant an additional of 144,000 hectares.
According to the Mindanao Development Authority (MinDA), of the 959,000 hectares of land in
Mindanao identified to be suitable for oil palm plantation, 103,000 hectares are located in ARMM.
To ensure that expansion is done at the least cost to the environment and the highest rewards to
smallholders, one of the key interventions being proposed is the introduction of sustainable
production practices with the ultimate goal of achieving certification.
While there is a strong economic rationale for the strengthening of the oil palm subsector in
Maguindanao, there is also a pressing need to move towards sustainable oil palm production that
does not lead to social and environmental impacts such the destruction of forests, biodiversity loss,
greenhouse gas emissions, and community issues. The palm oil itself is not the problem but rather
the practices and technology employed to produce the oil. Palm oil can be a catalyst for

development if sustainable practices are adopted. It can also enhance biodiversity when planted on
degraded lands. Likewise, the shift to sustainable production is fast becoming an imperative rather
than just a choice given that the large buyers of palm oil such as Unilever and Cargill will only be
sourcing from certified sustainable suppliers by 2015.
The growth of the oil palm industry in ARMM and the realization of its potential to contribute
significantly to the improvement of living conditions of communities in marginal/fragile ecosystem
hinges on putting in place a system that will sufficiently meet the requirements of price, quality, and
reliability of supply. Specifically, it is underpinned by the following factors:
- Adoption of sustainable production practices and land use and the achievement of
sustainable certification
- Efficient farming and production technologies including sourcing of planting materials and
inputs to ensure that cost of production will meet market expectations, allow the industry
to be competitive in world markets, and improve industry profitability
- The need to address infrastructure and resource deficiencies that are impeding the
efficiency of industry
In line with the above focal points of action, the table below presents the priority
constraints/opportunities that need to be addressed and the proposed intervention strategies and
approaches defined during the Stakeholders Workshop.
Table 1.- Summary of Constraints/Opportunities and Interventions

Key Constraints/Opportunities Intervention Strategy and Approach
Input Provision
Lack of access to and availability of supply Development of local capacity to commercially
of local planting materials other than those produce and distribute planting materials at a price
imported from Papua New Guinea, Costa level at par with other oil palm producing countries
Rica and lately Thailand.
- Cost contribution to set-up nurseries in key oil
Lack of know-how to set-up an effective palm production clusters either as micro
system for nursery operations franchisees of Agumil or stand-alone enterprises
Opportunities - Capacity building support in the development of

business models appropriate to purchasing
Agumil, which operates a mill in abilities of farmer clients and its operationalization
Maguindanao, has the largest nursery and
is said to have the best quality planting - Dissemination of success stories and business
materials. models to attract private sector investment
Maguindanao can learn from the - Work with MFIs/banks in the development of
experiences of Thailand and from Univanich financial product for interested investors in nursery
on how to make seeds/planting materials operations
more affordable.
- Implementation of voucher program or similar tool
PCA may soon develop initiatives and or mechanism to stimulate first time purchase and

programs that would help in responding to lower risk aversion
the problem on the high cost of planting
materials. - Support the development of locally adopted, high
yielding F1 hybrids
High cost of chemical inputs both to Development of local production and
farmers and environment commercialization of organic fertilizer including
facilitating access to extension services on proper
Limited availability and commercial fertilizer management and application
distribution of organic fertilizer and inputs
specific for oil palm - Technical and financial assistance to existing and
potential organic fertilizer producers to: a)
Opportunities develop inputs using oil palm and other agri-waste
appropriate for oil palm smallholders; and b) scale
Technology for production of organic up and align operations to sustainable production
fertilizer using palm oil waste is available. practices
Use of organic fertilizer and Mucuna - Develop capacity of fertilizer producers to provide
bracteata for covercrop in oil palm technical advice to clients
plantations can reduce the use of inorganic
fertilizer by about 50%. - Documentation and dissemination of emerging
good practices
- Foster linkages with financial services provide

Farming
Lack of know-how and adoption of Development of local capacity to provide services that
sustainable production and land use will enable farmers to adopt sustainable production
practices
Opportunities
- Set-up of community-based providers on
There are existing guidelines from RSPO on sustainable farming practices
sustainable production practices
Achievement of sustainable certification - Development of delivery and financial viability
can boost competitiveness of Maguindanao schemes anchored on outgrowers scheme and
in the oil palm market and reduce risks of traditional learning structures and other informal
market exclusion in the near future mechanisms
Extension of technical assistance by - Build capacity of government extension officers to

agricultural extension workers may soon be provide training and mentoring on sustainable
a regular program of PCA farming
Facilitate the accessibility of certification systems,
including appropriate mechanisms for incorporating
smallholder involvement in certification
- Technical assistance in the development and pilot

implementation of sustainable production system
including traceability

- Technical and financial support to enable oil mills
to comply with the sustainable production system
- Set-up of demo farm to showcase sustainable

farming practices and its benefits
Poor farm to market roads Upgrading of farm to market roads
Opportunity - Cost contribution to road construction/ upgrading
LGU is willing to co-share in the

construction and/or improvement of road
conditions
Marketing
Limited number of lead firms currently plantation and processing and the corresponding
operating in Maguindanao establishment of oil palm agribusiness zones
Low supply base/ Conflict with regards to - Promotional campaign to attract more investors
land use
- Development of oil palm zones in consultation with
Opportunities communities and its dissemination
There are interested investors willing to - Dissemination of opportunities to farmers

set-up oil mills in ARMM including voucher scheme for planting materials
and inputs
Policy framework on oil palm promotion
can provide the basis for the crafting of
zoning policy for oil palm plantation

Section 1:
INTRODUCTION
A. BACKGROUND INFORMATION AND OBJECTIVES1
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. Agri-Pinoy also includes the following new 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 National
Climate Change Action Plan (NCCAP) which highlights the priority to be given to the rural sector in
pursuing climate adaptation measures.
The Philippine Rural Development Program (PRDP), a flagship program of the Department of
Agriculture (DA), is aligned with the Agri-Pinoy strategy. It is a six-year program (2013-2019)
designed to establish the governments platform for a modern, climate-smart and market-oriented
agri-fishery sector. Externally, it will focus on expanding market access and improving
competitiveness. Internally, it will introduce reforms in operating the DA bureaucracy. Specifically,
it aims to achieve the following development objectives:
At least, 5% increase in annual real household incomes of farmer beneficiaries; 30%

increase in income for targeted beneficiaries of enterprise development
7% increase in value of annual marketed output
20% increase in number of farmers & fishers with improved access to DA services
To facilitate the achievement of above objectives, the program has four main components, namely:
I-PLAN: Investment for AFMP Planning at the Local and National levels
I-BUILD: Intensified Building-Up of Infrastructure and Logistics for Development
I-REAP: Investments for Rural Enterprises and Agricultural and Fisheries Productivity
I-SUPPORT: Implementation Support to PRDP
The design of PRDP and its implementation aspects draw heavily on the experiences of the
Mindanao Rural Development Projects (MRDP 1 and 2), a program that has been successfully
implemented over the past decade. The PRDP adopts a value chain development approach as a
platform for promoting inclusive, climate resilient, and sustainable growth in key agricultural
subsectors and value chains.
Entry point for the implementation of value chain interventions is at the provincial level with an aim
to gradually scale these up to other viable areas within the region. In ARMM, Magunidanao was
identified as the priority and pilot area. The oil palm is one of the selected priority products on
which the PRDP will concentrate during Year 1 of PRDP implementation.
1
Overview of PRDP was taken from the Program Information Document World Bank website

improving economic stability in Maguindanao. As soon as the oil palm starts bearing fruits, it
provides the farmer a regular monthly income higher than other crops. The palm oil industry
provides employment to unskilled and semi-skilled people. This connotes that an efficient and strong
palm oil sector in Maguindanao will enable the poor to be part of the solution to poverty challenge
through provision of gainful employment and a means of livelihood.
The Philippines is a net importer of palm oil. A robust palm oil industry in Maguindanao can
significantly contribute to reducing palm oil importation and open the opportunity for export.
B. OBJECTIVES OF THE VALUE CHAIN ANALYSIS

This report provides an overview and analysis of the oil palm value chain, linking the international
context to the national, regional, and provincial contexts, with the aim of identifying main leverage
points and key strategies to improve Maguindanao 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 and will lay the foundation for PRDPs cooperation with the private
sector and other government agencies active in the oil palm 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 oil palm industry in Maguindanao and the region in general, 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) Under a participatory process, identify and prioritize interventions needed to overcome

bottlenecks throughout the chain that would foster value chain competitiveness and climate
change resiliency.
d) Identify and explore how to catalyse private and public sector stakeholders in the oil palm
industry to collaborate for improved industry performance
C. METHODOLOGY AND APPROACH

An initial desk study was conducted to collect and summarize information from currently available
reports and studies. It provided guidance to issues that needed to be the focus of field research. The
field work component of the study was conducted using qualitative research techniques particularly
key informant interviews (KII) and focus group discussions (FGDs). Key informants and participants
to the FGDs consisted of farmers, oil mill processor, and representatives from relevant government
agencies. Key informant interviews were used for collecting data on individuals perspectives,
experiences, and quantitative data. FGDs were effective in generating broad overviews of issues of
concerns to the groups or subgroups represented and in the triangulation/vetting of information
obtained from the KII.
Constraints and interventions were identified and further elaborated based on iterative and
inductive analysis of responses during the KII and FGD/Stakeholders Workshop primarily from the
following perspectives:
10

Context of key informants and FGD participants
Third party observations (e.g., government agencies, providers, etc.) were important for
suggesting important issues to explore and for substantiating the results of the interviews
Experiences of other oil palm producing areas
Past assessment studies of the Philippine oil palm industry
Interview with Agumil Manager
11

Section 2:
OVERVIEW OF THE INDUSTRY
A. PRODUCT DESCRIPTION
Oil palm trees are perennial monoecious crops, as they bear both male and female flowers on the
same tree to produce fruit bunches every year. Each tree produces compact fresh fruit bunches
(FFB) weighing between 10 and 25 kilograms with 1000 to 3000 oval-shaped fruitlets per bunch.
Generally, the fruitlet is dark purple, almost black when unripe, and orange red when ripe. Each
fruitlet contains a hard kernel seed enclosed in an endocarp shell, surrounded by a fleshy mesocarp
and exocarp exterior.
Food (frying oil, margarine,

cocoa butter substitute)
Palm Oil
Oleochemical (stearine,
soap, detergent, lubricant,
cosmetics, biodiesel)
Fruit
Particle board, pulp,

Fiber paper
O
I Feedstuff, soap, fertilizer
Sludge
L
Frying oil, salad oil, oleo
P Kernel chemical
A
L
Palm Cake Feedstuff, fertilizer
M
Nut
Briquette, activated
Shell carbon, particle board
Pulp, paper, particle

Empty Bunch
board, fertilizer, energy
Furniture, particle board,

Trunk energy, feedstuff, starch
Figure 1. Oil Palm and its Uses/By-Products
12

Oil palm trees may grow up to sixty feet. Young and mature tree trunks are wrapped in fronds, which
give them a rough appearance. Older trees have smoother trunks, apart from the scars left by the
fronds, which have withered and fallen off. The oil palm tree matures 2.5 to 3 years from planting.
The economic life is about 20 to 30 years from planting and yields continuously throughout the year.
After the tree reaches an 18 to 20 year threshold, it loses its optimal productivity and gradually
decreases its output.
Oil Palm is the worlds highest yielding oil crop, with an output 510 times greater per hectare than
other leading vegetable oils. Oil palm needs less than half the land required by other oil crops to
produce the same amount of oil. This makes palm oil the least expensive vegetable oil to produce.
Oil palm produces two distinct oils, palm oil and palm kernel oil, both of which are important in
world trade. Fresh fruit bunches (FFB) comprise about 18-22% crude palm oil and 3-5% palm kernel.
Palm oil is obtained from the fleshy mesocarp of the fruit which contains maximum 24% oil
depending on the quality and variety of fruit. Palm kernel oil is obtained from the kernel which
contains about 45-50% oil and 40-45% meal. It is a lauric oil which is similar to coconut oil.
Palm oil and palm kernel oil are used in a wide range of products, from margarine and chocolate to
ice cream, soaps, cosmetics, and fuel for cars and power plants. The four main traditional uses of
palm oil in food products are for cooking/frying oil, shortenings, and margarine and confectionary
fats. Palm oil is popularly used in both solid fat products as well as in the liquid cooking oil sector
especially in industrial frying applications. It offers the following technical characteristics that are
desirable in food applications (RSPO website/Better Palm Oil):
It has great cooking properties. Palm oil maintains its properties even under high
temperatures.
Its smooth and creamy texture and absence of smell make it a perfect ingredient in many
recipes, including many baked goods such as biscuits.
It has a natural preservative effect which extends the shelf life of food products.
As a non-food ingredient, palm oil finds application in the production of cosmetics, toiletries, soaps
and detergents. It is also used in the oleochemical industry, as a base material for the production of
surfactants (washing active substances) for laundry detergents, household cleaners and cosmetics.
According to USDA estimates, 75% of the global palm oil consumption is for food purposes, while
about 22% is for industrial/non-food purposes. The remaining, though currently, of marginal
quantity, is used for biodiesel.
Apart from palm oil, palm kernel and palm kernel oil which are the main products of the oil palm,
the tree and the processing wastes generated during processing have several uses. The sludge can
be used to make soaps and fertilizer. The palm kernel cake is widely used as an input into the feed
industry and for fertilizer. The processing wastes namely: empty bunch refuse, fibre, shell, sludge
and mill effluent constitute about 74% 76% of the total mass of the oil products. In addition the
other parts of the palm tree (trunk, leaves, fibre) have broad uses, while the bunch refuse, and by-
products from the oil processing (fibre, shell, sludge) can be used as fuel for the mills in the form of
briquettes. The oil palm biomass can be a raw material for many products such as medium density
fiber board (MDF), particle board, pulp and paper, plastic composites, and bio-compost.
13

To date, end products produced in n Maguindanao are the crude Palm Oil (CPO), Crude Palm Kernel
Oil (CPKO) and the Palm Kernel Cake (PKC).
B. PRODUCTION TRENDS
1. Global Production
Oil palms are grown in 43 countries and their total cultivated area accounts for nearly one-tenth of
the worlds permanent cropland (Koh & Wilcove, 2008). Per FAOSTAT 2012 preliminary data, total
world production of oil palm FFB in 2012 was at 235,096,544.00 MT. Indonesia and Malaysia remain
as the top producers accounting for 81% of the total FFB production. The Philippines is a minor
player in the world palm oil industry. In 2012, the countrys percentage share to world FFB
production was at 0.2%.
According to data from the UN Food and Agricultural Organisation, total global production reached
50 million MT in 2012, almost double the amount produced in 2002. About 47% of the global supply
of palm oil comes from Indonesia, home to the world's third-largest swath of rainforest, after the
Amazon and the Congo basin. Malaysia accounted for 38% of the world palm oil production
followed by Thailand at 3%. Other key palm oil producing countries with 1% to 2.5% contribution
each to global palm oil production are Papua New Guinea, Nigeria, Colombia, Ecuador, and Ivory
Coast. Philippines ranks 16th in world CPO production.
Most of the expansion of the worlds palm oil production has been achieved by increasing the area
planted with oil palm as opposed to yield improvements. The total global area planted with palm oil
has expanded at an annual average growth rate of 3.0% over the last five decades and by 4.8% over
the last two decades.
14

Average worldwide oil palm yield has increased from 1.87 to 2.97 tCPO/hectare over the last five
decades. Yield of Philippines is below the worldwide average and almost half of that of Indonesia
and Malaysia. This may be attributed to the fact that many of the plantations in the Philippines are
still young.
2. Domestic Production
Although considered an
emerging industry in the
Philippines and while its size is
small compared to Malaysia
and Indonesia, Mindanao has
been cultivating and
processing palm oil for the
past three decades. The first
oil palm plantation was
established in Basilan - ARMM
by Menzi Agricultural
Corporation sometime in the
1950s. In 1966/67, Kenram
Industry converted their ramie
plantation in Sultan Kudarat
to oil palm, and then
established 1,100 hectares of
nucleus farm and 3,000 hectares of out grower farms to support the operations of their 20 MT/h
15

capacity crude palm oil (CPO) mill. In the 1980s, National Development Corporation and Malaysian-
based Guthrie Corporation developed 8,000 hectares of oil palm in San Francisco and Rosario of
Agusan del Sur, which subsequently became Pilipinas Palm Oil Plantation, Inc. In 2000, Agumil
started its operations in ARMM/Maguindanao with outgrowership as its flagship program. Agumil
started palm oil milling operations in Buluan, Maguindanao in 2007.
Mindanao is geographically located in the palm oil belt, with the appropriate climatic and soil
conditions for the production of palm oil. Prime areas for oil palm plantations are those located
within 5 degrees of the equator. Mindanao is closer to the equatorial line than Luzon and Visayas.
Based on BAS data, Mindanao accounted for 77% of the 53,014.75 hectares nationwide that have
already been planted with oil palm.
Table 2.- Area Planted to Oil Palm (in hectares)

CY 2012
Area Area Planted (in hectares) % Share to Total Area Planted
Luzon 5, 725.00 11%
Visayas 6,500.00 12%
Mindanao 40,789.75 77%
Zamboanga Peninsula 3.00 0%
Northern Mindanao 4,210.00 8%
Davao Region 1,060.00 2%
SOCCSKSARGEN 16,257.75 31%
CARAGA 17,324.00 33%
ARMM 1,935.00 4%
Philippines 53,014.75 100%
Source: BAS
Caraga has the largest land area devoted to oil palm plantation followed by Soccsksargen.
Maguindanao, which is the lone oil palm producing province in ARMM, accounted for 4% of total
land area in the Philippines planted to oil palm in 2012.
Table 3.- Top Oil Palm Fresh Fruit Bunch (FFB) Producing Provinces and Regions
CY 2012
Top 3 Regions % Share to RP Top 3 Provinces % Share to RP
Production Production
Caraga 48% Agusan del Sur 47%
Soccksargen 25% Sultan Kudarat 15%
ARMM 11% Maguindanao 11%
Source: Calculated from BAS data
The top 3 oil palm producing regions are CARAGA, SOCCKSARGEN, and ARMM. In 2012,
Maguindanao accounted for 11% of the oil palm FFB production in the Philippines. It is the 3rd top
FFB producing province in the Philippines.
16

Table 4.- Production Volume: Oil Palm FFB (in metric tons)
CY 2008 - 2012
Top 3 Producing 2008 2009 2010 2011 2012 % Change
Provinces (08/12)
Philippines 465,995.10 516,114.74 565,459.48 540,913.49 531,294.07 14%

Agusan del Sur 342,217.76 348,377.99 370,342.20 313,775.43 250,830.95 -27%
Sultan Kudarat 69,473.78 70,955.17 73,518.17 76,596.26 80,694.71 16%
Maguindanao 220.00 288.00 664.00 18,795.20 60,426.75 27367%
Year-on-Year 31% 131% 2731% 222%
Source: BAS Data
BAS statistics show that among the top 3 producing provinces, Maguindanao has the highest
production growth rate between the period 2008 2012. Production of FFB significantly increased
from 220 MT in 2008 to 60,426.75 MT in 2012 or an annual average growth rate of 778%.
Table 5.- Number of Productive Oil Palm

CY 2008 - 2012
Provinces (08/12)
Philippines 5,142,879 5,513,038 5,723,613 6,265,945 5,800,845 13%

Agusan del Sur 2,270,380 2,331,940 2,332,720 2,327,140 1,600,000 -30%
Sultan Kudarat 747,700 768,860 817,683 830,155 883,506 18%
Maguindanao 5,867 5,895 6,000 135,000 193,500 3198%
Year-on-Year 0% 2% 2150% 43%
Source: BAS Data
In 2012, the country had a total of 5,800,845 productive oil palm. Maguindanao accounted for 3% of
the countrys productive oil palm while Agusan del Sur and Sultan Kudarat collective share was at
43%. It should, however, be noted that number of bearing trees in Maguindanao grew at an average
of 549% annually during the period 2009 -2012. Statistical reports from the Philippine Coconut
Authority showed that as of December 2012, number of bearing trees in Maguindanao has reached
271.603 and, of which, 97% are located in District II.
Table 6.- FFB Yield per Hectare (in MT)

CY 2008 - 2012
Provinces (08/12)
Philippines 12.07 12.45 12.55 10.97 10.02 -17%

Agusan del Sur 21.07 21.42 22.63 19.15 15.30 -27%
Sultan Kudarat 9.58 9.78 7.54 7.85 8.23 -14%
Maguindanao 0.28 0.36 0.82 12.70 31.23 11256%
Year-on-Year 31% 129% 1440% 146%
Source: Calculated from BAS Data
17

In 2012, average FFB yield per hectare in Maguindanao was at 31.23 MT, which was the highest in
the Philippines and at par with progressive plantations in Malaysia and Indonesia. Average annual
growth rate was at 436%.
Table 7.- Area Planted to Oil Palm

CY 2008 - 2012
Provinces (08/12)
Philippines 38,599.00 41,444.00 45,044.00 49,327.75 53,014.75 37%

Agusan del Sur 16,245.00 16,265.00 16,365.00 16,385.00 16,395.00 1%
Sultan Kudarat 7,255.00 7,255.00 9,755.00 9,755.00 9,800.00 35%
Maguindanao 800.00 800.00 805.00 1,480.00 1,935.00 142%
Year-on-Year 0% 1% 84% 31%
Source: BAS
Among the top 3 oil palm producing areas, Maguindanao/ARMM had the highest increase in area
planted during the 5 year period. Significant expansion took place in 2011 and 2012. Data from the
PCA indicated that as of December 2012, areas planted to oil palm has reached 2,786.45 hectares.
96% of the hectarage planted to oil palm are in District!!.
Table 8.- Breakdown of Area Planted to Oil Palm by District

As of December 2012
District No. of Hectares % Share
District 1 119.60 4%
District 2 2,666.84 96%
Total - Maguindanao 2,786.45
Source: Philippine Coconut Authority
According to the Mindanao Development Authority (MinDA), of the 959,000 hectares of land in
Mindanao identified to be suitable for oil palm plantation, 177,000 hectares of it are already under
negotiation for palm oil development. Majority of the areas under negotiation are located in the
ARMM and Caraga.
Table 9.- Potential Land Areas in Mindanao for Oil Palm

Location Potential Areas (in hectares)
Zamboanga Peninsula 102,000
Northern Mindanao 154,000
Davao Region 104,000
Soccsksargen 112,000
Caraga 384,000
ARMM 103,000
Total 959,00
Source: MinDA
18

Section 3:
NATURE AND STRUCTURE OF THE INDUSTRY
A. VALUE CHAIN MAPPING
Maguindanao, Sultan Kudarat, and the Cotabato provinces are increasingly referred to as Central
Mindanao oil palm hub. Caraga and the Central Mindanao hubs are among the more preferred
zones by palm oil investors.
The Maguindanao palm oil industry has two lead firms, namely: Buluan Oil Mill and Kenram
Industrial as illustrated in the value chain map in the next page. Both firms implement
outgrowership (individual and cooperative) and leasehold programs. News reports from Minda
indicate that a Malaysian firm has expressed interest in investing US$575 million to develop some
66,000 hectares of land in ARMM for oil palm plantations. Unlike in other oil palm producing
countries such as Indonesia and Malaysia, there are no small scale palm oil processors in
Maguindanao.
Prior to the establishment of the Buluan mill (a subsidiary of Agumil), oil palm growers in
Maguindanao delivered their produce either to Kenram (Sultan Kudarat) or Pilipinas Palm Oil
(Agusan). Agumils operations in ARMM began in 2000. Since company cannot own and operate its
own plantation due to the Comprehensive Agrarian Reform Program, it pursued the expansion of its
outgrowership program into Central Mindanao, particularly Tacurong and Buluan. To date, the
19

company has growers all over Central Mindanao covering Cotabato, North Cotabato, South
Cotabato, Maguindanao, Sultan Kudarat, and parts of Davao del Sur. Kenram also works with
farmers in generally the same areas.
With the growing participation of smallholders (less than 3 hectares), intermediaries or buying
stations have started to emerge. To date, there are two buying stations in the province. These
buying stations have made it possible for small farmers to overcome issues on economies of scale
especially in relation to transportation costs.
End products produced at Maguindanao are the crude Palm Oil (CPO), Crude Palm Kernel Oil (CPKO)
and the Palm Kernel Cake (PKC). Around 70% of the palm oil products from Maguindanao are
exported and the remaining 30% are sold to refineries in Manila, Cebu, and Caraga for processing
and refining into many derivatives. These in turn are transferred down the supply chain to
manufacturers for use in the production of a wide range of food, cosmetic, and cleaning products
Exportation is mainly pursued to comply with the requirement for fiscal incentives.
The University of Southern Mindanao in Kabacan - North Cotabato via a Memorandum of Agreement
with Agumil is the lead in the conduct of research and development activities for oil palm in the
Philippines. Central Mindanao has about 7 accredited nurseries. Agumil set up its initial nursery in
the University of Southern Mindanao compound. The company eventually established seedling
nurseries in Tacurong and Buluan. Agumils seedlings are primarily for their out-growers. Agumil is
the largest oil palm seedling producer. The company accounts for about 25% of the seedling market.
B. KEY PLAYERS AND FUNCTIONS
20

1. Input Provision
Farmers under the outgrowership program of Kenram and Agumil used to procure their seeds from
the said oil mills. During the recent months, Agumil has stopped its nursery operations. To date,
growers get their seeds from nurseries. There are about 6 PCA accredited nurseries within the
proximity of Maguindanao:
Table 10.- Accredited Nurseries in Central Mindanao

Nursery Location
Triple P Farms Kabacan, Cotabato
EYG Oil Palm Seedlings Tacurong City, Sultan Kudarat
Kilapasawit Ventures Tacurong City, Sultan Kudarat
Alda Agro Industrial Ventures Kidapawan City
North Cotabato Palm Oil Corporation Makilala, North Cotabato
Kilambay Farms Carmen, North Cotabato
Source: Philippine Palm Development Council
The most preferred variety by oil mills is the tenera because the palm fruits of the latter
contain the most oil. According to Dr. Pablito Pamplona, Director of the Philippine Palm Oil
Development Council, the current and incoming F1 hybrids or tenera in the Philippines are
as follows:
a) Deli x AVROS: Seeds are sourced out from Dami in PNG and is recommended at a population
density of 128 plants/ha. It gives high and stable yield when provided with good cultural
management. It is found suitable to the elevation of 600 MASL or less. The maximum
productivity is attained in seven years and remains productive for 25 or more years.
b) Deli x Yangambi. Seeds are sourced out from Univanich in Thailand and recommended at a
population density of 140 plants/ha. It has been grown in the CARAGA region for the last ten
years giving high yield and provides added yield of ten tons/ha per year under irrigated
condition. It tolerates short-term low rainfall of 2 to 3 months; maximum productivity is
attained in five years and remains productive for 30 years.
c) Deli x Ghana. Seeds are sourced out from ASD Costa Rica and recommended at 140 plants/ha. It
can be planted from sea level and up to 900 MASL due to its good tolerance to low temperature.
It is recently introduced in the country and shows great promise for early and high productivity.
d) Deli x La Me. The seeds are being sourced out from CIRAD partner in Thailand. It is among the
most popular hybrids in Malaysia, Indonesia and Africa due to its high yield, tolerance to short-
term dry period of 2 to 3 months, responsive to irrigation and suitable from sea level to 900
MASL. Planting is at 140 plants/ha
As can be seen above, seedlings are imported from Papua New Guinea, Costa Rica and, more
recently, from Thailand. Landed cost of each seed is about a dollar. After six to eight months
(depending on agronomic practices), 80% of the seedlings are usually marketable while the rest are
usually culled. The price ranges from P175 to P250 per seedling. Nursery establishment has become
a profitable business in itself as the demand for oil palm planting material has grown over the past
21

years. With the growing demand, growers have to place their orders in advance. Oftentimes,
demand exceeds supply.
Aside from the limited supply, the price of seedlings is beyond the capacity of smallholders. For one
hectare with 136 plants, the cost of planting materials ranges from PhP 27,200 to PhP 38,000.
Smallholders who do not have financial capital are dependent on the oil palm companies for
financial assistance. During the past months, the provincial government of Maguindanao has
distributed oil palm seedlings to farmers under the Plant Now, Pay Never program.
There are still farmers in Maguindanao who plant seedlings from unreliable sources or use the F2
hybrid which gives very low FFB and oil yields. Oil mills generally do not want to buy FFB of the F2
hybrid. Likewise, price and supply constraints hinder the replanting of senile or aging oil palm.
Oil palm trees have fewer pest and disease problems compared to crops such as rice, corn,
vegetables, and other tree crops. As such, pesticide requirements are generally low but,
nevertheless, many of the smallholders have difficulty in following the recommended practices due
to financial constraints.
The importance of proper fertilization of oil palm to maximize yield cannot be overemphasized.
However, oftentimes, decisions regarding fertilizer are influenced more by availability of financial
resources and price trends rather than what is needed based on soil analysis. Many of the farmers
depend on chemical fertilizer and have not fully explored the use of organic fertilizer made from
biomass and palm oil processing waste. Agumil has started the production of fertilizer using palm oil
waste. Fertilizer cost will continue to make up a significant proportion of the total cost of
production of palm oil, and therefore oil palm growers have to choose a fertilizer type and program
using materials that are the most cost effective and, at the same time, can contribute towards
optimizing the labour requirements of the whole plantation.
2. Oil Palm Farmers
As of December 2012, number of farmers engaged in oil palm plantation in Maguindanao was
estimated at 368 based on data from PCA. Of the 368 growers, about 28% are contract growers of
Agumil.
Table 11.- Breakdown of Farmers by District

As of December 2012
Maguindanao
District Number of Farmers %
District 1 38 10%
District 2 330 90%
Source: PCA
Majority of the oil palm growers are individual plantations, with farm sizes ranging from 0.75 hectare
to around 270 hectares. A growing number of smallholders are now engaged in oil palm farming via
the provincial governments program Plant Now, Pay Never.
During the peak harvest season (March to May), farmers are able to harvest 4 tons per hectare per
month. June is considered by many farmers as the lean season. Harvest during this month is only
about 1 to 1.5 tons per month.
22

During the recent years, oil palm plantations are increasingly established in logged over areas,
unproductive uplands, low yield lands, and cogon lands. Likewise, some have also established
plantations in poorly drained, frequently flooded wetlands. These fields are difficult to plant to
common crops but experiences , to date, indicate that oil palm in these fields are more productive
than those in the pure upland fields (Pamplona, 2013). Among the innovative techniques introduced
by Pamplona, an oil palm expert and director of the PPODC, to enable the planting of oil palm in
wetland is the construction of dikes or elevated platforms where oil palm is planted to overcome the
adverse effect of flooding. Given the vast areas of idle wetlands in Maguindanao, the widespread
adoption of this technology can provide the platform for expanding oil palm plantations without
encroaching into lands suitable for food crops. Care, however, has to be made that establishment of
oil palm plantations in these areas would not result to adverse environmental impact such as
flooding and loss of wildlife habitat.
Farmers within the agricultural belt where oil palm plantations have been established said that the
planting of oil palm was beneficial. In the Old Maganoy area, oil palm trees prevent the downward
flow of sandy sediments coming from the upriver system in Sultan Kudarat areas. This prevents the
further shallowing up effect of the marsh and lower river systems. Trees screen flash flood debris
and absorbed flash flood water.
Zero tillage and zero burning technologies are also increasingly being practiced in Maguindanao
especially in the conversion of logged over gmelina/ipil-ipil and natural forest fields into oil palm
plantations. In essence, Maguindanao oil palm stakeholders together with Mr. Pamplona have been
actively developing innovative ways to convert unproductive lands into profitable oil palm
plantations.
23

Although Maguindanao has the highest average yield in the country, common not-so-good practices
observed by Dr. Pamplona among oil palm growers are:
- Inadequate care of immature plants including the planting of F2 seeds

- Planting of F2 seeds which have low FFB and oil recovery yield potential
- Inadequate to no fertilization
- Inadequate drainage systems in plains and waterlogged fields
- Inadequate control of weeds
- Premature cutting of leaves
- Harvesting of immature fruits
- None collection of loose fruits
Given the fluctuation of palm oil in the international market, it is important for farmers to target the
optimum yield at the least financial and environmental costs. Good management consistent with the
guidelines of the Roundtable on Sustainable Palm Oil (RSPO) could substantially increase yields of oil
palm plantations in Maguindanao as well as boost market competitiveness.
The field factors that affect the composition and final quality of palm oil are genetic, age of the tree,
agronomic, environmental, harvesting technique, handling and transport. Harvesting involves the
cutting of the bunch from the tree and allowing it to fall to the ground by gravity. Fruits may be
damaged in the process of pruning palm fronds to expose the bunch base to facilitate bunch cutting.
As the bunch (weighing about 25 kg) falls to the ground the impact bruises the fruit. During loading
and unloading of bunches into and out of transport containers there are further opportunities for
the fruit to be bruised. Research has shown that if the fruit is bruised, the free fatty acid (FFA) in the
damaged part of the fruit increases rapidly to 60% in an hour. There is, therefore, great variation in
the composition and quality within the bunch, depending on how much the bunch has been bruised.
24

In Maguindanao, various types of vehicles (from trucks to pick-ups to kuliglig) are used to convey the
FFB to the processing plant. One forward truck can carry 12 to 14 tons of FFB (equivalent to harvest
from 4 to 5 hectares). A kuliglig can carry 1 to 1.5 tons of FFB. For farmers without their own trucks,
they usually rent at PhP 7/ton/kilometer. Some farmers, especially those with less than 5 hectares,
consolidate their deliveries with peers. Others opt to sell to buying stations.
At times, to dismount the load, laborers have the tendency to dump contents onto the ground.
Tumbling the fruit bunches from the carriers is rough, resulting in bruising of the soft exocarp. In any
case, care should be exercised in handling the fruit to avoid excessive bruising and smallholders need
access to proper transportation and logistics facilities and equipment.
Because the fruits are perishable and lose weight once harvested, farmers need to promptly deliver
the FFB to the oil mill. If the roads are impassable especially during rainy days, they suffer losses and
mill operation is also affected.
3. Traders/Buying Stations
The emergence of oil palm buying stations is a very recent development in Maguindanao. Many of
those interviewed attributed this development to the increasing number of farmers with less than 5
hectares of oil palm plantation and, consequently, the need for consolidation in the delivery of FFB
to mills to reduce transportation and hauling costs. To cover transport and hauling costs for the
delivery of the FFB, the intermediaries pay PhP 0.50/kilo less than the oil mill.
Given the need to deliver the FFB within 24 hours after harvest, the greatest challenge faced by the
buying stations is the need to accumulate 12 to 14 tons of FFB within 24 hours.
4. Oil Palm Millers
25

Buluan Oil Mill is the lone processor in Maguindanao but the company is not the only buyer of FFBs
in Maguindanao. The company is a subsidiary of Agumil Philippines, a joint venture between Filipino
and Malaysian investors. Agumil is headed by Chee Kong Chang, a Malaysian national who came to
Mindanao in 1984 with Guthrie,led the expansion of API (subsequently Agumil) through its
expansion beyond Agusan del Sur. Agumils operations in ARMM began in 2000 in the provinces of
Sultan Kudarat and Maguindanao since these areas already had independent oil palm growers selling
their produce to Kenram and Pilipinas Palm Oil.
In 2006, Agumil registered its investment in a palm oil mill in Buluan, Maguindanao with the Board of
Investments of ARMM with an investment cost of PhP 360 million on 20 hectares of land. The
establishment of the Buluan mill was aimed at reducing transport costs for oil palm fruit produced
by Agumils out-grower farms in Central Mindanao. Agumil has a grower base of about 26,000
hectares in four locations, namely Agusan Del Sur, Central Mindanao, Bohol, and most recently,
Palawan.2
Agumil started palm oil milling operations in Buluan, Maguindanao in 2007. The Buluan oil mill
originally had a capacity of 30 tons of FFB per hour, which could service up to 5,000 hectares of fully
mature oil palm. The mill has recently been expanded to accommodate 45 tons to cope with
increased oil palm plantings in recent years. The plant capacity can potentially be expanded up to 90
tons per hour. The plant operates with 30-35 workers in one shift, with overtime during peak
production season. Among the Agumil plants in the Philippines, Maguindanao has the highest
production volume and capacity utilization.
The company availed itself of investment incentives offered under the BOIs Investment Priorities
Plan for ARMM, including a five-year income tax holiday extendable by another three years. The
incentive required that a certain percentage of output be exported and a minimum number of
employees be employed, with preferential absorption of local workers in the enterprise. The
company exports 70% of its CPO, CPKO, and PKO primarily to Malaysia and India.
Another oil palm miller that has outgrowership agreement with Maguindanao oil palm plantations is
Kenram, a company based in Isulan Sultan Kudarat. Kenram ventured into palm oil in the late
1960s. Due to imminent CARP coverage of the plantation by the DAR, KPI applied for a Stock
Distribution Scheme, but the farmworkers through their labor union, rejected the scheme through a
referendum. In 1988, KPI applied for a 10-year Commercial Farm Deferment which was approved by
the DAR. Prior to the expiration of the commercial farm deferment, KPI incorporators established
the Kenram Industrial Development, Inc. (KIDI). After its establishment, KPI sold to KIDI a portion of
the landholding where the milling plant and the nursery farm are located covering about 100
hectares. In 1999, when the two plantations were covered by CARP, the former farmworkers of KPI
and the ejected landless farmers of FSLDC became the beneficiaries of the plantation. These ARBs
were organized into two cooperatives, namely: Kenram ARB Multipurpose Cooperative
(KARBEMPCO); and Mapantig ARB Multipurpose Cooperative (MAPARBEMPCO). When the two
cooperatives took over the oil palm plantations in April 2002, they entered into Production and
Purchase Agreement (PPA) with KIDI, the company which now operates the milling plant.3 The
milling plant has a capacity of 20 tons of FFB per hour. KIDI is establishing a new plant with 60 tons
of FFB/hour capacity.
The oil palm mills carry out the processing and refining of Crude Palm Oil (CPO) from the FFB after
harvesting, handling and transport of the FFB to palm oil mills. Fresh fruit arrives in the mill as
bunches or loose fruit. The fresh fruit is sterilized, steamed and pressurized, purified, and then
2 Habito C., Braving It and Making ItInsights from Successful Investors in Muslim Mindanao
3
DAR, Case Study on Production and Purchase Agreement
26

extracted for crude palm oil (CPO). Extraction of oil from the palm kernels is generally separate from
palm oil extraction. The stages in this process comprise grinding the kernels into small particles,
heating (cooking), and extracting the oil using an oilseed expeller or petroleum-derived solvent. The
quality standard achieved is initially dependent on the quality of bunches arriving at the mill. The
mill cannot improve upon this quality but can only prevent or minimise further deterioration during
the milling/processing.
Agumil paid growers on a 15-day cycle, i.e., payments are released to growers on the 15th and 30th
of the month. This led to many farmers to time their deliveries at or close to these dates, leading to
congestion at the mill gate. Delivery trucks had to queue for more than 24 hours while waiting to be
accepted. This led to deterioration in the quality of the fruit, as free fatty acid (FFA) content rises 1%
for each day of delay. For this reason, Agumil prefers to deal more with cooperatives, as they are
easier to manage particularly in the schedule of deliveries.
Many environmentalists are wary about the environmental pollution that emanates from oil palm
mills due to the production of huge quantities of by-products from the oil extraction process. The
waste products from oil palm processing consist of oil palm trunks (OPT), oil palm fronds (OPF),
empty fruit bunches (EFB), palm pressed fibres (PPF) and palm kernel shells, less fibrous material
such as palm kernel cake and liquid discharge palm oil mill effluent.
To address environmental issues parallel to making judicious use of waste materials, Agumil invested
PhP 40 million to construct a biomass based co-generation power plant in Buluan, which generates
one megawatt power for its own use. The biomass based co-generation power plant makes use of
waste materials such as the EFB. OPF and the like. The company also constructed a closed anaerobic
digestion system to collect the methane from the treatment of their palm oil mill effluent (POME).
The collected methane is co-fired together with the biomass for steam and power generation.
Chang estimates that the Buluan mill can generate up to 5MW of power. However, the investment
decision to expand the plans capacity would be influenced by the policy and institutional
environment governing electric power in Mindanao, including the need for a mechanism for selling
excess individual power production to the grid.
In the meantime, Agumil is using the excess biomass waste as organic fertilizer. Continuous R and D
is being undertaken to come up with the most appropriate fertilizer for oil palm for various soil
conditions.
5. Refineries
Some of the refineries in the Philippines are: a) Asian Plantation Philippines, Inc.; b) Mina Oil Mill
Corporation; c) Oleo Fats, Inc.; d) Pacific Oil Products; e) RFM Corporation; f) Universal Robina
Corporation; and g) Caraga Oil Refinery, Inc.
Conversion of crude palm oil to refined oil involves removal of the products of hydrolysis and
oxidation, colour and flavour. After refining, the oil may be separated (fractionated) into liquid and
solid phases by thermo-mechanical means (controlled cooling, crystallization, and filtering). The
liquid fraction (olein) is used extensively as liquid cooking oil.
Main products include: Refined Bleached Deodorized (RBD) Palm Oil, RBD palm olein, RBD palm
stearin, RBD Palm Kernel (PK) olein, RBD PK stearin, palm fatty acid, and cocoa butter equivalent.
27

C. NATURE OF INTER-FIRM RELATIONSHIPS
1. Horizontal Relationships
The oil mills encourage farmers to organize their cooperatives, in order to enter into contract
growing with them. As per interviews with key informants, existing cooperative in Maguindanao
would need further organizational development support to facilitate the development of the
internal and external infrastructure and organizational elements needed to achieve the economic
performance objectives that underlie the viability of collective enterprises. Smallholder farmers in
the oil palm industry need to empower themselves through training, facilitation, and networking.
Formation of groups and ensuring that these groups are facilitated and sustained are crucial steps in
bringing fragmented lands together and promoting economies of scale. The formation of
cooperatives is also important to construct the system of rotation in order to ensure stable volumes
of FFB throughout the year.
2. Vertical Relationship and Supply Chain Governance
Vertical linkages between farmers and the oil mills are carried out via outgrowership, leasing, and
suki relationships. Through the outgrowership program, smallholders are able to access good
quality planting materials, fertilizer and other production inputs as well as technical advice from the
mill. The contract between the mill and the outgrower farmer stipulates that the mill provides
inputs on credit to the farmer (at cost), and the farmer in return supplies all his/her production
output to the company. A percentage of the value of the delivered FFB is used for loan servicing. The
contract is usually on a share-financing basis: farmers put up a portion of the investment cost at
planting time and the remaining part of the investment is a loan. Contract is usually for 20 to 25
years.
Farmers enjoy a grace period on their loans, and start repayment when the trees are in full
production. Agumil growers keep the entire farm earnings between the third and fifth year, thereby
getting a two-year grace period before having to repay their loan. Agumil assigns a staff for each
coop that company works with. The technical staff provides advice on plantation care and
management and some assistance on financial management and organizational development.
Despite the close monitoring though, there are still cases of pole-vaulting.
Table 12.- Contractual Arrangement between Farmers and Oil Mills

Buluan Oil Mill Outgrowership
Facilitation of financing loan from Land Bank of the Philippines:
seedling and plant establishment + Inputs and labor for 2nd and 3rd
year maximum of PhP 30,000
Technical services
Contract period for 25 years
Pricing based on data of actual extraction rate of CPO and selling
price of CPO in international market and the exchange rate
Entire output committed to Buluan
Lease Arrangement: minimum of 1200 hectares

Yearly rental of land over a period of twenty five years
Kenram Industrial and Outgrowership
28

Table 12.- Contractual Arrangement between Farmers and Oil Mills
Development , Inc. (KIDI) Mill owner supplies hybrid seedlings and technology
Farmer spends for plantation development
All production delivered to the mill at current mill prices
Cost of seedlings or inputs deducted over a specified period, with or
without interest
Options
1. Production and Purchase Agreement (PAPA)
Growers sell the FFB exclusively to the company valid for 20
years and renewable upon mutual agreement of both parties
FFB should conform with the standards of quality set in the
agreement
Free technical services
Growers repay the costs of seedlings and fertilisers without
interest by deducting 30% on the FFB deliveries starting from
the first FFB delivery until full payment
After four years of development support and upon agreement
between the grower and KIDI, the company supplies the
growers with farm inputs without interest and payable within
30 days.
Any unpaid amount after 30 years earns interest at 12% per
year until fully paid.
2. 100% self-financing by growers

Growers pay seedlings in cash and spend on labor and materials
KIDI provides free technical assistance during the first 4 years of
crop development
Source: Oil Palm Expansion in the Philippines
The lease arrangement is in a way a resource providing contract to access huge tracts of land for
production in a way that does not violate the Comprehensive Agrarian Reform Law and provide
management specifications to ensure quality produce (growers follow recommended production
methods, input regimes, and cultivation and harvesting practices).
The FFB pricing system is generally transparent. However, unlike in forward contracting where
outgrowers enjoy guaranteed price, oil palm farmers are vulnerable to price and exchange rate
fluctuations.
Given that buying stations have just recently been established, relationships between the latter and
smallholders can be characterized as arms length transactions. Similarly, relationships between oil
mills and buying stations consist primary of spot transactions.
29

D. PRICE AND COST STRUCTURE
1. Income and Profit
Oil palm is relatively easy to establish and maintain even in fields with adverse environment such as
upland grasslands, logged over forest areas, wetlands, and frequently flooded areas. Establishment
and maintenance cost of a one-hectare farm during the first three years is about PhP 110,000. The
biggest cost component at 46% is for fertilizer. Planting materials account for 30% of the cost. Labor
cost accounts for 22% of the total costs.
Table 13.- Farm Establishment and Maintenance Costs (Year 1 to Year 3)

Line Items Cost (PhP) %
Establishment 49,500 45%
Planting Materials 32,500 30%
Fertilizer 5,000 5%
Labor 12,000 11%
Maintenance (Years 2 and 3) 60,500 55%
Fertilizer 45,000 41%
Other Supplies 3,500 3%
Labor 12,000 11%
Total 110,000 100%
Oil palms generally begin to be productive 26 months after being planted, and commercial
harvesting commences 6 months later. The yield of an oil palm is relatively low at this stage, but
increases as the oil palm continues to mature, and peaks between the 6th and 25th year. Yields
gradually decrease thereafter.
Table 14.- Average Income of Farmers during the 6th to 25th Year
Line Items Area Suitability Level
High Medium Low
Yield (MT/ha/yr) 30 25 20
Price per Ton (PhP) 5,000 5,000 5,000
Gross Income 150,000 125,000 100,000
Expenses (Labor and 34,000 25,000 18,000
Fertilizer)
Annual Net Income 116,000 100,000 69,000
Monthly Net Income 9,667 8,333 6,833
Income on the 19th month is low compared to 6th year and onwards. But, definitely, income from
oil palm even before the 6th year is higher compared to other crops --- or to no income at all.
Interviews with Datu Abdullah Sangki and the many other smallholders in Maguindanao who
participated in the FGDs indicated that 2.5 years after farm establishment, they were able to start
30

earning from their oil palm plantation. Harvests are sold either to Agumil or Kenram. In cases where
individual volume is low, one of the farmers acts as consolidator which help in reducing cost of
transportation. Likewise, Datu Abdullah and majority of the farmes practiced intercropping during
ithe first two years, After the 2nd year when intercropping is no longer advisable, farmers raise goat
and cattles which are fed with the grass vegetation in the oil palm plantation. There are a lot of
production system synergies than can be promoted to assure increase in income. Farmers in
Maguindanao are more inclined to plant oil palm rather than coconut. According to farmers, income
from oil palm is much higher than coconut. Harvest of FFB is also more frequent than that of
coconut.
Fully mature oil palms produce 20 to 30 metric tons of FFBs per hectare, depending on a variety of
factors, including age, seed quality, soil and climatic conditions, quality of plantation management,
and timely harvesting and processing. The ripeness of harvested FFBs is critical in maximising the
quality and volume of extracted palm oil. Consequently, buying price depends on percentage of oil
and kernel extracted. Buying price of FFB ranges from PhP 3,500 to PhP 5,000/metric ton depending
on the palm oil price at the international market.
Major cost centers in oil palm farming are the planting materials and fertilizer. Quality high yielding
F1 hybrid ready to plant seedlings of palm oil are available to farmers in Thailand at a cost of 1/3 to
1/2 of those sold in the Philippines. A reduction in the cost of seedlings would make oil palm
farming a more accessible livelihood option for smallholders in Maguindanao.
Fertilizer is a major input in oil palm plantation. Different types of fertilizers are required at different
stages of growth for palm trees. Productivity declines without the appropriate application of
fertilizers to the palm tree. According to documents on oil palm farming materials from PPDC, use of
inorganic fertilizer can be reduced by 50% by planting cover crops like Mucuma Bracteata and use of
organic fertilizer made from oil palm processing waste.
Price fluctuation in palm oil is inevitable. The best ways for farmers to cushion the effect of
fluctuation are to adopt Sustainable Farming/Good Agricultural Practices to ensure optimum yield
and to practice intercropping.
2. Relative Financial Position of Players
Table 15.- Relative Financial Position of VC Players

Assumptions: 5 MT of FFB: 1 MT of CPO
FFB Price: PhP 5,000/MT
CPO Price: US$ 850 / US$ 1:PhP 45
Player Product Costs Profit Margins
Total Added % Added Unit Unit % Profit Unit % to
Unit Cost Unit Unit Price Profit Margin Price
Cost Cost
Farmer FFB 6,800 6,800 69% 25,000 18,200 65% 25,000 66%
Oil Mill CPO 28,000 3,000 31% 37,825 9,825 35% 12,825 34%
Total 9,800 100% 28,025 100% 37,825 100%
Source: KII
31

Cost and profit appear to be equitably shared between the farmer and the mill. Per unit profit of
oil mills is low and, as such, volume is a critical factor. It can be seen, however, that a peso spent in
processing has higher returns compared to farming.
32

Section 4:
MARKETS AND MARKET OPPORTUNITIES
A. MARKETS AND MARKET TRENDS
1. Export Markets
Global edible oil consumption has increased from 123 million metric tons in 2007 to 158 million
metric tons in 2012 or about an 18% growth over the last 5 years. In the edible oil production mix,
palm oil, at 48.7 million metric tons, is the single largest consumed vegetable oil in the world. The
demand for palm oil is increasing and the share to world vegetable oil consumption is projected to
reach 70% by 2015. The growth is fuelled by increased population, incomes, and per capita
consumption especially in developing countries.
In 2010/11, the average person consumed 6.8 kilograms of palm oil per year and this figure is
forecasted to rise to 8.65 kg/yr in 2025/26 (FAPRI 2011).
Consumption of palm oil has been increasing by about 6.1% over the last five years. Europe was the
main palm oil importer in the 1960s and until mid-1970s. Since then, the main importers have been
Asian countries. India, Indonesia, China, have emerged as the worlds leading importers of palm oil.
Increasing demand of vegetable oil is also noted in such countries as Pakistan, Europe, USA and
Bangladesh. India is among the key export markets of the Maguindanao palm oil.
33

The palm oil sector is considered a high performing industry that enjoys a strong market position. It
is the vegetable oil with the highest level of market penetration covering about 150 countries. Many
of these countries are depending heavily on palm oil imports.
Palm oil is one of the few vegetable oils in the

market with a crop-specific sustainable certification
standard, the Roundtable on Sustainable Palm Oil
(RSPO). In response to the growing concerns about
the environmental and social sustainability of the
palm oil sector, key palm oil end buyers and
retailers (Unilever, Migros, and Sainsburys)
teamed up with major producers (the Malaysian
Palm Oil Association, Golden Hope) and the WWF
to set up the RSPO in 2004. The goal of the RSPO is
to promote the production and use of sustainable
palm oil through certification and traceability.
As of 2013, 15% of the worlds palm oil is certified as sustainable by the RSPO, up from 10% in 2011.
This is equivalent to about 8 million tonnes, covering 2.4 million hectares of plantations. Unilever,
one of the largest palm oil buyers in the world and a founding member of RSPO, buys all its palm oil
from certified providers. Procter & Gamble and McDonald's buy about 13% of their palm oil from
certified sources. About 17% of the palm oil used by PepsiCo is from certified producers. In 2009,
the Indonesian Government launched the Indonesian Sustainable Palm Oil (ISPO) standard. It is
projected that sustainability certification would become a norm rather than an exception in the very
near future.
34

2. Domestic Market
Philippines imports about 85% of its total palm oil requirement from Malaysia (95%) and Indonesia
(5%). The remaining 15% is locally produced. Currently, Philippines is the third largest importer of
Malaysian Palm Oil (MPO) after China and Japan.
In 2009, the country was the seventh largest importer of Malaysian palm oil in the Asia Pacific
Region, with 119,255 MT. The Malaysian palm oil import increased substantially to 204,731 MT in
2010 and in 2011 recorded a tremendous increase to 512,069 MT. In 2012, Philippines imported
PhP 27.50 billion of palm oil. This importation is projected by Malaysian Palm Oil Council to grow at a
minimum rate of 11% a year for the next 10 years. To cover the countrys palm oil importation, the
Philippines has to plant an additional of 144,000 hectares.
At the provincial level, the Buluan mill can accommodate unlimited volume of FFBs provided that
they meet standards of ripeness and freshness. The FFB should be delivered to the mill on the same
day as it was harvested and FFB which was more than 2 days old will be rejected. The company is
willing to increase milling capacity if needed and warranted.
Table 16.- Quality Standards of FFB

Ripeness Under ripe: any bunch with less than 10 detached fruitlet
35

Table 16.- Quality Standards of FFB
Over ripeany bunch with more than 50% detached fruitle
Each delivery should not contain more than 15% under ripe and/or 30% over
ripe bunches.
Freshness FFB should be delivered to the Mill on the same day as it is harvested
FFB which is more than 2 days old will be rejected or subject for quality
control
Contamination Crops should be not be contaminated with any extraneous matter
Badly contaminated crop will be rejected
Stalk Maximum stalk length should be 5 centimeters from the base of bunch
Source: Production, Technical, and Marketing Agreement (Agumil)
B. PRICE TRENDS
1. Export Market
Traditionally, a key influence on the palm oil price has been the use of vegetable oils in India, which
can swing dramatically between palm and soybean oil due to the Indian import tariff policy (Carter
et al., 2007; Thoenes, 2007). As one of the three largest vegetable oil importers, Indias role in the oil
markets is sufficient to make its consumption a major determinant of the relative prices of soybean
36

oil and palm oil. However, as a consequence of the increasing import by EU and USA over the last
five years, the influence of India has weakened (Carter et al., 2007).
Food and Agricultural Policy Research Institute (FAPRI) predicts that palm oil consumption will
increase over the next 14 years and forecasts that palm oil prices (the Rotterdam CIF import price)
will reach US$ 1,162 per MT by 2025. The FAPRI projections only partly and tentatively take into
account rising demand for biodiesel, as modeling domestic and global demand for biofuel is a very
multifaceted task. Furthermore, possible future changes in national policies - e.g. in the area of
biofuel production and consumption - have not been considered in these projections.
The projected increase in palm oil in the coming years is based on the following reasons: a) increase
in demand for palm oil in China, India, and other countries of emerging economies; b) slowing down
in the production of other major vegetable oil crops such as soybean and rapeseeds due to lack of
land and climate change; c) increase in the price of petroleum oil to which the price of palm oil is
now tied-up: and d) increasing use of soybean and rapeseed oil as biofuel in USA and Europe,
respectively.
The projected increase in the price of palm oil is good for farmers but may not bode well for the
economy of the country if it chooses to import rather than produce palm oil. As demand for palm oil
in the Philippines increases, there will be an increase in the cost of importation of palm oil.
2. Domestic Market
The selling price of FFB is based on the actual extraction rate of crude palm oil (CPO), selling price of
CPO in the international market, and the exchange rate. During the recent months, price of FFB
ranged from PhP 5,000 to 6,000 per MT.
Table 17.- FFB Price Formula (Buluan)

Price of FFB/metric ton [A x B x CD x Emills processing cost ] 85
A Mill's Actual Oil Extraction Ratio OER of the crop delivered
B Mill's Recent Palm Oil CPO Selling Price in US Dollars
C Prevailing Exchange Rate Pesos/US Dollar
D Mill's Actual Kernel Extraction Ratio KER
E Mill's Recent Palm Kernel Price in pesos
Source: Buluan Oil Mill Contract Growers Agreement
Section 5:
37

SUPPORT SERVICES
A. FINANCIAL SERVICES
Land Bank of the Philippines (LBP) and Quedan and Rural Credit Guarantee Corporation
(QUEDANCOR) provide financial services to the oil palm sector. LBP financing is more accessible to
cooperatives and has the following features:
a) A maximum loan of PhP 110,000 per hectare covering the costs of inputs
and labor for the first three years of plantation establishment. The PhP 110,000 is considered a
long-term loan whereby the payment of principal and interest shall start on the 5th year after
planting.
b) The landowner/cooperative shall provide equity of about PhP 20,000 per

hectare.
c) The input and labor requirements up to the fourth year (around PHP30,000) shall be released by
LBP as a short term loan and shall be paid within the year from the sales of the harvest of that
year.
d) Cooperative/Landowner that applies for the loan should have a marketing agreement for their
FFBs with a palm oil mill.
For farmers under the Kenram growership agreement, loans are provided in kind (fertilizer and
seedlings). Growers repay the costs of seedlings and fertilisers without interest via 30% deduction
from FFB deliveries starting from the first delivery until full payment.
B. NON-FINANCIAL SERVICES
Main providers of services are the following:
a) Oil Mills: technical assistance/coaching and transportation services

embedded in marketing agreement; organizational development support
b) Philippine Palm Development Council in collaboration with the local

government units: training and technical assistance
c) Department of Agriculture/Philippine Coconut Authority: technical assistance and

organizational development
38

Section 6:
ENABLING ENVIRONMENT
A. FORMAL RULES, REGULATIONS, AND POLICIES

The following are the policies that have significant impact to the oil palm sector in Maguindanao:
1. Infrastructure (farm to market roads and arterial roads, etc.) is a serious constraint in existing
and potential areas for oil palm plantations. Due to the time sensitive nature of oil palm
harvesting, this is a particularly critical challenge for this crop. Smallholder farmers often located
in remote rural areas suffer from being able to transport their FFBs in time to the mill.
Moreover, the transport of FFBs to the mill requires trailers and heavy trucks. Rough roads add
to transportation costs and accelerate the deterioration of vehicles. These infrastructure
investment requirements are public goods and should be funded by the government.
2. The promotion of the oil palm industry has its basis in Presidential Decree 1468 which calls for
the the development of a globally competitive coconut and other palm oil industry that would
contribute to food security, improved income and enhanced participation of stakeholders. A
draft document entitled the Policy Framework for the Development of Palm Oil Industry
further elaborates on the mandate of the Governing Board of the Philippine Coconut Authority
and, with reference to palm oil, it states that this industry shall complement the coconut
industry and that priority in oil palm cultivation shall be given to idle, unproductive and
underdeveloped areas. This policy framework though seems to have remained as a set of
recommendations since the PCA Governing Board has not yet passed a resolution to approve it.
Similarly, the PCA mandate with reference to the oil palm sector appears to be not yet well
articulated.
During the recent months, the Philippine Coconut Authority has conceptualized the provision of
inputs assistance, such as oil palm seedlings and fertilizers to prospective smallholders located in
strategically-preferred areas for oil palm growing, which will hopefully be implemented this year
or in 2015.
To ensure the environmental and ecological sustainability of Maguindanao and, consequently,

its agricultural productivity as well as not to compromise food security, the provision on the
establishment of oil palm plantation in idle and unproductive land should be incorporated in
local rules and regulations dealing with land use and property rights. In addition, conversion of
farms cultivated to staple food and other industrial crops to oil palm should also be well-
regulated by local government units and the appropriate national agencies.
3. Given the growing concern for sustainability and the move towards sustainability certification,
government at all levels should facilitate the accessibility of certification systems, including
appropriate mechanisms for incorporating smallholder involvement in certification. There is a
need to strengthen policy and regulatory environment for sustainable palm oil production and
land use. Likewise, there is a need to build capacity for environmental and social impact
assessment and regulation.
39

B. INFORMAL RULES AND SOCIO-CULTURAL NORMS
1. The major sources of social capital among farmers in Maguindanao are kin networks, home
neighborhood, farm neighborhood, and membership in a farmers association. The farmers give
premium to interpersonal relations. Harnessing the kinship/interpersonal relations factor can
reduce transaction cost in the sharing and diffusion of sustainable production practices. The
farm is the community space where sharing and learning of technologies like Good Agricultural
Practices can occur. Familial tie is the radius of spontaneous sharing, whereas the farm can be
the radius of spontaneous diffusion, where both sharing and learning can happen.
2. Buying in tingi or piecemeal is the norm rather than an exception in the Philippines. Long before
multinationals and large local companies began producing product sachets, sari-sari stores
(neighbourhood stores) would buy household items such as sugar, vinegar, shampoo, cooking
oil, cigarettes, etc. in bulk and sell these to the customers in piecemeal: by the stick, by the
piece, by the tablespoon or cup. The tingi system has spread into various industries such as
telecommunications where it became possible for users to buy phone credit or load for as low
as PhP 5.00.
The tingi or piecemeal mentality influences much of what the Filipinos do. The tingi mentality is
also reinforced with Filipinos relatively low propensity to save, and preference for immediate
gratification. This is manifested even in little things, such as their preference for instant prize
promotions rather than loyalty programs which might require them to accumulate points toward
a larger prize (De Veyra 2004). Spending more to purchase sachets today instead of saving up to
buy in bulk would be consistent with this tendency. Likewise, the dominance of the tingi
mentality can also be correlated to general aversion of Filipinos to risks.
As such, in the conduct of training and capacity building activities as well as introduction of new
technology and innovations, the program can build the design around this tingi mentality to
have higher chances of success and adoption.
3. Bahala na" (letting go) that may be positively viewed as being available to God, being resilient,
and having a sense of hope. It can also be viewed negatively as being fatalistic, resigned,
tolerant, and over dependent on authority. This can have implications on the way that farm
enterprises are managed and operated.
4. Although scarcity mentality can push individuals to concentrate on pressing needs and give
people a keener sense of the value of a peso, it can also shortens a persons horizons and
narrows his/her perspective. Scarcity or poverty can create a mindset creates a mindset that
perpetuates scarcity which are exhibited in various ways such as poor farm maintenance, non-
application of fertilizer, etc. There is a fundamental need to increasingly integrate behavior
change interventions in upgrading initiatives and to be sensitive about the role deep poverty can
sometimes play in reinforcing behaviors that will negatively impact an individuals ability to
transition upwards out of poverty.
40

Section 7:
CONSTRAINTS AND OPPORTUNITIES
Table 18.- Constraints and Opportunities

Constraints Opportunities
Input Provision
Lack of access to and availability of supply of Agumil, which operates a mill in Maguindanao,
local planting materials other than those has the largest nursery and is said to have the
imported from Papua New Guinea, Costa Rica best quality planting materials. The company
and lately Thailand. may be interested to go into nursery
microfranchising so that oil farm clusters would
Lack of know-how to set-up an effective system have a nursery within their proximity
for nursery operations
In Thailand, quality high yielding F1 hybrid ready
to plant seedlings of palm oil are available to
farmers at a cost of 1/3 to 1/2 of those sold in
the Philippines. Oil palm seedlings are sold low
cost and in small plastic bags 10 x 10 or 10 x 12
inches for easier transport to remote places.
Maguindanao can learn from the experiences of
Thailand and from Univanich on how to make
seeds/planting materials more affordable.
Government is currently showing interest in

pursuing the expansion of oil palm planting in
the Philippines. One indication is the
involvement of the Philippine Coconut Authority
in the production of the Philippine Oil Palm
Industry Roadmap. It may soon develop
initiatives and programs that would help in
responding to the problem on the high cost of
planting materials.
Certified seeds of oil palm are imported from Malaysia, Papua New Guinea, and Thailand; therefore,
price of seedling of oil palm ranges from PhP 180 250 which is too expensive for smallholders and
also significantly increases cost of production vis--vis major oil palm producing countries. . Price
and supply constraints hinder the replanting ofsenile and F2 Experiences from Thailand show that
it is possible to lower the cost of seedlings to make it more accessible and affordable to smallholders.
Likewise, with expansion targeted in more remote areas, proximity to source of planting materials
can reduce cost.
High cost of chemical inputs both to farmers and Technology for production of organic fertilizer
environment using palm oil waste is available. Use of organic
fertilizer and Mucuna bracteata for cover crop in
Limited availability and commercial distribution oil palm plantations can reduce the use of
of organic fertilizer and inputs specific for oil inorganic fertilizer by about 50%.
palm
Many of the farmers depend on chemical fertilizer and have not fully explored the use of organic
41

fertilizer made from biomass and palm oil processing waste. Fertilizer cost will continue to make up
a significant proportion of the total cost of production of palm oil, and therefore oil palm growers
have to choose a fertilizer type and program using materials that are the most cost effective and, at
the same time, can contribute towards optimizing the labour requirements of the whole plantation.
Proper fertilizer management is important to maximize yield.
Farming
Lack of know-how and adoption of sustainable There are existing guidelines from RSPO on
production and land use sustainable production practices
Achievement of sustainable certification can

boost competitiveness of Maguindanao in the oil
palm market and reduce risks of market
exclusion in the near future
Extension of technical assistance by agricultural

extension workers may soon be a regular
program of government, under the proposed
programs of the Philippine Coconut Authority
Many environmentalists are wary about the environmental pollution that emanates from oil palm
mills due to the production of huge quantities of by-products from the oil extraction process. Given
the fluctuation of palm oil in the international market, it is important for farmers and millers to
target the optimum yield at the least financial and environmental costs. Good management
consistent with the RSPO guidelines could substantially increase yields of oil palm plantations in
Maguindanao as well as boost market competitiveness. Non-sustainable practices will in the medium
term hurt the productivity of the oil palm industry and the whole agricultural sector in Maguindanao.
Poor farm to market roads LGU is willing to co-share in the construction
and/or improvement of road conditions
Due to the time sensitive nature of oil palm harvesting, this is a particularly critical challenge for this
crop. Smallholder farmers often located in remote rural areas suffer from being able to transport
their FFBs in time to the mill. Moreover, the transport of FFBs to the mill requires trailers and heavy
trucks. Rough roads add to transportation costs and accelerate the deterioration of vehicles.
Marketing
Limited number of lead firms currently operating There are interested investors willing to set-up
in Maguindanao oil mills in ARMM
Low supply base/ Conflict with regards to land Provincial government has been extensively
use promoting the establishment of oil palm
plantation
Policy framework on oil palm promotion can

provide the basis for the crafting of zoning policy
for oil palm plantation
Given the need for FFBs to be processed immediately, proximity of oil mills is important. Likewise,
healthy competition among lead firms can potentially translate to improved benefits for
smallholders. Conflict with regards to land use has impeded potential investments. A clear and
transparent zoning based on sustainability principles and adoption of sustainable practices can
42

potentially help ARMM in significantly expanding its oil palm industry.
Section 8:
43

COMPETITIVENESS DIRECTIONS
A. COMPETITIVENESS VISION
The growth of the ARMM oil palm industry in both domestic and export markets and the realization
of its potential to contribute significantly to the improvement of living conditions of communities in
marginal/fragile ecosystem hinges on putting in place a system that will sufficiently meet the
requirements of price, quality, and reliability of supply. Specifically, it is underpinned by the
following factors as identified and agreed by the stakeholders:
- Adoption of sustainable production practices and land use and the achievement of
sustainable certification
- Efficient farming and production technologies including sourcing of planting materials and
inputs to ensure that cost of production will meet market expectations, allow the industry
to be competitive in world markets, and improve industry profitability
- The need to address infrastructure and resource deficiencies that are impeding the
efficiency of industry
B. PRIORITY CONSTRAINTS/OPPORTUNITIES AND INTERVENTIONS
44

To achieve the above vision for competitiveness, the following are the key intervention strategies as
identified by stakeholders:
INPUT PROVISION
1. Development of local capacity to commercially produce and distribute planting materials at a

price level at par with other oil palm producing countries
The main objectives of the intervention are: i) to reduce the cost of good quality planting materials
at a price at par with other oil palm producing countries to boost competitiveness both in the
domestic and world market; and ii) facilitate wider use of improved varieties among smallholders.
This intervention will contribute to reducing production cost parallel to improving yield and product
quality particularly among smallholders.
In Thailand, quality high yielding F1 hybrid ready to plant seedlings of palm oil are available to
farmers at a cost of 1/3 to 1/2 of those sold in the Philippines. The seedlings are sold in small plastic
bags 10 x 10 or 10 x 12 inches for easier transport to remote places. Univanich, a foreign company in
Thailand engaged in the production of F1 hybrid seeds and ready to plant seedlings, has seedlings in
small plastic bags to cater to the needs of small farmers in remote areas. ARMM can look into the
experiences of Thailand as basis for the development of competitively priced oil palm planting
materials. It is also recommended that nurseries be set-up within the proximity of targeted
expansion areas. These nurseries can be stand-alone enterprises or can be established as micro
franchisees of the Agumil nursery in Agusan del Sur. Nursery operators should also be trained to
provide technical advice to their clients.
Rather than distributing free planting materials to smallholders which oftentimes undermine the
development of effective demand and supply, PRDP can implement a voucher based program or
similar demand creation mechanisms such as the Plant Niw Pay Later schemes. In a voucher
program, farmers pay for a portion of the cost of planting materials and redeem the voucher to a
program accredited supplier of their choice. A voucher program helps increase effective demand by
making farmers aware of the improved varieties available within the locality and allowing them the
opportunity to acquire small quantities of these varieties at low risk and investment to test on their
farms, which they might then purchase for themselves in subsequent seasons. The use of vouchers
can also help in strengthening cash flow of nurseries as well as encourage operators to provide good
quality to generate repeat clients.
Other ideas put forward by stakeholders to reduce the cost of planting materials are the following:
i) development of locally adopted, high yielding F1 hybrids; and ii) importation of large quantities of
F1 seeds by LGUs and small nursery operators under the assistance of BPI for quarantine regulations,
DOF and DTI for tax exemption.
2. Development of local production and commercialization of organic fertilizer including access

to proper fertilizer management and application.
This intervention aims to: i) Facilitate access of farmers to site appropriate fertilizer based on leaf
analysis, soil analysis, nutrient balance approach, plant nutrient demand principles to ensure healthy
vegetative growth and optimum economic FFB yields; ii) To build capacity of farmers to apply the
fertilizers in a manner that is likely to result in the most efficient uptake of nutrients; iii) To integrate
the use of organic fertilizer using palm residues, empty fruit bunch, and other agriwaste materials to
reduce financial and environmental costs; and iv) To minimize negative environmental impacts
45

related to over-fertilization, land degradation, and pollution from heavy metals such as cobalt and
euthrophism.
Fertilizer cost will continue to make up a significant proportion of the total cost of production of
palm oil, and therefore oil palm growers need fertilizer that are the most cost effective and, at the
same time, can contribute towards restoring soil health. On way to reduce the use of fertilizer is
through nutrient recycling, particularly from production of waste and/or by-products. Oil palm
plantations produce large amounts of by-products, particularly palm oil mill effluents (treated) and
empty fruit bunches at the rate of 0.1 and 0.2 tonnes respectively for every tonnes of fresh fruit
bunches (FFB) processed. These by-products are good sources of plant nutrients and can be recycled
into the fields as organic fertilizers.
It is recommended that program support to existing and new fertilizer enterprises be geared
towards helping them produce fertilizer that match agro-ecological zones parallel to increasing their
productivity, production capacity, and product quality. This will enable fertilizer enterprises to offer
consistent and reliable supply of alternative fertilizer products of better quality and improved
effectiveness at lesser cost, which will result to lower production costs. Training and coaching on
business management and marketing will also be needed to assist fertilizer enterprises to improve
their internal infrastructure to better serve the clients while ensuring its financial viability. The
program should also train fertilizer enterprises to deliver technical assistance to the clients in proper
fertilizer use and management and assist in the set-up of model plots which will be used as a
showcase and training venue. By helping their clients to succeed, the fertilizer enterprises are laying
the groundwork in building the markets for their products.
Fertilizer is often considered too risky to buy especially among resource poor farmers. Program may
implement the voucher program or similar market-based mechanism to stimulate farmers to use
organic fertilizer and to minimize risk aversion. On the supply side, the voucher program can provide
the platform for organic fertilizer manufacturers to launch their products to a wider market which
will help them buffer upgrading investments.
Farming
3. Development of local capacity to provide services that will enable farmers to adopt
To avoid financial, legal and reputational risks parallel to increasing productivity, oil palm growers,
buying stations, and mill operators need to carefully manage the environmental and social impacts
of their operations via implementation of sustainable production practices. Similarly, expansion of
production into degraded land and low carbon sink areas with little conservation value offers the
opportunity to increase palm oil production with minimal controversy and environmental harm.
To facilitate the widespread adoption of sustainable production practices, there is a need to

establish community-based providers (e.g. progressive farmer leaders) to complement government
extension services. These providers can also serve as the base for development and deployment of
skilled laborers. Program also needs to facilitate the development of delivery and financial viability
schemes (embedded, etc.) to ensure that services are accessible and affordable to the farmers. To
gain field experience in aligning local practices to GAP/sustainable farming practices, providers
together with their pool of laborers for hire should be supported to set-up model farms which will
also be the venue of training in the communities. Extension services should also include behaviour
change interventions.
46

4. Facilitate the accessibility of certification systems, including appropriate mechanisms for
incorporating smallholder involvement in certification
Large brands and retailers such as Walmart, Marks & Spencer, Unilever, Nestle, and many others,
have made commitments to source only Certified Sustainable Palm Oil by 2020. Unless smallholders
are supported in their efforts to meet the sustainability principles and criteria and in achieving
certification, they could be excluded from markets. The ARMM oil palm industry would also require
support in establishing a traceability system , which is central to establishing a sustainable palm oil
industry.
One way to enhance the developmental relevance of global standards is to develop more localized
monitoring and certification practices. Likewise, group certification through producer organizations
can be much cheaper and thus provide opportunities to avoid exclusion of smaller and financially
weaker farmers. The contract growing arrangement can also provide the platform for certification
where the mills will be made responsible for quality control and implicit certification of their farmer-
suppliers. This, however, implies that farmers have to adhere to their contractual commitments.
Likewise, it may be necessary for the program to provide support to oil mills to achieve certification
not only for themselves but for their supply chains.
5. Upgrading of farm to market roads
This will involve upgrading and/or construction of farm-to-market roads. Good roads are crucial for
prompt delivery of FFB and for reduced transaction costs.
Marketing
6. Promotion of private investment in oil palm plantation and processing and the corresponding
establishment of oil palm agribusiness zones
Another way that production of palm in Maguindanao can be scaled up to take advantage of
growing market demand is through area expansion and corresponding promotion of private
investment in oil palm plantation and processing. To ensure that oil palm development does not
encroach into food security objectives, it is proposed that expansion should focus on areas that are
currently unproductive, idle, and with low conservation value. A key element for doing so is through
better planning and governance of land use, which entails, among other things, more appropriate
demarcation of suitable expansion areas which could also facilitate the formation of palm oil
clusters or agribusiness zones. Parallel to this, the program may want to explore the feasibility of
village level processing mills. Corollary to the formation of palm oil clusters is the need to strengthen
existing oil palm associations and cooperatives.
To ensure the gainful participation of resource poor farmers in oil palm cultivation, the program
may want to consider the implementation of a voucher program for planting materials and inputs.
47

48

Table 19.- Priority Constraints/Opportunities and Interventions
Constraints/Opportunities Intervention Strategy and Approach Who Can Do It?
Public Private
Input Provision
Lack of access to and availability of supply of Development of local capacity to commercially DA/PRDP Oil mills/Agumil
local planting materials other than those produce and distribute planting materials at a
imported from Papua New Guinea, Costa Rica price level at par with other oil palm producing PCA Cooperatives
and lately Thailand. countries
LGU
Lack of know-how to set-up an effective
- Cost contribution to set-up nurseries in key oil
system for nursery operations DTI
palm production clusters either as micro
franchisees of Agumil or stand-alone
Opportunities DoF
enterprises
Agumil, which operates a mill in
- Capacity building support in the development
Maguindanao, has the largest nursery and is
of business models appropriate to purchasing
said to have the best quality planting
abilities of farmer clients and its
materials.
operationalization
Maguindanao can learn from the experiences
- Dissemination of success stories and business
of Thailand and from Univanich on how to
models to attract private sector investment
make seeds/planting materials more
affordable.
- Work with MFIs/banks in the development of
financial product for interested investors in
PCA may soon develop initiatives and
nursery operations
programs that would help in responding to
- Implementation of voucher program or similar
the problem on the high cost of planting
tool or mechanism to stimulate first time
materials.
purchase and lower risk aversion
- Support the development of locally adopted,

high yielding F1 hybrids
49
Public Private
- Explore ways to allow the importation of large
quantities of F1 seeds by LGUs and small
nursery operators under the assistance of BPI
for quarantine regulations, DOF and DTI for tax
exemption.
High cost of chemical inputs both to farmers Development of local production and DA Oil mills
and environment commercialization of organic fertilizer including
facilitating access to extension services on proper LGU Cooperatives
Limited availability and commercial fertilizer management and application
distribution of organic fertilizer and inputs MFIs/Banks
specific for oil palm - Technical and financial assistance to existing
and potential organic fertilizer producers to: a)
Opportunities develop inputs using oil palm and other agri-
waste appropriate for oil palm smallholders;
Technology for production of organic and b) scale up and align operations to
fertilizer using palm oil waste is available. sustainable production practices
Use of organic fertilizer and Mucuna - Develop capacity of fertilizer producers to

bracteata for covercrop in oil palm provide technical advice to clients
plantations can reduce the use of inorganic
fertilizer by about 50%. - Documentation and dissemination of emerging
good practices
- Foster linkages with financial services providers

Farming
Lack of know-how and adoption of Development of local capacity to provide services DA/PRDP Cooperative
sustainable production and land use that will enable farmers to adopt sustainable
50

Public Private
production practices PCA Oil Mills
Opportunities
- Set-up of community-based providers on
There are existing guidelines from RSPO on sustainable farming practices
- Development of delivery and financial viability
Achievement of sustainable certification can schemes anchored on outgrowers scheme and
boost competitiveness of Maguindanao in the traditional learning structures and other
oil palm market and reduce risks of market informal mechanisms
exclusion in the near future
- Build capacity of government extension officers
Extension of technical assistance by to provide training and mentoring on
agricultural extension workers may soon be a sustainable farming
regular program of PCA. Facilitate the accessibility of certification systems, DA/PRDP Oil Mills
including appropriate mechanisms for
incorporating smallholder involvement in PCA
certification
LGU
- Technical assistance in the development and
pilot implementation of sustainable production
system including traceability
- Technical and financial support to enable oil

mills to comply with the sustainable
production system
- Set-up of demo farm to showcase sustainable

farming practices and its benefits
51

Public Private
- Technical support to local government units in

strengthening policy and regulatory
environment for sustainable palm oil
production and land use
Poor farm to market roads Upgrading of farm to market roads DA/PRDP
Opportunity - Cost contribution to road construction/ LGU

upgrading
LGU is willing to co-share in the construction
and/or improvement of road conditions
Marketing
Limited number of lead firms currently Promotion of private investment in oil palm DA/PRDP
operating in Maguindanao plantation and processing and the corresponding
establishment of oil palm agribusiness zones PCA
Low supply base/ Conflict with regards to
land use - Promotional campaign to attract more LGU
investors
Opportunities
- Development of oil palm zones in consultation
There are interested investors willing to set- with communities and its dissemination
up oil mills in ARMM
- Dissemination of opportunities to farmers
Policy framework on oil palm promotion can including voucher scheme for planting
provide the basis for the crafting of zoning materials and inputs
policy for oil palm plantation
52

Section 9:
CONCLUSIONS AND RECOMMENDATIONS
improving economic stability in Maguindanao. As soon as the oil palm starts bearing fruits, it
provides the farmer a regular monthly income higher than other crops. This connotes that an
efficient and strong palm oil sector in Maguindanao will enable the poor to be part of the solution to
poverty challenge through provision of gainful employment and a means of livelihood.
It must, however, also be recognized that while there is a strong economic rationale for the
strengthening of the oil palm subsector in Maguindanao, there is also a pressing need to move
towards sustainable oil palm production that does not lead to social and environmental impacts such
the destruction of forests, biodiversity loss, greenhouse gas emissions, and community issues. The
palm oil itself is not the problem but rather the practices and technology employed to produce the
oil. Palm oil can be a catalyst for development if sustainable practices are adopted. It can also
enhance biodiversity when planted on degraded lands. Likewise, the shift to sustainable production
is fast becoming an imperative rather than just a choice given that the large buyers of palm oil such
as Unilever and Cargill will only be sourcing from certified sustainable suppliers by 2015.
53

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PHILIPPINE RURAL

VALUE CHAIN ANALYSIS AND

MB/II: April 2014 Version

List of Tables Page

MB/II: April 2014 Version

MB/II: April 2014 Version

MB/II: April 2014 Version

MB/II: April 2014 Version

Table 1.- Summary of Constraints/Opportunities and Interventions

Opportunities - Capacity building support in the development of

MB/II: April 2014 Version

- Foster linkages with financial services provide

Extension of technical assistance by - Build capacity of government extension officers to

- Technical assistance in the development and pilot

MB/II: April 2014 Version

- Set-up of demo farm to showcase sustainable

Opportunity - Cost contribution to road construction/ upgrading

LGU is willing to co-share in the

There are interested investors willing to - Dissemination of opportunities to farmers

MB/II: April 2014 Version

A. BACKGROUND INFORMATION AND OBJECTIVES1

At least, 5% increase in annual real household incomes of farmer beneficiaries; 30%

MB/II: April 2014 Version

B. OBJECTIVES OF THE VALUE CHAIN ANALYSIS

c) Under a participatory process, identify and prioritize interventions needed to overcome

C. METHODOLOGY AND APPROACH

MB/II: April 2014 Version

Interview with Agumil Manager

MB/II: April 2014 Version

Food (frying oil, margarine,

Particle board, pulp,

Pulp, paper, particle

Furniture, particle board,

Figure 1. Oil Palm and its Uses/By-Products

MB/II: April 2014 Version

MB/II: April 2014 Version

MB/II: April 2014 Version

MB/II: April 2014 Version

Table 2.- Area Planted to Oil Palm (in hectares)

MB/II: April 2014 Version

Philippines 465,995.10 516,114.74 565,459.48 540,913.49 531,294.07 14%

Table 5.- Number of Productive Oil Palm

Philippines 5,142,879 5,513,038 5,723,613 6,265,945 5,800,845 13%

Table 6.- FFB Yield per Hectare (in MT)

Philippines 12.07 12.45 12.55 10.97 10.02 -17%

MB/II: April 2014 Version

Table 7.- Area Planted to Oil Palm

Philippines 38,599.00 41,444.00 45,044.00 49,327.75 53,014.75 37%

Table 8.- Breakdown of Area Planted to Oil Palm by District

Table 9.- Potential Land Areas in Mindanao for Oil Palm

MB/II: April 2014 Version

A. VALUE CHAIN MAPPING

MB/II: April 2014 Version

B. KEY PLAYERS AND FUNCTIONS

MB/II: April 2014 Version

Table 10.- Accredited Nurseries in Central Mindanao

MB/II: April 2014 Version

2. Oil Palm Farmers

Table 11.- Breakdown of Farmers by District

MB/II: April 2014 Version

MB/II: April 2014 Version

- Inadequate care of immature plants including the planting of F2 seeds

MB/II: April 2014 Version