2013 AGRICULTURE STORY OF THE YEAR
"What's behind the fuss over CP foods?"
Fermin C. Diaz
When local swine and poultry raisers groups learned recently that the Board of Investments (BOI) had granted tax and fiscal incentives to a Thai agribusiness company, they immediately voiced their grievances and mounted a campaign to pressure the board to rescind its decision.
Their opposition to the BOI action was intense and unprecedented. After convincing legislators to conduct a congressional inquiry into the matter, they sued the investment promotion board before the Supreme Court. In a case filed last March 7, they have asked the high tribunal to nullify and temporary restrain BOI’s granting of tax perks to Charoen Pokphand Foods Philippines Corp. (CPF Philippines), calling the move “unlawful, whimsical and capricious.”
The petitioners include the National Federation of Hog Farmers Inc., the Pork Producers Federation of the Philippines Inc., the Association of Philippine Aqua Feed Millers, the Soro-Soro Ibaba Development Cooperative, and the Abono, Agham, and AGAP party-list groups.
Since the Thai company is globally known to be an efficient feed and food producer and distributor - a stature domestic players haven’t yet achieve - they fear the presence of the foreign firm in the local market which has been granted incentives will seriously threaten the livelihood of millions of workers in the farm sector.
The hysteria over the tax perks has gone a bit farther. Even Agriculture Secretary Proceso Alcala, whose department is mandated to uplift the productivity of farmers and fisher folk and ensure food is available and affordable to the nation’s 100 million inhabitants, was startled.
“I myself do not agree with the decision of the BOI. I am afraid it could eventually kill our domestic livestock industry,” Alcala declared during a recent TV interview.
Amid all the fiery rhetoric unleashed by local farmers groups and their political backers, this writer interviewed key informants from government, academe, feed, livestock and meat industries, and dug up relevant data in an attempt to shed light on the issues raised and to present underlying factors behind the controversy.
Noise over CP but no howl over New Hope
To begin with, it was not only CP Foods that was given BOI tax and fiscal privileges. Months before the uproar, another huge offshore company, the New Hope Group,
obtained similar perks when it registered its three feed milling projects north of Manila worth close to P400 million, official records show.
The New Hope Group is China’s biggest agribusiness operator. With annual feed production capacity of 26.6 million metric tons (MT), or more than four times the Philippines’ estimated total feed output of 6.25 million MT, the Chinese conglomerate is regarded as the world’s leading animal feed manufacturer today.
For administrative efficiency, it formed three locally-registered business units to run the mills. They are identified as New Hope Central Luzon Agriculture Inc., New Hope Tarlac Agriculture Inc., and New Hope Bulacan Agriculture Inc. which handle plants in San Simon (Pampanga), Gerona (Tarlac), and Pulilan (Bulacan), respectively.
Altogether, the mills can produce 227,448 MT of animal feeds yearly. New Hope also has the option to go into large-scale poultry and hog production in the Philippines like what it is already doing in China, data obtained by LaMB Magazine show.
Given that local agribusiness groups are raising a big howl over CPF Philippines’ tax perks, one wonders why are they not also grumbling over the fiscal incentives given to New Hope.
Uneasy ties between gov’t and hog industry
What is becoming apparent is that the raging BOI tax perks controversy epitomizes decades of difficult, and sometimes volatile, relationship between certain swine representatives with vested interests and a bureaucracy widely perceived as not doing enough to address mounting concerns of the industry in the face of stiffer challenges brought by globalization and free trade.
“Some players feel they are being pushed to the wall not only because CP has already landed in their own turf but more importantly, because they believe government will not be of great help to them,” a Manila-based feed raw material supplier said.
“So, instead of taking a healthy attitude by figuring out what business and trade opportunities and new technologies would the new player offer and what can be learned from it, local groups want to shoo CP away using available state apparatus,” the businessman, who volunteered to speak candidly on condition of anonymity, explained.
“It is no wonder they are even invoking protectionism under the guise of achieving ‘fair competition’ to sway government’s sentiments towards their side,” he added.
This is not the first time livestock groups have demonstrated a combative stance towards authorities when they see that things get awry. In early 2012, they have threatened the government with carrying out a ‘pork holiday’ when ex-farm hog prices
dropped for weeks due to alleged government inaction in curbing smuggling and for allowing unhampered entry of imported meats.
They also demanded that heads of the Bureau of Animal Industry and the National Meat Inspection Commission should roll, blaming them for their economic woes. Malacanang gave in to their wishes. In the days that followed, the Palace announced it was replacing Bureau of Animal (BAI) director Efren Nuestro and National Meat Inspection Service (NMIS) executive director Jane Bacayo.
The groups also pushed for the Bureau of Customs to adjust the reference prices of imported pork and poultry products, claiming previous quotes no longer reflect market realities. They prevailed on this one, too. As a result, the landed cost of the two commodities went up, effectively making domestic pork and chicken prices more competitive than imports.
Handling favor seekers
As the groups, notably swine raisers, gained political influence over the years, their leaders have increasingly become more insistent in seeking concessions from DA to advance their interests. One towering industry representative was appointed member of the board of Quedancor during the term of Agriculture Secretary Arthur Yap. He enjoyed the perks that went with his post until the state firm was rocked by a multi-billion peso swine financing scandal.
Another hog leader was able to obtain financial assistance from the DA-administered Agricultural Competitiveness Enhancement Fund (ACEF) for a meat processing project of his Batangas-based cooperative. Gaining stature for successfully negotiating the soft-term loan and for projecting himself as a tireless anti-smuggling crusader, he earned a seat in Congress as AGAP Party-List representative.
In what many say as bordering on arrogance, some industry players have also been reported to be seeking or following up certain favors from livestock agency officials even way beyond office hours. DA sources said they nag bureaucrats late in the night, treating them like ‘24/7’ household servants.
“Some people in the swine sector are demanding. At times, they can be rude and irksome you really need a lot of patience dealing with them,” said Davinio Catbagan, DA Assistant Secretary for Livestock.
“Marihap kausapin ang iba sa hog industry,” remarked Bacayo in a separate interview months before leaving his NMIS post. “Sakit sa ulo. (It’s difficult dealing with some guys from the hog industry. They give you headache.)”
Still, as industry representatives continue to create a stir over the BOI tax perks even after bringing their case before the Supreme Court, it remains to be seen whether DA will extend an all-out support to their cause.
“As for Alcala, his reaction to the farmers’ gripes over CP was more that of a typical politician trying to appease noisy constituents,” a private veterinarian operating in Quezon City commented. “What the Secretary should have done was to act like a true, well-informed government executive able to present meaningful solutions and strategies the livestock industry needs to cope with recurring and emerging challenges,” he suggested.
For sure, the incumbent DA chief maintains a coterie of livestock bureaucrats, consultants and advisers assisting him in setting policy directions and implementing development programs for the grains-feeds-livestock-meat supply chain.
Sadly, past and present administrations have simplistically equated good governance of agriculture with being able to succeed in bringing rice production to self-sufficiency and export levels, prejudicing other equally important commodities like livestock and poultry along the way.
Such official obsession with rice and negligible attention to livestock can be gleaned by the huge budgetary allocation always given by the government to the crop while giving less for chicken and hog. This had been the case even as the combined production value of the two subsectors had already surpassed that of palay for over 10 years now.
For 2012 alone, state funds allotted to rice excluding billions for irrigation which is largely for rice, reached a whopping P6.18 billion. Livestock, on the other hand, received P2.42 billion for the same period, Department of Budget and Management records show.
In spite of the lower budget, hog and chicken alone generated a combined production value worth P396.2 billion last year while palay output’s value was much lower by over P100 billion, at P292 billion, according to the Bureau of Agricultural Statistics.
Unlike palay wherein state and local authorities intervene heavily in the way it is irrigated, produced, harvested, and marketed, hog and broilers are largely financed and managed by a category of players from the private sectorfrom small backyard raisers to mid-size producers to large commercial operators and integrators.
Since some DA bureaucrats have developed a faulty notion that the livestock industrybeing private-driven, can thrive well even with minimal government support and
supervisionthey have come to treat the sector with indifference and with lesser importance, observers said.
Deliberately or not, they have allowed industry players to operate on their own lookout and at their own risk, but offering little to help them cope with various challenges that come their way, observers added.
“Behind local feed and food producers’ anxiety over the BOI tax perks given to CP is actually an unspoken yearning for them to get the right form of government assistance that will help them adapt to changing realities, improve on their efficiency and increase their productivity,” an agri-equipment and agrihousing supplier from Mandaluyong explained.
“Sadly, what they see so far is a bureaucracy so detached from reality and which lacks the passion and innovation needed to move the livestock sector to greater heights.”
To illustrate, industry players have pointed out instances whereby they claim past and current officials have incurred serious lapses, notably in dealing with animal health issues, pork export drive, and efforts to build “AAA” slaughterhouses.
Little help to combat PRRS
While DA officials often boast the country is free from foot-and-mouth disease (FMD) and avian influenza (AI), several hog farms continue to languish from emerging and recurring diseases like Porcine Reproductive and Respiratory Syndrome (PRRS). Yet government has not done enough to address the problem.
As the PRRS virus sometimes spread alongside with other diseases like hog cholera and Porcine Circo Virus Type2 or PCV2, farms hit by PRRS suffer up to 90 percent mortality and piglets face greater chances of death than adults.
The economically debilitating disease had been blamed to cause heavy mortalities and a sharp hog production decline in large parts of the country from 2006 to late 2008. At the time, swine practitioners had reported losses reaching from P5 billion to P7 billion, with deaths affecting both backyard and large commercial farms.
BAI lab tests conducted during a 16-month period ending October 2008 showed that PRRS had been present and seriously threatening hog farms in Cordillera, Ilocos, Central Luzon, Calabarzon, Metro Manila, Bicol, Central Visayas and Zamboanga del Sur in Mindanao.
Despite the magnitude and intensity of the problem, BAI bought only about P16 million worth of injectable vaccines to combat the virus, citing budgetary constraints. It was an
amount not even enough to meet the required doses of one major pig growing province like Bulacan, swine practitioners recalled.
Still, the government carried out vaccination in only two areas close to Manila – Bulacan and Pampanga. This compelled thousands of hog farmers in other affected provinces beyond the reach of BAI to buy their own vaccines and fend for themselves to cope with the disease challenge.
“It’s nice to hear of government doing something on PRRS and other diseases,” a swine practitioner working for a mid-sized farm in Pampanga, commented. “But if you go down the field, the help is really just lip service because only a very few small raisers in a limited area get the token benefit while medium-sized and large commercial farms are excluded,” he added.
Short-changed in Pandi
Another issue that battered the swine industry in recent years and raised questions about government’s competence in handling large-scale crisis was the depopulation of roughly 6,500 hogs at a commercial farm in Barangay Sto. Nino, Pandi, Bulacan in March 2009.
The slaughtering, burning and burying of the animals came in the aftermath of a sudden announcement made by authorities four months earlier that a non-fatal ebola reston virus (ERV) was discovered in certain pig farms in Bulacan, Nueva Ecija and Pangasinan.
Under the watchful eyes of representatives from FAO, WHO, OIE, animal welfare groups and closely monitored by media, government teams from DA and local health and agriculture units in Bulacan were mobilized to conduct a week-long animal destruction process. They used policemen’s service pistols to kill the pigs after five captive bolts used in stunning them malfunctioned.
Prior to the mass slaughter, agriculture officials assured the owners of Win Farm, whose herd was believed to be harboring much of the virus, to be compensated for the loss of their animals. But instead of paying them at fair market value and considering the mental anguish, emotional stress and stigma they had gone through for being accused by the local community as “culprit” and “disease carrier,” DA bargained for a 25% to 50% price discount per head.
Under such scheme, the government was supposed to pay the farm owners between ₱6.28 million to P15.625 million as indemnity. But the amount has not yet been fully settled and the poor hog raisers received far less than agreed upon, a source said.
“Three years after the depopulation, the owners have not yet collected nearly half a million (pesos) representing unpaid balance of the indemnity owed by government,” the source added.
Sought for comment, Catbagan, who was the BAI director during the 2009 ebola crisis, politely declined to answer queries regarding the matter.
Today, a new set of operators is running the once ill-fated pig farm. One of the original owners left for abroad, the source added.
Default from pork export bid to Singapore
The announcement about the ebola in Luzon dealt a heavy blow to hog raisers in South Cotabato as well. Sometime in December 2008, just when they were supposed to send their inaugural pork export shipment to Singapore, DA officials stalled their move, effectively aborting the meat deal ever since.
The cargo, consisting of 50,000 kg of various frozen pork choice cuts worth over P17.5 million, was already loaded inside two 40-ft container vans in the second week of December 2008. It was placed aboard a vessel that was set to leave the Gen. Santos port after it was issued pre-shipment clearance from Singaporean authorities.
It would have been the start of a lucrative meat trade deal with Singapore and the reward of two years of hard work among meat regulators, a local operator of an ‘AAA”
abattoir and a consortium of Mindanao-based hog producers eager to expand their market by going overseas, industry players said.
“But the local veterinary quarantine officer, acting on orders from BAI officials in Manila, refused to sign and release the export permit documents, thus putting our shipment on hold for several days,” South Cotabato Swine Producers Association (Socospa) chair Emilio Escobillo, told this writer in a recent phone interview.
As the vessel’s departure was delayed, owners of the cargo, mostly members of Socospa, had to pay over P20 million in demurrage and cold storage fees, resulting in losses, Escobillo claimed.
The hog growers were prompted to sell their meat at supermarkets in Davao and Koronadal and elsewhere at rates much lower than what they would have earned from the Singapore deal, he added.
In the aftermath of the ebola fiasco, Singapore had since imposed stricter export requirements before it allows local pork to enter its market. One of the requirements BAI offered to comply with but failed to do, was for it to show lab test results indicating that pork from Mindanao did not carry the ebola virus. To comply with this, the bureau vowed to order 5,000 ebola test kits from the United States and the same to be used in getting blood samples from pigs in Mindanao to check if they were positive of ERV.
As it turned out, the test kits supposed to come from the US did not arrive, thus BAI could not conduct the ebola test and therefore cannot show proof that pigs from Mindanao were ebola-free.
Meat and livestock officials claimed that complying with the other export requirements had become equally exhausting and burdensome. This prompted them to lose heart and to drop the pork export bid to Singapore altogether, leaving local hog producers hanging.
Escobillo said his group have met with agriculture officials several times in the past prodding them to pursue the export bid more vigorously by simply issuing a certificate indicating their pork products were free from ebola virus (which actually have remained so). He said such document would be enough for Singapore, claiming that the suggested measure came no less from Singaporean veterinary authorities.
Sadly, their pleas landed on deaf ears. Thus the country’s first viable attempt to export pork has failed, not because of the industry’s inaction but by government default.
“We have done our best to explore new markets for our pork and Singapore would have been, and still is, a bright and promising prospect. But DA was not helpful enough to realize our dream,” Escobillo, obviously frustrated, told LaMB Magazine.
Budget for “AAA” abattoirs diverted
But perhaps one of DA’s most disturbing signs of insincerity towards hog and meat industry players was the agency’s failure to put up, as promised, two Triple A abattoirs north and south of Manila last year. This in spite of repeated pronouncements made by Alcala himself that his department had the money to build the facilities.
Budgeted at P180 million (an amount no one from the department could explain how it was arrived at), the two meat establishments would have played a vital role in boosting chances of local hog raisers to export pork to its Asian neighbors ahead of the ASEAN economic integration in 2015. Putting up these facilities is also considered top priority given that the Philippines critically lacks “AAA” accredited slaughterhouses required for the export trade.
Properly managed, they could even churn out manufacturing grade pork cuts for local meat processors, thus reducing the country’s heavy reliance on imported pig meat products and providing solution to hog farmers’ perennial complaints regarding meat smuggling, industry sources said.
As the money to build the two facilities were placed under the care of NMIS, livestock officials were mobilized to look for suitable local government units (LGUs) and private agribusiness entities with whom DA can collaborate in building and operating the structures.
Sources said the group of Edwin Chen, president of Pork Producers Federation of the Philippines Inc. and managing director of Bounty Fresh Foods Inc., offered to partner with government in operating one of the facilities under terms yet to be agreed upon by all parties.
Another private sector participant who reportedly expressed interest in running one of the units was the San Pablo, Laguna-based 3J Foods Corporation owned by the Agoncillo family.
But for undisclosed reasons, Alcala and livestock officials put the project on hold for weeks until the DA chief was reminded by his subordinates that the unspent “Triple A” funds with NMIS had to be released before end 2012 otherwise it would be reverted to the National Treasury.
In the last quarter of 2012, the secretary decided to divert a large chunk of the funds for a different purpose. He opted to grant a total of P130 million to 13 LGUs for their use to put up “AA” slaughterhouses in their respective areas, to the dismay of swine industry players.
“We were willing to build and operate the ‘Triple A’ abattoir Alcala was talking about. Our group was even invited to help draft a road map for the swine sector. Now, we see that DA is not really sincere in its commitment to help the hog industry in its export drive,” Chen, visibly disappointed, told this writer on learning that the project was scrapped.
DA officials said while it was “unfortunate” the project implementation of the two slaughterhouses “had to be deferred,” they indicated a promise, which some consider a vague one, by saying they have “included the budget for the project in the department’s 2014 budgetary proposal.”
In an emailed letter sent to LaMB Magazine, Alcala’s chief aide, Emerson Palad, also said the project originally was supposed to be undertaken in two phases. But he claimed the first onewhere the Livestock Development Council (LBC) was supposed to identify the recipients and location for the projectdid not turn out well due to various reasons.
“At the onset, the availability of a sizeable property proximal to Metro Manila became a problem to proponents due to increasing value of land,” Palad said. “Secondly, the interest of the key players to participate was not evident in their actions,” he added.
With the original “Triple A” money realigned to build “AA” abattoirs, the LGUs that benefitted from the fund diversion include Tuao in Cagayan, Agoncillo in Batangas, Bansud in Oriental Mindoro, Odiongan in Romblon, Sta Cruz in Marinduque, Pres. Roxas City in Capiz, San Joaquin in Iloilo, and Mati and Tagum in Davao. Also included are the municipalities of Lucban, Real, Tagkawayan and Tiaongall in Quezon.
Critics say the criteria by which Alcala used in deciding to grant P10 million to each of the 13 beneficiary LGUs raises questions considering that it runs inconsistent with existing rules. They cite, in particular, a memorandum circular pertaining to guidelines on LGUs’ meat establishment improvement program jointly crafted and approved by the DA, Department of Interior and Local Governments and the Department of Budget and Management which Alcala apparently ignored.
For one, they point out that the money to construct the “AA” abattoirs had been released by DA without requiring the beneficiaries to provide their own counterpart fund, thus disregarding the joint DA-DILG-DBM circular which clearly stipulates that LGUs should provide counterpart funds for such projects.
They also claim politics, more than anything else, motivated Alcala to choose which among LGUs shall be granted the doleout. Of the 13 slaughterhouses to be constructed by the grant, they noted that four will be erected in QuezonAlcala’s home
province and where his family has lots of political stake to protect. Quezon is where his son Irwin who is up against incumbent governor David Suarez in the May 2013 elections. Alcala’s camp denies such allegation.
“The choice on which LGUs should be granted assistance for the construction of their slaughterhouses was mainly on the requests received from various local chief executives or by way of Sangguniang Bayan resolutions,” Palad, with the rank of undersecretary, said in his email. “This show of interest is vital in the selection process as it is the LGU which will eventually operate and maintain the facility. If they ask for it, the DA takes it as a positive proof that the LGU is willing to take on the responsibility for its upkeep,” he added.
In light of past and current developments, much has yet to be done in fostering and advancing public-private sector cooperation in the animal industry. A greater level of openness and transparency is also needed from both government and industry in formulating and implementing key projects and programs to move the sector forward.
What is evident is there is a disconnect between the bureaucracy and key industry players in the way they view and handle issues of profound significance and impact to the feed- to-food supply chain. The big fuss over CP Foods merely reflects this disconnect.
Unless the two sides collaborate and genuinely cooperate with each other and come to terms in a real, meaningful way, the domestic poultry and hog industries will continue to lag behind and remain uncompetitive. This translates to lower productivity, inefficiency and higher cost of meat products, making them less affordable to consumers, thus becoming a food security concern for the entire country.
Meanwhile, with ASEAN economic integration just looming around the corner and where trade barriers are now significantly dismantled, all foreign agribusiness players have to do is come over to the Philippines and put up shop and grab opportunities as they arise.
They would smartly understand that there really is more fun in the Philippines.